<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 {FEE REQUIRED}
/X/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 {NO FEE REQUIRED}
FOR THE TRANSITION PERIOD FROM JULY 1, 1998 TO DECEMBER 31, 1998
COMMISSION FILE NUMBER 0-13849
RAMSAY YOUTH SERVICES, INC.
(FORMERLY KNOWN AS RAMSAY HEALTH CARE, INC.)
(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
COLUMBUS CENTER
ONE ALHAMBRA PLAZA, SUITE 750
CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K./ /
The number of shares of the registrant's Common Stock outstanding as of
March 15, 1999 was 9,082,260 (after giving effect to the one-for-three reverse
stock split which became effective on March 15, 1999). The aggregate market
value of Common Stock held by non-affiliates on such date was $22,250,229.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE> 2
FORWARD-LOOKING STATEMENTS
In connection with the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Ramsay Youth Services, Inc. ("RYS" or
the "Company") notes that this report contains forward-looking statements about
the Company. The Company is hereby setting forth cautionary statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements or
information made by or on behalf of or concerning the Company. Some of the most
significant factors include (i) accelerating changes occurring in the at-risk
youth industry, including competition from consolidating and integrated provider
systems and limitations on reimbursement rates, (ii) federal and state
governmental budgetary constraints which could have the effect of limiting the
amount of funds available to support governmental programs, (iii) statutory,
regulatory and administrative changes or interpretations of existing statutory
and regulatory provisions affecting the conduct of the Company's business and
affecting current and prior reimbursement for the Company's services and (iv)
the Company's inability to successfully implement its new strategic direction of
providing treatment and education programs for at-risk and troubled youth. There
can be no assurance that any anticipated future results will be achieved. As a
result of the factors identified above and other factors, the Company's actual
results or financial or other condition could vary significantly from the
performance or financial or other condition set forth in any forward-looking
statements or information.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company is a leading provider and manager of education and
treatment services for at-risk and troubled youth in a variety of settings
nationwide. The Company offers continuum of education, treatment and after care
programs and services through schools, residential facilities and service
contracts located in Alabama, Florida, Missouri, Michigan, North Carolina,
Nevada, South Carolina, Utah and the Commonwealth of Puerto Rico.
OVERVIEW
During the year ended June 30, 1998, the Company announced a
change in strategic direction in order to focus on becoming a leader in the
at-risk youth industry.
In connection with its revised strategic initiative, during
the year ended June 30, 1998 and the six months ended December 31, 1998, the
Company sold certain of its psychiatric inpatient facilities, its managed care
operations and other non-youth service business (see "Recent Developments").
The Company offers the following programs and services which
have been developed through a system based on prevention, treatment and
aftercare:
* EDUCATIONAL SERVICES - The Company's education programs provide specialized
educational services which are designed to modify disruptive behavior while
assisting students to develop the academic and social skills necessary for
them to participate successfully in society. The Company offers its
educational programs at its residential treatment facilities and through
the operation and/or management of charter and contract schools.
* RESIDENTIAL TREATMENT FACILITIES - Residential Treatment Facilities provide
a safe, secure and highly structured environment for the evaluation and
development of programs for troubled youths. Residential Services include:
1
<PAGE> 3
- Residential Treatment Programs which focus on a cognitive behavioral
model with family, group and individual counseling, social and life
skills, and educational and recreational programs. The provision of
treatment for youth takes place in secure and non-secure settings with
the primary focus of reshaping antisocial behaviors by implementing
programs that stress responsibility and achievement of performance
goals.
- Intensive Treatment Units which provide crisis stabilization for
severely behaviorally and emotionally disturbed youth or specialized
treatment for specific behavioral problems.
- Assignment Centers which conduct in-depth academic, mental health,
behavioral and medical assessments with the primary purpose of
recommending placement of adjudicated juveniles in the proper
residential facility within the restrictiveness level ordered by the
court.
- Day Treatment Programs which are designed to meet the special needs of
troubled youth and their families, while enabling the youth to remain
living in his or her home.
* GROUP HOMES/TRANSITIONAL CARE - Group homes provide shelter care for youth
in a family-like setting in residential neighborhoods. These adolescents
typically are in need of a step-down or transition phase back to their home
environment. The primary focus is to teach independent living skills to
decrease institutional dependency. This program model provides a
residential environment which offers youth opportunities for personal
growth, social development and responsible behavior in a less restrictive
environment. Youth in group homes attend public education programs, or
receive in-home education and vocational and work training programs in
order to structure their gradual transition back into their communities.
* AFTER CARE SERVICES - After care services begin with an assessment of the
needs of each youth. The Company provides after care services through day
treatment programs and case management with intensive supervision and
follow-up. The key component of the after care services provided is an
individualized transition plan that targets the at-risk factors of each
individual youth and involves the youths' families or guardians in their
reintegration process.
The primary objective of the Company's programs is to provide
the optimal opportunity for habilitation and integration of at-risk and troubled
youth into their communities as responsible individuals and productive citizens.
On January 13, 1999, the Company's Board of Directors approved
a one-for-three reverse stock split of the Company's Common Stock which became
effective on March 15, 1999. As a result, all references herein to common share,
per share amounts and stock options and warrant data have been restated to give
retroactive recognition to such reverse stock split.
RECENT DEVELOPMENTS
On September 28, 1998, the Company consummated a
sale/leaseback transaction whereby the Company sold the land, building and fixed
equipment of its Havenwyck facility in Auburn Hills, Michigan for the land,
building and fixed equipment of its leased Desert Vista facility in Mesa,
Arizona and $1.3 million in cash. In connection with the sale/leaseback, the
Company agreed to lease the Havenwyck facility back over a term of approximately
12 years with current annual minimum lease payments of $1.3 million, payable
monthly.
On September 28, 1998, the Company completed the sale of its
management contract services subsidiary, and behavioral health care facilities
in Conway, South Carolina, Houma, Louisiana, Mesa, Arizona and DeSoto, Texas for
a cash purchase price of $13.5 million, subject to certain future potential
purchase price adjustments. SeeNote 2 to the Consolidated Financial Statements.
2
<PAGE> 4
On September 30, 1998, the Company completed the sale of its
behavioral health care facility in Morgantown, West Virginia for a cash purchase
price of $14.8 million, subject to certain future potential purchase price
adjustments. See Note 2 to the Consolidated Financial Statements.
On October 30, 1998, the Company refinanced its existing
credit facilities with proceeds from a credit facility from a financial
institution consisting of a term loan of $8.0 million, a revolving credit
facility of up to $8.0 million and a $6.0 million acquisition facility.
On October 30, 1998, the Company completed the private
placement of an aggregate of 1,037,037 shares of Common Stock to its Chief
Executive Officer, a corporate affiliate of Paul J. Ramsay, the Chairman of the
Board of the Company and the principal stockholder of the Company, and other
unrelated persons.
On November 19, 1998, the Company's Board of Directors
approved the change in the Corporation's fiscal year-end from June 30 to
December 31.
On December 8, 1998, the Company acquired all of the issued
and outstanding shares of common stock of The Rader Group, Incorporated, an
education services organization located in Fort Walton Beach, Florida, for an
aggregate purchase price of $1.0 million plus an earn-out in future years
payable to the previous shareholder if certain financial targets are met.
During the six months ended December 31, 1998, the Company
decided to sell its facility located in Palm Bay, Florida.
STRATEGY
The Company's current youth service operations are the
platform from which management intends to pursue growth within its current
geographic markets, as well as new geographic markets, where the Company is or
can be a dominant player in the industry. The Company intends to grow through
(i) expansion of services, markets and products, (ii) aggressive response to
requests for proposals ("RFP's") and (iii) selected strategic acquisitions.
Through these avenues, management intends to capitalize on the youth services
industry's size, fragmentation and multiple payor sources.
* EXPANSION OF SERVICES - Management believes significant opportunities exist
to penetrate the Company's existing geographic markets further. Management
will continue to capitalize on the Company's reputation for delivering high
quality, cost-effective solutions to expand the breadth of service provided
to existing customers and to attract new customers. In addition, the
Company will continue to develop new programs which respond to state and
local agencies' needs to secure appropriate placements for special needs
youth.
* AGGRESSIVE RESPONSE TO RFPs - The Company is well positioned to expand into
new markets as state and local agencies increasingly seek providers with
the capability to deliver a broader continuum of services to at-risk youth.
Further, management believes this trend will intensify as state and local
governments desire to keep spending in their respective home states and
look to develop local services. Typically, the solicitation of providers
for new and broader service offerings is accomplished by state agencies
through RFPs, a process in which the Company actively competes in markets
management has targeted for growth. Management believes the Company's
history of providing high quality, cost-effective services gives it a
significant competitive advantage in responding to RFP's. The Company
prioritizes its target markets based on the needs of each state, the
diversification of funding sources, state and local legislation, existing
relationships and in-state competition.
* SELECTED STRATEGIC ACQUISITIONS - The Company intends to pursue strategic
acquisitions of other youth services providers to penetrate existing
markets further and enter new geographic markets. The youth services
industry is highly fragmented with what the Company estimates to be
approximately 15,000 providers. The Company continually reviews acquisition
opportunities and management believes that a number of acquisition
opportunities currently exist at reasonable valuations. Further, management
3
<PAGE> 5
believes it can enhance the performance of acquired facilities by
selectively implementing the Company's programs to expand services.
Management believes that the Company's current infrastructure is capable of
supporting a number of acquisitions affording the opportunity to spread
certain fixed operational expenses over a broader revenue base.
COMPETITION
The fragmented at-risk youth industry is comprised largely of
small providers that operate in relatively limited geographic areas and provide
services to a specific type of juvenile. The Company competes with both public
and private for-profit and not-for-profit companies.
Competition generally is based upon program quality, range and
price of services provided, operational experience and facility or school
location. The strength and depth of a provider's relationship with the various
payors plays a significant role in the selection process. The Company believes
that its facilities and schools compete favorably on the basis of, among other
things, the range and quality of programs offered and the expertise of its
management team in the development and implementation of new programs.
MARKETING
The Company's marketing activities are directed primarily
toward local and state governmental entities responsible for education, juvenile
justice, social services and mental health, as well as school districts and
juvenile courts responsible for special programs for at-risk and troubled youth.
Marketing efforts are coordinated by the Company's President of Youth Care
Division, President of Education Services Division and other senior management
personnel in concert with field management at the local level.
REGULATION
The at-risk youth industry is subject to federal, state and
local regulations, which are administered by a variety of regulatory
authorities. Operators of residential and day facilities for juveniles are
typically expected to provide education programs and, in some instances, health
care services. As providers of such services, operators of at-risk youth
facilities are required to comply with applicable state and local regulations.
In addition, some programs require accreditation from the Joint Commission on
Accreditation of Healthcare Organizations or Commission on Accreditation of
Rehabilitation Facilities.
The schools managed by the Company are subject to a variety of
state and local regulations and licensing requirements. These regulations and
licensing requirements vary greatly from jurisdiction to jurisdiction.
Generally, the governmental agencies review the safety, fitness and adequacy of
the buildings and equipment, the ratio of staff personnel to enrolled children,
the dietary program, the daily curriculum, compliance with health standards and
qualifications of the Company's personnel. In addition, certain jurisdictions
require financial audits of the schools operated or managed by the Company. In
most jurisdictions, these agencies conduct scheduled and unscheduled inspections
of the schools and licenses must be renewed periodically. Repeated failures by a
school to comply with applicable regulations can subject it to sanctions that
might include probation, suspension, or revocation of the license to operate.
In certain states where the Company intends to manage the
provision of educational services for troubled youth, state and local regulation
exists governing such areas as compensatory arrangements between for-profit
service providers such as the Company and not-for-profit schools and other
educational entities, conflicts of interest and standards governing the quality
of educational services.
As a behavioral healthcare provider, the Company is subject to
extensive and frequently changing government regulations. These regulations are
primarily concerned with licensure, conduct of operations, reimbursement,
financial solvency, standards of medical care, the dispensing of drugs, patient
rights (including the confidentiality of medical records) and the direct
employment of psychiatrists, psychologists, and other licensed professionals.
Regulatory activities affect the Company's business
4
<PAGE> 6
directly by controlling its operations, restricting licensure of the business
entity or by controlling the reimbursement for services provided, and indirectly
by regulating its customers. In certain cases, more than one regulatory agency
may have authority over the activities of the Company. State licensing laws and
other regulations are subject to amendment and to interpretation by regulatory
agencies with broad discretionary powers. Any new regulations or licensing
requirements, or amendments or interpretations of existing regulations or
requirements, could require the Company to modify its operations materially in
order to comply with applicable regulatory requirements and may have a material
adverse effect on the Company's business, financial condition or results of
operations.
Federal law contains a number of provisions designed to ensure
that services rendered by providers of healthcare services to Medicare and
Medicaid patients are medically necessary, meet professionally recognized
standards and are billed properly. These provisions include a requirement that
admissions of Medicare and Medicaid patients to a facility must be reviewed in a
timely manner to determine the medical necessity of the admissions. In addition,
the Peer Review Improvement Act of 1982 ("Peer Review Act") provides that a
facility may be required by the federal government to reimburse the government
for the cost of Medicare-paid services determined by a peer review organization
to have been medically unnecessary. Each of the Company's facilities has
developed and implemented a quality assurance program and implemented procedures
for utilization review and retrospective patient care evaluation to meet its
obligations under the Peer Review Act.
The Social Security Act imposes civil sanctions and criminal
penalties upon persons who make or receive kickbacks, bribes or rebates in
connection with federally-funded healthcare programs. The Social Security Act
also provides for exclusion from the Medicare and Medicaid programs for
violations of the anti-kickback rules. The anti-kickback rules prohibit
providers and others from soliciting, offering, receiving or paying, directly or
indirectly, any remuneration in return for either making a referral for a
federally-funded healthcare service or item or ordering any such covered service
or item. In order to provide guidance with respect to the anti-kickback rules,
the Office of the Inspector General of the U.S. Department of Health and Human
Service has issued regulations outlining certain "safe harbor" practices, which
although potentially capable of including prohibited referrals, would not be
prohibited if all applicable requirements were met. A relationship which fails
to satisfy a safe harbor is not necessarily illegal, but could be scrutinized on
a case-by-case basis. Since the anti-kickback rules have been broadly
interpreted, they could limit the manner in which the Company conducts its
business. The Company believes that it currently complies with the anti-kickback
rules in planning its activities, and believes that its activities, even if not
within a safe harbor, do not violate the anti-kickback rules. However, there can
be no assurance that (i) government enforcement agencies will not assert that
certain of these arrangements are in violation of the illegal remuneration
statute, (ii) the statute will ultimately be interpreted by the courts in a
manner consistent with the Company's practices or (iii) the federal government
or other states in which the Company operates will not enact similar or more
restrictive legislation or restrictions that could, under certain circumstances,
impact the Company's operations.
Under another federal provision, known as the "Stark" law or
"self-referral" prohibition, physicians who have an investment or compensation
relationship with an entity furnishing certain designated health services
(including inpatient and outpatient facility services) may not, subject to
certain exceptions, refer Medicare patients for designated health services to
that entity. Similarly, facilities may not bill Medicare or any other party for
services furnished pursuant to a prohibited referral. Violation of these
provisions may result in disallowance of Medicare claims for the affected
services, as well as the imposition of civil monetary penalties and program
exclusion. In addition, the Stark law prevents states from receiving federal
Medicaid matching payments for designated health services that are provided as a
result of a prohibited referral. Often as a result of this requirement, a number
of states have enacted prohibitions similar to the Stark law covering referrals
of non-Medicare business. The following states in which the Company conducts
business have passed legislation which, under certain circumstances, either may
prohibit the referral of private pay patients to healthcare entities in which
the physician has an ownership or investment interest or with which the
physician has a compensation arrangement or may require the disclosure of such
interest to the patient: Florida, Michigan, Missouri, Nevada, North Carolina,
South Carolina and Utah. All of these rules are very restrictive, prohibit
submission of claims for payment related to prohibited referrals and provide for
the imposition of civil monetary penalties and criminal
5
<PAGE> 7
prosecution. The Company is unable to predict how these laws may be applied in
the future, or whether the federal government or states in which the Company
operates will enact more restrictive legislation or restrictions that could
under certain circumstances impact the Company's operations.
In 1996, Congress enacted the Mental Health Parity Act of 1996
which generally requires that group health plans which provide benefits for
mental health care must treat mental health benefits on a similar basis as
benefits for any other illness for purposes of imposing annual or lifetime
benefit limits. The law provides that, if the plan imposes limits on medical or
surgical benefits on the basis of different categories of benefits, the plan may
do the same with regard to different categories of mental health benefits, in
accordance with regulations to be issued by the United States Department of
Labor. The impact of this legislation on employee health benefits is unknown and
the Company cannot predict the effect of this legislation on its financial
condition or results of operations.
In certain states, the employment of psychiatrists,
psychologists and certain other behavioral healthcare professionals by business
corporations, such as the Company, is a permissible practice. However, other
states have legislation or regulations or have interpreted existing medical
practice licensing laws to restrict business corporations from providing
behavioral healthcare services or from the direct employment of psychiatrists
and, in a few states, psychologists and other behavioral healthcare
professionals. Management believes that the Company is in compliance with these
laws.
State certificate of need or similar statutes generally
provide that prior to the construction or acquisition of new beds or facilities
or the introduction of a new service, a state agency must determine that a need
exists for those beds, facilities or services. In most cases, certificate of
need or similar statutes do not restrict the ability of the Company or its
competitors from offering new or expanded outpatient services. Except for Utah,
all of the states in which the Company operates facilities have adopted
certificate of need or similar statutes.
The Company believes that it is currently in compliance in all
material respects with applicable current statutes and regulations governing its
business. The Company monitors its compliance with applicable statutes and
regulations and works with regulators concerning various compliance issues that
arise from time to time. Notwithstanding the foregoing, the regulatory approach
in the at-risk youth industry is extensive and evolving and there can be no
assurance that a regulatory agency will not take the position, under existing or
future statutes or regulations, or as a result of a change in the manner in
which existing statutes or regulations are or may be interpreted or applied,
that the conduct of all or a portion of the Company's operation within a given
jurisdiction is or will be subject to further licensure and regulation.
Expansion of the Company's businesses to cover additional geographic areas or to
different types of products or customers could also subject it to additional
licensure and regulatory requirements.
SOURCES OF REVENUE
The Company receives payments from various sources, including
commercial insurance carriers (which provide coverage to insured patients on
both an indemnity basis and through various managed care plans), Medicaid,
Medicare and various governmental agencies (including state judicial systems).
In addition, payments are received directly from individuals, including
copayments and deductibles related to services covered by these individuals'
benefit plans. The Company also receives payments form school districts either
directly or through management contracts with other entities.
6
<PAGE> 8
The following table sets forth the approximate percentages of
the Company's revenues for the six months ended December 31, 1998 derived from
these various sources.
Other government programs............................ 34%
Medicare............................................. 28%
Medicaid............................................. 19%
Blue Cross and other commercial insurance............ 14%
Self-pay and other................................... 4%
Contract management customers........................ 1%
----------
100%
==========
* OTHER GOVERNMENT PROGRAMS - The Company's facilities are reimbursed for
certain services on a per-diem basis by various state agencies. The
per-diem rate is generally based on the nature and scope of services
provided to these patients. In addition, some government programs pay the
Company for access to a certain number of beds.
* MEDICARE - Medicare is the federal health insurance program for the aged
and disabled. Medicare reimburses providers of psychiatric care for
inpatient, partial hospitalization and hospital-based outpatient services
on a cost-based reimbursement system. Medicare reimburses for certain other
outpatient services based on an area-wide fee schedule or other blended
rates. Medicare reimbursement is typically less than the Company's
established charges for services provided to Medicare patients. Patients
are not responsible for the difference between the reimbursed amount and
the established charges other than for applicable noncovered charges,
coinsurance and deductibles. In 1983, Congress changed the Medicare law
applicable to Medicare reimbursement for medical/surgical services from a
retrospectively determined reasonable cost system to a prospectively
determined diagnosis-related grouping ("DRG") system. Facilities providing
psychiatric care are currently exempt from the DRG reimbursement system.
However, both Congress and the agency responsible for administering the
Medicare program, the Health Care Financing Administration, have been
investigating a revision to the payment system for inpatient psychiatric,
partial hospitalization and hospital-based outpatient services, including
certain of the services provided by the Company, which would eliminate the
cost-based structure of the current system. Under current proposals,
reimbursement for inpatient, partial hospitalization and outpatient
psychiatric services would be transitioned to a prospective payment system
in which payment for services may be unrelated to the provider's costs. The
Company's Medicare revenue will decrease significantly as a percentage of
total revenues as a result of the asset sales and change in strategic
direction discussed previously.
Medicare reimbursement to exempt psychiatric and chemical dependency
facilities is currently subject to the payment limitations and incentives
established in the Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA"). These facilities are currently paid on the basis of each
facility's historical costs trended forward, with a limit placed on the
rate of increase in per case reimbursable costs. Facilities with costs less
than their respective target rate per discharge are currently reimbursed
based on allowable Medicare costs, plus an additional incentive payment.
Medicare reimbursement under TEFRA to facilities exempt from prospective
payment, such as the Company's facilities, have been adversely affected by
the Balanced Budget Act of 1997, passed by Congress in July 1997. Under
certain provisions of this Act, effective July 1, 1998 for the Company,
target rates per discharge were capped, the formula by which incentive
payments are calculated was modified to reduce these payments and allowable
Medicare capital costs were reduced by 15%.
* MEDICAID - Medicaid is the federal/state health insurance program for
low-income individuals, including welfare recipients. Subject to certain
minimum federal requirements, each state defines the extent and duration of
the services covered by its Medicaid program. Moreover, although there are
certain federal requirements governing the payment levels for Medicaid
services, each state has its own methodology for making payment for
services provided to Medicaid patients. Various state Medicaid programs
cover payment for services provided to Medicaid patients by the Company.
* MANAGED CARE ORGANIZATIONS AND OTHER COMMERCIAL PAYORS - The Company's
facilities are reimbursed for behavioral healthcare services by health
maintenance organizations ("HMO's"), commercial insurance companies and
self-insured employers either on a fee-for-service basis or under
contractual arrangements which include per-diem, per-diagnosis or
sub-capitated arrangements.
7
<PAGE> 9
For inpatient and partial hospitalization services, Blue Cross plans
reimburse based on charges or negotiated rates in all areas in which the
Company presently operates facilities, except Alabama and Michigan. In
certain states in which the Company operates, Blue Cross reimbursement is
approved through a rate-setting process and, therefore, Blue Cross may
reimburse the Company at a rate less than billed charges. Under cost-based
Blue Cross programs, such as those in Alabama and Michigan, direct
reimbursement to facilities typically is lower than the facility's charges,
and patients are not responsible for the difference between the amount
reimbursed by Blue Cross and the facility's charges.
Most commercial insurance carriers reimburse their policyholders or
reimburse the Company directly for charges at rates and limits specified in
their policies. Patients generally remain responsible for any amounts not
covered under their insurance policies. Generally, reimbursement for
psychiatric inpatient and chemical dependency care by commercial insurance
carriers is limited to a maximum number of inpatient days per year or
during the patient's lifetime, or to a maximum dollar amount expended for a
patient in a given period.
OWNERSHIP ARRANGEMENTS
One physician owns a 4% interest in the subsidiary which owns
Gulf Coast Treatment Center. The Company may be required to repurchase, and the
minority shareholder may be required to sell, the minority interest at a formula
price dependent upon many factors, including the earnings per share of the
subsidiary which owns the hospital and the price/earnings multiple of the
Company, after a fixed period of time. Although the amount of the Company's
repurchase obligation cannot be precisely determined, the Company does not
believe that this obligation is material.
INSURANCE
The Company maintains self-insured retentions related to its
professional and general liability insurance program. The Company's operations
are insured for professional liability on a claims-made basis and for general
liability on an occurrence basis. The Company records the liability for
uninsured professional and general liability losses related to asserted and
unasserted claims arising from reported and unreported incidents based on
independent valuations which consider claim development factors, the specific
nature of the facts and circumstances giving rise to each reported incident and
the Company's history with respect to similar claims. The development factors
are based on a blending of the Company's actual experience with industry
standards.
EMPLOYEES
As of December 31, 1998, the Company employed approximately
895 full-time and 749 part-time employees, including a corporate headquarters
staff of approximately 19 full-time employees. The Company considers its
relationship with its employees to be good.
8
<PAGE> 10
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to the executive officers of the
Company is set forth below:
POSITION WITH THE COMPANY AND
PRINCIPAL OCCUPATION DURING THE
NAME OF EXECUTIVE OFFICER AGE PAST FIVE YEARS
- ------------------------------ --------- -----------------------------------
Luis E. Lamela................ 49 President and Chief Executive
Officer of the Company since
January 1998; Vice Chairman of
the Board of the Company since
January 1996; Chief Executive
Officer of CAC Medical Centers,
a division of United HealthCare
of Florida, since May 1994;
President and CEO of Ramsay-HMO,
Inc. from prior to 1993 to May
1994.
Bert G. Cibran................ 45 Chief Operating Officer of the
Company since August 1996;
President of the Company's Youth
Care Division since August 1996;
President, Summa Healthcare
Group, Inc. from February 1996
through August 1996; President
and Chief Operating Officer for
the Florida operations of
Physician Corporation of America
from February 1994 to February
1996; Executive Vice President
of Operations for Ramsay-HMO,
Inc. from prior to 1993 to
February 1994.
Isabel M. Diaz................ 34 Vice President of the Company since
October 1997; Vice President of
Corporate Relations for United
HealthCare of Florida, Inc. and
the CAC Medical Centers, Inc., a
division of United HealthCare of
Florida, Inc., from May 1994 to
September 1997; Vice President
of Investor and Public Relations
for Ramsay-HMO, Inc. from prior
to 1993 to May 1994.
Marcio C. Cabrera............. 35 Executive Vice President and Chief
Financial Officer of the Company
since July 1998; Vice President
of Finance for CAC Medical
Centers, a division of United
HealthCare of Florida, Inc. from
June 1997 to May 1998; Vice
President of Finance for United
HealthCare of Florida, Inc. from
May 1994 to May 1997; Corporate
Controller for Ramsay-HMO from
prior to 1993 to May 1994.
Jorge Rico.................... 34 Vice President of the Company since
February 1997; Vice President of
Administration and Information
Technology for United HealthCare
of Florida, Inc. from May 1994
to January 1997 and for
Ramsay-HMO, Inc. from prior to
1993 to 1994.
9
<PAGE> 11
ITEM 2. PROPERTIES.
The following table provides information concerning the facilities
owned and operated or leased and operated by the Company as of December 31,
1998.
<TABLE>
<CAPTION>
DATE OPENED TOTAL
FACILITY (5) OR ACQUIRED BEDS
- ------------------------------------- ------------------------ ----------
<S> <C> <C>
Higdon Hill Group Home
Birmingham, AL................... July 1996 22
Heartland House Group Home
Nevada, MO....................... August 1997 8
Briarwood Group Home
Reno, NV......................... July 1995 15
Coastal Harbor Group Home
Longs, SC........................ July 1997 8
Brynn Marr Group Home
Wilmington, NC................... January 1998 6
Bright Images Group Home
Ft. Pierce, FL................... July 1997 7
Heartland House West Group Home
Nevada, MO....................... June 1998 16
Havenwyck Facility
Auburn Hills, MI(1).............. November 1983 139
Brynn Marr Facility
Jacksonville, NC................. December 1983 76
Hill Crest Facility
Birmingham, AL................... January 1984 103
Heartland Facility
Nevada, MO....................... April 1984 138
Benchmark Regional Facility
Woods Cross, UT................. August 1986 68
Mission Vista Facility
San Antonio, TX(2)............. November 1991 61
Gulf Coast Treatment Center
Fort Walton Beach, FL(3)...... December 1996 108
Dothan Facility
Dothan, Alabama............... April 1998 75
-------
Total (4) 850
=======
</TABLE>
(1) In September 1998, the Company sold and immediately leased back the
land, building and fixed equipment associated with this facility. The
lease has an initial term of approximately 12 years. See "Item 1.
Business - Recent Developments".
(2) In April, 1995, the Company sold and immediately leased back the land,
building and fixed equipment associated with this facility. The lease
has an initial term of 15 years and three successive renewal options of
five years each.
(3) The Company resumed operations at this facility in December 1996. For
the previous four years, this facility was leased to another healthcare
provider.
(4) Excludes Meadowlake facility, which was leased to an independent
healthcare provider in August 1997, the Palm Bay facility which was
leased in July 1998, and schools managed through management contracts.
(5) The Company believes that its facilities are well maintained and are of
adequate size for present needs.
Statement of Financial Accounting Standards (SFAS) No. 121
addresses the accounting for the impairment of long-lived assets and long-lived
assets to be disposed of, certain identifiable intangible assets and goodwill
relating to those assets, and provides guidance for recognizing and measuring
impairment losses. The statement requires that the carrying amount of impaired
assets be reduced to fair value.
As required by SFAS No. 121, the Company periodically reviews
its long-lived assets (land, buildings, fixed equipment, cost in excess of net
asset value of purchased businesses and other intangible assets) to determine if
the carrying value of these assets is recoverable, based on the future cash
10
<PAGE> 12
flows expected from the assets. Based on this review, the Company determined
that the carrying value of certain long-lived assets were impaired (within the
meaning of the Statement) at June 30, 1998 and 1996. The amount of the
impairment, calculated as (i) the excess of carrying value of the long-lived
assets over the discounted future cash flows expected from the assets, or (ii)
the excess of the carrying value of the long-lived assets over the selling
values, totalled approximately $18.3 million and $5.5 million at June 30, 1998
and 1996, respectively. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data".
The Company leases office space for its corporate headquarters
in Coral Gables, Florida, (through August 1999) and its former corporate
headquarters in New Orleans, Louisiana (through March 1999) and various regional
offices and clinics. These leases have terms which generally range from three to
five years, with renewal options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to certain claims, suits and complaints,
whether arising from the acts or omissions of its employees, providers or
others, which arise in the ordinary course of business. The Company has
established reserves for the estimated amounts which might be recovered from the
Company as a result of all outstanding legal proceedings. In the opinion of
management, the ultimate resolution of these pending legal proceedings is not
expected to have a material adverse effect on the Company's financial position,
results of operations or liquidity.
During fiscal 1996, the State of Louisiana requested repayment
of disproportionate share payments received by two of the Company's facilities
in fiscal years 1995 and 1994 totaling approximately $5.5 million. The repayment
requested related primarily to alleged overpayments received by a former
facility of the Company. The Company believes that this matter may be settled
for an amount significantly less than the State's initial request. The Company
intends to vigorously contest any position by Louisiana which it considers
adverse.
In March 1997, a former executive vice president of the
Company commenced arbitration and court proceedings (in the United States
District Court for the Eastern District of Louisiana) against the Company in
which he claims his employment was wrongfully terminated by the Company and
seeks damages of approximately $2.3 million. The Company is awaiting the results
of the arbitration proceedings which were held in February 1999.
Prior to its merger with the Company, a subsidiary of the
Company sold one of its wholly owned subsidiaries, a licensed health maintenance
organization in Louisiana, Alabama and Mississippi. On September 29, 1997, the
Company received a demand for indemnification by the purchaser of this
subsidiary in an amount totaling approximately $5.8 million, an amount in excess
of the purchase price paid by the purchaser for the HMO subsidiary. The Company
intends to vigorously defend any proceedings which may result from this matter.
In addition, on September 30, 1997, the Company demanded indemnification from
the purchaser for various matters in an amount exceeding $2.0 million.
See Note 15 to the consolidated financial statements set forth
under "Item 8. Financial Statements and Supplementary Data".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the over-the-counter
market and is quoted on the NASDAQ National Market System under the symbol RYOU.
On March 15, 1999, there were 515 holders of record of the Company's Common
Stock. No cash dividends have been declared on the Common Stock since the
Company was organized. Also, the Company's credit facilities include provisions
which prohibit the payment of cash dividends to its common shareholders.
In connection with the refinancing of debt, on September 30,
1997, the Company sold to a financial institution $2.5 million of Series 1997
Preferred Stock. On September 30, 1998, the Series 1997 Preferred Stock was
redeemed by the Company.
As previously mentioned, on October 30, 1998, the Company
completed the private placement of an aggregate of 1,037,037 shares of Common
Stock to its Chief Executive Officer, Paul Ramsay Holdings Pty. Limited ("Ramsay
Holdings"), a corporate affiliate of Paul J. Ramsay, the Chairman of the Board
of the Company and the principal stockholder of the Company, and other unrelated
persons, all at a price per share of $3 3/8, the closing bid price of the Common
Stock on The NASDAQ Stock Market on October 26, 1998 (the date of the various
subscription agreements).
Registration under the Securities Act of 1933 (the "Securities
Act") of the Common Stock issued in the foregoing transactions was not required
because such securities were issued in transactions not involving any "public
offering" within the meaning of Section 4(2) of the Securities Act.
In addition, on October 30, 1998, the Company issued 177,778
shares of Common Stock to Ramsay Holdings, in exchange for $600,000 of principal
amount of junior subordinated indebtedness owed by the Company to Ramsay
Holdings. As part of the Exchange Agreement (the "Exchange Agreement") entered
into between the Company and Ramsay Holdings to affect the foregoing exchange,
the Company agreed to issue additional shares of Common Stock to Ramsay Holdings
in exchange for $4.0 million of the Company's Class B Preferred Stock, Series
1997-A (together with all accrued and unpaid dividends thereon) and an
additional $400,000 of principal amount of subordinated indebtedness owed by the
Company to Ramsay Holdings. This latter exchange was effected on December 1,
1998 at a price per share of $3 3/8 (the closing bid price of the Common Stock
on The NASDAQ Stock Market on October 26, 1998, the date of the Exchange
Agreement) after the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. This latter exchange
resulted in the issuance by the Company of 1,428,740 additional shares of Common
Stock to Ramsay Holdings.
On December 16, 1998, the Company entered into an agreement
(the "Agreement") with Ramsay Holdings, Ramsay Holdings HSA Limited and Paul
Ramsay Hospitals Pty. Limited (collectively, the "Ramsay Affiliates") pursuant
to which the Ramsay Affiliates (i) converted the Company's Class B Preferred
Stock, Series C and Class B Preferred Stock, Series 1996 (together with accrued
and unpaid dividends thereon) into an aggregate of 1,198,756 shares of Common
Stock and (ii) exchanged $6,883,553 of principal amount of junior subordinated
indebtedness owed by the Company (together with accrued and unpaid interest
thereon of $123,219) for 1,384,054 shares of Common Stock. This latter exchange
was effected at a price per share of $5 1/16 (the closing bid price of the
Common Stock on The NASDAQ Stock Market on December 16, 1998, the date of the
Agreement).
In connection with the foregoing transactions, the Company
granted limited registration rights with respect to the Common Stock issued to
the stockholders participating in such transactions.
12
<PAGE> 14
The following table sets forth the range of high and low
closing sales prices per share of the Company's Common Stock for each of the
quarters during the six months ended December 31, 1998 and years ended June 30,
1998 and 1997, as reported on the NASDAQ National Market System:
<TABLE>
<CAPTION>
HIGH LOW
----------------- ------------------
<S> <C> <C>
Six months ended December 31, 1998
First Quarter..................................... $10 1/8 $3
Second Quarter.................................... 6 3/4 2 11/32
Year ended June 30, 1998
First Quarter..................................... $17 1/4 $9 3/4
Second Quarter.................................... 16 11/16 8 1/4
Third Quarter..................................... 12 3/4 8 7/16
Fourth Quarter.................................... 9 3/4 4 7/8
Year ended June 30, 1997
First Quarter..................................... $9 15/16 $5 5/8
Second Quarter.................................... 9 3/4 4 11/64
Third Quarter..................................... 13 7/8 6 3/8
Fourth Quarter.................................... 12 3/8 7 7/8
</TABLE>
On March 15, 1999, the closing sales price of the Company's
Common Stock was $6 7/8 per share.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
information for the periods shown and is qualified by reference to, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Transition Report on Form
10-K. The selected financial data presented below for the six months ended
December 31, 1997 was compiled from unaudited financial statements by management
of the Company on the same basis as the audited financial statements appearing
elsewhere in this Transition Report on Form 10-K and, in the opinion of
management of the Company, include all adjustments necessary to present fairly
the information set forth therein. The results of the six months ended December
31, 1998 are not necessarily indicative of the results of a complete fiscal year
or future periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------- ------------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues ......................... $ 47,892 $ 77,535 $ 155,197 $ 134,669 $ 116,305 $ 136,318 $ 136,427
Salaries, wages and benefits ........... 28,313 39,604 82,740 67,793 66,259 72,061 64,805
Other operating expenses ............... 17,470 28,709 64,252 46,819 42,387 44,741 42,907
Provision for doubtful accounts ........ 1,549 2,193 6,649 5,688 5,805 5,086 5,846
Depreciation and amortization .......... 1,627 3,281 5,714 5,473 5,490 7,290 6,836
Restructuring charges .................. -- -- 2,349 -- -- -- --
Asset impairment charges ............... -- -- 18,316 -- 5,485 21,815 --
--------- --------- --------- --------- --------- --------- ---------
48,959 73,787 180,020 125,773 125,426 150,993 120,394
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations .......... (1,067) 3,748 (24,823) 8,896 (9,121) (14,675) 16,033
Investment income and other ............ 178 197 256 2,050 1,118 100 575
Gain on sale of assets ................. 2,039 -- -- -- -- -- --
Interest and other financing
charges .............................. (1,655) (2,791) (7,230) (5,942) (6,892) (8,347) (8,906)
Losses related to asset sales and
closed businesses .................... (947) -- (12,483) -- (4,473) (6,431) (802)
--------- --------- --------- --------- --------- --------- ---------
(385) (2,594) (19,457) (3,892) (10,247) (14,678) (9,133)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority
interest, income taxes
and extraordinary item .............. (1,452) 1,154 (44,280) 5,004 (19,368) (29,353) 6,900
Minority interest ...................... -- -- -- -- -- 887 4,824
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item .............. (1,452) 1,154 (44,280) 5,004 (19,368) (30,240) 2,076
Provision (benefit) for income
taxes ............................... -- -- 9,981 1,726 (2,887) (13,195) 599
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item ................................ (1,452) 1,154 (54,261) 3,278 (16,481) (17,045) 1,477
Extraordinary item:
Loss from early extinguishment
of debt, net of income
tax benefit ........................ (2,811) (3,574) (4,322) -- -- (257) (155)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ...................... $ (4,263) $ (2,420) $ (58,583) $ 3,278 $ (16,481) $ (17,302) $ 1,322
========= ========= ========= ========= ========= ========= =========
Income (loss) per common share:
Basic:
Before extraordinary item ....... $ (.47) $ .21 $ (15.36) $ 1.04 $ (6.37) $ (6.75) $ .43
Extraordinary item:
Loss from early extinguishment
of debt .................... (.63) (1.00) (1.20) -- -- (.09) (.06)
--------- --------- --------- --------- --------- --------- ---------
$ (1.10) $ (.79) $ (16.56) $ 1.04 $ (6.37) $ (6.84) $ (.37)
========= ========= ========= ========= ========= ========= =========
Diluted:
Before extraordinary item ....... $ (.47) $ .18 $ (15.36) $ .96 $ (6.37) $ (6.75) $ .38
Extraordinary item:
Loss from early extinguishment
of debt .................... (.63) (.86) (1.20) -- -- (.09) (.05)
--------- --------- --------- --------- --------- --------- ---------
$ (1.10) $ (.68) $ (16.56) $ .96 $ (6.37) $ (6.84) $ .33
========= ========= ========= ========= ========= ========= =========
Weighted average number of
common shares outstanding:
Basic ............................... 4,487 3,574 3,595 2,801 2,643 2,580 2,584
========= ========= ========= ========= ========= ========= =========
Diluted ............................. 4,487 4,139 3,595 3,409 2,643 2,585 2,898
========= ========= ========= ========= ========= ========= =========
DECEMBER
31,
1998 JUNE 30,
--------- -------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital........ $(3,057) $1,340 $9,960 $11,715 $24,098 $21,148
Total assets........... 56,138 85,091 141,189 132,758 139,236 183,168
Long-term debt......... 7,332 14,398 47,254 44,664 55,568 67,707
Stockholders' equity... 12,432 1,188 59,182 46,053 61,779 80,468
</TABLE>
14
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
On February 19, 1998, the Company announced a change in
strategic direction in order to focus on becoming a leader in the youth services
industry. The company's strategic plan is now focused on repositioning the
Company for growth in the at-risk youth industry and strengthening the Company's
financial position.
In connection with the change in its strategic direction,
during the fiscal year ended June 30, 1998 and the six months ended December 31,
1998, the Company sold its behavioral managed care business and sold or closed
its non-strategic inpatient psychiatric hospitals (the "Divested Assets"). See
"Item 1. Business Recent Developments" and "Item 8. Financial Statements and
Supplementary Data". The remaining business represents the Company's youth
service operations, which is comprised of seven schools, seven treatment
facilities and seven group homes (the "Retained Assets").
Revenues of the Company's programs and services are affected
by changes in the rates the Company charges, changes in reimbursement rates by
third-party payors, the volume of individuals treated and changes in the mix of
payors. The Company provides services to individuals requiring intensive care,
less intensive residential treatment care and outpatient treatment. The
reimbursement rates for intensive inpatient care are generally greater than the
rates paid for residential treatment care. However, the average length of stay
for individuals in residential treatment programs is greater than that for
individuals in intensive inpatient programs.
The Company records amounts due to or from third-party
reimbursement sources based on its best estimates of amounts to be ultimately
received or paid under cost reports filed with appropriate intermediaries. The
final determination of amounts earned under reimbursement programs is subject to
review and audit by these intermediaries. Differences between amounts recorded
as estimated settlements and the audited amounts are reflected as adjustments to
the Company's revenues in the period in which the final determination is made.
During the six months ended December 31, 1997 and fiscal years
ended June 30, 1996, 1997 and 1998 the Company also received capitated amounts
for behavioral healthcare services provided to individuals covered by certain
managed care contracts. Capitated revenues are recognized during the period in
which enrolled lives are covered for capitated payments received. Revenue
received from the management of facilities not owned by the Company and for case
management, utilization review and quality assurance oversight on the delivery
of behavioral healthcare services by independent providers on behalf of clients
is recognized at the time the services are provided.
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1997
Total revenues decreased from $77.5 million in the six months
ended December 31, 1997 to $47.9 million in the six months ended December 31,
1998. Of this amount, revenues related to Retained Assets totalled $29.1 million
in 1998 as compared to $24.0 million in 1997. Revenues related to Divested
Assets totalled $18.8 million in 1998 as compared to $53.5 million in 1997.
The increase in revenues related to Retained Assets from the
six months ended December 31, 1997 to the six months ended December 31, 1998 of
$5.1 million is attributable to (i) an increase in revenues at the Company's
Gulf Coast Treatment Center of $1.3 million due to the award of a contract to
provide assignment center services for the State of Florida Department of
Juvenile Justice on January 15, 1998, (ii) an increase in revenues of $1.6
million as a result of a new contract with the Juvenile Institutions
Administration of the Commonwealth of Puerto Rico commencing on May 1, 1998,
(iii) increases in revenues at the Company's facilities located in Woods Cross,
Utah, Auburn Hills, Michigan, Nevada, Missouri, and Birmingham, Alabama by $0.2
million, $0.4 million, $0.1 million and $0.4 million, respectively due to a
total increase in census of 17% between periods (from 64,893 days during the six
15
<PAGE> 17
months ended December 31, 1997 to 76,016 days during the six months ended
December 31, 1998) and (iv) an increase in revenues of $1.1 million at the
Company's new facility and group home operations located in Dothan, Alabama and
South Carolina.
The decrease in revenues related to Divested Assets from the
six months ended December 31, 1997 to the six months ended December 31, 1998 of
$34.7 million is primarily attributable to (i) a decrease of $12.8 million in
revenues due to the sale of the Company's managed contract services division and
behavioral health care facilities located in Conway, South Carolina, Houma,
Louisiana, Mesa, Arizona and DeSoto, Texas on September 28, 1998, (ii) a
decrease of $2.8 million in revenues due to the sale of the Company's behavioral
health care facility located in Morgantown, West Virginia on September 30, 1998,
(iii) a decrease of $3.4 million in revenues due to the sale of the Company's
Greenbrier facility located in Covington, Louisiana on June 2, 1998, (iv) a
decrease of $13.2 million in revenues due to the sale of the Company's wholly
owned managed behavioral health care business on June 2, 1998, (v) a decrease of
$0.5 million in revenues due to the closure of the Company's behavioral health
care facility located in Midvale, Utah on December 3, 1998, (vi) a decrease of
$1.5 million in revenues due to the closure of the Company's medical sub-acute
unit located in Conway, South Carolina in May 1998 and (vii) a decrease of $0.5
million due to the reduction in census of 17% between periods (from 2,087 days
during the six months ended December 31, 1997 to 1,740 days during the six
months ended December 31, 1998) at the Company's facility located in San
Antonio, Texas.
Total salaries, wages and benefits decreased form $39.6
million in the six months ended December 31, 1997 to $28.3 million in the six
months ended December 31, 1998. Of this amount, salaries, wages and benefits
related to Retained Assets totalled $17.5 million during the six months ended
December 31, 1998 as compared to $12.7 million during the six months ended
December 31, 1997. Salaries, wages and benefits related to Divested Assets
totalled $9.5 million during the six months ended December 31, 1998 as compared
to $24.7 million during the six months ended December 31, 1997. Corporate wages,
salaries and benefits totalled $1.3 million during the six months ended December
31, 1998 as compared to $2.2 million during the six months ended December 31,
1997.
The increase in salaries, wages and benefits related to
Retained Assets from the six months ended December 31, 1997 to the six months
ended December 31, 1998 of $4.8 million is primarily attributable to (i) an
increase of $1.1 million due to the opening of the Company's facility in Dothan,
Alabama in April 1998, (ii) an increase of $0.8 million due to the start-up of
the Company's Puerto Rico operations in May 1998, (iii) an increase of $0.3
million due to the start-up of the South Carolina group home operations in July
1998 and (iv) an increase in salaries, wages and benefits in other Retained
Assets of $2.5 million due primarily to a total increase in census of 25%
between periods (from 80,088 days during the six months ended December 31, 1997
to 100,147 days during the six months ended December 31, 1998).
The decrease in salaries, wages and benefits related to
Divested Assets from the six months ended December 31, 1997 to the six months
ended December 31, 1998 of $15.2 million is primarily attributable to (i) a
decrease of $6.4 million in salaries, wages and benefits due to the sale of the
Company's managed contract services division and behavioral health care
facilities located in Conway, South Carolina, Houma, Louisiana, Mesa, Arizona
and DeSoto, Texas on September 28, 1998, (ii) a decrease of $0.9 million in
salaries, wages and benefits due to the sale of the Company's behavioral health
care facility located in Morgantown, West Virginia on September 30, 1998, (iii)
a decrease of $2.4 million in salaries, wages and benefits due to the sale of
the Company's Greenbrier facility located in Covington, Louisiana on June 2,
1998, (iv) a decrease of $4.6 million in salaries, wages and benefits due to the
sale of the Company's wholly owned managed behavioral health care business on
June 2, 1998, (v) a decrease of $0.2 million in salaries, wages and benefits due
to the closure of the Company's behavioral health care facility located in
Midvale, Utah on December 3, 1998, (vi) a decrease of $0.5 million in revenues
due to the closure of the Company's medical sub-acute unit located in Conway,
South Carolina in May 1998 and (vii) a decrease of $0.2 million due to the
reduction in census of 17% at the Company's facility located in San Antonio,
Texas discussed above.
16
<PAGE> 18
The decrease in salaries, wages and benefits related to the
corporate office from 1997 to 1998 of $0.9 million is directly attributable to
the termination of approximately 15 employees on or before June 30, 1998 in
connection with the Company's change in strategic direction.
Other operating expenses decreased from $28.7 million in the
six months ended December 31, 1997 to $17.5 million in the six months ended
December 31, 1998. Of this amount, other operating expenses related to Retained
Assets totalled $8.0 million in 1998 as compared to $6.2 million in 1997. Other
operating expenses related to Divested Assets totalled $6.8 million in 1998 as
compared to $20.8 million in 1997. Other operating expenses related to the
Company's corporate office totalled $2.7 million in 1998 as compared to $1.7
million in 1997.
The increase in other operating expenses related to Retained
Assets from the six months ended December 31, 1997 to the six months ended
December 31, 1998 of $1.8 million is attributable to (i) other operating
expenses of the new operations in Dothan, Alabama of $0.4 million, (ii) other
operating expenses of $0.4 million related to the start-up of the Company's
operations in Puerto Rico, (iii) other operating expenses of $0.1 million
attributable to the start-up of the South Carolina group home operations and
(iv) an increase in other operating expenses at the Company's other Retained
Assets facilities located in Woods Cross, Utah, Auburn Hills, Michigan,
Birmingham, Alabama and Fort Walton Beach, Florida of $0.1 million, $0.5
million, $0.1 million and $0.2 million, respectively, due to a total increase in
census of 31% between periods (from 50,450 days during the six months ended
December 31, 1997 to 66,323 days during the six months ended December 31, 1998).
The decrease in other operating expenses related to Divested
Assets from the six months ended December 31, 1997 to the six months ended
December 31, 1998 of $14.0 million is attributable to (i) a decrease of $4.4
million in other operating expenses due to the sale of the Company's managed
contract services division and behavioral health care facilities located in
Conway, South Carolina, Houma, Louisiana, Mesa, Arizona and DeSoto, Texas on
September 28, 1998, (ii) a decrease of $0.7 million in other operating expenses
due to the sale of the Company's behavioral health care facility located in
Morgantown, West Virginia on September 30, 1998, (iii) a decrease of $0.8
million in other operating expenses due to the sale of the Company's Greenbrier
facility located in Covington, Louisiana on June 2, 1998, (iv) a decrease of
$7.3 million in other operating expenses due to the sale of the Company's
wholly-owned managed behavioral health care business on June 2, 1998 and (v) a
decrease of $0.8 million in other operating expenses due to the closure of the
Company's medical sub-acute unit located in Conway, South Carolina in May 1998.
The increase in other operating expenses related to the
Company's corporate office from the six months ended December 31, 1997 to the
six months ended December 31, 1998 of $1.0 million is attributable to (i) an
increase of $0.6 million due to reserves associated with an outstanding legal
case and (ii) an increase in other operating expenses of $0.4 million due to
expenses incurred in connection with the Company's change in strategic
direction.
The provision for doubtful accounts decreased from $2.2
million during the six months ended December 31, 1997 to $1.5 million during
1998. The decrease is primarily attributable to the sale and/or closure of the
Company's Divested Assets discussed previously. Provision for doubtful accounts
as a percentage of total revenues approximated 3.2% and 2.8% for the six months
ended December 31, 1998 and 1997, respectively.
Depreciation and amortization expense decreased from $3.3
million in the six months ended December 31, 1997 to $1.6 million during the six
months ended December 31, 1998. Of this amount, depreciation and amortization
related to Retained Assets totalled $1.0 million in both 1998 and 1997.
Depreciation and amortization related to Divested Assets was $0.2 million in
1998 as compared to $1.4 million in 1997. Depreciation and amortization related
to the corporate office amounted to $0.4 million in 1998 as compared to $0.9
million in 1997.
The decrease in depreciation and amortization related to
Divested Assets is attributable to the sale and/or closure of the Company's
Divested Assets discussed previously.
17
<PAGE> 19
The decrease of $0.5 million in depreciation and amortization
related to the corporate office is primarily attributable to the reduction of
$21.0 million of cost in excess of net asset value of purchased businesses that
was related to the Company's wholly owned managed behavioral health care
business which was sold on June 2, 1998.
Investment income and other was $0.2 million for both the six
months ended December 31, 1997 and the six months ended December 31, 1998. No
significant fluctuations were expected since invested balances remained
consistent between periods.
Interest and other financing charges decreased from $2.8
million in the six months ended December 31, 1997 to $1.7 million in the six
months ended December 31, 1998. The decrease was primarily attributable to the
partial pre-payment of debt with the use of the proceeds from the aforementioned
asset sales in September 1998.
On September 30, 1998, the Company completed its previously
announced sale of its behavioral health care facility in Morgantown, West
Virginia. The Company realized a gain on this transaction of $2.0 million.
During the six months ended December 31, 1998, the Company
recorded losses related to asset sales and closed businesses of $0.9 million.
These losses are primarily attributable to (i) $0.8 million of estimated
purchase price adjustments relating to the Company's sale of Divested Assets and
(ii) $0.2 million of costs related to the closure of the Company's facility
located in Midvale, Utah in December 1998.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Total revenues increased from $134.7 million in the year ended
June 30, 1997 to $155.2 million in the year ended June 30, 1998. Of this amount,
revenues related to Retained Assets totalled $50.9 million in 1998 as compared
to $44.7 million in 1997. Revenues related to Divested Assets totalled $104.5
million in 1998 as compared to $85.1 million in 1997. Excluded from Divested and
Retained Asset revenues in 1997 are (i) a $2.9 million favorable cash judgment
awarded by the courts of the State of Missouri related to one of the Company's
Retained Assets and (ii) a $1.5 million benefit related to intermediary audits
of prior year cost reports (approximately $1.0 million of this amount related to
Divested Assets and $0.5 million related to Retained Assets).
The increase in revenues related to Retained Assets from the
year ended June 30, 1997 to the year ended June 30, 1998 of $6.2 million is
primarily attributable to an increase in revenues from residential treatment
centers from $15.4 million in 1997 to $23.1 million in 1998, which is offset by
a decrease in revenues from intensive treatment units of $1.3 million. The
increase in residential treatment center revenues from fiscal 1997 to fiscal
1998 was primarily due to an increase in total census between years of 58% (from
65,316 days to 103,450 days).
The increase in revenues related to Divested Assets from the
year ended June 30, 1997 to the year ended June 30, 1998 of $19.4 million is
primarily attributable to (i) an increase in managed behavioral healthcare
services revenues of $22.3 million related to RMCI, (ii) an increase in the
Company's medical subacute unit revenues of $9.2 million attributable to an
increase in total census between years, (iii) a decrease in revenues at the
Company's Greenbrier facility of $2.7 million due to the closure and sale of the
facility in fiscal 1998, (iv) a decrease in revenues generated from the
Company's Meadowlake facility which closed in May 1997 of $2.7 million, (v)
decreases in revenues in the Company's facilities located in Houma, Louisiana,
Midvale, Utah and Mesa, Arizona by $2.5 million, $1.3 million and $1.5 million,
respectively, due to a decrease in census between years, and (vi) a decrease in
revenues at the Company's management contracts division of $0.9 million due to
the loss of certain contracts.
Total salaries, wages and benefits increased from $67.8
million in the year ended June 30, 1997 to $82.7 million in the year ended June
30, 1998. Of this amount, salaries, wages and benefits
18
<PAGE> 20
related to Retained Assets totalled $28.0 million in fiscal 1998 as compared to
$23.1 million in fiscal 1997. Salaries, wages and benefits related to Divested
Assets totalled $48.9 million in fiscal 1998 as compared to $42.0 million in
fiscal 1997. Corporate salaries, wages and benefits totalled $5.8 million in
fiscal 1998 as compared to $2.7 million in fiscal 1997.
The increase in salaries, wages and benefits related to
Retained Assets from fiscal 1997 to fiscal 1998 of $4.9 million is primarily
attributable to (i) an increase in salaries, wages and benefits of $1.5 million
at Gulf Coast Treatment Center due to a full year of operation in fiscal 1998,
(ii) an increase of $0.5 million due to the start-up of the Dothan and Palm Bay
facilities, and (iii) an increase in salaries, wages and benefits in other
Retained Assets facilities of $3.0 million due to an increase in total census
between years.
The increase in salaries, wages and benefits related to the
Divested Assets from fiscal 1997 to fiscal 1998 of $6.9 million is primarily
attributable to (i) an increase in salaries, wages and benefits of the Company's
managed care operations of $7.0 million, (ii) an increase of $3.9 million
attributable to an increase in total census between years at the Company's
medical subacute units, (iii) a decrease in contract management salaries, wages
and benefits of $0.8 million due to the loss of contracts, (iv) a decrease in
salaries, wages and benefits at the Meadowlake facility of $1.4 million, (v) a
decrease in salaries, wages and benefits of the Company's facilities located in
Houma, Louisiana, Mesa, Arizona and Midvale, Utah by $2.0 million due to
reductions in total census, (vi) a decrease in the Greenbrier facility of $1.0
million due to both a reduction in census and its sale on June 2, 1998 and (vii)
an increase in self-insurance reserves of $1.4 million due primarily to negative
development of self-insured workers' compensation claims.
The increase in salaries, wages and benefits related to the
corporate office from fiscal 1997 to fiscal 1998 of $3.1 million is primarily
attributable to an increase of $1.2 million in incentive bonuses accruals during
1998 and an increase of $2.0 million due to the hiring of new personnel in
fiscal 1998 (primarily related to the acquisition of RMCI and Summa).
Other operating expenses increased from $46.8 million in the
year ended June 30, 1997 to $64.3 million in the year ended June 30, 1998. Of
this amount, other operating expenses related to Retained Assets totalled $14.1
million in 1998 as compared to $11.2 million in 1997. Other operating expenses
related to Divested Assets totalled $41.4 million in 1998 as compared to $31.2
million in 1997. Other operating expenses related to the Company's corporate
office totalled $8.8 million in 1998 as compared to $4.4 million in 1997.
The increase in other operating expenses related to Retained
Assets from fiscal 1997 to fiscal 1998 of $2.9 million is attributable to (i) an
increase in other operating expenses of $0.5 million at Gulf Coast Treatment
Center, (ii) other operating expenses of the new Dothan and Palm Bay facilities
and start-up expenses related to a new contract in Puerto Rico of $1.0 million
and (iii) an increase in other operating expenses of $1.4 million due to an
increase in total census between years at the remainder of the Company's
Retained Assets.
The increase in other operating expenses related to Divested
Assets from fiscal 1997 to fiscal 1998 of $10.2 million is attributable to (i)
an increase of $12.5 million in other operating expenses of the Company's
managed care operations, (ii) an increase of $1.0 million attributable to an
increase in census at the Company's medical subacute units, (iii) a decrease in
other operating expenses at the Meadowlake facility of $0.9 million and (iv) a
decrease of $2.4 million in other Divested Assets due to decreases in census
between years.
The increase in corporate other operating expenses of $4.4
million from fiscal 1997 to fiscal 1998 is attributable to (i) an increase of
$2.8 million in legal reserves due to the Company's outstanding litigation (see
"Item 3. Legal Proceedings"), (ii) an increase of $0.6 million in self-insurance
reserves due to negative development of self-insured malpractice claims and
(iii) an increase in professional fees of approximately $1.0 million due
primarily to the integration of the managed care operations during fiscal 1998.
19
<PAGE> 21
The provision for doubtful accounts increased from $5.7
million in the year ended June 30, 1997 to $6.6 million in the year ended June
30, 1998. Provision for doubtful accounts as a percentage of total revenues
approximated 4.2% for fiscal 1997 and fiscal 1998.
Depreciation and amortization increased from $5.5 million in
the year ended June 30, 1997 to $5.7 million in the year ended June 30, 1998
primarily due to the current year amortization of intangible assets recorded in
connection with the managed care acquisition in June 1997 offset by curtailing
of depreciation on assets held for sale.
Investment income and other decreased from $2.0 million in the
year ended June 30, 1997 to $0.3 million in the year ended June 30, 1998. The
decrease is primarily due to a $1.3 million derivative transaction entered into
during fiscal 1997 in connection with a refinancing effort. No similar such item
occurred in fiscal 1998.
