<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-13849
RAMSAY YOUTH SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 63-0857352
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
COLUMBUS CENTER
ONE ALHAMBRA PLAZA, SUITE 750
CORAL GABLES, FLORIDA 33134
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (305) 569-6993
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares of the Registrant's Common Stock outstanding as of
August 2, 1999, follows:
Common Stock, par value $0.01 per share - 9,082,260 shares
<PAGE> 2
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................................................. 3
Condensed consolidated balance sheets - June 30, 1999 (unaudited) and
December 31, 1998..................................................................... 3
Condensed consolidated statements of operations - three and six months ended
June 30, 1999 and 1998 (unaudited).................................................... 5
Condensed consolidated statements of cash flows - six months ended June 30,
1999 and 1998 (unaudited)............................................................. 6
Notes to condensed consolidated financial statements - June 30, 1999 (unaudited)............... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 11
PART II. OTHER INFORMATION
Item 5. Other Information..................................................................... 18
Item 6. Exhibits and Current Reports on Form 8-K.............................................. 20
SIGNATURES..................................................................................... 21
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
(unaudited) (Note 1)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $49,000 $1,478,000
Accounts receivable, less allowances for doubtful
accounts of $3,127,000 and $2,395,000 at June 30,
1999 and December 31, 1998, respectively.............. 11,078,000 12,859,000
Amounts due from third-party contractual agencies......... 2,925,000 4,699,000
Other receivables......................................... 6,007,000 6,854,000
Other current assets...................................... 1,582,000 1,100,000
Net assets held for sale.................................. 2,414,000 --
------------- -------------
Total current assets.................................. 24,055,000 26,990,000
Other assets
Cash held in trust......................................... 1,853,000 1,856,000
Cost in excess of net asset value of purchased businesses.. 1,612,000 1,792,000
Other intangible assets.................................... 510,000 578,000
Unamortized loan costs..................................... 969,000 1,041,000
Net assets held for sale................................... -- 2,044,000
------------- -------------
Total other assets.................................... 4,944,000 7,311,000
Property and equipment
Land........................................................ 2,761,000 2,721,000
Buildings and improvements.................................. 29,342,000 28,456,000
Equipment, furniture and fixtures........................... 12,153,000 12,148,000
------------- -------------
44,256,000 43,325,000
Less accumulated depreciation............................... 17,606,000 16,998,000
------------- -------------
26,650,000 26,327,000
------------- -------------
$55,649,000 $60,628,000
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
(unaudited) (Note 1)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $4,359,000 $5,113,000
Accrued salaries and wages................................. 3,176,000 2,533,000
Other accrued liabilities.................................. 11,314,000 11,479,000
Amounts due to third-party contractual agencies............ 5,282,000 7,565,000
Due to affiliate........................................... 700,000 1,200,000
Current portion of long-term debt.......................... 1,040,000 675,000
------------- -------------
Total current liabilities............................ 25,871,000 28,565,000
Noncurrent liabilities
Other accrued liabilities.................................. 6,692,000 10,817,000
Long-term debt, less current portion....................... 7,038,000 7,332,000
Commitments and contingencies
Stockholders' equity
Common stock $.01 par value--authorized
30,000,000 shares; issued 9,082,260 shares at June 30,
1999 and 9,079,245 shares at December 31, 1998......... 90,000 90,000
Additional paid-in capital................................ 126,147,000 126,075,000
Accumulated deficit....................................... (106,290,000) (108,352,000)
Treasury stock--193,850 common shares at June 30, 1999
and December 31, 1998, at cost......................... (3,899,000) (3,899,000)
------------- -------------
Total stockholders' equity......................... 16,048,000 13,914,000
------------- -------------
$55,649,000 $60,628,000
============= =============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Provider-based revenue............................. $19,775,000 $36,186,000 $38,667,000 $66,557,000
Managed care revenue............................... -- 4,454,000 -- 11,105,000
----------- ------------ ------------ ------------
TOTAL REVENUES........................................ 19,775,000 40,640,000 38,667,000 77,662,000
----------- ------------ ------------ ------------
Operating expenses:
Salaries, wages and benefits....................... 11,823,000 21,778,000 23,012,000 43,136,000
Other operating expenses........................... 6,312,000 12,772,000 12,472,000 30,173,000
Managed care patient costs......................... -- 2,961,000 -- 5,370,000
Provision for doubtful accounts.................... 484,000 1,616,000 969,000 4,456,000
Depreciation and amortization...................... 585,000 785,000 1,157,000 2,433,000
Restructuring charges.............................. -- -- -- 3,927,000
Asset impairment charges........................... -- 213,000 -- 16,738,000
----------- ------------ ------------ ------------
TOTAL OPERATING EXPENSES.............................. 19,204,000 40,125,000 37,610,000 106,233,000
----------- ------------ ------------ ------------
Income (loss) from operations......................... 571,000 515,000 1,057,000 (28,571,000)
Non-operating income (expenses):
Investment income and other........................ 148,000 35,000 1,698,000 59,000
Interest and other financing charges............... (307,000) (1,690,000) (591,000) (4,439,000)
Losses related to asset sales and closed businesses -- (12,483,000) -- (12,483,000)
----------- ------------ ------------ ------------
Total non-operating income (expense), net....... (159,000) (14,138,000) 1,107,000 (16,863,000)
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM................................. 412,000 (13,623,000) 2,164,000 (45,434,000)
Provision for income taxes............................ 55,000 570,000 102,000 9,981,000
----------- ------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM............... 357,000 (14,193,000) 2,062,000 (55,415,000)
Extraordinary item:
Loss from early extinguishment of debt............. -- (748,000) -- (748,000)
----------- ------------ ------------ ------------
NET INCOME (LOSS)..................................... $357,000 $(14,941,000) $2,062,000 $(56,163,000)
=========== ============ ============ ============
Income (loss) attributable to common stockholders before
extraordinary item................................. $357,000 $(14,479,000) $2,062,000 $(55,976,000)
Extraordinary item.................................... -- (748,000) -- (748,000)
----------- ------------- ------------- ------------
Income (loss) attributable to common stockholders..... $357,000 $(15,227,000) $2,062,000 $(56,724,000)
=========== ============= ============= ============
Income (loss) per common share:
Basic:
Before extraordinary item........................ $0.04 $(4.00) $0.23 $(15.45)
Extraordinary item:
Loss from early extinguishment of debt......... -- (0.20) -- (0.21)
------------ ------------- ------------- ------------
$0.04 $(4.20) $0.23 $(15.66)
============ ============= ============= ============
Diluted:
Before extraordinary item........................ $0.04 $(4.00) $0.23 $(15.45)
Extraordinary item:
Loss from early extinguishment of debt....... -- (0.20) -- (0.21)
------------ ------------- ------------- ------------
$0.04 $(4.20) $0.23 $(15.66)
============ ============= ============= ============
Weighted average number of common shares outstanding:
Basic.............................................. 8,888,000 3,624,000 8,888,000 3,623,000
------------ ------------- ------------- ------------
Diluted............................................ 8,905,000 3,624,000 8,908,000 3,623,000
============ ============= ============= ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss)........................................... $2,062,000 $(56,163,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation ............................................ 896,000 1,104,000
Amortization, including loan costs....................... 389,000 1,824,000
Provision for doubtful accounts.......................... 969,000 4,456,000
Provision for deferred income taxes...................... -- 9,411,000
Loss from early extinguishment of debt................... -- 748,000
Asset impairment charges................................. -- 16,738,000
Losses related to asset sales and closed businesses...... -- 12,483,000
Expenses paid with equity instruments.................... -- 23,000
Change in operating assets and liabilities:
Accounts receivable.................................. 969,000 (1,605,000)
Other current assets................................. 2,139,000 (309,000)
Accounts payable..................................... (754,000) 3,086,000
Accrued salaries, wages and other accrued liabilities (3,647,000) 8,110,000
Amounts due to third-party contractual agencies...... (2,283,000) 1,715,000
------------- ------------
Total adjustments................................ (1,322,000) 57,784,000
------------- ------------
Net cash provided by operating activities.... 740,000 1,621,000
------------- ------------
Cash flows from investing activities
Proceeds from sale of subsidiary and property and equipment.. -- 21,505,000
Increase in net assets held for sale......................... (527,000) --
Expenditures for property and equipment...................... (1,183,000) (5,017,000)
Other noncurrent assets...................................... (32,000) (857,000)
Cash held in trust........................................... 3,000 (1,134,000)
------------- ------------
Net cash (used in) provided by investing
activities.................................. (1,739,000) 14,497,000
------------- ------------
Cash flows from financing activities
Loan costs................................................... (37,000) (152,000)
Amounts (paid to) received from affiliate.................... (500,000) 6,429,000
Net proceeds from exercise of stock options and stock
purchases.................................................. 12,000 28,000
Borrowings................................................... 202,000 1,750,000
Payments on debt............................................. (167,000) (23,781,000)
Refunded registration costs.................................. 60,000 --
Payment of preferred stock dividends......................... -- (55,000)
------------- ------------
Net cash (used in) financing activities......... (430,000) (15,781,000)
------------- ------------
Net (decrease) increase in cash and cash equivalents............ (1,429,000) 337,000
Cash and cash equivalents at beginning of period................ 1,478,000 2,570,000
============= ============
Cash and cash equivalents at end of period...................... $49,000 $2,907,000
============= ============
Cash paid during the period for:
Interest (net of amount capitalized)......................... $452,000 $5,307,000
============= ============
Income taxes................................................. $377,000 $315,000
============= ============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
NOTE 1 - BASIS OF PRESENTATION
Ramsay Youth Services, Inc. and its subsidiaries (the "Company") is a
leading quality provider and manager of diversified treatment, education and
juvenile justice programs for at-risk and troubled youth in residential and
non-residential settings nationwide. The Company offers its full spectrum of
education and treatment programs and services through schools, residential
facilities and service contracts located in Alabama, Florida, Missouri,
Michigan, Nevada, North Carolina, South Carolina, Utah and the Commonwealth of
Puerto Rico.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of the interim information are,
unless otherwise discussed in this report, of a normal recurring nature and have
been included. The Company's business is seasonal in nature and subject to
general economic conditions and other factors. Accordingly, operating results
for the quarter and six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year. The balance sheet
at December 31, 1998 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Transition Report on Form 10-K for the six
months ended December 31, 1998.
The Company changed its fiscal year end from June 30 to December 31,
effective December 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.
