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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 {FEE REQUIRED}
For the fiscal year ended December 31, 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 63-0857352
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Columbus Center
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (305) 569-6993
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares of the registrant's Common Stock outstanding as of
March 13, 2000 was 9,086,191. The aggregate market value of Common Stock held by
non-affiliates on such date was $6,516,160.
DOCUMENTS INCORPORATED BY REFERENCE
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FORWARD-LOOKING STATEMENTS
In connection with the "safe-harbor" provisions of the Private
Securities Litigation Reform Act of 1995, Ramsay Youth Services, Inc. ("RYS" or
the "Company") notes that this report contains forward-looking statements about
the Company. The Company is hereby setting forth cautionary statements
identifying important factors that may cause the Company's actual results to
differ materially from those set forth in any forward-looking statements or
information made by or on behalf of or concerning the Company. Some of the most
significant factors include (i) accelerating changes occurring in the at-risk
youth industry, including competition from consolidating and integrated provider
systems and limitations on reimbursement rates, (ii) federal and state
governmental budgetary constraints which could have the effect of limiting the
amount of funds available to support governmental programs, (iii) statutory,
regulatory and administrative changes or interpretations of existing statutory
and regulatory provisions affecting the conduct of the Company's business and
affecting current and prior reimbursement for the Company's services and (iv)
the Company's inability to successfully implement its new strategic direction of
providing treatment and education programs for at-risk and troubled youth. There
can be no assurance that any anticipated future results will be achieved. As a
result of the factors identified above and other factors, the Company's actual
results or financial or other condition could vary significantly from the
performance or financial or other condition set forth in any forward-looking
statements or information.
PART I
ITEM 1. BUSINESS.
GENERAL
The Company is a leading provider and manager of diversified education,
treatment and community-based programs and services for at-risk and troubled
youth in residential and non-residential settings nationwide. The Company offers
its full spectrum of programs and services in Alabama, Florida, Missouri,
Michigan, Nevada, North Carolina, South Carolina, Texas, Utah and the
Commonwealth of Puerto Rico. The Company also provides a limited range of adult
behavioral services at certain of its locations in response to community demand.
PROGRAMS AND SERVICES
The programs and services provided by the Company are designed through
a comprehensive continuum that is directed to address the specific needs of each
youth. The youth served by the Company include youth with special needs such as
(i) mental health and substance abuse issues, (ii) sexual offense disorders,
(iii) developmental disorders and (iv) emotional and behavioral disorders. The
Company also serves youth with special education needs and pre-adjudicated and
adjudicated youth committed to the juvenile justice system.
The primary objective of the Company's programs and services is to
provide the optimal opportunity for rehabilitation and integration of at-risk
and troubled youth into their communities as responsible individuals and
productive citizens.
The Company offers the following programs and services:
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o RESIDENTIAL TREATMENT PROGRAMS - The Company's Residential Treatment
Programs provide safe, secure and highly structured environments for
the evaluation and development of long-term, intensive and transitional
treatment services.
- Long-term residential treatment services focus on a cognitive
behavioral model with family, group and individual counseling,
social and life skills development, and educational and
recreational programs. The primary focus of these services is
to reshape antisocial behaviors by stressing responsibility
and achievement of performance and treatment goals.
- Intensive treatment services provide crisis stabilization or
short-term intensive services evaluation and disposition
planning for severely behaviorally and emotionally disturbed
youth and specialized treatment for specific behavioral
problems in a highly structured therapeutic environment.
- Group home services provide shelter care for youth in a
family-like setting usually in a residential neighborhood.
These youth typically are transitioning from a more intensive
program, such as a long-term residential treatment facility.
The group home setting is a less restrictive residential
environment that offers youth the opportunities for personal
growth, social development and responsible behavior. The youth
attend public schools or receive in-home education and receive
vocational and occupational training. The primary focus of
these services is to teach the youth independent living
skills, decrease their institutional dependency and gradually
transition them back into their communities.
o JUVENILE JUSTICE PROGRAMS - The Company's Juvenile Justice Programs
provide care, custody, control and treatment of committed delinquent
youth. These programs focus on solving the specialized needs of
governmental agencies by providing effective treatment interventions,
including counseling, social interests, substance abuse education and
treatment, mental health services, cognitive and life skills
development, accredited education and vocational skills. The Company
believes that a balanced approach, which develops the social,
educational, and vocational skills of the youth and holds them
accountable to their victims and communities, creates responsible,
contributing, pro-social individuals. This balanced approach is
essential to achieving the program's objective of reducing recidivism
and integrating the youth into their communities as responsible and
productive individuals.
o COMMUNITY-BASED PROGRAMS - The Company's Community-Based Programs are
designed to meet the special needs of youth and their families, while
enabling them to remain living at home or in their community. The
primary focus of this program is to provide youth with a clinically
definable emotional, psychiatric or dependency disorder with
therapeutic and intensive treatment services. Youth who are serviced
through this program have either transitioned out of a residential
treatment program, juvenile justice program, or do not require the
intensive services of a residential treatment program.
o EDUCATIONAL PROGRAMS - The Company's educational programs provide
specialized educational services designed to modify disruptive behavior
and assist students to develop the academic and social skills necessary
for them to participate successfully in society. These programs are
designed to provide a positive learning environment that includes a
challenging academic curriculum, computer assisted learning, behavioral
counseling, vocational programming and job placement. The Company
offers its educational programs at its residential treatment facilities
and through the operation and/or management of schools.
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The following table sets forth the programs and services offered by the
Company in the various markets in which it operates:
<TABLE>
<CAPTION>
MARKET PROGRAMS AND SERVICES
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<S> <C>
Alabama Community-based Programs, Educational Programs, Juvenile
Justice Programs, Residential Treatment Programs
Florida Educational Programs, Juvenile Justice Programs,
Residential Treatment Programs
Missouri Community-based Programs, Juvenile Justice Programs,
Residential Treatment Programs
Michigan Community-based Programs, Residential Treatment Programs,
Juvenile Justice Programs
Nevada Residential Treatment Programs
North Carolina Community-based Programs, Residential Treatment Programs
South Carolina Community-based Programs, Residential Treatment Programs,
Juvenile Justice Programs
Texas Community-based Programs, Residential Treatment Programs
Utah Residential Treatment Programs, Juvenile Justice Programs
Puerto Rico Community-based Programs, Educational Programs, Juvenile
Justice Programs
</TABLE>
MARKET FOR THE COMPANY'S SERVICES
The Company believes that the trend in the United States towards the
expansion of privatization of at-risk youth programs and services by government
agencies will continue. In addition, the Company also believes that there is a
growing demand for preventative programs and services including rehabilitation,
treatment and alternative education.
The markets for programs and services for at-risk and troubled youth in
the United States are large and growing as evidenced by the following industry
estimates:
o The $60.0 billion youth services industry is growing at a rate of 9%
per annum.
o There are approximately 9.2 million children classified as at-risk.
o The juvenile population is expected to grow 21% by the year 2010.
o In 1998, there were 2.6 million arrests of individuals under the age of
eighteen.
o Juvenile crime is 60% above the 1980 level. Juveniles account for about
20% of all arrests and 20% of violent crime arrests.
The Company intends to grow through (i) expansion of services, markets
and products, (ii) aggressive response to requests for proposals ("RFP's") and
(iii) selected strategic acquisitions. Through these avenues, management intends
to capitalize on the youth services industry's size, fragmentation and multiple
payor sources.
o EXPANSION OF SERVICES - Management believes significant opportunities
exist to penetrate further the Company's existing geographic markets.
Management will continue to capitalize on the Company's
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reputation for delivering high quality, cost-effective solutions to
expand the breadth of service provided to existing customers and to
attract new customers. In addition, the Company will continue to
develop new programs which respond to state and local agencies' needs
to secure appropriate placements for special needs youth.
o AGGRESSIVE RESPONSE TO RFPS - The Company is well positioned to expand
into new markets as state and local agencies increasingly seek
providers with the capability to deliver a broader continuum of
services to at-risk youth. Further, management believes this trend will
intensify as state and local governments desire to keep spending in
their respective home states and look to develop local services.
Typically, the solicitation of providers for new and broader service
offerings is accomplished by state agencies through RFPs, a process in
which the Company actively competes in markets management has targeted
for growth. Management believes the Company's history of providing high
quality, cost-effective services gives it a significant competitive
advantage in responding to RFPs. The Company prioritizes its target
markets based on the needs of each state, the diversification of
funding sources, state and local legislation, existing relationships
and in-state competition.
o SELECTED STRATEGIC ACQUISITIONS - The Company intends to pursue
strategic acquisitions of other youth services providers to penetrate
existing markets further and enter new geographic markets. The youth
services industry is highly fragmented with what the Company estimates
to be approximately 15,000 providers. The Company continually reviews
acquisition opportunities and management believes that a number of
acquisition opportunities currently exist at reasonable valuations.
Further, management believes it can enhance the performance of acquired
facilities by selectively implementing the Company's programs to expand
services. Management believes that the Company's current infrastructure
is capable of supporting a number of acquisitions affording the
opportunity to spread certain fixed operational expenses over a broader
revenue base.
COMPETITION
The fragmented at-risk youth industry is comprised largely of small
providers that operate in relatively limited geographic areas and provide
services to a specific type of juvenile. The Company competes with both public
and private for-profit and not-for-profit companies. Competition generally is
based upon program quality, range and price of services provided, operational
experience and facility location. The strength and depth of a provider's
relationship with the various payors plays a significant role in the selection
process. The Company believes that its programs and services compete favorably
on the basis of, among other things, the range and quality of programs offered
and the expertise of its management team in the development and implementation
of new programs. In certain instances, competitors of the Company may initiate
programs similar to the Company without substantial capital investment or
experience in management of education or treatment facilities. In addition,
certain not-for-profit entities may offer programs and services at a lower cost
than the Company due in part to government subsidies, foundation grants, tax
deductible contributions or other financial resources not available to
for-profit companies.
SOURCES OF REVENUE
The Company receives payments from various sources, including
commercial insurance carriers (which provide coverage to insured individuals on
both an indemnity basis and through various managed care plans), Medicaid,
Medicare and various state and local governmental agencies (including state
judicial systems). In addition, payments are received directly from individuals,
including copayments and deductibles related to services covered by these
individuals' benefit plans. The Company also receives payments from school
districts either directly or through management contracts with other entities.
o MEDICAID - Medicaid is the federal/state health insurance program for
low-income individuals, including welfare recipients. Subject to
certain minimum federal requirements, each state defines the extent and
duration of the services covered by its Medicaid program. Moreover,
although there are certain federal requirements governing the payment
levels for Medicaid services, each state has its own methodology for
making payment for services provided to Medicaid patients. Various
state Medicaid
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programs cover payment for services provided to individuals covered
under the Medicaid program by the Company.
o MEDICARE - Medicare is the federal health insurance program for the
aged and disabled. Medicare reimburses providers of psychiatric care
for inpatient, partial hospitalization and hospital-based outpatient
services on a cost-based reimbursement system. Medicare reimburses for
certain other outpatient services based on an area-wide fee schedule or
other blended rates. Medicare reimbursement is typically less than the
Company's established charges for services provided to Medicare
patients. Patients are not responsible for the difference between the
reimbursed amount and the established charges other than for applicable
noncovered charges, coinsurance and deductibles. In 1983, Congress
changed the Medicare law applicable to Medicare reimbursement for
medical/surgical services from a retrospectively determined reasonable
cost system to a prospectively determined diagnosis-related grouping
("DRG") system. Facilities providing psychiatric care are currently
exempt from the DRG reimbursement system. However, both Congress and
the agency responsible for administering the Medicare program, the
Health Care Financing Administration, have been investigating a
revision to the payment system for inpatient psychiatric, partial
hospitalization and hospital-based outpatient services, including
certain of the services provided by the Company, which would eliminate
the cost-based structure of the current system. Under current
proposals, reimbursement for inpatient, partial hospitalization and
outpatient psychiatric services would be transitioned to a prospective
payment system in which payment for services may be unrelated to the
provider's costs.
Medicare reimbursement to exempt psychiatric and chemical dependency
facilities is currently subject to the payment limitations and
incentives established in the Tax Equity and Fiscal Responsibility Act
of 1982 ("TEFRA"). These facilities are currently paid on the basis of
each facility's historical costs trended forward, with a limit placed
on the rate of increase in per case reimbursable costs. Facilities with
costs less than their respective target rate per discharge are
currently reimbursed based on allowable Medicare costs, plus an
additional incentive payment. Medicare reimbursement under TEFRA to
facilities exempt from prospective payment, such as the Company's
facilities, have been adversely affected by the Balanced Budget Act of
1997, passed by Congress in July 1997. Under certain provisions of this
Act, effective July 1, 1998 for the Company, target rates per discharge
were capped, the formula by which incentive payments are calculated was
modified to reduce these payments and allowable Medicare capital costs
were reduced by 15%.
o STATE AND LOCAL GOVERNMENT PAYORS - The Company's facilities are
reimbursed for certain services on a per-diem basis by various state
and local government agencies. The per-diem rate is generally based on
the nature and scope of services provided to these residents. In
addition, some government programs pay the Company for access to a
certain number of beds.
o COMMERCIAL INSURANCE PAYORS - The Company's facilities are reimbursed
for behavioral healthcare services by health maintenance organizations
("HMO's"), commercial insurance companies and self-insured employers
either on a fee-for-service basis or under contractual arrangements
which include per-diem, per-diagnosis or sub-capitated arrangements.
For inpatient and partial hospitalization services, Blue Cross plans
reimburse based on charges or negotiated rates in all areas in which
the Company presently operates facilities, except Alabama and Michigan.
In certain states in which the Company operates, Blue Cross
reimbursement is approved through a rate-setting process and,
therefore, Blue Cross may reimburse the Company at a rate less than
billed charges. Under cost-based Blue Cross programs, such as those in
Alabama and Michigan, direct reimbursement to facilities typically is
lower than the facility's charges, and patients are not responsible for
the difference between the amount reimbursed by Blue Cross and the
facility's charges.
Most commercial insurance carriers reimburse their policyholders or
reimburse the Company directly for charges at rates and limits
specified in their policies. Patients generally remain responsible for
any amounts not covered under their insurance policies. Generally,
reimbursement for psychiatric inpatient and chemical dependency care by
commercial insurance carriers is limited to a maximum number of
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inpatient days per year or during the patient's lifetime, or to a
maximum dollar amount expended for a patient in a given period.
REGULATION
The operations of the Company are subject to federal, state and local
regulations, which are administered by a variety of regulatory authorities.
Operators of residential and day facilities for juveniles are typically expected
to provide education programs and, in some instances, health care services. As
providers of such services, operators of at-risk youth facilities are required
to comply with applicable state and local regulations. In addition, some
programs require accreditation from the Joint Commission on Accreditation of
Healthcare Organizations, the Commission on Accreditation of Rehabilitation
Facilities or the American Corrections Association.
The schools managed by the Company are subject to a variety of state
and local regulations and licensing requirements. These regulations and
licensing requirements vary greatly from jurisdiction to jurisdiction.
Generally, the governmental agencies review the safety, fitness and adequacy of
the buildings and equipment, the ratio of staff personnel to enrolled children,
the dietary program, the daily curriculum, compliance with health standards and
qualifications of the Company's personnel. In addition, certain jurisdictions
require financial audits of the schools operated or managed by the Company. In
most jurisdictions, these agencies conduct scheduled and unscheduled inspections
of the schools and licenses must be renewed periodically. Repeated failures by a
school to comply with applicable regulations can subject it to sanctions that
might include probation, suspension, or revocation of the license to operate.
In certain states where the Company manages the provision of
educational services for troubled youth, state and local regulation exists
governing such areas as compensatory arrangements between for-profit service
providers such as the Company and not-for-profit schools and other educational
entities, conflicts of interest and standards governing the quality of
educational services.
As a behavioral healthcare provider, the Company is subject to
extensive and frequently changing government regulations. These regulations are
primarily concerned with licensure, conduct of operations, reimbursement,
financial solvency, standards of medical care, the dispensing of drugs, patient
rights (including the confidentiality of medical records) and the direct
employment of psychiatrists, psychologists, and other licensed professionals.
Regulatory activities affect the Company's business directly by controlling its
operations, restricting licensure of the business entity or by controlling the
reimbursement for services provided, and indirectly by regulating its customers.
In certain cases, more than one regulatory agency may have authority over the
activities of the Company. State licensing laws and other regulations are
subject to amendment and to interpretation by regulatory agencies with broad
discretionary powers. Any new regulations or licensing requirements, or
amendments or interpretations of existing regulations or requirements, could
require the Company to modify its operations materially in order to comply with
applicable regulatory requirements and may have a material adverse effect on the
Company's business, financial condition or results of operations.
Federal law contains a number of provisions designed to ensure that
services rendered by providers of healthcare services to Medicare and Medicaid
patients are medically necessary, meet professionally recognized standards and
are billed properly. These provisions include a requirement that admissions of
Medicare and Medicaid patients to a facility must be reviewed in a timely manner
to determine the medical necessity of the admissions. In addition, the Peer
Review Improvement Act of 1982 ("Peer Review Act") provides that a facility may
be required by the federal government to reimburse the government for the cost
of Medicare-paid services determined by a peer review organization to have been
medically unnecessary. Each of the Company's facilities has developed and
implemented a quality assurance program and implemented procedures for
utilization review and retrospective patient care evaluation to meet its
obligations under the Peer Review Act.