Interest and other financing charges increased from $5.9
million in the year ended June 30, 1997 to $7.2 million in the year ended June
30, 1998. The increase was primarily attributable to a $1.3 million
non-refundable fee charged by a financial institution in connection with an
amendment to the Company's credit facility. See "Item 8. Financial Statements
and Supplementary Data".
In connection with the Company's change in strategic
direction, the Company initiated a restructuring of personnel at its corporate
headquarters, including the identification and communication of severance
arrangements with individual personnel. These amounts, which in the aggregate
totalled $2.3 million, are reflected as restructuring charges in the
accompanying statement of operations.
During the year ended June 30, 1998, the Company recorded
losses of approximately $12.5 million related to the sale of the managed care
operations and the Three Rivers and Greenbrier facilities. These amounts are
reflected as losses related to asset sale and closed businesses in the
accompanying statement of operations. See "Item 8. Financial Statements and
Supplementary Data".
During fiscal 1998, the Company recorded asset impairment
charges of $18.3 million relating to (i) the difference in the carrying values
and the selling price of the Divested Assets held as of June 30, 1998 ($17.6
million) (See "Item 1. Business - Recent Developments") and (ii) the write-off
of cost in excess of net asset value of purchased businesses due to an asset
impairment resulting from the change in strategic direction ($0.7 million). See
"Item 8. Financial Statements and Supplementary Data".
The Company recorded a provision for income taxes in fiscal
1998 of $10.0 million, which primarily represents a full valuation allowance on
its previously recorded deferred tax assets. The realizability of these assets
had been based on the implementation of tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction, the Company determined that those tax
planning strategies would not be realized and a full valuation allowance was
considered necessary.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
For purposes of comparing the Company's statements of
operations between the year ended June 30, 1997 and the year ended June 30,
1996, same facilities exclude Meadowlake Hospital, which the Company decided in
fiscal 1997 to lease to another healthcare provider (and which lease commenced
in August 1997), and Gulf Coast Treatment Center, which resumed operations in
December 1996.
Total revenues increased from $116.3 million in the year ended
June 30, 1996 to $134.7 million in the year ended June 30, 1997. The change in
revenues between years consisted primarily of (i) increases in revenues related
to contract management and subacute services of $2.3 million and $7.8 million,
respectively, (ii) the impact of intermediary audits of prior year cost reports,
which increased revenues in 1997 by $1.5 million but decreased revenues in 1996
by $5.4 million, (iii) a decrease in same facility net inpatient revenues
(excluding the impact of prior year cost report settlements) of $2.0 million,
20
<PAGE> 22
or 2.4%, (iv) a decrease in revenues of Meadowlake Hospital of $1.7 million, (v)
managed behavioral services revenues realized subsequent to the acquisition of
RMCI of $2.0 million and (vi) other revenues recorded in 1997 of $4.2 million.
Net outpatient revenues remained stable between years and net patient revenues
in 1997 related to Gulf Coast Treatment Center approximated the revenues
realized by the Company from the lease of this facility in 1996.
During the year ended June 30, 1996, the Company recorded
contractual adjustment expenses of approximately $1.9 million related to
intermediary audits during 1996 of its prior year cost reports. The overall
negative adjustment to the Company's estimated cost report settlements was
principally due to an audit of its Havenwyck facility's Blue Cross cost reports
for years 1992, 1993, 1994 and 1995. As a result of its negative experience in
the fourth quarter of 1996 with respect to estimated cost report settlements,
the Company recorded additional contractual adjustment expenses at June 30, 1996
totaling $3.5 million related to possible future adjustments of its cost report
settlements by intermediaries. During the year ended June 30, 1997, the Company
recorded contractual adjustment benefits of approximately $1.5 million related
to intermediary audits of its prior year cost reports. Management believes that
its revenues in future periods will not be negatively impacted by future
intermediary audits of cost report settlements recorded at June 30, 1997 and
1996.
Same facility net inpatient revenues decreased slightly due to
a 6% decline in acute psychiatric patient days between years, continued
pressures from managed care organizations and other payors to reduce
reimbursement rates for acute psychiatric services, and the continued shift of
the Company's inpatient business from acute psychiatric patients to less
intensive (and consequently lower paying) residential treatment patients. For
the year ended June 30, 1997, approximately 45% of the Company's behavioral
health same facility patient days related to residential treatment patients,
compared to 40% in the prior year.
Contract management revenues increased by $2.3 million in 1997
due to additional contracts signed and subacute revenues increased by $7.8
million due to additional patient volume, which was possible because of an
expansion of the subacute units at two facilities. Also, other revenues included
$2.9 million related to a favorable cash judgment awarded the Company by the
courts of the State of Missouri. In this matter, the courts ruled that the
Company's facility in Nevada, Missouri had received insufficient reimbursement
from the Missouri Department of Social Services for the provision of behavioral
healthcare to Medicaid patients from 1990 to 1996.
Total salaries, wages and benefits increased from $66.3
million in the year ended June 30, 1996 to $67.8 million in the year ended June
30, 1997 primarily as a result of (i) a $3.0 million (5.5%) decrease in same
facility salaries, wages and benefits, primarily as a result of the continued
shift in the Company's business to residential treatment services, which are
less intensive and, consequently, require less staffing, (ii) an increase in
contract management salaries, wages and benefits, due to additional contracts,
of $1.0 million, (iii) an increase of $2.6 million related to increased volume
in the Company's subacute units and (iv) a decrease in salaries, wages and
benefits at Meadowlake Hospital of $0.4 million, which was offset by increases
at Gulf Coast Treatment Center and managed behavioral services of $0.6 million
and $0.8 million, respectively.
Other operating expenses in the year ended June 30, 1997 were
$46.8 million, compared to $42.4 million in the year ended June 30, 1996. This
increase is related to (i) a $3.7 million increase in other operating expenses
of the subacute units, (ii) a decrease in same facility other operating expenses
of $1.0 million (3.3%), (iii) an increase in other operating expenses associated
with Meadowlake Hospital of $0.3 million and (iv) other operating expenses of
Gulf Coast Treatment Center and managed behavioral services of $0.5 million and
$0.9 million, respectively.
The provision for doubtful accounts, which consist primarily
of commercial and self-pay accounts receivable deemed uncollectible, remained
stable between years, including the percentage of same facility bad debts to
same facility revenues, which totalled 4.5% in the year ended June 30, 1997 and
4.4% in the year ended June 30, 1996. The provision for bad debts of Meadowlake
Hospital did not change
21
<PAGE> 23
significantly from the prior year and the provision for bad debts of Gulf Coast
Treatment Center was not material in 1997.
Depreciation and amortization did not change significantly
between years.
Investment income and other increased from $1.3 million in the
year ended June 30, 1996 to $2.1 million in the year ended June 30, 1997. This
increase is primarily a result of $1.3 million of income recorded on a
derivative transaction entered into earlier in fiscal 1997 in connection with a
previous refinancing effort.
Interest expense decreased from $6.9 million in the year ended
June 30, 1996 to $5.9 million in the year ended June 30, 1997. This decrease
related to debt reductions made in 1996 and 1997 on the Company's senior and
subordinated secured notes and variable rate demand revenue bonds outstanding.
As stated elsewhere, this debt was refinanced by the Company on September 30,
1997.
Primarily in the fourth quarter of the year ended June 30,
1996, the Company recorded losses totaling approximately $4.5 million related to
additional asset write-downs, cost report settlements and other adjustments
related to businesses which closed at various times prior to 1996, a reserve for
disproportionate share payments which the State of Louisiana has contended were
improperly paid to two of the Company's Louisiana facilities in fiscal 1995 and
1994 (see "Results of Operations" above) and lease commitments and other costs
incurred in connection with the Company's decision to relocate its corporate
headquarters.
Pursuant to the principles of measurement contained in SFAS
No. 121 and the Company's expectations, the Company recorded asset impairment
charges in its year ended June 30, 1996 statement of operations of approximately
$5.5 million. This amount includes an asset impairment charge related to the
Company's investment in another healthcare enterprise of approximately $1.5
million, based on an assessment of the future cash flows expected to be realized
by the Company from this business. The Company reviewed the value of its
long-lived assets throughout 1997 and determined there were no impairment
indicators in 1997.
The Company recorded a $1.7 million provision for income taxes
in the year ended June 30, 1997, which approximated the statutory tax rate, and
a $2.9 million benefit for income taxes in the year ended June 30, 1996. The
income tax benefit recorded in fiscal year 1996 was recorded at an effective tax
rate significantly less than the statutory tax rate due to a deferred tax
valuation allowance of $4.4 million at June 30, 1996.
IMPACT OF INFLATION
The at-risk youth industry is labor intensive, and wages and
related expenses increase in inflationary periods. Additionally, suppliers
generally seek to pass along rising costs to the Company in the form of higher
prices. The Company monitors the operations of its facilities to mitigate the
effect of inflation and increases in the costs of health care. To the extent
possible, the Company seeks to offset increased costs through increased rates,
new programs and operating efficiencies. However, reimbursement arrangements may
hinder the Company's ability to realize the full effect of rate increases. To
date, inflation has not had a significant impact on operations.
IMPACT OF YEAR 2000
The Company has determined that it will be required to upgrade
certain portions of its software, hardware and equipment so that its systems and
equipment will function properly with respect to dates in the year 2000 and
thereafter. Year 2000 problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem".
22
<PAGE> 24
While the estimated costs of Year 2000 are not expected to be
material to the Company's financial position or any year's results of
operations, there can be no assurance to this effect. The total cost of the Year
2000 project is estimated at $450,000, primarily for the purchase of new
software that will be capitalized. To date, the Company has incurred
approximately $350,000 related to the assessment of, and preliminary efforts on,
developing its Year 2000 compliance project plan, purchase of new software and
equipment, and installation of vendor upgrades.
The Company believes that it has identified substantially all
of the major computers, software applications, and related equipment used in
connection with its internal operations that must be modified, upgraded, or
replaced to minimize the possibility of a material disruption to its business.
The Company has commenced the process of modifying, upgrading, and replacing
major systems that have been identified as adversely affected, and expects to
complete this process by June 1999. The Company will utilize both internal and
external resources to upgrade and test certain software for Year 2000 readiness.
In addition to computers and related systems, the operation of
medical equipment, office and facilities equipment and other common devices may
be affected by the Year 2000 Problem. The Company is currently assessing the
potential effect of, and costs of remediating, the Year 2000 Problem on its
office and facilities equipment. The Company has determined that affected
systems do not include those used within the Company for individual care.
The Company estimates the total cost of $450,000 to complete
any required modifications, upgrades, or replacements of these internal systems
will not have a material adverse effect on the Company's business or results of
operations. This estimate is being monitored and will be revised as additional
information becomes available.
The Company has initiated communications with its major
suppliers to identify and, to the extent possible, to resolve issues involving
the Year 2000 Problem. However, the Company has limited or no control over the
actions of these suppliers. Thus, while the Company expected that it will be
able to resolve any significant Year 2000 Problems with these systems, there can
be no assurance that these suppliers will resolve any or all Year 2000 Problems
with these systems before the occurrence of a material disruption to the
business of the Company or any of its customers. Any failure of these suppliers
to resolve Year 2000 Problems with their systems in a timely manner could have a
material adverse effect on the Company's business, financial condition, and
results of operation.
Management believes that the most significant risk to the
Company for the Year 2000 Problem is the effect such issues may have on
third-party payors, such as Medicare. News reports have indicated that various
agencies of the federal government may have difficulty becoming Year 2000
compliant before the Year 2000. The Company has not yet undertaken to quantify
the effects of such noncompliance or to determine whether such quantification is
even possible. The Company has limited or no control over the actions of these
third-party payors. Thus, while the Company expects that it will be able to
resolve any significant Year 2000 Problems with these payors, there can be no
assurance that these payors will resolve any or all Year 2000 Problems with
their systems before the occurrence of a material disruption to the business of
the Company. Any failure of these third-party payors to resolve Year 2000
Problems with their systems in a timely manner could have a material adverse
effect on the Company's business, financial condition, and results of operation.
The Company is currently developing contingency plans to be
implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company expects to complete its contingency
plans by June 1999. Depending on systems affected, these plans could include
accelerated replacement of affected equipment or software, short to medium-term
use of back up equipment and software, increased work hours for Company
personnel or use of contract personnel to correct on an accelerated schedule any
Year 2000 Problems that arise. If the Company is required to implement any of
these contingency plans, it could have a material adverse effect on the
Company's financial condition and results of operations.
23
<PAGE> 25
The costs for the Year 2000 project and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events, including the continued availability of certain resources. The
Company's operating results could be materially impacted if actual costs of the
Year 2000 project are significantly higher than management estimates or if the
systems and equipment of the Company or those of other companies on which it
relies are not compliant in a timely manner.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, June 30, 1998 and December 31, 1998, the
Company had $10.0 million, $1.3 million and ($3.1) million, respectively, in
working capital and $1.7 million, $2.9 million and $1.4 million, respectively,
in cash and cash equivalents. The Company's principal sources of liquidity as of
June 30, 1997, June 30, 1998 and December 31, 1998 consisted primarily of the
aforementioned cash equivalents and accounts receivable of $25.8 million, $12.0
million and $12.8 million, respectively.
For the years ended June 30, 1997 and 1998, cash provided by
operating activities was $9.6 million and $1.6 million, respectively. The
decrease of $8.0 million was primarily a result of net operating losses during
the year ended June 30, 1998, adjusted for non-cash expenses. For the six months
ended December 31, 1997 and 1998, cash used in operations was $0.1 million and
$5.9 million, respectively, an increase of $5.8 million resulting primarily from
net operating losses during the six months ended December 31, 1998 adjusted for
non-cash expenses.
Cash used in investing activities was $3.4 million for the
year ended June 30, 1997 compared to cash provided by investing activities of
$11.4 million for the year ended June 30, 1998. The increase of $14.8 million is
primarily due to proceeds received from the sale of the Company's managed care
business on June 2, 1998, Greenbrier facility on June 2, 1998 and Three Rivers
facility on May 4, 1998. During the year ended June 30, 1997, the Company also
had an increase in cash outlays for the purchase of the Palm Bay and Dothan
facilities. Cash used in investing activities was $3.1 million for the six
months ended December 31, 1997 compared to cash provided by investing activities
of $26.5 million during the six months ended December 31, 1998. The increase of
$29.6 million is primarily due to proceeds received by the Company for (i) the
sale of its management contract services subsidiary and behavioral health care
facilities in Conway, South Carolina, Houma, Louisiana, Mesa, Arizona and
DeSoto, Texas on September 28, 1998, (ii) a sale/leaseback transaction with the
Company's facility in Auburn Hills, Michigan on September 28, 1998 and (iii) the
sale of a behavioral health care facility in Morgantown, West Virginia on
September 30, 1998.
The fluctuations in cash provided by and cash used in
financing activities for the years ended June 30, 1997 and June 30, 1998 and the
six months ended December 31, 1997 and 1998 were primarily a result of the
payments on debt from proceeds of the aforementioned asset sales and debt
amendments and refinancings during the periods. See "Item 8. Financial Statement
sand Supplementary Data".
On September 30, 1997, the Company refinanced its then
existing credit facilities with proceeds from a credit facility from a financial
institution consisting of (i) a term loan of $12.5 million and a term loan of
$10.0 million (the "Term Loans"), (ii) a revolving credit facility of up to the
lesser of $16.5 million or the borrowing base of the Company's receivables (the
"Revolving Credit Loan") and (iii) subordinated bridge notes, of which $15.0
million was purchased by the financial institution ("Series A Bridge Notes") and
$2.5 million was purchased by Ramsay Holdings (the "Series B Bridge Notes")
(collectively referred to as the "Bridge Facility").
In addition, on September 30, 1997, the Company entered into
an agreement with Ramsay Holdings and the financial institution pursuant to
which (i) Ramsay Holdings purchased $4.0 million of non-convertible, non-voting
Class B Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock") and
(ii) the financial institution purchased $2.5 million of Class B Preferred
Stock, Series 1997 (the "Series 1997 Preferred Stock").
24
<PAGE> 26
The September 30, 1997 proceeds from the Term Loans, Revolving
Credit Loans, the Bridge Facility, the Series 1997 Preferred Stock and the
Series 1997-A Preferred Stock were used as follows: a) principal repayments of
$27.5 million of 11.6% senior secured notes and $1.4 million of 15.6%
subordinated secured notes held by a group of insurance companies, b) repayment
of $3.4 million of bank debt created on September 2, 1997 upon the redemption of
one of the Company's variable rate revenue bonds, c) repayment of approximately
$0.9 million of accrued interest on the above obligations, d) creation of a cash
collateral account in an amount totaling approximately $12.9 million which was
used to redeem the remaining variable rate revenue bonds and to pay accrued
interest thereon on their redemption dates of November 3, 1997 and December 1,
1997, e) repayment of $2.5 million of the $2.8 million loan from Ramsay
Hospitals, f) payment of a $2.2 million prepayment penalty to the group of
insurance companies holding the senior and subordinated secured notes and g)
transaction costs totaling approximately $2.8 million. In order to satisfy these
payments, the amount drawn down on the Revolver totaled approximately $8.3
million on September 30, 1997. In conjunction with the refinancing, the Company
recorded a loss on extinguishment of debt of approximately $3.4 million in the
first quarter of fiscal year 1998.
In connection with the Company's change in strategic direction
and asset sales, the Credit Agreement and Subordinated Note Purchase Agreements
were amended and restated on March 27, 1998, May 20, 1998, June 29, 1998 and
July 29, 1998 and amended and restated as of September 30, 1998 (the "Amended
and Restated Credit Facility"). The Amended and Restated Credit Facility also
extended the maturity of the debt to September 30, 1999. During the fourth
quarter of fiscal year end June 30, 1998, the Company prepaid a portion of the
Senior Credit Facility and recorded a loss on extinguishment of $0.9 million.
As required by the Amended and Restated Credit Facility, in
September 1998 the Company used the net proceeds from the sales of assets to (i)
repay in full the Term Loans, (ii) repay in full the Series A Bridge Notes,
(iii) redeem all of the outstanding shares of the Series 1997 Preferred Stock,
including accrued dividends, (iv) pay $1.5 million in previously incurred fees
to the financial institution and (v) repay a portion of the Revolving Credit
Loan.
In connection with the aforementioned prepayment of
indebtedness and refinancing, during the six months ended December 31, 1998, the
Company recorded a loss from early extinguishment of debt of approximately $2.8
million.
On October 30, 1998, the Company refinanced the Amended and
Restated Credit Facility with proceeds from a credit facility consisting of term
and revolving credit debt totaling $22.0 million (the "Senior Credit Facility").
Under the terms of the Senior Credit Facility, the Company was
provided with (i) a term loan of $8.0 million (the "Term Loan"), payable in 54
monthly installments ranging from $0.1 million to $0.2 million, beginning May 1,
1999, with a final installment of $1.0 million due on October 30, 2003, (ii) a
revolving credit facility (the "Revolver") for an amount up to the lesser of
$8.0 million or the borrowing base of the Company's receivables (as defined in
the agreement) and (iii) an acquisition loan (the "Acquisition Loan") commitment
of up to $6.0 million, beginning March 1, 1999. As of March 17, 1999, $0.5
million had been drawn under the Revolver. No amounts had been drawn under the
Acquisition Loan.
Interest on the Term Loan and the Revolver varies, and at the
option of the Company, would equal (i) a function of a base rate plus a margin
ranging from 0.5% to 2.0% (9.75% at December 31, 1998), based on the Company's
ratio of total indebtedness to EBITDA (as defined in the Senior Credit Facility)
or (ii) a function of the Eurodollar rate plus a margin ranging from 2.0% to
3.5%, based on the Company's ratio of total indebtedness to EBITDA.
Interest on the Acquisition Loan varies, and at the option of
the Company, would equal (i) a function of a base rate plus a margin ranging
from 0.75% to 2.25%, based on the Company's ratio of total indebtedness to
EBITDA or (ii) a function of the Eurodollar rate plus a margin ranging from
2.25% to 3.75%, based on the Company's ratio of total indebtedness to EBITDA.
25
<PAGE> 27
Additionally, the Company is obligated to pay to the financial
institution an amount equal to one half of 1% of the unused portion of the
Revolver and the Acquisition Loan.
The Senior Credit Facility requires that the Company meet
certain covenants, including (i) the maintenance of certain fixed charge
coverage, interest coverage and leverage ratios, (ii) the maintenance of certain
proforma availability levels (as defined in the Senior Credit Facility) and
(iii) a limitation on capital expenditures. The Senior Credit Facility also
prohibits the payment of cash dividends to common stockholders of the Company
until the Company's EBITDA exceeds $7.8 million.
The Company failed to maintain the required fixed charge
coverage, interest coverage and leverage ratios as of December 31, 1998. The
Company's lender has agreed to waive these requirements as of December 31, 1998
and amend the definition of EBITDA for purposes of calculating the covenants in
the future.
The Company has pledged substantially all of its real
property, receivables and other assets as collateral for the Senior Credit
Facility.
On March 25, 1998, the Company entered into a Junior
Subordinated Note Purchase Agreement, with a corporate affiliate of Mr. Ramsay
in an aggregate principal amount of $5.0 million plus accrued interest. On
December 16, 1998, the Company and the corporate affiliate of Mr. Ramsay agreed
to convert the outstanding balance of the junior subordinated note, including
accrued interest, into 1,071,227 shares of the Company's Common Stock (see "Item
8. Notes to Consolidated Financial Statements" - "Note 9. Stockholders' Equity
and Redeemable Preferred Stock").
During the six months ended December 31, 1998, the Company and
the corporate affiliate of Mr. Ramsay agreed to (i) convert the outstanding
balance of the Series B Bridge Note, including accrued interest, into 609,123
shares of the Company's Common Stock and (ii) convert the Series 1997-A
Preferred Stock, including accrued dividends, into 1,310,227 shares of the
Company's Common Stock (see "Item 8. Notes to Consolidated Financial Statements"
- - "Note 9. Stockholders' Equity and Redeemable Preferred Stock").
In fiscal 1997, the Company contemplated a separate
refinancing of its credit facilities and in connection therewith, the Company
entered into a derivative transaction in March 1997 to fix the interest rate on
the underlying debt instrument. As a result of the Company's decision to
refinance its credit facilities as described above, in the fourth quarter of
fiscal 1997, the Company recorded income on the derivative transaction of
approximately $1.3 million and wrote-off approximately $0.6 million of costs
directly related to this previous refinancing effort.
The Company's current cash requirements relate to its normal
operating expenses and routine capital improvements at its youth service
facilities, the expansion of its youth service business, the payment of
restructuring changes, principally severance, and the payment of liabilities
associated with the sales of its Divested Assets.
Management of the Company believes that it can meet its
current cash requirements and future identifiable needs with internally
generated funds from operations and the Senior Credit Facility.
As previously mentioned, on October 30, 1998, the Company
completed the private placement of an aggregate of 1,037,037 shares of Common
Stock to its Chief Executive Officer, Paul Ramsay Holdings Pty. Limited ("Ramsay
Holdings"), a corporate affiliate of Paul J. Ramsay, the Chairman of the Board
of the Company and the principal stockholder of the Company, and other unrelated
persons, all at a price per share of $3 3/8, the closing bid price of the Common
Stock on The NASDAQ Stock Market of October 26, 1998 (the date of the various
subscription agreements).
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
26
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of the Registrant and
its subsidiaries are submitted herewith in response to Item 8 and Item 14(a)(1):
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Certified Public Accountants................... 28
Consolidated Balance Sheets - December 31, 1998, June 30, 1998
and June 30, 1997............................................... 29
Consolidated Statements of Operations - For the Six Months
Ended December 31, 1998 and 1997 (unaudited) and for the
Years Ended June 30, 1998, 1997 and 1996........................ 31
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity - For the Six Months Ended December 31, 1998 and for
the Years Ended June 30, 1998, 1997 and
1996............................................................ 32
Consolidated Statements of Cash Flows - For the Six Months Ended December 31,
1998 and 1997 (unaudited) and for the
Years Ended June 30, 1998, 1997 and 1996........................ 33
Notes to Consolidated Financial Statements........................... 34
</TABLE>
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
27
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ramsay Youth Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ramsay
Youth Services, Inc. and subsidiaries (the "Company") as of December 31, 1998,
June 30, 1998, and June 30, 1997, and the related consolidated statements of
operations, redeemable preferred stock and stockholders' equity, and cash flows
for the six month period ended December 31, 1998 and for each of the three years
in the period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ramsay
Youth Services, Inc. and subsidiaries at December 31, 1998, June 30, 1998 and
June 30, 1997, and the consolidated results of their operations and their cash
flows for the six month period ended December 31, 1998 and for each of the three
years in the period ended June 30, 1998 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Miami, Florida
March 15, 1999
28
<PAGE> 30
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ---------------------------
1998 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ....................... $ 1,422,000 $ 2,907,000 $ 1,723,000
Accounts receivable, net ........................ 12,859,000 12,023,000 25,802,000
Amounts due from third-party contractual agencies 4,699,000 7,114,000 5,653,000
Other receivables ............................... 2,420,000 2,138,000 3,139,000
Other current assets ............................ 1,100,000 1,084,000 1,699,000
Net assets held for sale ........................ -- 25,768,000 --
------------ ------------ ------------
Total current assets ........................ 22,500,000 51,034,000 38,016,000
Other assets
Cash held in trust .............................. 1,856,000 1,964,000 827,000
Cost in excess of net asset value of purchased
businesses .................................... 1,792,000 1,318,000 19,281,000
Other intangible assets ......................... 578,000 -- 4,680,000
Unamortized loan costs .......................... 1,041,000 2,397,000 1,837,000
Deferred income taxes ........................... -- -- 9,411,000
Other noncurrent assets ......................... -- -- 1,155,000
Net assets held for sale ........................ 2,044,000 -- --
------------ ------------ ------------
Total other assets .......................... 7,311,000 5,679,000 37,191,000
Property and equipment
Land ............................................ 2,721,000 2,648,000 5,025,000
Buildings and improvements ...................... 28,456,000 29,698,000 71,190,000
Equipment, furniture and fixtures ............... 12,148,000 11,422,000 22,294,000
------------ ------------ ------------
43,325,000 43,768,000 98,509,000
Less accumulated depreciation ................... 16,998,000 15,390,000 32,527,000
------------ ------------ ------------
26,327,000 28,378,000 65,982,000
------------ ------------ ------------
$ 56,138,000 $ 85,091,000 $141,189,000
============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE> 31
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ------------------------------
1998 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ....................................... $ 4,891,000 $ 6,040,000 $ 7,284,000
Accrued salaries and wages ............................. 2,533,000 3,973,000 6,282,000
Hospital and medical claims payable .................... -- -- 1,975,000
Other accrued liabilities .............................. 9,893,000 9,609,000 5,218,000
Amounts due to third-party contractual agencies ........ 7,565,000 8,853,000 7,075,000
Current portion of long-term debt ...................... 675,000 21,219,000 222,000
------------- ------------- -------------
Total current liabilities ........................ 25,557,000 49,694,000 28,056,000
Noncurrent liabilities
Other accrued liabilities .............................. 10,817,000 13,046,000 6,617,000
Long-term debt, less current portion ................... 7,332,000 14,398,000 35,632,000
Short term debt expected to be refinanced .............. -- -- 11,622,000
Minority interests ..................................... -- 25,000 80,000
Redeemable preferred stock ................................ -- 6,740,000 --
Commitments and contingencies
Stockholders' equity
Class B convertible preferred stock, Series C, $1 par
value - authorized 152,321 shares; none issued or
outstanding at December 31, 1998, 142,486 shares
issued and outstanding at June 30, 1998 and 1997 ... -- 414,000 504,000
Class B convertible preferred stock, Series 1996, $1 par
value - authorized 100,000 shares; none issued or
outstanding at December 31, 1998, 100,000 shares
issued and outstanding at June 30, 1998 and 1997 ... -- 3,113,000 3,121,000
Common stock $.01 par value - authorized 30,000,000
shares; issued 9,079,245 shares at December 31,
1998, 3,817,800 shares at June 30, 1998 and
3,716,880 shares at June 30, 1997 .................. 90,000 38,000 37,000
Additional paid-in capital ............................. 126,075,000 107,093,000 106,407,000
Accumulated deficit .................................... (109,834,000) (105,571,000) (46,988,000)
Treasury stock - 193,850 common shares at December 31,
1998, June 30, 1998 and June 30, 1997, at cost ..... (3,899,000) (3,899,000) (3,899,000)
------------- ------------- -------------
Total stockholders' equity ..................... 12,432,000 1,188,000 59,182,000
------------- ------------- -------------
$ 56,138,000 $ 85,091,000 $ 141,189,000
============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE> 32
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER YEAR ENDED JUNE 30,
31,
---------------------------- -------------------------------------------
1998 1997 1998 1997 1996
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Provider-based revenue...................... $47,892,000 $64,327,000 $130,884,000 $132,705,000 $116,305,000
Managed care revenue........................ --- 13,208,000 24,313,000 1,964,000 ---
------------- ------------- ------------- ------------- -------------
TOTAL REVENUES................................. 47,892,000 77,535,000 155,197,000 134,669,000 116,305,000
------------- ------------- ------------- ------------- -------------
Operating Expenses:
Salaries, wages and benefits................ 28,313,000 39,604,000 82,740,000 67,793,000 66,259,000
Other operating expenses.................... 17,470,000 23,313,000 53,486,000 45,115,000 42,387,000
Managed care patient costs.................. --- 5,396,000 10,766,000 1,704,000 ---
Provision for doubtful accounts............. 1,549,000 2,193,000 6,649,000 5,688,000 5,805,000
Depreciation and amortization............... 1,627,000 3,281,000 5,714,000 5,473,000 5,490,000
Restructuring charges....................... --- --- 2,349,000 --- ---
Asset impairment charges.................... --- --- 18,316,000 --- 5,485,000
------------- ------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES....................... 48,959,000 73,787,000 180,020,000 125,773,000 125,426,000
------------- ------------- ------------- ------------- -------------
Income (loss) from operations (1,067,000) 3,748,000 (24,823,000) 8,896,000 (9,121,000)
Non-operating income (expenses):
Investment income and other................. 178,000 197,000 256,000 2,050,000 1,118,000
Gain on sale of assets...................... 2,039,000 --- --- --- ---
Interest and other financing charges........ (1,655,000) (2,791,000) (7,230,000) (5,942,000) (6,892,000)
Losses related to asset sales and closed
businesses............................... (947,000) --- (12,483,000) --- (4,473,000)
------------- ------------- ------------- ------------- -------------
Total non-operating expenses, net......... (385,000) (2,594,000) (19,457,000) (3,892,000) (10,247,000)
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM.......................... (1,452,000) 1,154,000 (44,280,000) 5,004,000 (19,368,000)
Provision (benefit) for income taxes........... --- --- 9,981,000 1,726,000 (2,887,000)
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (1,452,000) 1,154,000 (54,261,000) 3,278,000 (16,481,000)
Extraordinary item:
Loss from early extinguishment of debt...... (2,811,000) (3,574,000) (4,322,000) --- ---
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS).............................. $(4,263,000) $(2,420,000) $(58,583,000) $3,278,000 $(16,481,000)
============= ============= ============= ============= =============
Income (loss) attributable to common
stockholders before extraordinary item...... $(2,108,000) $750,000 $(55,226,000) $2,916,000 $(16,843,000)
Extraordinary item............................. (2,811,000) (3,574,000) (4,322,000) --- ---
------------- ------------- ------------- ------------- -------------
Income (loss) attributable to common stockholders $(4,919,000) $(2,824,000) $(59,548,000) $2,916,000 $(16,843,000)
============= ============= ============= ============= =============
Income (loss) per common share:
Basic:
Before extraordinary item................. $(.47) $.21 $(15.36) $1.04 $(6.37)
Extraordinary item:
Loss from early extinguishment of debt.. (.63) (1.00) (1.20) --- ---
------------- ------------- ------------- ------------- -------------
$(1.10) $(.79) $(16.56) $1.04 $(6.37)
============= ============= ============= ============= =============
Diluted:
Before extraordinary item................. $(.47) $.18 $(15.36) $.96 $(6.37)
Extraordinary item:
Loss from early extinguishment of debt.. (.63) (.86) (1.20) --- ---
------------- ------------- ------------- ------------- -------------
$(1.10) $(.68) $(16.56) $.96 $(6.37)
============= ============= ============= ============= =============
Weighted average number of common
shares outstanding:
Basic....................................... 4,487,000 3,574,000 3,595,000 2,801,000 2,643,000
============= ============= ============= ============= =============
Diluted..................................... 4,487,000 4,139,000 3,595,000 3,409,000 2,643,000
============= ============= ============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
,
31
<PAGE> 33
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE CLASS B CLASS B
REDEEMABLE REDEEMABLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK COMMON
SERIES 1997 SERIES 1997-A SERIES C SERIES 1996 STOCK
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995 $ -- $ -- $ 233,000 $ -- $ 28,000
Exercise of stock options
(3,000 shares) ............... -- -- -- -- --
Shares issued in connection
with employee stock purchase
plan (21,760 shares) ......... -- -- -- -- --
Other shares issued (289,553
shares) ...................... -- -- -- -- 1,000
Dividends on Class B
convertible preferred stock,
Series C ..................... -- -- -- -- --
Net loss ....................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 1996 -- -- 233,000 -- 29,000
Shares issued in connection
with employee stock purchase
plan (5,286 shares) .......... -- -- -- -- --
Shares issued in connection
with management and
directors' fees (131,282
shares) ...................... -- -- -- -- 1,000
Issuance of common stock
(711,942 shares) and Series
1996 preferred stock (100,000
shares and accrued dividends
of $121,000) in connection
with merger, net of costs .... -- -- -- 3,121,000 7,000
Issuance of warrants (83,333
shares) ...................... -- -- -- -- --
Dividends on Class B
convertible preferred stock, . --
Series C ..................... -- -- 271,000 -- --
Net income ..................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 1997 -- -- 504,000 3,121,000 37,000
Issuance of preferred stock .... 2,400,000 4,000,000 -- -- --
Dividends on Series 1997
preferred stock .............. 69,000 -- -- -- --
Dividends on Series 1997-A
preferred stock .............. -- 271,000 -- -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... -- -- 362,000 -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. -- -- -- 150,000 --
Accrued dividends exchanged for
preferred stock, Series 1997-A -- -- (452,000) (158,000) --
Issuance of common stock
(83,333 shares) in connection
with merger .................. -- -- -- -- 1,000
Issuance of warrants (166,667
shares) in connection with
merger ....................... -- -- -- -- --
Issuance of common stock in
connection with employee
stock purchase plan (6,486
shares) ...................... -- -- -- -- --
Exercise of stock options
(11,100 shares) .............. -- -- -- -- --
Issuance of options to purchase
common stock ................. -- -- -- -- --
Net loss ....................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 1998 2,469,000 4,271,000 414,000 3,113,000 38,000
Issuance of common stock in
connection with employment
agreement (33,333 shares) .... -- -- -- -- --
Issuance of common stock in
connection with employee
stock purchase plan (2,044
shares) ...................... -- -- -- -- --
Issuance of common stock
(1,037,037 shares) in
connection with private
placement, net of costs ...... -- -- -- -- 10,000
Dividends on Class B
convertible redeemable Series
1997 preferred stock ......... (69,000) -- -- -- --
Dividends on Class B redeemable
Series 1997-A preferred stock -- 151,000 -- -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... -- -- 166,000 -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. -- -- -- 68,000 --
Redemption of preferred stock,
Series 1997 .................. (2,625,000) -- -- -- --
Redemption premium on preferred
stock, Series 1997 ........... 125,000 -- -- -- --
Accretion of offering costs on
preferred stock .............. 100,000 -- -- -- --
Issuance of common stock
(1,310,222 shares) in
connection with conversion of
Class B redeemable preferred
stock, Series 1997-A ......... -- (4,422,000) -- -- 13,000
Issuance of common stock
(753,285 shares) in
connection with
conversion of Class B
convertible preferred stock,
Series C ..................... -- -- (580,000) -- 8,000
Issuance of common stock
(445,469 shares) in
connection with conversion of
Class B convertible preferred
stock, Series 1996 ........... -- -- -- (3,181,000) 4,000
Issuance of common stock
(609,123 shares) in
connection with conversion of
Senior Subordinated Bridge
Note, including accrued
interest ..................... -- -- -- -- 6,000
Issuance of common stock
(1,071,227 shares) in
connection with conversion of
Junior Subordinated Note,
including accrued interest ... -- -- -- -- 11,000
Net loss ....................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 1998 ...
$ -- $ -- $ -- $ -- $ 90,000
============= ============= ============= ============= =============
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED TREASURY
CAPITAL (DEFICIT) STOCK
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1995 ....... $ 99,202,000 $ (33,785,000) $ (3,899,000)
Exercise of stock options
(3,000 shares) ............... 10,000 -- --
Shares issued in connection
with employee stock purchase
plan (21,760 shares) ......... 70,000 -- --
Other shares issued (289,553
shares) ...................... 1,036,000 -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... (362,000) -- --
Net loss ....................... -- (16,481,000) --
------------- ------------- -------------
BALANCE AT JUNE 30, 1996 ....... 99,956,000 (50,266,000) (3,899,000)
Shares issued in connection
with employee stock purchase
plan (5,286 shares) .......... 40,000 -- --
Shares issued in connection
with management and
directors' fees (131,282
shares) ...................... 921,000 -- --
Issuance of common stock
(711,942 shares) and Series
1996 preferred stock (100,000
shares and accrued dividends
of $121,000) in connection
with merger, net of costs .... 5,640,000 -- --
Issuance of warrants (83,333
shares) ...................... 212,000 -- --
Dividends on Class B
convertible preferred stock, .
Series C ..................... (362,000) -- --
Net income ..................... -- 3,278,000 --
------------- ------------- -------------
BALANCE AT JUNE 30, 1997 ....... 106,407,000 (46,988,000) (3,899,000)
Issuance of preferred stock .... -- -- --
Dividends on Series 1997
preferred stock .............. (181,000) -- --
Dividends on Series 1997-A
preferred stock .............. (271,000) -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... (362,000) -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. (150,000) -- --
Accrued dividends exchanged for
preferred stock, Series 1997-A -- -- --
Issuance of common stock
(83,333 shares) in connection
with merger .................. 812,000 -- --
Issuance of warrants (166,667
shares) in connection with
merger ....................... 657,000 -- --
Issuance of common stock in
connection with employee
stock purchase plan (6,486
shares) ...................... 46,000 -- --
Exercise of stock options
(11,100 shares) .............. 112,000 -- --
Issuance of options to purchase
common stock ................. 23,000 -- --
Net loss ....................... -- (58,583,000) --
------------- ------------- -------------
BALANCE AT JUNE 30, 1998 ....... 107,093,000 (105,571,000 (3,899,000)
Issuance of common stock in
connection with employment
agreement (33,333 shares) .... 175,000 -- --
Issuance of common stock in
connection with employee
stock purchase plan (2,044
shares) ...................... 10,000 -- --
Issuance of common stock
(1,037,037 shares) in
connection with private
placement, net of costs ...... 3,304,000 -- --
Dividends on Class B
convertible redeemable Series
1997 preferred stock ......... (45,000) -- --
Dividends on Class B redeemable
Series 1997-A preferred stock (150,000) -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... (166,000) -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. (68,000) -- --
Redemption of preferred stock,
Series 1997 .................. -- --
Redemption premium on preferred
stock, Series 1997 ........... (125,000) -- --
Accretion of offering costs on
preferred stock .............. (100,000) -- --
Issuance of common stock
(1,310,222 shares) in
connection with conversion of
Class B redeemable preferred
stock, Series 1997-A ......... 4,409,000 -- --
Issuance of common stock
(753,285 shares) in
connection with with
conversion of Class B
convertible preferred stock,
Series C ..................... 572,000 -- --
Issuance of common stock
(445,469 shares) in
connection with conversion of
Class B convertible preferred
stock, Series 1996 ........... 3,177,000 -- --
Issuance of common stock
(609,123 shares) in
connection with conversion of
Senior Subordinated Bridge
Note, including accrued
interest ..................... 2,577,000 -- --
Issuance of common stock
(1,071,227 shares) in
connection with conversion of
Junior Subordinated Note,
including accrued interest ... 5,412,000 -- --
Net loss ....................... -- (4,263,000) --
------------- ------------- -----------
BALANCE AT DECEMBER 31, 1998 ... $ 126,075,000 $(109,834,000) $(3,899,000)
============= ============= ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
32
<PAGE> 34
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------------- ------------------------------------------
1998 1997 1998 1997 1996
------------- ------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) ............................... $ (4,263,000) $ (2,420,000) $(58,583,000) $ 3,278,000 $(16,481,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation ................................. 349,000 1,125,000 2,229,000 1,152,000 1,512,000
Amortization, including loan costs ........... 1,316,000 2,299,000 4,123,000 4,681,000 4,491,000
Asset impairment charges ..................... -- -- 18,316,000 -- 5,485,000
Loss from early extinguishment of debt ....... 2,811,000 3,574,000 4,322,000 -- --
Write-off of development and other costs ..... -- -- -- 571,000 381,000
Loss related to asset sales and closed
businesses ................................. 947,000 -- 12,483,000 -- --
Gain on sale of assets ....................... (2,039,000) -- -- -- --
Provision (benefit) for deferred income taxes -- -- 9,411,000 1,222,000 (2,887,000)
Provision for doubtful accounts .............. 1,549,000 2,193,000 6,649,000 5,688,000 5,805,000
Management and director fees paid in common
stock ...................................... -- -- -- 922,000 600,000
Expenses paid with equity instruments ........ -- -- 23,000 212,000 --
Change in operating assets and liabilities net of
effects of business acquired
Accounts receivable .......................... (1,588,000) (3,426,000) (5,031,000) (6,992,000) (7,651,000)
Other current assets ......................... 1,987,000 (567,000) (876,000) 1,287,000 (1,632,000)
Accounts payable ............................. (1,182,000) (2,075,000) 1,011,000 1,505,000 1,105,000
Accrued salaries, wages and other liabilities. (5,448,000) (819,000) 5,713,000 (2,536,000) 9,202,000
Amounts due to third-party contractual
agencies .................................. (1,288,000) 63,000 1,778,000 (1,360,000) 3,439,000
------------ ------------ ------------ ------------ ------------
Total adjustments ....................... (2,586,000) 2,367,000 60,151,000 6,352,000 19,850,000
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities . (6,849,000) (53,000) 1,568,000 9,630,000 3,369,000
------------ ------------ ------------ ------------ ------------
Investing activities
Increase in net assets held for sale ............. (969,000) -- -- -- --
Proceeds from sale of subsidiary and property and
equipment ...................................... 29,600,000 -- 21,505,000 -- --
Expenditures for property and equipment .......... (1,252,000) (2,760,000) (7,777,000) (3,490,000) (1,467,000)
Preopening costs ................................. -- (35,000) -- (386,000) --
Acquisition of business, net of cash acquired .... (969,000) (300,000) (300,000) -- --
Cash held in trust ............................... 108,000 (3,000) (1,137,000) 268,000 1,033,000
Other noncurrent assets .......................... -- -- (892,000) 237,000 225,000
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities . 26,518,000 (3,098,000) 11,399,000 (3,371,000) (209,000)
------------ ------------ ------------ ------------ ------------
Financing activities
Loan costs ....................................... (1,629,000) (3,079,000) (3,231,000) (1,755,000) (217,000)
Payment of costs related to acquisition .......... -- -- -- (365,000) --
Amounts received from affiliate .................. 1,071,000 -- 6,429,000 1,124,000 --
Distributions to minority interests .............. -- -- -- (900,000) (742,000)
Proceeds from acquisition of subsidiary .......... -- -- -- 1,474,000 --
Net proceeds from exercise of options and stock
purchases ...................................... 10,000 130,000 158,000 40,000 517,000
Proceeds from issuance of debt ................... 10,000,000 54,900,000 50,786,000 -- --
Payments on debt ................................. (31,181,000) (50,851,000) (68,768,000) (10,906,000) (3,795,000)
Payments of costs related to early extinguishment
of debt ........................................ -- (2,229,000) (2,229,000) -- --
Payment of preferred stock dividends ............. (114,000) (57,000) (112,000) (91,000) (362,000)
Proceeds from issuance of preferred stock ........ -- 5,284,000 5,284,000 -- --
Redemption of preferred stock .................... (2,625,000) -- -- -- --
Proceeds from issuance of common stock, net ...... 3,314,000 -- -- -- --
Payment of costs related to issuance of stock .... -- (100,000) (100,000) (762,000) --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities . (21,154,000) 3,998,000 (11,783,000) (12,141,000) (4,599,000)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,485,000) 847,000 1,184,000 (5,882,000) (1,439,000)
Cash and cash equivalents at beginning of period .... 2,907,000 1,723,000 1,723,000 7,605,000 9,044,000
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period .......... $ 1,422,000 $ 2,570,000 $ 2,907,000 $ 1,723,000 $ 7,605,000
============ ============ ============ ============ ============
Cash paid during the period for:
Interest (net of amount capitalized) ........... $ 1,343,000 $ 969,000 $ 6,276,000 $ 4,663,000 $ 5,260,000
============ ============ ============ ============ ============
Income taxes .................................... $ 356,000 $ 458,000 $ 773,000 $ 129,000 $ 249,000
============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE> 35
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the Six Month Period Ended December 31, 1997 is Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INDUSTRY
The Company is a provider and manager of education and treatment
services for at-risk and troubled youth in a variety of settings nationwide. The
Company offers its full continuum of education, treatment and aftercare programs
and services through schools, residential facilities and service contracts
located in Alabama, Florida, Missouri, Michigan, North Carolina, Nevada, South
Carolina, Utah and the Commonwealth of Puerto Rico.
During the year ended June 30, 1998, the Company announced a change in
strategic direction in order to focus on becoming a leader in the at-risk youth
industry.
In connection with its revised strategic initiative, during the year
ended June 30, 1998 and the six months ended December 31, 1998, the Company sold
certain of its psychiatric inpatient facilities, its managed care operations and
other non-youth service business (see Note 2).
The Company changed its fiscal year end from June 30 to December 31,
effective December 1998. The financial statements presented include the
transition period consisting of the six months ended December 31, 1998.
On January 13, 1999, the Company's Board of Directors approved a
one-for-three reverse stock split of the Company's Common Stock which became
effective March 15, 1999. As a result, all references herein to common stock,
per share amounts and stock options and warrants data have been restated to give
retroactive recognition to such reverse stock split.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ramsay
Youth Services, Inc. and its majority-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company provides services to individuals without insurance and
accepts assignments of individuals' third party benefits without requiring
collateral. Exposure to losses on receivables due from these individuals is
principally dependent on each individual's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company carries accounts receivable at the amount it deems to be
collectible. Accordingly, the Company provides allowances for accounts it deems
to be uncollectible based on management's best estimates. Recoveries are
recognized in the period they are received. The ultimate amount of accounts
receivable that becomes uncollectible could differ from those estimated.
34
<PAGE> 36
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
CASH EQUIVALENTS
Cash equivalents include short-term, highly liquid, interest-bearing
investments consisting primarily of money market mutual funds. Deposits in banks
may exceed the amount of insurance provided on such deposits. The Company
performs reviews of the credit worthiness of its depository banks. The Company
has not experienced any losses on its deposits of cash in banks.
CASH HELD IN TRUST
In addition, at December 31, 1998 and June 30, 1998, cash held in trust
includes $1,000,000 of cash held in escrow from the June 2, 1998 sale of the
Company's managed care business and $350,000 from the April 1, 1997 sale of an
HMO subsidiary by the entity which was acquired by the Company on June 10, 1997
(see Note 2 and Note 16).
Cash held in trust includes cash and short-term investments set-aside
for the payment of losses in connection with the Company's self-insured
retentions for hospital professional and general liability claims.
INTANGIBLE ASSETS AND DEFERRED COSTS
Cost in excess of net asset value of purchased businesses relates to
certain acquisitions made by the Company (see Notes 5 and 6). These amounts are
being amortized on a straight-line basis over a term ranging from 3 to 40 years
with a weighted average life of approximately 20 years. During the year ended
June 30, 1998, the Company sold the operations of FPM Behavioral Health, Inc.
(FPM) and, in connection with the sale, disposed of approximately $20,993,000 of
cost in excess of net asset value of purchased businesses.
The Company periodically reviews its intangible assets to assess
recoverability. The carrying value of cost in excess of net asset value of
purchased businesses is reviewed by the Company's management if the facts and
circumstances suggest that it may be impaired. The amount of impairment, if any,
would be measured based on discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
Loan costs are deferred and amortized ratably over the life of the loan
and are included in interest and other financing charges. When a loan or a
portion thereof is paid in advance of scheduled maturity, a proportionate amount
of deferred loan costs associated with the borrowing is written off and reported
as an extraordinary loss from early extinguishment of debt in the Company's
consolidated statement of operations.
Accumulated amortization of the Company's cost in excess of net asset
value of purchased businesses, other intangible assets and loan costs as of
December 31, 1998, June 30, 1998 and June 30, 1997 was $2,621,000, $4,560,000
and $7,671,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, except for assets considered
to be impaired pursuant to Statement of Financial Accounting Standards (SFAS)
No. 121 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF, which are stated at fair value of the assets as of the
date the assets are determined to be impaired. Upon the sale or retirement of
property and equipment, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in
operations.
35
<PAGE> 37
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Depreciation is computed substantially on the straight-line method for
financial reporting purposes and on accelerated methods for income tax purposes.
Depreciation is not recorded on assets determined to be impaired during the
period they are held for sale. The general range of estimated useful lives for
financial reporting purposes is twenty to forty years for buildings and five to
twenty years for equipment. For the six months ended December 31, 1998 and 1997
and the years ended June 30, 1998, 1997 and 1996, depreciation expense recorded
on the Company's property and equipment totaled $1,316,000, $2,299,000,
$4,123,000, $4,681,000 and $4,491,000, respectively.
MEDICARE, MEDICAID AND OTHER CONTRACTED REIMBURSEMENT PROGRAMS
Revenues are recognized at the time services are provided. Net revenues
include estimated reimbursable amounts from Medicare, Medicaid and other
contracted reimbursement programs. Amounts received by the Company for treatment
of individuals covered by such programs, which may be based on the cost of
services provided or predetermined rates, are generally less than the
established billing rates of the Company's facilities. Final determination of
amounts earned under contracted reimbursement programs is subject to review and
audit by the appropriate agencies. Differences between amounts recorded as
estimated settlements and the audited amounts are reflected as adjustments to
provider based revenues in the period the final determination is made (see Note
13).
During the year ended June 30, 1998, the Company also received
capitated amounts for behavioral healthcare services provided to individuals
covered by certain managed care contracts. Capitated revenues are recognized
during the period in which enrolled lives are covered for capitated payments
received. Revenue received from the management of facilities not owned by the
Company and for case management, utilization review and quality assurance
oversight on the delivery of behavioral healthcare services by independent
providers on behalf of clients is recognized at the time the services are
provided.
MEDICAL EXPENSES
The Company records the cost of medical services when such services are
provided.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains self-insured retentions related to its
professional and general liability insurance program. The Company's operations
are insured for professional liability on a claims-made basis and for general
liability on an occurrence basis. The Company records the liability for
uninsured professional and general liability losses related to asserted and
unasserted claims arising from reported and unreported incidents based on
independent valuations which consider claim development factors, the specific
nature of the facts and circumstances giving rise to each reported incident and
the Company's history with respect to similar claims. The development factors
are based on a blending of the Company's actual experience with industry
standards.
INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which simplifies and replaces the
standards for computing earnings per share previously required in APB Opinion
No. 15, EARNINGS PER SHARE, and makes them comparable to international
36
<PAGE> 38
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
earnings per share standards. SFAS No. 128, which became effective for financial
statements issued for periods ending after December 15, 1997, requires
restatement of prior year earnings (loss) per share calculations. Accordingly,
the Company changed the method used to compute earnings per share and has
restated all prior periods.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares on the
date of grant. The Company adopted SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, during fiscal 1997, and will continue to account for stock option
grants in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and, accordingly, recognizes no compensation
expense for stock options granted.
FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable from services, and accounts payable approximate
fair value as of December 31, 1998 due to the short maturity of the instruments
and reserves for potential losses, as applicable. The carrying amounts of
long-term debt obligations issued pursuant to the Company's bank credit
agreements and revolving credit facility approximate fair value because the
interest rates on these instruments is subject to change with market interest
rates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform with the 1998 presentation.
2. ASSET SALES AND CLOSED BUSINESSES
As mentioned previously, in connection with its revised strategic
initiative, the Company identified for divestiture and sold certain of its
psychiatric inpatient facilities, its managed care operations and other
non-youth service businesses during the year ended June 30, 1998 and the six
months ended December 31, 1998.
On May 4, 1998, the Company sold its Three Rivers facility, which had
been closed since June 30, 1995, for $2,000,000. Proceeds from the sale included
a $500,000 cash payment at closing and a $1,500,000, 12% promissory note, due
and payable on May 1, 1999. The note receivable is reflected in other
receivables in the accompanying balance sheet.
On June 2, 1998, the Company sold FPM Behavioral Health, Inc. ("FPM"),
its wholly owned managed behavioral health care business, for a cash purchase
price of $20,000,000, subject to certain future potential purchase price
adjustments. In February 1999, the Company paid $1,222,000 in purchase price
adjustments relating to the FPM sale effectively reducing the purchase price to
$18,788,000. Management had reserved $1.8 million at June 30, 1998 for this
contingency. The difference has been recorded in losses related to asset sales
and closed businesses in the statement of operations for the six months ended
December 31, 1998. Management believes that any future adjustments to the
purchase price will not have a material adverse effect on the Company's results
of operations. For the eleven-month period ended May 31, 1998, net income before
taxes of the managed care business was $2,468,000 on revenues of $24,314,000.
On June 2, 1998, the Company also sold its Greenbrier facility to an
unrelated third-party for a cash purchase price of $1,600,000. The Greenbrier
facility had a pre-tax net loss of $1,205,000 on revenues of $5,571,000 for the
eleven-month period ended May 31, 1998.
37
<PAGE> 39
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On September 28, 1998, the Company consummated a sale/leaseback
transaction whereby the Company sold the land, building and fixed equipment of
its Havenwyck facility in Auburn Hills, Michigan for the land, building and
fixed equipment of its leased Desert Vista facility in Mesa, Arizona and
$1,350,000 in cash. In connection with the sale/leaseback, the Company agreed to
leaseback the Havenwyck facility over a term of approximately 12 years. The
lease, which will be treated as an operating lease under generally accepted
accounting principles, currently requires annual minimum lease payments of
approximately $1,263,000, payable monthly.
On September 28, 1998, the Company completed its previously announced
sale of its management contract services division and behavioral health care
facilities in Conway, South Carolina, Houma, Louisiana, Mesa, Arizona and
DeSoto, Texas for a cash purchase price of $13,500,000. Under the provision of
the sale agreement, the purchase price is subject to adjustment based on the
change in working capital, as defined in the agreement. The acquiree has claimed
that an adjustment of working capital of up to $1.2 million is required. The
Company disputes this amount. The Company believes that an adequate provision
for this contingency has been accrued for as of December 31, 1998.
On November 3, 1998, the Company was released from its lease obligation
at its behavioral health care facility in Salt Lake City, Utah. The Company
ceased operations at this facility on December 31, 1998.
During the fourth quarter of fiscal year ended June 30, 1998, the
Company recorded asset impairment charges of $17,576,000 relating to these sales
(see Note 3). In addition, during the year ended June 30, 1998 and the six
months ended December 31, 1998, the Company recorded losses related to the
foregoing asset sales and closed businesses of $12,483,000 and $947,000,
respectively.
On September 30, 1998, the Company completed its previously announced
sale of its behavioral health care facility in Morgantown, West Virginia for a
cash purchase price of $14,800,000. The Company realized a gain on this
transaction of approximately $2,039,000. Under the provisions of the sale
agreement, the purchase price is subject to adjustment based on the change in
working capital, as defined in the agreement. The acquiree has claimed that an
adjustment of working capital of $200,000 is required. The Company disputes this
amount. The Company believes that an adequate provision for this contingency has
been accrued for as of December 31, 1998.
38
<PAGE> 40
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The assets and liabilities relating to the aforementioned sales, which
were consummated on September 28 and 30, 1998, are reflected in the accompanying
balance sheet as net assets held for sale at June 30, 1998. The assets and
liabilities relating to the Company's medical subacute and behavioral healthcare
facility in San Antonio, Texas and Palm Bay, Florida are reflected in the
accompanying balance sheet as net assets held for sale at December 31, 1998. The
following is a summary of these assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1998
---------------- --------------
<S> <C> <C>
Accounts receivable, less allowance for
doubtful accounts of $191,000 and $1,742,000 $832,000 $11,005,000
Other receivables 124,000 1,264,000
Other current assets 169,000 732,000
Other noncurrent assets --- 2,016,000
Property and equipment 3,717,000 49,895,000
Accumulated depreciation (723,000) (17,124,000)
Valuation allowance on property and equipment (1,159,000) (17,576,000)
Accounts payable (730,000) (1,889,000)
Accrued salaries and wages (149,000) (1,796,000)
Other accrued liabilities (17,000) (703,000)
Notes payable (20,000) (56,000)
================ ==============
Net assets held for sale $2,044,000 $25,768,000
================ ==============
</TABLE>
As of December 31, 1998, $16,492,000 of the valuation allowance had
been utilized leaving a balance of $1,159,000 to cover future charges. The costs
charged against the valuation allowance were related to the aforementioned asset
sales.
For the year ended June 30, 1998, revenues and net income before taxes
for the aforementioned assets totalled $67,130,000 and $2,863,000, respectively.
For the six months ended December 31, 1998, revenues and net loss before taxes
for the net assets held for sale totalled $4,573,000 and $341,000, respectively.
During fiscal 1996, the Company recorded losses totalling approximately
$4,500,000 related to additional asset write-downs, cost report settlements and
other adjustments related to businesses which closed at various times prior to
fiscal 1996, a reserve for disproportionate share payments which the State of
Louisiana has contended were improperly paid to two of the Company's Louisiana
facilities in fiscal 1995 and 1994 (see Note 15), and lease commitments and
other costs incurred in connection with the Company's decision to relocate its
corporate headquarters.
3. IMPAIRMENT OF ASSETS
As required by SFAS No. 121, the Company periodically reviews its
long-lived assets (land, buildings, fixed equipment, cost in excess of net asset
value of purchased businesses and other intangible assets) to determine if the
carrying value of these assets is recoverable, based on the future cash flows
expected from the assets. SFAS No. 121 addresses the accounting for the
impairment of long-lived assets and long-lived assets to be disposed of, certain
identifiable intangible assets and goodwill relating to these assets, and
provides guidance for recognizing and measuring impairment losses. The statement
requires that the carrying amount of impaired assets be reduced to fair value.
During the year ended June 30, 1998, the Company changed its strategic
direction and identified for divestiture certain of its businesses and
facilities. In connection with this decision, the Company recorded asset
impairment charges of $17,576,000 in connection with the assets held for sale at
June 30,
39
<PAGE> 41
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1998. The asset impairment charge was determined based on the difference between
the carrying value of the assets and the expected net proceeds from the sales.
In addition, as a result of the change in strategic direction, during the year
ended June 30, 1998, the Company abandoned certain projects acquired in the
Summa Healthcare Group, Inc. ("Summa") purchase. As a result, the Company
recorded an asset impairment charge of approximately $740,000 which represents
the unamortized value assigned to these projects at the date of acquisition. The
asset impairment charge was determined based on the difference between the
carrying value of the assets and the expected discounted future cash flows (see
Note 6).