On June 30, 1999, the Company acquired all of the issued and
outstanding shares of common stock of Ramsay Hospital Corporation of Louisiana,
Inc. ("RHCL") in a purchase transaction between companies under common control
and recorded the transaction in a manner similar to pooling-of-interests
accounting. Accordingly, the Company's financial statements reflect the
consolidated balance sheets and consolidated results of operations of both
entities as if the merger had been in effect for all periods presented
(see Note 3).
NOTE 2 - CHANGE IN STRATEGIC DIRECTION AND ASSETS HELD FOR SALE
During the quarter ended March 31, 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, the Company
sold certain of its psychiatric inpatient facilities, its managed care
operations and other non-youth services business.
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
7
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
future potential purchase price adjustments. In February 1999, the Company paid
$1,222,000 in purchase price adjustments relating to the FPM sale. In addition,
in July 1999, the Company incurred an additional $1,201,000 in purchase price
adjustments relating to the FPM sale, of which $601,000 was paid on July 30,
1999 and $600,000 is scheduled to be paid on August 30, 1999. The aforementioned
purchase price adjustments effectively reduce the FPM purchase price to
$17,577,000. Management had fully reserved for this contingency as of June 30,
1998 and does not expect any future purchase price adjustments relating to the
FPM sale.
The assets and liabilities relating to the Company's medical subacute and
behavioral healthcare facilities in San Antonio, Texas and its facility in Palm
Bay, Florida are reflected in the accompanying consolidated balance sheet as net
assets held for sale at June 30, 1999. The following is a summary of these
assets and liabilities:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable, less allowance for
doubtful accounts of $90,000 $1,274,000
Other receivables 195,000
Other current assets 143,000
Property and equipment 3,720,000
Less: accumulated depreciation (723,000)
Less: valuation allowance on property and equipment (1,159,000)
Accounts payable (639,000)
Accrued salaries and wages (321,000)
Other accrued liabilities (76,000)
--------------
Total $2,414,000
==============
</TABLE>
For the six months ended June 30, 1999, revenues and net loss before
taxes for the aforementioned assets totaled approximately $5,000,000 and
$45,000, respectively. For the quarter ended June 30, 1999, revenues and net
loss before taxes for the aforementioned assets totaled approximately $2,700,000
and $26,000, respectively.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
As mentioned previously, on June 30, 1999, the Company acquired all of
the issued and outstanding shares of common stock of RHCL, a holding company in
liquidation whose principal asset consists of a receivable from the State of
Louisiana (see Part II. Other Information, Item 5.). The purchase price of
$700,000 is equal to the net book value of RHCL on the date of the acquisition
and is payable no later than September 1, 1999. The transaction was accounted
for in a manner similar to the pooling-of-interests method. RHCL had no revenues
or net income during the three or six months ended June 30, 1999 and 1998.
NOTE 4 - BORROWINGS
The Company's long-term debt at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Variable rate Term Loan $7,833,000
Revolver, due October 30, 2003 209,000
Other 36,000
---------------
8,078,000
Less current portion 1,040,000
---------------
$7,038,000
===============
</TABLE>
On October 30, 1998, the Company refinanced its existing credit
facilities 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
8
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
credit facility (the "Revolver") for an amount up to the lesser of $8,000,000 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
$6,000,000 beginning March 1, 1999. As of August 2, 1999, approximately
$1,195,000 had been drawn under the Revolver and 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% at June 30, 1999), based on the Company's ratio of total
indebtedness to EBITDA or (ii) a function of the Eurodollar rate plus a margin
ranging from 2.0% 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 credit agreement) 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 (as defined in the credit agreement) 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 agreed to waive these requirements as of December 31, 1998. On March 19,
1999, the Company's Senior Credit Facility was amended (the "First Amendment").
The First Amendment provided for a change to the definitions for purposes of
calculating the covenants in the future.
On June 30, 1999, the Company's Senior Credit Facility was amended
and restated to provide for the approval of the RHCL purchase (the "Second
Amendment"). The Second Amendment prohibits the payment of the RHCL purchase
price until the earlier to occur of certain events (as defined in the agreement)
or September 1, 1999. The Second Amendment also provides for a $3.0 million
reserve on the Revolver borrowing base until the occurrence of certain events
(as defined in the Second Amendment).
The Company and its subsidiaries have pledged substantially all of
their real property, receivables and other assets as collateral for the Senior
Credit Facility.
NOTE 5 - 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. 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 (not to
exceed 3% annually) in the consumer price index over the preceding twelve
months.
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
9
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
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
$2,079,000 on June 30, 1999.
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. 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 June 30, 1999 had aggregate annual minimum rentals of approximately
$549,000, payable monthly.
The Company leases office space for various other purposes over terms
ranging from one to five years. Annual rent expense related to noncancellable
operating leases totals approximately $1,200,000.
NOTE 6 - INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109. 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. At June 30, 1999, 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 in the years 2000 through 2018.
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.
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, during the quarter ended March 31,
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.
NOTE 7 - EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE.
SFAS No 128, which applies to entities with publicly held common stock,
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 earnings per share standards. SFAS No. 128, which
became effective for financial statements issued for periods ending after
December 15, 1997, requires a 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. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options is excluded. The adoption of the provisions of SFAS No. 128 did not have
a material impact on the calculation of earnings (loss) per share.
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary item,
as reported $ 357,000 $(14,193,000) $ 2,062,000 $(55,415,000)
Dividends, Class B convertible preferred stock,
Series C -- 90,000 -- 181,000
Dividends, Class B convertible preferred stock,
Series 1996 -- 37,000 -- 75,000
Dividends, Class B convertible redeemable preferred
stock, Series 1997 -- 69,000 -- 125,000
Dividends, Class B redeemable preferred stock,
Series 1997-A -- 90,000 -- 180,000
------------ ------------ ------------ ------------
Numerator for basic earnings (loss) per
share - income (loss) attributable to common
stockholders, before extraordinary item 357,000 (14,479,000) 2,062,000 (55,976,000)
Effect of dilutive securities -- -- -- --
------------ ------------ ------------ ------------
Numerator for diluted earnings (loss) per
share - income (loss) attributable to common
stockholders after assumed conversions $ 357,000 $(14,479,000) $ 2,062,000 $(55,976,000)
============ ============ ============ ============
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares 8,888,000 3,624,000 8,888,000 3,623,000
Effect of dilutive securities:
Employee stock options and warrants 17,000 -- 20,000 --
------------ ------------ ------------ ------------
Dilutive potential common shares 17,000 -- 20,000 --
------------ ------------ ------------ ------------
Denominator for diluted earnings (loss)
per share - adjusted weighted-average shares and
assumed conversions 8,905,000 3,624,000 8,908,000 3,623,000
============ ============ ============ ============
Basic earnings (loss) per share, before
extraordinary item $ .04 $ (4.00) $ .23 $ (15.45)
Extraordinary item -- (.20) -- (.21)
------------ ------------ ------------ ------------
Basic earnings (loss) per share $ .04 $ (4.20) $ .23 $ (15.66)
============ ============ ============ ============
Diluted earnings (loss) per share before
extraordinary item $ .04 $ (4.00) $ .23 $ (15.45)
Extraordinary item -- (.20) -- (.21)
------------ ------------ ------------ ------------
Diluted earnings (loss) per share $ .04 $ (4.20) $ .23 $ (15.66)
============ ============ ============ ============
</TABLE>
Options and warrants were not included in the computation for the three
and six months ended June 30, 1998 because their effect would have been
antidilutive for these periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 at-risk youth industry.
To that end, management identified for divestiture those businesses and
facilities, which were not essential to its strategic objectives in the youth
services field (the "Divested Assets"). In June 1998, the Company sold its
behavioral managed care business and in September 1998, the Company completed
the sales of non-strategic inpatient psychiatric hospitals. The net proceeds for
these divestitures were applied to reduce indebtedness and to redeem preferred
stock, all held by an unaffiliated financial institution. The remaining business
(the "Retained Assets") represents the Company's youth services operations and
is comprised of seven youth facilities, ten group homes and seven schools. The
Company also provides a range of outpatient services and day treatment programs
tailored for the at-risk and troubled youth population.
IN CONNECTION WITH THE "SAFE-HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, THE COMPANY NOTES THAT THIS QUARTERLY
REPORT ON FORM 10-Q 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
11
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
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 AND (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. THERE CAN
BE NO ASSURANCE THAT ANY ANTICIPATED FUTURE RESULTS WOULD 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.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
Total revenues decreased from $40.6 million in the quarter ended June
30, 1998 to $19.8 million in the quarter ended June 30, 1999. The decrease of
$20.8 million in revenues from 1998 to 1999 is primarily attributable to a
decrease of $23.7 million in revenues due to the previously mentioned sale and
closure of the Company's psychiatric inpatient facilities, managed care
operations and other non-youth services business. The Company experienced an
increase of $2.9 million in revenues from its Retained Assets primarily as a
result of (i) an increase in revenues of $0.4 million from a new contract in
Puerto Rico which began in May 1998, (ii) an increase in revenues of $0.8
million generated by the Company's new facility located in Dothan, Alabama which
began operations in June 1998, (iii) an increase in revenues of $0.6 million
from Gulf Coast Treatment Center primarily due to two new contracts and (iv) an
increase in revenues in the Company's other Retained Assets of approximately
$1.1 million due primarily to an increase in total census between periods.
Total salaries, wages and benefits decreased from $21.8 million in the
quarter ended June 30, 1998 to $11.8 million in the quarter ended June 30, 1999.
The decrease of $10.0 million in salaries, wages and benefits from 1998 to 1999
is primarily attributable to a decrease of $9.7 million due to the sale and
closure of the Company's psychiatric inpatient facilities, managed care
operations and other non-youth services business. The Company experienced an
increase of $2.0 million in salaries, wages and benefits in its Retained Assets
and a decrease of $2.3 million in salaries, wages and benefits at its corporate
office. The increase in salaries, wages and benefits from its Retained Assets
was primarily a result of (i) an increase of $0.5 million due to the opening of
the Company's new facility in Dothan, Alabama, (ii) an increase of $0.4 million
due to the start-up of the Company's Puerto Rico operations and (iii) an
increase of $1.1 million in the Company's other youth services facilities due
primarily to an increase in total census between periods. The decrease of $2.3
million in corporate office salaries, wages and benefits was directly
attributable to the termination of employees in connection with the Company's
change in strategic direction.
Other operating expenses decreased from $12.8 million in the quarter
ended June 30, 1998 to $6.3 million in the quarter ended June 30, 1999. The
decrease of $6.5 million in other operating expenses from 1998 to 1999 is
primarily attributable to a decrease of approximately $6.0 million due to the
sale and closure of the Company's psychiatric inpatient facilities, managed care
operations and other non-youth services business. The Company also had a
decrease of approximately $0.5 million in other operating expenses relating to
its corporate office. The decrease in corporate office other operating expense
is primarily attributable to the Company's previously mentioned restructuring
efforts.