The Social Security Act imposes civil sanctions and criminal penalties
upon persons who make or receive kickbacks, bribes or rebates in connection with
federally-funded healthcare programs. The Social Security Act also provides for
exclusion from the Medicare and Medicaid programs for violations of
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the anti-kickback rules. The anti-kickback rules prohibit providers and others
from soliciting, offering, receiving or paying, directly or indirectly, any
remuneration in return for either making a referral for a federally-funded
healthcare service or item or ordering any such covered service or item. In
order to provide guidance with respect to the anti-kickback rules, the Office of
the Inspector General of the U.S. Department of Health and Human Service has
issued regulations outlining certain "safe harbor" practices, which although
potentially capable of including prohibited referrals, would not be prohibited
if all applicable requirements were met. A relationship which fails to satisfy a
safe harbor is not necessarily illegal, but could be scrutinized on a
case-by-case basis. Since the anti-kickback rules have been broadly interpreted,
they could limit the manner in which the Company conducts its business. The
Company believes that it currently complies with the anti-kickback rules in
planning its activities, and believes that its activities, even if not within a
safe harbor, do not violate the anti-kickback rules. However, there can be no
assurance that (i) government enforcement agencies will not assert that certain
of these arrangements are in violation of the illegal remuneration statute, (ii)
the statute will ultimately be interpreted by the courts in a manner consistent
with the Company's practices or (iii) the federal government or other states in
which the Company operates will not enact similar or more restrictive
legislation or restrictions that could, under certain circumstances, impact the
Company's operations.
Under another federal provision, known as the "Stark" law or
"self-referral" prohibition, physicians who have an investment or compensation
relationship with an entity furnishing certain designated health services
(including inpatient and outpatient facility services) may not, subject to
certain exceptions, refer Medicare patients for designated health services to
that entity. Similarly, facilities may not bill Medicare or any other party for
services furnished pursuant to a prohibited referral. Violation of these
provisions may result in disallowance of Medicare claims for the affected
services, as well as the imposition of civil monetary penalties and program
exclusion. In addition, the Stark law prevents states from receiving federal
Medicaid matching payments for designated health services that are provided as a
result of a prohibited referral. Often as a result of this requirement, a number
of states have enacted prohibitions similar to the Stark law covering referrals
of non-Medicare business. The following states in which the Company conducts
business have passed legislation which, under certain circumstances, either may
prohibit the referral of private pay patients to healthcare entities in which
the physician has an ownership or investment interest or with which the
physician has a compensation arrangement or may require the disclosure of such
interest to the patient: Florida, Michigan, Missouri, Nevada, North Carolina,
South Carolina and Utah. All of these rules are very restrictive, prohibit
submission of claims for payment related to prohibited referrals and provide for
the imposition of civil monetary penalties and criminal prosecution. The Company
is unable to predict how these laws may be applied in the future, or whether the
federal government or states in which the Company operates will enact more
restrictive legislation or restrictions that could under certain circumstances
impact the Company's operations.
In 1996, Congress enacted the Mental Health Parity Act of 1996 which
generally requires that group health plans which provide benefits for mental
health care must treat mental health benefits on a similar basis as benefits for
any other illness for purposes of imposing annual or lifetime benefit limits.
The law provides that, if the plan imposes limits on medical or surgical
benefits on the basis of different categories of benefits, the plan may do the
same with regard to different categories of mental health benefits, in
accordance with regulations to be issued by the United States Department of
Labor. The impact of this legislation on employee health benefits is unknown and
the Company cannot predict the effect of this legislation on its financial
condition or results of operations.
The Company is currently assessing its readiness under the Health
Insurance Portability and Accountability Act of 1996 (HIPAA). Pending HIPAA
regulations are likely to have a significant effect on the way the Company
addresses the confidentiality of patient information and implements measures to
protect and secure such information. Failure to comply with such regulations
may result in civil and criminal penalties.
HIPAA security requirements are likely to require:
o documented, formal procedures for choosing and implementing
security mechanisms;
o proceedures outlining staff responsibilities for protecting data;
o physical safeguards to protect physical computer systems,
peripherals, and buildings from environmental hazards and
intrusions;
o administrative and physical measures to control access to computer
systems and facilities;
o mechanisms and processes to protect, control, and monitor
information access; and mechanisms and processes to prevent
unauthorized access to data transmitted over telecommunications
networks and devices.
In certain states, the employment of psychiatrists, psychologists and
certain other behavioral healthcare professionals by business corporations, such
as the Company, is a permissible practice. However, other states have
legislation or regulations or have interpreted existing medical practice
licensing laws to restrict business corporations from providing behavioral
healthcare services or from the direct employment of psychiatrists and, in a few
states, psychologists and other behavioral healthcare professionals. Management
believes that the Company is in compliance with these laws.
State certificate of need or similar statutes generally provide that
prior to the construction or acquisition of new beds or facilities or the
introduction of a new service, a state agency must determine that a need exists
for those beds, facilities or services. In most cases, certificate of need or
similar statutes
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do not restrict the ability of the Company or its competitors from offering new
or expanded outpatient services. Except for Utah, all of the states in which the
Company operates facilities have adopted certificate of need or similar
statutes.
The Company believes that it is currently in compliance in all material
respects with applicable current statutes and regulations governing its
business. The Company monitors its compliance with applicable statutes and
regulations and works with regulators concerning various compliance issues that
arise from time to time. Notwithstanding the foregoing, the regulatory approach
in the at-risk youth industry is extensive and evolving and there can be no
assurance that a regulatory agency will not take the position, under existing or
future statutes or regulations, or as a result of a change in the manner in
which existing statutes or regulations are or may be interpreted or applied,
that the conduct of all or a portion of the Company's operation within a given
jurisdiction is or will be subject to further licensure and regulation.
Expansion of the Company's businesses to cover additional geographic areas or to
different types of products or customers could also subject it to additional
licensure and regulatory requirements.
OWNERSHIP ARRANGEMENTS
One physician owns a 4% interest in the subsidiary which owns Gulf
Coast Treatment Center. The Company may be required to repurchase, and the
minority shareholder may be required to sell, the minority interest at a formula
price dependent upon many factors, including the earnings per share of the
subsidiary which owns the hospital and the price/earnings multiple of the
Company, after a fixed period of time. Although the amount of the Company's
repurchase obligation cannot be precisely determined, the Company does not
believe that this obligation is material.
INSURANCE
The Company maintains self-insured retentions related to its
professional and general liability insurance program. The Company's operations
are insured for professional liability on a claims-made basis and for general
liability on an occurrence basis. The Company records the liability for
uninsured professional and general liability losses related to asserted and
unasserted claims arising from reported and unreported incidents based on
independent valuations which consider claim development factors, the specific
nature of the facts and circumstances giving rise to each reported incident and
the Company's history with respect to similar claims. The development factors
are based on a blending of the Company's actual experience with industry
standards.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 1,179
full-time and 659 part-time employees, including a corporate headquarters staff
of approximately 21 full-time employees. None of the Company's employees are
covered by collective bargaining agreements. The Company considers its
relationship with its employees to be good.
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ITEM 2. PROPERTIES.
The following table provides information concerning the
Company's properties:
<TABLE>
<CAPTION>
DATE OPENED NATURE OF
FACILITY (4) OR ACQUIRED OCCUPANCY
- ------------------------------------- ---------------- ----------------
<S> <C> <C>
Okaloosa Youth Academy
Crestview, FL(5)................. October 1999 Right to Occupy
Bayamon Detention Center
Bayamon, PR(5)................... September 1999 Right to Occupy
Briarwood Group Home
Las Vegas, NV.................... June 1999 Owned
Bush Berry Group Home
Pelion, SC....................... May 1999 Owned
Bessemer Group Home
Bessemer, AL..................... April 1999 Owned
Palm Bay Facility
Palm Bay, FL..................... March 1999 Owned
Winner Circle Group Home
Aiken, SC........................ October 1998 Owned
Coastal Harbor Group Home
Conway, SC....................... October 1998 Owned
Heartland House West Group Home
Nevada, MO....................... June 1998 Owned
Dothan Facility
Dothan, Alabama.................. April 1998 Owned
Heartland House Group Home
Nevada, MO....................... August 1997 Owned
Riverstone Group Home
Longs, SC........................ July 1997 Leased
Gulf Coast Treatment Center
Fort Walton Beach, FL(3)......... December 1996 Owned
Higdon Hill Group Home
Birmingham, AL................... July 1996 Owned
Briarwood Group Home
Reno, NV......................... July 1995 Owned
Mission Vista Facility
San Antonio, TX(2)............... November 1991 Leased
Benchmark Regional Facility
Woods Cross, UT.................. August 1986 Owned
Heartland Facility
Nevada, MO....................... April 1984 Owned
Hill Crest Facility
Birmingham, AL................... January 1984 Owned
Brynn Marr Facility
Jacksonville, NC................. December 1983 Owned
Havenwyck Facility
Auburn Hills, MI(1).............. November 1983 Leased
</TABLE>
(1) In September 1998, the Company sold and immediately leased back the
land, building and fixed equipment associated with this facility. The
lease has an initial term of approximately 12 years.
(2) In April, 1995, the Company sold and immediately leased back the land,
building and fixed equipment associated with this facility. The lease
has an initial term of 15 years and three successive renewal options of
five years each.
(3) The Company resumed operations at this facility in December 1996. For
the previous four years, this facility was leased to another healthcare
provider.
(4) Excludes the Company's Meadowlake Facility which was leased to an
independent healthcare provider in August 1997, the schools managed by
the Company through management contracts and various office leases with
remaining lease terms ranging from one to five years. The Company has
pledged substantially all of its owned real property as collateral for
the Senior Credit Facility.
(5) The Company has the right to occupy these facilities rent free for the
duration of the Company's contract to provide services.
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<PAGE> 11
Statement of Financial Accounting Standards (SFAS) No. 121 addresses
the accounting for the impairment of long-lived assets and long-lived assets to
be disposed of, certain identifiable intangible assets and goodwill relating to
those assets, and provides guidance for recognizing and measuring impairment
losses. The statement requires that the carrying amount of impaired assets be
reduced to fair value.
As required by SFAS No. 121, the Company periodically reviews its
long-lived assets (land, buildings, fixed equipment, cost in excess of net asset
value of purchased businesses and other intangible assets) to determine if the
carrying value of these assets is recoverable, based on the future cash flows
expected from the assets. Based on this review, the Company determined that the
carrying value of certain long-lived assets were impaired (within the meaning of
the Statement) at June 30, 1998. The amount of the impairment, calculated as (i)
the excess of carrying value of the long-lived assets over the discounted future
cash flows expected from the assets, or (ii) the excess of the carrying value of
the long-lived assets over the selling values, totalled approximately $18.3
million at June 30, 1998. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial Statements
and Supplementary Data".
The Company leases office space for its corporate headquarters in Coral
Gables, Florida, (through December 31, 2000) and various regional offices. These
leases have terms which generally range from three to five years, with renewal
options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to certain claims, suits and complaints, including
those matters described below, whether arising from the acts or omissions of its
employees, providers or others, which arise in the ordinary course of business.
The Company has established reserves at December 31, 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 December 31, 1998.
Prior to the merger with the Company, Ramsay Managed Care, Inc. sold
its subsidiary which, as a licensed HMO in Louisiana, Alabama and Mississippi,
managed and provided prepaid healthcare services to its members. On September
29, 1997, RMCI received a demand for indemnification by the purchaser of this
subsidiary in an amount totaling approximately $5.8 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 year ended June 30, 1996, the State of Louisiana
requested repayment of disproportionate share payments received by two of the
Company's Louisiana facilities in fiscal years ended June 30, 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 year ended June 30, 1998,
the State of Louisiana used $5.5 million in payments owed to two of the
Company's Louisiana facilities 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 State of Louisiana
improperly used the monies. The
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<PAGE> 12
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.
See Note 15 to the consolidated financial statements set forth under
"Item 8. Financial Statements and Supplementary Data".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded in the over-the-counter market and
is quoted on the NASDAQ National Market System under the symbol RYOU. On March
13, 2000, there were 621 holders of record of the Company's Common Stock. No
cash dividends have been declared on the Common Stock since the Company was
organized. Also, the Company's credit facilities include provisions which
prohibit the payment of cash dividends to its common shareholders.
In connection with the refinancing of debt, on September 30, 1997, the
Company sold to a financial institution $2.5 million of Series 1997 Preferred
Stock. On September 30, 1998, the Series 1997 Preferred Stock was redeemed by
the Company.
On October 30, 1998, the Company completed the private placement of an
aggregate of 1,037,037 shares of Common Stock to its Chief Executive Officer,
Paul Ramsay Holdings Pty. Limited ("Ramsay Holdings"), a corporate affiliate of
Paul J. Ramsay, the Chairman of the Board of the Company and the principal
stockholder of the Company, and other unrelated persons, all at a price per
share of $3 3/8, the closing bid price of the Common Stock on The NASDAQ Stock
Market on October 26, 1998 (the date of the various subscription agreements).
Registration under the Securities Act of 1933 (the "Securities Act") of
the Common Stock issued in the foregoing transactions was not required because
such securities were issued in transactions not involving any "public offering"
within the meaning of Section 4(2) of the Securities Act.
In addition, on October 30, 1998, the Company issued 177,778 shares of
Common Stock to Ramsay Holdings, in exchange for $600,000 of principal amount of
junior subordinated indebtedness owed by the Company to Ramsay Holdings. As part
of the Exchange Agreement (the "Exchange Agreement") entered into between the
Company and Ramsay Holdings to affect the foregoing exchange, the Company agreed
to issue additional shares of Common Stock to Ramsay Holdings in exchange for
$4.0 million of the Company's Class B Preferred Stock, Series 1997-A (together
with all accrued and unpaid dividends thereon) and an additional $400,000 of
principal amount of subordinated indebtedness owed by the Company to Ramsay
Holdings. This latter exchange was effected on December 1, 1998 at a price per
share of $3 3/8 (the closing bid price of the Common Stock on The NASDAQ Stock
Market on October 26, 1998, the date of the Exchange Agreement) after the
expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. This latter exchange resulted in the issuance by the
Company of 1,428,740 additional shares of Common Stock to Ramsay Holdings.
On December 16, 1998, the Company entered into an agreement (the
"Agreement") with Ramsay Holdings, Ramsay Holdings HSA Limited and Paul Ramsay
Hospitals Pty. Limited (collectively, the "Ramsay Affiliates") pursuant to which
the Ramsay Affiliates (i) converted the Company's Class B Preferred Stock,
Series C and Class B Preferred Stock, Series 1996 (together with accrued and
unpaid dividends thereon) into an aggregate of 1,198,756 shares of Common Stock
and (ii) exchanged $6,883,553 of principal amount of junior subordinated
indebtedness owed by the Company (together with accrued and unpaid interest
thereon of $123,219) for 1,384,054 shares of Common Stock. This latter exchange
was
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<PAGE> 13
effected at a price per share of $5 1/16 (the closing bid price of the Common
Stock on The NASDAQ Stock Market on December 16, 1998, the date of the
Agreement).
In connection with the foregoing transactions, the Company granted
limited registration rights with respect to the Common Stock issued to the
stockholders participating in such transactions.
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.
The following table sets forth the range of high and low closing sales
prices per share of the Company's Common Stock for each of the quarters during
the year ended December 31, 1999, the six months ended December 31, 1998 and
year ended June 30, 1998, as reported on the NASDAQ National Market System:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended December 31, 1999
First Quarter..................................... $8 1/4 $5 1/32
Second Quarter.................................... 7 5/8 5 1/4
Third Quarter..................................... 5 11/16 7/8
Fourth Quarter.................................... 3 1 1/32
Six months ended December 31, 1998
First Quarter..................................... $10 1/8 $3
Second Quarter.................................... 6 3/4 2 11/32
Year ended June 30, 1998
First Quarter..................................... $17 1/4 $9 3/4
Second Quarter.................................... 16 11/16 8 1/4
Third Quarter..................................... 12 3/4 8 7/16
Fourth Quarter.................................... 9 3/4 4 7/8
</TABLE>
On March 13, 2000, the closing sales price of the Company's Common
Stock was $2 1/8 per share.