The Company determined that the carrying value of certain long-lived
assets was impaired (within the meaning of SFAS No. 121) at June 30, 1996. The
amount of the impairment, calculated as the excess of carrying value of the
long-lived assets over the fair value of assets (estimated using discounted
future cash flows expected for the assets), totaled approximately $4,000,000 at
June 30, 1996. In fiscal 1996, the Company also recorded additional asset
impairment charges totalling approximately $1,500,000 related to its investments
in other healthcare enterprises. The amount of the impairment charges was based
on an assessment of the future expected cash flows to be realized by the Company
from these enterprises.
4. RESTRUCTURING CHARGES
In connection with its change in strategic direction, the Company
initiated a restructuring at its corporate headquarters, including the
identification and communication of termination and severance arrangements to
approximately 15 employees. Amounts relating to these agreements, which in the
aggregate totalled $2,300,000, are reflected as restructuring charges in the
accompanying statement of operations for the fiscal year ended June 30, 1998.
Payments totalling approximately $1,500,000 have been made against this
liability during the six months ended December 31, 1998. The Company expects the
remaining portion of the payments to be made by March 31, 2000.
5. ACQUISITIONS
On December 8, 1998, the Company acquired all of the issued and
outstanding shares of common stock of The Rader Group, Incorporated (the "Rader
Group"), an education services organization located in Fort Walton Beach,
Florida, for an aggregate purchase price of $1,000,000 plus an earn-out in
future years payable to the previous shareholder if certain EBITDA targets are
met. Pursuant to the Stock Purchase Agreement between the Rader Group and the
Company, maximum future payments on the earn-out may not exceed $2,950,000 and
will be accounted for as purchase price adjustments. The acquisition was
accounted for under the purchase method of accounting. In connection with the
acquisition, the Company recorded cost in excess of net asset value of purchased
businesses of $651,000 and other intangible assets of $403,000. These amounts
are being amortized on a straight-line basis over a term ranging from 5 to 15
years. The operations of the Rader Group have been included in the accompanying
consolidated statements of operations since December 1998.
6. TRANSACTIONS WITH AFFILIATES
On October 1, 1996, the Company and Ramsay Managed Care, Inc. ("RMCI")
entered into a merger agreement providing for the acquisition of RMCI by a
wholly owned subsidiary of the Company. The transaction was approved by the
shareholders of both companies on April 18, 1997 and became effective on June
10, 1997. The merger was structured as a tax-free exchange recorded using the
purchase method of accounting and, accordingly, the purchase price has been
primarily allocated to the assets purchased and the liabilities assumed based
upon their fair values at the date of acquisition. The total consideration
(including acquisition costs of approximately $400,000) was approximately
$24,000,000. During fiscal year 1998, the Company recorded additional cost in
excess of net asset value of purchased businesses of $3,200,000, related to
certain contingencies, in accordance with SFAS No. 38, PREACQUISITION
CONTINGENCIES OF PURCHASED ENTERPRISES.
40
<PAGE> 42
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In exchange for all of the outstanding shares of RMCI common and
preferred stock, the Company issued 711,942 shares of Common Stock (valued based
on the closing price of the Company's Common Stock on June 10, 1997 of $9.00 per
share) and 100,000 shares of Preferred Stock Series 1996, which are convertible
into 333,333 shares of Common Stock (see Note 9). In addition, amounts owed by
RMCI to the Company, totaling approximately $7,000,000 on June 10, 1997, were
included as a portion of the consideration for the acquisition of RMCI. The
Company also assumed $7,388,000 of liabilities of RMCI.
The operations of RMCI have been included in the Company's consolidated
operations subsequent to the effective date of the transaction of June 10, 1997.
The following unaudited pro forma information as of June 30, 1997 has
been prepared assuming the merger had been consummated on July 1, 1996 and
accounted for under the purchase method of accounting. This unaudited pro forma
combined summary information may not be indicative of the actual results which
may be realized in the future. Neither expected benefits nor cost reductions
anticipated by the Company have been reflected in the accompanying unaudited pro
forma combined financial data.
YEAR ENDED
JUNE 30, 1997
----------------
(unaudited)
Net revenues.............................................. $158,734,000
Net loss.................................................. $ (1,371,000)
Basic and diluted loss per share.......................... $(0.17)
Basic and diluted pro forma net loss per share does not include common
stock equivalents since their effect is anti-dilutive.
Included in liabilities assumed was a $2,750,000 obligation owed by
RMCI to a corporate affiliate of Paul J. Ramsay, the Chairman of the Board of
the Company, along with unpaid accrued interest and commitment fees of
approximately $300,000. The loan bore interest at 15%, was due and payable on
demand, and was refinanced in September 1997 (see Note 7). No amounts were paid
with respect to this loan facility from June 10, 1997 to the date of the
refinancing.
On October 9, 1997, pursuant to an Agreement and Plan of Merger dated
as of July 1, 1997, the Company acquired Summa for $300,000 in cash, 83,333
shares of the Company's Common Stock and fully exercisable warrants to purchase
166,667 shares of the Company's Common Stock, with an exercise price of $9.75
per share and an expiration date of July 2007. The transaction was recorded
under the purchase method of accounting. The Company recorded cost in excess of
net asset value of the business of approximately $1,800,000. The principal
assets of Summa, whose principal stockholder was Luis E. Lamela, the Vice
Chairman, a director and, President and Chief Executive Officer of the Company,
consist of projects in the specialty managed care and health services industry.
These projects were undertaken by the Company on July 1, 1997. As previously
mentioned, due to the Company's change in strategic direction, several projects
were abandoned by the Company and the Company recorded an asset impairment
charge of approximately $740,000 which represents the unamortized value assigned
to these projects at the date of acquisition (see Note 3). The remaining
goodwill is being amortized over approximately three years. During the year
ended June 30, 1997, Summa rendered consulting services to the Company, for
which it was paid $237,500.
At December 31, 1998, three corporate affiliates of Mr. Ramsay owned an
aggregate voting interest in the Company of approximately 59.4%, as follows: (a)
Ramsay Holdings HSA Limited owned 10.0% of the outstanding Common Stock of the
Company, (b) Paul Ramsay Holdings Pty. Limited ("Ramsay Holdings") owned
approximately 41.1% of the outstanding Common Stock of the Company and
41
<PAGE> 43
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(c) Paul Ramsay Hospitals Pty. Limited ("Ramsay Hospitals") owned approximately
8.3% of the outstanding Common Stock of the Company.
In August 1996, Ramsay Holdings acquired through a private placement
91,848 shares of Common Stock of the Company at a price of $8.25 per share. The
acquired shares were issued for management fees due under the Company's
management agreement with another corporate affiliate (the "Management Fee
Affiliate") of Mr. Ramsay during the year ended June 30, 1997.
In October 1996, the Company issued 39,433 shares of Common Stock
valued at $164,000 to its board of directors in lieu of cash payment for the
year ended June 30, 1997 director fees. The Common Stock was awarded at fair
market value on the date of issuance ($4.17 per share) and the amount was
included in other operating expenses.
On September 10, 1996, the Company entered into a letter agreement with
the Management Fee Affiliate and Ramsay Holdings which terminated the management
agreement effective July 1, 1997. In consideration for this termination, the
Company issued warrants to Ramsay Holdings to purchase 83,333 shares of Common
Stock at an exercise price of $7.89 per share. These warrants are fully
exercisable as of September 10, 1996, expire on September 10, 2006 and had a
weighted average fair value on the date of issuance of $2.55 per warrant. As a
result, the Company recorded other operating expenses of $212,000 related to
these warrants.
During the six months ended December 31, 1998, the Company entered into
certain debt and equity transactions with Ramsay Holdings (see Notes 7 and 9).
During the years ended June 30, 1997 and 1996, pursuant to the
management agreement, the Company incurred management fee expenses of $758,000
and $737,000, respectively, which are included in other operating expenses.
The Company recorded interest income of $440,000 and $600,000 during
the year ended June 30, 1997 (prior to the merger) and 1996, respectively, on
interest-bearing amounts owed by RMCI.
7. BORROWINGS
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ----------------------------------
1998 1998 1997
---------------- -------------- --------------
<S> <C> <C> <C>
Variable rate Term Loan.............................. $8,000,000 $ --- $ ---
Variable rate Term Loan A............................ --- 4,567,000 ---
Variable rate Term Loan B............................ --- 3,608,000 ---
Revolver, due September 30, 1999..................... --- 6,000,000 ---
Series A bridge note to financial institution........ --- 15,000,000 ---
Bridge facility to affiliate, due September 30, 2005. --- 2,500,000 ---
Junior Subordinated Note Agreement to affiliate, due
September 30, 2006................................ --- 3,929,000 ---
11.6% senior secured notes........................... --- --- 27,544,000
Variable rate revenue bonds.......................... --- --- 15,700,000
15.6% subordinated secured notes..................... --- --- 1,385,000
15% demand note to affiliate......................... --- --- 2,750,000
Other................................................ 7,000 13,000 97,000
---------------- ---------------- ----------------
8,007,000 35,617,000 47,476,000
Less current portion................................. 675,000 21,219,000 222,000
---------------- ---------------- ----------------
$7,332,000 $14,398,000 $47,254,000
================ ================ ================
</TABLE>
42
<PAGE> 44
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On September 30, 1997, the Company refinanced its then existing credit
facilities with proceeds from a credit facility from a financial institution
consisting of (i) a term loan of $12,500,000 and a term loan of $10,000,000 (the
"Term Loans"), (ii) a revolving credit facility of up to the lesser of
$16,500,000 or the borrowing base of the Company's receivables (the "Revolving
Credit Loan") and (iii) subordinated bridge notes, of which $15,000,000 was
purchased by the financial institution ("Series A Bridge Notes") and $2,500,000
was purchased by Ramsay Holdings (the "Series B Bridge Notes") (collectively
referred to as the "Bridge Facility").
In addition, on September 30, 1997, the Company entered into an
agreement with Ramsay Holdings and the financial institution pursuant to which
(i) Ramsay Holdings purchased $4,000,000 of non-convertible, non-voting Class B
Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock") and (ii)
the financial institution purchased $2,500,000 of Class B Preferred Stock,
Series 1997 (the "Series 1997 Preferred Stock").
The September 30, 1997 proceeds from the Term Loans, Revolving Credit
Loans, the Bridge Facility, the Series 1997 Preferred Stock and the Series
1997-A Preferred Stock were used as follows: a) principal repayments of
$27,544,000 of 11.6% senior secured notes and $1,385,000 of 15.6% subordinated
secured notes held by a group of insurance companies, b) repayment of $3,400,000
of bank debt created on September 2, 1997 upon the redemption of one of the
Company's variable rate revenue bonds, c) repayment of approximately $900,000 of
accrued interest on the above obligations, d) creation of a cash collateral
account in an amount totaling approximately $12,900,000 which was used to redeem
the remaining variable rate revenue bonds and to pay accrued interest thereon on
their redemption dates of November 3, 1997 and December 1, 1997, e) repayment of
$2,500,000 of the $2,750,000 loan from Ramsay Hospitals, f) payment of a
$2,200,000 prepayment penalty to the group of insurance companies holding the
senior and subordinated secured notes and g) transaction costs totaling
approximately $2,800,000. In order to satisfy these payments, the amount drawn
down on the Revolver totaled approximately $8,300,000 on September 30, 1997. In
conjunction with the refinancing, the Company recorded a loss from early
extinguishment of debt of approximately $3.6 million in the first quarter of
fiscal year 1998.
In connection with the Company's change in strategic direction and
asset sales, the Credit Agreement and Subordinated Note Purchase Agreements were
amended and restated on March 27, 1998, May 20, 1998, June 29, 1998 and July 29,
1998 and amended and restated as of September 30, 1998 (the "Amended and
Restated Credit Facility"). The Amended and Restated Credit Facility also
extended the maturity of the debt to September 30, 1999. During the fourth
quarter of fiscal year ended June 30, 1998, the Company prepaid a portion of the
Senior Credit Facility and recorded a loss from early extinguishment of debt
of $922,000.
As required by the Amended and Restated Credit Facility, in September
1998 the Company used the net proceeds from the sales of assets to (i) repay in
full the Term Loans, (ii) repay in full the Series A Bridge Notes, (iii) redeem
all of the outstanding shares of the Series 1997 Preferred Stock, including
accrued dividends, (iv) pay $1,500,000 in previously incurred fees to the
financial institution and (v) repay a portion of the Revolving Credit Loan. In
connection with the refinancing, the Company recorded a loss from early
extinguishment of debt of approximately $2,811,000.
On October 30, 1998, the Company refinanced the Amended and Restated
Credit Facility with proceeds from a credit facility consisting of term and
revolving credit debt of $22,000,000 (the "Senior Credit Facility").
Under the terms of the Senior Credit Facility, the Company was provided
with (i) a term loan of $8,000,000 (the "Term Loan"), payable in 54 monthly
installments ranging from $83,000 to $208,000, beginning May 1, 1999, with a
final installment of $1,000,000 due on October 30, 2003, (ii) a revolving credit
facility (the "Revolver") for an amount up to the lesser of $8,000,000 or the
borrowing base of the
43
<PAGE> 45
Company's receivables (as defined in the agreement) and (iii) an acquisition
loan (the "Acquisition Loan") commitment of up to $6,000,000, beginning March 1,
1999. As of March 18, 1999, $473,000 had been drawn under the Revolver. No
amounts had been drawn under the Acquisition Loan.
The aggregate scheduled maturities of the Senior Credit Facility during
the next five years are as follows: 1999 -- $667,000; 2000 -- $1,043,000; 2001
- -- $1,338,000; 2002 -- $1,875,000; and 2003 -- $3,077,000.
Interest on the Term Loan and the Revolver varies, and at the option of
the Company, would equal (i) a function of a base rate plus a margin ranging
from 0.5% to 2.0% (9.75% at December 31, 1998), based on the Company's ratio of
total indebtedness to EBITDA (as defined in the Senior Credit Facility) or (ii)
a function of the Eurodollar rate plus a margin ranging from 2.0% to 3.5%, based
on the Company's ratio of total indebtedness to EBITDA.
Interest on the Acquisition Loan varies, and at the option of the
Company, would equal (i) a function of a base rate plus a margin ranging from
0.75% to 2.25%, based on the Company's ratio of total indebtedness to EBITDA or
(ii) a function of the Eurodollar rate plus a margin ranging from 2.25% to
3.75%, based on the Company's ratio of total indebtedness to EBITDA.
Additionally, the Company is obligated to pay to the financial
institution an amount equal to one half of 1% of the unused portion of the
Revolver and the Acquisition Loan.
The Senior Credit Facility requires that the Company meet certain
covenants, including (i) the maintenance of certain fixed charge coverage,
interest coverage and leverage ratios, (ii) the maintenance of certain proforma
availability levels (as defined in the Senior Credit Facility) and (iii) a
limitation on capital expenditures. The Senior Credit Facility also prohibits
the payment of cash dividends to common stockholders of the Company until the
Company's EBITDA exceeds $7,800,000.
The Company failed to maintain the required fixed charge coverage,
interest coverage and leverage ratios as of December 31, 1998. The Company's
lender has agreed to waive these requirements as of December 31, 1998. The
Company's lender has agreed to amend the definitions for purposes of calculating
the covenants in the future.
The Company has pledged substantially all of its real property,
receivables and other assets as collateral for the Senior Credit Facility.
On March 25, 1998, the Company entered into a Junior Subordinated Note
Purchase Agreement, with a corporate affiliate of Mr. Ramsay in an aggregate
principal amount of $5,000,000 plus accrued interest. On December 16, 1998, the
Company and the corporate affiliate of Mr. Ramsay agreed to convert the
outstanding balance of the junior subordinated note, including accrued interest,
into 1,071,227 shares of the Company's Common Stock (see Note 9).
During the six months ended December 31, 1998, the Company and the
corporate affiliate of Mr. Ramsay agreed to (i) convert the outstanding balance
of the Series B Bridge Note, including accrued interest, into 609,123 shares of
the Company's Common Stock and (ii) convert the Series 1997-A Preferred Stock,
including accrued dividends, into 1,310,222 shares of the Company's Common Stock
(see Note 9).
In fiscal 1997, the Company contemplated a separate refinancing of its
credit facilities and in connection therewith, the Company entered into a
derivative transaction in March 1997 to fix the interest rate on the underlying
debt instrument. As a result of the Company's decision to refinance its credit
facilities as described above, in the fourth quarter of fiscal 1997, the Company
recorded income on the derivative transaction of approximately $1,280,000 and
wrote-off approximately $600,000 of costs directly related to this previous
refinancing effort.
44
<PAGE> 46
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. OPERATING LEASES
On September 28, 1998, the Company sold and leased back the land,
buildings and fixed equipment of its Havenwyck facility in Auburn Hills,
Michigan (see Note 2). The lease has a term of 12 years and currently requires
annual minimum lease payments of approximately $1,263,000, payable monthly.
Effective April 1 of each year, the lease payments are subject to upward
adjustments based on the change in consumer price index over the preceding
twelve months (not to exceed 3% annually).
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of its Desert Vista facility in Mesa, Arizona and its Mission
Vista facility in San Antonio, Texas. The lease of the Desert Vista facility was
released and the facility was sold with the asset sale transaction described in
Note 2. The lease at the Mission Vista facility has a primary term of 15 years
(with three successive renewal options of 5 years each) and at December 31, 1998
had aggregate annual minimum rentals of approximately $549,000, payable monthly.
Effective April 1995, the Company agreed to lease an 80-bed facility
near Salt Lake City, Utah for four years, with an option to renew for an
additional three years. The lease required annual base rental payments of
$456,000, payable monthly, and percentage rental payments equal to 2% of the net
revenues of the facility, payable quarterly. On November 3, 1998, the Company
was released from its obligations under this lease and the Company ceased
operations at this facility on December 3, 1998.
Rent expenses related to noncancellable operating leases amounted to
$1,375,000, $1,603,000, $2,431,000, $2,837,000 and $3,269,000 for the six months
ended December 31, 1998, the six months ended December 31, 1997 and the years
ended June 30, 1998, 1997 and 1996, respectively.
Future minimum lease payments required under noncancellable operating
leases as of December 31, 1998 are as follows: 1999 -- $2,215,000; 2000 --
$2,183,000; 2001 -- $2,103,000; 2002 -- $1,911,000; 2003 -- $1,836,000; and
thereafter -- $11,113,000.
In August 1997, the Company leased its Meadowlake facility in Oklahoma
to an independent healthcare provider for an initial term of three years, with
four three-year renewal options. Lease payments during the initial term total
$360,000 per year and at each renewal option are subject to adjustment based on
the change in the consumer price index during the preceding lease period. In
accordance with the terms of the lease agreement, the tenant is responsible for
all costs of ownership, including taxes, insurance, maintenance and repairs. In
addition, the tenant has the option to purchase the facility at any time during
the initial term for $3,000,000, less $15,417 for each month of occupancy.
Subsequent to the initial term, the tenant has the option to purchase the
facility at any time for $2,500,000. The book value of the facility was
$2,125,000 on December 31, 1998.
9. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
The Certificate of Incorporation of the Company, as amended, authorizes
the issuance of 30,000,000 shares of Common Stock, $.01 par value, 800,000
shares of Class A Preferred Stock, $1.00 par value, and 2,000,000 shares of
Class B Preferred Stock, $1.00 par value, of which 333,333 shares have been
designated as Class B Preferred Stock, Series 1987, $1.00 par value, 152,321
shares have been designated as Series C Preferred Stock, $1.00 par value,
100,000 shares have been designated as Series 1996 Preferred Stock, $1.00 par
value, 100,000 shares have been designated as Series 1997 Preferred Stock, $1.00
par value and 4,000 shares have been designated as Series 1997-A Preferred
Stock.
Outstanding capital stock at December 31, 1998 included 9,079,245
shares of outstanding Common Stock, of which 193,850 shares are held in
treasury.
45
<PAGE> 47
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Redeemable preferred stock at June 30, 1998 consists of (i) 4,000
shares of non-convertible, non-voting Class B Series 1997-A Preferred Stock with
a $1.00 par value issued at $1,000 per share with accrued dividends of $271,000
and carrying value of $4,271,000 and (ii) 100,000 shares of convertible
non-voting, Class B Series 1997 Preferred Stock with a $1.00 par value issued at
$25.00 per share with accrued dividends of $69,000 and net of issuance cost of
$100,000 and carrying value of $2,469,000.
On October 30, 1998, the Company completed the private placement (the
"Private Placement") of an aggregate of 1,037,037 shares of Common Stock to its
Chief Executive Officer, Ramsay Holdings and certain unrelated persons, all at a
price per share of $3 3/8, the closing bid price of the Common Stock on The
NASDAQ Stock Market on October 26, 1998 (the date of the various subscription
agreements).
Registration under the Securities Act of 1933 (the "Securities Act") of
the Common Stock issued in the foregoing transactions was not required because
such securities were issued in transactions not involving any "public offering"
within the meaning of Section 4(2) of the Securities Act.
In addition, on October 30, 1998, the Company issued 177,778 shares of
Common Stock to Ramsay Holdings in exchange for $600,000 of principal amount of
the Series B Bridge Note. As part of the Exchange Agreement (the "Exchange
Agreement") entered into between the Company and Ramsay Holdings to affect the
foregoing exchange, the Company agreed to issue additional shares of Common
Stock to Ramsay Holdings in exchange for $4,000,000 of the Company's Class B
Preferred Stock, Series 1997-A (together with all accrued and unpaid dividends
thereon) and an additional $400,000 of principal amount of the Series B Bridge
Note owed by the Company to Ramsay Holdings. This latter exchange was effected
on December 1, 1998 at a price per share of $3 3/8 (the closing bid price of the
Common Stock on The NASDAQ Stock Market on October 26, 1998, the date of the
Exchange Agreement) after the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. This latter exchange
resulted in the issuance by the Company of 1,428,740 additional shares of Common
Stock to Ramsay Holdings.
On December 16, 1998, the Company entered into an agreement with Ramsay
Holdings, Ramsay Holdings HSA Limited and Ramsay Hospitals (collectively, the
"Ramsay Affiliates") pursuant to which the Ramsay Affiliates (i) converted the
Company's Class B Preferred Stock, Series C and Class B Preferred Stock, Series
1996 (together with accrued and unpaid dividends thereon of $618,908) into an
aggregate of 1,198,756 shares of Common Stock and (ii) exchanged $6,883,553 of
principal amount of the junior subordinated note and the Series B Bridge Note
owed by the Company (together with accrued and unpaid interest thereon of
$123,219) for 1,384,054 shares of Common Stock. This latter exchange was
effected at a price per share of $5 1/16 (the closing bid price of the Common
Stock on The NASDAQ Stock Market on December 16, 1998, the date of the
Agreement).
On December 8, 1998, the Company issued 33,333 shares of Common Stock
in connection with an employment agreement. The value of the issued shares is
being amortized over the life of the related employment agreement.
In connection with the foregoing transactions, the Company granted
limited registration rights with respect to the Common Stock issued to the
stockholders participating in such transactions.
The Company's Board of Directors has adopted a Stockholders Rights
Plan, under which the Company distributed a dividend of one common share
purchase right for each outstanding share of the Company's Common Stock
(calculated as if all outstanding shares of Series C Preferred Stock were
converted into shares of Common Stock). Each right becomes exercisable upon the
occurrence of certain events for a number of shares of the Company's Common
Stock having a market price totaling $72 (subject to certain anti-dilution
adjustments which may occur in the future). The rights currently are not
exercisable and will be exercisable only if a new person acquires 20% or more
(30% or more in the case of certain persons, including investment companies and
investment advisors) of the Company's Common Stock or announces a tender offer
resulting in ownership of 20% or more of the Company's Common Stock. The rights,
which expire on August 14, 2005, are redeemable in whole or in part at the
Company's option at any time before a 20% or greater position has been acquired,
for a price of $.03 per right.
46
<PAGE> 48
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------------- -------------------------------------------
1998 1997 1998 1997 1996
------------ ------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary
item, as reported ............................. $ (1,452,000) $ 1,154,000 $(54,261,000) $ 3,278,000 $(16,481,000)
Dividends, Class B convertible preferred
stock, Series C ............................... 166,000 181,000 362,000 362,000 362,000
Dividends, Class B convertible preferred
stock, Series 1996 ............................ 69,000 75,000 150,000 -- --
Dividends, Class B convertible redeemable
preferred stock, Series 1997 .................. 45,000 57,000 182,000 -- --
Redemption premium on preferred stock and
other expenses ................................ 225,000
Dividends, Class B redeemable preferred
stock, Series 1997-A .......................... 151,000 91,000 271,000 -- --
------------ ------------ ------------ ------------ ------------
Numerator for basic earnings (loss) per
share - income (loss) attributable to
common stockholders, before
extraordinary item ........................ (2,108,000) 750,000 (55,226,000) 2,916,000 (16,843,000)
Effect of dilutive securities:
Class B convertible preferred stock,
Series C ................................. -- -- -- 362,000 --
------------ ------------ ------------ ------------ ------------
-- -- -- 362,000 --
------------ ------------ ------------ ------------ ------------
Numerator for diluted earnings (loss)
per share - income (loss) attributable
to common stockholders after assumed
conversions .............................. $ (2,108,000) $ 750,000 $(55,226,000) $ 3,278,000 $(16,843,000)
============ ============ ============ ============ ============
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares ............. 4,487,000 3,574,800 3,595,000 2,801,000 2,643,000
Effect of dilutive securities:
Employee stock options and warrants ......... -- 565,000 -- 115,000 --
Convertible preferred stock ................. -- -- -- 493,000 --
------------ ------------ ------------ ------------ ------------
Dilutive potential common shares ............... -- 565,000 -- 608,000 --
------------ ------------ ------------ ------------ ------------
Denominator for diluted earnings (loss)
per share - adjusted weighted-average
shares and assumed conversions ........... 4,487,000 4,139,000 3,595,000 3,409,000 2,643,000
============ ============ ============ ============ ============
Basic earnings (loss) per share, before
extraordinary item ............................. $ (.47) $ .21 $ (15.36) $ 1.04 $ (6.37)
Extraordinary item ................................ (.63) (1.00) (1.20) -- --
------------ ------------ ------------ ------------ ------------
Basic earnings (loss) per share ................... $ (1.10) $ (.79) $ (16.56) $ 1.04 $ (6.37)
============ ============ ============ ============ ============
Diluted earnings (loss) per share before
extraordinary item ............................. $ (.47) $ .18 $ (15.36) $ .96 $ (6.37)
Extraordinary item ................................ (.63) (.86) (1.20) -- --
------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per share ................. $ (1.10) $ (.68) $ (16.56) $ .96 $ (6.37)
============ ============ ============ ============ ============
</TABLE>
Options and warrants were not included in the computation for the six
months ended December 31, 1998 and the year ended June 30, 1998 and 1996 because
their effect would have been antidilutive for these periods.
47
<PAGE> 49
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. OPTIONS AND WARRANTS
The Company's Stock Option Plans provide for options to various key
employees and non-employee directors to purchase shares of Common Stock at no
less than the fair market value of the stock on the date of grant. Options
granted become exercisable in varying increments including (a) 100% one year
after the date of grant, (b) 50% each year beginning one year after the date of
grant (c) 33% each year beginning on the date of grant and (d) 33% each year
beginning one year from the date of grant. Options issued to employees and
directors are subject to anti-dilution adjustments and generally expire the
earlier of 10 years after the date of grant or 60 days after the employee's
termination date or the director's resignation. The weighted average remaining
contractual life of all outstanding options at December 31, 1998 is
approximately six years.
On October 14, 1997, the Board of Directors adopted the Ramsay Health
Care, Inc. 1997 Long Term Incentive Plan (the "1997 Long Term Incentive Plan").
Under the 1997 Long Term Incentive Plan, 166,667 shares of Common Stock will be
available for issuance of awards. Shares distributed under the 1997 Long Term
Incentive Plan may be either newly issued shares or treasury shares. Awards
granted under the plan may be in the form of stock appreciation rights,
restricted stock, performance awards and other stock-based awards. During the
six months ended December 31, 1998, the Company granted 79,500 options under the
1997 Long Term Incentive Plan.
In connection with a repricing opportunity authorized by the Company's
Board of Directors on November 10, 1995, approximately 500,000 options (of which
approximately 101,667 are still outstanding at December 31, 1998) were
voluntarily repriced by the option holders. Under this repricing opportunity,
the exercise prices of the holders' outstanding options were reduced to $7.50
per share, the closing price for the Common Stock on the NASDAQ National Market
System on November 10, 1995. The Company granted 304,087 options in fiscal 1997
(including former RMCI options which became options to purchase an aggregate of
104,804 shares of the Company's Common Stock on the date of the merger). These
options, along with the options repriced on November 10, 1995, are not
exercisable until the closing price of the Common Stock, as quoted on the NASDAQ
National Market System, equals or exceeds $21.00 per share for at least 15
trading days, which need not be consecutive. As of December 31, 1998, none of
these options are exercisable.
On September 10, 1996, the Company entered into an Exchange Agreement
whereby Mr. Ramsay exchanged 158,690 options with an exercise price of $7.50 per
share (pursuant to the repricing opportunity discussed above), for warrants to
purchase an aggregate of 166,667 shares of Common Stock at $7.50 per share. The
warrants, which expire in June 2003, are not exercisable until the closing price
of the Common Stock, as quoted on the NASDAQ National Market System, equals or
exceeds $21.00 per share for at least 15 trading days, which need not be
consecutive, subsequent to September 10, 1996. Most of the options exchanged
were originally granted under the Company's 1991 Stock Option Plan.
The Company has additional warrants outstanding to purchase an
aggregate of 71,000 shares of the Company's Common Stock (44,333 of which are
owned by corporate affiliates of Mr. Ramsay). These warrants were issued in
exchange for warrants to purchase common stock of RMCI, and became warrants of
the Company as part of the merger with RMCI.
As part of the Company's previous senior and subordinated notes (which
were refinanced on September 30, 1997), the Company issued warrants to Aetna
Life Insurance Company and Monumental Life Insurance Company. As of December 31,
1998, these warrants entitle their holders to purchase an aggregate of 67,338
shares of the Company's Common Stock at $13.32 per share. These warrants are
exercisable on or before March 31, 2000 and contain anti-dilution provisions.
48
<PAGE> 50
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has frozen its 1990 Stock Option Plan, and authorized
505,641, 132,319, 166,667, 166,667 and 166,667 shares under its 1991, 1993,
1995, 1996 and 1997 Stock Option Plans, respectively. At December 31, 1998,
679,007 shares were available for issuance under these Plans.
Summarized information regarding the Company's Stock Option Plans is as
follows:
Options exercisable based solely on employees rendering additional
service:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF OPTION EXERCISE
SHARES PRICE PRICE
--------------- ---------------- --------------
<S> <C> <C> <C> <C>
Options outstanding at June 30, 1995 608,465
Granted 143,536 $7.50 - $12.03 $8.86
Exercised (1,000) $10.14 $10.14
Modified/Canceled (543,653) $7.50 - $23.64 $8.24
---------------
Options outstanding at June 30, 1996 207,348 $7.50 - $18.93 $11.16
Granted 403,500 $7.32 - $8.25 $8.16
Exercised --
Canceled (14,563) $7.50 - $12.75 $9.54
---------------
Options outstanding at June 30, 1997 596,285 $7.32 - $18.93 $9.06
Granted 35,000 $13.14 $13.14
Exercised (6,939) $10.14 - $12.75 $11.49
Canceled (19,128) $8.25 - 18.93 $11.79
---------------
Options outstanding at June 30, 1998 605,218 $7.32 - $18.93 $9.12
Granted 79,500 $4.69 $4.69
Exercised --
Canceled (120,292) $7.32 - $18.93 $9.51
---------------
Options outstanding at December 31, 1998 564,426 $4.69 - $18.93 $8.43
===============
Exercisable at December 31, 1998 267,150
===============
Exercisable at June 30, 1998 247,916
===============
Exercisable at June 30, 1997 161,336
===============
Exercisable at June 30, 1996 100,716
===============
</TABLE>
49
<PAGE> 51
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Options not exercisable until the closing price for the Common Stock as
quoted on the NASDAQ National Market System equals or exceeds $21.00 per share
for at least 15 trading days:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF OPTION EXERCISE
SHARES PRICE PRICE
--------------- --------------- ---------------
<S> <C> <C> <C>
Options outstanding at June 30, 1995 --
Granted 476,860 $7.50 $7.50
Exercised --
Canceled --
---------------
Options outstanding at June 30, 1996 476,860 $7.50 $7.50
Granted 199,283 $8.25 $8.25
Exchanged in connection with merger 104,804 $9.00 $9.00
Exercised --- --
Canceled (330,313) $7.50 $7.50
---------------
Options outstanding at June 30, 1997 450,634 $7.50 - $9.00 $8.16
Granted -- --
Exercised (4,161) $7.50 $7.50
Canceled (15,105) $7.50 - $9.00 $8.58
---------------
Options outstanding at June 30, 1998 431,368 $7.50 - $9.00 $8.37
Granted --
Exercised --
Canceled (125,128) $7.50 - $9.00 $8.13
---------------
Options outstanding at December 31, 1998 306,240 $7.50 - $9.00 $8.46
===============
Exercisable at December 31, 1998 --
===============
Exercisable at June 30, 1998
--
===============
Exercisable at June 30, 1997
--
===============
</TABLE>
Shares of common stock reserved for future issuance at December 31,
1998 are as follows:
Options..................................... 870,666
Warrants.................................... 555,168
============
1,425,834
============
Pro forma information regarding net income and earnings per share has
been determined as if the Company had accounted for its employee stock options
under the fair value method of SFAS No. 123. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions: risk-free interest rates of 6%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's Common Stock of .506; and a weighted-average expected life of the
options based on the vesting period of the options (ranging from one to three
years).
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
50
<PAGE> 52
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
compensation expense from stock option awards on pro forma net income reflects
only the vesting of fiscal year ended 1996 awards in 1996 and the vesting of
fiscal year ended 1997 and 1996 awards in 1997, in accordance with SFAS No. 123.
Because compensation expense associated with a stock option award is recognized
over the vesting period, the initial impact of applying SFAS No. 123 may not be
indicative of compensation expense in future years, when the effect of the
amortization of multiple awards will be reflected in pro forma net income. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
------------------------------ -----------------------------------------------
1998 1997 1998 1997 1996
---------------- ------------- --------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Pro forma net income (loss) attributable to
common stockholders $(5,279,000) $(3,398,000) $(60,697,000) $2,713,000 $(16,798,000)
================ =============== =============== =============== ===============
Basic pro forma net income (loss) per share $(1.18) $(.95) $(16.88) $0.84 $(6.48)
================ =============== =============== =============== ===============
Diluted pro forma net income (loss) per
share $(1.18) $(.82) $(16.88) $0.81 $(6.48)
================ =============== =============== =============== ===============
</TABLE>
51
<PAGE> 53
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------- --------------------------------
1998 1998 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Deferred tax liabilities:
Book basis of fixed assets over tax basis........ $103,000 $2,938,000 $2,068,000
Economic performance............................. 216,000 513,000 72,000
Specifically identifiable intangibles............ -- -- 661,000
Other............................................ 156,000 55,000 1,402,000
------------- ------------- -------------
Total deferred tax liabilities............. 475,000 3,506,000 4,203,000
Deferred tax assets:
Allowance for doubtful accounts.................. 1,053,000 740,000 1,269,000
General and professional liability insurance..... 1,604,000 1,074,000 778,000
Accrued employee benefits........................ 478,000 1,817,000 874,000
Investment in nonconsolidated subsidiaries....... --- 294,000 1,320,000
Capital loss carryovers.......................... 597,000 605,000 597,000
Impairment of assets............................ 440,000 6,712,000 ---
Other accrued liabilities........................ 4,858,000 4,507,000 2,782,000
Other............................................ 89,000 -- 43,000
Net operating loss carryovers.................... 15,945,000 6,996,000 10,187,000
Alternative minimum tax credit carryovers........ 1,139,000 1,139,000 1,138,000
------------- ------------- -------------
Total deferred tax assets.................. 26,203,000 23,884,000 18,988,000
Valuation allowance for deferred tax assets......... (25,728,000) (20,378,000) (5,374,000)
------------- ------------- -------------
Deferred tax assets, net of valuation
allowance................................ 475,000 3,506,000 13,614,000
------------- ------------- -------------
Net deferred tax assets.................... $ -- $ -- $9,411,000
============= ============= =============
</TABLE>
52
<PAGE> 54
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------------
1998 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Income taxes currently payable:
Federal........................................ $ -- $60,000 $204,000
State.......................................... -- 240,000 300,000
Deferred income taxes:
Federal........................................ -- 8,676,000 1,039,000
State.......................................... -- 1,005,000 183,000
============== ============== ==============
$ -- $9,981,000 $1,726,000
============== ============== ==============
</TABLE>
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate (benefit) follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
U.S. Federal statutory rate................. (34.0%) 34.0% (34.0%) 34.0%
Increase in valuation allowance............. 125.5 -- 30.5 19.2
Non-deductible intangible assets............ 8.8 3.5 20.4 ---
State income taxes, net of federal benefit.. (4.0) 4.0 (4.0) (3.7)
Benefit of net operating loss recognized.... -- (37.7) -- (8.5)
Tax effect of loss recognition on sale of
assets................................... (104.7) -- -- --
Other....................................... 8.4 (3.8) 7.1 (7.0)
============== ============== ============== ==============
Effective income tax rate................... 0% 0% 20.0% 34.0%
============== ============== ============== ==============
</TABLE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Previously, the Company evaluated the
realizability of its deferred tax assets and the need for a valuation allowance
by considering the effects of implementing tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction, announced on February 19, 1998, the
Company re-evaluated its tax planning strategies and determined that such
strategies will not be realized. Consequently, the Company's net operating loss
carryforwards were no longer considered realizable, pursuant to the provisions
of SFAS No. 109.
The Company has no net deferred tax assets at December 31, 1998 and
June 30, 1998. Net deferred tax assets at June 30, 1997 were $9,411,000. The
Company's valuation allowance related to deferred tax assets was increased by
$5,350,000 at December 31, 1998, $15,004,000 at June 30, 1998 and $962,000 at
June 30, 1997.
At December 31, 1998, the Company had net operating loss carryovers of
approximately $41,680,000, and alternative minimum tax credit carryovers of
approximately $1,139,000 available to reduce future federal income taxes,
subject to certain annual limitations. The net operating loss carryovers expire
as follows:
53
<PAGE> 55
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Year of
Amount Expiration
------------------- -----------------
$6,627,000 2000
7,002,000 2001
167,000 2009
27,884,000 2010-18
-----------
$41,680,000
===========
The Company may have had a change in ownership (as defined by Internal
Revenue Code Section 382) during the six month period ended December 31, 1998.
Although a study has not been completed to determine the effects, if any, that
this change of ownership may have, some or all of the net operating loss for the
six month period ended December 31, 1998 ($16,665,000) may be limited in use in
any one year.
13. REIMBURSEMENT FROM THIRD-PARTY CONTRACTUAL AGENCIES
The Company records amounts due to or from third-party contractual
agencies based on its best estimates of amounts to be ultimately received or
paid under cost reports filed with the appropriate intermediaries. Final
determination of amounts earned under contractual reimbursement programs is
subject to review and audit by these intermediaries. Differences between amounts
recorded as estimated settlements and the audited amounts are reflected as
adjustments to provider based revenues in the period the final determination is
made.
During the year ended June 30, 1996, the Company recorded adjustments
to reduce provider based revenues of approximately $1,900,000 related to
intermediary audits of prior year cost reports. As a result of this negative
experience, the Company recorded reserves in the fourth quarter of fiscal 1996
totaling $3,500,000 related to possible future adjustments of its cost report
estimates by intermediaries.
During the year ended June 30, 1997, the Company received a favorable
cash judgment totaling approximately $2,900,000, net of related costs, by the
courts of the State of Missouri. In this matter, the courts ruled that the
Company's facility in Nevada, Missouri had received insufficient reimbursement
from the Missouri Department of Social Services for the provision of behavioral
healthcare to Medicaid patients from 1990 to 1996. The Company also recorded
during the year ended June 30, 1997, a $1,500,000 benefit related to
intermediary audits of prior year cost reports.
During the fourth quarter of fiscal 1998, the Company increased its
estimated reimbursement for fiscal 1998 by $1,700,000, primarily as a result of
increased Corporate expenses by the Company during the year ended June 30, 1998.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations. Management believes that
adequate provision has been made for any adjustments that may result from future
intermediary reviews and audits and is not aware of any claims, disputes or
unsettled matters concerning third-party reimbursement that would have a
material adverse effect on the Company's financial statements.
The Company derived approximately 81%, 70%, 71%, 65% and 70% of its
provider based revenues from services provided to individuals covered by various
federal and state governmental programs in the six months ended December 31,
1998 and 1997, and the years ended June 30, 1998, 1997 and 1996, respectively.
54
<PAGE> 56
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. SAVINGS PLAN
The Company has a 401(k) tax deferred savings plan, administered by an
independent trustee, covering substantially all employees over age twenty-one
meeting a one-year minimum service requirement. The plan was adopted for the
purpose of supplementing employees' retirement, death and disability benefits.
The Company may, at its option, contribute to the plan through an Employer
Matching Account, but is under no obligation to do so. An employee becomes
vested in his Employer Matching Account over a four-year period.
The Company did not contribute to the plan during the six months ended
December 31, 1998, or the year ended June 30, 1998, 1997 and 1996.
15. COMMITMENTS AND CONTINGENCIES
The Company is party to certain claims, suits and complaints, including
those matters described below, whether arising from the acts or omissions of its
employees, providers or others, which arise in the ordinary course of business.
The Company has established reserves at December 31, 1998 for the estimated
amounts which might be recovered from the Company as a result of all outstanding
legal proceedings. In the opinion of management, the ultimate resolution of
these pending legal proceedings is not expected to have a material adverse
effect on the Company's financial position, results of operations or liquidity.
During fiscal 1996, the State of Louisiana requested repayment of
disproportionate share payments received by two of the Company's Louisiana
facilities in fiscal years 1995 and 1994 totaling approximately $5.5 million, an
amount in excess of the purchase price paid by the purchaser for the HMO
subsidiary. The repayment requested related primarily to alleged overpayments
received by a former facility of the Company. The Company believes that this
matter may be settled for an amount less than Louisiana's initial request. The
Company intends to vigorously contest any position by Louisiana which it
considers adverse.
In March 1997, a former executive vice president of the Company
commenced arbitration and court proceedings against the Company in which he
claims his employment was wrongfully terminated by the Company and seeks damages
of approximately $2,300,000. The Company is awaiting the results of the
arbitration proceedings which were held in February 1999.
Prior to the merger with the Company, RMCI sold its subsidiary which,
as a licensed HMO in Louisiana, Alabama and Mississippi, managed and provided
prepaid healthcare services to its members. On September 29, 1997, RMCI received
a demand for indemnification by the purchaser of this subsidiary in an amount
totaling approximately $5,800,000. The Company intends to vigorously defend any
proceedings which may result from this matter. In addition, on September 30,
1997, the Company demanded indemnification from the purchaser for various
matters in an amount exceeding $2,000,000.
55
<PAGE> 57
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
16. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's Valuation and Qualifying Accounts consists of
the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------------------------------
1998 1998 1997 1996
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Balance at beginning of period.................... $2,395,000 $4,386,000 $ 4,573,000 $3,886,000
Provision for doubtful accounts.................... 1,549,000 6,649,000 5,688,000 5,805,000
(Write-offs) of uncollectible accounts receivable.. (594,000) (6,368,000) (6,323,000) (5,118,000)
Allowance recorded in connection with the
acquisition of RMCI............................. -- -- 448,000 --
Allowance eliminated in connection with the sale of
FPMBH........................................... -- (530,000) -- --
Allowance related to assets held for sale.......... (191,000) (1,742,000) -- --
============ ============ ============= =============
Balance at end of period........................... $3,159,000 $2,395,000 $4,386,000 $4,573,000
============ ============ ============= =============
Valuation Allowance on Property and Equipment:
Balance at beginning of period..................... $17,576,000 $ -- $ -- $ --
Additions, charged to cost and expenses............ -- 17,576,000 -- --
Deductions......................................... 16,417,000 -- -- --
------------ ------------ ------------- -------------
Balance at end of period........................... $1,159,000 $17,576,000 $ -- $ --
============ ============ ============= =============
Tax Valuation Allowance for Deferred Tax Assets:
Balance at beginning of period..................... $20,378,000 $5,374,000 $4,412,000 $ --
Additions, charged to cost and expenses............ 5,350,000 15,004,000 962,000 4,412,000
Deductions......................................... -- -- -- --
============ ============ ============= =============
Balance at end of period $25,728,000 $20,378,000 $5,374,000 $4,412,000
============ ============ ============= =============
</TABLE>
56
<PAGE> 58
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's non-cash investing and financing activities were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
------------------------------ ------------------------------------------------
1998 1997 1998 1997 1996
-------------- -------------- ------------- -------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Issuance of stock in connection with
conversion of Senior Subordinated Bridge
Note (including accrued interest) ...... $ 2,584,000 $ -- $ -- $ -- $ --
Issuance of common stock in connection with
conversion of Junior Subordinated Note
(including accrued interest) ........... 5,423,000
Issuance of stock upon conversion of
Preferred Stock, Series 1997-A ......... 4,422,000 -- -- -- --
Issuance of common stock upon conversion of
Preferred Stock, Series C .............. 580,000 -- -- -- --
Issuance of common stock upon conversion of
Preferred Stock, Series 1996 ........... 3,181,000 -- -- -- --
Issuance of Common Stock in connection with
employment agreement ................... 175,000 -- -- -- --
Note received in connection with sale of
property and equipment ................. -- -- 1,500,000 -- --
Issuance of stock in lieu of cash payment
for accrued liabilities ................ -- -- 355,000 -- --
Issuance of warrants in connection with
Summa merger ........................... -- -- 657,000 -- --
Issuance of stock in connection with Summa
merger ................................. -- -- 813,000 -- --
Issuance of stock in lieu of debt payment . -- -- 250,000 -- --
Issuance of stock in lieu of dividend
payments ............................... -- -- 610,000 -- --
Merger with RMCI:
Cost in excess of net asset value of
purchased businesses ................. -- -- -- 18,048,000 --
Other intangible assets ................ -- -- -- 4,740,000 --
Issuance of Common Stock ............... -- -- -- 6,408,000 --
Issuance of Series 1996 Preferred Stock -- -- -- 3,000,000 --
Noncurrent liabilities ................. -- -- -- 750,000 --
Issuance of stock in lieu of cash payment
for management and directors' fees ..... -- -- -- 922,000 600,000
</TABLE>
As mentioned previously, on December 8, 1998, the Company acquired all
of the issued and outstanding shares of common stock of The Rader Group,
Incorporated for $1,000,000 plus an earn-out in future years if certain
financial targets are met. In conjunction with the acquisition, liabilities were
assumed as follows:
57
<PAGE> 59
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Fair value of assets acquired............. $1,096,000
Cash paid for capital stock............... (1,000,000)
Transaction costs......................... (48,000)
-------------
Liabilities assumed.................. $48,000
=============
58
<PAGE> 60
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to the Company's executive officers is
contained in Part I "Item 1. Business -- Executive Officers of the Registrant."
Certain information concerning the directors of the Company is set forth below.
Such information was furnished by them to the Company.
<TABLE>
<CAPTION>
Principal Occupations for Past Five
Name and Age Years and Certain Other Directorships
- ------------ -------------------------------------
<S> <C>
Aaron Beam, Jr. (55) Founder in 1984 of HEALTHSOUTH Corporation (provider of medical rehabilitation
services) and retired in 1997; Director of UROCOR since 1998; Director of Wall
Street Deli since 1998; Director of the Company since 1991.
Peter J. Evans (50) Financial consultant to a number of Australian companies; Partner, P.J. Evans
& Co., a chartered accounting firm in Australia, since prior to 1993; Director
of Ramsay Health Care Limited (or its predecessors) (owner and operator of
hospitals in Australia), and Prime Television Limited (operator of an
Australian television network); Director of the Company since 1989.
Thomas M. Haythe (59) Partner, Haythe & Curley (attorneys) since February 1982; Director of Guest
Supply, Inc. (provider of hotel guest room amenities, accessories and
products), Novametrix Medical Systems Inc. (manufacturer of electronic medical
instruments), and Westerbeke Corporation (manufacturer of marine engine
products); Director of the Company since 1987.
Luis E. Lamela (49) President and Chief Executive Officer of the Company since January 1998; Vice
Chairman of the Board of the Company since January 1996; Chief Executive
Officer of CAC Medical Centers, a division of United HealthCare of Florida,
since May 1994; President and Chief Executive Officer of Ramsay - HMO, Inc.
from prior to 1993 to May 1994; Director of the Company since 1996.
Paul J. Ramsay (63) Chairman of the Board of the Company since 1988; involved in the health care
industry for more than 25 years; Chairman of the Board of Ramsay Health Care
Limited (or its predecessors) (owner and operator of hospitals in Australia),
and Prime Television Limited (operator of an Australian Television Network);
Director of the Company since 1987.
Steven J. Shulman (47) President and Chief Executive Officer of Prudential Health Care, Inc. since
1997; President of the Pharmacy and Disease Management Group of Value Health,
Inc. (provider of specialty managed care programs) from September 1995 to
1997; Executive Vice President of Value Health, Inc. since prior to 1992 to
September 1995; Director of Value Health, Inc. and Novametrix Medical Systems
Inc.; Director of the Company since 1991.
</TABLE>
59
<PAGE> 61
<TABLE>
<CAPTION>
<S> <C>
Michael S. Siddle (50) Various executive positions with corporations controlled by Paul J. Ramsay
since prior to 1993; Director of Ramsay Health Care Limited (or its
predecessors) (owner and operator of hospitals in Australia); Director of
Prime Television Limited (operator of an Australian Television Network);
Director of the Company since 1987.
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of RYS met four times during the six months
ended December 31, 1998. All of the directors named above attended at least 75%
of the meetings of the Board of Directors and meetings of the committees of the
Board of Directors on which such director served held during the time that such
person served, other than Mr. Shulman.
RYS had four standing committees during the six months ended December
31, 1998: the Executive Operating Committee, the Audit Committee, the
Compensation and Conflict of Interest Committee and the Independent Directors
Committee.
The Executive Operating Committee presently is composed of Messrs.
Evans, Haythe, Lamela and Ramsay. The Committee's function is to act in the
place and stead of the Board of Directors to the extent permitted by law on
matters which require Board action between meetings of the Board of Directors.
The Executive Operating Committee did not meet during the six months ended
December 31, 1998.
The Audit Committee presently is composed of Messrs. Beam, Evans and
Haythe. The Audit Committee's functions include reviewing the results of the
reports and audits by RYS' independent public accountants and making
recommendations to the Board of Directors with respect to accounting practices
and procedures and internal controls. The Audit Committee of RYS met once during
the six months ended December 31, 1998.
The Compensation and Conflict of Interest Committee (the "Compensation
Committee") presently is composed of Messrs. Beam, Evans and Haythe. The
Compensation Committee's functions include reviewing and recommending
remuneration arrangements for senior officers and for members of the Board of
Directors, adopting compensation plans in which officers and directors are
eligible to participate, granting stock options under RYS' stock option plans,
acting on important personnel matters, nominating senior officers, resolving
matters involving possible conflicts of interest and providing for management
succession. The Compensation and Conflict Committee met once during the six
months ended December 31, 1998.
The Independent Directors Committee presently is composed of Messrs.
Beam, Haythe and Shulman. The Committee's function is to review all transactions
between RYS and persons affiliated with Paul J. Ramsay or any entity in which
Paul J. Ramsay directly or indirectly has an equity interest. The Independent
Directors Committee did not meet during the six months ended December 31, 1998.
RYS does not have a nominating committee and has established no
procedures whereby nominees for director may be recommended by stockholders.
COMPENSATION OF DIRECTORS
Prior to January 1, 1999, it was RYS' policy to pay directors who are
not employees of RYS a fee of $3,000 for each of the first four meetings of the
Board of Directors attended during the year, with no additional compensation to
be paid for attendance at additional meetings. Effective January 1, 1999, it is
RYS' policy to pay directors who are not employees of RYS a fee of $1,000 for
each meeting of the Board of Directors attended during the year.
For the six months ended December 31, 1998, RYS paid Messrs. Ramsay,
Evans, Beam and Haythe $12,000 each, Mr. Siddle $9,000, and Mr. Shulman $6,000,
for services rendered in connection
60
<PAGE> 62
with RYS' Board of Directors' Meetings. Mr. Lamela was not paid for his
attendance at Board of Directors' Meetings during the six months ended December
31, 1998.
ITEM 11. EXECUTIVE COMPENSATION.
The following table and footnotes set forth certain information
concerning the compensation paid or awarded by the Company to the President and
Chief Executive Officer and the other most highly compensated executive officers
of RYS during the fiscal years ended June 30, 1998, 1997 and 1996.
In addition, certain information is provided on an annualized basis for
the fiscal year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION STOCK OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(2) ($) (#) ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Luis E. Lamela(1) *1998 401,543 400,000 21,424 (3) -- --
Vice Chairman of the 1998 235,045 -- 16,118 (3) 35,000 (4) 6,000 (7)
Board, President and 1997 -- -- -- -- --
Chief Executive Officer 1996 -- -- -- -- --
Bert G. Cibran *1998 301,152 200,000 21,120 (3) -- 9,736 (8)
Chief Operating Officer 1998 301,152 200,000 21,120 (3) -- 12,358 (9)
1997 268,124 -- 18,679 (3) 91,666 (5) 19,005 (10)
1996 -- -- -- -- --
Marcio C. Cabrera *1998 175,684 -- -- 10,000 --
Executive Vice President, 1998 -- -- -- -- --
Chief Financial Officer 1997 -- -- -- 6,667 --
and Secretary 1996 -- -- -- -- --
Jorge L. Rico *1998 143,482 -- -- 8,333 --
Vice President and 1998 -- -- -- -- --
Assistant Secretary 1997 -- -- -- 6,667 --
1996 -- -- -- -- --
Isabel M. Diaz *1998 120,457 -- 9,000 (3) -- --
Vice President 1998 -- -- -- -- --
1997 -- -- -- 11,667 (6) --
1996 -- -- -- -- --
</TABLE>
- --------------------
* Reflects annualized information for the twelve months ended December 31,
1998.
(1) In January 1998, Mr. Lamela became Chief Executive Officer of RYS; and in
January 1999, Mr. Lamela became President of RYS. See "Employment and
Other Agreements" below.
(2) Bonuses are reflected in the period in which they are paid.
(3) Represents automobile allowance.
(4) Represents options awarded to Mr. Lamela during the year ended June 30,
1998 in connection with his employment agreement. This amount does not
include 131,666 options and warrants issued to Mr. Lamela
61
<PAGE> 63
prior to his employment with RYS and 150,015 warrants issued to
Mr. Lamela in connection with RYS' purchase of Summa Healthcare Group,
Inc. See "Other Arrangements."
(5) Amounts do not include options and warrants to purchase shares of Common
Stock issued in connection with the Merger (as defined in "Certain
Relationships and Related Transactions" below).
(6) Represents options awarded to Ms. Diaz in May 1997 (6,667) and August
1996 (5,000). Does not include 16,652 warrants issued to Ms. Diaz in
connection with RYS' purchase of Summa Healthcare Group or 278 warrants
issued in connection with the Merger (as defined in "Certain
Relationships and Related Transactions" below).
(7) Represents directors fees paid to Mr. Lamela prior to his employment with
the Company paid in fiscal 1998.
(8) Represents annualized premiums of $4,493 related to long-term disability
policy and annualized club membership fees of $5,243.
(9) Represents premiums paid of $4,493 related to a long-term disability
policy and club membership fees of $7,865.
(10) Represents premiums paid of $5,363 related to a long-term disability
policy and club membership fees of $13,642.
The following table and footnotes set forth the grant of stock options
to the executive officer named in the Summary Compensation Table during the six
months ended December 31, 1998. The amounts shown for the named executive
officer as potential realizable values are based on arbitrarily assumed
annualized rates of stock price appreciation of five percent and ten percent
over the exercise price of the options during the full terms of the options. No
gain to the optionees is possible without an increase in stock price which will
benefit all stockholders proportionately. These potential realizable values are
based solely on arbitrarily assumed rates of appreciation required by applicable
Securities and Exchange Commission (the "SEC") regulations. Actual gains, if
any, on option exercises and holdings of Common Stock are dependent on the
future performance of the Common Stock and overall stock market conditions.
There can be no assurance that the potential realizable values shown in this
table will be achieved.
62
<PAGE> 64
STOCK OPTION GRANTS DURING SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
INDIVIDUAL PRICE APPRECIATION
GRANTS FOR OPTION TERM
---------------------------------------------------------- ----------------------
% OF TOTAL
OPTIONS
GRANTED TO
EMPLOYEES
DURING
SIX MONTHS EXERCISE
ENDED OR
OPTIONS DECEMBER 31, BASE PRICE EXPIRATION
NAME GRANTED (#) 1998 ($/SH) DATE 5%($) 10%($)
- ---------------------------- ----------- ------------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Marcio C. Cabrera 10,000 12.6% $4.69 11/24/08 $29,500 $75,000
Executive Vice President,
Chief Financial Officer
and Secretary
Jorge L. Rico 8,333 10.5% $4.69 11/24/08 $25,000 $62,500
Vice President and
Assistant Secretary
</TABLE>
The following table and footnotes summarize stock options exercised
during the six months ended December 31, 1998 and the number and value of
options held by the executive officers named in the Summary Compensation Table
at December 31, 1998.
STOCK OPTION EXERCISES DURING THE SIX MONTHS ENDED DECEMBER 31, 1998 AND
STOCK OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1998 (#) AT DECEMBER 31, 1998 ($) (1)
------------------------------ ------------------------------
NAME SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ------------ ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Luis E. Lamela (2) -- -- 190,570 126,111 -- --
Bert G. Cibran (3) -- -- 16,667 108,333 -- --
Marcio C. Cabrera -- -- 2,222 14,444 -- --
Isabel M. Diaz (4) -- -- 19,129 9,467 -- --
Jorge L. Rico -- -- 4,445 10,555 -- --
</TABLE>
- -------------------
(1) In-the-money options are those where the fair market value of the
underlying Common Stock exceeds the exercise price of the option. The
value of in-the-money options is determined in accordance with
regulations of the Securities and Exchange Commission by subtracting the
aggregate exercise price of the options from the aggregate year-end value
of the underlying Common Stock.
(2) Represents 35,000 options awarded to Mr. Lamela in connection with his
employment agreement, 131,666 options and warrants issued to Mr. Lamela
prior to his employment with RYS and 150,015 warrants issued to
63
<PAGE> 65
Mr. Lamela in connection with RYS' purchase of Summa Healthcare Group,
Inc. See "Employment and Other Agreements" and "Other Arrangements"
below.
(3) Includes options and warrants to purchase shares of Common Stock issued
in connection with the Merger (as defined in "Certain Relationships and
Related Transactions" below).
(4) Includes 16,652 options to purchase shares of Common Stock issued in
connection with RYS' purchase of Summa Healthcare Group and 278 warrants
to purchase shares of Common Stock issued in connection with the Merger
(as defined in "Certain Relationships and Related Transactions" below).
EMPLOYMENT AND OTHER AGREEMENTS
In October 1997, RYS entered into an employment agreement with Luis E.