Managed care patient costs were $3.0 million in the quarter ended June
30, 1998. The Company did not incur similar costs during the quarter ended June
30, 1999 due to the sale of the Company's wholly owned managed behavioral health
care business on June 2, 1998.
12
<PAGE> 13
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
The provision for doubtful accounts decreased from $1.6 million in the
quarter ended June 30, 1998 to $0.5 million in the quarter ended June 30, 1999.
The decrease is primarily attributable to the sale and closure of the Company's
psychiatric inpatient facilities, managed care operations and other non-youth
services business.
Depreciation and amortization expense decreased from $0.8 million in
the quarter ended June 30, 1998 to $0.6 million in the quarter ended June 30,
1999 primarily due to the sale and closure of the Company's psychiatric
inpatient facilities, managed care operations and other non-youth services
business.
During the quarter ended June 30, 1998, in connection with the
Company's change in strategic direction, the Company decided to close or sell
certain operations that were identified as not compatible with the Company's
future operating plans. Accordingly, the carrying values of these
facilities/operations were compared to selling values or, if selling values were
not available, to discounted cash flows, resulting in an aggregate non-cash
asset impairment charge of $0.2 million. The asset impairment charges were
recorded during the quarter ended June 30, 1998.
Investment income and other increased by $0.1 million from the three
months ended June 30, 1998 to the three months ended June 30, 1999. The increase
is primarily due to the recognition of interest income on a note receivable from
the sale of one of the Company's psychiatric hospitals.
Interest and other financing charges decreased from $1.7 million in the
quarter ended June 30, 1998 to $0.3 million in the quarter ended June 30, 1999.
The decrease in interest and other financing charges is primarily due to a
decrease in the Company's average outstanding borrowings between periods as a
result of the partial prepayment of indebtedness with proceeds from the
aforementioned asset sales.
During the quarter ended June 30, 1998, the Company recorded losses of
approximately $12.5 million related to the sale of its managed care operations
and its Three Rivers and Greenbrier facilities. These amounts are reflected as
losses related to asset sales and closed businesses in the accompanying
consolidated statement of operations.
The Company recorded a $0.1 million provision for income taxes in the
quarter ended June 30, 1999 and a $0.6 million provision for income taxes in the
quarter ended June 30, 1998. The provision for income taxes for the quarter
ended June 30, 1999 was recorded at an effective tax rate significantly less
than the statutory tax rate due to significant net operating loss carryovers.
The provision for income taxes for the quarter ended June 30, 1998 is primarily
related to the sale of the Company's managed care operations on June 2, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total revenues decreased from $77.7 million in the six months ended
June 30, 1998 to $38.7 million in the six months ended June 30, 1999. The
decrease of $39.0 million in revenues from 1998 to 1999 is primarily
attributable to a decrease of $45.7 million in revenues due to the sale and
closure of the Company's psychiatric inpatient facilities, managed care
operations and other non-youth services business. The Company experienced an
increase of $6.7 million in revenues from its Retained Assets primarily as a
result of (i) an increase in revenues of $1.2 million from a new contract in
Puerto Rico which began in May 1998, (ii) an increase in revenues of $1.5
million generated by the Company's new facility located in Dothan, Alabama which
began operations in June 1998, (iii) an increase in revenues of $1.4 million
from two new contracts in the Gulf Coast Treatment Center and (iv) an increase
in revenues in the Company's other Retained Assets of approximately $2.6 million
primarily due to an increase in total census between periods.
13
<PAGE> 14
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
Total salaries, wages and benefits decreased from $43.1 million in the
six months ended June 30, 1998 to $23.0 million in the six months ended June 30,
1999. The decrease of $20.1 million in salaries, wages and benefits from 1998 to
1999 is primarily attributable to a decrease of $20.5 million due to the sale
and closure of the Company's psychiatric inpatient facilities, managed care
operations and other non-youth services business. The Company experienced an
increase of $4.3 million in salaries, wages and benefits from its Retained
Assets, and a decrease of $3.9 million in corporate office salaries, wages and
benefits. The increase in salaries, wages and benefits from its Retained Assets
was primarily a result of (i) an increase of $0.9 million due to the opening of
the Company's new facility in Dothan, Alabama, (ii) an increase of $0.8 million
due to the start-up of the Company's Puerto Rico operations, (iii) an increase
of $2.6 million in the Company's other youth services facilities due primarily
to an increase in total census between periods. The decrease of $3.9 million in
corporate office salaries, wages and benefits was directly attributable to the
termination of employees in connection with the Company's change in strategic
direction.
Other operating expenses decreased from $30.2 million in the six months
ended June 30, 1998 to $12.5 million in the six months ended June 30, 1999. The
decrease of $17.7 million in other operating expenses from 1998 to 1999 is
primarily attributable to a decrease of $12.9 million due to the sale and
closure of the Company's psychiatric inpatient facilities, managed care
operations and other non-youth services business. The Company experienced an
increase of $0.9 million in other operating expenses from its Retained Assets
and a decrease of $5.7 million in its corporate office other operating expenses.
The increase in other operating expenses in Retained Assets was primarily due to
an increase in total census between periods. The decrease in corporate office
other operating expenses was primarily attributable to the Company's previously
mentioned restructuring efforts.
Managed care patient costs were $5.4 million in the six months ended
June 30, 1998. The Company did not incur similar costs during the six months
ended June 30, 1999 due to the sale of its wholly owned managed behavioral
health care business on June 2, 1998.
The provision for doubtful accounts decreased from $4.5 million in the
six months ended June 30, 1998 to $1.0 million in the six months ended June 30,
1999. The decrease is primarily attributable to the sale and closure of the
Company's psychiatric inpatient facilities, managed care operations and other
non-youth services business.
Depreciation and amortization expense decreased from $2.4 million in
the six months ended June 30, 1998 to $1.2 million in the six months ended June
30, 1999 primarily due to the sale and closure of the Company's psychiatric
inpatient facilities, managed care operations and other non-youth services
business.
In connection with the Company's change in strategic direction, and in
accordance with the accounting guidance available in Emerging Issues Task Force
("EITF") No. 94-3, during the six months ended June 30, 1998, the Company (i)
initiated a restructuring of personnel at its corporate headquarters, including
the identification and communication of severance arrangements with individual
personnel, (ii) wrote off certain assets located within its corporate
headquarters which were considered to have no future economic benefit and (iii)
initiated the termination of certain contractual commitments which require
future payments. These amounts, which in the aggregate totaled $3.9 million, are
reflected as restructuring charges in the six months ended June 30, 1998.
During the six months ended June 30, 1998, in connection with the
Company's change in strategic direction, the Company decided to close or sell
certain operations, including the operations and assets discussed above, that
were identified as not compatible with the Company's future operating plans.
Accordingly, the carrying values of these facilities/operations were compared to
selling values or, if selling values were not available, to discounted future
cash flows, resulting in an aggregate non-cash asset
14
<PAGE> 15
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
impairment charge of $16.0 million. The Company completed these sales in
September 1998. Additionally, during the six months ended June 30, 1998, the
Company wrote-off cost in excess of net asset value of purchased businesses of
$0.7 million due to an asset impairment resulting from the change in strategic
direction.
Investment income and other increased by $1.6 million from the six
months ended June 30, 1998 to the six months ended June 30, 1999. The increase
is primarily a result of (i) a settlement awarded the Company in the amount of
$0.7 million related to previously written-off accounts receivable at one of the
Company's former behavioral health care facilities and (ii) a settlement awarded
the Company in the amount of $0.8 million from a former possible purchaser of
the Company's former HMO subsidiary.
Interest and other financing charges decreased from $4.4 million in the
six months ended June 30, 1998 to $0.6 million in the six months ended June 30,
1999. The decrease is primarily due to a decrease in the Company's average
outstanding borrowings between periods as a result of the partial prepayment of
indebtedness with proceeds from the aforementioned asset sales. In addition,
during the six months ended June 30, 1998, the Company incurred an expense of
$1.0 million for a non-refundable fee charged by a financial institution in
connection with an amendment to the Company's previous credit facility.
During the six months ended June 30, 1998, the Company recorded losses
of approximately $12.5 million related to the sale of its managed care
operations and its Three Rivers and Greenbrier facilities. These amounts are
reflected as losses related to asset sales and closed businesses in the
accompanying consolidated statement of operations.
The Company recorded a $0.1 million provision for income taxes in the
six months ended June 30, 1999. The provision for income taxes was recorded at
an effective tax rate significantly less than the statutory tax rate due to
significant net operating loss carryovers. The Company recorded a provision for
income taxes in the six months ended June 30, 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 in the six months ended June 30, 1998, the Company determined that its
tax planning strategies would not be realized and a full valuation allowance was
considered necessary.
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".
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 $0.5 million, primarily for the purchase of new software that will
be capitalized. To date, the Company has incurred approximately $0.4 million
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
15
<PAGE> 16
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
has completed the process of modifying, upgrading, and replacing major
computers, software applications and related equipment that have been identified
as adversely affected.
In addition to computers and related systems, the operation of medical
equipment, office and facilities equipment and other common services 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 remaining cost of $0.1 million 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
operations.
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 payers.
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 payers. Thus, while the
Company expects that it will be able to resolve any significant Year 2000
Problems with these payers, there can be no assurance that these payers 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 payers 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 operations.
The Company is currently testing all major computers, software, related
equipment, office and facility equipment. The Company expects to correct any
Year 2000 problems with its internal systems identified during testing prior to
December 31, 1999. As of June 30, 1999, the Company has not identified any Year
2000 problems with the internal systems tested. Any Year 2000 problem
encountered during the testing of internal systems could have a material adverse
effect on the Company's financial condition and results of operations.
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, 1999 and December 31, 1998, the Company had $(1.8) million
and $(1.6) million, respectively, in working capital and
16
<PAGE> 17
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
$0.1 million and $1.5 million, respectively, in cash and cash equivalents. The
Company's principal sources of liquidity as of June 30, 1999 and December 31,
1998 consisted primarily of the aforementioned cash and cash equivalents and
accounts receivable of $11.1 million and $12.9 million, respectively.
For the six months ended June 30, 1999, cash provided by operating
activities was $0.7 million as compared to cash provided by operating activities
of $1.6 million for the six months ended June 30, 1998. The decrease of $0.9
million during periods was primarily a result of payments made in connection
with the sale of the Company's divested assets and payments made to third-party
contractual agencies on cost report settlements.