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<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
information for the periods shown and is qualified by reference to, and should
be read in conjunction with, the Consolidated Financial Statements and Notes
thereto and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Report on Form 10-K. The
selected financial data presented below for the six months ended December 31,
1997 was compiled from unaudited financial statements by management of the
Company on the same basis as the audited financial statements appearing
elsewhere in this Report on Form 10-K and, in the opinion of management of the
Company, include all adjustments necessary to present fairly the information set
forth therein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, --------------------- ---------------------------------------------
1999 1998 1997 1998 1997 1996 1995
------------ --------- --------- --------- --------- --------- ---------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues ......................... $ 81,474 $ 47,892 $ 77,542 $ 155,211 $ 134,919 $ 116,556 $ 136,358
Salaries, wages and benefits ........... 49,283 28,313 39,604 82,740 67,793 66,259 72,061
Other operating expenses ............... 25,024 17,470 28,712 64,255 46,826 42,420 44,778
Provision for doubtful accounts ........ 1,896 1,549 2,193 6,649 5,688 5,805 5,086
Depreciation and amortization .......... 2,366 1,627 3,281 5,714 5,473 5,490 7,290
Restructuring charges .................. -- -- -- 2,349 -- -- --
Asset impairment charges ............... -- -- -- 18,316 -- 5,485 21,815
--------- --------- --------- --------- --------- --------- ---------
78,569 48,959 73,790 180,023 125,780 125,459 151,030
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations .......... 2,905 (1,067) 3,752 (24,812) 9,139 (8,903) (14,672)
Other income ........................... 1,548 8,059 197 256 2,050 1,118 100
Gain on sale of assets ................. -- 2,039 -- -- -- -- --
Interest and other financing charges ... (1,268) (1,655) (2,791) (7,230) (5,962) (6,892) (8,347)
Losses related to asset sales and
closed businesses ................... -- (947) -- (12,483) -- (4,473) (6,431)
--------- --------- --------- --------- --------- --------- ---------
280 7,496 (2,594) (19,457) (3,912) (10,247) (14,678)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority interest,
income taxes and extraordinary
item ................................ 3,185 6,429 1,158 (44,269) 5,227 (19,150) (29,350)
Minority interest ...................... -- -- -- -- -- -- 887
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and
extraordinary item .................. 3,185 6,429 1,158 (44,269) 5,227 (19,150) (30,237)
Provision (benefit) for income taxes ... 68 1,591 -- 9,985 1,815 (2,800) (13,202)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item ................................ 3,117 4,838 1,158 (54,254) 3,412 (16,350) (17,035)
Extraordinary item:
Loss from early extinguishment of
debt, net of income tax benefit ..... -- (2,811) (3,574) (4,322) -- -- (257)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ...................... $ 3,117 $ 2,027 $ (2,416) $ (58,576) $ 3,412 $ (16,350) $ (17,292)
========= ========= ========= ========= ========= ========= =========
Income (loss) per common share:
Basic:
Before extraordinary item ....... $ .35 $ .93 $ .21 $ (15.36) $ 1.09 $ (6.32) $ (6.75)
Extraordinary item:
Loss from early extinguishment
of debt .................... -- (.63) (1.00) (1.20) -- -- (.09)
--------- --------- --------- --------- --------- --------- ---------
$ .35 $ .30 $ (.79) $ (16.56) $ 1.09 $ (6.32) $ (6.84)
========= ========= ========= ========= ========= ========= =========
Diluted:
Before extraordinary item ....... $ .33 $ .70 $ .18 $ (15.36) $ 1.00 $ (6.32) $ (6.75)
Extraordinary item:
Loss from early extinguishment
of debt .................... -- (.47) (.86) (1.20) -- -- (.09)
--------- --------- --------- --------- --------- --------- ---------
$ .33 $ .23 $ (.68) $ (16.56) $ 1.00 $ (6.32) $ (6.84)
========= ========= ========= ========= ========= ========= =========
Weighted average number of common
shares outstanding:
Basic ............................... 8,890 4,487 3,574 3,595 2,801 2,643 2,580
========= ========= ========= ========= ========= ========= =========
Diluted ............................. 9,538 5,971 4,139 3,595 3,409 2,643 2,585
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------- ---------------------------------------------
1999 1998 1998 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital.............. $ 1,162 $ (1,575) $ 2,401 $ 11,715 $ 12,636 $ 25,588
Total assets................. 56,626 60,628 91,042 147,135 138,573 144,933
Long-term debt............... 11,561 7,332 14,398 47,254 44,664 55,568
Stockholders' equity......... 17,094 13,914 2,249 60,937 46,973 62,569
</TABLE>
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
On February 19, 1998, the Company announced a change in strategic
direction in order to focus on becoming a leader in the youth services industry.
The strategic plan is now focused on repositioning the Company for growth in the
at-risk youth industry and strengthening the Company's financial position.
In connection with the change in its strategic direction, during the
fiscal year ended June 30, 1998 and the six months ended December 31, 1998, the
Company sold its behavioral managed care business and sold or closed its
non-strategic inpatient psychiatric hospitals (the "Divested Assets"). See "Item
8. Financial Statements and Supplementary Data". The remaining business
represents the Company's youth service operations (the "Retained Assets").
During the year ended December 31, 1999, the Company opened the
following new programs:
o February 1999 - A 15-bed group home in Aiken, South Carolina
o February 1999 - A 10-bed group home in Las Vegas, Nevada
o June 1999 - A 12-bed group home in Conway, South Carolina
o June 1999 - A 10-bed group home in Bessemer, Alabama
o September 1999 - A 120-bed juvenile justice facility in Bayamon, Puerto
Rico
o October 1999 - A 100-bed juvenile justice facility in Crestview,
Florida
The Company receives revenues primarily from the delivery of
diversified education, treatment and community based programs and services for
at-risk and troubled youth in residential and non-residential settings. The
Company receives revenues based on per diem rates, fixed fee contracts or flat
or cost-based rate contracts. In addition, the Company also receives revenues
from management consulting contracts with other entities. Revenues under the
Company's programs are recognized as services are rendered. Revenues of the
Company's programs and services are affected by changes in the rates the Company
charges, changes in reimbursement rates by third-party payors, the volume of
individuals treated and changes in the mix of payors.
The Company records amounts due to or from third-party reimbursement
sources based on its best estimates of amounts to be ultimately received or paid
under cost reports filed with appropriate intermediaries. The final
determination of amounts earned under reimbursement programs is subject to
review and audit by these intermediaries. Differences between amounts recorded
as estimated settlements and the audited amounts are reflected as adjustments to
the Company's revenues in the period in which the final determination is made.
Salaries, wages and benefits include facility and program payrolls and
related taxes, as well as employee benefits, including insurance and workers'
compensation coverage. Employee compensation and benefits also includes general
and administrative payroll and related benefit costs, including salaries and
supplemental compensation of officers.
Other operating expenses include all expenses not otherwise presented
separately in the Company's statements of operations. Significant components of
these expenses at the operating level include items such as food, utilities,
supplies, rent and insurance. Significant components of these expenses
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<PAGE> 16
at the administrative level include legal, accounting, investor relations,
marketing, consulting and travel expense.
The Company's quarterly results may fluctuate significantly as a result
of a variety of factors, including the timing of the opening of new programs.
When the Company opens a new program, the program may be unprofitable until the
program's population, and net revenues contributed by the program, approach
intended levels, primarily because the Company staffs its programs in
anticipation of achieving such levels. The Company's quarterly results may also
be impacted by seasonality, as revenues generated by youth education and
treatment services are generally seasonal in nature.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998
Total revenues decreased from $155.2 million in the year ended June 30,
1998 to $81.5 million in the year ended December 31, 1999. The decrease of $73.7
million in revenues is primarily attributable to a decrease of $94.5 million in
revenues due to the sale and closure of the Company's Divested Assets. The
Company also experienced an increase of $20.8 million in revenues from its
Retained Assets primarily as a result of (i) an increase in revenues of $3.9
million from new programs started during the year and (ii) an increase in
revenues of approximately $16.9 million in the Company's other Retained Assets
primarily due to an increase in total resident days of 31% between periods (from
176,893 days during the year ended June 30, 1998 to 230,867 days during the year
ended December 31, 1999).
Total salaries, wages and benefits decreased from $82.7 million in the
year ended June 30, 1998 to $49.3 million in the year ended December 31, 1999.
The decrease of $33.4 million in salaries, wages and benefits is primarily
attributable to a decrease of $42.9 million due to the sale and closure of the
Company's Divested Assets. The Company also experienced an increase of $9.5
million in salaries, wages and benefits from its Retained Assets primarily as a
result of (i) an increase in salaries, wages and benefits of $3.5 million from
new programs started during the year, (ii) a decrease in corporate office
salaries, wages and benefits of $4.7 million due to the Company's restructuring
efforts and (iii) an increase of $10.7 million in the Company's other Retained
Assets primarily due to an increase in total resident days of 31% between
periods (from 176,893 days during the year ended June 30, 1998 to 230,867 days
during the year ended December 31, 1999).
Other operating expenses decreased from $64.3 million in the year ended
June 30, 1998 to $25.0 million in the year ended December 31, 1999. The decrease
of $39.3 million in other operating expenses is primarily attributable to a
decrease of $39.1 million due to the sale and closure of the Company's Divested
Assets. The Company also experienced a decrease of $0.2 million in other
operating expenses from its Retained Assets primarily as a result of (i) an
increase in other operating expenses of $1.3 million from new programs started
during the year, (ii) a decrease in corporate office overhead of $4.2 million
due to the Company's restructuring efforts and (iii) an increase in other
operating expenses of $2.7 million in the Company's other Retained Assets due
primarily to an increase in total resident days of 31% between periods (from
176,893 days during the year ended June 30, 1998 to 230,867 days during the year
ended December 31, 1999).
The provision for doubtful accounts decreased from $6.6 million in the
year ended June 30, 1998 to $1.9 million in the year ended December 31, 1999.
The decrease is primarily attributable to the sale and closure of the Company's
Divested Assets.
Depreciation and amortization expense decreased from $5.7 million in
the year ended June 30, 1998 to $2.4 million in the year ended December 31, 1999
primarily due to the sale and closure of the Company's Divested Assets.
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 year 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,
15
<PAGE> 17
(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 $2.3 million, are reflected as
restructuring charges in the year ended June 30, 1998.
During the year 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 impairment charge of $17.6
million. The Company completed these sales in September 1998. Additionally,
during the year 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.
Other income for the year ended December 31, 1999 is primarily a result
of two non-recurring settlements in favor of the Company totaling approximately
$1.5 million.
Interest and other financing charges decreased from $7.2 million in the
year ended June 30, 1998 to $1.3 million in the year ended December 31, 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 year
ended June 30, 1998, the Company incurred an expense of $1.3 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 year 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
year ended December 31, 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 year 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, the
Company determined that its tax planning strategies would not be realized and a
full valuation allowance was considered necessary.
SIX MONTHS ENDED DECEMBER 31, 1998 COMPARED TO SIX MONTHS ENDED
DECEMBER 31, 1997 (UNAUDITED)
Total revenues decreased from $77.5 million in the six months ended
December 31, 1997 to $47.9 million in the six months ended December 31, 1998.
The decrease of $29.6 million in revenues is primarily attributable to a
decrease of $34.7 million in revenues due to the sale and closure of the
Company's Divested Assets. The Company also experienced an increase of $5.1
million in revenues from its Retained Assets primarily as a result of (i) an
increase in revenues at the Company's Gulf Coast Treatment Center of $1.3
million due to the award of a contract to provide assignment center services for
the State of Florida Department of Juvenile Justice on January 15, 1998, (ii) an
increase in revenues of $1.6 million as a result of a new contract with the
Juvenile Institutions Administration of the Commonwealth of Puerto Rico
commencing on May 1, 1998, (iii) an increase in revenues of $0.9 million at the
Company's facility located in Dothan, Alabama which began operations in June
1998, (iv) an increase in revenues of $0.2 million at the Company's South
Carolina group home operations which began in July 1998 and (v) an increase in
16
<PAGE> 18
revenues of $1.1 million in the Company's other Retained Assets due primarily to
an increase in total resident days of 17% between periods (from 64,893 days
during the six months ended December 31, 1997 to 76,016 days during the six
months ended December 31, 1998).
Total salaries, wages and benefits decreased from $39.6 million in the
six months ended December 31, 1997 to $28.3 million in the six months ended
December 31, 1998. The decrease of $11.3 million in salaries, wages and benefits
is primarily attributable to a decrease of $15.2 million due to the sale and
closure of the Company's Divested Assets. The Company also experienced an
increase of $3.9 million in salaries, wages and benefits from its Retained
Assets primarily as a result of (i) an increase of $1.1 million in salaries,
wages and benefits at the Company's facility located in Dothan, Alabama which
began operations in June 1998, (ii) an increase of $0.8 million due to the
start-up of the Company's Puerto Rico operations in May 1998, (iii) an increase
of $0.3 million at the Company's South Carolina group home operations which
began in July 1998, (iv) a decrease in corporate office salaries, wages and
benefits of $0.9 million due to the Company's restructuring efforts and (v) an
increase in salaries, wages and benefits of $2.6 million in the Company's other
Retained Assets due primarily to an increase in total resident days of 25%
between periods (from 80,088 days during the six months ended December 31, 1997
to 100,147 days during the six months ended December 31, 1998).
Other operating expenses decreased from $28.7 million in the six months
ended December 31, 1997 to $17.5 million in the six months ended December 31,
1998. The decrease of $11.2 million in other operating expenses is primarily
attributable to a decrease of $14.0 million due to the sale and closure of the
Company's Divested Assets. The Company also experienced an increase of $2.8
million in other operating expenses from its Retained Assets primarily as a
result of (i) an increase of $0.4 million in other operating expenses at the
Company's facility located in Dothan, Alabama which began operations in June
1998, (ii) other operating expenses of $0.4 million related to the start-up of
the Company's operations in Puerto Rico in May 1998, (iii) an increase in other
operating expenses of $0.1 million attributable to the start-up of the South
Carolina group home operations which began in July 1998, (iv) an increase in
corporate office other operating expenses of $1.0 million attributable to an
increase of $0.6 million due to reserves associated with an outstanding legal
case and an increase in other operating expenses of $0.4 million due to expenses
incurred in connection with the Company's change in strategic direction and (v)
an increase in other operating expenses of $0.9 million in the Company's other
Retained Assets, due primarily to an increase in total resident days of 31%
between periods (from 50,450 days during the six months ended December 31, 1997
to 66,323 days during the six months ended December 31, 1998).
The provision for doubtful accounts decreased from $2.2 million in the
six months ended December 31, 1997 to $1.5 million in the six months ended
December 31, 1998. The decrease is primarily attributable to the sale and
closure of the Company's Divested Assets.
Depreciation and amortization expense decreased from $3.3 million in
the six months ended December 31, 1997 to $1.6 million in the six months ended
December 31, 1998 primarily due to the sale and closure of the Company's
Divested Assets.
During the six months ended December 31, 1998, the Company recorded
approximately $7.9 million in other income primarily related to settlement of
amounts due from third party contractual agencies to RHCL (see "Item 8.
Financial Statements and Supplementary Data").
On September 30, 1998, the Company completed its previously announced
sale of its behavioral health care facility in Morgantown, West Virginia. The
Company realized a gain on this transaction of $2.0 million.
Interest and other financing charges decreased from $2.8 million in the
six months ended December 31, 1997 to $1.7 million in the six months ended
December 31, 1998. The decrease 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.
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<PAGE> 19
During the six months ended December 31, 1998, the Company recorded
losses related to asset sales and closed businesses of $0.9 million. These
losses are primarily attributable to (i) $0.8 million of estimated purchase
price adjustments relating to the Company's sale of Divested Assets and (ii)
$0.2 million of costs related to the closure of the Company's facility located
in Midvale, Utah in December 1998.
During the six months ended December 31, 1998, the Company recorded a
$1.6 million provision for income taxes in connection with the previously
mentioned $7.9 million of non-operating income from RHCL.
YEAR ENDED JUNE 30, 1998 COMPARED TO YEAR ENDED JUNE 30, 1997
Total revenues increased from $134.9 million in the year ended June 30,
1997 to $155.2 million in the year ended June 30, 1998. Of this amount, revenues
related to Retained Assets totalled $50.7 million in 1998 as compared to $45.4
million in 1997. Revenues related to Divested Assets totalled $104.5 million in
1998 as compared to $85.1 million in 1997. Excluded from Divested and Retained
Asset revenues in 1997 are (i) a $2.9 million favorable cash judgment awarded by
the courts of the State of Missouri related to one of the Company's Retained
Assets and (ii) a $1.5 million benefit related to intermediary audits of prior
year cost reports (approximately $1.0 million of this amount related to Divested
Assets and $0.5 million related to Retained Assets).
The increase in revenues related to Retained Assets from the year ended
June 30, 1997 to the year ended June 30, 1998 of $5.3 million is primarily
attributable to an increase in revenues from residential treatment centers from
$15.4 million in 1997 to $23.1 million in 1998, which is offset by a decrease in
revenues from intensive treatment units of $1.3 million. The increase in
residential treatment center revenues from fiscal 1997 to fiscal 1998 was
primarily due to an increase in total resident days between years of 58% (from
65,316 days to 103,450 days).
The increase in revenues related to Divested Assets from the year ended
June 30, 1997 to the year ended June 30, 1998 of $19.4 million is primarily
attributable to (i) an increase in managed behavioral healthcare services
revenues of $22.3 million related to RMCI, (ii) an increase in the Company's
medical subacute unit revenues of $9.2 million attributable to an increase in
total resident days between years, (iii) a decrease in revenues at the Company's
Greenbrier facility of $2.7 million due to the closure and sale of the facility
in fiscal 1998, (iv) a decrease in revenues generated from the Company's
Meadowlake facility which closed in May 1997 of $2.7 million, (v) decreases in
revenues in the Company's facilities located in Houma, Louisiana, Midvale, Utah
and Mesa, Arizona by $2.5 million, $1.3 million and $1.5 million, respectively,
due to a decrease in resident days between years, and (vi) a decrease in
revenues at the Company's management contracts division of $0.9 million due to
the loss of certain contracts.
Total salaries, wages and benefits increased from $67.8 million in the
year ended June 30, 1997 to $82.7 million in the year ended June 30, 1998. Of
this amount, salaries, wages and benefits related to Retained Assets totalled
$28.0 million in fiscal 1998 as compared to $23.1 million in fiscal 1997.
Salaries, wages and benefits related to Divested Assets totalled $48.9 million
in fiscal 1998 as compared to $42.0 million in fiscal 1997. Corporate salaries,
wages and benefits totalled $5.8 million in fiscal 1998 as compared to $2.7
million in fiscal 1997.
The increase in salaries, wages and benefits related to Retained Assets
from fiscal 1997 to fiscal 1998 of $4.9 million is primarily attributable to (i)
an increase in salaries, wages and benefits of $1.5 million at Gulf Coast
Treatment Center due to a full year of operation in fiscal 1998, (ii) an
increase of $0.5 million due to the start-up of the Dothan and Palm Bay
facilities, and (iii) an increase in salaries, wages and benefits in other
Retained Assets facilities of $3.0 million due to an increase in total resident
days between years.
The increase in salaries, wages and benefits related to the Divested
Assets from fiscal 1997 to fiscal 1998 of $6.9 million is primarily attributable
to (i) an increase in salaries, wages and benefits of the Company's managed care
operations of $7.0 million, (ii) an increase of $3.9 million attributable to an
18
<PAGE> 20
increase in total resident days between years at the Company's medical subacute
units, (iii) a decrease in contract management salaries, wages and benefits of
$0.8 million due to the loss of contracts, (iv) a decrease in salaries, wages
and benefits at the Meadowlake facility of $1.4 million, (v) a decrease in
salaries, wages and benefits of the Company's facilities located in Houma,
Louisiana, Mesa, Arizona and Midvale, Utah by $2.0 million due to reductions in
total resident days, (vi) a decrease in the Greenbrier facility of $1.0 million
due to both a reduction in resident days and its sale on June 2, 1998 and (vii)
an increase in self-insurance reserves of $1.4 million due primarily to negative
development of self-insured workers' compensation claims.