Lamela to serve as RYS' Vice Chairman of the Board and Chief Executive Officer,
providing for the payment of an initial annual base salary of $400,000, subject
to increases determined by the Board of Directors and minimum annual increases
based on the Consumer Price Index. In addition, Mr. Lamela is entitled to an
annual bonus in an amount equal to the greater of (i) $400,000 or (ii) five
percent of any increase in operating income for the applicable fiscal year over
operating income for the 1997 fiscal year. The agreement is for an initial term
of two years with annual renewals thereafter. Pursuant to the employment
agreement, RYS agreed to provide Mr. Lamela an automobile allowance and options
to purchase 35,000 shares of Common Stock. In addition, Mr. Lamela's employment
with RYS may be terminated by either RYS or Mr. Lamela; however, in the event
RYS terminates Mr. Lamela's employment without due cause, RYS must continue to
pay Mr. Lamela his base salary in effect at the time of such termination for 24
months after the date of such termination and any bonus payable. The agreement
also provides for a lump sum cash payment to Mr. Lamela of his bonus and 36
months' base salary upon termination of his employment for any reason following
certain change of control events involving RYS.
As a result of an amendment in his employment agreement, Mr. Lamela's
annual bonus effective after December 31, 1998 shall be determined at the sole
discretion of the Board of Directors of the Company.
In August 1996, RYS entered into an employment agreement with Bert G.
Cibran, Chief Operating Officer of RYS, providing for the payment of an initial
annual base salary of $300,000, subject to annual increases determined by the
Board of Directors and minimum annual increases based on the Consumer Price
Index. Mr. Cibran's current annual salary is $300,000. In addition, Mr. Cibran
is entitled to an annual bonus in an amount equal to two percent of any increase
in operating income over the preceding fiscal year. The agreement is for an
initial term of three years with annual renewals thereafter. Pursuant to the
employment agreement, RYS agreed to provide Mr. Cibran an automobile allowance
and options to purchase 41,666 shares of Common Stock. In addition, Mr. Cibran's
employment may be terminated by either RYS or Mr. Cibran; however, in the event
RYS terminates Mr. Cibran's employment without due cause, RYS must continue to
pay Mr. Cibran his base salary in effect at the time of such termination for 24
months after the date of such termination and any bonus payable. The agreement
also provides for a lump sum cash payment to Mr. Cibran of his bonus and 24
months' base salary upon termination of his employment for any reason following
certain change of control events involving RYS.
As a result of an amendment in his employment agreement, Mr. Cibran's
annual bonus effective after December 31, 1998 shall be determined at the sole
discretion of the Board of Directors of the Company.
In June 1998, RYS entered into an employment agreement with Marcio C.
Cabrera to serve as RYS' Executive Vice President of Finance, providing for the
payment of an initial annual base salary of $175,000. In accordance with the
terms of his employment agreement, bonuses and increases to Mr. Cabrera's base
salary will be determined based on the Company's existing compensation
guidelines. The agreement is for an initial term of two years with annual
renewals thereafter. Mr. Cabrera's employment with RYS may be terminated by
either RYS or Mr. Cabrera; however, in the event RYS terminates Mr. Cabrera's
employment without cause, RYS must continue to pay
64
<PAGE> 66
Mr. Cabrera his base salary in effect at the time of such termination for six
months after the date of such termination.
In February 1997, RYS entered into an employment agreement with Jorge
Rico to serve as RYS' Vice President of Management Services, providing for the
payment of an initial annual base salary of $120,000. On July 1, 1998, Mr. Rico
was promoted to Vice President of Operations and his annual salary was increased
to $145,000. In accordance with the terms of his employment agreement, bonuses
and increases to Mr. Rico's salary will be determined based on the Company's
existing compensation guidelines. The agreement is for an initial term of two
years with annual renewals thereafter. In addition, Mr. Rico's employment by RYS
may be terminated by either RYS or Mr. Rico; however, in the event RYS
terminates Mr. Rico's employment without cause, RYS must continue to pay Mr.
Rico his base salary in effect at the time of such termination for six months
after the date of such termination.
In October 1997, RYS entered into an employment agreement with Isabel
M. Diaz to serve as RYS' Vice President of Corporate Relations, providing for
the payment of an initial annual base salary of $120,000. In accordance with the
terms of her employment agreement, bonuses and increases to Ms. Diaz's base
salary will be determined based on the Company's existing compensation
guidelines. The agreement is for an initial term of two years with annual
renewals thereafter. Pursuant to the employment agreement, RYS agreed to provide
Ms. Diaz an automobile allowance in the amount of $750 per month. Ms. Diaz's
employment with RYS may be terminated by either RYS or Ms. Diaz; however, in the
event RYS terminates Ms. Diaz's employment without cause, RYS must continue to
pay Ms. Diaz her base salary in effect at the time of such termination for six
months after the date of such termination.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires RYS'
directors and executive officers, and persons who own more than ten percent of
Common Stock, to file with the SEC initial reports of ownership and reports of
changes in ownership of Common Stock. Executive officers, directors and greater
than ten percent stockholders are required by SEC regulations to furnish RYS
with copies of all Section 16(a) reports they file.
To RYS' knowledge, based solely on a review of the copies of such
reports furnished to RYS and representations that no other reports were
required, during the six months ended December 31, 1998, all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than ten percent stockholders were complied with. All such persons have
subsequently filed the required reports.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors are
Aaron Beam, Jr., Peter J. Evans and Thomas M. Haythe. Mr. Haythe is a partner of
the New York City law firm of Haythe & Curley, which firm rendered legal
services to RYS during the last fiscal year and will continue to render legal
services to RYS in the future. See "Certain Relationships and Related
Transactions" above.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors determines the
compensation arrangements for executive officers of RYS. RYS' executive
compensation program is designed to attract, motivate, reward and retain
individuals with the executive and management skills needed to achieve RYS'
business objectives. The compensation program accomplishes this goal by
providing RYS' executives with incentives which reward achievement of both
short- and long-term objectives that contribute to the growth and profitability
of RYS, and which link executive pay with the interests of RYS' stockholders.
65
<PAGE> 67
RYS' executive compensation program consists of base salary, bonuses
and stock options. RYS' salary levels are determined by comparisons with
companies of similar size and complexity in the youth services care industry.
Salary increases are determined in light of the financial performance of RYS,
the individual performance of the executive and any increased responsibilities
assumed by the executive. The salaries for RYS' President and Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Vice President,
were determined pursuant to the terms of their employment agreements with RYS,
which in turn were based on the foregoing considerations.
Effective January 1, 1999, annual bonuses payable pursuant to the
employment agreements for RYS' President and Chief Executive Officer and its
Chief Operating Officer are determined on the sole discretion of the Company's
Board of Directors based on the achievement of strategic objectives, the
financial performance of RYS, the individual performance of the executive and
any increased responsibilities assumed by the executive.
RYS may award bonuses to other executives based on the level of
financial performance achieved by RYS and the individual accomplishments of the
executive, as evaluated by the Chief Executive Officer or the President of RYS.
Annual bonuses are paid to the chief executive officers of each of RYS'
facilities, based on (a) the financial performance of his/her facility compared
to budgeted and prior year performance, (b) the overall results of RYS and (c)
the attainment of certain quality of care levels.
RYS periodically grants stock options to its executive officers and
other key employees. Stock option grants are intended to provide RYS' executives
and other key employees with a significant incentive to work to maximize
stockholder value. The Compensation Committee believes that by providing RYS'
executives and key employees who have substantial responsibility for the
management and growth of RYS with an opportunity to profit from increases in the
value of the Common Stock, the interests of RYS' stockholders and executives
will be most closely aligned.
THE COMPENSATION AND CONFLICT OF
INTEREST COMMITTEE OF THE BOARD OF
DIRECTORS
Aaron Beam, Jr.
Peter J. Evans
Thomas M. Haythe
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
INFORMATION CONCERNING CERTAIN STOCKHOLDERS
Listed in the following table is certain information as of
March 15, 1999 with respect to (i) the stockholders of the Company (including
any "group" as that term is used in Section 13(d)(3) of the Exchange Act) who,
to the knowledge of the Board of Directors, owned beneficially more than five
percent (5%) of any class of the outstanding voting securities of the Company,
(ii) each director of the Company who owned beneficially any shares of voting
securities of the Company, and (iii) all directors and officers of the Company
as a group. This information has been provided to the Company by the persons
named below.
66
<PAGE> 68
<TABLE>
<CAPTION>
NAME AND ADDRESS TITLE NUMBER OF PERCENTAGE
BENEFICIAL OWNER OF CLASS SHARES OWNED (1) OF CLASS (1)
- ---------------- -------- ---------------- ------------
<S> <C> <C> <C>
Paul J. Ramsay Common 5,563,519 (2) 60.14%
Paul Ramsay Group
154 Pacific Highway
St. Leonards, NSW
Australia
Paul Ramsay Hospitals Pty. Limited Common 5,519,270 (3) 59.91%
c/o Haythe & Curley
237 Park Avenue
New York, New York 10017
Paul Ramsay Holdings Pty. Limited Common 4,721,024 (3) 51.51%
c/o Haythe & Curley
237 Park Avenue
New York, New York 10017
Ramsay Holdings HSA Limited Common 906,352 (3) 9.98%
c/o Haythe & Curley
237 Park Avenue
New York, New York 10017
Heartland Advisors, Inc. Common 671,679 (4) 7.40%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Luis E. Lamela Common 598,319 (5) 6.44%
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Dauphin Capital Partners I, LP Common 444,444 (6) 4.89%
1921 W. Joppa Road
Baltimore, Maryland 21204
Aaron Beam, Jr. Common 20,279 (7) *
Marcio C. Cabrera Common 4,444 (8) *
Bert G. Cibran Common 33,611 (9) *
Isabel M. Diaz Common 29,699 (10) *
Peter J. Evans Common 33,138 (11) *
Thomas M. Haythe Common 33,783 (12) *
Jorge L. Rico Common 4,444 (13) *
Steven J. Shulman Common 15,361 (14) *
Michael S. Siddle Common 17,583 (15) *
All directors and executive
officers as a group
(11 persons) Common 6,354,180 (2)(5) 66.25%
(7)(8)(9)(10)
(11)(12)(13)
(14)(15)
</TABLE>
<PAGE> 69
- -------------------
* Indicates ownership percentage of less than one percent (1%).
(1) Includes all shares that each named person is entitled to receive within
60 days, through the exercise of any option, warrant, conversion right,
or similar arrangement. Such shares are deemed to be owned and
outstanding by such person individually for purposes of calculating the
number of shares owned and the percentage of class for each such named
person, but are not deemed outstanding for purposes of such calculations
for any other named person.
(2) Mr. Ramsay's beneficial ownership of Common Stock consists of (i) 5,916
shares of Common Stock owned directly by Mr. Ramsay, (ii) 38,333 shares
of Common Stock issuable upon the exercise of exercisable options owned
directly by Mr. Ramsay, (iii) 906,352 shares of Common Stock beneficially
owned by Ramsay Holdings HSA Limited ("Ramsay Holdings"), (iv) 4,721,024
shares of Common Stock beneficially owned by Paul Ramsay Holdings Pty.
Limited ("Holdings Pty."), which includes all shares beneficially owned
by Ramsay Holdings, and (v) 5,519,270 shares of Common Stock beneficially
owned by Paul Ramsay Hospitals Pty. Limited ("Hospitals Pty."), which
includes all shares beneficially owned by Ramsay Holdings and Holdings
Pty. The shares beneficially owned by Ramsay Holdings consist of 906,352
shares of Common Stock owned of record by Ramsay Holdings. The shares
beneficially owned by Holdings Pty. consist of 3,731,339 shares of Common
Stock owned of record by Holdings Pty., 83,333 shares of Common Stock
issuable upon the exercise of exercisable warrants to purchase shares of
Common Stock held by Holdings, Pty. and the 906,352 shares of Common
Stock beneficially owned by Ramsay Holdings. The shares beneficially
owned by Hospitals Pty. consist of 751,024 shares of Common Stock owned
of record by Hospitals Pty., 47,222 shares of Common Stock issuable upon
the exercise of exercisable warrants to purchase shares of Common Stock
held by Hospitals Pty. and the 4,721,024 shares of Common Stock
beneficially owned by Holdings Pty.
(3) These shares are included in the beneficial ownership of Paul J. Ramsay
and are included in footnote (2) above.
(4) Information as to the holdings of Heartland Advisors, Inc. ("HAI") is
based upon a report on Schedule 13G filed with the Securities and
Exchange Commission. Such report indicates that HAI owned 1,186,439
shares with sole voting power and 2,015,039 shares with sole dispositive
power, which after giving effect to the one-for-three stock split results
in 375,479 shares with sole voting power and 671,679 shares with
dispositive power. Such report indicates that HAI is an investment
adviser registered under the Investment Advisers Act of 1940.
(5) Includes 55,000 shares of Common Stock issuable upon the exercise of
exercisable options to purchase shares of Common Stock held by Mr. Lamela
and 150,015 shares of Common Stock issuable upon the exercise of
exercisable warrants to purchase shares of Common Stock held by Mr.
Lamela.
(6) Information as to the holdings of Dauphin Capital Partners I, LP
("Dauphin") is based upon a report on Schedule 13D filed with the
Securities and Exchange Commission. Such report indicates that Dauphin
owned 1,333,334 shares with sole voting power and sole dispositive power,
which after giving effect to the one-for-three stock split results in
444,444 shares with sole voting power and sole dispositive power.
68
<PAGE> 70
(7) Includes 10,555 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by
Mr. Beam.
(8) Represents 4,444 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by
Mr. Cabrera.
(9) Represents 33,333 shares of Common Stock issuable upon the exercise of
exercisable options to purchase shares of Common Stock held by Mr. Cibran
and 278 shares of Common Stock issuable upon the exercise of currently
exercisable warrants to purchase shares of Common Stock held by Mr.
Cibran.
(10) Includes 4,444 shares of Common Stock issuable upon the exercise of
exercisable options to purchase shares of Common Stock held by Ms. Diaz
and 16,930 shares of Common Stock issuable upon the exercise of
exercisable warrants to purchase shares of Common Stock held by Ms. Diaz.
(11) Includes 27,222 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by
Mr. Evans.
(12) Includes 1,666 shares of Common Stock held in a Keough Plan for the
benefit of Mr. Haythe and 11,667 shares of Common Stock issuable upon the
exercise of currently exercisable options to purchase shares of Common
Stock held by Mr. Haythe.
(13) Represents 4,444 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by
Mr. Rico.
(14) Includes 9,445 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by
Mr. Shulman.
(15) Includes 11,667 shares of Common Stock issuable upon the exercise of
currently exercisable options to purchase shares of Common Stock held by
Mr. Siddle.
On September 23, 1998, Holdings Pty. and Nottoway Properties, Inc.
entered into a secured credit facility with The Chase Manhattan Bank (the "Chase
Facility"), the proceeds of which were used, in part, to refinance in full the
secured demand loan facility (the "Coutts Facility") with Coutts Bank
(Switzerland), Ltd., successor to Coutts & Co. AG ("Coutts"). As security for
the Coutts Facility, Holdings Pty. and Ramsay Holdings had pledged to Coutts,
among other items, 559,966 of the shares of Common Stock held by Holdings Pty.
and Ramsay Holdings and the 47,495 shares of Series C Preferred Stock held by
Holdings Pty. and Ramsay Holdings (collectively, the "Pledged Stock"). Upon
entering into the Chase Facility, all outstanding indebtedness to Coutts was
fully repaid and the pledged stock was released.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIP WITH RAMSAY AFFILIATES
The Ramsay Affiliates are corporations controlled by RYS' Chairman of
the Board, Paul J. Ramsay. At March 15, 1999, Paul J. Ramsay, Ramsay Holdings
HSA Limited, Paul Ramsay Holdings Pty. Limited ("Ramsay Holdings") and Paul
Ramsay Hospitals Pty. Limited ("Ramsay Hospitals") owned of record, and had a
voting interest in, approximately 59.4% of the issued and outstanding shares of
RYS Common Stock.
The Company has, from time to time, entered into certain financing
agreements with the Ramsay Affiliates. See "Item 7. Liquidity and Capital
Resources".
69
<PAGE> 71
OTHER AGREEMENTS
RYS entered into an indemnification agreement with its directors and
executive officers. These agreements provide that the directors and executive
officers will be indemnified to the fullest possible extent permitted by
Delaware law against all expenses (including attorneys' fees), judgments, fines,
penalties, taxes and settlement amounts paid or incurred by them in any action
or proceeding (including any action by or in the right of RYS or any of its
subsidiaries or affiliates) on account of their service as directors, officers,
employees, fiduciaries or agents of RYS or any of its subsidiaries or affiliates
and their service at the request of RYS or any of its subsidiaries or affiliates
as directors, officers, employees, fiduciaries or agents of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Thomas M. Haythe, a director of RYS, is a partner of the New York City
law firm of Haythe & Curley, which firm rendered legal services to RYS during
the six months ended December 31, 1998 and will continue to render legal
services to RYS in the future.
RYS amended its consulting agreement on February 1, 1997 with Summa
Healthcare Group, Inc. ("Summa"), a company of which Luis E. Lamela, the Vice
Chairman of the Board of RYS, is the principal stockholder. Under the consulting
agreement, Summa provided RYS with advisory and consulting services in
connection with strategic planning, business development and investor relations
for a fee of $30,000 per month, as well as a success fee to be negotiated in
good faith between RYS and Summa with respect to any significant transactions
involving RYS as to which Summa rendered substantial consulting or advisory
services. During the fiscal years ended June 30, 1997 and 1998, RYS paid Summa
$237,500 and $90,000, respectively, in connection with its advisory and
consulting services. In connection with a similar consulting agreement between
Summa and RMCI, as a result of the merger between Ramsay Managed Care, Inc.
("RMCI") and RYS (the "Merger"), RYS assumed RMCI's obligation to pay $200,000
in success fees to Summa for Summa's services in connection with the Merger and
the sale by RMCI prior to the Merger of its HMO subsidiary (the "HMO Sale").
Prior to the Summa Merger (as defined below), Summa assigned the right to
receive these fees to Mr. Lamela. The fees are payable by RYS following June 30,
1998 in the event that RYS satisfies certain financial and operational
conditions under its credit documentation.
On July 1, 1997, RYS, Ramsay Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of RYS, and Summa entered into an Agreement and Plan
of Merger, pursuant to which Summa merged with and into Ramsay Acquisition Corp.
in October 1997, whereupon Summa became a wholly owned subsidiary of RYS (the
"Summa Merger"). The aggregate consideration paid by RYS in the Summa Merger
consisted of $300,000 in cash, 83,333 shares of Common Stock and warrants to
purchase an aggregate of 166,666 shares of Common Stock at $9.75 per share (of
which, Mr. Lamela received $270,027 in cash, 75,007 shares of Common Stock and
warrants to purchase 150,015 shares of Common Stock).
As a result of the Merger, RYS assumed an obligation of RMCI to pay
$100,000 in success fees to Peter J. Evans, a director of RYS. These fees are
payable to Mr. Evans for his services to RMCI in connection with the Merger.
These fees were paid to Mr. Evans during the year ended June 30, 1998 and the
six months ended December 31, 1998.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total return on
the Common Stock to the NASDAQ Stock Market-U.S. Index, an old peer group and a
new peer group. The old peer group companies consist of Comprehensive Care
Corporation, Magellan Health Services, Inc. and Res-Care, Inc. The new peer
group companies consist of Children's Comprehensive Services, Inc., Correctional
Services Corporation and Res-Care, Inc. RYS believes that these peer companies,
which are engaged in the behavioral health and youth services industry, are most
comparable to RYS' historical business, within the parameters set by the SEC.
The graph assumes that $100 was invested in Common Stock, the NASDAQ Stock
Market U.S. Index, the new peer group and the old peer group on December 31,
1993 and that all dividends were reinvested.
70
<PAGE> 72
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG RAMSAY YOUTH SERVICES, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
A NEW PEER GROUP AND AN OLD PEER GROUP
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
<S> <C> <C> <C> <C> <C> <C>
RAMSAY YOUTH SERVICES, INC. 100 88 46 42 43 23
NEW PEER GROUP 100 108 121 199 262 298
OLD PEER GROUP 100 83 88 91 98 69
NASDAQ STOCK MARKET (U.S.) 100 98 138 170 208 294
</TABLE>
*$100 INVESTED ON 12/31/93 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
71
<PAGE> 73
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THE REPORT:
1. FINANCIAL STATEMENTS
Information with respect to this Item is
contained on Pages 27 to 58 of this Transition Report
on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they
are inapplicable or the information is provided in
the consolidated financial statements, including the
notes thereto.
3. EXHIBITS
Information with respect to this Item is
contained in the attached Index to Exhibits.
(b) REPORTS ON FORM 8-K:
On October 9, 1998, the Company filed with the
Commission a Current Report on Form 8-K related to
the sale of its behavioral health facilities. On
December 14, 1998, the Company filed a Current Report
on Form 8-K/A to include the financial statements and
pro forma financial information related to the sale
of its behavioral health facilities. On November 25,
1998, the Company filed with the Commission a Current
Report on Form 8-K related to the change in the
Company's fiscal year end from June 30 to December 31
of each year.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K:
Exhibits required to be filed by the Company pursuant
to Item 601 of Regulation S-K are contained in
Exhibits listed in response to Item 14(a)3, and are
incorporated herein by reference. The agreements,
management contracts and compensatory plans and
arrangements required to be filed as an Exhibit to
this Form 10-K are listed in Exhibits 10.64, 10.66,
10.69, 10.71, 10.72, 10.76, 10.77, 10.79, 10.91,
10.97, 10.99, 10.101, 10.102, 10.104, 10.105, 10.110,
10.136 and 10.137.
72
<PAGE> 74
POWER OF ATTORNEY
The Registrant, and each person whose signature appears below, hereby
appoints Bert G. Cibran and Thomas M. Haythe as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto fully authorized.
RAMSAY YOUTH SERVICES, INC.
Dated: 3/25/99 By /s/ Luis E. Lamela
--------- --------------------------------------------
Luis E. Lamela
President and Chief Executive Officer
Dated: 3/25/99 By /s/ Marcio C. Cabrera
--------- --------------------------------------------
Marcio C. Cabrera
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE/TITLE
Dated: 3/25/99 By /s/ Paul J. Ramsay
--------- --------------------------------------------
Paul J. Ramsay
Chairman of the Board of Directors
Dated: 3/25/99 By /s/ Luis E. Lamela
--------- --------------------------------------------
Luis E. Lamela
President and Chief Executive Officer, Vice
Chairman of the Board and Director
73
<PAGE> 75
SIGNATURE/TITLE
Dated: 3/25/99 By /s/ Aaron Beam, Jr.
--------- --------------------------------------------
Aaron Beam, Jr.
Director
Dated: 3/25/99 By /s/ Peter J. Evans
--------- --------------------------------------------
Peter J. Evans
Director
Dated: 3/25/99 By /s/ Thomas M. Haythe
--------- --------------------------------------------
Thomas M. Haythe
Director
Dated: 3/25/99 By /s/ Steven J. Shulman
--------- --------------------------------------------
Steven J. Shulman
Director
Dated: 3/25/99 By /s/ Michael S. Siddle
--------- --------------------------------------------
Michael S. Siddle
Director
74
<PAGE> 76
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
2.1 Recapitalization Agreement dated as of June 30, 1993 by and among the
Company, Ramsay Holdings HSA Limited and Paul Ramsay Holdings Pty.
Limited (incorporated by reference to Exhibit 2.2 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994)............................... --
2.2 Agreement of sale and purchase dated April 12, 1995 by and between Mesa
Psychiatric Hospital, Inc. and Capstone Capital Corporation
(incorporated by reference to Exhibit 2.7 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995). Pursuant to Reg.
S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request.................... --
2.3 Agreement of sale and purchase dated April 12, 1995 by and between RHCI
San Antonio, Inc. and Capstone Capital Corporation (incorporated by
reference to Exhibit 2.8 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1995). Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the Schedules and
Exhibits to such Agreement to the Commission upon request.................................. --
2.4 Agreement and Plan of Merger dated as of October 1, 1996 among Ramsay Managed
Care, Inc., the Company and RHCI Acquisition Corp. (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K dated October 2, 1996).
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Disclosure Schedules to such Agreement to the Commission upon request...................... --
2.5 Agreement and Plan of Merger dated as of July 1, 1997 among Summa
Healthcare Group, Inc., the Company and Ramsay Acquisition Corporation
(incorporated by reference to Exhibit 2.5 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)..................................... --
2.6 Agreement of Purchase and Sale dated as of March 18, 1998 by and
between Ramsay Louisiana, Inc. and Health-One Properties, LLC
(incorporated by reference to Exhibit 2.6 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998). Pursuant to
Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Disclosure Schedules and attachments to such Agreement to the
Commission upon request.................................................................... --
2.7 Stock Purchase Agreement dated as of May 1, 1998 by and among the
Company, Ramsay Managed Care, Inc. and Horizon Health Corporation
(incorporated by reference to Exhibit 2.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998). Pursuant to
Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Disclosure Schedules and attachments to such Agreement to the
Commission upon request.................................................................... --
2.8 Asset Purchase Agreement dated as of May 15, 1998 by and among
Greenbrier Hospital, Inc., the Company and Provider Options Holdings,
L.L.C (incorporated by reference to Exhibit 2.8 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
Pursuant to Reg. S- K, Item 601(b)(2), the Company agrees to furnish a
copy of the Disclosure Schedules and attachments to such Agreement to
the Commission upon request................................................................ --
</TABLE>
E-1
<PAGE> 77
<TABLE>
<CAPTION>
<S> <C> <C>
2.9 Purchase Agreement dated as of June 24, 1998 among Charter Behavioral
Health Systems, LLC, the Company, Carolina Treatment Center, Inc.,
Houma Psychiatric Hospital, Inc., Mesa Psychiatric Hospital, Inc., RHCI
San Antonio, Inc., The Haven Hospital, Inc., Transitional Care Ventures
(Arizona), Inc., Transitional Care Ventures (North Texas), Inc. and
Transitional Care Ventures (Texas), Inc. (incorporated by reference to
Exhibit 2.9 to the Company's Current Report on Form 8-K dated October
9, 1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Disclosure Schedules and attachments to such
Agreement to the Commission upon request................................................... --
2.10 Purchase and Sale Contract dated as of June 25, 1998 among Charter
Behavioral Health Systems, LLC, Carolina Treatment Center, Inc. and
Mesa Psychiatric Hospital, Inc. (incorporated by reference to Exhibit
2.10 to the Company's Current Report on Form 8-K dated October 9,
1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Disclosure Schedules and attachments to such
Agreement to the Commission upon request................................................... --
2.11 Purchase and Sale Contract dated as of June 26, 1998 among Crescent
Real Estate Equities Limited Partnership and The Haven Hospital, Inc.
(incorporated by reference to Exhibit 2.11 to the Company's Current
Report on Form 8-K dated October 9, 1998). Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the Disclosure
Schedules and attachments to such Agreement to the Commission upon request................. --
2.12 Asset Purchase Agreement dated as of July 2, 1998 among West Virginia
University Hospitals, Inc., Psychiatric Institute of West Virginia,
Inc. and the Company (incorporated by reference to Exhibit 2.12 to the
Company's Current Report on Form 8-K dated October 9, 1998). Pursuant
to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of
the Disclosure Schedules and attachments to such Agreement to the
Commission upon request.................................................................... --
2.13 Amendment No. 1 dated as of September 28, 1998 Purchase Agreement dated as of
June 24, 1998 among Charter Behavioral Health Systems, LLC, the Company, Carolina
Treatment Center, Inc., Houma Psychiatric Hospital, Inc., Mesa Psychiatric
Hospital, Inc., RHCI San Antonio, Inc., The Haven Hospital, Inc., Transitional
Care Ventures (Arizona), Inc., Transitional Care Ventures (North Texas), Inc. and
Transitional Care Ventures (Texas), Inc. (incorporated by reference to Exhibit 2.13
to the Company's Current Report on Form 8-K dated October 9, 1998)......................... --
2.14 Agreement of Sale and Purchase dated as of September 28, 1998 by and among
Havenwyck Hospital, Inc., Michigan Psychiatric Services, Inc. and Capstone
Capital Corporation (incorporated by reference to Exhibit 2.14 to the Company's
Current Report on Form 8-K dated October 9, 1998). Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules
and attachments to such Agreement to the Commission upon request........................... --
2.15 Stock Purchase Agreement dated as of November 19, 1998 The Rader Group,
Incorporated, a Florida corporation, The Rader Group, Incorporated, a Colorado
corporation, Bill T. Rader, Ph.D. and Ramsay Educational Services, Inc.....................
3.1 Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1990)...................................... --
</TABLE>
E-2
<PAGE> 78
<TABLE>
<CAPTION>
<S> <C> <C>
3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company
filed on April 17, 1991 (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-2, Registration No. 33-40762)................... --
3.3 Certificate of Correction to Certificate of Amendment of Restated
Certificate of Incorporation of the Company filed on April 18, 1991
(incorporated by reference to Exhibit 3.3 to the Company's Registration
Statement on Form S-2, Registration No. 33-40762).......................................... --
3.4 By-Laws of the Company, as amended to date (incorporated by reference
to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1994)....................................................................... --
3.5 Certificate of Designation of Preferred Stock of the Company filed on
June 27, 1991 (incorporated by reference to Exhibit 3.5 to the
Company's Registration Statement on Form S-2, Registration No. 33-40762)................... --
3.6 Certificate of Designation of Preferred Stock of the Company filed on
July 9, 1991 (incorporated by reference to Exhibit 3.6 to the Company's
Registration Statement on Form S-2, Registration No. 33-40762)............................. --
3.7 Certificate of Designation of Preferred Stock of the Company filed on
June 29, 1993 (incorporated by reference to Exhibit 3.7 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994)..................... --
3.8 Certificate of Designation of Preferred Stock of the Company with
respect to its Class B Preferred Stock, Series 1996 filed on June 10,
1997 (incorporated by reference to Exhibit 3.8 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)...................................... --
3.9 Certificate of Designation of Preferred Stock of the Company with
respect to its Class B Preferred Stock, Series 1997 filed on September
30, 1997 (incorporated by reference to Exhibit 3.9 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997)............................... --
3.10 Certificate of Designation of Preferred Stock of the Company with
respect to its Class B Preferred Stock, Series 1997-A filed on
September 30, 1997 (incorporated by reference to Exhibit 3.10 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997)..................... --
3.11 Preferred Stock Purchase Agreement dated as of September 30, 1997
between the Company and General Electric Capital Corporation
(incorporated by reference to Exhibit 3.11 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)...................................... --
3.12 Preferred Stock Purchase Agreement dated as of September 30, 1997
between the Company and Paul Ramsay Holdings Pty. Limited (incorporated
by reference to Exhibit 3.12 to the Company's Annual Report on Form
10-K for the year ended June 30, 1997)..................................................... --
3.13 Common Stock Purchase Agreement dated as of September 30, 1997 between
the Company and Paul Ramsay Holdings Pty. Limited (incorporated by
reference to Exhibit 3.13 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1997).......................................................... --
</TABLE>
E-3
<PAGE> 79
<TABLE>
<CAPTION>
<S> <C> <C>
3.14 Schedules to Preferred Stock Purchase Agreement described in exhibit
3.11 above (incorporated by reference to Exhibit 3.14 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).................... --
3.15 Preferred Stock and Junior Subordinated Promissory Note Exchange Agreement
dated December 16, 1998 between the Company and Paul Ramsay Holdings Pty.
Limited....................................................................................
4.1 Trust Indenture dated as of March 31, 1990, between the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina
Psychiatric Services Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric
Hospital, Inc., Psychiatric Institute of West Virginia, Inc., and The Citizens
and Southern National Bank and Susan L. Adams (incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended June
30, 1990).................................................................................. --
4.2 First Supplemental Trust Indenture dated as of June 15, 1991 between the Company,
Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East
Carolina Psychiatric Services Corporation, Havenwyck Hospital, Inc., Mesa
Psychiatric Hospital, Inc. and Psychiatric Hospital of West Virginia, Inc. and
The Citizens and Southern National Bank, a national banking association, and an
individual trustee, as Trustees (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-2, Registration No. 33-40762)................... --
4.3 Second Supplemental Trust Indenture dated as of May 15, 1993 between
the Company, Bountiful Psychiatric Hospital, Inc., Cumberland Mental
Health, Inc., East Carolina Psychiatric Services Corporation, Havenwyck
Hospital, Inc., Mesa Psychiatric Hospital, Inc. and Psychiatric
Hospital of West Virginia, Inc., and NationsBank of Georgia, National
Association, and Susan L. Adams (incorporated by reference to Exhibit
4.3 to the Company's Annual Report on Form 10-K for the year ended June
30, 1994).................................................................................. --
4.4 Third Supplemental Trust Indenture dated as of April 12, 1995 between
the Company, Bountiful Psychiatric Hospital, Inc., Cumberland Mental
Health, Inc., East Carolina Psychiatric Services Corporation, Havenwyck
Hospital, Inc., Mesa Psychiatric Hospital, Inc. and Psychiatric
Hospital of West Virginia, Inc., and NationsBank of Georgia, National
Association, and Elizabeth Talley, as Trustee (incorporated by
reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1996).......................................................... --
4.5 Fourth Supplemental Trust Indenture dated as of September 15, 1995
between the Company, Bountiful Psychiatric Hospital, Inc., Cumberland
Mental Health, Inc., East Carolina Psychiatric Services Corporation,
Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc. and
Psychiatric Institute of West Virginia, Inc. and NationsBank of
Georgia, National Association, and Elizabeth Talley, as Trustee
(incorporated by reference to Exhibit 10.100 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).............................. --
4.6 Fifth Supplemental Trust Indenture dated as of June 1, 1997 between the Company,
Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East
Carolina Psychiatric Services Corporation, Havenwyck Hospital, Inc. and
Psychiatric Institute of West Virginia, Inc. and The Bank of New York and Thomas
Zakrzewski, as Trustees (incorporated by reference to Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1997) .............................. --
</TABLE>
E-4
<PAGE> 80
<TABLE>
<CAPTION>
<S> <C> <C>
4.7 Subsidiary Borrower Note of Atlantic Treatment Center, Inc. dated May
21, 1993 in the principal amount of $4,607,945 payable to the order of
Societe Generale, New York Branch (incorporated by reference to Exhibit
4.5 to the Company's Annual Report on Form 10-K for the year ended June
30, 1994).................................................................................. --
4.8 Subsidiary Borrower Note of Carolina Treatment Center, Inc. dated May 21, 1993 in
the principal amount of $5,030,000 payable to the order of Societe Generale, New
York Branch (substantially identical to Exhibit 4.7)....................................... --
4.9 Subsidiary Borrower Note of Greenbrier Hospital, Inc. dated May 21, 1993 in the
principal amount of $5,973,125 payable to the order of Societe Generale, New York
Branch (substantially identical to Exhibit 4.7)............................................ --
4.10 Subsidiary Borrower Note of Gulf Coast Treatment Center, Inc. dated May 21, 1993
in the principal amount of $4,392,500 payable to the order of Societe Generale,
New York Branch (substantially identical to Exhibit 4.7)................................... --
4.11 Subsidiary Borrower Note of Houma Psychiatric Hospital, Inc. dated May 21, 1993 in
the principal amount of $3,979,589 payable to the order of Societe Generale, New
York Branch (substantially identical to Exhibit 4.7)....................................... --
4.12 Subsidiary Borrower Note of HSA of Oklahoma, Inc. dated May 21, 1993 in the
principal amount of $3,445,562 payable to the order of Societe Generale, New York
Branch (substantially identical to Exhibit 4.7)............................................ --
4.13 Amended and Restated Subscription Agreement dated October 26, 1998 between the
Company and Paul Ramsay Holdings Pty. Limited ("Holdings Pty."). Pursuant to
Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules
and Exhibits to such Agreement to the Commission upon request (incorporated by
reference to Exhibit 4.13 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).......................................................... --
4.14 Amended and Restated Subscription Agreement dated October 26, 1998 between the
Company and Luis E. Lamela. Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request (incorporated by reference to Exhibit 4.14 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)...................................................................................... --
4.15 Subscription Agreement dated October 26, 1998 between the Company and
Haythe & Curley. Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Schedules and Exhibits to such
Agreement to the Commission upon request (incorporated by reference to
Exhibit 4.15 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998).......................................................... --
4.16 Subscription Agreement dated as of October 26, 1998 between the Company and
Dauphin Capital Partners I, LP. Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request (incorporated by reference to Exhibit 4.16 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)...................................................................................... --
</TABLE>
E-5
<PAGE> 81
<TABLE>
<CAPTION>
<S> <C> <C>
4.17 Subscription Agreement dated as of October 26, 1998 between the Company and
Moises Hernandez, M.D. Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request (incorporated by reference to Exhibit 4.17 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)...................................................................................... --
4.18 Subscription Agreement dated as of October 26, 1998 between the Company and
Tom Hodapp. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to
furnish a copy of the Schedules and Exhibits to such Agreement to the Commission
upon request (incorporated by reference to Exhibit 4.18 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).................... --
4.19 Subscription Agreement dated as of October 26, 1998 between the Company and
Aaron Beam. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish
a copy of the Schedules and Exhibits to such Agreement to the Commission upon
request (incorporated by reference to Exhibit 4.19 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998).............................. --
4.20 Subscription Agreement dated as of October 26, 1998 between the Company and
Sanford R. Robertson. Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request (incorporated by reference to Exhibit 4.20 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)...................................................................................... --
4.21 Revolving Credit Note dated October 30, 1998 by the Company in the aggregate
principal amount of $8,000,000 payable to the order of Fleet Capital Corporation
(incorporated by reference to Exhibit 4.21 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998)........................................ --
4.22 Secured Promissory Note (Term Note) by the Company in the aggregate principal
amount of $8,000,000 payable to the order of Fleet Capital Corporation
(incorporated by reference to Exhibit 4.22 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998)........................................ --
4.23 Secured Promissory Note (Acquisition Note) by the Company in the aggregate
principal amount of $6,000,000 payable to the order of Fleet Capital Corporation
(incorporated by reference to Exhibit 4.23 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998)........................................ --
10.1 Note Purchase Agreement dated as of March 31, 1990, among the Company,
Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc.,
East Carolina Psychiatric Services Corporation, Havenwyck Hospital,
Inc., Mesa Psychiatric Hospital, Inc., Psychiatric Institute of West
Virginia, Inc., and Aetna Life Insurance Company regarding the purchase
by Aetna Life Insurance Company of $26,000,000 principal amount of
11.6% Senior Secured Notes, $1,000,000 principal amount of 15.6%
Subordinated Secured Notes and Warrants to Purchase Common Stock of the
Company (incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990)............................... --
10.2 Note Purchase Agreement pursuant to which Monumental Life Insurance Company
purchased $15,500,000 principal amount of 11.6% Senior Secured Notes, $2,000,000
principal amount of 15.6% Subordinated Secured Notes and Warrants to Purchase
Common Stock of the Company (substantially identical to Exhibit 10.1)...................... --
</TABLE>
E-6
<PAGE> 82
<TABLE>
<CAPTION>
<S> <C> <C>
10.3 Note Purchase Agreement pursuant to which Connecticut Mutual Life
Insurance Company purchased $15,000,000 principal amount of 11.6%
Senior Secured Notes (substantially identical to Exhibit 10.1)............................. --
10.4 Pledge and Security Agreement between Bountiful Psychiatric Hospital, Inc. and The
Citizens and Southern National Bank (incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1996)................. --
10.5 Pledge and Security Agreement dated as of March 31, 1990 between the
Company and The Citizens and Southern National Bank (substantially
identical to Exhibit 10.4)................................................................. --
10.6 Pledge and Security Agreement between Michigan Psychiatric Services, Inc. and The
Citizens and Southern National Bank (substantially identical to Exhibit 10.4).............. --
10.7 Pledge and Security Agreement between Americare of Galax, Inc. and The Citizens
and Southern National Bank (substantially identical to Exhibit 10.4)....................... --
10.8 Deed of Trust, Security Agreement, and Financing Statement dated as of March 31,
1990 from Bountiful Psychiatric Hospital, Inc. to Merrill Title Company for the
benefit of The Citizens and Southern National Bank and Susan L. Adams covering
certain property in Woods Cross, Utah (incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K for the year ended June 30, 1990).............. --
10.9 Deed of Trust and Security Agreement from Cumberland Mental Health, Inc. to First
American Title Insurance Company for the benefit of The Citizens and Southern
National Bank and Susan L. Adams covering certain property in Fayetteville, North
Carolina (substantially identical to Exhibit 10.8)......................................... --
10.10 Deed of Trust and Security Agreement from East Carolina Psychiatric
Services Corporation to First American Title Insurance Company for the
benefit of The Citizens and Southern National Bank and Susan L. Adams
covering certain property in Jacksonville, North Carolina (substantially identical
to Exhibit 10.8)........................................................................... --
10.11 Mortgage and Security Agreement dated as of March 31, 1990 from
Havenwyck Hospital, Inc. to The Citizens and Southern National Bank and
Susan L. Adams covering certain property in Auburn Hills, Michigan
(incorporated by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1990)...................................... --
10.12 Leasehold Deed of Trust, Assignment of Rents and Security Agreement
with Financing Statement dated as of March 31, 1990 from Mesa
Psychiatric Hospital, Inc. to Transamerica Title Insurance Company for
the benefit of The Citizens and Southern National Bank and Susan L.
Adams covering certain property in Mesa, Arizona (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1990).......................................................... --
10.13 Leasehold Deed of Trust and Security Agreement from Psychiatric Institute of West
Virginia, Inc. to J. Nicholas Barth, Esq., for the benefit of The Citizens and
Southern National Bank and Susan L. Adams covering certain property in Morgantown,
West Virginia (substantially identical to Exhibit 10.12)................................... --
</TABLE>
E-7
<PAGE> 83
<TABLE>
<CAPTION>
<S> <C> <C>
10.14 Obligor Subrogation and Contribution Agreement dated as of April 30,
1990 among The Citizens and Southern National Bank, Susan L. Adams, the
Company, Bountiful Psychiatric Hospital, Inc., Cumberland Mental
Health, Inc., East Carolina Psychiatric Services Corporation, Havenwyck
Hospital, Inc., Mesa Psychiatric Hospital, Inc., and Psychiatric
Institute of West Virginia, Inc. (incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1990)............................................................................. --
10.15 Credit Agreement dated as of May 15, 1993 among the Company and certain
of its subsidiaries named therein, Societe Generale, New York Branch,
First Union National Bank of North Carolina and Hibernia National Bank,
as lenders, and Societe Generale, as issuing bank and agent
(incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994) .............................. --
10.16 Second Amendment to Credit Agreement dated as of September 15, 1995
among the Company and certain of its subsidiaries named therein,
Societe Generale, New York Branch, First Union National Bank of North
Carolina and Hibernia National Bank, as lenders, and Societe Generale,
as issuing bank and agent (incorporated by reference to Exhibit 10.99
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995......................................................................... --
10.17 Third Amendment to Credit Agreement dated as of August 15, 1996 among
the Company and certain subsidiaries named therein, Societe Generale,
New York Branch, First Union National Bank of North Carolina and
Hibernia National Bank, as lenders, and Societe Generale, as issuing
bank and agent (incorporated by reference to Exhibit 10.93 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1996...................... --
10.18 Fourth Amendment to Credit Agreement, First Amendment to Waiver,
Consent to Merger and Extension Agreement dated as of May 15, 1997
among the Company and certain subsidiaries named therein, Societe
Generale, New York Branch, First Union National Bank of North Carolina
and Hibernia National Bank, as lenders, and Societe Generale, as
issuing bank and agent (incorporated by reference to Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1997)................. --
10.19 Fifth Amendment to Credit Agreement, Amendment to Fourth Amendment and
Amendment to Waiver dated as of June 4, 1997 among the Company and
certain subsidiaries named therein, Societe Generale, New York Branch,
First Union National Bank of North Carolina, as lenders, and Societe
Generale, as issuing bank and agent (incorporated by reference to
Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1997)....................................................................... --
10.20 Security Agreement dated as of May 15, 1993 by Atlantic Treatment Center, Inc. in
favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above, and covering certain
property in Daytona Beach, Florida (incorporated by reference to Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994)................. --
10.21 Security Agreement dated as of May 15, 1993 by Carolina Treatment
Center, Inc. in favor of Societe Generale, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.20)..................................... --
</TABLE>
E-8
<PAGE> 84
<TABLE>
<CAPTION>
<S> <C> <C>
10.22 Security Agreement dated as of May 15, 1993 by Great Plains Hospital,
Inc., in favor of Societe Generale, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.20)........................................... --
10.23 Security Agreement dated as of May 15, 1993 by Greenbrier Hospital,
Inc. in favor of Societe Generale, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.20)........................................... --
10.24 Security Agreement dated as of May 15, 1993 by Gulf Coast Treatment
Center, Inc. in favor of Societe Generale, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.20)..................................... --
10.25 Security Agreement dated as of May 15, 1993 by Houma Psychiatric
Hospital, Inc. in favor of Societe Generale, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.20)..................................... --
10.26 Security Agreement dated as of May 15, 1993 by HSA of Oklahoma, Inc. in
favor of Societe Generale, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.20)................................................. --
10.27 Security Agreement dated as of May 15, 1993 by The Haven Hospital, Inc.
in favor of Societe Generale, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.20)........................................... --
10.28 Security Agreement dated as of May 15, 1993 by the Company in favor of
Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.20)................................................. --
10.29 Accounts Receivable Security Agreement dated as of May 15, 1993 by
Americare of Galax, Inc. in favor of Societe Generale, as agent for the
lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994)..................... --
10.30 Accounts Receivable Security Agreement dated as of May 15, 1993 by
Bountiful Psychiatric Hospital, Inc. in favor of Societe Generale, as
agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.29)............................................................................. --
10.31 Accounts Receivable Security Agreement dated as of May 15, 1993 by
Cumberland Mental Health, Inc. in favor of Societe Generale, New York
Branch, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.29)................................................................ --
10.32 Accounts Receivable Security Agreement dated as of May 15, 1993 by East
Carolina Psychiatric Services Corporation in favor of Societe Generale,
New York Branch, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.29)................................................. --
</TABLE>
E-9
<PAGE> 85
<TABLE>
<CAPTION>
<S> <C> <C>
10.33 Accounts Receivable Security Agreement dated as of May 15, 1993 by
Havenwyck Hospital, Inc. in favor of Societe Generale, New York Branch
as agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.29)............................................................................. --
10.34 Accounts Receivable Security Agreement dated as of May 15, 1993 by Mesa
Psychiatric Hospital, Inc. in favor of Societe Generale, New York
Branch, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.29)................................................................ --
10.35 Accounts Receivable Security Agreement dated as of May 15, 1993 by
Michigan Psychiatric Services, Inc. in favor of Societe Generale, New
York Branch, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.29)................................................................ --
10.36 Accounts Receivable Security Agreement dated as of May 15, 1993 by
Psychiatric Institute of West Virginia, Inc. in favor of Societe
Generale, New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.29)................................................. --
10.37 Stock Pledge Agreement dated as of May 15, 1993, among the Company in favor of
Societe Generale, New York Branch, as agent for the lenders which are parties to
that certain Credit Agreement described in Exhibit 10.15 above (incorporated by
reference to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994).................................................................. --
10.38 Revolving Credit Guarantee dated as of May 15, 1993 by Americare of Galax, Inc. in
favor of Societe Generale, New York Branch, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15 above
(incorporated by reference to Exhibit 10.35 to the Company's Annual Report on Form
10-K for the year ended June 30, 1994)..................................................... --
10.39 Revolving Credit Guarantee dated as of May 15, 1993 by Bethany Psychiatric
Hospital, Inc. in favor of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.38)..................................... --
10.40 Revolving Credit Guarantee dated as of May 15, 1993 by Bountiful Psychiatric
Hospital, Inc. in favor of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.38)..................................... --
10.41 Revolving Credit Guarantee dated as of May 15, 1993 by Cumberland Mental Health,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.38)................................................. --
10.42 Revolving Credit Guarantee dated as of May 15, 1993 by East Carolina Psychiatric
Services Corporation in favor of Societe Generale, New York Branch, as agent for
the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.38)............................. --
10.43 Revolving Credit Guarantee dated as of May 15, 1993 by Havenwyck
Hospital, Inc. in favor of Societe Generale, New York Branch, as agent
for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to Exhibit 10.38) ............... --
</TABLE>
E-10
<PAGE> 86
<TABLE>
<CAPTION>
<S> <C> <C>
10.44 Revolving Credit Guarantee dated as of May 15, 1993 by Mesa Psychiatric Hospital,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit 10.15
above (substantially identical to Exhibit 10.38) .......................................... --
10.45 Revolving Credit Guarantee dated as of May 15, 1993 by Michigan Psychiatric
Services, Inc. in favor of Societe Generale, New York Branch, as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.38) .................................... --
10.46 Revolving Credit Guarantee dated as of May 15, 1993 by Psychiatric Institute of
West Virginia, Inc. in favor of Societe Generale, New York Branch, as agent for
the lenders which are parties to that certain Credit Agreement described in
Exhibit 10.15 above (substantially identical to Exhibit 10.38) ............................ --
10.47 Management Fee Subordination Agreement dated May 15, 1993, among Paul J. Ramsay
and Ramsay Health Care Pty. Ltd. in favor of Societe Generale, New York Branch, as
agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (incorporated by reference to Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) .................... --
10.48 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15,
1993 granted by Atlantic Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, with respect to certain real property located in
Volusia County, Florida (incorporated be reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994) .................... --
10.49 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15,
1993 granted by Carolina Treatment Center, Inc. to Societe Generale, individually
and as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, with respect to certain real property located in
Horry County, South Carolina (substantially identical to Exhibit 10.48).................... --
10.50 Deed of Trust and Fixture Filing and Assignment of Leases and Rents dated as of
May 15, 1993 granted by Great Plains Hospital, Inc. to Jacob W. Bayer, Jr. as
Trustee for the benefit of Societe Generale, individually and as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above, with respect to certain real property located in Vernon County,
Missouri (substantially identical to Exhibit 10.48)........................................ --
10.51 Mortgage, Security and Assignment of Leases and Rents dated as of May 15, 1993 by
Greenbrier Hospital, Inc. to Societe Generale individually as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above, with respect to certain real property located in St. Tammany Parish,
Louisiana (substantially identical to Exhibit 10.48) ...................................... --
10.52 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15,
1993 granted by Gulf Coast Treatment Center, Inc. to Societe Generale,
individually and as an agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with respect to certain real
property located in Okaloosa County, Florida (substantially identical to Exhibit
10.48) .................................................................................... --
</TABLE>
E-11
<PAGE> 87
<TABLE>
<CAPTION>
<S> <C> <C>
10.53 Mortgage, Security Agreement and Assignment of Leases and Rents dated as of May
15, 1993 granted by Houma Psychiatric Hospital, Inc. to Societe Generale,
individually and as an agent for the lenders which are parties to that Certain
Credit Agreement described in Exhibit 10.15 above, with respect to certain real
property located in the City of Houma, Parish of Terrebonne, Louisiana
(substantially identical to Exhibit 10.48) ................................................ --
10.54 Mortgage with Power of Sale and Fixture Filing and Assignment of Leases and Rents
dated as of May 15, 1993 granted by HSA of Oklahoma, Inc. to Societe Generale,
individually and as agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above, with respect to certain real property
located in Garfield County, Oklahoma (substantially identical to Exhibit 10.48) ........... --
10.55 Deed of Trust and Fixture Filing and Assignment of Leases and Rents dated as of
May 15, 1993 granted by the Haven Hospital, Inc. to Societe Generate, individually
and as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, with respect to certain real property located in
the City of DeSoto, Dallas County, Texas (substantially identical to Exhibit
10.48) .................................................................................... --
10.56 Loan Agreement between Okaloosa County, Florida and Gulf Coast Treatment Center,
Inc. dated October 1, 1984, relating to the issuance of bonds for Gulf Coast
Treatment Center, Inc. (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1, Registration No. 2-98921) ................... --
10.57 Loan Agreement between Louisiana Public Facilities Authority and Greenbrier
Hospital, Inc. dated November 1, 1984, relating to the issuance of bonds for
Greenbrier Hospital, Inc. (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No. 2-98921) ................... --
10.58 Loan Agreement between Horry County, South Carolina and Carolina Treatment Center,
Inc. dated December 1, 1984, relating to the issuance of bonds for Carolina
Treatment Center, Inc. (incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-1, Registration No. 2-98921) ................... --
10.59 Loan Agreement between Louisiana Public Facilities Authority and Houma Psychiatric
Hospital, Inc. dated September 1, 1985, relating to the issuance of bonds for
Houma Psychiatric Hospital, Inc. (incorporated by reference to Exhibit 10.56 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994) ................ --
10.60 Ground Lease between Facilities Management Corporation, as landlord, and
Psychiatric Institute of West Virginia, Inc., as tenant, dated as of September 30,
1985 (incorporated by reference to Exhibit 10.57 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1994)................................................ --
10.61 Lease Agreement between Houma Psychiatric Hospital, Inc. and Hospital Service
District No. 1 of the Parish of Terrebonne, State of Louisiana, effective February
1, 1985 (incorporated by reference to Exhibit 10.38 to the Company's Registration
Statement on Form S-1, Registration No. 2-98921) .......................................... --
10.62 Lease among Bethany Psychiatric Hospital, Inc., Bethany General Hospital, the City
of Bethany, Oklahoma and the Bethany General Hospital Trust dated December 9, 1985
(ground lease) (incorporated by reference to Exhibit 10.58 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996) ..................................... --
</TABLE>
E-12
<PAGE> 88
<TABLE>
<CAPTION>
<S> <C> <C>
10.63 Loan Agreement between The Enid Development Authority and HSA of Oklahoma, Inc.
dated as of October 1, 1985, relating to The Enid Development Authority Variable
Rate Demand Revenue Bonds (Meadowlake Hospital Project) (incorporated by reference
to Exhibit 10.60 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994) ............................................................................ --
10.64 Ramsay Health Care, Inc. 1990 Stock Option Plan, as amended to date (incorporated
by reference Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed
on March 6, 1991) ......................................................................... --
10.65 Lease Agreement dated August 30, 1988 between the Company and Ayshire Land Dome
Joint Venture relating to office space at One Poydras Plaza, New Orleans,
Louisiana (incorporated by reference to Exhibit 10.78 to the Company's
Registration Statement on Form S-2, Registration No. 33-40762) ............................ --
10.66 Ramsay Health Care, Inc. Deferred Compensation and Retirement Plan (incorporated
by reference to Exhibit 10.79 to the Company's Registration Statement on Form S-2,
Registration No. 33-40762) ................................................................ --
10.67 Personnel and Facility Sharing Agreement dated as of June 27, 1991 between the
Company and Ramsay Holdings HSA Limited (incorporated by reference to Exhibit
10.83 to the Company's Registration Statement on Form S-2, Registration No.
33-40762) ................................................................................. --
10.68 Indemnity Agreement dated as of June 1991 between the Company and Ramsay Holdings
HSA Limited (incorporated by reference to Exhibit 10.84 to the Company's
Registration Statement on Form S-2, Registration No. 33-40762) ............................ --
10.69 Management Agreement dated as of June 25, 1992 between the Company and Ramsay
Health Care Pty. Limited (incorporated by reference to Exhibit 10.90 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1992) .................... --
10.70 Ramsay Health Care, Inc. 1991 Stock Option Plan (incorporated by reference to
Exhibit 10.91 to the Company's Annual Report on Form 10-K for the year ended June
30, 1992) ................................................................................. --
10.71 Employment Agreement dated January 23, 1992 between the Company and Wallace E.
Smith (incorporated by reference to Exhibit 10.94 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1992) ............................................ --
10.72 Employment Agreement dated January 23, 1992 between the Company and John A. Quinn
(incorporated by reference to Exhibit 10.95 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992) .................................................... --
10.73 Lease dated April 4, 1992 between the Union Labor Life Insurance Company and the
Company (incorporated by reference to Exhibit 10.98 to the Company's Annual Report
on Form 10-K for the year ended June 30, 1992) ............................................ --
10.74 Lease dated May 27, 1992 between Gail Buy and Bountiful Psychiatric Hospital
(incorporated by reference to Exhibit 10.99 to the Company's Annual Report on Form
10-K for the year ended June 30, 1992) .................................................... --
10.75 Lease Agreement dated as of February 12, 1993 by and between Gulf Coast Treatment
Center, Inc. and Vendell of Florida, Inc. (incorporated by reference to Exhibit
10.82 to the Company's Annual Report on Form 10-K for the year ended June 30,
1994) ..................................................................................... --
</TABLE>
E-13
<PAGE> 89
<TABLE>
<CAPTION>
<S> <C> <C>
10.76 Ramsay Health Care, Inc. 1993 Stock Option Plan (incorporated by reference to
Exhibit 10.83 to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993) ........................................................................ --
10.77 Ramsay Health Care, Inc. 1993 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.84 to the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993) .......................................................... --
10.78 Fourth Modification, Extension and Amendment of Lease Agreement dated November 15,
1993 between the Company and One Poydras Plaza Venture relating to the Company's
office space at One Poydras Plaza, New Orleans, Louisiana (incorporated by
reference to Exhibit 10.84 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994) ................................................................. --
10.79 Employment Agreement dated July 19, 1994 between the Company and Brent J. Bryson
(incorporated by reference to Exhibit 10.85 to the Company's Annual Report on Form
10-K for the year ended June 30, 1995) .................................................... --
10.80 Rights Agreement dated as of August 1, 1995 between the Company and First Union
National Bank of North Carolina, as Rights Agent, which includes the form of Right
Certificate as Exhibit A and the Summary Rights to Purchase Common Shares as
Exhibit B (incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated August 1, 1995) .................................................. --
10.81 Amendment to Rights Agreement, dated October 3, 1995 between the Company and First
Union National Bank of North Carolina, as Rights Agent (incorporated by reference
to Exhibit 10.102 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995).................................................................. --
10.82 Amendment No. 2 to Rights Agreement, dated as of November 1, 1996 between the
Company and First Union National Bank of North Carolina, as Rights Agent
(incorporated by reference to Exhibit 10.101 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996)........................................ --
10.83 Letter Agreement dated June 30, 1995 among the Company, Ramsay Holdings HSA
Limited and Paul Ramsay Holdings Pty. Limited (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K dated August 1, 1995 .............. --
10.84 Lease Agreement dated April 12, 1995 between Capstone Capital Corporation and Mesa
Psychiatric Hospital, Inc. (incorporated by reference to Exhibit 10.88 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1995) .................... --
10.85 Lease Agreement dated April 12, 1995 between Capstone Capital of San Antonio,
LTD, d/b/a Cahaba of San Antonio, LTD. and RHCI San Antonio, Inc. (incorporated by
reference to Exhibit 10.89 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995) ................................................................. --
10.86 Facility Lease Agreement dated June 26, 1995 by and between Charter Canyon
Behavioral Health Systems, Inc. and Bountiful Psychiatric Hospital, Inc.