Cash used in investing activities was $1.7 million for the six months
ended June 30, 1999 compared to cash provided by investing activities of $14.5
million for the six months ended June 30, 1998. The decrease is primarily due to
the Company's sale of its managed behavioral health care business in June 1998
and a decrease in capital expenditures during the six months ended June 30, 1999
primarily as a result of the asset sales.
The fluctuations in cash used in financing activities for the six
months ended June 30, 1999 when compared to the six months ended June 30, 1998
is primarily attributable to repayments of indebtedness of approximately $23.8
million offset by borrowings of approximately $8.2 million during the six months
ended June 30, 1998.
On October 30, 1998, the Company refinanced its then existing 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 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 August 2, 1999, $1.2 million had been
drawn under the Revolver and 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% at June 30, 1999), based on the Company's ratio of total
indebtedness to EBITDA or (ii) a function of the Eurodollar rate plus a margin
ranging from 2.0% 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 credit agreement) 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 (as defined in the credit agreement) exceeds $7.8 million.
17
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
The Company failed to maintain the required fixed charge coverage,
interest coverage and leverage ratios as of December 31, 1998. The Company's
lender agreed to waive these requirements as of December 31, 1998. On March 19,
1999, the Company's Senior Credit Facility was amended (the "First Amendment").
The First Amendment provided for a change to the definitions for purposes of
calculating the covenants in the future.
On June 30, 1999, the Company's Senior Credit Facility was amended and
restated to provide for the approval of the RHCL purchase (the "Second
Amendment"). The Second Amendment prohibits the payment of the RHCL purchase
price until the earlier to occur of certain events (as defined in the agreement)
or September 1, 1999. The Second Amendment also provides for a $3.0 million
reserve on the Revolver borrowing base until the occurence of certain events (as
defined in the Second Amendment).
The Company and its subsidiaries have pledged substantially all of
their real property, receivables and other assets as collateral for the Senior
Credit Facility.
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 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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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 June 30, 1999 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.
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 $2.3 million. On June 28, 1999, the arbitrator awarded the
former executive vice president $0.7 million in damages and interest.
Additionally, the Company is responsible for all fees and expenses incurred by
the former executive vice president in connection with the claim. The Company
had fully reserved for this contingency as of June 30, 1998.
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
totalling approximately $5.8 million. 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.
During fiscal 1996, the State of Louisiana requested repayment of
disproportionate share
18
<PAGE> 19
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
payments received by two of the Company's Louisiana 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. In connection with the alleged overpayment, during fiscal 1998, the
State of Louisiana used $0.5 million in payments owed to one of the Company's
Louisiana facilities and $5.0 million owed to RHCL to pay off the alleged
overpayment. The Company has filed an administrative appeal with the State of
Louisiana Department of Health and Hospitals Bureau of Appeals claiming that the
monies were improperly used by the State of Louisiana. 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.
19
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits
The Exhibits required to be filed as part of this Quarterly Report on Form 10-Q are as follows:
Exhibit 2.16 Stock Purchase Agreement dated May 14, 1999 between the Company, Ramsay Hospital
Corporation of Louisiana, Inc. and Paul Ramsay Holdings Pty. Limited
Exhibit 10.138 Second Amendment to Loan Agreement, Consent and Borrowing Base Change Notice
dated as of June 30, 1999 by and among the Company, certain subsidiaries of the
Company and Fleet Capital Corporation, as agent and lender
Exhibit 11 Computation of Net Income (Loss) Per Share
Exhibit 27 Financial Data Schedule
Exhibit 99.5 Press Release dated August 5, 1999
(b) Current Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated May 21,
1999 regarding a change in Registrant's Certifying Accountant.
</TABLE>
20
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RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereupon duly authorized.
RAMSAY YOUTH SERVICES, INC.
Registrant
/s/ Marcio C. Cabrera
-----------------------------------
Marcio C. Cabrera
Executive V.P. and
Chief Financial Officer
Date: August 2, 1999
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EXHIBIT 2.16
STOCK PURCHASE AGREEMENT
by and between
Ramsay Youth Services, Inc.,
Ramsay Hospital Corporation of Louisiana, Inc.
and
Paul Ramsay Holdings Pty. Limited
As of May 14, 1999
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TABLE OF CONTENTS
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ARTICLE I. PURCHASE AND SALE OF THE SHARES.......................................................................1
SECTION 1.01 Purchase and Sale of the Shares.......................................................1
SECTION 1.02 Purchase Price........................................................................1
SECTION 1.03 Delivery of the Shares................................................................1
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................2
SECTION 2.01 Corporate Existence and Power.........................................................2
SECTION 2.02 Corporate Authorization...............................................................2
SECTION 2.03 No Legal Bar; Conflicts...............................................................2
SECTION 2.04 Capitalization; Ownership of Shares...................................................3
SECTION 2.05 Subsidiaries..........................................................................3
SECTION 2.06 Liquidation; No Conduct of Business...................................................3
SECTION 2.07 Absence of Certain Changes............................................................4
SECTION 2.08 Financial Statements..................................................................4
SECTION 2.09 No Undisclosed Material Liabilities...................................................4
SECTION 2.10 Litigation............................................................................5
SECTION 2.11 Taxes.................................................................................5
SECTION 2.12 Employees.............................................................................5
SECTION 2.13 Compliance with Laws..................................................................5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER.........................................................6
SECTION 3.01 Corporate Existence and Power.........................................................6
SECTION 3.02 Corporate Authorization...............................................................6
SECTION 3.03 Non-Contravention.....................................................................6
ARTICLE IV. CLOSING..............................................................................................6
SECTION 4.01 Time and Place of Closing.............................................................6
SECTION 4.02 Payment for the Shares................................................................7
ARTICLE V. CONDITIONS TO THE SELLER'S AND THE COMPANY'S OBLIGATIONS TO CLOSE.....................................7
SECTION 5.01 No Litigation ........................................................................7
SECTION 5.02 Representations, Warranties and Covenants.............................................7
ARTICLE VI. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE....................................................7
SECTION 6.01 No Litigation.........................................................................7
SECTION 6.02 Representations, Warranties and Covenants.............................................7
SECTION 6.03 Sale of all the Shares................................................................7
SECTION 6.04 Delivery of the Shares and Minutes....................................................7
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SECTION 6.05 Consents..............................................................................8
ARTICLE VII. INDEMNIFICATION.....................................................................................8
SECTION 7.01 Indemnification by the Seller.........................................................8
SECTION 7.02 Indemnification by the Purchaser......................................................8
SECTION 7.03 Procedure for Indemnification.........................................................8
ARTICLE VIII. MISCELLANEOUS.....................................................................................10
SECTION 8.01 Notices..............................................................................10
SECTION 8.02 Successors and Assigns...............................................................10
SECTION 8.03 Survival of Representations..........................................................11
SECTION 8.04 Governing Law........................................................................11
SECTION 8.05 Further Assurances...................................................................11
SECTION 8.06 Invalidity...........................................................................11
SECTION 8.07 Counterparts; Effectiveness..........................................................11
SECTION 8.08 Entire Agreement.....................................................................11
SECTION 8.09 Tax Returns..........................................................................11
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") made as of the 14th day
of May, 1999, by and between Ramsay Hospital Corporation of Louisiana, Inc., a
Delaware corporation (the "Company"), Paul Ramsay Holdings Pty. Limited, an
Australian corporation (the "Seller"), and Ramsay Youth Services, Inc., a
Delaware corporation (the "Purchaser").
WITNESSETH:
WHEREAS, the Seller is the holder of all of the issued and
outstanding shares of capital stock of the Company (the "Shares");
WHEREAS, pursuant to that certain Asset Purchase Agreement, by
and among Dynamic Health, Inc., the Company and certain other parties, dated
August 10, 1992 (the "Asset Purchase Agreement"), the Company sold all or
substantially all of its assets; and
WHEREAS, the Purchaser desires to acquire from the Seller, and
the Seller desires to sell to the Purchaser, all of the Shares held by such
Seller, on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES
1.01 PURCHASE AND SALE OF THE SHARES. (a) Subject to the terms
and conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, on the Closing Date and
at the time and place of Closing referred to in Article IV below, the Seller
agrees to sell, assign and convey to the Purchaser, free and clear of all Liens,
and the Purchaser agrees to purchase, acquire and accept from the Seller, all of
the Shares.
1.02 PURCHASE PRICE. The aggregate purchase price (the
"Purchase Price") for the Shares to be delivered at the Closing is $700,000,
payable as provided in Section 4.2 hereof by delivery to the Seller of a wire
transfer in immediately available funds to an account(s) designated by the
Seller or by a certified or official bank check(s).
1.03 DELIVERY OF THE SHARES. At the Closing, the Seller shall
deliver the Shares to the Purchaser by delivering certificates representing the
Shares along with stock powers duly endorsed in blank, each such certificate to
be accompanied by any requisite stock transfer tax stamps.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLER
The Company and the Seller, jointly and severally, hereby
represent and warrant to, and covenant and agree with, the Purchaser, as of the
date hereof and as of the Closing Date, that:
2.01 CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly
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existing and in good standing under the laws of the State of Delaware. The
Company is not required by applicable law to be qualified to do business as a
foreign corporation. The Company has heretofore made available to the Purchaser
true and complete copies of the Company's articles of incorporation and bylaws
as currently in effect, including all amendments thereto and restatements
thereof, and of the corporate minutes and the stock record books of the Company.
2.02 CORPORATE AUTHORIZATION. (a) The execution and delivery
by the Company of this Agreement and each other instrument or document required
to be executed and delivered by the Company pursuant hereto, the performance by
the Company of its covenants and agreements hereunder and thereunder and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate and shareholder action.
This Agreement and each other instrument other document required to be executed
and delivered by the Company pursuant hereto constitutes a valid and legally
binding obligation of the Company enforceable against the Company in accordance
with its terms.
(b) The Seller has all necessary power, authority and
legal right to execute and deliver this Agreement and each other instrument or
document required to be executed and delivered by the Seller pursuant hereto and
to perform the Seller's covenants and agreements hereunder and thereunder, and
this Agreement and each other instrument or document required to be executed and
delivered by the Seller pursuant hereto constitutes a valid and legally binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms.