The increase in salaries, wages and benefits related to the corporate
office from fiscal 1997 to fiscal 1998 of $3.1 million is primarily attributable
to an increase of $1.2 million in incentive bonuses accruals during 1998 and an
increase of $2.0 million due to the hiring of new personnel in fiscal 1998
(primarily related to the acquisition of RMCI and Summa).
Other operating expenses increased from $46.8 million in the year ended
June 30, 1997 to $64.3 million in the year ended June 30, 1998. Of this amount,
other operating expenses related to Retained Assets totalled $14.1 million in
1998 as compared to $11.2 million in 1997. Other operating expenses related to
Divested Assets totalled $41.4 million in 1998 as compared to $31.2 million in
1997. Other operating expenses related to the Company's corporate office
totalled $8.8 million in 1998 as compared to $4.4 million in 1997.
The increase in other operating expenses related to Retained Assets
from fiscal 1997 to fiscal 1998 of $2.9 million is attributable to (i) an
increase in other operating expenses of $0.5 million at Gulf Coast Treatment
Center, (ii) other operating expenses of the new Dothan and Palm Bay facilities
and start-up expenses related to a new contract in Puerto Rico of $1.0 million
and (iii) an increase in other operating expenses of $1.4 million due to an
increase in total resident days between years at the remainder of the Company's
Retained Assets.
The increase in other operating expenses related to Divested Assets
from fiscal 1997 to fiscal 1998 of $10.2 million is attributable to (i) an
increase of $12.5 million in other operating expenses of the Company's managed
care operations, (ii) an increase of $1.0 million attributable to an increase in
resident days at the Company's medical subacute units, (iii) a decrease in other
operating expenses at the Meadowlake facility of $0.9 million and (iv) a
decrease of $2.4 million in other Divested Assets due to decreases in resident
days between years.
The increase in corporate other operating expenses of $4.4 million from
fiscal 1997 to fiscal 1998 is attributable to (i) an increase of $2.8 million in
legal reserves due to the Company's outstanding litigation (see "Item 3. Legal
Proceedings"), (ii) an increase of $0.6 million in self-insurance reserves due
to negative development of self-insured malpractice claims and (iii) an increase
in professional fees of approximately $1.0 million due primarily to the
integration of the managed care operations during fiscal 1998.
The provision for doubtful accounts increased from $5.7 million in the
year ended June 30, 1997 to $6.6 million in the year ended June 30, 1998.
Provision for doubtful accounts as a percentage of total revenues approximated
4.2% for fiscal 1997 and fiscal 1998.
Depreciation and amortization increased from $5.5 million in the year
ended June 30, 1997 to $5.7 million in the year ended June 30, 1998 primarily
due to the current year amortization of intangible assets recorded in connection
with the managed care acquisition in June 1997 offset by curtailing of
depreciation on assets held for sale.
In connection with the Company's change in strategic direction, the
Company initiated a restructuring of personnel at its corporate headquarters,
including the identification and communication of severance arrangements with
individual personnel. These amounts, which in the aggregate totaled $2.3
million, are reflected as restructuring charges in the accompanying statement of
operations.
19
<PAGE> 21
During fiscal 1998, the Company recorded asset impairment charges of
$18.3 million relating to (i) the difference in the carrying values and the
selling price of the Divested Assets held as of June 30, 1998 ($17.6 million)
(See "Item 1. Business - Recent Developments") and (ii) the write-off of cost in
excess of net asset value of purchased businesses due to an asset impairment
resulting from the change in strategic direction ($0.7 million). See "Item 8.
Financial Statements and Supplementary Data".
Other income in the year ended June 30, 1997 is primarily due to a $1.3
million derivative transaction entered into in connection with a refinancing
effort. No similar such item occurred in fiscal 1998.
Interest and other financing charges increased from $6.0 million in the
year ended June 30, 1997 to $7.2 million in the year ended June 30, 1998. The
increase was primarily attributable to a $1.3 million non-refundable fee charged
by a financial institution in connection with an amendment to the Company's
credit facility. See "Item 8. Financial Statements and Supplementary Data".
During the year ended June 30, 1998, the Company recorded losses of
approximately $12.5 million related to the sale of the managed care operations
and the Three Rivers and Greenbrier facilities. These amounts are reflected as
losses related to asset sales and closed businesses in the accompanying
statement of operations. See "Item 8. Financial Statements and Supplementary
Data".
The Company recorded a provision for income taxes in fiscal 1998 of
$10.0 million, which primarily represents a full valuation allowance on its
previously recorded deferred tax assets. The realizability of these assets had
been based on the implementation of tax planning strategies that contemplated
the sales of certain appreciated property. In connection with the Company's
change in strategic direction, the Company determined that those tax planning
strategies would not be realized and a full valuation allowance was considered
necessary.
IMPACT OF INFLATION
The at-risk youth industry is labor intensive, and wages and related
expenses increase in inflationary periods. Additionally, suppliers generally
seek to pass along rising costs to the Company in the form of higher prices. The
Company monitors the operations of its facilities to mitigate the effect of
inflation and increases in the costs of health care. To the extent possible, the
Company seeks to offset increased costs through increased rates, new programs
and operating efficiencies. However, reimbursement arrangements may hinder the
Company's ability to realize the full effect of rate increases. To date,
inflation has not had a significant impact on operations.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", which establishes standards
for the accounting and reporting of derivative instruments embedded in other
contracts (collectively referred to as derivatives) and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure these
instruments at fair value. This statement is effective for years beginning
after June 15, 2000. The adoption of this new accounting standard is not
expected to have a material impact on the Company's consolidated financial
position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements relate primarily to (i) the
expansion of its youth service business through acquisition or development of
new programs and services, (ii) routine capital improvements at its facilities
and (iii) the payment of liabilities and legal settlements associated with its
Divested Assets.
20
<PAGE> 22
Cash used in operating activities for the year ended December 31, 1999
was $1.8 million on net income of $3.1 million as compared to the year ended
June 30, 1998 which generated $1.6 million in operating activities on a net loss
of $58.6 million. The decrease in cash from operating activities in 1999 is
primarily due to the increase in accounts receivable from new programs started
during the year and the decrease in other liabilities and amounts due to
third-party contractual agencies as a result of payments made in connection with
the Company's Divested Assets. Working capital at December 31, 1999 was $1.2
million as compared to $2.4 million at June 30, 1998.
Cash used by investing activities was $3.1 million for the year ended
December 31, 1999 as compared to cash provided by investing activities of $11.4
million in the year ended June 30, 1998. During the year ended December 31,
1999, cash used by investing activities was used primarily for the acquisition
of various group homes and recurring expenditures for property and equipment.
The cash provided by investing activities during the year ended June 30, 1998 is
primarily due to the proceeds from the sale of Divested Assets.
Cash provided by financing activities was $4.1 million for the year
ended December 31, 1999 and cash used by financing activities was $11.8 million
for the year ended June 30, 1998. During the year ended December 31, 1999, cash
provided by financing activities was primarily attributable to an increase in
borrowings under the Company's credit facility which was used to fund the
acquisition of group homes and pay for the liabilities associated with the
Divested Assets. During the year ended June 30, 1998, cash used in financing
activities was primarily attributable to the refinancing of the Company's debt
and prepayment of debt from the previously mentioned asset sales.
On September 30, 1997, the Company entered into a credit facility with
a financial institution consisting of (i) a term loan of $12.5 million and a
term loan of $10.0 million (the "Term Loans"), (ii) a revolving credit facility
of up to the lesser of $16.5 million or the borrowing base of the Company's
receivables (the "Revolving Credit Loan") and (iii) subordinated bridge notes,
of which $15.0 million was purchased by the financial institution ("Series A
Bridge Notes") and $2.5 million was purchased by Ramsay Holdings (the "Series B
Bridge Notes") (collectively referred to as the "Bridge Facility").
In addition, on September 30, 1997, the Company entered into an
agreement with Ramsay Holdings and the financial institution pursuant to which
(i) Ramsay Holdings purchased $4.0 million of non-convertible, non-voting Class
B Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock") and (ii)
the financial institution purchased $2.5 million of Class B Preferred Stock,
Series 1997 (the "Series 1997 Preferred Stock").
In June 1998 the Company prepaid a portion of the credit facility with
proceeds from the sale of assets and recorded a loss on early extinguishment of
$0.9 million.
In September 1998, the Company used the net proceeds from the sales of
assets to (i) repay in full the Term Loans, (ii) repay in full the Series A
Bridge Notes, (iii) redeem all of the outstanding shares of the Series 1997
Preferred Stock, including accrued dividends, (iv) pay $1.5 million in
previously incurred fees to the financial institution and (v) repay a portion of
the Revolving Credit Loan. In connection with the aforementioned prepayment of
indebtedness and refinancing, during the six months ended December 31, 1998, the
Company recorded a loss from early extinguishment of debt of approximately $2.8
million.
On October 30, 1998, the Company refinanced the 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 on October 30, 2003, (ii) a
revolving credit facility (the "Revolver") for an amount up to the lesser of
$8.0 million or the borrowing
21
<PAGE> 23
base of the Company's receivables (as defined in the agreement) and (iii) an
acquisition loan (the "Acquisition Loan") commitment of up to $6.0 million,
beginning March 1, 1999. As of March 13, 2000, no amounts had been drawn under
the Revolver and $2,429,000 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% (9.0% at December 31, 1999), based on the Company's ratio of
total indebtedness to EBITDA (as defined in the Senior Credit Facility) or (ii)
a function of the Eurodollar rate plus a margin ranging from 2.0% to 3.5%, based
on the Company's ratio of total indebtedness to EBITDA.
Interest on the Acquisition Loan varies, and at the option of the
Company, would equal (i) a function of a base rate plus a margin ranging from
0.75% to 2.25% (9.25% at December 31, 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 2.25% to 3.75%, based on the Company's ratio of total
indebtedness to EBITDA.
Additionally, the Company is obligated to pay to the financial
institution an amount equal to one half of 1% of the unused portion of the
Revolver and the Acquisition Loan.
The Senior Credit Facility requires that the Company meet certain
covenants, including (i) the maintenance of certain fixed charge coverage,
interest coverage and leverage ratios, (ii) the maintenance of certain proforma
availability levels (as defined in the Senior Credit Facility) and (iii) a
limitation on capital expenditures. The Senior Credit Facility also prohibits
the payment of cash dividends to common stockholders of the Company until the
Company's EBITDA exceeds $7.8 million.
The Company failed to maintain the required fixed charge coverage,
interest coverage and leverage ratio as of December 31, 1998. The Company's
lender agreed to waive the requirements as of December 31, 1998 and amend the
definition of EBITDA for calculating the covenants in the future. As of December
31, 1999, the Company is in compliance with these ratios.
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).
On November 28, 1999, the Company's Senior Credit Facility was amended
and restated (the "Third Amendment"). The Third Amendment provides for, among
other things, (i) up to $3.0 million in bridge loan advances under the
Acquisition Loan for certain purposes (the "Bridge Loan Advances"), (ii) a
release of the $3.0 million reserve on the Revolver borrowing base in an amount
equal to the Bridge Loan Advances actually made and (iii) a change to the
definitions for purposes of calculating the Pro Forma Availability covenant.
Proceeds from any borrowings under the Bridge Loan Advances are
restricted, and may be used by the Company solely to satisfy certain liabilities
(as defined in the agreement). The Bridge Loan Advances will be mandatorily
payable on the occurrence of certain events (as defined in the Third Amendment).
The interest rate on the Bridge Loan Advances is equal to the interest rate on
the Acquisition Loan.
In connection with the Third Amendment, a corporate affiliate of Paul
J. Ramsay, Chairman of the Board of the Company, entered into a Junior
Subordinated Note Purchase Agreement with the Senior Facility lender to
participate in the Senior Credit Facility in an amount equal to the Bridge Loan
Advances.
On January 25, 2000, the Company entered into a subordinated note and
warrant purchase agreement, with an unrelated financial institution for an
aggregate principal amount of
22
<PAGE> 24
$5.0 million (the "Subordinated Note"). The Subordinated Note permits the
financial institution to purchase, under certain conditions, up to 475,000
warrants which are convertible into the Company's common stock. Borrowings under
the Subordinated Note bear interest at a rate of 12.5% per annum. The interest
is payable quarterly, and the principal balance and any unpaid interest is due
January 25, 2007. The Company's Senior Credit Facility was amended on January
25, 2000 to provide for the approval of the Subordinated Note.
The Company has pledged substantially all of its real property,
receivables and other assets as collateral for the Senior Credit Facility.
Management of the Company believes that it can meet its current cash
requirements and future identifiable needs with (i) internally generated funds
from operations, (ii) the Senior Credit Facility and (iii) its ability to obtain
debt or equity capital through other sources.
There can, however, be no assurance that additional financing will be
available on acceptable terms. In addition, the Company's Senior Credit Facility
places restrictions on the Company's ability to incur additional indebtedness
which could adversely affect its ability to raise additional capital through
debt financing.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
While the Company is exposed to changes in interest rates as a result
of its outstanding variable rate debt, the Company does not currently utilize
any derivative financial instruments related to its interest rate exposure. The
Company believes that its exposure to market risk will not result in a material
adverse effect on the Company's consolidated financial condition, results of
operations or liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Company and its consolidated subsidiaries
are set forth herein beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item with respect to the Company's
executive officers and directors will be contained in the Company's definitive
Proxy Statement ("Proxy Statement") for its 2000 Annual Meeting of Stockholders
to be held on May 31, 2000 and is incorporated herein by reference. Such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days subsequent to December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION.
The information required with respect to this Item will be contained in
the Proxy Statement, and such information is incorporated herein by reference.
23
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required with respect to this Item will be contained in
the Proxy Statement, and such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required with respect to this Item will be contained in
the Proxy Statement, and such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED AS PART OF THE REPORT:
1. FINANCIAL STATEMENTS
Information with respect to this Item is contained on
Pages F-1 to F-35 of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are
inapplicable or the information is provided in the
consolidated financial statements, including the notes
thereto.
3. EXHIBITS
Information with respect to this Item is contained in
the attached Index to Exhibits.
(b) REPORTS ON FORM 8-K:
On May 21, 1999, the Company filed with the Commission a
Current Report on Form 8-K related to a change in Registrant's
Certifying Accountants.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K:
Exhibits required to be filed by the Company pursuant to Item
601 of Regulation S-K are contained in Exhibits listed in
response to Item 14(a)3, and are incorporated herein by
reference. The agreements, management contracts and
compensatory plans and arrangements required to be filed as an
Exhibit to this Form 10-K are listed in Exhibits 10.64, 10.66,
10.69, 10.71, 10.72, 10.76, 10.77, 10.79, 10.91, 10.97, 10.99,
10.101, 10.102, 10.104, 10.105, 10.110, 10.136, 10.137 and
10.143.
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<PAGE> 26
POWER OF ATTORNEY
The Registrant, and each person whose signature appears below, hereby
appoints Luis E. Lamela and Thomas M. Haythe as attorneys-in-fact with full
power of substitution, severally, to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto fully authorized.
RAMSAY YOUTH SERVICES, INC.
Dated: 3/15/00 By /s/ Luis E. Lamela
---------------------------------------
Luis E. Lamela
President and Chief Executive Officer
Dated: 3/15/00 By /s/ Marcio C. Cabrera
---------------------------------------
Marcio C. Cabrera
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE/TITLE
Dated: 3/15/00 By /s/ Paul J. Ramsay
---------------------------------------
Paul J. Ramsay
Chairman of the Board of Directors
Dated: 3/15/00 By /s/ Luis E. Lamela
---------------------------------------
Luis E. Lamela
Chief Executive Officer, Executive Vice
Chairman of the Board and Director
25
<PAGE> 27
SIGNATURE/TITLE
Dated: 3/15/00 By /s/ Aaron Beam, Jr.
---------------------------------------
Aaron Beam, Jr.
Director
Dated: 3/15/00 By /s/ Peter J. Evans
---------------------------------------
Peter J. Evans
Director
Dated: 3/15/00 By /s/ Thomas M. Haythe
---------------------------------------
Thomas M. Haythe
Director
Dated: 3/15/00 By /s/ Steven J. Shulman
---------------------------------------
Steven J. Shulman
Director
Dated: 3/15/00 By /s/ Michael S. Siddle
---------------------------------------
Michael S. Siddle
Director
26
<PAGE> 28
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements of the Registrant and
its subsidiaries are submitted herewith in response to Item 8 and Item 14(a)(1):
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Independent Auditors ................................................. F-2
Report of Independent Certified Public Accountants ............................. F-3
Consolidated Balance Sheets - December 31, 1999,
December 31, 1998 and June 30, 1998 ........................................ F-4
Consolidated Statements of Operations - For the Year
Ended December 31, 1999, for the Six Months Ended
December 31, 1998 and 1997 (unaudited) and for the
Years Ended June 30, 1998 and 1997 ......................................... F-6
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Equity - For the Year Ended December 31, 1999,
for the Six Months Ended December 31, 1998 and for the
Years Ended June 30, 1998 and 1997 ......................................... F-7
Consolidated Statements of Cash Flows - For the Year Ended
December 31, 1999, for the Six Months Ended December 31, 1998
and 1997 (unaudited) and for the Years Ended June 30, 1998 and 1997 ........ F-8
Notes to Consolidated Financial Statements ..................................... F-9
</TABLE>
All schedules have been omitted because they are inapplicable or the
information is provided in the consolidated financial statements, including the
notes thereto.