(incorporated by reference to Exhibit 10.90 to the Company's Annual Report on Form
10-K for the year ended June 30, 1995 ..................................................... --
</TABLE>
E-14
<PAGE> 90
<TABLE>
<CAPTION>
<S> <C> <C>
10.87 Employment termination letter dated September 15, 1995 between the Company and
Gregory H. Browne (incorporated by reference to Exhibit 10.91 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995) .............................. --
10.88 Second Amended and Restated Distribution Agreement between the Company and Ramsay
Managed Care, Inc. ("RMCI") (incorporated by reference to Exhibit 10.1 to RMCI's
Registration Statement on Form S-1 (Registration No. 33-78034) filed with the
Commission on April 24, 1995) ............................................................. --
10.89 Employee Benefit Agreement dated as of February 1, 1995 between the Company and
RMCI (incorporated by reference to Exhibit 10.4 to RMCI's Registration Statement
on Form S-1 (Registration No. 33-78034) filed with the Commission on April 24,
1995) ..................................................................................... --
10.90 Tax Sharing Agreement dated as of October 25, 1994 between the Company
and RMCI (incorporated by reference to Exhibit 10.5 to RMCI's
Registration Statement on Form S-1 (Registration No. 33-78034) filed
with the Commission on April 24, 1995) .................................................... --
10.91 Corporate Services Agreement dated as of January 2, 1995 between the Company and
RMCI (incorporated by reference to Exhibit 10.6 to RMCI's Registration Statement
on Form S-1 (Registration No. 33-78034) filed with the Commission on April 24,
1995) ..................................................................................... --
10.92 Form of Withholding Tax Agreement between the Company, Ramsay
Holdings HSA Limited, Paul Ramsay Holdings Pty. Limited and Ramsay
Health Care Pty. Limited (incorporated by reference to Exhibit 10.7
to RMCI's Registration Statement on Form S-1 (Registration
No. 33-78034) filed with the Commission on April 24, 1995 ................................. --
10.93 $6,000,000 Subordinated Promissory Note of RMCI, as amended (incorporated by
reference to Exhibit 10.13 to RMCI's Registration Statement on Form S-1
(Registration No.33-78034) filed with the Commission on April 24, 1995) ................... --
10.94 Consent and Amendment dated April 12, 1996 among the Company and certain of its
subsidiaries named therein, Societe Generale, New York Branch, First Union
National Bank of North Carolina and Hibernia National Bank, as lenders, and
Societe Generale, as issuing bank and agent (incorporated by reference to Exhibit
10.88 to the Company's Annual Report on Form 10-K for the year ended June 30,
1996)...................................................................................... --
10.95 Amended and Restated Stock Purchase Agreement dated October 12, 1995 by and among
Paul Ramsay Holdings Pty. Limited, Ramsay Health Care, Inc. and, solely for the
purpose of Section I, III and VI of the agreement, Ramsay Health Care Pty.
Limited (incorporated by reference to Exhibit 10.101 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995 .............................. --
10.96 Amendment to Rights Agreement, date October 3, 1995 between Ramsay Health Care,
Inc. and First Union National Bank of North Carolina, as Rights Agent
incorporated by reference to Exhibit 10.102 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1995) ....................................... --
10.97 Ramsay Health Care, Inc. 1995 Long Term Incentive Plan (incorporated by reference
to Exhibit 10.103 to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1995) .................................................................. --
</TABLE>
E-15
<PAGE> 91
<TABLE>
<CAPTION>
<S> <C> <C>
10.98 Stock Purchase Agreement dated as of August 13, 1996 by and among Paul Ramsay
Holdings Pty. Limited, the Company and, solely for purposes of Sections I, III
and IV thereof, Ramsay Health Care Pty. Limited (incorporated by reference to
Exhibit 10.94 to the Company's Annual Report on Form 10-K for the year ended June
30, 1996) ................................................................................. --
10.99 Amended and Restated Employment Agreement dated as of August 15, 1996 by
and between Reynold Jennings and the Company (incorporated by reference to
Exhibit 10.95 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1996) ............................................................................ --
10.100 Exchange Agreement dated September 10, 1996, by and among the Company, Paul
Ramsay Hospitals Pty. Limited and Paul J. Ramsay, including a related Warrant
Certificate dated September 10, 1996 issued to Ramsay Hospitals Pty. Limited
(incorporated by reference to Exhibit 10.96 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996)................................................ --
10.101 Consulting Agreement dated as of January 1, 1996 between the Company and Summa
Healthcare Group, Inc. (incorporated by reference to Exhibit 10.97 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1996)..................... --
10.102 Consulting Agreement dated as of February 1, 1997 between the Company and Summa
Healthcare Group, Inc...................................................................... --
10.103 Letter Agreement dated as of September 10, 1996 by and among the Company, Ramsay
Health Care Pty. Limited, Paul Ramsay Holdings Pty. Limited, including a related
Warrant Certificate dated September 10, 1996 issued to Paul Ramsay Holdings Pty.
Limited (incorporated by reference to Exhibit 10.98 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996) ..................................... --
10.104 Employment Agreement dated August 12, 1996 by and between the Company and
Remberto Cibran (incorporated by reference to Exhibit 10.99 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996) ................... --
10.105 Services Agreement dated August 12, 1996 by and between the Company
and HealthLink Enterprises, Inc. (incorporated by reference to
Exhibit 10.100 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996) ......................................................... --
10.106 Credit Agreement, including all Annexes thereto, dated September 30, 1997 among
the Company, The Lenders from Time to Time Party Thereto, General Electric
Capital Corporation, as Administrative Agent, and GECC Capital Markets Group, as
Syndication Agent.......................................................................... --
10.107 Subordinated Note Purchase Agreement dated as of September 30, 1997 among the
Company, as Issuer, and General Electric Capital Corporation and Paul Ramsay
Holdings Pty. Limited, as Purchasers....................................................... --
10.108 Registration Rights Agreement dated as of September 30, 1997 between the Company
and General Electric Capital Corporation................................................... --
10.109 Release of Collateral, Termination and Cash Collateral Agreement dated as of
September 30, 1997 among the Company and certain subsidiaries named therein,
Societe Generale, New York Branch, First Union National Bank of North Carolina
and Hibernia National Bank, as lenders, and Societe Generale, as issuing bank and
agent...................................................................................... --
</TABLE>
E-16
<PAGE> 92
<TABLE>
<CAPTION>
<S> <C> <C>
10.110 Employment Agreement dated as of October 1, 1997 by and between the Company and
Luis E. Lamela (incorporated by reference to Exhibit 10.110 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).................... --
10.111 Schedules to Credit Agreement described in Exhibit 10.106 above (incorporated by
reference to Exhibit 10.111 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997)...................................................... --
10.112 Schedules to Subordinated Note Purchase Agreement described in Exhibit 10.107
above (incorporated by reference to Exhibit 10.112 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997) ............................. --
10.113 First Amendment to Credit Agreement dated as of March 27, 1998 by and among the
Company, certain subsidiaries of the Company on the signature pages thereto,
General Electric Capital Corporation, as Administrative Agent and Lender, and The
ING Capital Senior Secured High Income Fund, L.P., as Lender ((incorporated by
reference to Exhibit 10.113 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998)) ........................................................ --
10.114 First Amendment to Subordinated Note Purchase Agreement dated as of March 27,
1998 by and among the Company, General Electric Capital Corporation and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 10.114 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).............. --
10.115 Junior Subordinated Note Purchase Agreement dated as of March 25, 1998 by and
between the Company and Paul Ramsay Holdings Pty. Limited (incorporated by
reference to Exhibit 10.115 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998) ......................................................... --
10.116 Lease Agreement dated as of September 28, 1998 between Capstone Capital
Corporation and Havenwyck Hospital, Inc. (incorporated by reference to
Exhibit 10.116 to the Company's Current Report on Form 8-K dated
October 9, 1998)........................................................................... --
10.117 Guaranty of Obligations Pursuant to Lease Agreement described in Exhibit 10.116
above dated as of September 28, 1998 by the Company in favor of Capstone
Capital Corporation (incorporated by reference to Exhibit 10.117 to the Company's
Current Report on Form 8-K dated October 9, 1998).......................................... --
10.118 Second Amendment to Credit Agreement dated as of May 20, 1998 by and among the
Company, certain subsidiaries of the Company on the signature pages thereto,
General Electric Capital Corporation, as Administrative Agent and Lender, and
The ING Capital Senior Secured High Income Fund, L.P., as Lender (incorporated
by reference to Exhibit 10.118 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1998).......................................................... --
10.119 Second Amendment to Subordinated Note purchase Agreement dated as of
May 20, 1998 by and among the Company, General Electric Capital Corporation
and Paul Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit
10.119 to the Company's Annual Report on Form 10-K/A for the year
ended June 30, 1998)....................................................................... --
</TABLE>
E-17
<PAGE> 93
<TABLE>
<CAPTION>
<S> <C> <C>
10.120 Third Amendment to Credit Agreement dated as of June 29, 1998 by and among
the Company, certain subsidiaries of the Company on the signature pages thereto,
General Electric Capital Corporation, as Administrative Agent and Lender, and
The ING Capital Senior Secured High Income Fund, L.P., as Lender (incorporated
by reference to Exhibit 10.120 to the Company's Annual Report on Form 10-K/A
for the year ended June 30, 1998).......................................................... --
10.121 Third Amendment to Subordinated Note Purchase Agreement dated as of June 29,
1998 by and among the Company, General Electric Capital Corporation and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 10.121 to the
Company's Annual Report on Form 10-K/A for the year ended June 30,
1998)...................................................................................... --
10.122 Fourth Amendment to Credit Agreement dated as of July 29, 1998 by and among
the Company, certain subsidiaries of the Company on the signature pages thereto,
General Electric Capital Corporation, as Administrative Agent and Lender, and
The ING Capital Senior Secured High Income Fund, L.P., as Lender
(incorporated by reference to Exhibit 10.122 to the Company's Annual Report
on Form 10-K/A for the year ended June 30, 1998)........................................... --
10.123 Fourth Amendment to Subordinated Note Purchase Agreement dated as of July 29,
1998 by and among the Company, General Electric Capital Corporation and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 10.123 to the
Company's Annual Report on Form 10-K/A for the year ended June 30,
1998)...................................................................................... --
10.124 Amended and Restated Credit Agreement dated as of September 30, 1998 by and
among the Company, the Lenders from time to time party thereto and General
Electric Capital Corporation, as Administrative Agent (incorporated by reference
to Exhibit 10.124 to the Company's Annual Report on Form 10-K/A for the year
ended June 30, 1998)....................................................................... --
10.125 Amended and Restated Subordinated Note Purchase Agreement dated as of
September 30, 1998 by and between the Company and Paul Ramsay Holdings Pty.
Limited (incorporated by reference to Exhibit 10.125 to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998).................................... --
10.126 Amendment No. 3 to Rights Agreement dated as of October 15, 1998 between
the Company and First Union National Bank of North Carolina, as Rights Agent
(incorporated by reference to Exhibit 10.126 to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998).................................... --
10.127 Loan and Security Agreement dated as of October 30, 1998 by and among the
Company, certain subsidiaries of the Company on the signature pages thereto,
Fleet Capital Corporation, as a Lender and as Agent, and the Lenders from time
to time party thereto. Pursuant to Reg. S-K, Item 601(b)(2), the Company
agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request (incorporated by reference to Exhibit 10.127 to the
Company's Annual Report on Form 10-K/A for the year ended June 30, 1998)................... --
</TABLE>
E-18
<PAGE> 94
<TABLE>
<CAPTION>
<S> <C> <C>
10.128 Subordination Agreement dated October 30, 1998 by and among Holdings Pty.,
Paul Ramsay Hospitals Pty. Limited, Ramsay Holdings HSA Limited and Fleet
Capital Corporation, as Agent, and consented to by the Company and certain
of its subsidiaries on the signature pages thereto (incorporated by reference to
Exhibit 10.128 to the Company's Annual Report on Form 10-K/A for the year
ended June 30, 1998)................ .................................................... --
10.129 Junior Subordinated Loan and Exchange Agreement dated as of October 30, 1998
by and between Holdings Pty. and the Company (incorporated by reference to
Exhibit 10.129 to the Company's Annual Report on Form 10-K/A for the year
ended June 30, 1998)....................................................................... --
10.130 Amended and Restated Exchange Agreement dated as of October 26, 1998 by and
between Holdings Pty. and the Company. Pursuant to Reg. S-K, Item 601(b)(2),
the Company agrees to furnish a copy of the Schedules and Exhibits to such
Agreement to the Commission upon request (incorporated by reference to
Exhibit 10.130 to the Company's Annual Report on Form 10-K/A for the year
ended June 30, 1998).......................................................................
10.131 First Amendment to Loan and Security Agreement dated as of March 19, 1999 by
and among the Company, certain subsidiaries of the Company on the signature
pages thereto, Fleet Capital Corporation, as a Lender and as Agent for the
Lenders, and the Lenders from time to time party thereto. Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon request...........................................
10.132 Guaranty dated as of March 19, 1999 by and among The Rader Group, Incorporated,
Ramsay Youth Services Puerto Rico, Inc. in favor of Fleet Capital Corporation, as
Lender and Agent for the Lenders, and the Lenders from time to time party thereto..........
10.133 Security Agreement dated as of March 19, 1999 by and among The Rader Group,
Incorporated, Ramsay Youth Services Puerto Rico, Inc. in favor of Fleet Capital
Corporation, as Lender and Agent for the Lenders, and the Lenders from time to time
party thereto. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish
a copy of the Schedules and Exhibits to such Agreement to the Commission upon
request....................................................................................
10.134 Pledge Amendment dated as of March 19, 1999 by the Company in favor of Fleet
Capital Corporation, as Secured Party......................................................
10.135 Pledge Agreement dated as of March 19, 1999 by and between Ramsay Educational
Services, Inc. in favor of Fleet Capital Corporation, as Agent for the Lenders.
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request....................
10.136 First Amendment to Employment Agreement dated December 1, 1998 between the
Company and Luis E. Lamela.................................................................
10.137 First Amendment to Employment Agreement dated December 1, 1998 between the
Company and Remberto Cibran................................................................
11 Computation of Net Income (Loss) Per Share.................................................
21 Subsidiaries of the Company................................................................
</TABLE>
E-19
<PAGE> 95
<TABLE>
<CAPTION>
<S> <C> <C>
23 Consent of Ernst & Young LLP...............................................................
27 Financial Data Schedule....................................................................
</TABLE>
Copies of exhibits filed with this Annual Report on Form 10-K or incorporated
herein by reference do not accompany copies hereof for distribution to
stockholders of the Company. The Company will furnish a copy of such exhibits to
any stockholder requesting it.
E-20
<PAGE> 1
EXHIBIT 2.15
STOCK PURCHASE AGREEMENT
BY AND AMONG
THE RADER GROUP, INC., A FLORIDA CORPORATION,
THE RADER GROUP, INC., A COLORADO CORPORATION,
BILL T. RADER, Ph.D.,
AND
RAMSAY EDUCATIONAL SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION I. PURCHASE AND SALE OF THE SHARES........................................................................2
1.1 Purchase and Sale of the Shares.................................................................2
1.2 Assignment......................................................................................2
SECTION II. THE PURCHASE PRICE....................................................................................2
2.1 Purchase Price..................................................................................2
2.2 Earn Out........................................................................................2
SECTION III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER....................................4
3.1 Organization and Qualification..................................................................4
3.2 Authority.......................................................................................4
3.3 No Legal Bar; Conflicts.........................................................................4
3.4 Capitalization..................................................................................5
3.5 Financial Statements; No Undisclosed Liabilities................................................5
3.6 Absence of Certain Changes......................................................................6
3.7 Accounts Receivable.............................................................................6
3.8 No Dividends, Loans, Etc........................................................................7
3.9 Real Property...................................................................................7
3.10 Title to Assets; Condition of Property..........................................................8
3.11 Taxes...........................................................................................8
3.12 Compliance with Applicable Law; Permits; Authorizations; Environmental, Health & Safety.........9
3.13 Contractual and Other Obligations..............................................................10
3.14 Compensation...................................................................................11
3.15 Employee Benefit Plans.........................................................................11
3.16 Labor Relations................................................................................12
3.17 Insurance......................................................................................13
3.18 Conduct of Business; Allowances................................................................13
3.19 Patents, Trademarks, Etc.......................................................................13
3.20 Power of Attorney; Bank Accounts...............................................................14
3.21 No Foreign Person..............................................................................14
3.22 Books and Records..............................................................................14
3.23 Litigation; Disputes...........................................................................14
3.24 Insider Interests; Intercompany Transactions...................................................15
3.25 Disclosure.....................................................................................15
SECTION IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................................15
4.1 Organization...................................................................................15
4.2 Authority......................................................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.3 No Legal Bar; Conflicts........................................................................15
SECTION V. CERTAIN COVENANTS OF THE SHAREHOLDER, THE COMPANY AND THE PURCHASER...................................16
5.1 Publicity......................................................................................16
5.2 Encumbrances...................................................................................16
5.3 Confidential Information.......................................................................16
5.4 Brokers and Finders............................................................................16
5.5 Cash Management................................................................................17
5.6 Rader Database.................................................................................17
SECTION VI. CLOSING............................................................................................. 17
6.1 Time and Place of Closing......................................................................17
6.2 Delivery of the Shares.........................................................................17
SECTION VII. CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE.................................................18
7.1 No Litigation..................................................................................18
7.2 Representations, Warranties and Covenants......................................................18
7.3 Opinion of the Purchaser's Counsel.............................................................18
SECTION VIII. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE..................................................18
8.1 No Litigation..................................................................................18
8.2 Representations, Warranties and Covenants......................................................18
8.3 Other Certificates.............................................................................19
8.4 Employment Agreement...........................................................................19
8.5 Opinion of the Company's and the Shareholder's Counsel.........................................19
8.6 Sale of All of the Shares......................................................................19
8.7 Due Diligence..................................................................................19
8.8 Consents.......................................................................................19
8.9 Merger.........................................................................................19
SECTION IX. INDEMNIFICATION......................................................................................20
9.1 Indemnification by the Shareholder.............................................................20
9.2 Indemnification by the Purchaser...............................................................20
9.3 Procedure for Indemnification..................................................................20
9.4 Subrogation....................................................................................22
9.5 Validity.......................................................................................22
9.6 Time Periods for Representation and Warranty Indemnifications..................................22
9.7 Limits on Indemnification......................................................................22
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
SECTION X. NON-COMPETITION AGREEMENT.............................................................................23
10.1 Solicitation of Employees......................................................................23
10.2 Noncompetition.................................................................................23
10.3 Equitable Relief...............................................................................23
SECTION XI. MISCELLANEOUS........................................................................................24
11.1 Notices........................................................................................24
11.2 Entire Agreement...............................................................................25
11.3 Further Assurances.............................................................................25
11.4 Expenses.......................................................................................25
11.5 Injunctive Relief..............................................................................26
11.6 Arbitration....................................................................................26
11.7 Invalidity.....................................................................................26
11.8 Successors and Assigns.........................................................................27
11.9 Governing Law..................................................................................27
11.10 Counterparts...................................................................................27
11.11 Knowledge......................................................................................27
11.12 Independence of Covenants and Representations, Schedules, Etc..................................27
11.13 Interpretation.................................................................................28
11.14 Gender and Number..............................................................................28
11.15 Headings.......................................................................................28
</TABLE>
iii
<PAGE> 5
ANNEX
A. DEFINITIONS
SCHEDULES
3.3 COMPANY AND SHAREHOLDER CONSENTS
3.5 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES
3.6 ABSENCE OF CERTAIN CHANGES
3.7 ACCOUNTS RECEIVABLE
3.8 NO DIVIDENDS, LOANS, ETC.
3.9 LEASED REAL PROPERTY
3.10(a) PERMITTED LIENS
3.11 TAXES
3.12(b) PERMITS
3.13 CONTRACTS
3.14 COMPENSATION
3.15 EMPLOYEE BENEFIT PLANS
3.17 INSURANCE
3.19 INTELLECTUAL PROPERTY RIGHTS
3.20 BANK ACCOUNTS
3.23 LITIGATION
3.24 INSIDER INTERESTS; INTERCOMPANY TRANSACTIONS
4.3 PURCHASER CONSENTS
EXHIBITS
A. FORM OF EMPLOYMENT AGREEMENT
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS AGREEMENT made as of the 19th day of November, 1998 by
and among The Rader Group, Inc., a Florida corporation ("RGIF") and The Rader
Group, Inc., a Colorado corporation ("RGIC"; together with RGIF, collectively,
the "Company"), Bill T. Rader, Ph.D., (the "Shareholder"), the owner of all of
the issued and outstanding shares of common stock, no par value, of RGIF (the
"RGIF Common Stock") and all of the issued and outstanding shares of common
stock, $1.00 par value, of RGIC (the "RGIC Common Stock") and Ramsay Educational
Services, Inc., a Delaware corporation (the "Purchaser"). Capitalized terms used
herein and not defined in the specific Section in which they are used shall have
the meanings assigned to such terms in Annex A attached hereto.
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing
education and other services (including without limitation management and
administrative services) to charter schools and other businesses and entities
(such activities and all incidental or related businesses of the Company being
herein referred to as the "Business");
WHEREAS, the Shareholder is the holder of 1,000 shares of RGIF
Common Stock and 1,000 shares of RGIC Common Stock, which shares of RGIF Common
Stock and RGIC Common Stock constitute all of the issued and outstanding shares
of capital stock of the Company (all such shares held by the Shareholder being
hereinafter referred to collectively as the "Shares");
WHEREAS, the Purchaser desires to acquire from the
Shareholder, and the Shareholder desires to sell to the Purchaser, all of the
Shares on the terms and subject to the conditions hereinafter set forth;
WHEREAS, it is a condition precedent to the Closing that the
Purchaser and the Shareholder enter into an employment agreement in the form
attached hereto as Exhibit A (the "Employment Agreement"); and
WHEREAS, to induce the Purchaser to enter into this Agreement
and perform its obligations hereunder, each of the Company and the Shareholder
has agreed to make the representations, warranties, covenants and agreements
(including, without limitation, the indemnification and non-competition
agreements) set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and intending to be
legally bound, the parties hereto hereby agree as follows:
<PAGE> 7
2
SECTION I.
PURCHASE AND SALE OF THE SHARES
1.1 PURCHASE AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, the
Shareholder shall sell, assign, convey and deliver to the Purchaser (or its
designee), free and clear of all Liens, and the Purchaser (or its designee)
shall purchase, acquire and accept from the Shareholder, free and clear of all
Liens, all of the Shares.
1.2 ASSIGNMENT. The parties hereto acknowledge and agree that
the Purchaser may designate one or more direct or indirect wholly-owned
subsidiaries of the Purchaser or Ramsay Health Care, Inc., a Delaware
corporation ("Ramsay"), to acquire the Shares, provided, however, that the
Purchaser's payment obligations hereunder shall not be affected by any such
designation.
SECTION II.
THE PURCHASE PRICE
2.1 PURCHASE PRICE. The purchase price for the Shares shall
consist of the Closing Purchase Price and the Earn Out Payments (collectively,
the "Purchase Price"). At the Closing, the Purchaser shall pay an aggregate
amount for the Shares equal to $1,000,000 (the "Closing Purchase Price"),
payable in cash by certified or bank check or by bank wire transfer of
immediately available funds to a banking account designated by the Shareholder
at least two business days prior to the Closing.
2.2 EARN OUT. (a) In addition to the Closing Purchase Price,
the Shareholder shall be entitled to the Earn Out Payments, if any, determined
in accordance with this Section 2.2 as follows:
(i) on or before October 31, 1999 (or such later date as
shall be the third business day after the final resolution of
a dispute in the event of the delivery of a Dispute Notice by
the Company in accordance with subsection (b) below)(the
"First Payment Date") an amount equal to the First Earn Out
Payment;
(ii) on or before September 30, 2000 (or such later date
as shall be the third business day after the final resolution
of a dispute in the event of the delivery of a Dispute Notice
by the Company in accordance with subsection (b) below)(the
"Second Payment Date") an amount equal to the Second Earn Out
Payment;
(iii) on or before September 30, 2001 (or such later date
as shall be the third business day after the final resolution
of a dispute in the event of the delivery of a Dispute Notice
by the Company in accordance with subsection (b) below)(the
"Third Payment Date") an amount equal to the Third Earn Out
Payment;
<PAGE> 8
3
(iv) on or before September 30, 2002 (or such later date
as shall be the third business day after the final resolution
of a dispute in the event of the delivery of a Dispute Notice
by the Company in accordance with subsection (b) below) (the
"Fourth Payment Date") an amount equal to the Fourth Earn Out
Payment; and
(v) on or before September 30, 2003 (or such later date as
shall be the third business day after the final resolution of
a dispute in the event of the delivery of a Dispute Notice by
the Company in accordance with subsection (b) below)(the
"Fifth Payment Date"; together with the First Payment Date,
the Second Payment Date , the Third Payment Date and the
Fourth Payment Date, the "Payment Dates") an amount equal to
the Fifth Earn Out Payment.
Each of the Earn Out Payments, if payable pursuant to this
Section 2.2, shall be paid to the Shareholder on the applicable Payment Dates by
certified or bank check or by wire transfer of immediately available funds, to a
bank account designated by the Shareholder at least two business days prior to
each of the Payment Dates.
(b) (i) On or prior to the date which is sixty (60) days after
each of June 30, 1999, June 30, 2000, June 30, 2001, June 30,
2002 and June 30, 2003, the Purchaser shall give notice to the
Shareholder of its calculations of EBITDA for the period
commencing on the Closing Date and ending June 30, 1999 and
for the 12-month periods ending June 30, 2000, June 30, 2001,
June 30, 2002 and June 30, 2003, respectively (each, an
"EBITDA Notice"). Each EBITDA Notice shall be accompanied by a
statement of EBITDA of the Purchaser for the applicable
12-month or other period prepared in accordance with GAAP
(except for the absence of footnotes) and otherwise in
accordance with the terms and conditions of this Agreement.
(ii) If the Shareholder disputes the amount of EBITDA set
forth in the applicable EBITDA Notice, the Shareholder shall
give written notice (each, a "Dispute Notice") to the
Purchaser within 25 days after the date of delivery of the
applicable EBITDA Notice to the Shareholder (each, a "Dispute
Period"), which Dispute Notice shall specify in reasonable
detail the matters and reasons for such dispute and the amount
in dispute. If the Purchaser and the Shareholder are unable to
resolve the disputed matters set forth in the applicable
Dispute Notice within 30 days after receipt by the Purchaser
of the Dispute Notice, all disputed matters raised in the
Dispute Notice and not resolved (the "Disputed Matters") shall
be submitted to such independent accounting firm as is chosen
by the mutual agreement of the Purchaser and the Shareholder
acting promptly and in good faith (such firm which accepts the
engagement, the "Independent Auditor"), for final resolution
in accordance with the terms and provisions of this Agreement.
The Purchaser and the Shareholder shall use their respective
best efforts to cause the Independent Auditor to make its
determination as to the resolution of such Disputed Matters
(the "Determination") as soon as possible, but in no event
later than 45 days after receipt of the Disputed Matters. The
Determination shall be limited to the Disputed Matters, shall
be final and binding upon all of the parties
<PAGE> 9
4
hereto, and shall be reflected in a written report which
shall be promptly delivered by the Independent Auditor to the
Purchaser and the Shareholder. One-half of all fees and
disbursements of the Independent Auditor shall be paid by the
Shareholder, on one hand, and one-half of such fees and
disbursements shall be paid by the Purchaser, on the other
hand. It is understood and agreed that if the Shareholder does
not deliver the Dispute Notice to the Purchaser within the
applicable Dispute Period, then the applicable EBITDA Notice
shall be deemed accepted in all respects by the Shareholder
and shall be final and binding upon all of the parties hereto.
SECTION III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER
Each of the Company and the Shareholder, jointly and
severally, hereby represents and warrants to the Purchaser, as of the date
hereof and as of the Closing Date, that:
3.1 ORGANIZATION AND QUALIFICATION. The Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has full power and authority to own its
properties and to conduct the businesses in which it is now engaged. The Company
is in good standing in each other jurisdiction wherein the failure so to qualify
could have a Material Adverse Effect. The Company does not have any
subsidiaries, own any capital stock or other proprietary interest, directly or
indirectly, in any other corporation, association, trust, partnership, joint
venture or other entity, nor have any agreement with any person, firm or
corporation or other entity to acquire any such capital stock or other
proprietary interest. Accurate and complete copies of the certificate of
incorporation, including all amendments thereto and restatements thereof, and
by-laws of the Company and of the corporate minutes and the stock record books
of the Company have been delivered to the Purchaser. Complete and accurate
records with respect to the issuance, transfer, redemption and cancellation of
all shares of capital stock of the Company are set forth in such stock record
books.
3.2 AUTHORITY. The execution and delivery by the Company and
the Shareholder of this Agreement and each other instrument or document required
to be executed and delivered by the Company or the Shareholder pursuant hereto,
the performance by the Company and the Shareholder of its respective covenants
and agreements hereunder and thereunder and the consummation by the Company and
the Shareholder of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate, shareholder or other action. This
Agreement and each other instrument or document required to be executed and
delivered by the Company or the Shareholder pursuant hereto constitutes a valid
and legally binding obligation of the Company and the Shareholder party thereto,
enforceable against the Company and the Shareholder in accordance with its
terms.
3.3 NO LEGAL BAR; CONFLICTS. Neither the execution and
delivery of this Agreement or any other instrument or document required to be
executed and delivered by the Company or the Shareholder pursuant hereto, nor
the consummation of the transactions
<PAGE> 10
5
contemplated hereby or thereby, violates or will violate any provision of the
certificate of incorporation or by-laws of the Company or, except as set forth
on Schedule 3.3 hereto, any statute, ordinance, regulation, order, judgment or
decree of any court or other Governmental Authority or any Permit, or conflicts
with or will conflict with or results in or will result in any breach or
modification of any of the terms of or constitutes or will constitute a default
under or results in or will result in the termination of or the creation of any
Lien, acceleration right or other right pursuant to the terms of any Contract or
Permit or will in any way affect the continuation, validity or effectiveness of
any Contract or Permit. Except as set forth on Schedule 3.3 hereto, no consents,
approvals or authorizations of, or designations, registrations, declarations or
filings with or notices to, any Governmental Authority or any other person or
entity are required pursuant to any Contract, Permit or otherwise in connection
with the execution and delivery of this Agreement or any other instrument or
document required to be executed and delivered by the Company or the Shareholder
pursuant hereto, or the consummation of the transactions contemplated hereby or
thereby.
3.4 CAPITALIZATION. The authorized capital stock of RGIF
consists of 1,000 shares of RGIF Common Stock, of which 1,000 shares are issued
and outstanding. The authorized capital stock of RGIC consists of 1,000 shares
of RGIC Common Stock of which 1,000 shares are issued and outstanding. The
Shares constitute all of the outstanding shares of capital stock of the Company.
All of the issued and outstanding shares of RGIF Common Stock and RGIC Common
Stock have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned beneficially and of record by the Shareholder, in
each case free and clear of all Liens (including without limitation any
restriction on the right to vote, sell or otherwise dispose of the Shares).
There are no outstanding subscriptions, warrants, options, calls, commitments or
other rights or agreements to which the Company or the Shareholder is subject to
or bound relating to the issuance, sale, transfer or redemption of shares of
RGIF Common Stock and RGIC Common Stock and no person or entity other than the
Shareholder has any interest in the RGIF Common Stock and RGIC Common Stock or
the Company. No shares of capital stock or other securities of the Company are
reserved for any purpose. The Shareholder has the unrestricted right to transfer
the Shares to the Purchaser and, upon transfer of the Shares to the Purchaser
hereunder, the Purchaser will acquire good, valid and marketable title to the
Shares, free and clear of all Liens.
3.5 FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. (a) The
Company and the Shareholder have delivered to the Purchaser, the Company's
unaudited consolidated balance sheet as at June 30, 1998 (the "Balance Sheet"),
a copy of which is attached to Schedule 3.5 hereto. The Company has also
delivered to the Purchaser the Company's unaudited statements of Profit and Loss
for the two-month period ended August 26, 1998 and the 12-month periods ended
June 30, 1997 and 1998 (collectively, the "Profit and Loss Statements"; and
together with the Balance Sheet, the "Financial Statements"). The Financial
Statements are complete and correct, have been prepared from the books and
records of the Company and fairly present the financial condition of the Company
as at their respective dates and the results of their operations for the periods
covered thereby. The Financial Statements include all adjustments, which consist
only of normal recurring accruals, necessary for such fair presentation. Except
as set forth in Schedule 3.5 hereto, the books and records of the Company are
such that audited consolidated financial statements of the Company may be
prepared for at least a two year period prior to the Closing without undue time
or expense.
<PAGE> 11
6
(b) Except to the extent set forth in or reserved against in
the Balance Sheet or as specifically identified in Schedule 3.5 hereto, and
except for current liabilities incurred in the ordinary course of business
consistent with past practices (and not materially different in type or amount)
since the date of the Balance Sheet, the Company does not have any liabilities
or obligations of any nature, whether accrued, absolute, known or unknown,
contingent or otherwise, whether due or to become due, whether properly
reflected under generally accepted accounting principles as a liability or a
charge or reserve against an asset or equity account or not, and whether the
amount thereof is readily ascertainable or not.
3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in
Schedule 3.6 hereto, subsequent to June 30, 1998, there has not been with
respect to the Company or the Business any (a) adverse change in the condition,
financial or otherwise, or in the results of operation, assets, properties,
business or prospects of the Company; (b) damage or destruction (whether or not
insured) affecting any of the assets, properties, business or operations; (c)
labor dispute or threatened labor dispute involving any employee of the Company
or, to the best knowledge of the shareholder any School; (d) any actual or, to
the best knowledge of the Shareholder threatened, dispute with any School,
school board, regulatory authority, customer or supplier, or any actual or, to
the best knowledge of the Shareholder threatened, loss of business from any
School or other customer or supplier; (e) changes in the methods or procedures
for billing or collection of accounts or recording of accounts receivable or
reserves for doubtful accounts; (f) sale, assignment or transfer of any of the
assets or properties, except in the ordinary course of business and consistent
with past practice; (g) cancellation of any debts or waivers of any claims or
rights of substantial value; (h) agreements or commitments for capital
expenditures in excess of $5,000 in the aggregate for repairs or additions to
property, plant, equipment or tangible capital assets other than as approved by
the Purchaser in writing; (i) change in any method of accounting or accounting
principles; (j) increase in the compensation, commission, bonus or other direct
or indirect remuneration payable or to become payable to any salesman,
distributor, agent or employee other than increases in salary to employees in
the ordinary course of business and consistent with past practices and promptly
disclosed to the Purchaser in writing; (k) Contract, transaction, arrangement or
other action entered into or taken by the Company not in the ordinary course of
business consistent with past practices; (l) cash or other dividend or
distribution of any kind in respect of the Company's capital stock, (m) Liens
with respect to the Business or any of the assets or properties of the Company;
or (n) agreement or commitment to do any of the foregoing.
3.7 ACCOUNTS RECEIVABLE. All accounts receivable of each of
the Company which are reflected in the Balance Sheet, and all such accounts
receivable which will have arisen since the date of the Balance Sheet are valid
and shall have arisen only from bona fide arms-length transactions in the
ordinary course of the business and shall be (or have been) fully collected
within 90 days after it arose, without resort to litigation and without offset
or counterclaim, in the aggregate face amounts thereof. All accounts receivable
of the Company are fully and correctly reflected on the Financial Statements. To
the knowledge of the Company and the Shareholder, no basis exists for the
assertion of any counterclaim or set-off or the repayment of any accounts
receivable or payments heretofore received by the Company. Schedule 3.7 hereto
accurately sets forth the amount, if any, of all commissions paid or due, and to
whom paid or due, with respect to all accounts receivable of the Company, as of
the date hereof.
<PAGE> 12
7
3.8 NO DIVIDENDS, LOANS, ETC. (a) Except as set forth on
Schedule 3.8 hereof and subject to Section 5.5 hereof, subsequent to June 30,
1998, the Company has not (i) declared or paid any dividend (whether in cash, in
property or otherwise) or made any other distribution of any kind in respect of
its capital stock, and the Company has no obligation (contingent or otherwise)
to pay any dividends or make any other distribution of any kind, or (ii)
purchased, redeemed or otherwise acquired or disposed of or issued any shares of
capital stock or any notes, bonds or other securities of any kind and has no
obligation (contingent or otherwise) to do any of the foregoing. The Company has
paid on a timely basis (i) all normal and recurring installments of Company
Indebtedness, (ii) all amounts due and payable under leases and other
contractual obligations and (iii) all other amounts due and payable to any other
persons or entities. Except as set forth on Schedule 3.8, subsequent to June 30,
1998, the Company has not incurred any Company Indebtedness or entered into any
Debt Documents. As of the Closing Date, the Company does not have any
outstanding loans or advances to the Shareholder or members of the family of the
Shareholder, or any affiliate of the Shareholder or family member.
(b) Schedule 3.8 hereto is a complete and accurate list of the
following with respect to all Company Indebtedness: (i) the name and address of
each Debt Holder; (ii) the aggregate outstanding principal amount of Company
Indebtedness payable to each Debt Holder as of the date hereof, payment
schedules and maturities thereof; and (iii) a list of all Debt Documents,
including those creating any Liens on the Shares or any of the assets or
properties of the Company.
3.9 REAL PROPERTY. (a) The Company does not own any land or
any other real property. A list and description of all real property leased to
or by the Company or the Schools or in which the Company or the Schools have any
interest is set forth in Schedule 3.9 hereto. All such leased real property is
held subject to written leases or other agreements which are valid and effective
in accordance with their respective terms, and there are no existing defaults or
events of default, or events which with notice or lapse of time or both would
constitute defaults, thereunder on the part of the Company. Neither the Company
nor the Shareholder has knowledge of any default or claimed or purported or
alleged default or state of facts which with notice or lapse of time or both
would constitute a default on the part of any other party in the performance of
any obligation to be performed or paid by such other party under any lease
referred to in Schedule 3.9 hereto. Neither the Company nor the Shareholder has
received any written or oral notice to the effect that any lease will not be
renewed at the termination of the term thereof or that any such lease will be
renewed only at a substantially higher rent.
(b) Neither the Company nor the Shareholder has received any
written notice of, and neither of the Company nor the Shareholder is aware of,
any violation of any laws, rules, regulations or ordinances relating to the real
property leased by the Company or leased or owned by any of the Schools (the
"Real Property") or requesting or requiring the performance of any repairs,
alterations or other work in order so to comply.
(c) The buildings and other improvements constituting a part
of the Real Property have no structural, roof or other defects and such
buildings and improvements (including, without limitation, all plumbing,
heating, electrical, air conditioning, ventilation and other mechanical systems
and equipment) are in good working order, condition and repair, normal wear and
tear excepted.
<PAGE> 13
8
(d) To the best knowledge of the Shareholder, the Real
Property (and uses to which it is put) conforms with all applicable laws, rules,
ordinances, regulations and all applicable agreements to which the Company or
the applicable School is a party or by which the Real Property is subject to or
bound, including, without limitation, those relating to zoning and safety
standards and the rules and regulations relating thereto.
3.10 TITLE TO ASSETS; CONDITION OF PROPERTY. (a) The Company
has good, valid and marketable title to all of its properties and assets,
tangible and intangible, including, without limitation, the properties and
assets listed on the Balance Sheet, free and clear of all Liens (except for
assets leased under leases set forth in Schedules 3.9 or 3.13 hereto, and except
for accounts receivable collected upon since the Balance Sheet Date in the
ordinary course of business consistent with past practices), except for the
Liens listed on Schedule 3.10(a) hereto (collectively, "Permitted Liens").
(b) All of the assets and properties (including, without
limitation, all equipment and the improvements, fixtures and appurtenances on or
to the real property leased by the Company) are in good operating condition and
repair, normal wear and tear excepted, and have been maintained and serviced in
accordance with the prudent conduct of business, are suitable for the purposes
for which they presently are being used and constitute all of the assets and
properties used in the operations of, and necessary to operate, the Business as
presently conducted. None of the assets or properties utilized, owned or leased
by the Company (or uses to which they are put) fails to conform with any
applicable agreement, law, ordinance or regulation. Except with respect to
assets leased pursuant to valid leases set forth on Schedules 3.9 or 3.13
hereto, the Company owns all the properties and assets located at or on any of
the leased premises of the Company and owns all of the properties, leases and
assets necessary for or used in the conduct of the Business.
3.11 TAXES. (a) The Company has filed or caused to be filed on
a timely basis all federal, state, local, foreign and other tax returns, reports
and declarations (collectively, "Tax Returns") required to be filed by it and
has paid all taxes, including, but not limited to, income, gross receipts,
capital stock, profits, stamp, occupation, transfer, value added, excise,
franchise, sales, use, property (whether real, personal or mixed), employment,
unemployment, disability, withholding, social security and workers' compensation
taxes and estimated income and franchise tax payments, and interest, penalties,
fines, costs and assessments (collectively, "Taxes"), due and payable with
respect to the periods covered by such Tax Returns (whether or not reflected
thereon). All Tax Returns filed by or on behalf of the Company are true,
complete and correct.
(b) There are no Tax Liens on any of the properties or assets,
real, personal or mixed, tangible or intangible, of the Company. No deficiency
in Taxes of the Company for any period has been asserted by any taxing authority
which remains unpaid at the date hereof. No Tax Returns of the Company have ever
been audited. No written inquiries or notices have been received by the Company
from a taxing authority with respect to possible claims for Taxes which have not
been resolved prior to the date hereof, neither the Company nor the Shareholder
has any reason to believe that such an inquiry or notice is pending or
threatened, and there is no basis for any additional claims or assessments for
Taxes. The Company has not agreed to the extension of the statute of limitations
with respect to any Tax Returns or Tax periods. There are
<PAGE> 14
9
no assessments relating to the Company's Tax Returns pending or threatened. The
Company has delivered to the Purchaser complete and correct copies of the
federal and state income (or franchise) Tax Returns filed by each of them for
the past three years. The Company is not in the business of selling tangible
personal property at retail and is not a person required to collect sales tax in
Florida. The Company has elected, pursuant to Section 1362 of the Code, to be
treated as an S corporation as that term is defined in Section 1361 of the Code,
for federal and any applicable state and local tax purposes. The Company's
election to be treated as an S corporation, was valid and timely filed and has
never been challenged by the Internal Revenue Service or any state or local
taxing authority, and the Company's election is effective under the Code in all
states and localities that recognize the tax status of S corporation where the
Company is subject to Taxes. The Company is not, and has never been, the common
parent or a member of any affiliated group of corporations filing a consolidated
federal income tax return, and is not a party to any tax sharing agreement or
other arrangement pursuant to which it could be liable for the Taxes of any
third party.
(c) Except as set forth in Schedule 3.11 hereto, the accrual
for Taxes reflected in the Financial Statements accurately reflects the total
amount of all unpaid Taxes, whether or not disputed and whether or not presently
due and payable, of the Company as of the close of the period covered by the
Financial Statements. Adequate accruals and reserves have been made in the
Financial Statements and the books and records of the Company for the payment of
all unpaid federal, state, local and other Taxes of the Company for all periods
through the respective dates thereof, through the Closing Date, whether or not
yet due and payable and whether or not disputed by the Company, and nothing has
occurred subsequent to the dates of such Financial Statements or such accruals
or reserves in such books and records which make such accruals and reserves
inadequate.
3.12 COMPLIANCE WITH APPLICABLE LAW; PERMITS; AUTHORIZATIONS;
ENVIRONMENTAL, HEALTH & SAFETY. (a) GENERAL. Neither the Company nor, to the
best knowledge of the Shareholder, any of the Schools is in default under any,
nor have the Company nor, to the best knowledge of the Shareholder, any of the
Schools failed to comply with or is otherwise in violation of, any law, statute,
ordinance, regulation (including, without limitation, any local rule or other
similar measure promulgated or issued by any board of education, school board or
county), order, judgment or decree of any court or other Governmental Authority,
and the Premises are in compliance with all laws, statutes, ordinances,
regulations, orders, judgments and decrees of any Governmental Authority (other
than Environmental Laws which are subject to the provisions of Section 3.12(c)
(below) except where the failure to be in compliance (whether individually or in
the aggregate) could not have a Material Adverse Effect. Neither the Company nor
the Shareholder has any knowledge of any basis for assertion of any violation of
the foregoing or for any claim for compensation or damages or otherwise arising
out of any violation of the foregoing. The Company has not received any
notification of any asserted present or past failure to comply with any of the
foregoing which has not been satisfactorily responded to in the time period
required thereunder.
(b) PERMITS. Set forth in Schedule 3.12(b) hereto is a
complete and accurate list of all permits, licenses, approvals, franchises,
notices and authorizations issued by Governmental Authorities (collectively the
"Permits"), held by the Company or any of the Schools. The Permits set forth in
Schedule 3.12(b) hereto are all the Permits required for the conduct of the
<PAGE> 15
10
Business. All the Permits set forth in Schedule 3.12(b) hereto are in full force
and effect and neither the Company nor, to the best knowledge of the
Shareholder, any of the Schools has engaged in any activity which would cause or
permit revocation or suspension of any such Permit, and no action or proceeding
looking to or contemplating the revocation or suspension of any such Permit is
pending or threatened. There are no existing defaults or events of default or
events or states of fact which with notice or lapse of time or both would
constitute a default by the Company or, to the best knowledge of the
Shareholder, any of the Schools under any such Permit. Except as set forth on
Schedule 3.12(b) hereto, the consummation of the transactions contemplated
hereby will in no way affect the continuation, validity or effectiveness of the
Permits set forth in Schedule 3.12(b) hereto, or require the consent of any
Governmental Authority, person or entity .
(c) ENVIRONMENTAL, HEALTH AND SAFETY. (i) The Company and, to
the best knowledge of the Shareholder, each of the Schools has duly complied
with, and the Business and the operation of each of the Schools is being
conducted and has been conducted in compliance with, and the real property
subject to the leases listed on Schedule 3.9 hereto and the other Real Property,
and improvements thereon (all such real property, and improvements thereon, is
herein referred to collectively as the "Premises"), are in compliance with all
Environmental Laws.
(ii) Neither the Company nor, to the best knowledge of the
Shareholder, any School has received notice of, and neither the Company nor the
Shareholder knows of any facts which might give rise to, any Environmental Claim
made or threatened against the Company or any of the Schools.
3.13 CONTRACTUAL AND OTHER OBLIGATIONS. (a) Set forth in
Schedule 3.13 hereto is a list of all contracts, agreements, licenses, leases,
guarantees (or other agreements relating to contingent obligations of the
Company or any School), arrangements (written or oral) and other documents to
which the Company or any School is a party, including, without limitation, all
amendments thereto, or by which the Company or any School or any of the assets
or properties of the Company or any School is subject to or bound; all of the
foregoing described in this Section 3.13(a) together with all other contracts,
contingent or other obligations, leases, licenses, commitments, plans, insurance
policies, and other agreements, instruments or documents to which the Company,
any of its assets or properties, or any School is subject to or bound including,
without limitation, the School Contracts, being herein collectively referred to
as the "Contracts" and singularly referred to as a "Contract."
(b) Neither the Company nor, to the best knowledge of the
Shareholder, any of the Schools is in default under any Contract and no claim of
such a default has been made and no event has occurred which with the giving of
notice or the lapse of time or both would constitute such default under any
Contract, except for any such defaults (individually or in the aggregate) which
could not have a Material Adverse Effect. To the best knowledge of each of the
Company and the Shareholder, no other party to any Contract is in default
thereunder. Each of the Contracts has been entered into in the ordinary course
of business and is at arms' length and on commercially reasonable terms and
conditions. The Company has delivered to the Purchaser true and complete copies
of each written, and true and complete written descriptions of each oral,
Contract. Each of the Contracts is in full force and effect and is a legal,
valid and binding obligation of each party thereto. Each of the Company and each
<PAGE> 16
11
School is a party to each Contract either directly or through a legal, valid and
effective assignment which has been entered into in accordance with the terms of
such Contract and which is binding and enforceable against the assignor and each
other party to each such Contract.
3.14 COMPENSATION. Set forth in Schedule 3.14 hereto, with
respect to the Company and each School, is a complete and accurate list of (a)
all agreements, plans, arrangements or commitments with employees, shareholders,
consultants, independent contractors, sales representatives, agents or any
family members of any of the foregoing, with regard to compensation, benefits or
perquisites, whether individually or collectively, except oral agreements
terminable by the Company on not more than 30 days' notice without penalty, and
(b) all full-time and part-time employees, and their respective positions, job
categories and salaries. All bonuses heretofore granted to employees of the
Company have been paid in full to such employees. Neither the execution of this
Agreement nor the transactions contemplated by this Agreement will result in any
liability for severance pay or similar payment requirements to any employee,
sales representative, independent contractor, consultant, distributor, agent or
affiliate of the Company.
3.15 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule
3.15 hereto, the Company does not maintain or sponsor, nor is required to make
contributions to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plan. All pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or other
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (hereinafter referred to as
"ERISA"), in which the employees participate (such plans and related trusts,
insurance and annuity contracts, funding media and related agreements and
arrangements being hereinafter referred to as the "Benefit Plans") comply with
all requirements of the Department of Labor and the Internal Revenue Service,
and with all other applicable law, and the Company has not taken or failed to
take any action with respect to the Benefit Plans which might create any
liability on the part of the Company or the Purchaser. Each "fiduciary" (within
the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied
with all requirements of ERISA and all other applicable laws in respect of each
such Benefit Plan. The Company has furnished to the Purchaser copies of all
Benefit Plans and all financial statements, actuarial reports and annual reports
and returns filed with the Internal Revenue Service with respect to such Benefit
Plans for the three plan years prior to the date hereof, and will furnish the
Purchaser with copies of any of the foregoing so filed after the date hereof.
Such financial statements and actuarial reports and annual reports and returns
are and shall be true, correct and complete, and none of the actuarial
assumptions underlying such documents have changed since the respective dates
thereof. In addition:
(i) The Company does not maintain, sponsor or contribute
to, and has never withdrawn from, maintained, sponsored or
contributed to a "defined benefit plan" (within the meaning of
Section 3(35) of ERISA), a "defined contribution plan" (within
the meaning of Section 3(34) of ERISA), or a "multiemployer
plan" (within the meaning of Section 3(37) of ERISA);
(ii) Reserved.
<PAGE> 17
12
(iii) No "prohibited transaction" (within the meaning of
Section 406 of ERISA or Section 4975(c) of the Code) has
occurred with respect to any Benefit Plan;
(iv) No provision of any Benefit Plan or of any agreement,
and no act or omission of the Company in any way limits,
impairs, modifies or otherwise affects the right of the
Company or the Purchaser unilaterally to amend or terminate
any Benefit Plan after the Closing, subject to the
requirements of applicable law;
(v) No policy, plan, program, arrangement, understanding or
agreement exists which could result in the payment by the
Company or the Purchaser of money or any other property or
rights or accelerate or provide any other rights or benefits,
to any employee of the Company that would not have been
required but for the consummation of the transactions
contemplated therein;
(vi) Other than claims in the ordinary course for benefits
with respect to the Benefit Plans, there are no actions, suits
or claims (including claims for income taxes, interest,
penalties, fines or excise taxes with respect thereto) pending
with respect to any Benefit Plan, or any circumstances
(including without limitation arising out of the operation or
termination of any Benefit Plan) which might give rise to any
such action, suit or claim (including claims for income taxes,
interest, penalties, fines or excise taxes with respect
thereto);
(vii) All reports, returns and similar documents with
respect to the Benefit Plans required to be filed with any
Governmental Authority have been so filed on or before their
due date or, if not currently due, will be filed when due;
(viii) The Company does not have any obligation to provide
health or other welfare benefits to former, retired or
terminated employees, except as specifically required under
Section 4980B of the Code or Section 601 of ERISA. The Company
has complied with all notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA and the
regulations thereunder; and
(ix) The Company is not a party to any agreement, contract
or arrangement that would result, separately or in the
aggregate, in any payment (whether or not in connection with
any termination of employment or otherwise) of any "excess
parachute payment" within the meaning of Section 280G of the
Code.
3.16 LABOR RELATIONS. There have been no violations of any
Federal, state or local statutes, laws, ordinances, rules, regulations, orders
or directives with respect to the employment of individuals by, or the
employment practices or work conditions of, the Company or, to the best
knowledge of the Shareholder, any of the Schools, or the terms and conditions of
employment, wages and hours. Neither the Company nor, to the best knowledge of
the Shareholder, any School is engaged in any unfair labor practice or other
unlawful employment practice and there are no charges of unfair labor practices
or other employee-related complaints pending or threatened against the Company
or, to the best knowledge of the Shareholder, any of the Schools before the
National Labor Relations Board, the Equal Employment Opportunity Commission, the
Occupational Safety and Health Review Commission, the Department of Labor or any
other Governmental Authority. There is no strike, picketing, slowdown or work
stoppage or organizational attempt pending, threatened against or involving the
Company or the Business or, to the best knowledge of the Shareholder, any
School. No issue with respect to union representation is pending or threatened
with respect to the employees of the Company or, to the best knowledge of the
Shareholder, any of
<PAGE> 18
13
the Schools. No union or collective bargaining unit or other labor organization
has ever been certified or recognized by the Company or, to the best knowledge
of the Shareholder, any of the Schools as the representative of any of the
employees of the Company or any of the Schools. The Company has complied with
the Workers Adjustment and Retraining Notification Act.
3.17 INSURANCE. The Company maintains insurance policies
covering all of the assets and properties of the Company (including without
limitation all of the Premises) and the various occurrences which may arise in
connection with the operation of the Business. Such policies are in full force
and effect, all premiums due thereon have been paid in full and the Company has
fully complied with the provisions of such policies. A complete and accurate
list of all insurance policies of the Company is set forth in Schedule 3.17
hereto. There are no notices of any pending or threatened termination or premium
increases with respect to any of such policies. The Company has not had any
casualty loss or other occurrence which may give rise to any claim of any kind
not covered by insurance and neither the Company nor the Shareholder is aware of
any occurrence which may give rise to any claim of any kind not covered by
insurance. No third party has filed any claim against the Company for personal
injury, property damage or other occurrence of a kind for which liability
insurance is generally available which is not fully insured. All claims against
the Company covered by insurance have been reported to the insurance carrier on
a timely basis and are listed on Schedule 3.17 hereto.
3.18 CONDUCT OF BUSINESS; ALLOWANCES. The Company is not
restricted from conducting the Business in any manner or location by agreement
or court decree. The Company does not have any obligation outside of the
ordinary course of business to make allowances to any customers. The Business is
conducted entirely through the Company (and not through any other subsidiary,
affiliate, partner or any other person or entity) and the Company conducts no
other business other than the Business.
3.19 PATENTS, TRADEMARKS, ETC. Set forth in Schedule 3.19 is a
list and brief description of each of the Company's patents, registered and
common law trademarks, service marks, trade names, copyrights and other similar
rights and applications for and all contracts, agreements, licenses or other
rights with respect to each of the foregoing. The Company owns all unencumbered
right, title and interest in and to all such proprietary rights of the Company.
The proprietary rights listed on Schedule 3.19 hereto are all such rights
necessary to the conduct of the Business as currently conducted; no adverse
claims have been made and no dispute has arisen with respect to any of said
proprietary rights; the operation of the Business and the use by the Company of
its proprietary rights do not involve infringement of any patent, trademark,
service mark, trade name, copyright, agreement, license or similar right; and
neither the Company nor the Shareholder has received any notice or has any
knowledge of any claimed conflict with respect to any of the foregoing, nor are
the Company or the Shareholder aware of any claim or assertion that any of the
foregoing proprietary rights are invalid or defective in any
<PAGE> 19
14
way or aware of any facts or prior act upon which such a claim or assertion
could be based. Neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement will in any way affect the
continuation, validity or effectiveness of any such proprietary rights or any
contract, agreement, license or other right referred to in Schedule 3.19 hereto
or require the consent, waiver, approval, authorization of, notice to, or
designation, registration, declaration or filing with, any party or third party
in respect of any such proprietary rights, contract, agreement, license or other
right.
3.20 POWER OF ATTORNEY; BANK ACCOUNTS. The Company has not
granted any power of attorney (revocable or irrevocable) to any person, firm or
corporation for any purpose whatsoever. Set forth on Schedule 3.20 hereto is a
complete and accurate list of (i) the name of each institution in which the
Company has a bank account, securities account, safe-deposit box, or any other
account, the title and number of such accounts and the names of all persons
authorized to draw thereon or have access thereto and (ii) all marketable and
other securities and all other notes or other obligations evidenced by written
instruments and attributable to, or utilized in, any aspect of the Business and
reflected in the Financial Statements or thereafter acquired by the Company.
3.21 NO FOREIGN PERSON. The Shareholder is not a foreign
person within the meaning of Section 1445(b)(2) of the Code.
3.22 BOOKS AND RECORDS. The books and records of the Company
are complete and correct, have been maintained in accordance with GAAP
consistently applied and in accordance with good business practices and
accurately reflect the basis for the financial position and results of
operations of the Company set forth in the Financial Statements. True and
complete copies of all of such books and records have been and will continue to
be made available for inspection by the Purchaser and its representatives.
3.23 LITIGATION; DISPUTES. Except as set forth in Schedule
3.23 hereto, there are no claims, disputes, actions, suits, investigations or
proceedings pending or, to the knowledge of the Company and the Shareholder,
threatened against or affecting the Company or the Business, or, to the best
knowledge of the Shareholder, any of the Schools or any of the Premises or any
of the other properties or assets of the Company. In particular, except as set
forth in Schedule 3.23, but without limiting the generality of the foregoing,
there are no applications, complaints, claims or proceedings pending or, to the
best knowledge of the Shareholder, threatened against the Company or any School
(a) before any federal, state or local agency or court or otherwise involving
charges of illegal discrimination or harassment under any federal or state
employment laws or regulations, or (b) before any federal, state or local agency
or court or otherwise involving environmental or zoning issues under any
federal, state or local environmental or zoning laws or regulations. None of the
matters set forth on Schedule 3.23 hereto could (individually or in the
aggregate), if adversely determined against the Company or, to the best
knowledge of the Shareholder, any School, have a Material Adverse Effect. No
such claim, dispute, action, suit, proceeding or investigation has been pending
or, to the best knowledge of the Shareholder, threatened during the five-year
period preceding the date of this Agreement; and there is no basis for any such
claim, dispute, action, suit, investigation or proceeding. Neither the Company
nor the Shareholder has any knowledge of any default under any such action, suit
or proceeding. Neither the Company nor, to the best knowledge of the
Shareholder, any School
<PAGE> 20
15
is in default in respect of any judgment, order, writ, injunction or decree of
any Governmental Authority.
3.24 INSIDER INTERESTS; INTERCOMPANY TRANSACTIONS. Except as
disclosed in Schedule 3.24 hereto, no present or former stockholder, partner,
principal, officer, director, trustee, employee or affiliate of the Company or
any School or any person, corporation, partnership, trust or other entity in
which any such person is an officer, director, trustee, principal, partner or
stockholder (a) is presently a party to any transaction or arrangement with the
Company or, to the best knowledge of the Shareholder, any School (other than for
services as officers, directors or employees of the Company or any School in the
ordinary course of business consistent with past practices) or the Shareholder
(with respect to the Business), (b) owns any interest in any of the assets or
properties of this Company, (c) owns any interest in, controls or is an
employee, officer, director or agent of, or consultant to any other entity which
is a competitor, supplier or customer or which is a landlord or tenant of the
Company or, to the best knowledge of the Shareholder, any School (d) is indebted
or liable to, owns any interest in, or owns, holds or has guaranteed any
obligation or debt of the Company or, to the best knowledge of the Shareholder,
any School.
3.25 DISCLOSURE. No representation or warranty made under this
Agreement (including the Exhibits and Schedules hereto) or any certificate or
other document delivered by the Company or the Shareholder or any representative
thereof pursuant hereto, and none of the information furnished by the Company or
the Shareholder set forth herein, including the Exhibits or Schedules hereto, or
in any document delivered by the Company, the Shareholder or any representative
thereof to the Purchaser or any representative of the Purchaser, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements herein or therein not misleading.