2.03 NO LEGAL BAR; CONFLICTS. (a) Neither the execution and
delivery of this Agreement or any other instrument or document required to be
executed and delivered by the Company pursuant hereto, nor the consummation of
the transactions contemplated hereby or thereby, (i) violate or will violate any
provision of the articles of incorporation or bylaws of the Company, (ii)
contravene, conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
the Company, (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or to a loss of any benefit to which the Company is entitled under any
material agreement or other instrument binding upon the Company or any license,
franchise, permit or other similar authorization held by the Company, or (iv)
result in the creation or imposition of any Lien on any asset of the Company. 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 (including, without limitation, pursuant to the terms of
any contracts, agreements, licenses, leases, arrangements and other documents to
which the Company is a party, or permits, licenses, approvals, franchises and
authorizations issued to the Company by any Governmental Authority) are required
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
pursuant hereto, or the consummation of the transactions contemplated hereby or
thereby.
(b) Neither the execution and delivery of this
Agreement or any other instrument or document required to be executed and
delivered by the Seller pursuant hereto, nor the consummation of the
transactions contemplated hereby or thereby, (i) contravene, conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Seller, (ii)
constitute a default under or give rise to a right of termination, cancellation
or acceleration of any right or obligation of the Seller or to a loss of any
benefit to which the Seller is entitled under any material agreement or other
instrument binding upon the Seller or any license, franchise, permit or other
similar authorization held by the Seller, or (iii) result in the creation or
imposition of any Lien on any asset of the Seller. 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 in connection with the execution and delivery of this Agreement or any
other instrument or document required to be executed and delivered by the Seller
pursuant hereto, or the consummation of the transactions contemplated hereby or
thereby.
2.04 CAPITALIZATION; OWNERSHIP OF SHARES. The authorized
capital stock of the Company consists of 100 shares of common stock, without par
value. As of the date hereof, there are outstanding 100 Shares, constituting all
of the outstanding shares of capital stock of the Company. The Shares have been
duly authorized
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and validly issued and are fully paid and nonassessable and are owned
beneficially and of record by the Seller, free and clear of all Liens. There are
no outstanding subscriptions, warrants, options, calls, commitments or other
rights or agreements to which either the Company or the Seller is subject to or
bound relating to the issuance, sale, transfer or redemption of shares of
capital stock or other securities of the Company. There are no agreements or
understandings concerning the issuance, voting, transfer, acquisition or
disposition of shares of capital stock or other securities of the Company,
except pursuant to this Agreement. No shares of capital stock or other
securities of the Company are reserved for any purpose.
(b) The Seller owns all of the Shares free and clear
of all Liens (including without limitation any restriction on the right to vote,
sell or otherwise dispose of the Shares), and the Seller has the unrestricted
right to transfer the Shares owned by such Seller to the Purchaser and, upon
transfer of the Shares to the Purchaser hereunder, the Purchaser will acquire
good, valid and marketable title to such Shares, free and clear of all Liens.
2.05 SUBSIDIARIES. The Company does not have any Subsidiaries.
2.06 LIQUIDATION; NO CONDUCT OF BUSINESS. The Company is in
the process of winding up its business and affairs and will take all actions
necessary to wind up its affairs as soon as practicable following the date of
this Agreement. The Company has not conducted any business as of the effective
date of the Asset Purchase Agreement and shall not conduct any business after
the date of this Agreement (other than actions necessary to wind up its
affairs).
2.07 ABSENCE OF CERTAIN CHANGES. Except as set forth in
SCHEDULE 2.10 hereto or in the Financial Statements, as of the effective date of
the Asset Purchase Agreement, there has not been and, as of the date hereof,
there shall not be:
(a) any event, occurrence or development or state of
circumstances or facts which affects or relates to the Company, which has had or
would reasonably be expected to have a Material Adverse Effect;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition by the Company
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company;
(c) any amendment of any material term of any
outstanding security of the Company;
(d) any incurrence, assumption or guarantee by the
Company of any indebtedness for borrowed money;
(e) any creation or assumption by the Company of any
Lien on any material asset;
(f) any making of any loan, advance or capital
contributions to or investment in any Person;
(g) any change in any method of accounting or
accounting practice by the Company, except for any such change required by
reason of a concurrent change in generally accepted accounting principles; or
(h) any (i) grant of any severance or termination pay
to any director or officer of the Company, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director or officer
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of the Company, (iii) increase in benefits payable under any existing severance
or termination pay policies or employment agreements, or (iv) increase in
compensation, bonus or other benefits payable to directors or officers of the
Company.
2.08 FINANCIAL STATEMENTS. Schedule 2.08 contains true and
complete copies of the unaudited balance sheet and statement of income of the
Company as at and for the 11-month period ending May 14, 1999 (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for the absence of footnotes and normally reoccurring year-end
adjustments) and present fairly, in all material respects, the financial
condition of the Company as of the date thereof and results of its operations
for the period then ended in accordance with generally accepted accounting
principles consistently applied.
2.09 NO UNDISCLOSED MATERIAL LIABILITIES. Except as set forth
on SCHEDULE 2.10 hereto or in the Financial Statements, there are no liabilities
of the Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances which, individually or in the aggregate, have
or would reasonably be expected to have a Material Adverse Effect.
2.10 LITIGATION. Except as set forth on SCHEDULE 2.10 hereto,
there are no claims, disputes, actions, suits, arbitrations, investigations or
proceedings pending or, to the knowledge of the Company or the Seller,
threatened against or affecting the Company, any of its properties or the Seller
with respect to the Shares, before any court or arbitrator or any governmental
body, agency or official.
2.11 TAXES. 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
through the date hereof. Except as set forth on SCHEDULE 2.10 hereto or in the
Financial Statements, the Company has paid all taxes, including, but not limited
to, income, estimated, excise, franchise, gross receipts, capital stock,
profits, stamp, occupation, sales, use, transfer, value added, property (whether
real, personal or mixed) and other taxes, and interest, penalties, fines, costs
and assessments (collectively, "Taxes"), shown as due and payable on such Tax
Returns (whether or not reflected thereon). There are no tax liens on any of the
properties or assets, real, personal or mixed, tangible or intangible, of the
Company. Except as set forth on SCHEDULE 2.10 or in the Financial Statements, no
written inquiries or notices have been received by the Company or the Seller
from any taxing authority with respect to possible claims for Taxes, neither the
Company nor the Seller has any reason to believe that such an inquiry or notice
is pending or threatened, and, to the best of the knowledge of the Company and
the Seller, there is no basis for any additional claims or assessments for
Taxes. Neither the Company nor the Seller has agreed to the extension of the
statute of limitations with respect to any Tax Return or tax period. The Company
has made available to the Purchaser copies of the Tax Returns relating to
federal and state Taxes based on income filed by it for the past three years and
for all other past periods as to which the appropriate statute of limitations
has not lapsed.
2.12 EMPLOYEES. The Company does not have any employees nor
does it have any liabilities or obligations under any Employee Plans. "Employee
Plans" shall mean each "employee benefit plan", as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), which (i) is
subject to any provision of ERISA and (ii) is maintained, administered or
contributed to by the Company or any affiliate (as defined below) and covers any
employee or former employee of the Company or any affiliate or under which the
Company or any affiliate has any liability. For purposes of this Section,
"affiliate" of any Person means any other Person which, together with such
Person, would be treated as a single employer under Section 414 of the Code.
2.13 COMPLIANCE WITH LAWS. The Company is not in violation of,
and has not violated, any applicable provisions of any laws, statutes,
ordinances or regulations other than violations which would not, in the
aggregate, have a Material Adverse Effect. Except as set forth on SCHEDULE 2.10
hereto or in the Financial Statements, neither the Company nor the Seller 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.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to, and covenants
and agrees with, the Company and the Seller, as of the date hereof and as of the
Closing Date, that:
3.01 CORPORATE EXISTENCE AND POWER. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware.
3.02 CORPORATE AUTHORIZATION. 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 and shareholder action. This Agreement constitutes a valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms.
3.03 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 Purchaser pursuant hereto, nor the consummation of
the transactions contemplated hereby or thereby, (i) violate or will violate any
provision of the articles of incorporation or bylaws of the Purchaser, (ii)
contravene, conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
the Purchaser, (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Purchaser or to a loss of any benefit to which the Purchaser is entitled under
any material agreement or other instrument binding upon the Purchaser or any
license, franchise, permit or other similar authorization held by the Purchaser,
or (iv) result in the creation or imposition of any Lien on any asset of the
Purchaser. 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 in connection with the
execution and delivery of this Agreement or any other instrument or document
required to be executed and delivered by the Purchaser pursuant hereto, or the
consummation of the transactions contemplated hereby or thereby.
ARTICLE IV
CLOSING
4.01 TIME AND PLACE OF CLOSING. The closing of the purchase
and sale of the Shares (the "Closing") shall be held at 10:00 A.M. at the
offices of Haythe and Curley, 237 Park Avenue, New York, New York within five
business days after the conditions precedent set forth in Articles V and VI 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").
4.02 PAYMENT FOR THE SHARES. The Purchaser shall pay to the
Seller the Purchase Price as set forth in Section 1.02 hereof on the earlier of
(i) September 1, 1999 or (ii) the date upon which the Purchaser and Correction
Properties Trust shall have concluded that certain sale/leaseback transaction
with respect to the Purchaser's Benchmark Youth Residential Facility to the
satisfaction of the agent of the Purchaser's lenders in its sole discretion.
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ARTICLE V
CONDITIONS TO THE SELLER'S AND THE COMPANY'S OBLIGATIONS TO CLOSE
5.01 NO LITIGATION. No action, suit or proceeding against the
Company, the Seller 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.
5.02 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by the Purchaser herein shall be true and
correct as of the Closing Date with the same force and effect as though such
representations and warranties had been made as of the date of the Closing. 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.
ARTICLE VI
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
6.01 NO LITIGATION. No action, suit or proceeding against the
Company, the Seller 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.
6.02 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by each of the Company and the Seller herein
shall be true and correct as of the Closing Date with the same force and effect
as though such representations and warranties had been made as of the date of
the Closing. All the terms, covenants and conditions of this Agreement to be
complied with and performed by each of the Company and the Seller on or before
the date of the Closing shall have been duly complied with and performed.
6.03 SALE OF ALL THE SHARES. All the Shares to be sold and
delivered to the Purchaser at the Closing shall be free and clear of all Liens.
6.04 DELIVERY OF THE SHARES AND MINUTES. The Purchaser shall
have received, at the Closing, 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. The Purchaser shall also have received, on
or before the Closing, the minute books and all other records of stockholdings
and stock transfers for the Company.