F-1
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Ramsay Youth Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Ramsay
Youth Services, Inc. and subsidiaries (the "Company") as of December 31, 1999
and the related consolidated statements of operations, redeemable preferred
stock and stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1999 and the consolidated results of operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The consolidated financial statements give retroactive effect to the
acquisition by Ramsay Youth Services, Inc. of Ramsay Hospital Corporation of
Louisiana, Inc. on June 30, 1999, which has been accounted for in a manner
similar to a pooling of interests as described in Note 6 paragraph 9 to the
accompanying consolidated financial statements. Other auditors previously
audited and reported on the balance sheets of Ramsay Youth Services, Inc. as of
December 31, 1998 and June 30, 1998 and the related statements of operations,
redeemable preferred stock and stockholders' equity, and cash flows for the six
months ended December 31, 1998 and the years ended June 30, 1998 and 1997, prior
to their restatement to give effect to the 1999 acquisition. The pre-acquisition
consolidated financial statements of Ramsay Youth Services, Inc. reflected
$56,138,000 and $85,091,000 of total assets at December 31, 1998 and June 30,
1998, respectively, and $47,892,000, $155,197,000 and $134,669,000, respectively
of total revenues for the six months ended December 31, 1998 and the years ended
June 30, 1998 and 1997, of the respective restated totals. We audited the
combination of the accompanying consolidated balance sheets of Ramsay Youth
Services, Inc. and subsidiaries as of December 31, 1998 and June 30, 1998, and
the related consolidated statements of operations, redeemable preferred stock
and stockholders' equity, and cash flows for the six month period ended December
31, 1998 and the years ended June 30, 1998 and 1997, after restatement to give
effect to the 1999 acquisition. In our opinion, such consolidated financial
statements have been properly combined on the basis described in Note 6
paragraph 9 to the consolidated financial statements.
DELOITTE & TOUCHE LLP
Miami, Florida
March 13, 2000
F-2
<PAGE> 30
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Ramsay Youth Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ramsay
Youth Services, Inc. and subsidiaries (the "Company") as of December 31, 1998
and June 30, 1998, and the related consolidated statements of operations,
redeemable preferred stock and stockholders' equity, and cash flows for the six
month period ended December 31, 1998 and for each of the two years in the period
ended June 30, 1998, prior to the transaction with Ramsay Hospital Corporation
of Louisiana, Inc. described in Note 6 (which statements are not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ramsay
Youth Services, Inc. and subsidiaries at December 31, 1998 and June 30, 1998,
and the consolidated results of their operations and their cash flows for the
six month period ended December 31, 1998 and for each of the two years in the
period ended June 30, 1998, prior to the transaction with Ramsay Hospital
Corporation of Louisiana, Inc. described in Note 6 (which statements are not
presented separately herein) in conformity with generally accepted accounting
principles in the United States.
ERNST & YOUNG LLP
Miami, Florida
March 15, 1999
F-3
<PAGE> 31
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------- June 30,
1999 1998 1998
----------- ----------- -----------
(Note 1) (Note 1)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .......................... $ 622,000 $ 1,478,000 $ 3,263,000
Accounts receivable, net ........................... 15,189,000 12,859,000 12,023,000
Amounts due from third-party contractual agencies .. 2,549,000 4,699,000 7,114,000
Other receivables .................................. 2,409,000 6,854,000 2,143,000
Other current assets ............................... 1,430,000 1,100,000 1,084,000
Due from affiliate ................................. -- -- 5,590,000
Net assets held for sale ........................... -- -- 25,768,000
----------- ----------- -----------
Total current assets ........................... 22,199,000 26,990,000 56,985,000
Other assets
Cash held in trust .................................. 1,893,000 1,856,000 1,964,000
Cost in excess of net asset value of purchased
businesses, net ................................. 1,426,000 1,792,000 1,318,000
Other intangible assets, net ........................ 453,000 578,000 --
Unamortized loan costs, net ......................... 987,000 1,041,000 2,397,000
Net assets held for sale ............................ 2,090,000 2,044,000 --
----------- ----------- -----------
Total other assets ............................. 6,849,000 7,311,000 5,679,000
Property and equipment
Land ................................................ 3,448,000 2,721,000 2,648,000
Buildings and improvements .......................... 30,126,000 28,456,000 29,698,000
Equipment, furniture and fixtures ................... 13,225,000 12,148,000 11,422,000
----------- ----------- -----------
46,799,000 43,325,000 43,768,000
Less accumulated depreciation ....................... 19,221,000 16,998,000 15,390,000
----------- ----------- -----------
27,578,000 26,327,000 28,378,000
----------- ----------- -----------
$56,626,000 $60,628,000 $91,042,000
=========== =========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 32
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------- June 30,
1999 1998 1998
------------- ------------- -------------
(Note 1) (Note 1)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................... $ 7,274,000 $ 5,113,000 $ 6,040,000
Accrued salaries and wages ................................. 2,975,000 2,533,000 3,973,000
Other accrued liabilities .................................. 3,601,000 11,479,000 9,609,000
Amounts due to third-party contractual agencies ............ 5,193,000 7,565,000 13,043,000
Due to affiliate ........................................... 600,000 1,200,000 700,000
Current portion of long-term debt .......................... 1,394,000 675,000 21,219,000
------------- ------------- -------------
Total current liabilities ............................ 21,037,000 28,565,000 54,584,000
Noncurrent liabilities
Other accrued liabilities .................................. 6,934,000 10,817,000 13,071,000
Long-term debt, less current portion ....................... 11,561,000 7,332,000 14,398,000
Redeemable preferred stock .................................... -- -- 6,740,000
Commitments and contingencies
Stockholders' equity
Class B convertible preferred stock, Series C, $1 par
value - authorized 152,321 shares; none issued or
outstanding at December 31, 1999 and 1998, 142,486
shares issued and outstanding at June 30, 1998 ......... -- -- 414,000
Class B convertible preferred stock, Series 1996, $1 par
value - authorized 100,000 shares; none issued or
outstanding at December 31, 1999 and 1998, 100,000
shares issued and outstanding at June 30, 1998 ......... -- -- 3,113,000
Common stock $.01 par value - authorized 30,000,000
shares; issued 9,086,191 shares at December 31,
1999, 9,079,245 shares at December 31, 1998 and
3,817,800 shares at June 30, 1998 ...................... 90,000 90,000 38,000
Additional paid-in capital ................................. 126,138,000 126,075,000 107,611,000
Accumulated deficit ........................................ (105,235,000) (108,352,000) (105,028,000)
Treasury stock - 193,850 common shares at December 31,
1999, December 31, 1998 and June 30, 1998, at cost ..... (3,899,000) (3,899,000) (3,899,000)
------------- ------------- -------------
Total stockholders' equity ......................... 17,094,000 13,914,000 2,249,000
------------- ------------- -------------
$ 56,626,000 $ 60,628,000 $ 91,042,000
============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 33
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Six Months Ended December 31, Year Ended June 30,
December 31, ----------------------------- ------------------------------
1999 1998 1997 1998 1997
------------ ------------- ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Provider-based revenue ...................... $ 81,474,000 $ 47,892,000 $ 64,334,000 $ 130,898,000 $ 132,955,000
Managed care revenue ........................ -- -- 13,208,000 24,313,000 1,964,000
------------ ------------ ------------ ------------- -------------
TOTAL REVENUES ................................. 81,474,000 47,892,000 77,542,000 155,211,000 134,919,000
------------ ------------ ------------ ------------- -------------
Operating Expenses:
Salaries, wages and benefits ................ 49,283,000 28,313,000 39,604,000 82,740,000 67,793,000
Other operating expenses .................... 25,024,000 17,470,000 23,316,000 53,489,000 45,122,000
Managed care patient costs .................. -- -- 5,396,000 10,766,000 1,704,000
Provision for doubtful accounts ............. 1,896,000 1,549,000 2,193,000 6,649,000 5,688,000
Depreciation and amortization ............... 2,366,000 1,627,000 3,281,000 5,714,000 5,473,000
Restructuring charges ....................... -- -- -- 2,349,000 --
Asset impairment charges .................... -- -- -- 18,316,000 --
------------ ------------ ------------ ------------- -------------
TOTAL OPERATING EXPENSES ....................... 78,569,000 48,959,000 73,790,000 180,023,000 125,780,000
------------ ------------ ------------ ------------- -------------
INCOME (LOSS) FROM OPERATIONS .................. 2,905,000 (1,067,000) 3,752,000 (24,812,000) 9,139,000
Non-operating income (expenses):
Other income ................................ 1,548,000 8,059,000 197,000 256,000 2,050,000
Gain on sale of assets ...................... -- 2,039,000 -- -- --
Interest and other financing charges ........ (1,268,000) (1,655,000) (2,791,000) (7,230,000) (5,962,000)
Losses related to asset sales and closed
businesses ................................ -- (947,000) -- (12,483,000) --
------------ ------------ ------------ ------------- -------------
Total non-operating income (expenses),
net ..................................... 280,000 7,496,000 (2,594,000) (19,457,000) (3,912,000)
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM .......................... 3,185,000 6,429,000 1,158,000 (44,269,000) 5,227,000
Provision for income taxes ..................... 68,000 1,591,000 -- 9,985,000 1,815,000
------------ ------------ ------------ ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ........ 3,117,000 4,838,000 1,158,000 (54,254,000) 3,412,000
Extraordinary item:
Loss from early extinguishment of debt ...... -- (2,811,000) (3,574,000) (4,322,000) --
------------ ------------ ------------ ------------- -------------
NET INCOME (LOSS) .............................. $ 3,117,000 $ 2,027,000 $ (2,416,000) $ (58,576,000) $ 3,412,000
============ ============ ============ ============= =============
Income (loss) attributable to common
stockholders before extraordinary item ...... $ 3,117,000 $ 4,182,000 $ 754,000 $ (55,219,000) $ 3,050,000
Extraordinary item ............................. -- (2,811,000) (3,574,000) (4,322,000) --
------------ ------------ ------------ ------------- -------------
Income (loss) attributable to common
stockholders ................................ $ 3,117,000 $ 1,371,000 $ (2,820,000) $ (59,541,000) $ 3,050,000
============ ============ ============ ============= =============
Income (loss) per common share:
Basic:
Before extraordinary item ................. $ .35 $ .93 $ .21 $ (15.36) $ 1.09
Extraordinary item:
Loss from early extinguishment of debt .. -- (.63) (1.00) (1.20) --
------------ ------------ ------------ ------------- -------------
$ .35 $ .30 $ (.79) $ (16.56) $ 1.09
============ ============ ============ ============= =============
Diluted:
Before extraordinary item ................. $ .33 $ .70 $ .18 $ (15.36) $ 1.00
Extraordinary item:
Loss from early extinguishment of debt .. -- (.47) (.86) (1.20) --
------------ ------------ ------------ ------------- -------------
$ .33 $ .23 $ (.68) $ (16.56) $ 1.00
============ ============ ============ ============= =============
Weighted average number of common
shares outstanding:
Basic ....................................... 8,890,000 4,487,000 3,574,000 3,595,000 2,801,000
============ ============ ============ ============= =============
Diluted ..................................... 9,538,000 5,971,000 4,139,000 3,595,000 3,409,000
============ ============ ============ ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 34
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Class B
Redeemable Redeemable Class B Convertible
Preferred Preferred Convertible Preferred
Stock Stock Preferred Stock
Series Series Stock Series Common
1997 1997-A Series C 1996 Stock
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1996 ........ $ -- $ -- $ 233,000 $ -- $ 29,000
Shares issued in connection
with employee stock purchase
plan (5,286 shares) .......... -- -- -- -- --
Shares issued in connection
with management and
directors' fees (131,282
shares) ...................... -- -- -- -- 1,000
Issuance of common stock
(711,942 shares) and Series
1996 preferred stock (100,000
shares and accrued dividends
of $121,000) in connection
with merger, net of costs .... -- -- -- 3,121,000 7,000
Issuance of warrants (83,333
shares) ...................... -- -- -- -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... -- -- 271,000 -- --
Net income ..................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 1997 ....... -- -- 504,000 3,121,000 37,000
Issuance of preferred stock .... 2,400,000 4,000,000 -- -- --
Dividends on Series 1997
preferred stock .............. 69,000 -- -- -- --
Dividends on Series 1997-A
preferred stock .............. -- 271,000 -- -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... -- -- 362,000 -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. -- -- -- 150,000 --
Accrued dividends exchanged for
preferred stock, Series 1997-A -- -- (452,000) (158,000) --
Issuance of common stock
(83,333 shares) in connection
with merger .................. -- -- -- -- 1,000
Issuance of warrants (166,667
shares) in connection with
merger ....................... -- -- -- -- --
Issuance of common stock in
connection with employee
stock purchase plan (6,486
shares) ...................... -- -- -- -- --
Exercise of stock options
(11,100 shares) .............. -- -- -- -- --
Issuance of options to purchase
common stock ................. -- -- -- -- --
Net loss ....................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT JUNE 30, 1998 ....... 2,469,000 4,271,000 414,000 3,113,000 38,000
Issuance of common stock in
connection with employment
agreement (33,333 shares) .... -- -- -- -- --
Issuance of common stock in
connection with employee
stock purchase plan (2,044
shares) ...................... -- -- -- -- --
Issuance of common stock
(1,037,037 shares) in
connection with private
placement, net of costs ...... -- -- -- -- 10,000
Dividends on Class B
convertible redeemable
preferred stock, Series 1997.. (69,000) -- -- -- --
Dividends on Class B redeemable
preferred stock, Series 1997-A -- 151,000 -- -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... -- -- 166,000 -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. -- -- -- 68,000 --
Redemption of preferred stock,
Series 1997 .................. (2,625,000) -- -- -- --
Redemption premium on preferred
stock, Series 1997 ........... 125,000 -- -- -- --
Accretion of offering costs on
preferred stock .............. 100,000 -- -- -- --
Issuance of common stock
(1,310,222 shares) in
connection with conversion of
Class B redeemable preferred
stock, Series 1997-A ......... -- (4,422,000) -- -- 13,000
Issuance of common stock
(753,285 shares) in
connection with conversion of
Class B convertible preferred
stock, Series C .............. -- -- (580,000) -- 8,000
Issuance of common stock
(445,469 shares) in
connection with conversion of
Class B convertible preferred
stock, Series 1996 ........... -- -- -- (3,181,000) 4,000
Issuance of common stock
(609,123 shares) in
connection with conversion of
Senior Subordinated Bridge
Note, including accrued
interest ..................... -- -- -- -- 6,000
Issuance of common stock
(1,071,227 shares) in
connection with conversion of
Junior Subordinated Note,
including accrued interest ... -- -- -- -- 11,000
Forgiveness of amounts due from
affiliates ................... -- -- -- -- --
Dividends ...................... -- -- -- -- --
Net income ..................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
BALANCE AT DECEMBER 31, 1998 ... -- -- -- -- 90,000
Issuance of common stock in
connection with employee
stock purchase plan (13,040
shares) ...................... -- -- -- -- --
Costs in connection with
issuance of common stock ..... -- -- -- -- --
Refunded registration costs .... -- -- -- -- --
Issuance of options to purchase
common stock ................. -- -- -- -- --
Net income ..................... -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Balance at December 31, 1999 ... $ -- $ -- $ -- $ -- $ 90,000
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated Treasury
Capital Deficit Stock
------------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT JULY 1, 1996 ........ $ 100,474,000 $ (49,864,000) $ (3,899,000)
Shares issued in connection
with employee stock purchase
plan (5,286 shares) .......... 40,000 -- --
Shares issued in connection
with management and
directors' fees (131,282
shares) ...................... 921,000 -- --
Issuance of common stock
(711,942 shares) and Series
1996 preferred stock (100,000
shares and accrued dividends
of $121,000) in connection
with merger, net of costs .... 5,640,000 -- --
Issuance of warrants (83,333
shares) ...................... 212,000 -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... (362,000) -- --
Net income ..................... -- 3,412,000 --
------------- ------------- -------------
BALANCE AT JUNE 30, 1997 ....... 106,925,000 (46,452,000) (3,899,000)
Issuance of preferred stock .... -- -- --
Dividends on Series 1997
preferred stock .............. (181,000) -- --
Dividends on Series 1997-A
preferred stock .............. (271,000) -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... (362,000) -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. (150,000) -- --
Accrued dividends exchanged for
preferred stock, Series 1997-A -- -- --
Issuance of common stock
(83,333 shares) in connection
with merger .................. 812,000 -- --
Issuance of warrants (166,667
shares) in connection with
merger ....................... 657,000 -- --
Issuance of common stock in
connection with employee
stock purchase plan (6,486
shares) ...................... 46,000 -- --
Exercise of stock options
(11,100 shares) .............. 112,000 -- --
Issuance of options to purchase
common stock ................. 23,000 -- --
Net loss ....................... -- (58,576,000) --
------------- ------------- -------------
BALANCE AT JUNE 30, 1998 ....... 107,611,000 (105,028,000) (3,899,000)
Issuance of common stock in
connection with employment
agreement (33,333 shares) .... 175,000 -- --
Issuance of common stock in
connection with employee
stock purchase plan (2,044
shares) ...................... 10,000 -- --
Issuance of common stock
(1,037,037 shares) in
connection with private
placement, net of costs ...... 3,304,000 -- --
Dividends on Class B
convertible redeemable
preferred stock, Series 1997.. (45,000) -- --
Dividends on Class B redeemable
preferred stock, Series 1997-A (150,000) -- --
Dividends on Class B
convertible preferred stock,
Series C ..................... (166,000) -- --
Dividends on Class B
convertible preferred stock,
Series 1996 .................. (68,000) -- --
Redemption of preferred stock,
Series 1997 .................. -- -- --
Redemption premium on preferred
stock, Series 1997 ........... (125,000) -- --
Accretion of offering costs on
preferred stock .............. (100,000) -- --
Issuance of common stock
(1,310,222 shares) in
connection with conversion of
Class B redeemable preferred
stock, Series 1997-A ......... 4,409,000 -- --
Issuance of common stock
(753,285 shares) in
connection with conversion of
Class B convertible preferred
stock, Series C .............. 572,000 -- --
Issuance of common stock
(445,469 shares) in
connection with conversion of
Class B convertible preferred
stock, Series 1996 ........... 3,177,000 -- --
Issuance of common stock
(609,123 shares) in
connection with conversion of
Senior Subordinated Bridge
Note, including accrued
interest ..................... 2,577,000 -- --
Issuance of common stock
(1,071,227 shares) in
connection with conversion of
Junior Subordinated Note,
including accrued interest ... 5,412,000 -- --
Forgiveness of amounts due from
affiliates ................... (518,000) (5,051,000) --
Dividends ...................... -- (300,000) --
Net income ..................... -- 2,027,000 --
------------- ------------- -------------
BALANCE AT DECEMBER 31, 1998 ... 126,075,000 (108,352,000) (3,899,000)