SECTION IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company
and the Shareholder, as of the date hereof and as of the date of the Closing,
that:
4.1 ORGANIZATION. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to purchase the Shares.
4.2 AUTHORITY. The execution and delivery of this Agreement by
the Purchaser, the performance by the Purchaser of its covenants and agreements
hereunder and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary corporate action, and this
Agreement constitutes a valid and legally binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms.
4.3 NO LEGAL BAR; CONFLICTS. Subject to obtaining the consents
set forth on Schedule 4.3 hereto, neither the execution and delivery of this
Agreement by the Purchaser, nor
<PAGE> 21
16
the consummation of the transactions contemplated hereby by the Purchaser,
violates or will violate any provision of the certificate of incorporation or
by-laws of the Purchaser or any statute, ordinance, regulation, order, judgment
or decree of any court or other Governmental Authority, or conflicts with or
will conflict with or results in or will result in any breach or modification of
any of the terms of or constitutes or will constitute a default under or results
in or will result in the termination of or the creation of any Lien pursuant to
the terms of, or will in any way affect the continuation, validity or
effectiveness of, any contract or agreement to which the Purchaser is a party or
by which the Purchaser or any of its assets is bound.
SECTION V.
CERTAIN COVENANTS OF
THE SHAREHOLDER, THE COMPANY AND THE PURCHASER
5.1 PUBLICITY. Each of the Company and the Shareholder
covenants and agrees that any and all publicity (whether written or oral) and
notices to third parties concerning the sale of the Shares and other
transactions contemplated by this Agreement shall be subject to the prior
written approval of the Purchaser, which approval may be withheld in the sole
discretion of the Purchaser.
5.2 ENCUMBRANCES. The Shareholder covenants and agrees to
cause, at the sole expense of the Shareholder, on or prior to the Closing, any
and all Liens of any kind whatsoever which affect the assets or properties of
the Company or the Business (including without limitation those which affect the
Premises) to be released, discharged and terminated in full to the Purchaser's
satisfaction
5.3 CONFIDENTIAL INFORMATION. The Shareholder acknowledges
that after the Closing the Purchaser could be irreparably damaged if the
Shareholder's confidential knowledge of the Company, the Business and the
operations of the Company were disclosed to or utilized on behalf of any person,
firm, corporation or other business entity other than the Purchaser or its
affiliates, and the Shareholder covenants and agrees that he will not, following
the Closing, without the prior written consent of the Purchaser, disclose (or
permit to be disclosed) or use in any way any such confidential information,
unless (i) compelled to disclose such confidential information by judicial or
administrative process or, in the opinion of its or his counsel, by other
requirements of law, (ii) such confidential information is available to the
public through no fault of the Shareholder, or (iii) such confidential
information becomes available to the Shareholder from a third party who is under
no confidential or fiduciary obligation to the Purchaser or its affiliates with
respect to such confidential information.
5.4 BROKERS AND FINDERS. (a) The Purchaser shall have no
obligation to pay any fee or other compensation to any person, firm, corporation
or other entity dealt with by the Shareholder or the Company in connection with
this Agreement and the transactions contemplated hereby, the fees, expenses and
other amounts owing in connection therewith will be the sole responsibility of
the Shareholder, and the Shareholder hereby agrees to indemnify and save the
Purchaser and the Company harmless from any and all Damages arising from any
claim for any such fee or other compensation.
<PAGE> 22
17
(b) The Company and the Shareholder shall have no obligation
to pay any fee or other compensation to any person, firm, corporation or other
entity dealt with by the Purchaser in connection with this Agreement and the
transactions contemplated hereby, and the Purchaser hereby agrees to indemnify
and save the Company and the Shareholder harmless from any and all Damages
arising from any claim for any such fee or other compensation.
5.5 CASH MANAGEMENT. The Shareholder shall cause the checking
and all other bank accounts of the Company to maintain on deposit sufficient
amounts following the Closing Date (i) to pay in full all checks and drafts of
the Company drawn on or prior to the Closing Date and (ii) to pay the reasonably
anticipated working capital requirements of the Company for the one month period
following the Closing Date.
5.6 RADER DATABASE. The Shareholder covenants and agrees (i)
to grant to the Purchaser and to any and all entities from time to time
controlled by, or under common control with, the Purchaser, and to cause any
other person or entity controlled by the Shareholder which may have an interest
therein to grant to the Purchaser and to any and all entities from time to time
controlled by, or under common control with, the Purchaser, a non-exclusive,
perpetual, royalty-free, fully-paid license with respect to any proprietary
software, database technology and other proprietary information useful to or
used in interfacing connections with school board databases and the preparation
of certain reports (the "Rader Database"), whether or not currently under
development by the Shareholder or such other controlled person or entity and
(ii) to execute and deliver or cause to be executed and delivered to the
Purchaser such documentation reasonably requested and acceptable to the
Purchaser to effectuate the intent of the foregoing.
SECTION VI.
CLOSING
6.1 TIME AND PLACE OF CLOSING. The closing of the purchase and
sale of the Shares as set forth herein (the "Closing") shall be held at 10:00
A.M. at the offices of Clark, Partington, Hart, Larry, Bond, Stackhouse & Stone,
One Pensacola Plaza, Suite 800, 125 West Romana Street, Pensacola, Florida
within five business days after the date on which all other conditions precedent
set forth in Sections VII and VIII hereof have been satisfied or waived, or, in
any event, at such other time, date and place as the parties shall mutually
agree (the "Closing Date").
6.2 DELIVERY OF THE SHARES. Delivery of the Shares shall be
made by the Shareholder to the Purchaser at the Closing by one or more original
certificates in negotiable form, representing the Shares. Each such certificate
evidencing the Shares shall be duly endorsed in blank, or be accompanied by
stock transfer powers duly executed in blank, and shall be accompanied by all
requisite documentary or stock transfer taxes affixed thereto and cancelled.
<PAGE> 23
18
SECTION VII.
CONDITIONS TO THE SHAREHOLDER'S OBLIGATION TO CLOSE
The obligations of the Shareholder to sell the Shares and
otherwise consummate the transactions contemplated by this Agreement at the
Closing are subject to the following conditions precedent, any or all of which
may be waived by the Shareholder in his sole discretion, and each of which the
Purchaser hereby agrees to use its best efforts to satisfy at or prior to the
Closing:
7.1 NO LITIGATION. No action, suit or proceeding against the
Company, the Business or the Shareholder relating to the consummation of any of
the transactions contemplated by this Agreement including, without limitation
any governmental action seeking to delay or enjoin any such transactions shall
be pending or threatened.
7.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by the Purchaser herein shall be true and
correct as of the date of the Closing with the same force and effect as though
such representations and warranties had been made as of the date of the Closing,
and on the date of the Closing, the Purchaser shall deliver to the Shareholder a
certificate dated the date of the Closing to such effect. All the terms,
covenants and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the date of the Closing shall have been duly complied
with and performed, and on the date of the Closing, the Purchaser shall deliver
to the Shareholder a certificate dated the date of the Closing to such effect.
7.3 OPINION OF THE PURCHASER'S COUNSEL. The Company shall have
received an opinion of Haythe & Curley, counsel for the Purchaser, delivered to
the Shareholder pursuant to the instructions of the Purchaser, dated the date of
the Closing, in form and substance satisfactory to the Shareholder and his
counsel.
SECTION VIII.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Shares and
otherwise consummate the transactions contemplated by this Agreement at the
Closing is subject to the following conditions precedent, any or all of which
may be waived by the Purchaser in its sole discretion, and each of which the
Company and the Shareholder hereby agree to use their best efforts to satisfy at
or prior to the Closing:
8.1 NO LITIGATION. No action, suit or proceeding against the
Company, the Business, the Shareholder or the Purchaser relating to the
consummation of any of the transactions contemplated by this Agreement
including, without limitation, any governmental action seeking to delay or
enjoin any such transactions shall be pending or threatened.
8.2 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by each of the Company and the Shareholder
herein shall be true and correct at
<PAGE> 24
19
and as of the date of the Closing with the same force and effect as though such
representations and warranties had been made at and as of the date of the
Closing, and on the date of the Closing, the Shareholder shall deliver to the
Purchaser a certificate dated the date of the Closing to such effect. All the
terms, covenants and conditions of this Agreement to be complied with and
performed by each of the Company and the Shareholder on or before the date of
the Closing shall have been duly complied with and performed, and on the date of
the Closing, the Shareholder shall deliver to the Purchaser a certificate dated
the date of the Closing to such effect.
8.3 OTHER CERTIFICATES. The Purchaser shall have received such
other certificates (including good standing and tax clearance certificates and
certified copies of articles of incorporation and by-laws for each of RGIF and
RGIC), instruments and other documents, in form and substance satisfactory to
the Purchaser and counsel for the Purchaser, as it shall have reasonably
requested in connection with the transactions contemplated hereby.
8.4 EMPLOYMENT AGREEMENT. The Shareholder shall have entered
into the Employment Agreement with the Purchaser.
8.5 OPINION OF THE COMPANY'S AND THE SHAREHOLDER'S COUNSEL.
The Purchaser shall have received an opinion of Clark, Partington, Hart, Larry,
Bond, Stackhouse & Stone, counsel for the Company and the Shareholder, delivered
to the Purchaser pursuant to the instructions of the Company and the
Shareholder, dated the date of the Closing, in form and substance satisfactory
to the Purchaser and its counsel.
8.6 SALE OF ALL OF THE SHARES. All the Shares shall be sold
and delivered to the Purchaser (or its designee) at the Closing, free and clear
of all Liens.
8.7 DUE DILIGENCE. The Purchaser shall have obtained, to its
sole satisfaction, satisfactory Phase I, Phase II (if any) and other
environmental studies and satisfactory engineering and other reports and
information as may be necessary for the Purchaser's completion of its due
diligence investigations.
8.8 CONSENTS. The Purchaser shall have received the consents
set forth on Schedule 4.3 hereto and evidence satisfactory to the Purchaser of
receipt by the Company and the Shareholder of the consents of third parties as
set forth in Schedule 3.3 hereto, in each case which consents shall not provide
for the acceleration of any liabilities or any other detriment to the Purchaser,
the Company, the Business, the assets and properties of the Company or any
School, and shall be in form and substance satisfactory to the Purchaser.
8.9 MERGER. The Purchaser shall have received such
certificates, certified resolutions, documents and other evidence satisfactory
to it that prior to the Closing RGIC shall have merged with and into RGIF, with
RGIF as the surviving corporation.
<PAGE> 25
20
SECTION IX.
INDEMNIFICATION
9.1 INDEMNIFICATION BY THE SHAREHOLDER. The Shareholder shall
indemnify and hold harmless each of the Purchaser Indemnified Parties from and
against any and all Damages which are sustained or incurred by any of the
Purchaser Indemnified Parties in connection with or by reason of (i) the breach
by the Company or the Shareholder of any of their respective covenants,
agreements or obligations hereunder, or under any of the other certificates,
agreements or other documents delivered by any such person in connection
herewith, (ii) the breach or inaccuracy of any of the representations or
warranties made by the Company or the Shareholder herein (including in any
Exhibit or Schedule hereto), or in any certificate, agreement or other document
delivered pursuant hereto by the Company or the Shareholder, (iii) the
imposition of any Tax on account of any "excess benefit transaction" within the
meaning of ss.4958(c) of the Code, payable by the Company, any Purchaser
Indemnified Party or any "disqualified person" within the meaning of
ss.4958(f)(1) of the Code or (iv) the failure by RGIF to make and file a valid
and timely election pursuant to Section 1362 of the Code to be treated as an S
corporation, as such term is defined in Section 1361 of the Code, for federal
and any applicable state and local tax purposes, including, without limitation,
any Damages relating to the imposition of any Tax imposed on RGIF for any
taxable year or period ending on or before the Closing Date resulting therefrom.
In addition and without limiting the Purchaser's rights to indemnification
hereunder, the Purchaser shall have the right from time to time to set off the
amount of any of the Purchaser's Damages against any of the Earn Out Payments
(or any portion thereof).
9.2 INDEMNIFICATION BY THE PURCHASER. The Purchaser shall
indemnify and hold harmless each of the Shareholder Indemnified Parties from and
against any and all Damages sustained or incurred by any of the Shareholder
Indemnified Parties in connection with or by reason of (i) the breach by the
Purchaser of any of its covenants, agreements or obligations hereunder or under
any of the other certificates, agreements or other documents delivered by the
Purchaser in connection herewith and (ii) the breach or inaccuracy of any of the
representations or warranties made by the Purchaser herein, or in any
certificate, agreement or other document delivered pursuant hereto by the
Purchaser.
9.3 PROCEDURE FOR INDEMNIFICATION. (a) In the event that any
Shareholder Indemnified Party, on the one hand, or any Purchaser Indemnified
Party, on the other hand, shall sustain or incur any Damages in respect of which
indemnity may be sought by such party pursuant to this Section IX or any other
provision of this Agreement (each, an "Indemnification Matter"), the party
indemnified hereunder (the "Indemnitee") shall notify the party(s) providing
indemnification (collectively, the "Indemnitor") by sending written notice to
the Indemnitor (each, an "Indemnity Notice"). In the case of an Indemnification
Matter involving a third party claim, which, if successful, could result in an
indemnity payment hereunder, an Indemnity Notice shall be given within 60 days
after the discovery by an Indemnitee of the filing or assertion of any claim
against the Indemnitee stating the nature and basis of such claim; provided,
however, that any delay or failure to notify any Indemnitor of any claim shall
not relieve it from any liability except to the extent that the defense of such
action is materially prejudiced or materially adversely affected by such delay
or failure to notify.
<PAGE> 26
21
(b) In the case of third party claims, the Indemnitee shall
give the Indemnitor a reasonable opportunity (i) to conduct any proceedings or
negotiations in connection therewith and necessary or appropriate to defend the
Indemnitee (provided such are pursued in a professional and diligent manner),
(ii) to take all other reasonable steps or proceedings to settle or defend any
such claims, provided that the Indemnitor shall not settle any such claim which
is solely for money damages without the prior written consent of the Indemnitee,
which consent shall not be unreasonably withheld or delayed, and shall not
settle any other such third party claim without the prior written consent of the
Indemnitee (including, without limitation, if such claim seeks or such
settlement imposes equitable remedies or injunctive relief on the Indemnitee),
and (iii) to employ counsel designated by the Indemnitor (which counsel shall
not be an employee of the Indemnitor or any affiliate thereof) and reasonably
satisfactory to the Indemnitee to contest any such claim or liability in the
name of the Indemnitee or otherwise. The Indemnitor shall, within 20 days of
receipt of an Indemnity Notice of such claim (the "Indemnity Notice Period"),
give written notice to the Indemnitee of its intention to assume the defense of
such claim. If defendants in any action include any Indemnitee and any
Indemnitor and any Indemnitee shall have been advised by its counsel that there
may be legal defenses available to such Indemnitee which are different from or
in addition to those available to any Indemnitor, or if a conflict of interest
exists between any Indemnitee and any Indemnitor, then in either case, the
Indemnitee shall have the right to employ its own counsel in such action, and,
in such event (or in the event that the Indemnitor does not timely assume the
defense within the Indemnity Notice Period as provided in the immediately
succeeding sentence), the reasonable fees and expenses of the Indemnitee's
counsel shall be borne by the Indemnitor and shall be paid by the Indemnitor
from time to time within 20 days of receipt of appropriate invoices therefor. If
the Indemnitor does not deliver to the Indemnitee within the Indemnity Notice
Period written notice that the Indemnitor shall assume the defense of any such
claim or litigation resulting therefrom pursuant to and in accordance with the
provisions of this Section IX, the Indemnitee may defend against any such claim
or litigation in such manner as it may deem appropriate and the Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate, all at
the expense of the Indemnitor. The costs and expenses of all proceedings,
contests or lawsuits and all other Damages sustained or incurred with respect to
such claims, proceedings or litigations shall be borne solely by the Indemnitor.
In the event that the Indemnitor does timely assume the defense as provided
above, the Indemnitee shall have the right to fully participate in such defense
(including, without limitation, with counsel of its choice), at its sole expense
(except as otherwise provided herein), and the Indemnitor shall reasonably
cooperate with the Indemnitee in connection with such participation, and in all
cases the Indemnitor shall keep the Indemnitee fully informed as to all matters
concerning each third party claim and shall promptly notify the Indemnitee in
writing of any and all significant developments relating thereto. Within five
business days after the occurrence of an order or other determination with
respect to each third party claim by any court, panel of arbitrator(s) or
Governmental Authority having jurisdiction thereof, the Indemnitor shall pay the
Indemnitee the amount of Damages sustained or incurred by the Indemnitee which
have not theretofore been paid to the Indemnitee as provided above.
(c) In the event that an Indemnification Matter does not
involve a third party claim, the Indemnitor shall within 30 days after the date
of an Indemnity Notice pay to the Indemnitee the amount of Damages payable
pursuant to Section 9.1 or 9.2 hereof, as the case may be, and which are at the
time sustained or incurred by the Indemnitee and shall thereafter
<PAGE> 27
22
pay any other Damages payable pursuant to Section 10.1 or 10.2 hereof, as the
case may be, and related to the same Indemnity Notice on demand.
9.4 SUBROGATION. The Shareholder shall not be subrogated to
any or all rights of any Purchaser Indemnified Party(s) with respect to any
Damages for which the Purchaser Indemnified Party(s) has been indemnified by the
Shareholder or the Company hereunder (all of which rights of subrogation are
expressly hereby irrevocably and unconditionally waived and released by the
Shareholder and the Company). Without limiting the generality of the foregoing,
it is expressly understood and agreed that the Shareholder shall not be entitled
to any indemnification, right of contribution or other right of recovery from
the Company in connection with any claim made by any Purchaser Indemnified
Party(s) against the Shareholder hereunder, all of which are hereby irrevocably
and unconditionally waived and released by the Shareholder. No Purchaser
Indemnified Party shall be required to make any claim against any other person
or entity or to take any other action in order to pursue any claim against the
Shareholder or the Company.
9.5 VALIDITY. The indemnification agreements provided for in
this Section IX shall apply notwithstanding any investigation made at any time
by or on behalf of any party hereto.
9.6 TIME PERIODS FOR REPRESENTATION AND WARRANTY
INDEMNIFICATIONS. The representations and warranties contained in or made
pursuant to this Agreement shall expire on the second anniversary of the
Closing, provided that the representations and warranties contained in Section
3.11 hereunder shall survive for the applicable statute of limitations and the
representations and warranties contained in Section 3.4, and all covenants and
agreements hereunder shall survive indefinitely, and provided further that if
written notice is properly given under this Section IX with respect to any
alleged breach or inaccuracy of a representation or warranty to which such party
is entitled to be indemnified hereunder prior to the applicable expiration date,
such representation or warranty shall continue indefinitely until the applicable
claim is finally resolved.
9.7 LIMITS ON INDEMNIFICATION. Subject to the final sentence
of this Section 9.7, no Purchaser Indemnified Party and no Shareholder
Indemnified Party shall be entitled to indemnification pursuant to Section
9.1(ii) (other than with respect to a breach of any representation and warranty
contained in Section 3.10(a) and 3.11 hereof with respect to which the
limitation in this Section 9.7 shall not apply) or Section 9.2(ii) respectively,
hereof unless and until the aggregate amount of all Damages sustained or
incurred by all Purchaser Indemnified Parties and all Shareholder Indemnified
Parties, as the case may be, to which the indemnity set forth in Section 9.1(ii)
or Section 9.2(ii), respectively, relates exceeds an aggregate amount (the
"Basket Amount") equal to $50,000. If such Damages exceed the Basket Amount,
then the Purchaser's liability for indemnification under Section 9.2(ii) and the
aggregate liability of the Company and the Shareholder for indemnification under
Section 9.1(ii), as the case may be, shall be limited to the amount of such
Damages sustained or incurred which exceeds the Basket Amount for all Damages in
excess of such amount.
<PAGE> 28
23
SECTION X.
NON-COMPETITION AGREEMENT
10.1 SOLICITATION OF EMPLOYEES. Prior to the Closing Date,
neither the Company nor the Shareholder nor any of their respective affiliates
will, directly or indirectly, through any agent or otherwise, solicit the
employment of any of the employees of the Company or discourage any such
employees from remaining employed with the Company after the Closing.
10.2 NONCOMPETITION. The Shareholder hereby covenants and
agrees, for the benefit of the Purchaser and the Company and each of its
successors and assigns, that neither of them nor any of their affiliates will,
during the period commencing on the Closing Date and ending on the third
anniversary of the Closing Date:
(a) engage, directly or indirectly, whether as principal,
consultant, manager, operator, licensor, lessor, joint venturer, employee,
partner, agent, stockholder, limited partner or other investor or owner (other
than an investment of not more than one percent (1%) of the stock or equity of
any corporation the capital stock of which is listed on a national securities
exchange or whose stock is regularly traded in the over-the-counter market), in
any activity or business venture which is in competition with the Purchaser or
the Company or any other member of the Purchaser Group engaged in the Business
or any similar line of business, including, without limitation, any activity or
business venture which involves the sale, lease, license or other transfer of
any proprietary software or other intellectual property of any kind to any
person or entity engaged in the Business or any similar line of business; or
(b) use, divulge or transfer to any person, partnership,
corporation or other entity any trade secrets, customer lists or other
confidential or proprietary information with respect to the Purchaser, the
Company or the Business or any other member of the Purchaser Group; or
(c) directly or indirectly, through any agent or otherwise,
solicit or entice or endeavor to solicit or entice the employment of any person
who is or was an employee of the Purchaser or any other member of the Purchaser
Group at any time during the period commencing on the date hereof and ending on
the third anniversary of the Closing Date, either for its or his own account or
for any individual, firm, corporation or other entity.
Notwithstanding the foregoing, and subject to the terms and
conditions of the Employment Agreement, nothing herein shall be deemed to
prevent the Shareholder during the three-year period commencing on the Closing
Date from working as an educator, or from investing as an equity holder in an
entity that provides education, provided that any and all such activities or
entities do not compete with, or are not in competition with, the Purchaser or
its subsidiaries or their respective businesses.
10.3 EQUITABLE RELIEF. In the event of a breach or threatened
breach of any of the provisions of this Section X, the Shareholder hereby
consents and agrees that the Purchaser shall be entitled to an injunction or
similar equitable relief from any court of competent jurisdiction restraining
such person from committing or continuing any such breach or threatened
<PAGE> 29
24
breach or granting specific performance of any act required to be performed by
such person under any of such provisions, without the necessity of showing any
actual damage or that money damages would not afford an adequate remedy and
without the necessity of posting any bond or other security. Nothing herein
shall be construed as prohibiting the Purchaser from pursuing any other remedies
at law or in equity which it may have.
The parties hereto agree that if in any proceeding the court
or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
SECTION XI.
MISCELLANEOUS
11.1 NOTICES. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopy, sent by Federal
Express or other nationally recognized overnight carrier, or sent by registered
or certified mail, postage prepaid, as follows:
(1) If to the Shareholder:
1409 Players Club Circle
Gulf Breeze, Florida 32561
Telecopy No.: (850) 934-5301
with a copy to:
Clark, Partington, Hart, Larry,
Bond, Stackhouse & Stone
One Pensacola Plaza, Suite 800
125 West Romana Street
Pensacola, Florida 32591-3010
Attention: Robert D. Hart, Jr., Esq.
Telecopy No.: (850) 432-7340
(2) If to the Purchaser:
Ramsay Health Care, Inc.
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: Chief Executive Officer
Telecopy No.: (305) 567-1169
<PAGE> 30
25
with copies to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Joseph J. Romagnoli, Esq.
Telecopy No.: (212) 682-0200
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, telecopied or by overnight courier, and three (3) business
days after the date of mailing, if mailed by certified mail, return receipt
requested.
11.2 ENTIRE AGREEMENT. This Agreement (including Annex A, the
Exhibits and Schedules hereto) and the documents referred to herein contain the
entire agreement among the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral, of the parties,
including, without limitation, the letter of intent dated August 18, 1998
between the Company, the Shareholder, and Ramsay, and no amendment or
modification hereof shall be effective unless in writing and signed by the party
against which it is sought to be enforced.
11.3 FURTHER ASSURANCES. The Shareholder, on the one hand, and
the Purchaser, on the other hand, shall use such party's best efforts to take
such actions as may be necessary or reasonably requested by the other to carry
out and consummate the transactions contemplated by this Agreement. In addition,
without limiting the generality of the foregoing, the Shareholder covenants and
agrees that, at the request of the Purchaser, the Shareholder shall fully
cooperate with and assist the Purchaser and its representatives (including,
without limitation, its counsel and independent auditors) in connection with any
audit or other matter relating to the Financial Statements or other financial
statements or the books and records relating thereto or to the operation of the
Business, including, without limitation, so that financial statements (including
financial statements relating to the Business) can be presented in conformity
with the accounting rules of Regulation S-X or otherwise in connection with the
preparation of any and all Tax Returns by the Purchaser, the Company or any
other member of the Purchaser Group, for any period (or portion thereof) ending
on or before (or including) the Closing Date or in connection with any Tax
audit, examination or proposed or final assessment or the like (including
without limitation any Tax claim) relating to any aspect of the Company or the
Business, and the Shareholder will make available and provide the Purchaser and
its representatives (including, without limitation, counsel and independent
auditors) with access to all of the Shareholder's books and records relating to
any aspect of the Company or the Business, including but not limited to all
information, files, documents and records (written and computer) (including the
Shareholder's personal files and tax returns and work papers) relating to any
aspect of the Company or the Business for any and all periods ending prior to or
including the Closing Date.
11.4 EXPENSES. Except as specifically set forth herein, each
of the parties hereto shall bear such party's own expenses in connection with
this Agreement and the transactions contemplated hereby whether or not the
Closing occurs, except that the Shareholder
<PAGE> 31
26
shall pay any and all out-of-pocket costs and expenses incurred by the Company
and/or the Shareholder on or prior to the Closing Date (including, without
limitation, all legal, accounting and other professional fees and expenses) in
connection with the sale of the Shares and the other transactions contemplated
hereby (it being understood and agreed that such out-of-pocket costs and
expenses shall not include salaries of the employees of the Company).
11.5 INJUNCTIVE RELIEF. (a) Notwithstanding the provisions of
Section 11.6 hereof, in the event of a breach or threatened breach by the
Shareholder of the provisions of Section 5.3 or Section X of this Agreement or
in the event of a breach or threatened breach by the Shareholder or the Company
of any of their other obligations hereunder, including, without limitation, the
Company's and the Shareholder's obligations to close the transactions
contemplated hereby, each of the Shareholder and the Company hereby consents and
agrees that the Purchaser shall be entitled to an injunction or similar
equitable relief restraining the Shareholder or the Company from committing or
continuing any such breach or threatened breach or granting specific performance
of any act required to be performed by the Shareholder or the Company under any
such provision, without the necessity of showing any actual damage or that money
damages would not afford an adequate remedy and without the necessity of posting
any bond or other security.
(b) The parties hereto hereby consent to the jurisdiction of
the Federal courts for the Southern District of Florida for any proceedings
under this Section 11.5, and each of the Shareholder, the Company and the
Purchaser further agrees that the service of process or of any other papers upon
them or any of them by registered mail at their respective addresses set forth
herein shall be deemed good, proper and effective service upon them. The parties
hereto agree that the availability of arbitration in Section 11.6 hereof shall
not be used by any party as grounds for the dismissal of any injunctive actions
instituted by the Purchaser pursuant to this Section 11.5. Nothing herein shall
be construed as prohibiting the Purchaser from pursuing any other remedies at
law or in equity which it may have.
11.6 ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, except as provided in
Sections 2.2(b) or 11.5 hereof, be settled by arbitration in Miami, Florida by a
panel of three arbitrators in accordance with the rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof, and the
parties hereto hereby consent to the jurisdiction of the federal and state
courts in Florida for this purpose.
11.7 INVALIDITY. Should any provision of this Agreement be
held by a court or arbitration panel of competent jurisdiction to be enforceable
only if modified, such holding shall not affect the validity of the remainder of
this Agreement, the balance of which shall continue to be binding upon the
parties hereto with any such modification to become a part hereof and treated as
though originally set forth in this Agreement. The parties further agree that
any such court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as
<PAGE> 32
27
modified by the arbitration panel shall be binding upon and enforceable against
each of them. In any event, should one or more of the provisions of this
Agreement be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
hereof, and if such provision or provisions are not modified as provided above,
this Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been set forth herein.
11.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
Company and the Purchaser, respectively, and the legal representatives and heirs
of the Shareholder. This Agreement shall not be assignable by any of the parties
hereto, except that the Purchaser may assign any of its rights or interests
hereunder (a) to one or more members of the Purchaser Group (b) in connection
with a sale of all or substantially all of the assets of the Purchaser or any of
its direct or indirect corporate parents, or direct or indirect consolidated
subsidiaries or (c) to any bank or other financial institution which has
extended credit to any member of the Purchaser Group. Neither the Company nor
the Shareholder may assign any of their respective rights, interests or
obligations under this Agreement. Any attempted assignment in violation of this
Section 11.8 shall be null and void.
11.9 GOVERNING LAW. The validity of this Agreement and of any
of its terms or provisions, as well as the rights and duties of the parties
under this Agreement, shall be construed pursuant to and in accordance with the
laws of the State of Florida, without regard to the conflicts of laws provisions
thereof.
11.10 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11.11 KNOWLEDGE. Whenever used in this Agreement, the words
"to the knowledge of the Company," "to the knowledge of the Shareholder," "to
the best knowledge of the Shareholder" or similar words or phrases shall mean
the actual knowledge or awareness of the Company or the Shareholder, it being
understood and agreed that such knowledge or awareness of the Company or the
Shareholder, for purposes hereof, shall also be attributed to the other.
11.12 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS,
SCHEDULES, ETC. All covenants hereunder shall be given independent effect so
that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a default if such action is taken or condition exists. In
addition, all representations and warranties hereunder shall be given
independent effect so that if a particular representation or warranty proves to
be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached will
not affect the incorrectness of or a breach of a representation and warranty
hereunder. Section references in the Schedules refer to the specific Section of
the Agreement with respect to which the Company or the Shareholder are making a
disclosure. A disclosure under one Section referenced in the Schedule relates
only to the Section of the Agreement referenced, and not to any other Section of
the Agreement,
<PAGE> 33
28
unless expressly so stated, or a cross-reference is made from one Section of the
Schedule to another Section of the Schedule.
11.13 INTERPRETATION. The parties hereto agree that this
Agreement is the product of negotiations between sophisticated parties and
individuals, all of whom were represented by counsel, and each of whom had an
opportunity to participate in, and did participate in, the drafting of each
provision hereof. Accordingly, ambiguities in this Agreement, if any, shall not
be construed strictly or in favor of or against any party hereto but rather
shall be given a fair and reasonable construction without regard to the rule of
contra proferentum.
11.14 GENDER AND NUMBER. All pronouns used herein shall be
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity or number of the person, persons, entity or entities may require.
11.15 HEADINGS. The headings to the Sections of this Agreement
have been inserted solely for convenience of reference and shall not modify,
define or limit the express provisions of this Agreement.
* * *
<PAGE> 34
29
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
THE RADER GROUP, INC., A FLORIDA
CORPORATION
By:
---------------------------------
Name: Bill T. Rader
Title: President
THE RADER GROUP, INC., A COLORADO
CORPORATION
By:
---------------------------------
Name: Bill T. Rader
Title: President
------------------------------------
Bill T. Rader
RAMSAY EDUCATIONAL SERVICES, INC.
By:
---------------------------------
Name: Marcio Cabrera
Title: Vice President
<PAGE> 35
ANNEX A
INDEX OF DEFINITIONS
Certain Definitions. The following terms when used herein
shall have the meanings assigned to them below (certain other terms are defined
elsewhere in the Agreement):
"Additional Subsidiary" shall mean any entity acquired,
incorporated or formed as a direct or indirect subsidiary of the Purchaser after
the Closing Date, which entity's results of operations are to be included in the
calculation of EBITDA for any applicable period with the written consent of the
Shareholder, which consent shall not be unreasonably withheld or delayed.
"Balance Sheet" shall have the meaning set forth in Section
3.5(a) hereof.
"Balance Sheet Date" shall mean the date of the Balance Sheet.
"Benefit Plans" shall have the meaning set forth in Section
3.15 hereof.
"Business" shall have the meaning set forth in the recitals
hereof.
"Closing" shall have the meaning set forth in Section 6.1
hereof.
"Closing Date" shall have the meaning set forth in Section 6.1
hereof.
"Closing Purchase Price" shall have the meaning set forth in
Section 2.1 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company" shall have the meaning set forth in the recitals
hereof and shall mean and include each of RGIF and RGIC individually and
collectively.
"Company Indebtedness" shall mean all obligations and
liabilities created, issued or incurred by the Company for borrowed money,
including without limitation, bank loans, mortgages, notes payable, capital
lease obligations, guarantees of indebtedness of others, and all principal,
interest, fees, prepayment penalties or other amounts due or owing with respect
thereto.
"Contracts" shall have the meaning set forth in Section
3.13(a) hereof, and shall also include all School Contracts for all purposes
hereof.
"Damages" shall mean any and all losses, claims, assessments,
demands, damages, liabilities, obligations, costs and expenses, including
without limitation, reasonable fees and disbursements of counsel sustained or
incurred by the Purchaser Indemnified Parties (or any of them) or the
Shareholder Indemnified Parties (or any of them), as the case may be, in any
action, dispute, claim or proceeding between any of the Purchaser Indemnified
Parties, on the one hand, and any of the Shareholder Indemnified Parties, on the
other hand, or involving a
<PAGE> 36
2
third-party claim against any of the Purchaser Indemnified Parties or any of the
Shareholder Indemnified Parties, as the case may be, and other out-of-pocket
costs and expenses incurred in connection with investigating, preparing or
defending any action, suit or proceeding, commenced or threatened, or any claim
whatsoever.
"Debt Documents" shall mean all agreements, promissory notes,
security instruments and other documents to which the Company or any of the
assets or properties of the Company is subject to or bound and which relate to
Company Indebtedness.
"Debt Holder" shall mean each holder of Company Indebtedness.
"Dispute Notice" shall have the meaning set forth in Section
2.2(b) hereof.
"Disputed Matters" shall have the meaning set forth in Section
2.2(b)(ii) hereof.
"Dispute Notice" shall have the meaning set forth in Section
2.2(b)(ii) hereof.
"Dispute Period" shall have the meaning set forth in Section
2.2(b)(ii) hereof.
"Earn Out Payments" shall mean the First Earn Out Payment, the
Second Earn Out Payment, the Third Earn Out Payment and the Fourth Earn Out
Payment.
"EBITDA" shall mean the aggregate amount of consolidated net
income or net loss of the Purchaser, the Company and any Additional Subsidiary
for the applicable 12-month or other period determined in accordance with GAAP
(A) before the deduction of interest expenses paid or accrued by the Purchaser
and its subsidiaries with respect to such period, (B) before the deduction of
income and excess profits taxes of or attributable to the Purchaser and its
subsidiaries paid or accrued by the Purchaser and its subsidiaries with respect
to such period, (C) before the deduction of depreciation and amortization of
goodwill of the Purchaser and its subsidiaries for such period, (D) before the
deduction of management or similar fees paid to Ramsay or any of its affiliates
by the Purchaser and its subsidiaries, (E) before the deduction of any loss
arising from sales by the Purchaser or any of its subsidiaries of fixed assets
and investments and before the inclusion of any gains arising from sales by the
by the Purchaser or any of its subsidiaries of fixed assets and investments,
with all items referred to in subsections (A) through (E) in this definition
determined in accordance with GAAP; provided, however, it is understood and
agreed that (i) EBITDA shall be determined after the deduction of all the
Purchaser's share of allocated expenses for corporate overhead for expenses for
unaffiliated third-party services (e.g., insurance expenses, legal and
accounting expenses, payroll services, etc.) and (ii) solely with respect to the
period comencing on the Closing Date and ending June 30, 1999, EBITDA shall be
determined before the deduction of any net loss of the Purchaser (but not its
subsidiaries) with respect to such period.
"EBITDA Notice" shall have the meaning set forth in Section
2.2(b)(i) hereof.
"Environmental Claim" means any claim by any person or entity
alleging potential liability (including without limitation potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resource damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (A) the generation, treatment,
<PAGE> 37
3
storage, transportation or recycling of any Hazardous Substances or the
presence, or release, discharge, disposal or emission into the environment, of
any Hazardous Substances at the Premises or any Former Premises or any other
real property, whether or not presently or formerly owned or leased by the
Company or the Shareholder or (B) any violation, or alleged violation, of any
Environmental Laws.
"Environmental Laws" means all federal, state, local and
foreign laws, rules and regulations relating to pollution or protection of the
environment (including ambient air, surface water, ground eater, land surface or
subsurface strata) or any health and safety matters or the protection of human
health and safety matters or the protection of human health from environmental
hazards, including laws and regulations relating to emissions, discharges,
releases or threatened releases of Hazardous Substances, or otherwise relating
to the manufacturer, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
"Financial Statements" shall have the meaning set forth in
Section 3.5(a) hereof.
"Fifth Earn Out Payment" shall be equal to $750,000, in the
event EBITDA for the 12-month period ending June 30, 2003 equals or exceeds
$1,100,000; provided, however, that in the event that EBITDA for such period is
in excess of $880,000 but less than $1,100,000, then the Fifth Earn Out Payment
shall be equal to $600,000.
"First Earn Out Payment" shall be equal to the amount of
EBITDA for the period commencing on the Closing Date and ending on June 30, 1999
up to a maximum amount of $250,000, provided that EBITDA for such period equals
or exceeds $187,500.
"Former Premises" shall have the meaning set forth in Section
3.12(c)(iv) hereof.
"Fourth Earn Out Payment" shall be equal to $750,000, in the
event EBITDA for the 12-month period ending June 30, 2002 equals or exceeds
$1,000,000; provided, however, that in the event that EBITDA for such period is
in excess of $800,000 but less than $1,000,000, then the Fourth Earn Out Payment
shall be equal to $600,000.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean the collective reference
to any court, tribunal, government, or governmental or administrative agency,
authority or instrumentality, federal, state or local, or domestic or foreign.
"Hazardous Substances" shall have the meaning set forth in
Section 3.12(c)(ii) hereof.
"Indemnification Matter" shall have the meaning set forth in
Section 9.3(a) hereof.
"Indemnitee" shall have the meaning set forth in Section
9.3(a) hereof.
"Indemnitor" shall have the meaning set forth in Section
9.3(a) hereof.
<PAGE> 38
4
"Indemnity Notice" shall have the meaning set forth in Section
9.3(a) hereof.
"Indemnity Notice Period" shall have the meaning set forth in
Section 9.3(a) hereof.
"Information Technology" shall mean, with respect to the
Company, any and all computer software, computer firmware, computer hardware and
similar or related items of automated, computerized, or software and hardware
system(s) included in the assets and properties of the Company that are used or
relied on by the Company in the conduct of the Business.
"Liens" shall mean all liens, mortgages, charges, security
interests, covenants, easements, restrictions, adverse claims or other
encumbrances of any kind whatsoever and howsoever arising.
"Management Agreement" shall have the meaning set forth in
Section 8.9 hereof.
"Material Adverse Effect" shall mean a material adverse effect
on the businesses, properties, assets, condition (financial or other), results
of operations or prospects of the Company or any School.
"Payment Dates" shall have the meaning set forth in Section
2.2(a) hereof.
"Permits" shall have the meaning set forth in Section 3.12(b)
hereof.
"Premises" shall have the meaning set forth in Section 3.12(c)
hereof.
"Profit and Loss Statements" shall have the meaning set forth
in Section 3.5(a) hereof.
"Purchase Price" shall have the meaning set forth in Section
2.1 hereof.
"Purchaser" shall have the meaning set forth in the recitals
hereof.
"Purchaser Group" shall mean, collectively, the Purchaser and
its subsidiaries, affiliates and direct and indirect parent entities including,
without limitation, Ramsay and its subsidiaries.
"Purchaser Indemnified Parties" shall mean the Purchaser,
RGIC, RGIF and Ramsay and each of their respective employees, officers,
directors, stockholders, affiliates, agents and representatives.
"Rader Database" shall have the meaning set forth in Section
5.6 hereof.
"Ramsay" shall have the meaning set forth in Section 1.3
hereof.
"Real Property" shall have the meaning set forth in Section
3.9 hereof.
<PAGE> 39
5
"School" shall mean each of (i) Okaloosa Academy, Inc., a
Florida not-for-profit corporation ("OAI") and the charter school in Okaloosa
County, Florida (the "Okaloosa County School") owned and operated by OAI, (ii)
Rader Schools, Incorporated, a Florida not-for-profit corporation ("RSI") and
the charter school in Duval County, Florida (the "Duval County School") owned
and operated by RSI, (iii) RSI and the charter school in Orange County, Florida
(the "Orange County School") owned and operated by RSI, and (iv) RSI and the
charter school in Santa Rosa County, Florida (the "Santa Rosa County School")
owned and operated by RSI.
"School Contract" shall mean each of (i) the Charter School
Contract dated May 27, 1997 between The School Board of Okaloosa County, Florida
and OAI with respect to the Okaloosa County School, (ii) the Charter School
Application submitted January 19, 1998 by RSI for the purpose of entering into a
charter school contract with the School Board of Duval County, Florida with
respect to the Duval County School, (iii) the Agreement dated as of June 16,
1998 between the School Board of Orange County, Florida and RSI with respect to
the Orange County School, and (iv) the Charter School Contract between The
School Board of Santa Rosa County, Florida and RSI dated as of April 2, 1998
with respect to the Santa Rosa County School.
"Second Earn Out Payment" shall be equal to $500,000, in the
event EBITDA for the 12-month period ending June 30, 2000 equals or exceeds
$750,000; provided, however, that in the event that EBITDA for such period is in
excess of $562,500 but less than $750,000, then the Second Earn Out Payment
shall be equal to the product of (A) the amount of EBITDA for the 12-month
period ending June 30, 2000 divided by $750,000 multiplied by (B) $500,000.
"Shareholder" shall have the meaning set forth in the recitals
hereof.
"Shareholder Indemnified Parties" shall mean the Shareholder
and his heirs, representatives, successors, agents and representatives.
"Taxes" shall have the meaning set forth in Section 3.11(a)
hereof.
"Tax Returns" shall have the meaning set forth in Section
3.11(a) hereof.
"Third Earn Out Payment" shall be equal to $700,000, in the
event EBITDA for the 12-month period ending June 30, 2001 equals or exceeds
$900,000; provided, however, that in the event that EBITDA for such period is in
excess of $720,000 but less than $900,000, then the Third Earn Out Payment shall
be equal to $560,000.
<PAGE> 1
EXHIBIT 3.15
AGREEMENT
Agreement (the "Agreement") dated as of December 16, 1998, by
and between Ramsay Health Care, Inc., a Delaware corporation ("RHCI"), and Paul
Ramsay Holdings Pty. Limited , an Australian corporation ("Holdings" or
"Investor").
R E C I T A L S:
WHEREAS, Holdings is the owner of 142,486 shares of RHCI Class
B Preferred Stock, Series C, $1.00 par value (the "Series C Preferred Stock"),
which Series C Preferred Stock, as a result of various antidilution adjustments,
is presently convertible into 2,000,503 shares (the "First Preferred Shares") of
RHCI Common Stock, $.01 par value (the "Common Stock"); and
WHEREAS, Holdings is the owner of 100,000 shares of RHCI Class
B Preferred Stock, Series 1996, $1.00 par value (the "Series 1996 Preferred
Stock"), which Series 1996 Preferred Stock, as a result of various antidilution
adjustments, is presently convertible into 1,229,000 shares (the "Second
Preferred Shares"; and together with the First Preferred Shares, collectively,
the "Preferred Shares") of Common Stock; and
WHEREAS, Holdings desires to convert the Series C Preferred
Stock and the Series 1996 Preferred Stock into an aggregate of 3,229,503 shares
of Common Stock; and
WHEREAS, the Board of Directors of RHCI has authorized the
exchange of the Junior Subordinated Promissory Note due September 30, 2006 (the
"First Note") in the principal amount of $5,330,428 plus accrued and unpaid
interest thereon through the Closing Date (as hereinafter defined) (which at
December 16, 1998 is $92,661.76) for an aggregate number of shares of Common
Stock equal to (a) $5,423,089.76 divided by (b) an amount equal to the closing
bid price per share Common Stock on the Nasdaq Stock Market on the date hereof
that is $1.6875 per share (the "Per Share Purchase Price"), or 3,213,683 shares
of Common Stock (the "First Exchange Shares"); and
WHEREAS, the Board of Directors of RHCI has authorized the
exchange of the Junior Subordinated Promissory Note due September 30, 2005 (the
"Second Note"; and together with the First Note, collectively, the "Notes") in
the principal amount of $1,553,125 plus accrued and unpaid interest thereon
through the Closing Date (which at December 16, 1998 is $30,557.79) for an
aggregate number of shares of Common Stock equal to (a) $1,583,682.79 divided by
(b) the Per Share Purchase Price, or 938,479 shares of Common Stock (the "Second
Exchange Shares"; together with the First Exchange Shares, collectively, the
"Exchange Shares").
NOW, THEREFORE, in consideration of the foregoing, and the
mutual covenants and agreements contained herein, and for other good and
valuable
<PAGE> 2
2
consideration the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION I
ISSUANCE OF STOCK
Subject to the terms and conditions hereof, at the Closing (as
hereinafter defined), RHCI shall issue and deliver to Holdings the Preferred
Shares and the Exchange Shares.
SECTION II
REPRESENTATIONS AND WARRANTIES OF RHCI
RHCI hereby represents and warrants to the Investor, as of the
date hereof, that:
A. ORGANIZATION; GOOD STANDING. RHCI is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to own
its properties and to conduct the businesses in which it is now engaged.
B. AUTHORITY. RHCI has the corporate power and authority to
issue and deliver the Shares in accordance with the terms hereof. RHCI has taken
all necessary corporate action to duly authorize the execution and delivery of
this Agreement, the performance by it of its covenants and agreements hereunder
and the consummation by it of the transactions contemplated hereby, and this
Agreement constitutes a valid and legally binding obligation of RHCI enforceable
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors' rights or by general principles of
equity. Upon issuance and delivery of the Shares pursuant to the terms and
conditions hereof, the Shares will be validly issued, fully paid and
nonassessable shares of Common Stock.
C. NO LEGAL BAR; CONFLICTS. Neither the execution and delivery
of this Agreement by RHCI, nor the consummation by RHCI of the transactions
contemplated hereby, violates any provision of the Certificate of Incorporation
or By-Laws of RHCI or, subject to the expiration or termination of all
applicable waiting periods under the HSR Act (as hereinafter defined), any law,
statute, ordinance, regulation, order, judgment or decree of any court or
governmental agency binding on RHCI, or, subject to obtaining all necessary
lender consents, if any, conflicts with or results in any breach of any of the
terms of or constitutes a default under or results in the termination of or the
creation of any lien pursuant to the terms of any contract or agreement to which
RHCI is a party or by which RHCI or any of its assets is bound.
<PAGE> 3
3
D. CAPITALIZATION. After giving effect to the Closing and the
issuance of the Shares pursuant to this Agreement, as of the Closing Date, the
authorized capital stock of the Company consists of 31,800,000 shares, of which
(a) 30,000,000 shares consist of Common Stock, 18,808,651 of which are issued
and outstanding as of the date hereof and 26,190,316 of which shall be issued
and outstanding as of the Closing Date after giving effect to the Closing; (b)
800,000 shares consist of Class A Preferred Stock, par value $1.00 per share,
none of which are issued and outstanding as of the date hereof or as of the
Closing Date; and (c) 1,000,000 shares consist of Class B Preferred Stock, par
value $1.00 per share ("Class B Preferred Stock"), 152,231 shares of which have
been authorized and designated as "Series C," 142,486 of which are issued and
outstanding as of the date hereof and none of which shall be issued and
outstanding as of the Closing Date after giving effect to the Closing: 100,000
shares of which have been authorized and designated as "Series 1996," all of
which are issued and outstanding as of the date hereof and none of which shall
be issued and outstanding as of the Closing Dates after giving effect to the
Closing: 100,000 shares of which have been authorized and designated as "Series
1997," none of which are issued and outstanding as of the date hereof or as of
the Closing Date; and 4,000 shares of which have been authorized and designated
as "Series 1997-A," none of which are issued and outstanding as of the date
hereof or as of the Closing Date. Except as set forth on Schedule II hereto (i)
no Options or Convertible Securities (each as defined below) are authorized or
outstanding, and (ii) there is no commitment of RHCI to issue any such Options
or Convertible Securities. For purposes hereof, the term "Convertible
Securities" shall mean any evidence of indebtedness, shares or other securities
convertible into or exchangeable for shares of Common Stock, and the term
"Options" shall mean rights, options or warrants to subscribe for, purchase or
otherwise acquire shares of Common Stock or Convertible Securities.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to RHCI, as of the
date hereof, that:
A. AUTHORITY. Such Investor has the corporate power and
authority to execute and deliver this Agreement and to perform all of its
obligations hereunder, and no consent or approval of any other person or
governmental authority is required therefor. The execution and delivery of this
Agreement by such Investor, the performance by it of its covenants and
agreements hereunder and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action. This
Agreement constitutes a valid and legally binding obligation of such Investor,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application relating to or affecting the enforcement of creditors'
rights or by general principles of equity.
B. NO LEGAL BAR; CONFLICTS. Neither the execution and delivery
of this Agreement, nor the consummation by such Investor of the transactions
contemplated
<PAGE> 4
4
hereby, violates any provision of its Articles of Incorporation or By-Laws or,
subject to the expiration or termination of all applicable waiting periods under
the HSR Act, if any, law, statute, ordinance, regulation, order, judgment or
decree of any court or governmental agency binding on it, or, subject to
obtaining all necessary lender consents, if any, conflicts with or results in
any breach of any of the terms of or constitutes a default under or results in
the termination of or the creation of any lien pursuant to the terms of any
contract or agreement to which such Investor is a party or by which it or any of
its assets is bound.
C. INVESTMENT IN RHCI.
(i) the Investor understands that RHCI proposes to
issue and deliver to it the shares of Common Stock pursuant to this Agreement
without compliance with the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"); that for such purpose RHCI will rely
upon the representations and warranties of the Investor contained herein; and
that such non-compliance with registration is not permissible unless such
representations and warranties are correct.
(ii) The Investor understands that, under existing
rules of the Securities and Exchange Commission (the "SEC"), it may be unable to
sell the shares of Common Stock except to the extent they may be sold (i)
pursuant to an effective registration statement covering the such shares
pursuant to the Securities Act and applicable state securities laws or an
applicable exemption therefrom or (ii) in a bona fide private placement to a
purchaser who shall be subject to the same restrictions on any resale or (iii)
subject to the restrictions contained in Rule 144 under the Securities Act
("Rule 144").
(iii) The Investor is familiar with the provisions of
Rule 144 and the limitations upon the availability and applicability of such
rule.
(iv) The Investor is a sophisticated investor
familiar with the type of risks inherent in the acquisition of restricted
securities such as the Common Stock and its financial position is such that it
can afford to retain such securities for an indefinite period of time without
realizing any direct or indirect cash return on its investment.
(v) The Investor has such knowledge and experience in
financial, tax and business matters so as to enable it to utilize the
information made available to it in connection with the issuance of the Common
Stock to it and to evaluate the merits and risks of an investment in the Common
Stock and to make an informed investment decision with respect thereto.
(vi) The Investor is acquiring the Common Stock as an
investment for its sole account, and without any present view towards the sale
or other distribution thereof.
(vii) The Investor is an "accredited investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
<PAGE> 5
5
SECTION IV
CONDITIONS TO CLOSING; EFFECTIVE DATE
1.A. CONDITIONS TO OBLIGATIONS OF RHCI TO CLOSING. The
obligations of RHCI to consummate the closing of the transactions contemplated
by the Agreement shall be subject to the satisfaction of each and every one of
the following conditions, on or before the Closing Date (as hereinafter
defined), all or any of which may be waived, in whole or in part, by RHCI:
(i) REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Investor contained in this Agreement shall
be true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such time.
(ii) DELIVERIES. The Investor shall have made or
stand willing and able to make all the deliveries to RHCI set forth in Section
V(1)(B) hereof.
(iii) NO ACTION OR OTHER PROCEEDING PENDING. No
action, proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain, prohibit or obtain substantial damages in
respect of, or which is related to, or arises out of, this Agreement or the
consummation of the transaction contemplated hereby.
B. CONDITIONS TO OBLIGATIONS OF THE INVESTOR TO CLOSING. The
obligations of the Investor to consummate the closing of the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each and every one of the following conditions, all
or any of which may be waived, in whole or in part, by the Investor:
(i) REPRESENTATIONS AND WARRANTIES. All
representations and warranties of RHCI contained in this Agreement shall be true
and correct in all material respects at and as of the Closing Date as though
such representations and warranties were made at and as of such time.
(ii) DELIVERIES. RHCI shall have made or stand
willing and able to make all the deliveries to the Investor set forth in Section
V(1)(C) hereof.
(iii) NO ACTION OR OTHER PROCEEDING PENDING. No
action, proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any court, governmental agency or
legislative body to enjoin, restrain, prohibit or obtain substantial damages in
respect of, or which is related to, or arises out of, this Agreement or the
consummation of the transaction contemplated hereby.
<PAGE> 6
6
SECTION V
CLOSING AND CLOSING DELIVERIES
1.A. CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall occur on December 16, 1998 (the "Closing
Date"), and shall be held at the offices of the Corporation set forth in Section
VI below, commencing at 10:00 a.m. local time, or at such other time and place
as RHCI and the Investor may mutually agree.
B. DELIVERIES BY THE INVESTOR. Subject to the terms and
conditions hereof, on the Closing Date Holdings shall deliver to RHCI:
(a) certificates representing the Series C
Preferred Stock and the Series 1996
Preferred Stock, and each of the Notes,
all for cancellation; and
(b) such other certificates or documents as
may be reasonably requested by RHCI.
C. DELIVERIES BY RHCI. Subject to the terms and conditions
hereof, on the Closing Date, RHCI shall deliver to Holdings:
(a) certificates registered in the name of
Holdings and representing the Shares;
and
(b) such certificates or documents as may be
reasonably requested by the Investor
SECTION VI
MISCELLANEOUS
A. NOTICES. All notices, requests or instructions hereunder
shall be in writing and delivered personally or sent by registered or certified
mail, postage prepaid, or sent via facsimile transmission as follows:
(1) if to RHCI:
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: President
Telecopier: (305) 569-4647
Telephone: (305) 569-6993
(2) if to the Investor:
154 Pacific Highway
St. Leonards NSW 2065
<PAGE> 7
7
Australia
Attention: Paul J. Ramsay
Telecopier: 011-612-94-333-460
Telephone: 011-612-94-333-444
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, two days after the date of mailing, if mailed, or on the day
of transmission, if sent via facsimile provided telephonic confirmation of
receipt is obtained promptly after completion of transmission.
B. SURVIVAL OF REPRESENTATIONS. Each representation, warranty,
covenant and agreement of the parties hereto herein contained shall survive the
execution of this Agreement, notwithstanding any investigation at any time made
by or on behalf of any party hereto.
C. ENTIRE AGREEMENT. This Agreement and the documents referred
to herein contain the entire agreement between the parties hereto with respect
to the transactions contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
D. ASSIGNMENT. This Agreement shall not be assignable by RHCI,
or the Investor except pursuant to a writing executed by each of the parties
hereto; provided, however, that the Investor may assign this Agreement to any
corporation or other entity directly or indirectly controlled by Paul J. Ramsay
and provided further that any party hereto may assign this Agreement and its
rights hereunder to any bank or other financial institution as collateral
security in connection with any lending transaction.
E. INVALIDITY, ETC. If any provision of this Agreement, or the
application of any such provision to any person or circumstance, shall be held
invalid by a court of competent jurisdiction, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those as to which it is held invalid, shall not be affected thereby.
F. EXPENSES. Each of the parties hereto shall bear such
party's own expenses in connection with this Agreement and the transactions
contemplated hereby.
G. HEADINGS; GENDER. The headings of this Agreement are for
convenience of reference only and are not part of the substance of this
Agreement. In this Agreement references to a particular gender shall include the
other genders as the context requires.
H. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
<PAGE> 8
8
I. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable in the
case of agreements made and to be performed entirely within such State.
J. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * *
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
RAMSAY HEALTH CARE, INC.
By:
------------------------------------
Name: Luis E. Lamela
Title: Chief Executive Officer
PAUL RAMSAY HOLDINGS PTY. LIMITED
By:
------------------------------------
Name: Peter J. Evans
Title: Director
<PAGE> 1
EXHIBIT 10.131
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This First Amendment to Loan and Security Agreement (this "AMENDMENT")
is entered into as of the 19th day of March, 1999, among RAMSAY YOUTH SERVICES,
INC., a Delaware corporation, f/k/a RAMSAY HEALTH CARE, INC. ("HOLDINGS"), with
its principal place of business at Columbus Center, One Alhambra Plaza, Suite
750, Coral Gables, Florida 33134, each of the Subsidiaries of Holdings party to
this Amendment and listed in EXHIBIT B to the Loan Agreement referred to below
(the "HOLDINGS SUBSIDIARIES"), each of which is a corporation or other legal
entity as indicated in EXHIBIT B, is organized under the laws of the
jurisdiction indicated in EXHIBIT B, and has its principal place of business at
the location indicated in EXHIBIT B (Holdings, the Holdings Subsidiaries, and
each other Subsidiary of Holdings or of any Subsidiary of Holdings from time to
time party to the Loan Agreement referred to below are hereinafter collectively
referred to as "BORROWERS" and each individually as a "BORROWER"), and THE RADER
GROUP, INCORPORATED, a Florida corporation ("RADER"), RAMSAY YOUTH SERVICES
PUERTO RICO, INC., a Puerto Rico corporation ("RYSPR") and FLEET CAPITAL
CORPORATION, a Rhode Island corporation (in its individual capacity, "FCC"),
with offices at 2711 North Haskell Avenue, Suite 2100, LB 21, Dallas Texas
75204, as a Lender, and as agent for all Lenders, in such capacity, "AGENT"),
and such Persons who are or hereafter become parties to the Loan Agreement as
Lenders. Capitalized terms used but not defined in this Amendment have the
meanings assigned to them in Appendix A of that certain Loan and Security
Agreement dated October 30, 1998, among Borrowers, Lenders and Agent (the "LOAN
AGREEMENT").
W I T N E S S E T H:
WHEREAS, an Event of Default is in existence under the Loan Agreement
as a result of Holdings' failure to comply with the financial covenants in
Sections 8.3.1, 8.3.2 and 8.3.3 of the Loan Agreement for the fiscal quarter
ending on December 31, 1998 (the "Existing Event of Default"), and Borrowers
have requested that Agent and Lenders waive the Existing Event of Default;
WHEREAS, Ramsay Youth Services, Inc., a Delaware corporation ("RYS"),
merged with and into Ramsay Health Care, Inc. ("RHC"), and RHC, as the surviving
entity, has changed its name to Ramsay Youth Services, Inc.; and
WHEREAS, Ramsay Educational Services, Inc. ("RESI") entered into that
certain Stock Purchase Agreement, dated as of November 19, 1998, with Bill T.