6.05 CONSENTS. The Purchaser shall have received evidence
satisfactory to it of receipt by the Company and the Seller of all necessary
consents of third parties under the contracts, agreements, leases and other
instruments of the Company, which consents shall not provide for the
acceleration of any liabilities or any other detriment to the Purchaser or the
Company. In addition, the Purchaser shall have obtained all corporate and all
third party consents, including consents of lenders, approvals or
authorizations, if any, necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
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ARTICLE VII
INDEMNIFICATION
7.01 INDEMNIFICATION BY THE SELLER. The Seller shall indemnify
and hold harmless the Purchaser (and its employees, officers, directors,
stockholders, agents and representatives) (collectively, the "Purchaser
Indemnified Parties") from and against any and all losses, claims, taxes,
assessments, demands, damages, liabilities, obligations, costs and/or expenses
whatsoever which are sustained or incurred by any of the Purchaser Indemnified
Parties, including, without limitation, any fees and disbursements of counsel
incurred by the Purchaser, to the extent sustained or incurred by reason of (a)
the breach by the Company or the Seller of any of their respective obligations,
covenants or provisions of this Agreement, (b) the inaccuracy of any of the
representations or warranties made by the Company or the Seller in this
Agreement or in any certificate delivered to the Purchaser pursuant hereto by
the Company or the Seller or (c) any claims of indemnification made under the
Asset Purchase Agreement against the Company or the Purchaser by a third party.
7.02 INDEMNIFICATION BY THE PURCHASER. The Purchaser shall
indemnify and hold harmless the Seller (and its employees, officers, directors,
stockholders, agents and representatives) (collectively, the "Seller Indemnified
Parties") from and against any and all losses, claims, taxes, assessments,
demands, damages, liabilities, obligations, costs and/or expenses whatsoever
which are sustained or incurred by the Seller, including, without limitation,
any fees and disbursements of counsel incurred by the Seller, to the extent
sustained or incurred by reason of (a) the breach by the Purchaser of any of its
obligations, covenants or provisions of this Agreement or (b) the inaccuracy of
any of the representations or warranties made by the Purchaser in this Agreement
or in any certificate delivered to the Seller or the Company pursuant hereto by
the Purchaser.
7.03 PROCEDURE FOR INDEMNIFICATION. (a) In the event that any
party hereto shall incur (or anticipate that it may incur in the case of third
party claims) any damages in respect of which indemnity may be sought by such
person pursuant to this Section (each, an "Indemnification Matter"), the party
indemnified hereunder (the "Indemnitee") shall notify the party(s) providing
indemnification (collectively, the "Indemnitor") by sending a written Indemnity
Notice (as hereinafter defined); and in the case of third party claims, an
Indemnity Notice shall be given within 60 days after the discovery by the
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 Indemnitor demonstrates that the
defense of such action is materially prejudiced by such delay or failure to
notify. Any notice of indemnification hereunder (each, an "Indemnity Notice")
will (i) provide (with reasonable specificity) the basis on which
indemnification is being asserted, (ii) set forth the amount (or then current
estimate thereof) of damages for which indemnification is being asserted, if
known, and (iii) in the case of third party claims, be accompanied by copies of
all relevant pleading, demands and other papers served on or delivered to the
Indemnitee.
(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 diligently pursued in a professional 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 without the
prior written consent of the Indemnitee, and (iii) to employ counsel selected by
the Indemnitor, who shall be satisfactory to the Indemnitee, to contest any such
claim or litigation resulting therefrom 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"), notify the Indemnitee in
writing of its intention to assume the defense of such claim. If defendants in
any action include the Indemnitee and the Indemnitor, and the Indemnitee shall
have been advised by its counsel in writing that there are legal defenses
available to the Indemnitee which are materially different from or in addition
to those available to the Indemnitor, the Indemnitee shall have the right to
employ its own counsel in such action, and, in such event, the fees and expenses
of such counsel shall be borne by the Indemnitor. If the Indemnitor does not
deliver to the Indemnitee within the Indemnity Notice Period written notice that
the Indemnitor will assume the defense of any such claim or litigation resulting
therefrom, 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. The costs, fees and
expenses of all proceedings, contests or lawsuits with respect to such claims
shall be borne by the Indemnitor. Within 10 days after the occurrence of a final
determination with respect to a third party claim, the Indemnitor shall pay the
Indemnitee
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the amount of damages incurred by the Indemnitee. In the event that liability
hereunder does not involve a third party claim, the Indemnitor and the
Indemnitee shall determine as expeditiously as practicable the amount of damages
incurred to the date of such determination (the "Determination Amount"). The
Indemnitor shall within 30 days after the date of an Indemnity Notice pay to the
Indemnitee the Determination Amount and shall thereafter pay any other damages
on demand.
ARTICLE VIII
MISCELLANEOUS
8.01 NOTICES. All notices, requests and other communications
hereunder shall be in writing and delivered personally, sent by telecopy, sent
by Federal Express or other recognized overnight carrier, or sent by registered
or certified mail, postage prepaid, as follows:
(1) If to the Purchaser (or the Company after the
Closing), to:
Ramsay Youth Services, Inc.
One Alhambra Plaza
Suite 750
Coral Gables, Florida 33134
Telephone: (305) 569-6993
Telecopy: (305) 569-4647
Attention: President
(2) If to the Company prior to the Closing, to:
Ramsay Hospital Corporation of Louisiana, Inc.
c/o Paul Ramsay Holdings Pty. Limited
154 Pacific Highway, 9th Floor
Saint Leonards NSW 2065
Australia
Telephone: 011-612-9433-3444
Telecopy: 011-612-9433-3460
Attn.: President
(3) If to the Seller, to:
Ramsay Health Care Pty. Limited
154 Pacific Highway, 9th Floor
Saint Leonards NSW 2065
Australia
Telephone: 011-612-9433-3444
Telecopy 011-612-9433-3460
Attn.: President
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective when delivered at the address specified
in this Section.
8.02 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure
8
<PAGE> 12
to the benefit of the parties hereto and their respective successors and
assigns.
8.03 SURVIVAL OF REPRESENTATIONS. Each representation,
warranty, covenant and agreement of the parties hereto herein contained shall
survive the Closing, notwithstanding any investigation at any time made by or on
behalf of any party hereto.
8.04 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware.
8.05 FURTHER ASSURANCES. Each of the Seller and the Company,
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, and otherwise give effect to, the
transactions contemplated by this Agreement.
8.06 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 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.
8.07 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
8.08 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
understandings and negotiations, both written and oral, between the parties with
respect to the subject matter of this Agreement. No modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
8.09 TAX RETURNS. It is understood and agreed by the parties
hereto that the Purchaser shall be responsible for the preparation and filing of
all tax returns of the Company covering periods that end on the Closing Date,
and shall be responsible for the payment of all taxes shown on such tax returns.
In addition, the Purchaser agrees to include the Company in all consolidated tax
returns for periods that include the day after the Closing Date.
* * *
9
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
RAMSAY YOUTH SERVICES, INC.
By:
---------------------------------------
Title: Vice President
RAMSAY HOSPITAL CORPORATION OF
LOUISIANA, INC.
By:
---------------------------------------
Title:
PAUL RAMSAY HOLDINGS PTY. LIMITED
By:
---------------------------------------
Title: Director
10
<PAGE> 14
Annex A
INDEX OF DEFINITIONS
"Asset Purchase Agreement" shall have the meaning set forth in the
recitals hereto.
"Closing" shall have the meaning set forth in Section 4.01 hereof.
"Closing Date" shall have the meaning set forth in Section 4.01 hereof.
"Determination Amount" shall have the meaning set forth in Section 7.03
hereof.
"Employee Plans" shall have the meaning set forth in Section 2.11
hereof.
"ERISA" shall have the meaning set forth in Section 2.11 hereof.
"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.
"Indemnification Matter" shall have the meaning set forth in Section
7.03 hereof.
"Indemnitee" shall have the meaning set forth in Section 7.03 hereof.
"Indemnitor" shall have the meaning set forth in Section 7.03 hereof.
"Indemnity Notice" shall have the meaning set forth in Section 7.03
hereof.
"Indemnity Notice Period" shall have the meaning set forth in Section
7.03 hereof.
"Liens" shall mean all liens, mortgages, pledges, charges, security
interests, covenants, easements, restrictions, adverse claims or other
encumbrances of any kind whatsoever and howsoever arising.
"Material Adverse Effect" shall mean a material adverse effect,
individually or in the aggregate, on the properties, assets or condition
(financial or other) of the Company.
"Purchase Price" shall have the meaning set forth in Section 1.02
hereof.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 7.01 hereof.
"Shares" shall have the meaning set forth in the recitals hereof.
"Subsidiary" of any person means (i) any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by such person, and (ii) any
partnership of which such person is a general partner.
i
<PAGE> 15
"Tax Returns" shall have the meaning set forth in Section 2.10 hereof.
"Taxes" shall have the meaning set forth in Section 2.10 hereof.
ii
<PAGE> 1
EXHIBIT 10.138
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT,
CONSENT AND BORROWING BASE CHANGE NOTICE
This Second Amendment to Loan and Security Agreement, Consent and
Borrowing Base Change Notice (this "SECOND AMENDMENT") is entered into as of the
30th day of June, 1999, between 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 Second
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 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 Second 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, as amended
(the "LOAN AGREEMENT").
W I T N E S S E T H:
WHEREAS, Holdings entered into that certain Stock Purchase Agreement
(the "RHCL STOCK PURCHASE Agreement") dated as of May 14, 1999, by and among
Holdings, Ramsay Hospital Corporation of Louisiana, Inc., a Delaware corporation
("RHCL"), and Paul Ramsay Holdings Pty. Limited, an Australian corporation
("RAMSAY Holdings"), pursuant to which Holdings has agreed to purchase, and
Ramsay Holdings has agreed to sell to Holdings, all of the issued and
outstanding shares of the capital stock of RHCL (upon closing thereof, the "RHCL
STOCK PURCHASE");
WHEREAS, RHCL shall become a wholly-owned subsidiary of Holdings upon
the consummation of the RHCL Stock Purchase;
WHEREAS, Borrowers have requested that the Agent for the benefit of
Lenders consent to the RHCL Stock Purchase;
WHEREAS, the Borrowers have requested that the Loan Agreement be
amended to reflect the addition of RHCL as a Subsidiary of Holdings and to amend
the term "Restricted Subsidiaries" in the Loan Agreement to include RHCL; and
<PAGE> 2
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 4 hereof and in reliance on the representations, warranties,
covenants and agreements contained in this Second Amendment, the Loan Agreement
shall be amended effective June 30, 1999 (the "EFFECTIVE DATE") in the manner
provided in this SECTION 1:
1.1 AMENDED DEFINITIONS. The definitions contained in APPENDIX A to the
Loan Agreement shall be amended as follows:
1.1.1 AMENDMENT TO DEFINITION OF "RESTRICTED SUBSIDIARIES".
The definition of the term "Restricted Subsidiaries" contained in
APPENDIX A to the Loan Agreement shall be amended by deleting that
definition in its entirety and inserting in its place the following:
RESTRICTED SUBSIDIARIES - BETHANY PSYCHIATRIC HOSPITAL, INC., AN
OKLAHOMA CORPORATION, HSA OF OKLAHOMA, INC., AN OKLAHOMA CORPORATION,
RHCI SAN ANTONIO, INC., A DELAWARE CORPORATION, TRANSITIONAL CARE
VENTURES, INC., A DELAWARE CORPORATION, TRANSITIONAL CARE VENTURES
(TEXAS), INC., A DELAWARE CORPORATION, AND RAMSAY HOSPITAL CORPORATION
OF LOUISIANA, INC., A DELAWARE CORPORATION.