Issuance of common stock in
connection with employee
stock purchase plan (13,040
shares) ...................... 30,000 -- --
Costs in connection with
issuance of common stock ..... (36,000) -- --
Refunded registration costs .... 60,000 -- --
Issuance of options to purchase
common stock ................. 9,000 -- --
Net income ..................... -- 3,117,000 --
------------- ------------- -------------
Balance at December 31, 1999 ... $ 126,138,000 $(105,235,000) $ (3,899,000)
============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE> 35
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Six Months Ended December 31, Year Ended June 30,
December 31, ---------------------------- ----------------------------
1999 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) ............................... $ 3,117,000 $ 2,027,000 $ (2,416,000) $(58,576,000) $ 3,412,000
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating
activities:
Depreciation ................................. 1,845,000 1,316,000 2,299,000 4,123,000 4,681,000
Amortization, including loan costs ........... 761,000 349,000 1,125,000 2,229,000 1,152,000
Asset impairment charges ..................... -- -- -- 18,316,000 --
Loss from early extinguishment of debt ....... -- 2,811,000 3,574,000 4,322,000 --
Write-off of development and other costs ..... -- -- -- -- 571,000
Loss related to asset sales and closed
businesses .................................. -- 947,000 -- 12,483,000 --
Gain on sale of assets ....................... -- (2,039,000) -- -- --
Provision for deferred income taxes .......... -- -- -- 9,411,000 1,222,000
Provision for doubtful accounts .............. 1,896,000 1,549,000 2,193,000 6,649,000 5,688,000
Management and director fees paid in common
stock ....................................... -- -- -- -- 922,000
Expenses paid with equity instruments ........ 9,000 -- -- 23,000 212,000
Change in operating assets and liabilities net of
effects of business acquired
Increase in accounts receivable .............. (3,483,000) (1,588,000) (3,426,000) (5,031,000) (6,992,000)
Decrease (increase) in other current assets .. 6,427,000 (2,442,000) (559,000) (863,000) 1,284,000
Increase (decrease) in accounts payable ...... 1,433,000 (960,000) (2,075,000) 1,009,000 1,503,000
(Decrease) increase in accrued salaries,
wages and other liabilities ................. (11,476,000) (3,862,000) (819,000) 5,713,000 (2,536,000)
(Decrease) increase in amounts due to
third-party contractual agencies ............ (2,372,000) (5,478,000) 63,000 1,778,000 (1,360,000)
------------ ------------ ------------ ------------ ------------
Total adjustments ....................... (4,960,000) (9,397,000) 2,375,000 60,162,000 6,347,000
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by operating
activities ........................................ (1,843,000) (7,370,000) (41,000) 1,586,000 9,759,000
------------ ------------ ------------ ------------ ------------
Investing activities
Increase in net assets held for sale ............. (46,000) (969,000) -- -- --
Proceeds from sale of subsidiary and property
and equipment .................................. -- 29,600,000 -- 21,505,000 --
Expenditures for property and equipment .......... (1,864,000) (895,000) (2,760,000) (7,777,000) (3,490,000)
Acquisitions ..................................... (1,195,000) (357,000) -- -- --
Preopening costs ................................. -- -- (35,000) -- (386,000)
Acquisition of business, net of cash acquired .... -- (969,000) (300,000) (300,000) --
Cash held in trust ............................... (37,000) 108,000 (3,000) (1,137,000) 268,000
Other noncurrent assets .......................... -- -- -- (892,000) 237,000
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by investing
activities ........................................ (3,142,000) 26,518,000 (3,098,000) 11,399,000 (3,371,000)
------------ ------------ ------------ ------------ ------------
Financing activities
Loan costs ....................................... (216,000) (1,629,000) (3,079,000) (3,231,000) (1,755,000)
Payment of costs related to acquisition .......... -- -- -- -- (365,000)
Amounts (paid to) received from affiliate ........ (600,000) 1,592,000 -- 6,429,000 1,124,000
Distributions to minority interests .............. -- -- -- -- (900,000)
Proceeds from acquisition of subsidiary .......... -- -- -- -- 1,474,000
Dividends ........................................ -- (300,000) -- -- --
Net proceeds from exercise of options and stock
purchases ...................................... 30,000 10,000 130,000 158,000 40,000
Proceeds from issuance of debt ................... 5,598,000 10,000,000 54,900,000 50,786,000 --
Payments on debt ................................. (707,000) (31,181,000) (50,851,000) (68,768,000) (10,906,000)
Payments of costs related to early
extinguishment of debt ......................... -- -- (2,229,000) (2,229,000) --
Payment of preferred stock dividends ............. -- (114,000) (57,000) (112,000) (91,000)
Proceeds from issuance of preferred stock ........ -- -- 5,284,000 5,284,000 --
Redemption of preferred stock .................... -- (2,625,000) -- -- --
Proceeds from issuance of common stock, net ...... -- 3,314,000 -- -- --
Refunded registration costs ...................... 60,000 -- -- -- --
Registration costs ............................... (36,000) -- -- -- --
Payment of costs related to issuance of stock .... -- -- (100,000) (100,000) (762,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities.. 4,129,000 (20,933,000) 3,998,000 (11,783,000) (12,141,000)
------------ ------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents ....................................... (856,000) (1,785,000) 859,000 1,202,000 (5,753,000)
Cash and cash equivalents at beginning of period .... 1,478,000 3,263,000 2,061,000 2,061,000 7,814,000
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of period .......... $ 622,000 $ 1,478,000 $ 2,920,000 $ 3,263,000 $ 2,061,000
============ ============ ============ ============ ============
Cash paid during the period for:
Interest (net of amount capitalized) ........... $ 982,000 $ 1,343,000 $ 969,000 $ 6,276,000 $ 4,663,000
============ ============ ============ ============ ============
Income taxes .................................... $ 460,000 $ 356,000 $ 458,000 $ 773,000 $ 129,000
============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-8
<PAGE> 36
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the Six Month Period Ended December 31, 1997 is Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INDUSTRY
Ramsay Youth Services, Inc. and its subsidiaries (the "Company") is a
leading quality provider and manager of diversified education, treatment and
community based programs and services 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 in Alabama, Florida,
Missouri, Michigan, Nevada, North Carolina, South Carolina, Texas, Utah and the
Commonwealth of Puerto Rico. The Company also provides a limited range of adult
behavioral services at certain of its locations in response to community demand.
The Company changed its fiscal year end from June 30 to December 31,
effective December 1998. The financial statements presented include the
transition period consisting of the six months ended December 31, 1998.
On January 13, 1999, the Company's Board of Directors approved a
one-for-three reverse stock split of the Company's Common Stock which became
effective March 15, 1999. As a result, all references herein to common stock,
per share amounts and stock options and warrants data have been restated to give
retroactive recognition to such reverse stock split.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ramsay
Youth Services, Inc. and its majority-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company provides services to individuals without insurance and
accepts assignments of individuals' third party benefits without requiring
collateral. Exposure to losses on receivables due from these individuals is
principally dependent on each individual's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses.
The mix of receivables from residents and third-party payors
at December 31, 1999 was as follows:
State Agencies 32.3%
Medicaid 26.4
Medicare 9.9
Commercial 11.3
Managed Care 5.6
Self-Pay 4.9
Other 9.6
------
100.0%
======
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company carries accounts receivable at the amount it deems to be
collectible. Accordingly, the Company provides allowances for accounts it deems
to be uncollectible based on management's best estimates. Recoveries are
recognized in the period they are received. The ultimate amount of accounts
receivable that becomes uncollectible could differ from those estimated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term, highly
liquid, interest-bearing investments consisting primarily of money market mutual
funds. Deposits in banks may exceed the amount
F-9
<PAGE> 37
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
of insurance provided on such deposits. The Company performs reviews of the
credit worthiness of its depository banks. The Company has not experienced any
losses on its deposits of cash in banks.
CASH HELD IN TRUST
Cash held in trust includes cash held in escrow from the sale of
certain assets (see Note 2) and cash and short term investments set-aside for
the payment of losses in connection with the Company's self-insured retention
for professional and general liability claims.
INTANGIBLE ASSETS AND DEFERRED COSTS
Cost in excess of net asset value of purchased businesses relates to
certain acquisitions made by the Company (see Notes 5 and 6). These amounts are
being amortized on a straight-line basis over a term ranging from 3 to 40 years
with a weighted average life of approximately 20 years. During the year ended
June 30, 1998, the Company sold the operations of FPM Behavioral Health, Inc.
(FPM) and, in connection with the sale, disposed of approximately $20,993,000 of
cost in excess of net asset value of purchased businesses.
The Company periodically reviews its intangible assets to assess
recoverability. The carrying value of cost in excess of net asset value of
purchased businesses is reviewed by the Company's management if the facts and
circumstances suggest that it may be impaired. The amount of impairment, if any,
would be measured based on discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds.
Loan costs are deferred and amortized ratably over the life of the loan
and are included in interest and other financing charges. When a loan or a
portion thereof is paid in advance of scheduled maturity, a proportionate amount
of deferred loan costs associated with the borrowing is written off and reported
as an extraordinary loss from early extinguishment of debt in the Company's
consolidated statement of operations.
Accumulated amortization of the Company's cost in excess of net asset
value of purchased businesses, other intangible assets and loan costs as of
December 31, 1999, December 31, 1998 and June 30, 1998 was $2,407,000,
$2,621,000 and $4,560,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation, except for assets considered to be impaired pursuant to Statement
of Financial Accounting Standards (SFAS) No. 121 ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which are
stated at fair value of the assets as of the date the assets are determined to
be impaired. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in operations.
Depreciation is computed substantially on the straight-line method for
financial reporting purposes and on accelerated methods for income tax purposes.
Depreciation is not recorded on assets determined to be impaired or during the
period they are held for sale. The general range of estimated useful lives for
financial reporting purposes is twenty to forty years for buildings and five to
twenty years for equipment. For the year ended December 31, 1999, the six months
ended December 31, 1998 and 1997 and the years ended June 30, 1998 and 1997,
depreciation expense recorded on the Company's property and equipment totaled
$1,845,000, $1,316,000, $2,299,000, $4,123,000 and $4,681,000, respectively.
REVENUE RECOGNITION
Revenues are recognized at the time services are provided. Net revenues
include estimated reimbursable amounts from Medicare, Medicaid and other
contracted reimbursement programs. Amounts received by the Company for treatment
of individuals covered by such programs, which may be based on
F-10
<PAGE> 38
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the cost of services provided or predetermined rates, are generally less than
the established billing rates of the Company's facilities. Final determination
of amounts earned under contracted reimbursement programs is subject to review
and audit by the appropriate agencies. Differences between amounts recorded as
estimated settlements and the audited amounts are reflected as adjustments to
provider based revenues in the period the final determination is made (see Note
13).
During the year ended June 30, 1998, the Company also received
capitated amounts for behavioral healthcare services provided to individuals
covered by certain managed care contracts. Capitated revenues are recognized
during the period in which enrolled lives are covered for capitated payments
received. Revenue received from the management of facilities not owned by the
Company and for case management, utilization review and quality assurance
oversight on the delivery of behavioral healthcare services by independent
providers on behalf of clients is recognized at the time the services are
provided.
MEDICAL EXPENSES
The Company records the cost of medical services when such services are
provided.
PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains self-insured retentions related to its
professional and general liability insurance program. The Company's operations
are insured for professional liability on a claims-made basis and for general
liability on an occurrence basis. The Company records the liability for
uninsured professional and general liability losses related to asserted and
unasserted claims arising from reported and unreported incidents based on
independent valuations which consider claim development factors, the specific
nature of the facts and circumstances giving rise to each reported incident and
the Company's history with respect to similar claims. The development factors
are based on a blending of the Company's actual experience with industry
standards.
INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
EARNINGS PER SHARE
For all periods presented, the Company has calculated earnings per
share in accordance with SFAS No. 128, EARNINGS PER SHARE, which became
effective for financial statements issued for periods ending after December 15,
1997. SFAS No. 128 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.
STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, during fiscal 1997 and continues to account for stock option
grants in accordance with Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable from services, and accounts payable approximate
fair value as of December 31, 1999 due to the
F-11
<PAGE> 39
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
short maturity of the instruments and reserves for potential losses, as
applicable. The carrying amounts of long-term debt obligations issued pursuant
to the Company's bank credit agreements and revolving credit facility
approximate fair value because the interest rates on these instruments is
subject to change with market interest rates.
SEGMENT INFORMATION
Effective July 1, 1998, the Company adopted SFAS No. 131, "DISCLOSURE
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION" which requires public
companies to report segment information in annual financial statements and also
requires these companies to report selected segment information in interim
financial reports to shareholders. The Company has determined that it has only
one reportable segment.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES", which establishes standards for
the accounting and reporting of derivative instruments embedded in other
contracts (collectively referred to as derivatives) and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure these instruments
at fair value. This statement is effective for years beginning after June 15,
2000. The adoption of this new accounting standard is not expected to have a
material impact on the Company's consolidated financial position or results of
operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements of
prior periods to conform with the 1999 presentation.
2. ASSET SALES AND CLOSED BUSINESSES
During the year ended June 30, 1998, the Company changed its strategic
direction from an organization which provides and manages a full range of
behavioral healthcare services to an organization engaged in providing services
for at-risk youth. In connection with its revised strategic initiative, the
Company identified for divestiture and sold certain of its psychiatric inpatient
facilities, its managed care operations and other non-youth service businesses
during the year ended June 30, 1998 and the six months ended December 31, 1998.
On May 4, 1998, the Company sold its Three Rivers facility, which had
been closed since June 30, 1995, for $2,000,000. Proceeds from the sale included
a $500,000 cash payment at closing and a $1,500,000, 12% promissory note. The
note receivable is reflected in other receivables in the accompanying balance
sheets.
F-12
<PAGE> 40
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On June 2, 1998, the Company sold FPM Behavioral Health, Inc. ("FPM"),
its wholly owned managed behavioral health care business, for a cash purchase
price of $20,000,000, subject to certain future potential purchase price
adjustments. During the year ended December 31, 1999, the Company paid
$2,423,000 in purchase price adjustments relating to the FPM sale effectively
reducing the FPM purchase price to $17,577,000. Management had fully reserved
for this contingency as of December 31, 1998 and does not expect any future
purchase price adjustments relating to the FPM sale. For the eleven-month period
ended May 31, 1998, net income before taxes of the managed care business was
$2,468,000 on revenues of $24,313,000.
On June 2, 1998, the Company also sold its Greenbrier facility to an
unrelated third-party for a cash purchase price of $1,600,000. The Greenbrier
facility had a pre-tax net loss of $1,205,000 on revenues of $5,571,000 for the
eleven-month period ended May 31, 1998.
On September 28, 1998, the Company consummated a sale/leaseback
transaction whereby the Company sold the land, building and fixed equipment of
its Havenwyck facility in Auburn Hills, Michigan for the land, building and
fixed equipment of its leased Desert Vista facility in Mesa, Arizona and
$1,350,000 in cash. In connection with the sale/leaseback, the Company agreed to
leaseback the Havenwyck facility over a term of approximately 12 years. The
lease, which will be treated as an operating lease under generally accepted
accounting principles, currently requires annual minimum lease payments of
approximately $1,277,000, payable monthly.
On September 28, 1998, the Company completed the sale of its management
contract services division and behavioral health care facilities in Conway,
South Carolina, Houma, Louisiana, Mesa, Arizona and DeSoto, Texas for a cash
purchase price of $13,500,000, subject to certain future potential purchase
price adjustments. During the year ended December 31, 1999, the Company paid
$652,000 in purchase price adjustments relating to the sale, effectively
reducing the purchase price to $12,848,000. The Company had fully reserved for
this contingency as of December 31, 1998 and does not expect any future purchase
price adjustments relating to this sale.
On November 3, 1998, the Company was released from its lease obligation
at its behavioral health care facility in Salt Lake City, Utah. The Company
ceased operations at this facility on December 31, 1998.
During the fourth quarter of fiscal year ended June 30, 1998, the
Company recorded asset impairment charges of $17,576,000 relating to these sales
(see Note 3). In addition, during the year ended June 30, 1998 and the six
months ended December 31, 1998, the Company recorded losses related to the
foregoing asset sales and closed businesses of $12,483,000 and $947,000,
respectively.
On September 30, 1998, the Company completed the sale of its behavioral
health care facility in Morgantown, West Virginia for a cash purchase price of
$14,800,000, subject to certain future potential purchase price adjustments.
During the year ended December 31, 1999, the Company paid $185,000 in purchase
price adjustments relating to the sale, effectively reducing the purchase price
to $14,615,000. The Company had fully reserved for this contingency as of
December 31, 1998 and does not expect any future purchase price adjustments
relating to this sale. The Company realized a gain on this transaction of
approximately $2,039,000.