Rader, The Rader Group, Incorporated, a Colorado corporation ("RADER-COLORADO"),
and Rader, pursuant to which RESI acquired all of the issued and outstanding
capital stock of Rader and Rader-Colorado; and
WHEREAS, Rader-Colorado merged with and into Rader;
Page 1
<PAGE> 2
WHEREAS, RYSPR is a subsidiary of Holdings; and
WHEREAS, Borrowers have requested that the Loan Agreement be amended
(i) to reflect the change of RHC's name to Ramsay Youth Services, Inc., (ii) to
add Rader and RYSPR as Guarantors, and (iii) to amend certain defined terms
relating to the financial covenants and certain other terms; and
WHEREAS, subject to the terms and conditions herein contained, Agent
and Lenders have agreed to the Borrowers' requests.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrowers, Agent and Lenders hereby agree as follows:
SECTION 1. Subject to the satisfaction of each condition precedent set
forth in SECTION 3 hereof and in reliance on the representations, warranties,
covenants and agreements contained in this Amendment, the Loan Agreement shall
be amended effective March __, 1999 (the "EFFECTIVE DATE") in the manner
provided in this SECTION 1:
1.1 REPRESENTATIONS AND WARRANTIES AND COVENANTS. Section 7.1, Section
8.1 and Section 8.2 of the Loan Agreement and the definition of "Restricted
Investment" in Appendix A are amended by deleting the word "Borrower" where it
appears in each such Section and definition and inserting the word "Loan Party"
in place thereof.
1.2 AMENDED DEFINITIONS. The definitions contained in APPENDIX A to the
Loan Agreement shall be amended as follows:
1.2.1 ADJUSTED NET EARNINGS FROM OPERATIONS (OR LOSS). The
definition of "Adjusted Net Earnings from Operations (or Loss)" shall
be amended to re-letter subparagraph (xi) as subparagraph (xii) and add
the following new subparagraph (xi):
(xi) 1998 year-end accruals arising from asserted
purchase price adjustments related to the West Virginia
University Hospital Sale and the Charter Sale; and
1.2.2 AGREEMENT. The definition of Agreement shall be amended
to read in its entirety as follows:
AGREEMENT - the Loan and Security Agreement referred
to in the first sentence of this APPENDIX A, all EXHIBITS
thereto and this APPENDIX A, all as amended by the First
Amendment to the Loan and Security Agreement, dated as of
March __, 1999, and as further amended, renewed, extended, and
restated from time to time.
Page 2
<PAGE> 3
1.2.3 INTEREST COVERAGE RATIO. The definition of Interest
Coverage Ratio shall be amended to read in its entirety as follows:
INTEREST COVERAGE RATIO - with respect to any period
of determination, the ratio of (1) EBITDA for such period to
(ii) cash interest expenses for such period, all as determined
in accordance with GAAP; PROVIDED, HOWEVER cash interest
expenses shall not include a payment of $239,777 to General
Electric Capital Corporation in October, 1998.
1.3 ADDITIONAL DEFINITIONS. Appendix A to the Loan Agreement shall be
amended to add the following definitions to such Appendix:
CHARTER SALE - means the sale by Holdings to Charter
Behavioral Health Systems, L.L.C. and affiliates of Holdings'
contract management business and Bayou Oaks, Coastal Carolina,
The Haven and Desert Vista psychiatric hospitals and certain
transitional care units and other assets pursuant to that
certain Purchase Agreement and purchase and sale contracts of
even date therewith between Holdings and Charter Behavioral
Health Systems, L.L.C. and the other parties thereto dated as
of June 24, 1998, as amended by Amendment No. 1 dated as of
September 30, 1998.
WEST VIRGINIA UNIVERSITY HOSPITALS SALE - means the
sale by Holdings to West Virginia University Hospitals, Inc.
of Chestnut Ridge Hospital and other assets pursuant to that
certain Asset Purchase Agreement between Holdings, Psychiatric
Institute of West Virginia, Inc. and West Virginia University
Hospitals, Inc. dated as of July 1, 1998, as amended by
Amendment No. 1 dated as of September 30, 1998.
1.4 AMENDMENT TO EXHIBITS. Exhibits B, D through G, J through M, P, and
V to the Loan Agreement shall be amended in their entirety by substituting the
attached Exhibits B, D through G, J through M, P, and V.
1.5 CHANGE OF BORROWER NAME. All references to "Holdings" in the Loan
Documents shall be deemed to mean Ramsey Youth Services, Inc.
SECTION 2. WAIVER. Agent and Lenders hereby waive the Existing Event of
Default. This is a limited waiver and shall not be deemed to constitute a waiver
of any other Event of Default or any future breach of the Loan Agreement or any
of the other Loan Documents.
SECTION 3. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENTS. The
amendments to the Loan Agreement contained in SECTION 1 of this Amendment shall
be effective only upon the satisfaction of each of the conditions set forth in
this SECTION 3. If each condition set forth in this SECTION 3 has not been
satisfied by March __, 1999, this Amendment and all obligations of Lenders
contained herein shall, at the option of Lenders, terminate.
Page 3
<PAGE> 4
3.1 DOCUMENTATION. Agent and Lenders shall have received, in form and
substance acceptable to Agent and Lenders and their counsel a duly executed copy
of this Amendment, that certain Security Agreement by and among Rader and RYSPR
in favor of Agent for the benefit of Lenders dated the date hereof, that certain
Guaranty by and among Rader and RYSPR in favor of Agent for the benefit of
Lenders dated the date hereof, that certain Pledge Agreement by and between
Ramsay Educational Services, Inc. and Agent for the benefit of Lenders dated the
date hereof, that certain Pledge Amendment by Holdings dated the date hereof,
amending that certain Pledge Agreement between Holdings and Agent for the
benefit of Lenders dated October 30, 1998, and any other Loan Documents together
with such additional documents, instruments and certificates as Agent and
Lenders and their counsel shall require in connection therewith from time to
time, all in form and substance satisfactory to Agent and Lenders and their
counsel.
3.2 CORPORATE EXISTENCE AND AUTHORITY. Agent and Lenders shall have
received such resolutions, certificates and other documents as Agent and Lenders
shall request relative to the authorization, execution and delivery by
Borrowers, Rader and RYSPR of this Amendment.
3.3 NO DEFAULT. No Default or Event of Default shall exist, other than
the Existing Event of Default which is waived pursuant to this Amendment.
3.4 NO LITIGATION. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Amendment, the Agreement or the consummation of the transactions contemplated
hereby.
3.5 PERFECTION OF LIENS IN COLLATERAL. Agent and Lenders shall have
received such financing statements on Form UCC-1 or Form UCC-3 (or any other
form required by Agent and Lenders) as Agent and Lenders shall require which
shall be duly executed and delivered by the appropriate Loan Party.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER. To induce Agent
and Lenders to enter into this Amendment, Borrowers, Rader and RYSPR each hereby
represent and warrant to Agent and Lenders as follows:
4.1 REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each
representation and warranty of any Loan Party contained in the Loan Agreement
and the other Loan Documents, as amended hereby, is true and correct on the date
hereof and will be true and correct after giving effect to the amendments set
forth in SECTION 1 hereof.
4.2 CORPORATE AUTHORITY; NO CONFLICTS. The execution, delivery and
performance by Borrowers, Rader and RYSPR of this Amendment and all documents,
instruments and agreements contemplated herein are within each such Loan Party's
corporate powers, have been duly authorized by necessary action, require no
action by or in respect of, or filing with, any court or agency of
Page 4
<PAGE> 5
government and do not violate or constitute a default under any provision of
applicable Law or any material agreement binding upon any Loan Party or result
in the creation or imposition of any Lien upon any of the assets of any Loan
Party except as permitted in the Loan Agreement, as amended hereby.
4.3 ENFORCEABILITY. This Amendment constitutes the valid and binding
obligation of Borrowers, Rader and RYSPR enforceable in accordance with its
terms, except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditor's rights generally, and (ii) the
availability of equitable remedies may be limited by equitable principles of
general application.
4.4 NO DEFENSES. No Loan Party has any defenses to payment,
counterclaims or rights of set off with respect to the Obligations.
SECTION 5. MISCELLANEOUS.
5.1 REAFFIRMATION OF LOAN DOCUMENTS; EXTENSION OF LIENS. Any and all of
the terms and provisions of the Loan Agreement and the Loan Documents shall,
except as amended and modified hereby, remain in full force and effect.
Borrowers hereby extend the Liens securing the Obligations until the Obligations
have been paid in full, and agree that the amendments and modifications herein
contained shall in no manner affect or impair the Obligations or the Liens
securing the payment and performance thereof.
5.2 PARTIES IN INTEREST. All of the terms and provisions of this
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
5.3 LEGAL EXPENSES. The Loan Parties hereby agree to pay promptly
following receipt of an invoice detailing all reasonable fees and expenses of
counsel to Lender incurred by Lender, in connection with the preparation,
negotiation and execution of this Amendment and all related documents.
5.4 COUNTERPARTS. This Amendment may be executed in counterparts, and
all parties need not execute the same counterpart. However, no party shall be
bound by this Amendment until all parties have executed a counterpart.
Facsimiles shall be effective as originals.
5.5 COMPLETE AGREEMENT. THIS AMENDMENT, THE LOAN AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Page 5
<PAGE> 6
5.6 HEADINGS. The headings, captions and arrangements used in this
Amendment are, unless specified otherwise, for convenience only and shall not be
deemed to limit, amplify or modify the terms of this Amendment, nor affect the
meaning thereof.
[SIGNATURE PAGES FOLLOW]
Page 6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers on the date and year first
above written.
BORROWERS:
RAMSAY YOUTH SERVICES, INC.
BETHANY PSYCHIATRIC HOSPITAL, INC.
BOUNTIFUL PSYCHIATRIC HOSPITAL, INC.
EAST CAROLINA PSYCHIATRIC SERVICES CORPORATION
GREAT PLAINS HOSPITAL, INC.
GULF COAST TREATMENT CENTER, INC.
HAVENWYCK HOSPITAL, INC.
H. C. CORPORATION
HSA HILL CREST CORPORATION
HSA OF OKLAHOMA, INC.
MICHIGAN PSYCHIATRIC SERVICES, INC.
RAMSAY EDUCATIONAL SERVICES, INC.
RAMSAY LOUISIANA, INC.
RAMSAY MANAGED CARE, INC.
RAMSAY YOUTH SERVICES OF ALABAMA, INC.
RAMSAY YOUTH SERVICES OF FLORIDA, INC.
RAMSAY YOUTH SERVICES OF SOUTH CAROLINA, INC.
RHCI SAN ANTONIO, INC.
TRANSITIONAL CARE VENTURES, INC.
TRANSITIONAL CARE VENTURES (TEXAS), INC.
By:
------------------------------------------
Jorge Rico
Vice President
H. C. PARTNERSHIP
By: H.C. CORPORATION, General Partner
By: HSA HILL CREST CORPORATION, General Partner
By:
------------------------------------------
Jorge Rico
Vice President
<PAGE> 8
GUARANTORS:
THE RADER GROUP, INCORPORATED,
a Florida corporation
By:
------------------------------------------
Jorge Rico
Vice President
RAMSAY YOUTH SERVICES PUERTO RICO, INC.,
a Puerto Rico corporation
By:
------------------------------------------
Jorge Rico
Vice President
<PAGE> 9
Accepted in Dallas, Texas:
FLEET CAPITAL CORPORATION
("Agent" and "Lender")
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE> 1
EXHIBIT 10.132
GUARANTY
--------
(Subsidiaries)
This GUARANTY is entered into as of the 19th day of March, 1999, by THE
RADER GROUP, INCORPORATED, a Florida corporation, and RAMSAY YOUTH SERVICES
PUERTO RICO, INC., a Puerto Rico corporation (collectively referred to herein as
"Guarantors" and, individually, as a "GUARANTOR"), in favor of and for the
benefit of FLEET CAPITAL CORPORATION, a Rhode Island corporation, as agent for
and representative of (in such capacity herein called "AGENT") the financial
institutions ("LENDERS") party to the Loan and Security Agreement (as
hereinafter defined), each of the Lenders, and their successors and assigns.
RECITALS
A. Ramsay Youth Services, Inc., f/k/a Ramsay Health Care, Inc.
("HOLDINGS") and certain subsidiaries of Holdings (together with Holdings,
collectively referred to herein as "BORROWERS" and, individually, as a
"BORROWER") have entered into that certain Loan and Security Agreement dated as
of October 30, 1998, with Agent and Lenders, as amended by that certain First
Amendment to Loan and Security Agreement dated as of March ___, 1999 (the "FIRST
AMENDMENT") (said Loan and Security Agreement, as amended, supplemented or
otherwise modified from time to time being the "LOAN AND SECURITY AGREEMENT";
capitalized terms not otherwise defined herein shall have the meaning ascribed
to such terms in the Loan and Security Agreement).
B. Each of the Guarantors is either a direct or indirect Subsidiary of
a Borrower. Guarantors will receive direct and indirect benefits from the
transactions contemplated by the Loan and Security Agreement in an amount at
least equal to the obligations of Guarantors under this Guaranty, and the Loans
to the Borrowers pursuant to the Loan and Security Agreement will produce direct
financial benefits to the Guarantors.
C. It is a condition precedent to the First Amendment and making of
Loans under the Loan and Security Agreement that Borrowers' obligations
thereunder be guaranteed by Guarantors and that the respective obligations of
Guarantors under the Guaranty be secured by the Security Agreement of even date
herewith (the "SECURITY AGREEMENT"), executed by Guarantors in favor of Agent
for the benefit of Lenders.
D. Guarantors each are willing irrevocably and unconditionally to
guaranty such obligations of any Borrower subject to the terms and provisions
hereof.
NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
in order to induce Lenders to enter into the Loan and Security Agreement and to
make the Loans thereunder, each Guarantor hereby agrees as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Guaranty, the following
terms shall have the following meanings unless the context otherwise requires:
Page 1
<PAGE> 2
"GUARANTEED OBLIGATIONS" has the meaning assigned to that term
in subsection 2.1.
"GUARANTY" means this Guaranty dated as of March ___, 1999, as
it may be amended, supplemented or otherwise modified from time to
time.
"PAYMENT IN FULL" or "PAID IN FULL" means the final and
indefeasible payment in full in cash or such other type of payment or
satisfaction as Agent may approve.
1.2 INTERPRETATION.
(a) References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Guaranty unless
otherwise specifically provided.
(b) In the event of any conflict or inconsistency between the
terms, conditions and provisions of this Guaranty and the terms,
conditions and provisions of the Loan and Security Agreement, the
terms, conditions and provisions of this Guaranty shall prevail.
SECTION 2. THE GUARANTY
2.1 GUARANTY OF THE GUARANTEED OBLIGATIONS. Subject to the provisions
of subsection 2.2(a), Guarantors hereby, jointly and severally, irrevocably and
unconditionally guaranty, each as a primary obligor and not merely as a surety,
the due and punctual payment in full of all Guaranteed Obligations when the same
shall become due, whether at stated maturity, by required prepayment,
acceleration, demand or otherwise (including amounts that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. Section 362(a)), as amended. The term "GUARANTEED OBLIGATIONS"
is used herein in its most comprehensive sense and includes any and all
Obligations of any Loan Party now or hereafter made, incurred or created,
whether absolute or contingent (including contingent obligations in respect of
underwriters of credit or any other Guaranty), liquidated or unliquidated,
whether due or not due, and however arising under or in connection with the Loan
and Security Agreement and the other Loan Documents, including those arising
under successive borrowing transactions under the Loan and Security Agreement
which shall either continue the Obligations of any Borrower or from time to time
renew them after they have been satisfied.
2.2 LIMITATION ON AMOUNT GUARANTEED; CONTRIBUTION BY GUARANTORS. (a)
Anything contained in this Guaranty to the contrary notwithstanding, the
obligations of each Guarantor hereunder shall be limited to a maximum aggregate
amount equal to the largest amount that would not render its obligations
hereunder subject to avoidance as a fraudulent transfer or conveyance under
Section 548 of Title 11 of the United States Code, as amended, or any applicable
provisions of comparable state law (collectively, the "FRAUDULENT TRANSFER
LAWS"), in each case after giving effect to all other liabilities of Guarantors,
contingent or otherwise, that are relevant under the Fraudulent Transfer laws
(specifically excluding, however, any liabilities of any Guarantor (x) in
respect of intercompany indebtedness to any Borrower or other Affiliates of
Borrower to the extent that such indebtedness would be discharged in an amount
equal to the amount paid by such Guarantor hereunder and (y) under any guaranty
of Subordinated Debt which guaranty contains a limitation as to maximum amount
similar to that set forth in this subsection 2.2(a), pursuant to which the
liability of any Guarantor hereunder is included in the liabilities taken into
account in determining such maximum amount) and after giving effect as assets to
the value (as determined under the applicable provisions of the Fraudulent
Transfer laws) of any rights to subrogation or contribution of Guarantors
pursuant to (i) applicable law or (ii) any agreement
Page 2
<PAGE> 3
providing for an equitable allocation among Guarantors and other Affiliates of
any Borrower of obligations arising under guaranties by such parties.
(b) Guarantors under this Guaranty, and each guarantor under other
guaranties, if any, relating to the Loan and Security Agreement (the "RELATED
GUARANTIES") which contain a contribution provision similar to that set forth in
this subsection 2.2(b), together desire to allocate among themselves
(collectively, the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner,
their obligations arising under this Guaranty and the Related Guaranties.
Accordingly, in the event any payment or distribution is made by any Guarantor
under this Guaranty or a guarantor under a Related Guaranty (a "FUNDING
GUARANTOR") that exceeds its Fair Share (as defined below), that Funding
Guarantor shall be entitled to a contribution from each of the other
Contributing Guarantors in the amount of such other Contributing Guarantor's
Fair Share Shortfall (as defined below), with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments (as
defined below) to equal its Fair Share. "FAIR SHARE" means, with respect to a
Contributing Guarantor as of any date of determination, an amount equal to (i)
the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to
such Contributing Guarantor to (y) the aggregate of the Adjusted Maximum Amounts
with respect to all Contributing Guarantors, MULTIPLIED BY (ii) the aggregate
amount paid or distributed on or before such date by all Funding Guarantors
under this Guaranty and the Related Guaranties in respect of the obligations
guarantied. "FAIR SHARE SHORTFALL" means, with respect to a Contributing
Guarantor as of any date of determination, the excess, if any, of the Fair Share
of such Contributing Guarantor over the Aggregate Payments of such Contributing
Guarantor. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Contributing
Guarantor as of any date of determination, the maximum aggregate amount of the
obligations of such Contributing Guarantor under this Guaranty and the Related
Guaranties, determined in accordance with subsection 2.2(a) or, if applicable, a
similar provision contained in a Related Guaranty; PROVIDED that, solely for
purposes of calculating the "ADJUSTED MAXIMUM AMOUNT" with respect to any
Contributing Guarantor for purposes of this subsection 2.2(b), the assets or
liabilities arising by virtue of any rights to or obligations of contribution
hereunder or under any similar provision contained in a Related Guaranty shall
not be considered as assets or liabilities of such Contributing Guarantor.
"AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any
date of determination, the aggregate amount of all payments and distributions
made on or before such date by such Contributing Guarantor in respect of this
Guaranty and the Related Guaranties (including, without limitation, in respect
of this subsection 2.2(b) or any similar provision contained in a Related
Guaranty). The amounts payable as contributions hereunder and under similar
provisions in the Related Guaranties shall be determined as of the date on which
the related payment or distribution is made by the applicable Funding Guarantor.
The allocation among Contributing Guarantors of their obligations as set forth
in this subsection 2.2(b) or any similar provision contained in a Related
Guaranty shall not be construed in any way to limit the liability of any
Contributing Guarantor hereunder or under a Related Guaranty. Each Contributing
Guarantor under a Related Guaranty is a third party beneficiary to the
contribution agreement set forth in this subsection 2.2(b).
2.3 LIABILITY OF EACH GUARANTOR ABSOLUTE. Each Guarantor agrees that
its obligations hereunder are, joint and several, irrevocable, absolute,
independent and unconditional and shall not be affected by any circumstance
which constitutes a legal or equitable discharge of a guarantor or surety other
than payment in full of the Guaranteed Obligations. In furtherance of the
foregoing and without limiting the generality thereof, each Guarantor agrees as
follows:
(a) This Guaranty is a guaranty of payment when due and not
of collectibility.
Page 3
<PAGE> 4
(b) Agent may enforce this Guaranty upon the occurrence of an
Event of Default under the Loan and Security Agreement notwithstanding
the existence of any dispute between Lenders and any Borrower with
respect to the existence of such Event of Default.
(c) The obligations of each Guarantor hereunder are
independent of the obligations of each Borrower under the Loan
Documents and the obligations of any other guarantor of the obligations
of each Borrower under the Loan Documents, and a separate action or
actions may be brought and prosecuted against Guarantors or any of them
whether or not any action is brought against any Borrower or any of
such other guarantors and whether or not each Borrower is joined in any
such action or actions.
(d) Any Guarantor's payment of a portion, but not all, of the
Guaranteed Obligations shall in no way limit, affect, modify or abridge
such Guarantor's liability for any portion of the Guaranteed
Obligations which has not been paid. Without limiting the generality of
the foregoing, if Agent is awarded a judgment in any suit brought to
enforce any Guarantor's covenants to pay a portion of the Guaranteed
Obligations, such judgment shall not be deemed to release any Guarantor
from its covenant to pay the portion of the Guaranteed Obligations that
is not the subject of such suit.
(e) Subject to the terms of the Loan and Security Agreement,
Agent or any Lender, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability
of this Guaranty or giving rise to any reduction, limitation,
impairment, discharge or termination of any Guarantor's liability
hereunder, at any time and from time to time, may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the
time, place, manner or terms of payment of the Guaranteed Obligations,
(ii) settle, compromise, release or discharge, or accept or refuse any
offer of performance with respect to, or substitutions for, the
Guaranteed Obligations or any agreement relating thereto and/or
subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the
Guaranteed Obligations and take and hold security for the payment of
this Guaranty or the Guaranteed Obligations; (iv) release, surrender,
exchange, substitute, compromise, settle, rescind, waive, alter,
subordinate or modify, with or without consideration, any security for
payment of the Guaranteed Obligations, any other guaranties of the
Guaranteed Obligations, including, without limitation, any Related
Guaranties or any other obligation of any Person with respect to the
Guaranteed Obligations; (v) enforce and apply any security now or
hereafter held by or for the benefit of Agent or any Lender in respect
of this Guaranty or the Guaranteed Obligations and direct the order or
manner of sale thereof, or exercise any other right or remedy that
Agent or Lenders, or any of them, may have against any such security,
as Agent in its discretion may determine consistent with the Loan and
Security Agreement and any applicable security agreement, including
foreclosure on any such security pursuant to one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable, and even though such action operates to impair
or extinguish any right of reimbursement or subrogation or other right
or remedy of any Guarantor against any Borrower or any security for the
Guaranteed Obligations; and (vi) exercise any other rights available to
it under the Loan Documents.
(f) This Guaranty and the obligations of Guarantors hereunder
shall be valid and enforceable and shall not be subject to any
reduction, limitation, impairment, discharge or termination for any
reason (other than payment in full of the Guaranteed Obligations),
including without limitation
Page 4
<PAGE> 5
the occurrence of any of the following, whether or not Guarantors shall
have had notice or knowledge of any of them: (i) any failure or
omission to assert or enforce or agreement or election not to assert or
enforce, or the stay or enjoining, by order of court, by operation of
law or otherwise, of the exercise or enforcement of, any claim or
demand or any right, power or remedy (whether arising under the Loan
Documents, at law, in equity or otherwise) with respect to the
Guaranteed Obligations or any agreement relating thereto, or with
respect to any other guaranty of or security for the payment of the
Guaranteed Obligations; (ii) any rescission, waiver, amendment or
modification of, or any consent to departure from, any of the terms or
provisions (including without limitation provisions relating to events
of default) of the Loan and Security Agreement, any of the other Loan
Documents or any agreement or instrument executed pursuant thereto, or
of any other guaranty or security for the Guaranteed Obligations, (iii)
the Guaranteed Obligations, or any agreement relating thereto, at any
time being found to be illegal, invalid or unenforceable in any
respect; (iv) the application of payments received from any source
(other than payments received pursuant to the other Loan Documents or
from the proceeds of any security for the Guaranteed Obligations,
except to the extent such security also serves as collateral for
indebtedness other than the Guaranteed Obligations and such payments
are applied to such other indebtedness) to the payment of indebtedness
other than the Guaranteed Obligations, even though Agent or Lenders, or
any of them, might have elected to apply such payment to any part or
all of the Guaranteed Obligations; (v) any Lender's or Agent's consent
to the change, reorganization or termination of the corporate structure
or existence of any Borrower or any of its Subsidiaries and to any
corresponding restructuring of the Guaranteed Obligations; (vi) any
failure to perfect or continue perfection of a security interest in any
collateral which secures any of the Guaranteed Obligations; (vii) any
defenses, set-offs or counterclaims which any Borrower may allege or
assert against Agent or any Lender in respect of the Guaranteed
Obligations, including but not limited to failure of consideration,
breach of warranty, statute of frauds, statute of limitations, accord
and satisfaction and usury; and (viii) any other act or thing or
omission, or delay to do any other act or thing, which may or might in
any manner or to any extent vary the risk of any Guarantor as obligor
in respect of the Guaranteed Obligations.
2.4 WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the
benefit of Lenders and Agent:
(a) any right to require Agent or any Lender, as a condition
of payment or performance by any Guarantor, to (i) proceed against any
Borrower, any other guarantor of the Guaranteed Obligations or any
other Person, (ii) proceed against or exhaust any security held from
any Borrower, any other guarantor of the Guaranteed Obligations or any
other Person, (iii) proceed against or have resort to any balance of
any deposit account or credit on the books of Agent or any Lender in
favor of any Borrower or any other Person, or (iv) pursue any other
remedy in the power of Agent or any Lender whatsoever;
(b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of any Borrower including,
without limitation, any defense based on or arising out of the lack of
validity or the unenforceability of the Guaranteed Obligations or any
agreement or instrument relating thereto or by reason of the cessation
of the liability of any Borrower from any cause other than payment in
full of the Guaranteed Obligations;
Page 5
<PAGE> 6
(c) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in
amount nor in other respects more burdensome than that of the
principal;
(d) any defense based upon Agent's or any Lender's errors or
omissions in the administration of the Guaranteed Obligations, except
behavior which amounts to gross negligence or willful misconduct as
determined by a court of competent jurisdiction;
(e) (i) any principles or provisions of law, statutory or
otherwise, which are or might be in conflict with the terms of this
Guaranty and any legal or equitable discharge of any Guarantor's
obligations hereunder, (ii) the benefit of any statute of limitations
affecting any Guarantor's liabilities hereunder or the enforcement
hereof, (iii) any rights to set-offs, recoupments and counterclaims,
and (iv) promptness, diligence and any requirement that Agent or any
Lender protect, secure, perfect or insure any security interest or lien
or any property subject thereto;
(f) notices, demands, presentments, protests, notices of
protest, notices of dishonor and notices of any action or inaction,
including acceptance of this Guaranty, notices of default under the
Loan and Security Agreement or any agreement or instrument related
thereto, notices of any renewal, extension or modification of the
Guaranteed Obligations or any agreement related thereto, notices of any
extension of credit to any Borrower and notices of any of the matters
referred to in subsection 2.3 and any right to consent to any thereof;
and
(g) any defenses or benefits that may be derived from or
afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms of this Guaranty.
2.5 PAYMENT BY GUARANTORS: APPLICATION OF PAYMENTS. Subject to the
provisions of subsection 2.2(a), Guarantors hereby agree, jointly and severally,
in furtherance of the foregoing and not in limitation of any other right which
Agent or any other Person may have at law or in equity against any Guarantor by
virtue hereof, that upon the failure of any Borrower to pay any of the
Guaranteed Obligations when and as the same shall become due, whether at stated
maturity, by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)),
Guarantors will forthwith pay, or cause to be paid, in cash, to Agent for the
ratable benefit of Lenders, an amount equal to the sum of the unpaid principal
amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid
interest on such Guaranteed Obligations (including, without limitation, interest
which, but for the filing of a petition in bankruptcy with respect to any
Borrower, would have accrued on such Guaranteed Obligations, whether or not a
claim is allowed against any Borrower for such interest in any such bankruptcy
proceeding) and all other Guaranteed Obligations then owed to Agent and/or
Lenders as aforesaid. All such payments shall be applied promptly from time to
time by Agent:
FIRST, to the payment of the costs and expenses of any
collection or other realization under this Guaranty and the Security
Agreement, including reasonable compensation to Agent and its agents
and counsel, and all expenses, liabilities and advances made or
incurred by Agent in connection therewith;
SECOND, to the payment of all other Guaranteed Obligations;
and
Page 6
<PAGE> 7
THIRD, after payment in full of all Guaranteed Obligations, to
the payment to Guarantors, or their successors or assigns, or to
whomsoever may be lawfully entitled to receive the same or as a court
of competent jurisdiction may direct, of any surplus then remaining
from such payments.
2.6 SUBROGATION. Until the Guaranteed Obligations shall have been paid
in full, Guarantors shall withhold exercise of (a) any right of subrogation, (b)
any right of contribution Guarantors or any of them may have against any other
guarantor of the Guaranteed Obligations, (c) any right to enforce any remedy
which Agent or any Lender now has or may hereafter have against any Borrower or
(d) any benefit of, and any right to participate in, any security now or
hereafter held by Agent or any Lender. Guarantors further agree that, to the
extent the withholding of the exercise of their rights of subrogation and
contribution as set forth herein is found by a court of competent jurisdiction
to be void or voidable for any reason, any rights of subrogation Guarantors or
any of them may have against any Borrower or against any collateral or security,
and any rights of contribution Guarantors or any of them may have against any
other guarantor, shall be junior and subordinate to any rights Agent or any
Lender may have against any Borrower, to all right, title and interest Agent or
any Lender may have in any such collateral or security, and to any right Agent
or any Lender may have against such other guarantor. Agent, on behalf of
Lenders, may use, sell or dispose of any item of collateral or security as it
sees fit without regard to any subrogation rights Guarantors or any of them may
have, and upon any such disposition or sale any rights of subrogation Guarantors
or any of them may have with respect to such sale or disposition shall
terminate. If any amount shall be paid to any Guarantors on account of such
subrogation rights at any time when all Guaranteed Obligations shall not have
been paid in full, such amount shall be held in trust for Agent on behalf of
Lenders and shall forthwith be paid over to Agent for the benefit of Lenders to
be credited and applied against the Guaranteed Obligations, whether matured or
unmatured, in accordance with the terms of the Loan and Security Agreement or
any applicable security agreement.
2.7 SUBORDINATION OF OTHER OBLIGATIONS OF BORROWERS. Any indebtedness
of any Borrower now or hereafter held by any Guarantor is hereby subordinated in
right of payment to the Guaranteed Obligations, provided prior to an Event of
Default, Guarantors may receive ordinary course or regularly scheduled payments
of such indebtedness. Any such indebtedness of any Borrower to any Guarantor
collected or received by such Guarantor after an Event of Default has occurred
and is continuing shall be held in trust for Agent on behalf of Lenders and
shall forthwith be paid over to Agent for the benefit of Lenders to be credited
and applied against the Guaranteed Obligations but without affecting, impairing
or limiting in any manner the liability of Guarantors under any other provision
of this Guaranty.
2.8 EXPENSES. Each Guarantor, jointly and severally, agrees to pay, or
cause to be paid, and to save Agent and Lenders harmless against liability for,
any and all reasonable costs and expenses (including reasonable fees and
disbursements of counsel and allocated costs of internal counsel) incurred or
expended by Agent or any Lender in connection with the enforcement of or
preservation of any rights under this Guaranty.
2.9 CONTINUING GUARANTY. This Guaranty is a continuing guaranty and
shall remain in effect until all of the Guaranteed Obligations shall have been
paid in full and the Revolving Credit Loan and Acquisition Loan Commitments
shall have terminated.
2.10 FINANCIAL CONDITION OF BORROWERS. Any Loans may be granted to any
Borrower or continued from time to time without notice to or authorization from
Guarantors regardless of the financial or other
Page 7
<PAGE> 8
condition of any Borrower at the time of any such grant or continuation. Lenders
and Agent shall have no obligation to disclose or discuss with any Guarantor
their assessment, or any Guarantor's assessment, of the financial condition of
any Borrower. Guarantors have adequate means to obtain information from each
Borrower on a continuing basis concerning the financial condition of each
Borrower and its ability to perform its obligations under the Loan Documents,
and Guarantors assume the responsibility for being and keeping informed of the
financial condition of each Borrower and of all circumstances bearing upon the
risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives
and relinquishes any duty on the part of Agent or any Lender to disclose any
matter, fact or thing relating to the business, operations or conditions of each
Borrower now known or hereafter known by Agent or any Lender.
2.11 RIGHTS CUMULATIVE. The rights, powers and remedies given to
Lenders and Agent by this Guaranty are cumulative and shall be in addition to
and independent of all rights, powers and remedies given to Lenders and Agent by
virtue of any statute or rule of law or in any of the other Loan Documents or
any agreement between any Guarantor and Lenders and/or Agent or between
Borrowers and Lenders and/or Agent. Any forbearance or failure to exercise, and
any delay by any Lender or Agent in exercising, any right, power or remedy
hereunder shall not impair any such right, power or remedy or be construed to be
a waiver thereof, nor shall it preclude the further exercise of any such right,
power or remedy.
2.12 BANKRUPTCY: POST-PETITION INTEREST: REINSTATEMENT OF GUARANTY.
(a) So long as any Guaranteed Obligations remain outstanding,
no Guarantor shall, without the prior written consent of Agent in
accordance with the terms of the Loan and Security Agreement, commence
or join with any other Person in commencing any bankruptcy,
reorganization or insolvency proceedings of or against any Borrower.
The obligations of each Guarantor under this Guaranty shall not be
reduced, limited, impaired, discharged, deferred, suspended or
terminated by any proceeding, voluntary or involuntary, involving the
bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of any Borrower or by any defense which any Borrower may
have by reason of the order, decree or decision of any court or
administrative body resulting from any such proceeding.
(b) Guarantors acknowledge and agree that any interest on any
portion of the Guaranteed Obligations which accrues after the
commencement of any proceeding referred to in clause (a) above (or, if
interest on any portion of the Guaranteed Obligations ceases to accrue
by operation of law by reason of the commencement of said proceeding,
such interest as would have accrued on such portion of the Guaranteed
Obligations if said proceedings had not been commenced) shall be
included in the Guaranteed Obligations because it is the intention of
Guarantors and Agent that the Guaranteed Obligations which are
guaranteed by Guarantors pursuant to this Guaranty should be determined
without regard to any rule of law or order which may relieve any
Borrower of any portion of such Guaranteed Obligations. Guarantors will
permit any trustee in bankruptcy, receiver, debtor in possession,
assignee for the benefit of creditors or similar person to pay Agent,
or allow the claim of Agent in respect of, any such interest accruing
after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed
Obligations are paid by any Borrower, the obligations of each Guarantor
hereunder shall continue and remain in full force and effect or be
reinstated, as the case may be, in the event that all or any part of
such payment(s) are rescinded or recovered directly or indirectly from
Lender as a preference, fraudulent transfer or
Page 8
<PAGE> 9
otherwise, and any such payments which are so rescinded or recovered
shall constitute Guaranteed Obligations for all purposes under this
Guaranty.
2.13 NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge
thereof, and to the extent a Borrower who had such knowledge would be required
to do so under any Loan Document, such Guarantor shall give Agent written notice
of any condition or event which has resulted or might reasonably be expected to
result in (a) a material adverse change in the financial condition of any
Guarantor or any Borrower, or (b) a breach of or noncompliance with any term,
condition or covenant contained herein or in the Loan and Security Agreement,
any other Loan Document or in any document delivered pursuant hereto or thereto,
or (c) a material breach of, or material noncompliance with, any material term,
condition or covenant of any material contract to which any Guarantor or any
Borrower are a party or by which any Guarantor or any Borrower or any
Guarantor's or any Borrower's property may be bound.
2.14 SET OFF. In addition to any other rights any Lender or Agent may
have under law or in equity, if any amount shall at any time be due and owing by
any Guarantor to Agent under this Guaranty, such Lender or Agent is authorized
at any time or from time to time, without notice (any such notice being hereby
expressly waived), to set off and to appropriate and to apply any and all
deposits (general or special, including but not limited to indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness of any Lender or Agent owing to such Guarantor and any other
property of such Guarantor held by any Lender or Agent to or for the credit or
the account of such Guarantor against and on account of the Guaranteed
Obligations and liabilities of such Guarantor to any Lender or Agent under this
Guaranty. After exercising any right to set off, appropriate or apply any
deposits or other indebtedness of any Guarantor, the Agent or Lender exercising
such right shall endeavor to provide notice of such set off, appropriation or
application to such Guarantor promptly, but any failure to do so shall not
affect the validity of any such set off, appropriation or application.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and Agent to accept this Guaranty and to
enter into the Loan and Security Agreement and to make the Loans thereunder,
Guarantors hereby, jointly and severally, represent and warrant to Lenders and
Agent that the following statements are true and correct:
3.1 CORPORATE EXISTENCE. Each Guarantor is duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
has the corporate power to own its assets and to transact the business in which
it is now engaged and is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification.
3.2 CORPORATE POWER: AUTHORIZATION: ENFORCEABLE OBLIGATIONS. Each
Guarantor has the corporate power, authority and legal right to execute, deliver
and perform this Guaranty, the Security Agreement and all other Loan Documents
to which such Guarantor is a party (all such agreements herein collectively
referred to as the "GUARANTOR AGREEMENTS") and all obligations required under
the Guarantor Agreements and has taken all necessary corporate action to
authorize the Guarantor Agreements on the terms and conditions of such
agreements and its execution, delivery and performance of the Guarantor
Agreements and all obligations required under such agreements. No consent of any
other Person including, without limitation, stockholders and creditors of any
Guarantor, and no license, permit, approval or authorization of, exemption by,
notice or
Page 9
<PAGE> 10
report to, or registration, filing or declaration with, any governmental
authority is required by any Guarantor in connection with the Guarantor
Agreements or the execution, delivery, performance, validity or enforceability
of the Guarantor Agreements and the obligations required under such agreements
except for (i) such consents which have been validly obtained, or (ii) in the
case of any leasehold interest of any Guarantor, such Guarantor has used
commercially reasonable efforts to obtain any such consent and the failure of
any Guarantor to obtain any such consent is the result of the exercise by a
landlord of such landlord's existing contractual right to withhold such consent.
The Guarantor Agreements have been, and each instrument or document required in
connection with such agreements will be, executed and delivered by a duly
authorized officer of each Guarantor, and the Guarantor Agreements constitute,
and each instrument or document required in connection therewith when executed
and delivered will constitute, the legally valid and binding obligation of
Guarantors, enforceable against Guarantors in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws or equitable
principles relating to or limiting creditors' rights generally.
3.3 NO LEGAL BAR TO THIS GUARANTY. The execution, delivery and
performance of the Guarantor Agreements and the documents or instruments
required in connection therewith, and the use of the proceeds of the borrowings
under the Loan and Security Agreement, will not violate any provision of any
existing law or regulation binding on any Guarantor, or any order, judgment,
award or decree of any court, arbitrator or governmental authority binding on
any Guarantor, or the certificate of incorporation or bylaws of any Guarantor or
any securities issued by any Guarantor, or any mortgage, indenture, lease,
contract or other agreement, instrument or undertaking to which any Guarantor is
a party or by which any Guarantor or any of its assets may be bound, the
violation of which would have a material adverse effect on the business,
operations, assets or financial condition of any Guarantor and will not result
in, or require, the creation or imposition of any Lien on any of its property,
assets or revenues pursuant to the provisions of any such mortgage, indenture,
lease, contract or other agreement, instrument or undertaking.
3.4 BENEFIT TO GUARANTORS. Each of the Guarantors is a subsidiary of
Holdings or a subsidiary of a subsidiary of Holdings, and the respective boards
of directors and managers of each Guarantor has determined, as evidenced by
resolution duly adopted and in full force and effect on the date hereof, that
such Guarantor will receive direct and indirect benefit from the transactions
contemplated by the Loan and Security Agreement in an amount at least equal to
the obligations of Guarantors under this Guaranty, and that loans to each
Borrower produce direct financial benefits to each of the Guarantors. Therefore,
the value of the consideration received and to be received by each Guarantor as
a result of such Guarantor's entering into this Guaranty and each of the other
Loan Documents to which it is a party is reasonably worth at least as much as
the liability and obligations of Guarantors hereunder and under the other Loan
Documents to which each Guarantor is a party and such liability and obligations
have benefitted and may reasonably be expected to benefit each Guarantor
directly.
SECTION 4. COVENANTS.
Each Guarantor covenants and agrees that, unless and until all of the
Guaranteed Obligations shall have been paid in full and the Revolving Credit
Loan and Acquisition Loan Commitments shall have terminated, unless Agent shall
otherwise consent in writing:
Page 10
<PAGE> 11
4.1 CORPORATE EXISTENCE, ETC. Each Guarantor shall at all times
preserve and keep in full force and effect its corporate existence and all
rights and franchises material to its business, except as may be expressly
provided in the Loan and Security Agreement.
4.2 COMPLIANCE WITH LAWS, ETC. Each Guarantor shall comply in all
material respects with all applicable laws, rules, regulations and orders, such
compliance to include, without limitation, paying when due all taxes,
assessments and governmental charges imposed upon it or upon any of its
properties or assets or in respect of any of its franchises, businesses, income
or property before any penalty or interest accrues thereon unless such tax,
assessment or charge is being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and such Guarantor has established
such reserve or other appropriate provision, if any, as shall be required in
conformity with general accepted accounting principals; PROVIDED THAT each
Guarantor shall in any event pay such taxes, assessments and governmental
charges not later than five (5) days prior to the date of any proposed sale
under any judgment, writ or warrant of attachment entered or filed against such
Guarantor as a result of the failure to make such payment.
4.3 BOOKS AND RECORDS. Each Guarantor shall keep and maintain books of
record and account with respect to its operations in accordance with generally
accepted accounting principles and shall permit Agent or any Lender and their
respective officers, employees and authorized agents to examine, copy and make
excerpts from the books and records of Guarantors and their Subsidiaries and to
inspect the properties of Guarantors and their Subsidiaries, both real and
personal, at such reasonable times as Agent may request.
4.4 REPORTING REQUIREMENTS. Each Guarantor will assist Borrowers in
delivering the financial statements and other reports required by subsection
8.1.3 of the Loan and Security Agreement and otherwise assist Borrowers in
complying with the provisions of the Loan and Security Agreement applicable to
Guarantors.
SECTION 5. MISCELLANEOUS
5.1 SURVIVAL OF WARRANTIES. All agreements, representations and
warranties made herein shall survive the execution and delivery of this Guaranty
and the execution and delivery of the Notes.
5.2 NOTICES. Any communications between Agent and/or the Lenders and
Guarantors and any notices or requests provided herein to be given may be given
by mailing the same, postage prepaid, or by telex, facsimile transmission or
cable to each such party at its address set forth in or determined pursuant to
the Loan and Security Agreement, on the signature pages hereof or to such other
addresses as each such party may in writing hereafter indicate. Any notice,
request or demand to or upon Agent or Lenders or Guarantors shall not be
effective until received.
5.3 SEVERABILITY. In case any provision in or obligation under this
Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
5.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or
waiver of any provision of this Guaranty, or consent to any departure by any
Guarantor therefrom, shall in any event be
Page 11
<PAGE> 12
effective unless in writing and signed by Agent. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given.
5.5. HEADINGS. Section and subsection headings in this Guaranty are
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose or be given any substantive effect.
5.6 APPLICABLE LAW. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
GUARANTORS, AGENT AND LENDERS HEREUNDER AND ALL OTHER ASPECTS HEREOF SHALL BE
DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE.
5.7 SUCCESSORS AND ASSIGNS; RELIANCE BY LENDER. This Guaranty is a
continuing guaranty and shall be binding upon Guarantors and their respective
successors and assigns. This Guaranty shall inure to the benefit of Agent,
Lenders and their respective successors and assigns, including, without
limitation, any subsequent holder of all or any part of the Obligations. No
Guarantor shall assign this Guaranty nor any of the rights or obligations of
such Guarantor hereunder without the prior written consent of Agent and all
Lenders. Lender may, without notice or consent, assign its interest in this
Guaranty in whole or in part as part of a sale or other transfer of the Notes,
or any one or more of them, and/or all or any portion of its interest in the
Loans (whether by direct transfer, transfer of a participation interest, or
otherwise). The terms and provisions of this Guaranty shall inure to the benefit
of any assignee or transferee of any Note and/or any interest in any of the
Loans, and in the event of such transfer or assignment the rights and privileges
herein conferred upon Lenders and Agent shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
5.8 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST GUARANTORS OR ANY OF THEM ARISING OUT OF OR RELATING
TO THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH ANY GUARANTOR IS A PARTY
MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED
IN THE STATE OF TEXAS AND BY EXECUTION AND DELIVERY OF THIS GUARANTY GUARANTORS
ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND EACH
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY AND/OR ANY OTHER
LOAN DOCUMENT TO WHICH SUCH GUARANTOR IS A PARTY. Guarantors hereby agree that
service of process sufficient for personal jurisdiction in any action against
any Guarantor in the State of Texas may be made by registered or certified mail,
return receipt requested, to each Guarantor in accordance with subsection 5.2,
and Guarantors hereby acknowledge that such service shall be effective and
binding in every respect. Nothing herein shall affect the right to serve process
in any other manner permitted by law or shall limit the right of Agent or any
Lender to bring proceedings against any Guarantor in the courts of any other
jurisdiction.
5.9 WAIVER OF TRIAL BY JURY. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF
THE BENEFITS HEREOF, AGENT AND EACH LENDER HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
Page 12
<PAGE> 13
OUT OF THIS GUARANTY, THE SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH
ANY GUARANTOR IS A PARTY. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Guarantors and, by their acceptance of the benefits hereof,
Agent and the Lenders each (i) acknowledge that this waiver is a material
inducement for Guarantors, Agent and Lenders to enter into a business
relationship, that Guarantors, Agent and Lenders have already relied on this
waiver in entering into this Guaranty and the Security Agreement or accepting
the benefits thereof, as the case may be, and that each will continue to rely on
this waiver in their related future dealings and (ii) further warrants and
represents that each has reviewed this waiver with its legal counsel, and that
each knowingly and voluntarily waives its jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY,
THE SECURITY AGREEMENT AND ANY OTHER LOAN DOCUMENT TO WHICH ANY GUARANTOR IS A
PARTY. In the event of litigation, this Guaranty may be filed as a written
consent to a trial by the court.
5.10 NO OTHER WRITING. This writing is intended by Guarantors, Agent,
and Lenders as the final expression of this Guaranty and is also intended as a
complete and exclusive statement of the terms of their agreement with respect to
the matters covered hereby. No course of dealing, course of performance or trade
usage, and no parol evidence of any nature, shall be used to supplement or
modify any terms of this Guaranty.
There are no conditions to the full effectiveness of this Guaranty.
5.11 FURTHER ASSURANCES. At any time or from time to time, upon the
request of Agent, each Guarantor shall execute and deliver such further
documents and do such other acts and things as Agent or may reasonably request
in order to effect fully the purposes of this Guaranty.
(SIGNATURE PAGE FOLLOWS)
Page 13
<PAGE> 14
IN WITNESS WHEREOF, Guarantors have executed this Guaranty by their
duly authorized officer as of the date first above written.
THE RADER GROUP, INCORPORATED,
a Florida corporation
By:
---------------------------------------
Jorge Rico
Vice President
Address: One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Telecopy No.: 305-569-4647
RAMSAY YOUTH SERVICES PUERTO RICO, INC.,
a Puerto Rico corporation
By:
---------------------------------------
Jorge Rico
Vice President
Address: One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Telecopy No.: 305-569-4647
Accepted by:
FLEET CAPITAL CORPORATION,
a Rhode Island corporation
By:
Name:
-------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.133
SECURITY AGREEMENT
------------------
(Subsidiaries)
THIS SECURITY AGREEMENT (the "Agreement") dated as of March 19, 1999,
is made and entered into by and among The Rader Group, Incorporated, a Florida
corporation ("RADER"), and Ramsay Youth Services Puerto Rico, Inc., a Puerto
Rico corporation ("RYSPR"; together with Rader, collectively referred to herein
as "DEBTORS" and, individually, as a "DEBTOR"), in favor of and for the benefit
of FLEET CAPITAL CORPORATION, a Rhode Island corporation, as a Lender, and as
agent for all Lenders (in such capacity herein called "AGENT"), and such Persons
who are or hereafter become parties to the hereinafter defined Loan and Security
Agreement as Lenders.
RECITALS
1. Ramsay Youth Services, Inc., f/k/a Ramsay Health Care, Inc., a
Delaware corporation ("HOLDINGS"), certain Subsidiaries of Holdings (together
with Holdings, collectively referred to herein as "BORROWERS" and, individually,
as a "BORROWER"), Lenders and Agent entered into that certain Loan and Security
Agreement dated as of October 30, 1998, as amended by that certain First
Amendment to Loan and Security Agreement dated March ___, 1999 (the "FIRST
AMENDMENT") (said Loan and Security Agreement, as amended, supplemented or
otherwise modified from time to time being the "Loan and Security Agreement";
capitalized terms defined therein and not otherwise defined herein being used
herein as therein defined);
2. Each Debtor is either a direct or indirect Subsidiary of Holdings.
As such, each of the Debtors will receive direct and indirect economic benefits
from the consummation of the transactions contemplated by the Loan and Security
Agreement;
3. Pursuant to the terms of that certain Guaranty of even date herewith
executed by Debtors to and in favor of Agent (the "Guaranty"), each Debtor has,
jointly and severally, guaranteed the prompt payment and performance of the
obligations of Borrowers under the Loan and Security Agreement; and
4. It is a condition precedent to the First Amendment and making of
Loans and the issuance of Letters of Credit and LC Guaranties under the Loan and
Security Agreement that Debtors shall have executed and delivered this
Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and to issue Letters of Credit and LC Guaranties under the
Loan and Security Agreement, Debtors hereby agree with Agent for its benefit and
the benefit of Lenders as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. Terms defined in the Loan and Security
Agreement and not otherwise defined herein have the respective meanings provided
for in the Loan and Security Agreement. The following terms, as used herein,
have the meanings set forth below:
"ACCOUNTS" has the meaning provided for in the Loan and Security
Agreement.
Page 1
<PAGE> 2
"CLAIMS" has the meaning provided for in the Loan and Security
Agreement, except that it shall apply to Claims of each Debtor for purposes
hereof.
"COLLATERAL" has the meaning provided for in Section 2 hereof.
"COLLATERAL ACCOUNT" has the meaning assigned to that term in
Section 7.
"COPYRIGHT LICENSE" means any written agreement now or hereafter in
existence granting to any Debtor any right to use any Copyright (excluding any
such agreement if and to the extent that any attempt to grant a security
interest hereunder in any such agreement without the consent of a third party
would constitute a breach thereof or such consent has not been obtained by such
Debtor) including, without limitation, the agreements described in Schedule 1 of
the Copyright Security Agreement.
"COPYRIGHTS" means collectively all of the following: (a) all
copyrights, rights and interests in copyrights, works protectable by copyright,
copyright registrations and copyright applications now owned or hereafter
created or acquired by any Debtor, including, without limitation, those listed
on Schedule l of the Copyright Security Agreement; (b) all renewals of any of
the foregoing; (c) all income, royalties, damages and payments now or hereafter
due and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing.
"COPYRIGHT SECURITY AGREEMENT" means the copyright security agreement
to be executed and delivered by Debtors to Agent, substantially in the form of
Exhibit A, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"DOCUMENTS" means all "documents" (as defined in the UCC) or other
receipts covering, evidencing or representing goods now owned or hereafter
acquired by any Debtor.
"EQUIPMENT" has the meaning provided for in the Loan and Security
Agreement, except that it shall apply to Equipment of each Debtor for purposes
hereof.
"FIXTURES" means all "Fixtures" (as defined in the UCC) now owned or
hereafter acquired by any Debtor including, without limitation, all plant
Fixtures; business Fixtures; other Fixtures and storage office facilities,
wherever located; and all additions and accessions thereto and replacements
therefor.
"GENERAL INTANGIBLES" has the meaning provided for in the Loan and
Security Agreement, except that it shall apply to General Intangibles of each
Debtor for purposes hereof.
"GUARANTEED OBLIGATIONS" has the meaning assigned to that term in the
Guaranty.
"GUARANTY" has the meaning provided for in the recitals hereto.
"INSTRUMENTS" means all "instruments", "chattel paper" or "letters of
credit" (each as defined in the UCC) including, but not limited to, promissory
notes, drafts, bills of exchange and trade acceptances, now owned or hereafter
acquired by any Debtor.
Page 2
<PAGE> 3
"INTELLECTUAL PROPERTY" shall mean collectively all of the following:
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and
Trademark Licenses.
"INVENTORY" has the meaning provided for in the Loan and Security
Agreement, except that it shall apply to Inventory of each Debtor for purposes
hereof.
"INVESTMENT PROPERTY" means all of each Debtor's investment property,
whether now owned or hereinafter acquired by any Debtor, including, without
limitation, all securities (certificated or uncertificated), securities
accounts, securities entitlements, commodity accounts and contracts.
"PATENT LICENSE" means any written agreement now or hereafter in
existence granting to any Debtor any right to use any invention on which a
Patent is in existence (excluding any such agreement if and to the extent that
any attempt to grant a security interest hereunder in any such agreement without
the consent of a third party would constitute a breach thereof and such consent
has not been obtained by such Debtor) including, without limitation, the
agreements described in Schedule 1 of the Patent Security Agreement.
"PATENTS" means collectively all of the following: (a) all patents and
patent applications now owned or hereafter created or acquired by any Debtor
including, without limitation, those listed on Schedule l of the Patent Security
Agreement and the inventions and improvements described and claimed therein, and
patentable inventions; (b) the reissues, divisions, continuations, renewals,
extensions and continuations-in-part of any of the foregoing; (c) all income,
royalties, damages or payments now and hereafter due and/or payable under any of
the foregoing with respect to any of the foregoing, including, without
limitation, damages or payments for past or future infringements of any of the
foregoing; (d) the right to sue for past, present and future infringements of
any of the foregoing; (e) all rights corresponding to any of the foregoing
throughout the world; and (f) all goodwill associated with any of the foregoing.
"PATENT SECURITY Agreement" means a patent security agreement executed
and delivered by Debtors to Agent, substantially in the form of Exhibit B, as
such agreement may be amended, supplemented or otherwise modified from time to
time.
"PROCEEDS" means all proceeds of, and all other profits, rentals or
receipts, in whatever form, arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or realization upon, any
Collateral including, without limitation, all claims of any Debtor against third
parties for loss of, damage to or destruction of, or for proceeds payable under,
or unearned premiums with respect to, policies of insurance with respect to any
Collateral, and any condemnation or requisition payments with respect to any
Collateral, in each case whether now existing or hereafter arising.
"SECURED OBLIGATIONS" has the meaning assigned to that term in
Section 3.
"SECURITY INTERESTS" means the security interests granted pursuant to
Section 2, as well as all other security interests created or assigned by any
Debtor as additional security for the Secured Obligations pursuant to the
provisions of this Agreement.
"TRADEMARK LICENSE" means any written agreement now or hereafter in
existence granting to any Debtor any right to use any Trademark (excluding any
such agreement if and to the extent that any attempt to
Page 3
<PAGE> 4
grant a security interest hereunder in any such agreement without the consent of
a third party would constitute a breach thereof and such consent has not been
obtained by such Debtor), including, without limitation, the agreements
described in Schedule 1 to the Trademark Security Agreement.
"TRADEMARKS" means collectively all of the following now owned or
hereafter created or acquired by any Debtor: (a) all trademarks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and labels on
which any of the foregoing have appeared or appear, all registrations and
recordings thereof, and all applications in connection therewith including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof,
including, without limitation, those described in Schedule 1 of the Trademark
Security Agreement; (b) all reissues, extensions or renewals thereof; (c) all
income, royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing including
damages or payments for past or future infringements of any of the foregoing;
(d) the right to sue for past, present and future infringements of any of the
foregoing; (e) all rights corresponding to any of the foregoing throughout the
world; and (f) all goodwill associated with and symbolized by any of the
foregoing.
"TRADEMARK SECURITY AGREEMENT" means the trademark security agreement
executed and delivered by Debtors to Agent substantially in the form of Exhibit
C, as such agreement may hereafter be amended, supplemented or otherwise
modified from time to time.
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, as amended from time to time, and any successor statute;
provided that if by reason of mandatory provisions of law, the perfection or the
effect of perfection or non-perfection of the Security Interest in any
Collateral is governed by the Uniform Commercial Code as in effect on or after
the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provision
hereof relating to such perfection or effect of perfection or non-perfection.
1.2 OTHER DEFINITION PROVISIONS. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations.
SECTION 2. GRANT OF SECURITY INTERESTS
To secure the prompt payment and performance to Agent and Lenders of
the Obligations, Debtors hereby grant subject to applicable Legal Requirements,
to Agent for its benefit and the ratable benefit of Lenders a continuing Lien
upon all of Debtors' assets, including all of the following Property and
interests in Property of Debtors, whether now owned or existing or hereafter
created, acquired or arising and wheresoever located (all being collectively
referred to as the "Collateral"):
(A) Claims;
(B) Accounts;
Page 4
<PAGE> 5
(C) Inventory;
(D) Equipment;
(E) General Intangibles;
(F) Investment Property;
(G) All monies and other Property of any kind now or at any time or
times hereafter in the possession or under the control of Agent or any Lender or
a bailee or Affiliate of Agent or any Lender;
(H) All accessions to, substitutions for and all replacements, products
and cash and non-cash proceeds of (A) through (G) above, including, without
limitation, proceeds of and unearned premiums with respect to insurance policies
insuring any of the Collateral; and
(I) All books and records (including, without limitation, subject to
applicable law, patient records of identify, diagnosis, evaluation or treatment,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of each Debtor pertaining to any of (A) through (H)
above.
SECTION 3. Security for Obligations
This Agreement secures the payment and performance of the Guaranteed
Obligations and all obligations of every nature of each Debtor now or hereafter
existing under this Agreement and any other Loan Documents to which Debtors or
any of them are a party and all renewals, extensions, restructurings and
refinancings of any of the above (all such debts, obligations and liabilities of
Debtors and each of them being collectively called the "Secured Obligations").
SECTION 4. Debtors Remain Liable
Anything herein to the contrary notwithstanding: (a) each Debtor shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its respective duties and
obligations thereunder to the same extent as if this Agreement had not been
executed; (b) the exercise by Agent of any of the rights hereunder shall not
release any Debtor from any of its duties or obligations under the contracts and
agreements included in the Collateral; and (c) Agent or Lenders shall not have
any obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Agent or Lenders be obligated
to perform any of the obligations or duties of any Debtor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties
In order to induce Agent and each Lender to enter into the Loan
Documents, Debtors, jointly and separately, represent and warrant to Agent and
to each Lender that the following statements are and will be true, correct and
complete:
Page 5
<PAGE> 6
5.1 LOCATION OF EQUIPMENT, FIXTURES AND INVENTORY. Except for Equipment
that is rented to customers in the ordinary course of business, all of the
Equipment and Inventory is located at the places specified in Schedule I. All
Fixtures are located at the place specified in Section B of Schedule I. Schedule
I correctly identifies the landlords or mortgagees (other than Agent), if any,
of each Debtor's respective locations identified on Schedule I. Schedule I sets
forth the names and addresses of all Persons other than Debtors who have
possession of any of the Collateral. None of the Collateral has been located in
any location within the past four months other than as set forth on Schedule I.