1.1.2 AMENDMENT TO DEFINITION OF "PRO FORMA QUARTERLY
AVAILABILITY".
The definition of the term "Pro Forma Quarterly Availability" contained
in APPENDIX A to the Loan Agreement shall be amended by deleting that
definition in its entirety and inserting in its place the following:
PRO FORMA QUARTERLY AVAILABILITY - FOR ANY FISCAL QUARTER OF HOLDINGS
THE AVERAGE DAILY BALANCE OF THE AVAILABILITY (CALCULATED WITHOUT
TAKING INTO ACCOUNT THE BENCHMARK FACILITY RESERVE) MINUS THE AVERAGE
DAILY LC AMOUNT AND MINUS SETTLEMENT AMOUNTS PAID IN SUCH FISCAL
QUARTER OR COMMITTED TO BE PAID IN THE NEXT-FOLLOWING FISCAL QUARTER,
CALCULATED ON A PRO FORMA BASIS FOR SUCH FISCAL QUARTER AS IF SUCH
SETTLEMENT AMOUNTS WERE PAID IN CASH ON THE FIRST DAY OF SUCH FISCAL
QUARTER.
1.2 AMENDMENT ACKNOWLEDGING ADDITION TO BORROWING BASE RESERVE. SECTION
1.1.1 (A) of the Loan Agreement shall be amended by inserting a new SUBSECTION
1.1.1(A)(v) as follows:
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE - Page 2
<PAGE> 3
(v) IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT, ON ANY
BORROWING BASE CHANGE DATE ARISING AS THE RESULT OF ANY BORROWING BASE
CHANGE NOTICE GIVEN BY AGENT PURSUANT TO SECTION 1.1.1(A)(ii), AN
ADDITIONAL RESERVE OF THREE MILLION AND NO/100 DOLLARS ($3,000,000.00)
SHALL BE ESTABLISHED AGAINST THE AMOUNT OF REVOLVING CREDIT LOANS THAT
BORROWERS MAY OTHERWISE REQUEST UNDER THIS AGREEMENT (THE "BENCHMARK
FACILITY RESERVE"), WHICH BENCHMARK FACILITY RESERVE SHALL REMAIN IN
PLACE UNTIL THE DATE UPON WHICH HOLDINGS AND CORRECTIONAL PROPERTIES
TRUST SHALL HAVE CONCLUDED THAT CERTAIN SALE/LEASEBACK OF HOLDINGS'
BENCHMARK YOUTH RESIDENTIAL FACILITY TO THE SATISFACTION OF AGENT IN
ITS SOLE DISCRETION.
1.3 AMENDMENT TO NEGATIVE COVENANTS. The negative covenants contained
in SECTION 8.2 of the Loan Agreement shall be amended as follows:
1.3.1 AMENDMENT TO NEGATIVE COVENANT - INTERCOMPANY LOANS.
SUBSECTION 8.2.2 of the Loan Agreement shall be amended by the
insertion of the following paragraph in its entirety at the end of that
subsection:
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
SECTION 8.2.2, HOLDINGS MAY MAKE AN ADVANCE IN AN AMOUNT NOT TO EXCEED
$1,900,000.00 TO RAMSAY HOSPITAL CORPORATION OF LOUISIANA, INC. TO
PERMIT RAMSAY HOSPITAL CORPORATION OF LOUISIANA, INC. TO PAY ITS
FEDERAL TAX OBLIGATIONS, PROVIDED THAT THE SUM ADVANCED SHALL BE USED
SOLELY TO PAY THE FEDERAL TAX OBLIGATIONS OF RAMSAY HOSPITAL
CORPORATION OF LOUISIANA, INC. AND SUCH TAX OBLIGATION IS PROMPTLY PAID
UPON RECEIPT OF SUCH ADVANCE.
1.3.2 ADDITION OF NEGATIVE COVENANT REGARDING PAYMENT WITH
RESPECT TO RHCL STOCK Purchase. SECTION 8.2 of the Loan Agreement shall
be amended by inserting a new SUBSECTION 8.2.19 as follows:
8.2.19 LIMITS ON PAYMENT WITH RESPECT TO RHCL STOCK PURCHASE.
HOLDINGS SHALL NOT PAY THE $700,000 CASH PURCHASE PRICE WITH RESPECT TO
ITS PURCHASE OF ALL OF THE CAPITAL STOCK OF RAMSAY HOSPITAL CORPORATION
OF LOUISIANA, INC. UNTIL THE EARLIER OF (i) SEPTEMBER 1, 1999, OR (ii)
THE DATE UPON WHICH HOLDINGS AND CORRECTIONAL PROPERTIES TRUST SHALL
HAVE CONCLUDED THAT CERTAIN SALE/LEASEBACK OF HOLDINGS' BENCHMARK YOUTH
RESIDENTIAL FACILITY TO THE SATISFACTION OF AGENT IN ITS SOLE
DISCRETION.
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.
SECTION 2. CONSENT. Agent and Lenders hereby consent to the RHCL Stock
Purchase pursuant to the terms and conditions set forth in the RHCL Stock
Purchase Agreement. This
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE - Page 3
<PAGE> 4
consent is conditioned upon the Borrowers' representations and warranties
contained in SECTION 5 of this Second Amendment, and is understood and agreed by
the parties that this consent shall be rendered null, void and without effect
upon any Borrower's breach of any such representation or warranty.
SECTION 3. BORROWING BASE CHANGE NOTICE. Pursuant to SECTION
1.1.1(A)(ii) of the Loan Agreement, Agent hereby gives
notice to Borrowers of the change of the Variable Component
from Variable Amount A to Variable Amount B. Agent and each
Borrower hereby acknowledges and agrees that this Second
Amendment constitutes written notice by Agent of such change
in the Variable Component.
SECTION 4. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENTS. The
amendments to the Loan Agreement contained in SECTION 1 of this Second Amendment
shall be effective only upon the satisfaction of each of the conditions set
forth in this SECTION 4. If each condition set forth in this SECTION 4 has not
been satisfied by July 11, 1999, this Second Amendment and all obligations of
Lenders contained herein shall, at the option of Lenders, terminate.
4.1 DOCUMENTATION. Agent and Lenders shall have received, in form and
substance acceptable to Agent and Lenders and their counsel (i) a duly executed
copy of this Second Amendment, (ii) 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 (iii) any other
documents, instruments and certificates as Agent and Lenders and their counsel
shall require in connection therewith prior to the date hereof, all in form and
substance satisfactory to Agent and Lenders and their counsel.
4.2 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 each
Borrower of this Second Amendment.
4.3 NO DEFAULT. No Default or Event of Default shall exist.
4.4 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
Second Amendment, the Agreement or the consummation of the transactions
contemplated hereby.
4.5 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.
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE - Page 4
<PAGE> 5
4.6 COPY OF STOCK PURCHASE AGREEMENT. Agent and Lenders shall have
received a true and correct copy of the RHCL Stock Purchase Agreement and all
related documents.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER AND RHCL. To
induce Agent and Lenders to enter into this Second Amendment, each Borrower
hereby represents and warrants to Agent and Lenders as follows:
5.1 NO LIABILITIES OF RHCL EXCEPT TAX LIABILITY. RHCL has no material
liabilities, indebtedness or other obligations (including, without limitation,
contingent liabilities) other than a federal tax liability of approximately
$1,800,000.
5.2 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.
5.3 CORPORATE AUTHORITY; NO CONFLICTS. The execution, delivery and
performance by each Borrower of this Second Amendment and all documents,
instruments and agreements contemplated herein are within each Borrower's
respective 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
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.
5.4 ENFORCEABILITY. This Second Amendment constitutes the valid and
binding obligation of each of the Borrowers 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.
5.5 NO DEFENSES. No Loan Party has any defenses to payment,
counterclaims or rights of set off with respect to the Obligations.
SECTION 6. MISCELLANEOUS.
6.1 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
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE - Page 5
<PAGE> 6
amendments and modifications herein contained shall in no manner affect or
impair the Obligations or the Liens securing the payment and performance
thereof.
6.2 PARTIES IN INTEREST. All of the terms and provisions of this Second
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.
6.3 LEGAL EXPENSES. The Borrowers hereby agree to pay promptly
following receipt of an invoice detailing all reasonable fees and expenses of
counsel to Agent and Lenders incurred by Agent or any Lender, in connection with
the preparation, negotiation and execution of this Second Amendment and all
related documents.
6.4 COUNTERPARTS. This Second Amendment may be executed in
counterparts, and all parties need not execute the same counterpart. However, no
party shall be bound by this Second Amendment until all parties have executed a
counterpart. Facsimiles shall be effective as originals.
6.5 COMPLETE AGREEMENT. THIS SECOND 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.
6.6 HEADINGS. The headings, captions and arrangements used in this
Second Amendment are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify or modify the terms of this Second Amendment,
nor affect the meaning thereof.
[SIGNATURE PAGES FOLLOW]
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE - Page 6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Second
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
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE -
Signature Page
<PAGE> 8
CONSENT AND REAFFIRMATION
Each of the undersigned (each a "GUARANTOR") hereby (i) acknowledges
receipt of a copy of the foregoing Second Amendment to Loan and Security
Agreement, Consent and Borrowing Base Change Notice (the "SECOND AMENDMENT");
(ii) consents to Borrowers' execution and delivery thereof; (iii) agrees to be
bound thereby; and (iv) affirms that nothing contained therein shall modify in
any respect whatsoever its guaranty of the obligations of the Borrowers to
Lenders pursuant to the terms of those certain Guaranties dated March 19, 1999
(collectively, the "GUARANTY") and reaffirms that the Guaranty is and shall
continue to remain in full force and effect. Although each Guarantor has been
informed of the matters set forth herein and has acknowledged and agreed to
same, each Guarantor understands that the Lenders have no obligation to inform
Guarantors of such matters in the future or to seek any Guarantor's
acknowledgment or agreement to future amendments or waivers, and nothing herein
shall create such duty.