The assets and liabilities relating to the aforementioned sales, which
were consummated on September 28 and 30, 1998, and the Company's medical
subacute and behavioral healthcare facility in San Antonio, Texas are reflected
in the accompanying balance sheet as net assets held for sale at June 30, 1998.
The assets and liabilities relating to the Company's facilities in San Antonio,
Texas and Palm Bay, Florida are reflected in the accompanying balance sheet as
net assets held for sale at December 31, 1998. During the year ended December
31, 1999, the Company decided to retain its medical sub-acute and behavioral
healthcare facility in San Antonio, Texas. Accordingly, as of December 31, 1999,
only the assets and
F-13
<PAGE> 41
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
liabilities relating to the Company's Palm Bay facility are reflected in the
accompanying balance sheet as net assets held for sale. The following is a
summary of these assets and liabilities:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Accounts receivable, less allowance for
doubtful accounts of $191,000 at December 31, 1998
and $1,742,000 at June 30, 1998 $ -- $ 832,000 $ 11,005,000
Other receivables 25,000 124,000 1,264,000
Other current assets 9,000 169,000 732,000
Other noncurrent assets -- -- 2,016,000
Property and equipment 2,067,000 3,717,000 49,895,000
Accumulated depreciation -- (723,000) (17,124,000)
Valuation allowance on property and equipment -- (1,159,000) (17,576,000)
Accounts payable -- (730,000) (1,889,000)
Accrued salaries and wages -- (149,000) (1,796,000)
Other accrued liabilities (11,000) (17,000) (703,000)
Notes payable -- (20,000) (56,000)
------------ ------------ ------------
Net assets held for sale $ 2,090,000 $ 2,044,000 $ 25,768,000
============ ============ ============
</TABLE>
For the year ended December 31, 1999, revenues and net loss before
taxes for the aforementioned assets totalled $108,000 and $64,000, respectively.
For the six months ended December 31, 1998, revenues and net loss before taxes
for the net assets held for sale totalled $4,573,000 and $341,000, respectively.
For the year ended June 30, 1998, revenues and net income before taxes for the
net assets held for sale totalled $67,130,000 and $2,863,000, respectively.
3. IMPAIRMENT OF ASSETS
The Company periodically reviews its long-lived assets (land,
buildings, fixed equipment, cost in excess of net asset value of purchased
businesses and other intangible assets) to determine if the carrying value of
these assets is recoverable, based on the future cash flows expected from the
assets.
As previously mentioned in Note 2, during the year ended June 30, 1998,
the Company changed its strategic direction and identified for divestiture
certain of its businesses and facilities. In connection with this decision, the
Company recorded asset impairment charges of $17,576,000 in connection with the
assets held for sale at June 30, 1998. The asset impairment charge was
determined based on the difference between the carrying value of the assets and
the expected net proceeds from the sales. In addition, as a result of the change
in strategic direction, during the year ended June 30, 1998, the Company
abandoned certain projects acquired in the Summa Healthcare Group, Inc.
("Summa") purchase. As a result, the Company recorded an asset impairment charge
of approximately $740,000 which represents the unamortized value assigned to
these projects at the date of acquisition. The asset impairment charge was
determined based on the difference between the carrying value of the assets and
the expected discounted future cash flows (see Note 6).
4. RESTRUCTURING CHARGES
In connection with its change in strategic direction, the Company
initiated a restructuring at its corporate headquarters, including the
identification and communication of termination and severance arrangements to
approximately 15 employees. Amounts relating to these agreements, which in the
aggregate totalled $2,349,000, are reflected as restructuring charges in the
accompanying statement of operations for the fiscal year ended June 30, 1998.
Payments totalling approximately $1,500,000 were made against this liability
during the six months ended December 31, 1998. As of December 31, 1999, this
liability has been fully utilized.
F-14
<PAGE> 42
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. ACQUISITIONS
On December 8, 1998, the Company acquired all of the issued and
outstanding shares of common stock of The Rader Group, Incorporated (the "Rader
Group"), an education services organization located in Fort Walton Beach,
Florida, for an aggregate purchase price of $1,000,000 plus an earn-out in
future years payable to the previous shareholder if certain EBITDA targets are
met. These targets have not been met for the year ended December 31, 1999.
Pursuant to the Stock Purchase Agreement between the Rader Group and the
Company, maximum future payments on the earn-out may not exceed $2,950,000 and
will be accounted for as purchase price adjustments. The acquisition was
accounted for under the purchase method of accounting. In connection with the
acquisition, the Company recorded cost in excess of net asset value of purchased
businesses of $651,000 and other intangible assets of $403,000. These amounts
are being amortized on a straight-line basis over a term ranging from 5 to 15
years. The operations of the Rader Group have been included in the accompanying
consolidated statements of operations since December 1998.
6. TRANSACTIONS WITH AFFILIATES
On October 1, 1996, the Company and Ramsay Managed Care, Inc. ("RMCI")
entered into a merger agreement providing for the acquisition of RMCI by a
wholly owned subsidiary of the Company. The transaction was approved by the
shareholders of both companies on April 18, 1997 and became effective on June
10, 1997. The merger was structured as a tax-free exchange recorded using the
purchase method of accounting and, accordingly, the purchase price has been
primarily allocated to the assets purchased and the liabilities assumed based
upon their fair values at the date of acquisition. The total consideration
(including acquisition costs of approximately $400,000) was approximately
$24,000,000. During the year ended June 30, 1998, the Company recorded
additional cost in excess of net asset value of purchased businesses of
$3,200,000, related to certain contingencies, in accordance with SFAS No. 38,
PREACQUISITION CONTINGENCIES OF PURCHASED ENTERPRISES.
In exchange for all of the outstanding shares of RMCI common and
preferred stock, the Company issued 711,942 shares of Common Stock (valued based
on the closing price of the Company's Common Stock on June 10, 1997 of $9.00 per
share) and 100,000 shares of Preferred Stock Series 1996, which are convertible
into 333,333 shares of Common Stock (see Note 9). In addition, amounts owed by
RMCI to the Company, totaling approximately $7,000,000 on June 10, 1997, were
included as a portion of the consideration for the acquisition of RMCI. The
Company also assumed $7,388,000 of liabilities of RMCI.
The Company recorded interest income of $440,000 during the year ended
June 30, 1997 (prior to the merger), on interest-bearing amounts owed by RMCI.
The operations of RMCI have been included in the Company's consolidated
operations subsequent to the effective date of the transaction of June 10, 1997.
F-15
<PAGE> 43
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following unaudited pro forma information as of June 30, 1997 has
been prepared assuming the merger had been consummated on July 1, 1996 and
accounted for under the purchase method of accounting. This unaudited pro forma
combined summary information may not be indicative of the actual results which
may be realized in the future. Neither expected benefits nor cost reductions
anticipated by the Company have been reflected in the accompanying unaudited pro
forma combined financial data.
<TABLE>
<CAPTION>
Year Ended
June 30, 1997
-------------
(unaudited)
<S> <C>
Net revenues ...................... $ 158,984,000
Net loss .......................... $ (1,237,000)
Basic and diluted loss per share .. $ (0.15)
</TABLE>
Basic and diluted pro forma net loss per share does not include common
stock equivalents since their effect is anti-dilutive.
Included in liabilities assumed was a $2,750,000 obligation owed by
RMCI to a corporate affiliate of Paul J. Ramsay, the Chairman of the Board of
the Company, along with unpaid accrued interest and commitment fees of
approximately $300,000. The loan bore interest at 15%, was due and payable on
demand, and was refinanced in September 1997 (see Note 7). No amounts were paid
with respect to this loan facility from June 10, 1997 to the date of the
refinancing.
On October 9, 1997, pursuant to an Agreement and Plan of Merger dated
as of July 1, 1997, the Company acquired Summa for $300,000 in cash, 83,333
shares of the Company's Common Stock and fully exercisable warrants to purchase
166,667 shares of the Company's Common Stock, with an exercise price of $9.75
per share and an expiration date of July 2007. The transaction was recorded
under the purchase method of accounting. The Company recorded cost in excess of
net asset value of the business of approximately $1,800,000. The principal
assets of Summa, whose principal stockholder was Luis E. Lamela, the Vice
Chairman, a director and, President and Chief Executive Officer of the Company,
consist of projects in the specialty managed care and health services industry.
These projects were undertaken by the Company on July 1, 1997. As previously
mentioned, due to the Company's change in strategic direction, several projects
were abandoned by the Company and the Company recorded an asset impairment
charge of approximately $740,000 which represents the unamortized value assigned
to these projects at the date of acquisition (see Note 3). The remaining cost in
excess of net asset value of the business is being amortized over approximately
three years. During the year ended June 30, 1997, Summa rendered consulting
services to the Company, for which it was paid $237,500.
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"), a holding company in liquidation whose principal asset consists
of a receivable from the State of Louisiana, in a purchase transaction between
companies under common control. The transaction was accounted for in a manner
similar to the pooling-of-interest method. The purchase price of $700,000 is
equal to the net book value of RHCL on the date of the acquisition. 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. As of December 31, 1999, the Company has paid
$100,000 of the purchase price. Payment of the remaining $600,000 is subject to
the occurrence of certain events as defined in the Company's senior credit
facility (see Note 7).
Condensed results of operations for RHCL are as follows:
<TABLE>
Six Months Ended Year Ended
Year Ended December 31, June 30,
December 31, --------------------------- --------------------------
1999 1998 1997 1998 1997
----------- ----------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 7,000 $ 14,000 $ 250,000
Other income -- 7,881,000 -- -- --
Net income -- 4,808,000 4,000 7,000 134,000
</TABLE>
On a combined basis, the Company reversed $1,482,000 of RHCL deferred
tax liabilities. The Company does not expect these deferred tax liabilities to
be utilized as a result of the Company's significant net operating loss
carryovers.
F-16
<PAGE> 44
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In August 1996, Paul Ramsay Holdings Pty. Limited ("Ramsay Holdings")
acquired through a private placement 91,848 shares of Common Stock of the
Company at a price of $8.25 per share. The acquired shares were issued for
management fees due under the Company's management agreement with another
corporate affiliate (the "Management Fee Affiliate") of Mr. Ramsay during the
year ended June 30, 1997.
In October 1996, the Company issued 39,433 shares of Common Stock
valued at $164,000 to its board of directors in lieu of cash payment for the
year ended June 30, 1997 director fees. The Common Stock was awarded at fair
market value on the date of issuance ($4.17 per share) and the amount was
included in other operating expenses for the year ended June 30, 1997.
On September 10, 1996, the Company entered into a letter agreement with
the Management Fee Affiliate and Ramsay Holdings which terminated the management
agreement effective July 1, 1997. In consideration for this termination, the
Company issued warrants to Ramsay Holdings to purchase 83,333 shares of Common
Stock at an exercise price of $7.89 per share. These warrants are fully
exercisable as of September 10, 1996, expire on September 10, 2006 and had a
weighted average fair value on the date of issuance of $2.55 per warrant. As a
result, during the year ended June 30, 1997, the Company recorded other
operating expenses of $212,000 related to these warrants.
During the year ended June 30, 1997, pursuant to the management
agreement, the Company incurred management fee expenses of $758,000 which are
included in other operating expenses.
At December 31, 1999, three corporate affiliates of Mr. Ramsay owned an
aggregate voting interest in the Company of approximately 59.4%, as follows: (a)
Ramsay Holdings HSA Limited owned 10.0% of the outstanding Common Stock of the
Company, (b) Ramsay Holdings owned approximately 41.1% of the outstanding Common
Stock of the Company and (c) Paul Ramsay Hospitals Pty. Limited ("Ramsay
Hospitals") owned approximately 8.3% of the outstanding Common Stock of the
Company.
7. BORROWINGS
The Company's long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------- June 30,
1999 1998 1998
----------- ----------- -----------
<S> <C> <C> <C>
Variable rate Term Loan, due October 30, 2003 ........................... $ 7,332,000 $ 8,000,000 $ --
Revolver, due October 30, 2003 .......................................... 3,108,000 -- --
Acquisition Loan, due October 30, 2003 .................................. 2,475,000 -- --
Variable rate Term Loan A ............................................... -- 4,567,000
Variable rate Term Loan B ............................................... -- 3,608,000
Revolver, due September 30, 1999 ........................................ -- -- 6,000,000
Series A bridge note to financial institution ........................... -- -- 15,000,000
Bridge facility to affiliate, due September 30, 2005 .................... -- -- 2,500,000
Junior Subordinated Note Agreement to affiliate, due
September 30, 2006 ................................................... -- -- 3,929,000
Other ................................................................... 40,000 7,000 13,000
----------- ----------- -----------
12,955,000 8,007,000 35,617,000
Less current portion .................................................... 1,394,000 675,000 21,219,000
----------- ----------- -----------
$11,561,000 $ 7,332,000 $14,398,000
=========== =========== ===========
</TABLE>
On September 30, 1997, the Company entered into a credit facility with
a financial institution consisting of (i) a term loan of $12,500,000 and a term
loan of $10,000,000 (the "Term Loans"), (ii) a revolving credit facility of up
to the lesser of $16,500,000 or the borrowing base of the Company's receivables
(the "Revolving Credit Loan") and (iii) subordinated bridge notes, of which
$15,000,000 was
F-17
<PAGE> 45
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
purchased by the financial institution ("Series A Bridge Notes") and $2,500,000
was purchased by Ramsay Holdings (the "Series B Bridge Notes") (collectively
referred to as the "Bridge Facility"). In connection with the refinancing, the
Company recorded a loss from early extinguishment of debt of approximately $3.6
million during the six months ended December 31, 1997.
In addition, on September 30, 1997, the Company entered into an
agreement with Ramsay Holdings and the financial institution pursuant to which
(i) Ramsay Holdings purchased $4,000,000 of non-convertible, non-voting Class B
Preferred Stock, Series 1997-A (the "Series 1997-A Preferred Stock") and (ii)
the financial institution purchased $2,500,000 of Class B Preferred Stock,
Series 1997 (the "Series 1997 Preferred Stock").
On March 25, 1998, the Company entered into a Junior Subordinated Note
Purchase Agreement, with a corporate affiliate of Mr. Ramsay in an aggregate
principal amount of $5,000,000 plus accrued interest. On December 16, 1998, the
Company and the corporate affiliate of Mr. Ramsay agreed to convert the
outstanding balance of the junior subordinated note, including accrued interest,
into 1,071,227 shares of the Company's Common Stock (see Note 9).
During the six months ended December 31, 1998, the Company and the
corporate affiliate of Mr. Ramsay agreed to (i) convert the outstanding balance
of the Series B Bridge Note, including accrued interest, into 609,123 shares of
the Company's Common Stock and (ii) convert the Series 1997-A Preferred Stock,
including accrued dividends, into 1,310,222 shares of the Company's Common
Stock.
During the year ended June 30, 1997, the Company contemplated a
separate refinancing of its credit facilities and in connection therewith, the
Company entered into a derivative transaction in March 1997 to fix the interest
rate on the underlying debt instrument. As a result of the Company's decision to
refinance its credit facilities as described above, during the year ended June
30, 1997, the Company recorded income on the derivative transaction of
approximately $1,285,000 and wrote-off approximately $600,000 of costs directly
related to this previous refinancing effort.
In June 1998, the Company prepaid a portion of the credit facility with
proceeds from the sale of assets (see Note 2) and recorded a loss from early
extinguishment of debt of approximately $748,000.
In September 1998, the Company used the net proceeds from the sales of
assets to (i) repay in full the Term Loans, (ii) repay in full the Series A
Bridge Notes, (iii) redeem all of the outstanding shares of the Series 1997
Preferred Stock, including accrued dividends, (iv) pay $1,500,000 in previously
incurred fees to the financial institution and (v) repay a portion of the
Revolving Credit Loan. In connection with the repayments, the Company recorded a
loss from early extinguishment of debt of approximately $2,811,000.
On October 30, 1998, the Company refinanced the existing credit
facility with proceeds from a credit facility consisting of term and revolving
credit debt of $22,000,000 (the "Senior Credit Facility").
Under the terms of the Senior Credit Facility, the Company was provided
with (i) a term loan of $8,000,000 (the "Term Loan"), payable in 54 monthly
installments ranging from $83,000 to $208,000, beginning May 1, 1999, with a
final installment of $1,000,000 due on October 30, 2003, (ii) a revolving credit
facility (the "Revolver") for an amount up to the lesser of $8,000,000 or the
borrowing base of the Company's receivables (as defined in the agreement) and
(iii) an acquisition loan (the "Acquisition Loan") commitment of up to
$6,000,000, beginning March 1, 1999. As of March 13, 2000, no amounts had been
drawn under the Revolver and $2,429,000 had been drawn under the Acquisition
Loan.
The aggregate scheduled maturities of the Senior Credit Facility during
the next five years are as follows: 2000 -- $1,394,000; 2001 -- $1,644,000; 2002
- -- $2,181,000; 2003 -- $3,352,000 and 2004 -- $0.
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% (9.0% at December 31, 1999), based on the Company's ratio of
total indebtedness to EBITDA (as defined in the Senior Credit Facility) or (ii)
a
F-18
<PAGE> 46
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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% (9.25% at December 31, 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 2.25% to 3.75%, based on the Company's ratio of total
indebtedness to EBITDA.
Additionally, the Company is obligated to pay to the financial
institution an amount equal to one half of 1% of the unused portion of the
Revolver and the Acquisition Loan.
The Senior Credit Facility requires that the Company meet certain
covenants, including (i) the maintenance of certain fixed charge coverage,
interest coverage and leverage ratios, (ii) the maintenance of certain proforma
availability levels (as defined in the Senior Credit Facility) and (iii) a
limitation on capital expenditures. The Senior Credit Facility also prohibits
the payment of cash dividends to common stockholders of the Company until the
Company's EBITDA exceeds $7,800,000.