5.2 OWNERSHIP OF COLLATERAL. Except for the matters disclosed on
Schedule II, the Permitted Liens and the Security Interests, each Debtor owns
its respective Collateral free and clear of any Lien. No effective financing
statement or other form of lien notice covering all or any part of the
Collateral is on file in any recording office, except for those in favor of
Agent and as disclosed on Schedule II.
5.3 OFFICE LOCATIONS; FICTITIOUS NAMES. The chief executive offices and
the offices where Debtors keep their respective books and records are located at
the place or places specified in Schedule I. Schedule I sets forth all other
locations where any Debtor has a place of business. Debtors do not do business
and have not done business during the past five years from the date hereof under
any trade-name or fictitious business name except as disclosed on Schedule III.
5.4 PERFECTION. This Agreement and the Trademark Security Agreement,
the Patent Security Agreement and the Copyright Security Agreement executed
pursuant hereto create a valid and enforceable security interest in the
Collateral, securing the payment of the Secured Obligations, including, without
limitation, all future Loans pursuant to the Loan and Security Agreement and the
Notes, and all extensions, renewals and other modifications thereof. Upon the
filing of Uniform Commercial Code Financing Statements naming Debtors as debtors
and Agent as secured party in the jurisdictions set forth in Schedule IV hereto,
the delivery to Agent of all Collateral the possession of which is necessary to
perfect the security interest therein, the notation of the Agent's security
interest on all certificates of title evidencing Equipment, the release or
assignment to Agent of the security interests described on Schedule V hereto,
the Filing of the Trademark Security Agreement with the United States Patent and
Trademark Office, the Filing of the Patent Security Agreement with the United
States Patent and Trademark Office, and the Filing of the Copyright Security
Agreement with the United States Copyright Office, the security interests
created hereby shall constitute perfected, first priority security interests
upon all the Collateral (other than Trademarks and Trademark Licenses registered
in countries other than the United States) which shall be superior and prior to
the rights of all third Persons now existing or hereafter arising, except for
the Permitted Liens and the matters disclosed on Schedule II.
5.5 ACCOUNTS. Each Eligible Account constitutes the legally valid and
binding obligation of the customer obligated to pay the same. The amount
represented by Debtors to Agent as owing by each customer is the correct amount
actually and unconditionally owing, except for normal cash discounts and
allowances where applicable. To the knowledge of Debtors, no customer has any
defense, set-off, claim or counterclaim against any Debtor that can be asserted
against Agent, whether in any proceeding to enforce Agent's rights in the
Collateral or otherwise except defenses, set-offs, claims or counterclaims that
are not, in the aggregate, material to the value of the Accounts. None of the
Accounts is evidenced by a promissory note or other Instrument other than a
check or except for such Instruments delivered to the Agent as Collateral under
the terms hereof.
Page 6
<PAGE> 7
5.6 INTELLECTUAL PROPERTY. The Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks and Trademark Licenses listed on the respective
schedules to each of the Copyright Security Agreement, the Trademark Security
Agreement and the Patent Security Agreement in the forms attached hereto as
exhibits constitute all of the Intellectual Property owned and currently in use
by Debtors.
5.7 ACCURATE INFORMATION. All information heretofore, herein or
hereafter supplied to Agent by or on behalf of Debtors with respect to the
Collateral is and will be accurate and complete in all material respects.
5.8 LOAN AND SECURITY AGREEMENT WARRANTIES. Each representation and
warranty with respect to Debtors or the Collateral set forth in Section 5 of the
Loan and Security Agreement and in each of the other Loan Documents is true and
correct in all material respects and such representations and warranties are
hereby incorporated herein by this reference with the same effect as though set
forth in their entirety herein.
SECTION 6. FURTHER ASSURANCES: COVENANTS
6.1 OTHER DOCUMENTS AND ACTIONS. Each Debtor will, from time to time,
at its expense, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable, or
that Agent may reasonably request, in order to perfect and protect any Security
Interests granted or purported to be granted hereby or to enable Agent to
exercise and enforce its rights and remedies hereunder, or the rights and
remedies of any Lender, with respect to any Collateral or to carry out the
provisions and purposes hereof. Without limiting the generality of the
foregoing, each Debtor will: (a) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, and as Agent may request, in order to perfect and
preserve the Security Interests granted or purported to be granted hereby; (b)at
any reasonable time, upon demand by Agent make the Collateral available for
inspection by Agent or Persons designated by Agent as provided in the Loan and
Security Agreement; and (c) upon Agent's request, appear in and defend any
action or proceeding that may affect such Debtor's title to or Agent's Security
Interests in the Collateral. Notwithstanding the foregoing, Debtors shall not be
required to execute any document or take any action to perfect the Agent's Lien
in any foreign Intellectual Property under the laws of the applicable foreign
jurisdiction unless a Default or Event of Default shall have occurred and be
continuing and the Agent reasonable requests that such Liens be so perfected.
6.2 AGENT AUTHORIZED. Each Debtor hereby authorizes Agent to file one
or more financing or continuation statements, and amendments thereto (or similar
documents required by any laws of any applicable jurisdiction), relating to all
or any part of the Collateral without the signature of such Debtor.
6.3 CORPORATE OR NAME CHANGE. Each Debtor will notify Agent in writing
thirty (30) days prior to any change in such Debtor's name, identity or
corporate structure.
6.4 BUSINESS LOCATIONS. Debtors will keep the Collateral at the
locations specified on Schedule 1, except as permitted by Section 6.1.1 of the
Loan and Security Agreement.
6.5 THIRD PARTIES IN POSSESSION OF COLLATERAL. No Debtor shall permit
any Inventory to be held by third Persons.
Page 7
<PAGE> 8
6.6 INSTRUMENTS. Each Debtor will deliver and pledge to Agent all
Instruments duly endorsed and/or accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to Agent except
that prior to the occurrence of a Default or an Event of Default each Debtor may
retain for collection and use in the ordinary course of business any checks
representing Proceeds of Accounts received in the ordinary course of business.
Each Debtor will mark conspicuously all chattel paper with a legend, in form and
substance satisfactory to Agent, indicating that such chattel paper is subject
to the Security Interests. When all the obligations of Debtor or issuer, as
applicable, under any Instrument delivered to Agent hereunder has been satisfied
or otherwise terminated, Agent agrees to return such Instrument to the
appropriate Debtor, without recourse or warranty, duly endorsed and/or
accompanied by duly executed instruments of transfer or assignment.
6.7 CERTIFICATES OF TITLE; EQUIPMENT. Each Debtor shall promptly
deliver to Agent any and all certificates of title, applications for title or
similar evidence of ownership of all Equipment and shall cause Agent to be named
as lienholder on any such certificate of title or other evidence or ownership.
Each Debtor shall inform Agent of any additions to or deletions from the
Equipment pursuant to Section 6.4.1 of the Loan and Security Agreement and shall
not permit any such items to become Fixtures to real estate.
6.8 ACCOUNT COVENANTS. Except as otherwise provided in this subsection
6.8, each Debtor shall continue to collect, at its own expense, all amounts due
or to become due to such Debtor under the Accounts. In connection with such
collections, each Debtor may take (and, at Agent's direction, shall take) such
action as such Debtor or Agent may reasonably deem necessary or advisable to
enforce collection of the Accounts; provided, that Agent shall have the right at
any time after the occurrence and during the continuance of an Event of Default
to: (a) notify the customers or obligors under any Accounts of the assignment of
such Accounts to Agent (on behalf of Lenders) and to direct such customers or
obligors to make payment of all amounts due or to become due directly to Agent;
(b)enforce collection of any such Accounts; and (c) adjust, settle or compromise
the amount or payment of such Accounts. After the occurrence and during the
continuance of an Event of Default (i) all amounts and Proceeds (including
Instruments) received by any Debtor with respect to the Accounts shall be
received in trust for the benefit of Agent (on behalf of Lenders), shall be
segregated from other funds of such Debtor and shall be forthwith paid over to
Agent in the same form as so received (with any necessary endorsement) to be
held in the Collateral Account pursuant to Section 7 and (ii) no Debtor shall
adjust, settle or compromise the amount or payment of any Account, or release
wholly or partly any customer or obligor thereof, or allow any credit or
discount thereon (other than discounts adjustments given in the ordinary course
of business) without the prior consent of Agent, which consent shall not be
unreasonably withheld, conditioned or delayed.
6.9 INTELLECTUAL PROPERTY COVENANTS. Debtors shall, upon obtaining any
Intellectual Property, deliver to Agent the Copyright Security Agreement, the
Trademark Security Agreement and the Patent Security Agreement and all other
documents, instruments and other items as may be necessary for Agent to file
such agreements with the United States Copyright Office, the United States
Patent and Trademark Office and any similar domestic or foreign office,
department or agency except as otherwise provided in Section 6.1. If, before the
Secured Obligations are paid in full, any Debtor obtains any new Intellectual
Property or rights thereto or becomes entitled to the benefit of any
Intellectual Property which is (a) not listed on the schedules to the Copyright
Security Agreement, the Trademark Security Agreement or the Patent Security
Agreement, as the form of such agreements are attached hereto as Exhibits, and
(b) should be listed thereon to perfect or protect the Security Interest
therein, then such Debtor shall give to Agent prompt written notice thereof, and
shall amend the applicable Intellectual Property security agreement to include
any such new Intellectual Property
Page 8
<PAGE> 9
and shall deliver all other documentation and other items as may be necessary
for Agent to file such agreements with the United States Copyright Office, the
United States Patent and Trademark Office and/or any similar domestic or foreign
office, department or agency except as otherwise provided in Section 6.1. Each
Debtor shall: (a) prosecute diligently any copyright, patent, trademark or
license application at any time pending to the extent the Intellectual Property
relating to such application has a material value or is material to the conduct
of such Debtor's business; (b) make application on all new copyrights, patents
and trademarks as reasonably deemed appropriate by such Debtor; (c) preserve and
maintain all rights in the Intellectual Property to the extent such Intellectual
Property has a material value or is material to the conduct of such Debtor's
business; and (d) upon and after the occurrence of an Event of Default, use its
best efforts to obtain any consents, waivers or agreements necessary to enable
Agent to exercise its remedies with respect to the Intellectual Property. No
Debtor shall abandon any right to file a copyright, patent or trademark
application nor shall any Debtor abandon any pending copyright, patent or
trademark application, or Copyright, Copyright License, Patent, Patent License,
Trademark or Trademark License without the prior written consent of Agent (which
will not be unreasonably withheld, conditioned or delayed) or unless such
Intellectual Property has no material value and is not material to the conduct
of such Debtor's business. Debtors represent and warrant to Agent that the
execution, delivery and performance of this Agreement by Debtors will not
violate or cause a default under any of the Intellectual Property or any
agreement in connection therewith.
6.10 EQUIPMENT COVENANTS. Debtors shall cause the Equipment to be
maintained and preserved in the same condition, repair and working order as
exists on the date hereof, ordinary wear and tear excepted, and in accordance
with any manufacturer's manual, and shall promptly make or cause to be made all
repairs, replacements, and other improvements in connection therewith that are
necessary or desirable to such end.
6.11 INVENTORY COVENANTS. Debtors shall cause the Inventory to be
produced in substantial compliance with all applicable laws, rules, regulations
and governmental standards, including, without limitation, the minimum wage and
overtime provisions of the Fair Labor Standards Act, as amended (29 U.S.C.
SECTIONS 201-219), and the regulations promulgated thereunder.
6.12 COLLATERAL DESCRIPTION. Each Debtor will furnish to Agent, from
time to time, statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Agent may
reasonably request, all in reasonable detail.
6.13 USE OF COLLATERAL. Debtors will not use or permit any Collateral
to be used unlawfully or in violation of any provision of this Agreement or any
applicable statute, regulation or ordinance or any policy of insurance covering
any of the Collateral.
6.14 RECORDS OF COLLATERAL. Each Debtor shall keep full and accurate
books and records relating to its respective Collateral and shall stamp or
otherwise mark such books and records in such manner as Agent may reasonably
request indicating that the Collateral is subject to the Security Interests.
6.15 OTHER INFORMATION. Each Debtor will, promptly upon request,
provide to Agent all information and evidence it may reasonably request
concerning the Collateral, and in particular the Accounts, to enable Agent to
enforce the provisions of this Agreement.
Page 9
<PAGE> 10
SECTION 7. COLLATERAL ACCOUNT: PROCEEDS OF COLLATERAL.
7.1 CASH ACCOUNT. At the request of Agent made at any time after the
occurrence and during the continuance of an Event of Default, each Debtor shall
establish with Agent or at a bank designated by Agent a cash collateral account
(the "Collateral Account") in the name and under the control of Agent into which
there shall be deposited from time to time the cash proceeds of the Collateral
required to be delivered to Agent after the occurrence and during the
continuation of an Event of Default pursuant to subsection 7.2 or any other
provision of this Agreement. Any income received by Agent with respect to the
balance from time to time standing to the credit of the Collateral Account shall
remain, or be deposited, in the Collateral Account. All right, title and
interest in and to the cash amounts on deposit from time to time in the
Collateral Account shall vest in Agent and shall constitute part of the
Collateral.
7.2 CUSTOMER PAYMENTS: PROCEEDS OF OTHER COLLATERAL. At Agent's request
made at any time after the occurrence and during the continuance of an Event of
Default, each Debtor shall instruct its customers and other Persons obligated
with respect to all Accounts to make all payments either (a) directly to Agent
(by instructing that such payments be remitted to a post office box which shall
be in the name and under the control of Agent) or (b) to one or more other banks
in any state in the United States (by instructing that such payments be remitted
to a post office box which shall be in the name and the control of such bank)
under a Lockbox Letter substantially in the form of Exhibit D hereto duly
executed by each Debtor and the respective bank or under other arrangements, in
form and substance satisfactory to Agent, pursuant to which such Debtor shall
have irrevocably instructed such other bank (and such other bank shall have
agreed) to remit all proceeds of such payments directly to Agent for deposit
into the Collateral Account or as Agent may otherwise instruct such bank. All
such payments made to Agent shall be deposited in the Collateral Account. Any
Proceeds received by any Debtor in violation of this Section 7.2 shall be
promptly delivered to the Agent and until so delivered, all such Proceeds shall
be held in trust by such Debtor for the benefit of Agent (and on behalf of
Lenders) and shall be segregated from any other funds or property of such
Debtor.
7.3 PROCEEDS OF OTHER COLLATERAL. Each Debtor agrees that if the
Proceeds of any Collateral hereunder (other than the payments received in the
ordinary course of business in respect of Accounts) shall be received by it,
such Debtor shall as promptly as possible deliver such Proceeds to the Agent to
be held and applied to the Secured Obligations in accordance with the terms of
the Guaranty and the Loan and Security Agreement. Until so delivered, all such
Proceeds shall be held in trust by such Debtor for the benefit of Agent (on
behalf of Lenders) and shall be segregated from any other funds or property of
such Debtor.
7.4 DIRECTION TO PAY. Each Debtor hereby authorizes and directs Agent
to apply the balance from time to time outstanding in the Collateral Account to
the Secured Obligations as required pursuant to the terms of the Guaranty and
the Loan and Security Agreement.
SECTION 8. AGENT APPOINTED ATTORNEY-IN-FACT
Each Debtor hereby irrevocably appoints Agent as such Debtor's
attorney-in-fact, with full authority in the place and stead of such Debtor and
in the name of such Debtor, Agent or otherwise, from time to time after the
occurrence and during the continuation of an Event of Default, in Agent's
discretion, to take any action and to execute any instrument that Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:
(a) to obtain and adjust insurance required to be paid to
Agent;
Page 10
<PAGE> 11
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(c) to receive, endorse, and collect any drafts or other
Instruments and Documents in connection with clauses (a) and (b)above;
(d) to file any claims or take any action or institute any
proceedings that Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Agent with respect to
any of the Collateral;
(e) to pay or discharge taxes or Liens, levied or placed upon
or threatened against the Collateral, the legality or validity thereof and the
amounts necessary to discharge the same to be determined by Agent in its sole
discretion, and such payments made by Agent to become obligations of the
respective Debtor to Agent, due and payable immediately without demand;
(f) To sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and
(g) generally to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though Agent were the absolute owner thereof for all purposes, and
to do, at Agent's option and the respective Debtor's expense, at any time or
from time to time, all acts and things that Agent deems necessary to protect,
preserve or realize upon the Collateral, including, without limitation, to file
one or more financing or continuation statements, and amendments thereto (or
similar documents required by any laws of any applicable jurisdiction), relating
to all or any part of the Collateral without the signature of such Debtor.
Each Debtor hereby ratifies and approves all acts of Agent made or taken
pursuant to this Section 8. Neither Agent nor any Person designated by Agent
shall be liable for any acts or omissions or for any error of judgment or
mistake of fact or law. This power, being coupled with an interest, is
irrevocable so long as this Agreement shall remain in force.
SECTION 9. TRANSFERS AND OTHER LIENS
Except as otherwise permitted herein or by the Loan and Security
Agreement, no Debtor shall:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral; or
(b) create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the
Collateral to secure indebtedness of any Person except for the Security
Interest created by this Agreement or permitted under the Loan and
Security Agreement.
Page 11
<PAGE> 12
SECTION 10. REMEDIES
If any Event of Default shall have occurred and be continuing, Agent
may exercise in respect of the Collateral, in addition to all other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party on default under the UCC (whether or not the UCC
applies to the affected Collateral) and also may: (a) require any Debtor to, and
each Debtor hereby agrees that it will, at its expense and upon request of Agent
forthwith, assemble all or part of the Collateral as directed by Agent and make
it available to Agent at a place to be designated by Agent which is reasonably
convenient to both parties; (b) withdraw all cash in the Collateral Account and
apply such monies in payment of the Secured Obligations in the manner provided
in Section 13; (c) without notice or demand or legal process, enter upon any
premises of any Debtor and take possession of the Collateral; and (d) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of the Agent's offices or
elsewhere, at such time or times, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as Agent may deem
commercially reasonable. Each Debtor agrees that, to the extent notice of sale
shall be required by law, at least ten days notice to such Debtor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. At any sale of the Collateral, if
permitted by law, Agent may bid (which bid may be, in whole or in part, in the
form of cancellation of indebtedness) for the purchase of the Collateral or any
portion thereof for the account of Agent (on behalf of Lenders). Agent shall not
be obligated to make any sale of Collateral regardless of notice of sale having
been given. Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. To
the extent permitted by law, each Debtor hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted.
SECTION 11. LICENSE OF INTELLECTUAL PROPERTY
Each Debtor hereby assigns, transfers and conveys to Agent, effective
upon the occurrence and during the continuance of any Event of Default, the
nonexclusive right and license to use all Intellectual Property owned or used by
such Debtor together with any goodwill associated therewith, all to the extent
necessary to enable Agent to use on the Collateral and any successor or assign
to enjoy the benefits of the Collateral. This right and license shall inure to
the benefit of all successors, assigns and transferees of Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license is granted free of charge, without requirement
that any monetary payment whatsoever be made to any Debtor by Agent.
SECTION 12. LIMITATION ON DUTY OF AGENT WITH RESPECT TO COLLATERAL
Beyond the safe custody thereof, Agent shall have no duty with respect
to any Collateral in its possession or control (or in the possession or control
of any agent or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it accords its own
property. Agent shall not be liable or responsible for any loss or damage to any
of the Collateral, or for any diminution in the value thereof, by reason of the
act or omission of any warehouseman, carrier, forwarding agency, consignee or
other agent or bailee selected by Agent in good faith.
Page 12
<PAGE> 13
SECTION 13. APPLICATION OF PROCEEDS
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral and any cash held in the Collateral Account shall be applied or paid
as provided in the Loan and Security Agreement.
SECTION 14. EXPENSES
Each Debtor shall pay all insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, all costs, fees and expenses of perfecting and
maintaining the Security Interests, any and all excise, property, sales and use
taxes imposed by any federal, state, local or foreign authority on any of the
Collateral, or with respect to periodic appraisals and inspections of the
Collateral, or with respect to the sale or other disposition thereof. If any
Debtor fails to promptly pay any portion of the above expenses when due or to
perform any other obligation of such Debtor under this Agreement, Agent or any
other Lender may, at its option, but shall not be required to, pay or perform
the same and charge such Debtor's account for all costs and expenses incurred
therefor, and each Debtor agrees; jointly and severally, to reimburse Agent or
such Lender therefor on demand. All sums so paid or incurred by Agent or any
other Lender for any of the foregoing, any and all other sums for which any
Debtor may become liable hereunder and all costs and expenses (including
reasonable attorneys' fees, legal expenses and court costs) incurred by Agent or
any other Lender in enforcing or protecting the Security Interests or any of
their rights or remedies under this Agreement shall be payable on demand, shall
constitute Obligations, shall bear interest until paid at the highest rate
provided in the Loan and Security Agreement and shall be secured by the
Collateral.
SECTION 15. TERMINATION OF SECURITY INTERESTS: RELEASE OF COLLATERAL
Upon payment in full of all Secured Obligations and the termination of
all Revolving Loan and Acquisition Loan Commitments, Letters of Credit and LC
Guaranties, the Security Interests shall terminate and all rights to the
Collateral shall revert to Debtors. Upon such termination of the Security
Interests or release of any Collateral, Agent will, at the expense of Debtors,
execute and deliver to Debtors such documents as Debtors shall reasonably
request to evidence the termination of the Security Interests or the release of
such Collateral, as the case may be.
SECTION 16. NOTICES
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the notice provision of the
Guaranty.
SECTION 17. WAIVERS: NON-EXCLUSIVE REMEDIES
No failure on the part of Agent to exercise, and no delay in exercising
and no course of dealing with respect to, any power, privilege or right under
the Loan and Security Agreement or this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise by Agent of any power,
privilege or right under the Loan and Security Agreement or this Agreement
preclude any other or further exercise thereof or the exercise of any other
power, privilege or right. The powers, privileges and rights in this Agreement
and the Loan and Security Agreement are cumulative and are not exclusive of any
other remedies provided by law.
Page 13
<PAGE> 14
SECTION 18. SUCCESSORS AND ASSIGNS
This Agreement is for the benefit of Agent and Lenders and their
successors and assigns, and in the event of an assignment of all or any of the
Secured Obligations, subject to Section 8 of the Loan and Security Agreement,
the rights hereunder, to the extent applicable to the Secured Obligations so
assigned, may be transferred with such Secured Obligations. This Agreement shall
be binding on Debtors and their respective successors and assigns.
SECTION 19. CHANGES IN WRITING
No amendment, modification, termination or waiver of any provision of
this Agreement or consent to any departure by any Debtor therefrom, shall in any
event be effective without the written concurrence of Agent and such respective
Debtor and, to the extent required by the Loan and Security Agreement, the
Lenders.
SECTION 20. APPLICABLE LAW
THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL
BE DEEMED TO HAVE BEEN MADE IN DALLAS, DALLAS COUNTY, TEXAS. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY
JURISDICTION OTHER THAN TEXAS, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE
METHOD, MANNER AND PROCEDURE AND FORECLOSURE OF AGENT'S LIEN (FOR ITS BENEFIT OR
THE RATABLE BENEFIT OF LENDERS) UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
AGENT'S AND LENDERS' OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT
THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE
LAWS OF TEXAS. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND
REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF
DEBTOR, AGENT OR ANY LENDER, EACH DEBTOR HEREBY CONSENTS AND AGREES THAT THE
DISTRICT COURT OF DALLAS COUNTY, TEXAS, OR, AT AGENT'S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, SHALL HAVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY DEBTOR AND
AGENT AND/OR LENDERS PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT
OF OR RELATED TO THIS AGREEMENT. EACH DEBTOR EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH DEBTOR HEREBY WAIVES ANY OBJECTION WHICH ANY SUCH DEBTOR MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH DEBTOR HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO DEBTORS AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF ANY DEBTOR'S ACTUAL RECEIPT THEREOF OR 3 BUSINESS DAYS AFTER DEPOSIT
IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE
Page 14
<PAGE> 15
TO AFFECT THE RIGHT OF AGENT OR LENDERS TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OR LENDERS OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
SECTION 21. FAILURE OR INDULGENCE NOT WAIVER: REMEDIES CUMULATIVE
No failure or delay on the part of Agent or any Lender in the exercise
of any power, right or privilege hereunder shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or any other right, power or
privilege. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 22. HEADINGS
Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
SECTION 23. COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same agreement and any of the
parties hereto may execute this Agreement by signing any such counterpart.
SECTION 24. SUBROGATION
If any proceeds of the Notes have been used to extinguish any
indebtedness of any Debtor heretofore secured by the Collateral, then, to the
extent of the proceeds so used, Agent for the benefit of the Lenders shall be
subrogated to all of the rights, claims, liens and interests existing against
the Collateral heretofore held by or in favor of the holder of such indebtedness
and such former rights, claims, liens and interests are not waived but rather
are continued in full force and effect in favor of Agent for the benefit of the
Lenders and are merged with the security interest created herein as cumulative
security for the repayment of the Secured Obligations.
(SIGNATURE PAGE FOLLOWS)
Page 15
<PAGE> 16
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the day first above written.
DEBTORS:
THE RADER GROUP, INCORPORATED,
a Florida corporation
By:
--------------------------------
Jorge Rico
Vice President
RAMSAY YOUTH SERVICES PUERTO RICO, INC.,
a Puerto Rico corporation
By:
--------------------------------
Jorge Rico
Vice President
By:
-------------------------------
Name:
Title:
Page 16
<PAGE> 1
EXHIBIT 10.134
PLEDGE AMENDMENT
This Pledge Amendment, dated March 19, 1999, is delivered pursuant to
Section 6(b) of the Pledge Agreement referred to below. The undersigned hereby
agrees that this Pledge Amendment may be attached to the Pledge Agreement dated
as of October 30, 1998, between Ramsay Youth Services, Inc., f/k/a Ramsay Health
Care, Inc., as Pledgor, and Fleet Capital Corporation, as Secured Party (the
"Pledge Agreement"; capitalized terms defined therein being used herein as
defined therein) and that the Pledged Shares listed on this Pledge Amendment
shall be deemed to be part of the Pledged Shares and shall become part of the
Pledged Collateral and shall secure all Secured Obligations.
RAMSAY YOUTH SERVICES, INC.
By:
------------------------------------
Jorge Rico
Vice President
- --------------------------------------------------------------------------------
Stock
Class of Certificate Number
Stock Issuer Stock Numbers Par Value of Shares
- --------------------------------------------------------------------------------
Ramsay Youth
Services
Puerto Rico, Inc. common 1 $1.00 100
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.135
PLEDGE AGREEMENT
----------------
(RESI)
This PLEDGE AGREEMENT (this "Agreement") is dated as of March 19,
1999 and entered into by and between RAMSAY EDUCATIONAL SERVICES, INC., a
Delaware corporation ("Pledgor") and FLEET CAPITAL CORPORATION, a Rhode Island
corporation, as agent for and representative of (in such capacity herein called
"Secured Party") the financial institutions ("Lenders") party to the Loan and
Security Agreement referred to below.
PRELIMINARY STATEMENTS
A. Secured Party, Lenders, Borrowers and Pledgor have entered into that
certain Loan and Security Agreement dated as of October 30, 1998, as amended by
that certain First Amendment to Loan and Security Agreement dated March ___,
1999 (the "First Amendment") (said Loan and Security Agreement, as it has been
and may hereafter be amended, restated, supplemented or otherwise modified from
time to time, being the "Loan and Security Agreement"; capitalized terms not
otherwise defined herein shall have the meaning ascribed to such terms in the
Loan and Security Agreement being used herein as therein defined), pursuant to
which Lenders have made certain commitments, subject to the terms and conditions
set forth in the Loan and Security Agreement, to extend certain credit
facilities to Borrowers.
B. It is a condition precedent to the First Amendment and extensions of
credit by Lenders under the terms of the Loan and Security Agreement that
Pledgor shall have secured its obligations under the Loan and Security Agreement
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make Loans and other extensions of credit under the Loan and Security
Agreement and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Pledgor hereby agrees with Secured
Party as follows:
SECTION 1. Pledge of Security. Pledgor hereby assigns and pledges to
Secured Party for the benefit of the Lenders, and hereby grants to Secured Party
for the benefit of Lenders, a security interest in all of Pledgor's right, title
and interest in and to the following (the "Pledged Collateral"):
(a) the shares of stock described on Schedule I annexed hereto
(the "Pledged Shares") and the certificates representing the Pledged
Shares and any interest of Pledgor in the entries on the books of any
financial intermediary pertaining to the Pledged Shares, and all
dividends, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares;
(b) all additional shares of, and all securities convertible
into and warrants, options and other rights to purchase or otherwise
acquire, stock of any issuer of the Pledged Shares from time to time
acquired by Pledgor in any manner (which shares shall be deemed to be
part of the Pledged Shares), the certificates or other instruments
representing such additional shares, securities, warrants, options or
other rights and any interest of Pledgor in the entries on the books of
any financial intermediary pertaining to such additional shares, and
all dividends, cash, warrants, rights, instruments
Page 1
<PAGE> 2
and other property or proceeds from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all of
such additional shares, securities, warrants, options or other rights;
and
(c) to the extent not covered by clauses (a) through (b)
above, all general intangibles (including causes of action) relating
to, and all proceeds of, any or all of the foregoing Pledged
Collateral. For purposes of this Agreement, the term "proceeds"
includes whatever is receivable or received when Pledged Collateral or
proceeds are sold, exchanged, collected or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes,
without limitation, proceeds of any indemnity or guaranty payable to
Pledgor or Secured Party from time to time with respect to any of the
Pledged Collateral.
SECTION 2. Security for Obligations. This Agreement secures, and the
Pledged Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic stay under Section
362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), of the Obligations,
and all obligations of every nature of Pledgor now or hereafter existing under
this Agreement and any other Loan Documents to which Pledgor is a party (all
such obligations being hereinafter referred to collectively as the "Secured
Obligations").
SECTION 3. Delivery of Pledged Collateral. All certificates or
instruments representing or evidencing the Pledged Collateral shall be delivered
to and held by or on behalf of Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery or, as applicable, shall be accompanied
by Pledgor's endorsement, where necessary, or duly executed instruments of
transfer or assignment in blank substantially in the form of Schedule III
annexed hereto, all in form and substance satisfactory to Secured Party. Secured
Party shall have the right, at any time after the occurrence and during the
continuance of an Event of Default in its discretion and without notice to
Pledgor, to transfer to or to register in the name of Secured Party or any of
its nominees any or all of the Pledged Collateral, subject only to the revocable
rights specified in Section 7(a). In addition, Secured Party shall have the
right at any time to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Pledgor represents and
warrants as follows:
(a) Due Authorization. etc. of Pledged Shares. All of the
Pledged Shares have been duly authorized and validly issued and are
fully paid and non-assessable. There are no outstanding options,
subscriptions, warrants or agreements by which any Company is bound
calling for the issuance of shares of any class of its capital stock or
for the issuance of any securities, convertible or exchangeable,
actually or contingently, into shares of its capital stock.
(b) Ownership of Pledged Collateral. Pledgor is the legal,
record and beneficial owner of the Pledged Collateral free and clear of
any Lien except for the security interest created by this Agreement.
(c) Perfection; Name; Locations. The pledge of the Pledged
Collateral pursuant to this Agreement creates a valid and enforceable
security interest in the Pledged Collateral, securing the payment of
the Secured Obligations. Upon the delivery to Secured Party of stock
certificates
Page 2
<PAGE> 3
representing the Pledged Shares and the filing of a UCC-1 Financing
Statement naming Pledgor as debtor and Secured Party as secured party
covering the Pledged Collateral in the office of the Secretary of State
(or equivalent office) of Florida, the security interest created hereby
shall constitute a perfected, first priority security interest upon the
Pledged Collateral which shall be superior and prior to the rights of
all third Persons now existing or hereafter arising. The chief
executive office of Pledgor and the office where Pledgor keeps its
books and records are located (and have been located for the past four
months from the date hereof) at Columbus Center, One Alhambra Plaza,
Suite 750, Coral Gables, Florida 33134. The exact corporate name of
Pledgor is Ramsay Educational Services, Inc.
(d) Description of Pledged Shares. Except as provided in the
Loan Agreement, the Pledged Shares constitute all of the issued and
outstanding shares of stock of The Rader Group, Inc., a Florida
corporation, and there are no outstanding warrants, options or other
rights to purchase, or other agreements outstanding with respect to, or
property that is now or hereafter convertible into, or that requires
the issuance or sale of, any Pledged Shares.
(e) Margin Regulations. The pledge of the Pledged Collateral
pursuant to this Agreement does not violate Regulation U or X of the
Board of Governors of the Federal Reserve System.
(f) Other Information. All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Pledgor with
respect to Pledgor or the Pledged Collateral is accurate and complete
in all material respects.
SECTION 5. TRANSFERS AND OTHER LIENS; ADDITIONAL PLEDGED COLLATERAL, ETC.
Pledgor shall:
(a) not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Pledged Collateral, (ii) create or suffer to exist any Lien upon or
with respect to any of the Pledged Collateral, except for the security
interest under this Agreement or (iii) permit any issuer of Pledged
Shares to merge or consolidate unless all the outstanding capital stock
of the surviving or resulting corporation is, upon such merger or
consolidation, pledged hereunder and no cash, securities or other
property is distributed in respect of the outstanding shares of any
other constituent corporation;
(b) (i) cause each issuer of Pledged Shares not to issue any
stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to Pledgor, and (ii)
pledge hereunder, immediately upon its acquisition (directly or
indirectly) thereof, any and all additional shares of stock or other
securities of each issuer of Pledged Shares and any certificates or
other instruments hereafter delivered which are described in Section
1(b);
(c) promptly deliver to Secured Party all written notices
received by it with respect to the Pledged Collateral; and
(d) pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon, and all claims against,
the Pledged Collateral, except to the extent the validity thereof is
being contested in good faith; provided that Pledgor shall in any event
pay such taxes, assessments, charges, levies or claims not later than
five days prior to the date of any proposed sale under any
Page 3
<PAGE> 4
judgment, writ or warrant of attachment entered or filed against
Pledgor or any of the Pledged Collateral as a result of the failure to
make such payment.
SECTION 6. FURTHER ASSURANCES; PLEDGE AMENDMENTS; COVENANTS.
(a) Pledgor agrees that from time to time, at the expense of Pledgor,
Pledgor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Secured
Party may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Pledged Collateral. Without limiting the generality of the foregoing, Pledgor
will: (i) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as Secured Party may reasonably request, in order to perfect
and preserve the security interests granted or purported to be granted hereby
and (ii) at Secured Party's request, appear in and defend any action or
proceeding that may affect Pledgor's title to or Secured Party's security
interest in all or any part of the Pledged Collateral.
(b) Pledgor further agrees that it will, upon obtaining any additional
shares of stock or other securities required to be pledged hereunder as provided
in Section 5(b), promptly (and in any event within five Business Days) deliver
to Secured Party a Pledge Amendment, duly executed by Pledgor, in substantially
the form of Schedule II annexed hereto (a "Pledge Amendment"), in respect of the
additional certificates or instruments to be pledged pursuant to this Agreement.
Pledgor hereby authorizes Secured Party to attach each Pledge Amendment to this
Agreement and agrees that all certificates or instruments listed on any Pledge
Amendment delivered to Secured Party shall for all purposes hereunder be
considered Pledged Collateral; provided that the failure of Pledgor to execute a
Pledge Amendment with respect to any additional certificates or instruments
pledged pursuant to this Agreement shall not impair the security interest of
Secured Party therein or otherwise adversely affect the rights and remedies of
Secured Party hereunder with respect thereto.
(c) Pledgor will give Agent thirty (30) days prior written notice of
any change in Pledgor's name, identity or corporate structure.
(d) Pledgor will give Agent thirty (30) days prior written notice of
any change in the location of its chief executive office and will execute such
documentation and take such actions as Agent deems necessary to perfect and
protect the security interests granted hereby.
SECTION 7. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) Pledgor shall be entitled to exercise any and all voting and other
rights pertaining to the Pledged Collateral or any part thereof for any purpose
not inconsistent with the terms of this Agreement or the Loan and Security
Agreement; provided, however, that Pledgor shall not exercise or refrain from
exercising any such right if Secured Parry shall have notified Pledgor that, in
Secured Party's reasonable judgment, such action would have a material adverse
effect on the value of the Pledged Collateral or any part thereof. It is
understood, however, that neither (A) the voting by
Page 4
<PAGE> 5
Pledgor of any Pledged Shares for or Pledgor' s consent to the election
of directors at a regularly scheduled annual or other meeting of
stockholders or with respect to incidental matters at any such meeting
nor (B) Pledgor's consent to or approval of any action otherwise
permitted under this Agreement and under the Loan and Security
Agreement shall be deemed inconsistent with the terms of this Agreement
within the meaning of this Section 7(a)(i), and no notice of any such
voting or consent need be given to Secured Party.
(ii) Pledgor shall be entitled to receive and retain, and to
utilize free and clear of the lien of this Agreement, any and all
dividends, interest or other amounts paid in respect of the Pledged
Collateral; provided, however, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of,
or in exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable
in cash in respect of any Pledged Collateral in connection
with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in
respect of principal or in redemption of or in exchange for
any Pledged Collateral,
shall be, and shall forthwith be delivered to Secured Party to hold as,
Pledged Collateral and shall, if received by Pledgor, be received in
trust for the benefit of Secured Party, be segregated from the other
property or funds of Pledgor and be forthwith delivered to Secured
Party as Pledged Collateral in the same form as so received (with all
necessary endorsements).
(iii) Secured Party shall promptly execute and deliver (or
cause to be executed and delivered) to Pledgor all such proxies,
dividend payment orders and other instruments as Pledgor may from time
to time reasonably request for the purpose of enabling Pledgor to
exercise the voting and other rights which it is entitled to exercise
pursuant to paragraph (i) above and to receive the dividends,
principal, interest or other payments which it is authorized to receive
and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuation of an
Event of Default:
(i) Upon written notice from Secured Party to Pledgor, all
rights of Pledgor to exercise the voting and other rights which it
would otherwise be entitled to exercise pursuant to Section 7(a)(i)
shall cease, and all such rights shall thereupon become vested in
Secured Party who shall thereupon have the sole right to exercise such
voting and other rights.
(ii) All rights of Pledgor to receive the payments which it
would otherwise be authorized to receive and retain pursuant to Section
7(a)(ii) shall cease, and all such rights shall thereupon become vested
in Secured Party who shall thereupon have the sole right to receive and
hold as Pledged Collateral such payments.
Page 5
<PAGE> 6
(iii) All dividends, principal, interest and other payments
which are received by Pledgor contrary to the provisions of paragraph
(ii) of this Section 7(b) shall be received in trust for the benefit of
Secured Party, shall be segregated from other funds of Pledgor and
shall forthwith be paid over to Secured Party as Pledged Collateral in
the same form as so received (with any necessary endorsements).
(c) In order to permit Secured Party to exercise the voting
and other rights which it may be entitled to exercise pursuant to
Section 7(b)(i) and to receive all dividends and other distributions
which it may be entitled to receive under Section 7(a)(ii) or Section
7(b)(ii), Pledgor shall promptly execute and deliver (or cause to be
executed and delivered) to Secured Party all such proxies, dividend
payment orders and other documentation as Secured Party may from time
to time reasonably request. Without limiting the effect of the
immediately preceding sentence, upon the occurrence and continuance of
an Event of Default, Pledgor hereby grants to Secured Party an
IRREVOCABLE PROXY to vote the Pledged Shares and to exercise all other
rights, powers, privileges and remedies to which a holder of the
Pledged Shares would be entitled (including, without limitation, giving
or withholding written consents of shareholders, calling special
meetings of shareholders and voting at such meetings), which proxy
shall be effective, automatically and without the necessity of any
action (including any transfer of any Pledged Shares on the record
books of the issuer thereof) by any other Person (including the issuer
of the Pledged Shares or any officer or agent thereof), which proxy
shall only terminate upon the payment in full of the Secured
Obligations.
SECTION 8. Secured Party Appointed Attorney-in-Fact. Pledgor hereby
irrevocably appoints Secured Party as Pledgor' s attorney-in-fact, with full
authority in the place and stead of Pledgor and in the name of Pledgor, Secured
Party or otherwise, from time to time in Secured Party's reasonable discretion
to take any action and to execute any instrument that Secured Party may deem
reasonably necessary or advisable to accomplish the purposes of this Agreement,
including without limitation:
(a) to file one or more financing or continuation statements,
or amendments thereto, relative to all or any part of the Pledged
Collateral without the signature of Pledgor;
(b) after the occurrence and during the continuance of an
Event of Default, to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Pledged Collateral which are of
the type described in subsections 7(a)(ii)(A) through (C) and to ask,
demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for any other type of money due and to become
due under or in respect of any of the Pledged Collateral;
(c) after the occurrence and during the continuance of an
Event of Default, to receive, endorse, and collect any instruments made
payable to Pledgor representing any dividend, principal, interest or
other payment or other distribution in respect of the Pledged
Collateral of the type described in subsections 7(a)(ii)(A) through (C)
or any part thereof and to give full discharge for the same and to
receive, endorse and collect any instruments made payable to Pledgor
representing any other type of dividend, principal, interest or other
payment or other distribution in respect of the Pledged Collateral or
any part thereof and to give full discharge for the same; and
Page 6
<PAGE> 7
(d) after the occurrence and during the continuance of an
Event of Default, to file any other claims or take any other action or
institute any other proceedings that Secured Party may deem necessary
or desirable for the collection of any of the Pledged Collateral or
otherwise to enforce the rights of Secured Party with respect to any of
the Pledged Collateral.
SECTION 9. SECURED PARTY MAY PERFORM. If Pledgor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Pledgor under Section 13(b).
SECTION 10. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Pledged Collateral and shall
not impose any duty upon it to exercise any such powers. Except for the exercise
of reasonable care in the custody of any Pledged Collateral in its possession
and the accounting for moneys actually received by it hereunder, Secured Party
shall have no duty as to any Pledged Collateral, it being understood that
Secured Party shall have no responsibility for (a) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to any Pledged Collateral, whether or not Secured Party has or
is deemed to have knowledge of such matters, (b) taking any necessary steps
(other than steps taken in accordance with the standard of care set forth above
to maintain possession of the Pledged Collateral) to preserve rights against any
parties with respect to any Pledged Collateral, (c) taking any necessary steps
to collect or realize upon the Secured Obligations or any guarantee therefor, or
any part thereof, or any of the Pledged Collateral, or (d) initiating any action
to protect the Pledged Collateral against the possibility of a decline in market
value. Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of Pledged Collateral in its possession if such Pledged
Collateral is accorded treatment substantially equal to that which Secured Party
accords its own property of a similar nature.
SECTION 11. REMEDIES.
(a) If any Event of Default shall have occurred and be
continuing, Secured Party may exercise in respect of the Pledged
Collateral, in addition to all other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code as in effect
in any relevant jurisdiction (the "Code") (whether or not the Code
applies to the affected Pledged Collateral), and Secured Party may also
in its sole discretion, without notice except as specified below, sell
the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or at any of
Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, at such time or times and at such price or prices and upon
such other terms as Secured Party may deem commercially reasonable,
irrespective of the impact of any such sales on the market price of the
Pledged Collateral. Secured Party may be the purchaser of any or all of
the Pledged Collateral at any such sale and shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase
price for all or any portion of the Pledged Collateral sold at any such
public sale, to use and apply any of the Secured Obligations as a
credit on account of the purchase price for any Pledged Collateral
payable by Secured Party at such sale. Each purchaser at any such sale
shall hold the property sold absolutely free from any claim or right on
the part of Pledgor, and Pledgor hereby waives (to the extent permitted
by applicable law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Pledgor agrees
that, to the extent notice of sale shall be required by law, at least
ten days' notice to Pledgor of the time and place of any
Page 7
<PAGE> 8
public sale or the time after which any private sale is to be made
shall constitute reasonable notification. Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned. Pledgor hereby waives
any claims against Secured Party arising by reason of the fact that the
price at which any Pledged Collateral may have been sold at such a
private sale was less than the price which might have been obtained at
a public sale, even if Secured Party accepts the first offer received
and does not offer such Pledged Collateral to more than one offeree. If
the proceeds of any sale or other disposition of the Pledged Collateral
are insufficient to pay all the Secured Obligations, Pledgor shall be
liable for the deficiency and the fees of any attorneys employed by
Secured Party to collect such deficiency.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as from time to time amended
(the "Securities Act"), and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of
the Pledged Shares conducted without prior registration or
qualification of such Pledged Shares under the Securities Act and/or
such state securities laws, to limit purchasers to those who will
agree, among other things, to acquire the Pledged Shares for their own
account, for investment and not with a view to the distribution or
resale thereof. Pledgor acknowledges that any such private sales may be
at prices and on terms less favorable to Secured Party than those
obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration
statement under the Securities Act) and, notwithstanding such
circumstances, Pledgor agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that
Secured Party shall have no obligation to engage in public sales and no
obligation to delay the sale of any Pledged Shares for the period of
time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should,
agree to so register it.
(c) If Secured Party determines to exercise its right to sell
any or all of the Pledged Shares, upon written request, Pledgor shall
and shall cause each issuer of any Pledged Shares to be sold hereunder
from time to time to furnish to Secured Party all such information as
Secured Party may request in order to determine the number of shares
and other instruments included in the Pledged Shares which may be sold
by Secured Party in exempt transactions under the Securities Act and
the rules and regulations of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
SECTION 12. Application of Proceeds. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Pledged Collateral shall be applied by Secured Party in accordance with the
provisions of the Loan and Security Agreement.
Page 8
<PAGE> 9
SECTION 13. INDEMNITY AND EXPENSES.
(a) PLEDGOR AGREES TO INDEMNIFY SECURED PARTY FROM AND AGAINST
ANY AND ALL CLAIMS, LOSSES AND LIABILITIES IN ANY WAY RELATING TO,
GROWING OUT OF OR RESULTING FROM THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY (INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS
AGREEMENT), EXCEPT TO THE EXTENT SUCH CLAIMS, LOSSES OR LIABILITIES
RESULT SOLELY FROM SECURED PARTY'S GROSS NEGLIGENCE, WILLFUL MISCONDUCT
OR BREACH OF THE TERMS HEREOF AS FINALLY DETERMINED BY A COURT OF
COMPETENT JURISDICTION.
(b) PLEDGOR WILL PAY TO SECURED PARTY UPON DEMAND THE AMOUNT
OF ANY AND ALL COSTS AND EXPENSES, INCLUDING THE REASONABLE FEES AND
EXPENSES OF ITS COUNSEL AND OF ANY EXPERTS AND AGENTS, THAT SECURED
PARTY MAY INCUR IN CONNECTION WITH (I) THE ADMINISTRATION OF THIS
AGREEMENT, (II) THE CUSTODY OR PRESERVATION OF, OR THE SALE OF,
COLLECTION FROM, OR OTHER REALIZATION UPON, ANY OF THE PLEDGED
COLLATERAL, (III) THE EXERCISE OR ENFORCEMENT OF ANY OF THE RIGHTS OF
SECURED PARTY HEREUNDER, OR (IV) THE FAILURE BY PLEDGOR TO PERFORM OR
OBSERVE ANY OF THE PROVISIONS HEREOF.
SECTION 14. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES. This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (a) remain in full force and effect until the indefeasible payment in
full of all Secured Obligations and the cancellation or termination of the
Revolving Loan and Acquisition Loan Commitments, (b) be binding upon Pledgor,
its successors and assigns, and (c) inure, together with the rights and remedies
of Secured Party hereunder, to the benefit of Secured Party and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), but subject to the provisions of the Loan and Security Agreement, any
Lender may assign or otherwise transfer any Notes held by it to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to Secured Party herein or otherwise. Upon
the indefeasible payment in full of all Secured Obligations and the cancellation
or termination of the Revolving Loan and Acquisition Loan Commitments, the
security interest granted hereby shall terminate and all rights to the Pledged
Collateral shall revert to Pledgor. Upon any such termination Secured Party
will, at Pledgor's expense, execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence such termination and Pledgor shall
be entitled to the return, upon its request and at its expense, against receipt
and without recourse to Secured Party, of so much of the Pledged Collateral as
shall not have been sold or otherwise applied pursuant to the terms hereof.
SECTION 15. SECURED PARTY AS AGENT. Secured Party has been appointed to
act as Secured Party hereunder by Lenders. Secured Party shall be obligated, and
shall have the right hereunder, to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking any
action (including, without limitation, the release or substitution of Pledged
Collateral), solely in accordance with this Agreement and the Loan and Security
Agreement. Secured Party may resign and a successor Secured Party may be
appointed in the manner provided with respect to the Agent in accordance with
the provisions of the Loan and Security Agreement. Upon the acceptance of any
appointment as Secured Party by a successor Secured Party, that successor
Secured Party shall thereupon succeed to and become vested with all the rights,
Page 9
<PAGE> 10
powers, privileges and duties of the retiring Secured Party under this
Agreement, and the retiring Secured Party shall thereupon be discharged from its
duties and obligations under this Agreement. After any retiring Secured Party's
resignation, the provisions of this Agreement shall inure to its benefit as to
any actions taken or omitted to be taken by it under this Agreement while it was
Secured Party.
SECTION 16. AMENDMENTS; ETC. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Pledgor herefrom, shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 17. NOTICES. Any notice or other communication herein required
or permitted to be given shall be in writing and given in accordance with the
provisions of the Loan and Security Agreement.
SECTION 18. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 19. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 20. HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 21. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF TEXAS, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT TO
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER,
OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PLEDGED COLLATERAL ARE
GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. Unless
otherwise defined herein or in the Loan and Security Agreement, terms used in
Article 9 of the Uniform Commercial Code in the State of Texas are used herein
as therein defined.
SECTION 22. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(SIGNATURE PAGE FOLLOWS)
Page 10
<PAGE> 11
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
PLEDGOR/DEBTOR:
RAMSAY EDUCATIONAL SERVICES, INC.,
a Delaware corporation
By:
-------------------------------------
Jorge Rico
Vice President
SECURED PARTY:
FLEET CAPITAL CORPORATION, as Agent
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Page 11
<PAGE> 1
EXHIBIT 10.136
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This AMENDMENT No. 1 dated as of December 1, 1998 (this "Amendment") is
entered into by and between RAMSAY HEALTH CARE, INC., a Delaware corporation
(the "Company") and LUIS E. LAMELA (the "Employee", and collectively with the
Company, the "Parties").
WHEREAS, the Parties entered into that certain Employment Agreement
dated as of October 1, 1997 (the "Agreement"); and
WHEREAS, the Parties desire to amend certain terms of the Agreement as
hereinafter set forth.
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. The first sentence of Section 2 of the Agreement is hereby amended
to reflect that commencing on January 1, 1999,
"the Employee shall serve in the positions of Vice Chairman of the
Board of the Company, Chief Executive Officer of the Company and
President of the Company."
2. Section 3.2 of the Agreement is hereby amended to reflect that
commencing on January 1, 1999,
"In addition to the base salary provided for in Section 3.1, during
the term of the Agreement, the Employee shall be entitled to receive
an annual bonus, if any, at the discretion of, and in such amount,
if any, as shall be determined by, the Board of Directors of the
Company."
3. This Amendment shall be effective as of January 1, 1999.
4. Except as specifically modified by this Amendment, all of the
terms and provisions of the Agreement are hereby reaffirmed and
shall remain in full force and effect and shall not be altered or
amended in any manner.
5. This Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made
and to be performed entirely within such State, without regard to
any conflict of laws principles of such State.
<PAGE> 2
6. This Amendment may be executed in counterparts, each of which
shall be deemed an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as
of the date first above written.
RAMSAY HEALTH CARE, INC.
By: /s/ Marcio C. Cabrera
-----------------------
Name:
Tittle:
/s/ Luis E. Lamela
--------------------------
Luis E. Lamela
<PAGE> 1
EXHIBIT 10.137
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This AMENDMENT No. 1 dated as of December 1, 1998 (this "Amendment") is
entered into by and between RAMSAY HEALTH CARE, INC., a Delaware corporation
(the "Company") and REMBERTO CIBRAN (the "Employee", and collectively with the
Company, the "Parties").
WHEREAS, the Parties entered into that certain Employment Agreement
dated as of August 12, 1996 (the "Agreement"); and
WHEREAS, the Parties desire to amend certain terms of the Agreement as
hereinafter set forth.
NOW, THEREFORE, the Agreement is hereby amended as follows:
1. The first sentence of Section 2 of the Agreement is hereby
amended to reflect that commencing on January 1, 1999,
"the Employee shall serve in the positions of Chief Operating
Officer of the Company and President of the Company's Youth Care
Division."
2. Section 3.2 of the Agreement is hereby amended to reflect that
commencing on January 1, 1999,
"In addition to the base salary provided for in Section 3.1, during
the term of the Agreement, the Employee shall be entitled to receive
an annual bonus, if any, at the discretion of, and in such amount,
if any, as shall be determined by, the Board of Directors of the
Company."
3. This Amendment shall be effective as of January 1, 1999.
4. Except as specifically modified by this Amendment, all of the
terms and provisions of the Agreement are hereby reaffirmed and
shall remain in full force and effect and shall not be altered or
amended in any manner.
5. This Amendment shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made
and to be performed entirely within such State, without regard to
any conflict of laws principles of such State.
<PAGE> 2
6. This Amendment may be executed in counterparts, each of which
shall be deemed an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as
of the date first above written.
RAMSAY HEALTH CARE, INC.
By: /s/ Marcio Cabrera
-----------------------
Name:
Tittle:
/s/ Remberto Cibran
--------------------------
Remberto Cibran
<PAGE> 1
EXHIBIT 11
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
----------------------------- --------------------------------------------
1998 1997 1998 1997 1996
------------- -------------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary
item, as reported ............................ $ (1,452,000) $ 1,154,000 $(54,261,000) $ 3,278,000 $(16,481,000)
Dividends, Class B convertible preferred
stock, Series C .............................. 166,000 181,000 362,000 362,000 362,000
Dividends, Class B convertible preferred
stock, Series 1996 ........................... 69,000 75,000 150,000 -- --
Dividends, Class B convertible redeemable
preferred stock, Series 1997 ................. 45,000 57,000 182,000 -- --
Redemption premium and other costs, Class
B convertible preferred stock, Series 1997 ... 225,000
Dividends, Class B redeemable preferred
stock, Series 1997-A ......................... 151,000 91,000 271,000 -- --
------------ ------------ ------------ ------------ ------------
Numerator for basic earnings (loss) per
share - income (loss) attributable to
common Stockholders, before extraordinary
item ..................................... (2,108,000) 750,000 (55,226,000) 2,916,000 (16,843,000)
Effect of dilutive securities:
Class B convertible preferred stock,
Series C ................................ -- -- -- 362,000 --
------------ ------------ ------------ ------------ ------------
-- -- -- 362,000 --
------------ ------------ ------------ ------------ ------------
Numerator for diluted earnings (loss)
per share - income (loss) attributable to
common stockholders after
assumed conversions ..................... $ (2,108,000) $ 750,000 $(55,226,000) $ 3,278,000 $(16,843,000)
============ ============ ============ ============ ============
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares ............ 4,486,523 3,574,081 3,594,831 2,801,190 2,642,548
Effect of dilutive securities:
Employee stock options and warrants ........ -- 564,788 -- 114,788 --
Convertible preferred stock ................ -- -- -- 493,218 --
------------ ------------ ------------ ------------ ------------
Dilutive potential common shares .............. -- 564,788 -- 608,006 --
------------ ------------ ------------ ------------ ------------
Denominator for diluted earnings (loss)
per share - adjusted weighted-average
shares and assumed conversions .......... 4,486,523 4,138,869 3,594,831 3,409,196 2,642,548
============ ============ ============ ============ ============
Basic earnings (loss) per share, before
extraordinary item ............................ $ (.47) $ .21 $ (15.36) $ 1.04 $ (6.37)
Extraordinary item ............................... (.63) (1.00) (1.20) -- --
------------ ------------ ------------ ------------ ------------
Basic earnings (loss) per share .................. $ (1.10) $ (.79) $ (16.56) $ 1.04 $ (6.37)
============ ============ ============ ============ ============
Diluted earnings (loss) per share before
extraordinary item ............................ $ (.47) $ .18 $ (15.36) $ .96 $ (6.37)
Extraordinary item ............................... (.63) (.86) (1.20) -- --
------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per share ................ $ (1.10) $ (.68) $ (16.56) $ .96 $ (6.37)
============ ============ ============ ============ ============
</TABLE>
Options and warrants were not included in the computation for the six
months ended December 31, 1998, fiscal 1998 and 1996 because their effect would
have been antidilutive for these periods.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF RAMSAY YOUTH SERVICES, INC.
Bethany Psychiatric Hospital, Inc., an Oklahoma corporation
Bountiful Psychiatric Hospital, Inc., a Utah corporation
East Carolina Psychiatric Services Corporation, a North Carolina corporation
Great Plains Hospital, Inc., a Missouri corporation
Gulf Coast Treatment Center, Inc., a Florida corporation (the Company owns
96% of the capital stock of this corporation)
Havenwyck Hospital, Inc., a Michigan corporation
H.C. Corporation, an Alabama corporation
H.C. Partnership, an Alabama general partnership (HSA Hill Crest Corporation and
H.C. Corporation each own a 50% partnership interest)
HSA Hill Crest Corporation, an Alabama corporation
HSA of Oklahoma, Inc., an Oklahoma corporation
Michigan Psychiatric Services, Inc., a Michigan corporation
The Rader Group, Incorporated, a Florida corporation
Ramsay Educational Services, Inc., a Delaware corporation
Ramsay Louisiana, Inc., a Delaware corporation
Ramsay Managed Care, Inc., a Delaware corporation
Ramsay Youth Services of Alabama, Inc., a Delaware corporation
Ramsay Youth Services of Florida, Inc., a Delaware corporation
Ramsay Youth Services of South Carolina, Inc., a Delaware corporation
Ramsay Youth Services Puerto Rico, Inc., a Puerto Rico corporation
RHCI San Antonio, Inc., a Delaware corporation
Transitional Care Ventures, Inc., a Delaware corporation (the Company owns 60%
of the capital stock of this corporation)
Transitional Care Ventures (Texas), Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-52991, No. 33-47997, No. 33-44697 and No.
33-39260) of Ramsay Youth Services, Inc., of our report dated March 15, 1999
with respect to the consolidated financial statements of Ramsay Youth
Services, Inc., included in this Transition Report (Form 10-K) for the six
month period ended December 31, 1998.
Miami, Florida
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,422,000
<SECURITIES> 0
<RECEIVABLES> 16,699,000
<ALLOWANCES> 3,279,000
<INVENTORY> 0
<CURRENT-ASSETS> 22,500,000
<PP&E> 43,325,000
<DEPRECIATION> 16,998,000
<TOTAL-ASSETS> 56,138,000
<CURRENT-LIABILITIES> 25,557,000
<BONDS> 7,332,000
0
0
<COMMON> 90,000
<OTHER-SE> 12,342,000
<TOTAL-LIABILITY-AND-EQUITY> 56,138,000
<SALES> 0
<TOTAL-REVENUES> 50,109,000
<CGS> 0
<TOTAL-COSTS> 46,730,000
<OTHER-EXPENSES> 1,627,000
<LOSS-PROVISION> 1,549,000
<INTEREST-EXPENSE> 1,655,000
<INCOME-PRETAX> (1,452,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,452,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,811,000)
<CHANGES> 0
<NET-INCOME> (4,263,000)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