IN WITNESS WHEREOF, the each of the undersigned has executed this
Consent and Reaffirmation on and as of the date of the Second Amendment.
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
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE -
Signature Page
<PAGE> 9
Accepted in Dallas, Texas:
FLEET CAPITAL CORPORATION
("Agent" and "Lender")
By:
---------------------------------
Name: Kirk Wolverton
Title: Vice President
SECOND AMENDMENT TO LOAN AGREEMENT, CONSENT AND BORROWING BASE NOTICE -
Signature Page
<PAGE> 1
EXHIBIT 11
RAMSAY YOUTH SERVICES, INC.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income before extraordinary item, as
reported ............................................. $ 357,000 $(14,193,000) $ 2,062,000 $(55,415,000)
Dividends, Class B convertible preferred stock,
Series C ............................................. -- (90,000) -- (181,000)
Dividends, Class B convertible preferred stock,
Series 1996 .......................................... -- (37,000) -- (75,000)
Dividends, Class B convertible redeemable preferred
stock, Series 1997 .............................. -- (69,000) -- (125,000)
Dividends, Class B redeemable preferred stock,
Series 1997-A ........................................ -- (90,000) -- (180,000)
------------ ------------ ------------ ------------
Numerator for basic earnings (loss) per share -
income attributable to common stockholders,
before extraordinary item ..................... 357,000 (14,479,000) 2,062,000 (55,976,000)
Effect of dilutive securities ................... -- -- -- --
------------ ------------ ------------ ------------
Numerator for diluted earnings (loss) per share -
income (loss) attributable to common
stockholders after assumed conversions......... $ 357,000 $(14,479,000) $ 2,062,000 $(55,976,000)
============ ============ ============ ============
Denominator:
Denominator for basic earnings per share -
weighted-average shares ......................... 8,888,000 3,624,000 8,888,000 3,623,000
Effect of dilutive securities:
Employee stock options and warrants ............. 17,000 -- 20,000 --
------------ ------------ ------------ ------------
Dilutive potential common shares .................. 17,000 -- 20,000 --
------------ ------------ ------------ ------------
Denominator for diluted earnings (loss) per share
- adjusted weighted-average shares and assumed
conversions ..................................... 8,905,000 3,624,000 8,908,000 3,623,000
============ ============ ============ ============
Basic earnings (loss) per share, before
extraordinary item ................................. $ .04 $ (4.00) $ .23 $ (15.45)
Extraordinary item ................................... -- (.20) -- (.21)
------------ ------------ ------------ ------------
Basic earnings (loss) per share ...................... $ .04 $ (4.20) $ .23 $ (15.66)
============ ============ ============ ============
Diluted earnings (loss) per share before extraordinary
item ................................................. $ .04 $ (4.00) $ .23 $ (15.45)
Extraordinary item ................................... -- (.20) -- (.21)
------------ ------------ ------------ ------------
Diluted earnings (loss) per share .................... $ .04 $ (4.20) $ .23 $ (15.66)
============ ============ ============ ============
</TABLE>
<PAGE> 1
EXHIBIT 99.5
FOR IMMEDIATE RELEASE
- ---------------------
RAMSAY YOUTH SERVICES, INC. ANNOUNCES
SECOND QUARTER RESULTS
CORAL GABLES, FLORIDA, AUGUST 5, 1999 . . . RAMSAY YOUTH SERVICES, INC.
(NASDAQ:RYOU) today announced results for the second quarter ended June 30,
1999. The Company reported that total revenues for the quarter were $19,775,000
and net income reached $357,000 or $0.04 per share.
For the six months ended June 30, 1999, the Company reported total revenues of
$38,667,000. During the same period the Company also recorded net income of
$2,062,000 or $0.23 per share. These results include the non-recurring impact of
two settlements in favor of the Company which increased the six months ended
period results by $1,500,000 or $0.17 per share. Excluding the positive impacts
of the settlements, net income for the six months period ended June 30, 1999
would have been $562,000 or $0.06 per share.
Commenting on the results, Luis E. Lamela, President and CEO of Ramsay Youth
Services, Inc. stated, "We are very pleased with our second quarter and mid-year
results. They reflect our continued commitment to expanding our programs,
services and markets in order to meet the diverse needs of the at-risk and
troubled youth population."
Ramsay Youth Services, Inc. is a leading quality provider and manager of
education, treatment and juvenile justice programs for at-risk youth. The
Company serves youth in 8 states and Puerto Rico.
Except for historical information contained herein, the matters set forth in
this news release are forward-looking statements as defined under the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties.
Actual operations and results may differ materially from those expected in the
forward looking statements made by the Company. Please refer to Ramsay's filings
with the Securities and Exchange Commission for additional information.
###
Tables Follow
Contact: Isa Diaz
Vice President Corporate Relations
(305) 569-4626
<PAGE> 2
RAMSAY YOUTH SERVICES, INC.
OPERATING RESULTS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
-----------------------------------------------------------
1999 1998
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues:
Provider-based revenue $19,775,000 $36,186,000
Managed care revenue -- 4,454,000
------------ -------------
TOTAL REVENUES 19,775,000 100.0% 40,640,000 100.0%
Operating Expenses:
Salaries, wages and benefits 11,823,000 59.8% 21,778,000 53.6%
Other operating expenses 6,312,000 31.9% 12,772,000 31.4%
Managed care patient costs -- 0.0% 2,961,000 7.3%
Provision for doubtful accounts 484,000 2.4% 1,616,000 4.0%
Depreciation and amortization 585,000 3.0% 785,000 1.9%
Asset impairment charges -- 0.0% 213,000 0.5%
------------ --------- ------------- ---------
TOTAL OPERATING EXPENSES 19,204,000 97.1% 40,125,000 98.7%
------------ --------- ------------- ---------
Income from operations 571,000 2.9% 515,000 1.3%
Non-operating income (expenses):
Investment income and other 148,000 0.7% 35,000 0.1%
Interest and other financing charges (307,000) (1.5%) (1,690,000) (4.2%)
Losses related to asset sales and closed businesses -- 0.0% (12,483,000) (30.7%)
------------ --------- ------------- ---------
Total non-operating income (Expense), net (159,000) (0.8%) (14,138,000) (34.8%)
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 412,000 2.1% (13,623,000) (33.5%)
Provision for income taxes 55,000 (0.3%) 570,000 (1.4%)
------------ --------- ------------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 357,000 1.8% (14,193,000) (34.9%)
Extraordinary item:
Loss from early extinguishment of debt -- 0.0% (748,000) (1.8%)
------------ --------- ------------- ---------
NET INCOME (LOSS) $357,000 1.8% $(14,941,000) (36.7%)
============ ========= ============= =========
Income (loss) per common share
Basic:
Before extraordinary item $.04 $(4.00)
Extraordinary item -- (.20)
------------ -------------
$.04 $(4.20)
============ =============
Diluted:
Before extraordinary item $.04 $(4.00)
Extraordinary item -- (.20)
------------ -------------
$.04 $(4.20)
============ =============
Weighted average number of common shares outstanding:
Basic 8,888,000 3,624,000
============ =============
Diluted 8,905,000 3,624,000
============ =============
</TABLE>
<PAGE> 3
RAMSAY YOUTH SERVICES, INC.
OPERATING RESULTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
1999 1998
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues:
Provider-based revenue $38,667,000 $66,557,000
Managed care revenue -- 11,105,000
------------ -------------
TOTAL REVENUES 38,667,000 100.0% 77,662,000 100.0%
Operating Expenses:
Salaries, wages and benefits 23,012,000 59.5% 43,136,000 55.5%
Other operating expenses 12,472,000 32.3% 30,173,000 38.9%
Managed care patient costs -- 0.0% 5,370,000 6.9%
Provision for doubtful accounts 969,000 2.5% 4,456,000 5.7%
Depreciation and amortization 1,157,000 3.0% 2,433,000 3.1%
Restructuring charges -- 0.0% 3,927,000 5.1%
Asset impairment charges -- 0.0% 16,738,000 21.6%
------------ --------- ------------- ---------
TOTAL OPERATING EXPENSES 37,610,000 97.3% 106,233,000 136.8%
------------ --------- ------------- ---------
Income (loss) from operations 1,057,000 2.7% (28,571,000) (36.8%)
Non-operating income (expenses):
Investment income and other 1,698,000 4.4% 59,000 0.1%
Interest and other financing charges (591,000) (1.5%) (4,439,000) (5.7%)
Losses related to asset sales and closed businesses -- 0.0% (12,483,000) (16.1%)
------------ --------- ------------- ---------
Total non-operating income (expenses), net 1,107,000 2.9% (16,863,000) (21.7%)
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 2,164,000 5.6% (45,434,000) (58.5%)
Provision for income taxes 102,000 (0.3%) 9,981,000 (12.9%)
------------ --------- ------------- ---------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 2,062,000 5.3% (55,415,000) (71.4%)
Extraordinary item:
Loss from early extinguishment of debt -- 0.0% (748,000) (0.9%)
------------ --------- ------------- ---------
NET INCOME (LOSS) $2,062,000 5.3% $(56,163,000) (72.3%)
============ ========= ============= =========
Income (loss) per common share:
Basic:
Before extraordinary item $.23 $(15.45)
Extraordinary item -- (.21)
------------ -------------
$.23 $(15.66)
============ =============
Diluted:
Before extraordinary item $.23 $(15.45)
Extraordinary item -- (.21)
------------ -------------
$.23 $(15.66)
============ =============
Weighted average number of common shares outstanding:
Basic 8,888,000 3,623,000
============ =============
Diluted 8,908,000 3,623,000
============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 49,000
<SECURITIES> 0
<RECEIVABLES> 14,205,000
<ALLOWANCES> 3,127,000
<INVENTORY> 0
<CURRENT-ASSETS> 24,055,000
<PP&E> 44,256,000
<DEPRECIATION> 17,606,000
<TOTAL-ASSETS> 55,649,000
<CURRENT-LIABILITIES> 25,871,000
<BONDS> 7,038,000
0
0
<COMMON> 90,000
<OTHER-SE> 15,958,000
<TOTAL-LIABILITY-AND-EQUITY> 55,649,000
<SALES> 0
<TOTAL-REVENUES> 38,667,000
<CGS> 0
<TOTAL-COSTS> 35,484,000
<OTHER-EXPENSES> 1,157,000
<LOSS-PROVISION> 969,000
<INTEREST-EXPENSE> 591,000
<INCOME-PRETAX> 2,164,000
<INCOME-TAX> 102,000
<INCOME-CONTINUING> 2,062,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,062,000
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