The Company failed to maintain the required fixed charge coverage,
interest coverage and leverage ratio as of December 31, 1998. The Company's
lender agreed to waive the requirements as of December 31, 1998 and amend the
definition of EBITDA for calculating the covenants in the future. As of December
31, 1999, the Company is in compliance with these ratios.
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 $3,000,000
reserve on the Revolver borrowing base until the occurrence of certain events
(as defined in the Second Amendment).
On November 28, 1999, the Company's Senior Credit Facility was amended
and restated (the "Third Amendment"). The Third Amendment provides for, among
other things, (i) up to $3.0 million in bridge loan advances under the
Acquisition Loan for certain purposes (the "Bridge Loan Advances"), (ii) a
release of the $3.0 million reserve on the Revolver borrowing base in an amount
equal to the Bridge Loan Advances actually made and (iii) a change to the
definitions for purposes of calculating the Pro Forma Availability covenant.
Proceeds from any borrowings under the Bridge Loan Advances are
restricted, and may be used by the Company solely to satisfy certain contingent
liabilities (as defined in the agreement). The Bridge Loan Advances will be
mandatorily payable on the occurrence of certain events (as defined in the Third
Amendment). The interest rate on the Bridge Loan Advances is equal to the
interest rate on the Acquisition Loan.
In connection with the Third Amendment, a corporate affiliate of Paul
J. Ramsay, Chairman of the Board of the Company, entered into a Junior
Subordinated Note Purchase Agreement (the "Junior Note") with the Senior Credit
Facility lender to participate in the Senior Credit Facility in an amount equal
to the Bridge Loan Advances.
The Company has pledged substantially all of its real property,
receivables and other assets as collateral for the Senior Credit Facility.
On January 25, 2000, the Company entered into a subordinated note and
warrant purchase agreement with an unrelated financial institution for an
aggregate principal amount of $5.0 million (the "Subordinated Note"). The
Subordinated Note permits the financial institution to purchase, under certain
conditions, up to 475,000 warrants which are convertible into the Company's
common stock. Borrowings
F-19
<PAGE> 47
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
under the Subordinated Note bear interest at a rate of 12.5% per annum. The
interest is payable quarterly, and the principal balance and any unpaid interest
is due January 25, 2007. The Company's Senior Credit Facility was amended on
January 25, 2000 to provide for the approval of the Subordinated Note.
8. OPERATING LEASES
In April 1995, the Company sold and leased back the land, buildings and
fixed equipment of its Mission Vista facility in San Antonio, Texas. The lease
has a primary term of 15 years (with three successive renewal options of 5 years
each) and at December 31, 1999 had aggregate annual minimum rentals of
approximately $558,000, payable monthly.
In April 1995, the Company agreed to lease an 80-bed facility near Salt
Lake City, Utah for four years, with an option to renew for an additional three
years. The lease required annual base rental payments of $456,000, payable
monthly, and percentage rental payments equal to 2% of the net revenues of the
facility, payable quarterly. On November 3, 1998, the Company was released from
its obligations under this lease and the Company ceased operations at this
facility on December 3, 1998.
In August 1997, the Company leased its Meadowlake facility in Oklahoma
to an independent healthcare provider for an initial term of three years, with
four three-year renewal options. Lease payments during the initial term total
$360,000 per year and at each renewal option are subject to adjustment based on
the change in the consumer price index during the preceding lease period. In
accordance with the terms of the lease agreement, the tenant is responsible for
all costs of ownership, including taxes, insurance, maintenance and repairs. In
addition, the tenant has the option to purchase the facility at any time during
the initial term for $3,000,000, less $15,417 for each month of occupancy.
Subsequent to the initial term, the tenant has the option to purchase the
facility at any time for $2,500,000. The book value of the facility was
$2,035,000 on December 31, 1999.
On September 28, 1998, the Company sold and leased back the land,
buildings and fixed equipment of its Havenwyck facility in Auburn Hills,
Michigan (see Note 2). The lease has a term of 12 years and currently requires
annual minimum lease payments of approximately $1,277,000, payable monthly.
Effective April 1 of each year, the lease payments are subject to upward
adjustments based on the change in consumer price index over the preceding
twelve months (not to exceed 3% annually).
Rent expenses related to noncancellable operating leases amounted to
$2,967,000, $1,375,000, $1,603,000, $2,431,000 and $2,837,000 for the year ended
December 31, 1999, the six months ended December 31, 1998, the six months ended
December 31, 1997 and the years ended June 30, 1998 and 1997, respectively.
Future minimum lease payments required under noncancellable operating
leases as of December 31, 1999 are as follows: 2000 -- $2,676,000; 2001 --
$2,315,000; 2002 -- $2,160,000; 2003 -- $1,932,000; 2004 -- $1,864,000; and
thereafter -- $9,491,000.
9. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
The Certificate of Incorporation of the Company, as amended, authorizes
the issuance of 30,000,000 shares of Common Stock, $.01 par value, 800,000
shares of Class A Preferred Stock, $1.00 par value, and 2,000,000 shares of
Class B Preferred Stock, $1.00 par value, of which 333,333 shares have been
designated as Class B Preferred Stock, Series 1987, $1.00 par value, 152,321
shares have been designated as Series C Preferred Stock, $1.00 par value,
100,000 shares have been designated as Series 1996 Preferred Stock, $1.00 par
value, 100,000 shares have been designated as Series 1997 Preferred Stock, $1.00
par value and 4,000 shares have been designated as Series 1997-A Preferred
Stock.
F-20
<PAGE> 48
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On October 30, 1998, the Company completed the private placement (the
"Private Placement") of an aggregate of 1,037,037 shares of Common Stock to its
Chief Executive Officer, Ramsay Holdings and certain unrelated persons, all at a
price per share of $3 3/8, the closing bid price of the Common Stock on The
NASDAQ Stock Market on October 26, 1998 (the date of the various subscription
agreements).
Registration under the Securities Act of 1933 (the "Securities Act") of
the Common Stock issued in the foregoing transactions was not required because
such securities were issued in transactions not involving any "public offering"
within the meaning of Section 4(2) of the Securities Act.
On December 8, 1998, the Company issued 33,333 shares of Common Stock
in connection with an employment agreement. The value of the issued shares is
being amortized over the life of the related employment agreement.
Redeemable preferred stock at June 30, 1998 consists of (i) 4,000
shares of non-convertible, non-voting Class B Series 1997-A Preferred Stock with
a $1.00 par value issued at $1,000 per share with accrued dividends of $271,000
and carrying value of $4,271,000 and (ii) 100,000 shares of convertible
non-voting, Class B Series 1997 Preferred Stock with a $1.00 par value issued at
$25.00 per share with accrued dividends of $69,000 and net of issuance cost of
$100,000 and carrying value of $2,469,000.
On October 30, 1998, the Company issued 177,778 shares of Common Stock
to Ramsay Holdings in exchange for $600,000 of principal amount of the Series B
Bridge Note. As part of the Exchange Agreement (the "Exchange Agreement")
entered into between the Company and Ramsay Holdings to affect the foregoing
exchange, the Company agreed to issue additional shares of Common Stock to
Ramsay Holdings in exchange for $4,000,000 of the Company's Class B Preferred
Stock, Series 1997-A (together with all accrued and unpaid dividends thereon)
and an additional $400,000 of principal amount of the Series B Bridge Note owed
by the Company to Ramsay Holdings. This latter exchange was effected on December
1, 1998 at a price per share of $3 3/8 (the closing bid price of the Common
Stock on The NASDAQ Stock Market on October 26, 1998, the date of the Exchange
Agreement) after the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. This latter exchange
resulted in the issuance by the Company of 1,428,740 additional shares of Common
Stock to Ramsay Holdings.
On December 16, 1998, the Company entered into an agreement with Ramsay
Holdings, Ramsay Holdings HSA Limited and Ramsay Hospitals (collectively, the
"Ramsay Affiliates") pursuant to which the Ramsay Affiliates (i) converted the
Company's Class B Preferred Stock, Series C and Class B Preferred Stock, Series
1996 (together with accrued and unpaid dividends thereon of $618,908) into an
aggregate of 1,198,756 shares of Common Stock and (ii) exchanged $6,883,553 of
principal amount of the junior subordinated note and the Series B Bridge Note
owed by the Company (together with accrued and unpaid interest thereon of
$123,219) for 1,384,054 shares of Common Stock. This latter exchange was
effected at a price per share of $5 1/16 (the closing bid price of the Common
Stock on The NASDAQ Stock Market on December 16, 1998, the date of the
Agreement).
In connection with the foregoing transactions, the Company granted
limited registration rights with respect to the Common Stock issued to the
stockholders participating in such transactions.
The Company's Board of Directors has adopted a Stockholders Rights
Plan, under which the Company distributed a dividend of one common share
purchase right for each outstanding share of the Company's Common Stock
(calculated as if all outstanding shares of Series C Preferred Stock were
converted into shares of Common Stock). Each right becomes exercisable upon the
occurrence of certain events for a number of shares of the Company's Common
Stock having a market price totaling $72 (subject to certain anti-dilution
adjustments which may occur in the future). The rights currently are not
exercisable and will be exercisable only if a new person acquires 20% or more
(30% or more in the case of certain persons, including investment companies and
investment advisors) of the Company's Common Stock or
F-21
<PAGE> 49
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
announces a tender offer resulting in ownership of 20% or more of the Company's
Common Stock. The rights, which expire on August 14, 2005, are redeemable in
whole or in part at the Company's option at any time before a 20% or greater
position has been acquired, for a price of $.03 per right.
10. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share:
<TABLE>
<CAPTION>
Year Ended Six Months Ended December 31, Year Ended June 30,
December 31, ----------------------------- -----------------------------
1999 1998 1997 1998 1997
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary
item, as reported .......................... $ 3,117,000 $ 4,838,000 $ 1,158,000 $(54,254,000) $ 3,412,000
Dividends, Class B convertible preferred
stock, Series C ............................ -- 166,000 181,000 362,000 362,000
Dividends, Class B convertible preferred
stock, Series 1996 ......................... -- 69,000 75,000 150,000 --
Dividends, Class B convertible redeemable
preferred stock, Series 1997 ............... -- 45,000 57,000 182,000 --
Redemption premium on preferred stock and
other expenses ............................. -- 225,000 -- -- --
Dividends, Class B redeemable preferred
stock, Series 1997-A ....................... -- 151,000 91,000 271,000 --
------------ ------------ ------------ ------------ ------------
Numerator for basic earnings (loss) per
share - income (loss) attributable to
common stockholders, before
extraordinary item ..................... 3,117,000 4,182,000 754,000 (55,219,000) 3,050,000
Effect of dilutive securities:
Class B convertible preferred stock,
Series C .............................. -- -- -- -- 362,000
------------ ------------ ------------ ------------ ------------
-- -- -- -- 362,000
------------ ------------ ------------ ------------ ------------
Numerator for diluted earnings (loss)
per share - income (loss) attributable
to common stockholders after
assumed conversions ................... $ 3,117,000 $ 4,182,000 $ 754,000 $(55,219,000) $ 3,412,000
============ ============ ============ ============ ============
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares .......... 8,890,000 4,487,000 3,574,000 3,595,000 2,801,000
Effect of dilutive securities:
Employee stock options and warrants ...... 648,000 8,000 565,000 -- 115,000
Convertible preferred stock .............. -- 1,476,000 -- -- 493,000
------------ ------------ ------------ ------------ ------------
Dilutive potential common shares ............ 648,000 1,484,000 565,000 -- 608,000
------------ ------------ ------------ ------------ ------------
Denominator for diluted earnings (loss)
per share - adjusted weighted-average
shares and assumed conversions ........ 9,538,000 5,971,000 4,139,000 3,595,000 3,409,000
============ ============ ============ ============ ============
Basic earnings (loss) per share, before
extraordinary item .......................... $ .35 $ .93 $ .21 $ (15.36) $ 1.09
Extraordinary item ............................. -- (.63) (1.00) (1.20) --
------------ ------------ ------------ ------------ ------------
Basic earnings (loss) per share ................ $ .35 $ .30 $ (.79) $ (16.56) $ 1.09
============ ============ ============ ============ ============
Diluted earnings (loss) per share before
extraordinary item .......................... $ .33 $ .70 $ .18 $ (15.36) $ 1.00
Extraordinary item ............................. -- (.47) (.86) (1.20) --
------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per share .............. $ .33 $ .23 $ (.68) $ (16.56) $ 1.00
============ ============ ============ ============ ============
</TABLE>
F-22
<PAGE> 50
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the year ended December 31, 1999, 2,337,175 options and warrants
were excluded from the above computation because their effect would have been
antidilutive.
11. OPTIONS AND WARRANTS
The Company's Stock Option Plans provide for options to various key
employees, non-employee directors and consultants and other individuals
providing services to the Company to purchase shares of Common Stock at no less
than the fair market value of the stock on the date of grant. Options granted
become exercisable in varying increments including (a) 100% one year after the
date of grant, (b) 50% each year beginning one year after the date of grant (c)
33% each year beginning on the date of grant, (d) 33% each year beginning one
year from the date of grant and (e) 25% each year beginning one year from the
date of grant. Options issued to employees and directors are subject to
anti-dilution adjustments and generally expire the earlier of 10 years after the
date of grant or 60 days after the employee's termination date or the director's
resignation. The weighted average remaining contractual life of all outstanding
options at December 31, 1999 is approximately nine years.
On October 14, 1997, the Board of Directors adopted the Ramsay Health
Care, Inc. 1997 Long Term Incentive Plan (the "1997 Long Term Incentive Plan").
Under the 1997 Long Term Incentive Plan, 166,667 shares of Common Stock will be
available for issuance of awards. Shares distributed under the 1997 Long Term
Incentive Plan may be either newly issued shares or treasury shares. Awards
granted under the plan may be in the form of stock appreciation rights,
restricted stock, performance awards and other stock-based awards. During the
six months ended December 31, 1998, the Company granted 79,500 options under the
1997 Long Term Incentive Plan. During the year ended December 31, 1999, the
Company granted 91,500 options under the 1997 Long Term Incentive Plan.
On August 16, 1999, the Board of Directors adopted the Ramsay Youth
Services, Inc. 1999 Stock Option Plan (the "1999 Long Term Incentive Plan").
Under the 1999 Long Term Incentive Plan, 1,250,000 shares of Common Stock will
be available for issuance of awards. Shares distributed under the 1999 Long Term
Incentive Plan may be either newly issued shares or treasury shares. During the
year ended December 31, 1999, the Company granted 1,250,000 options under the
1999 Long Term Incentive Plan.
In connection with a repricing opportunity authorized by the Company's
Board of Directors on November 10, 1995, approximately 500,000 options (of which
approximately 100,866 are still outstanding at December 31, 1999) were
voluntarily repriced by the option holders. Under this repricing opportunity,
the exercise prices of the holders' outstanding options were reduced to $7.50
per share, the closing price for the Common Stock on the NASDAQ National Market
System on November 10, 1995. The Company granted 304,087 options during fiscal
year ended June 30, 1997 (including former RMCI options which became options to
purchase an aggregate of 104,804 shares of the Company's Common Stock on the
date of the merger). These options, along with the options repriced on November
10, 1995, are not exercisable until the closing price of the Common Stock, as
quoted on the NASDAQ National Market System, equals or exceeds $21.00 per share
for at least 15 trading days, which need not be consecutive. As of December 31,
1999, none of these options are exercisable.
On September 10, 1996, the Company entered into an Exchange Agreement
whereby Mr. Ramsay exchanged 158,690 options with an exercise price of $7.50 per
share (pursuant to the repricing opportunity discussed above), for warrants to
purchase an aggregate of 166,667 shares of Common Stock at $7.50 per share. The
warrants, which expire in June 2003, are not exercisable until the closing price
of the Common Stock, as quoted on the NASDAQ National Market System, equals or
exceeds $21.00 per share for at least 15 trading days, which need not be
consecutive, subsequent to September 10, 1996. Most of the options exchanged
were originally granted under the Company's 1991 Stock Option Plan.
F-23
<PAGE> 51
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company has additional warrants outstanding to purchase an
aggregate of 71,000 shares of the Company's Common Stock (44,333 of which are
owned by corporate affiliates of Mr. Ramsay). These warrants were issued in
exchange for warrants to purchase common stock of RMCI, and became warrants of
the Company as part of the merger with RMCI.
As part of the Company's senior and subordinated notes (which were
refinanced on September 30, 1997), the Company issued warrants to Aetna Life
Insurance Company and Monumental Life Insurance Company. As of December 31,
1999, these warrants entitle their holders to purchase an aggregate of 67,338
shares of the Company's Common Stock at $13.32 per share. These warrants are
exercisable on or before March 31, 2000 and contain anti-dilution provisions.
In connection with the January 25, 2000 subordinated note and warrant
purchase agreement, the Company issued warrants to a financial institution to
purchase up to 475,000 shares of the Company's Common Stock at $1.50 per share.
The warrants are exercisable on or before January 25, 2010 and contain
anti-dilution provisions.
The Company has frozen its 1990 Stock Option Plan, and authorized
505,641, 132,319, 166,667, 166,667, 166,667 and 1,250,000 shares under its 1991,
1993, 1995, 1996, 1997 and 1999 Stock Option Plans, respectively. At December
31, 1999, 173,282 shares were available for issuance under these Plans.
Additionally, as previously mentioned, effective on the date of the
RMCI merger, the former RMCI options became options to purchase an aggregate of
104,804 shares of the Company's Common Stock. As of December 31, 1999, 23,136
shares were available for issuance under this plan.
F-24
<PAGE> 52
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Summarized information regarding the Company's Stock Option Plans is as
follows:
Options exercisable based solely on employees rendering additional
service:
<TABLE>
<CAPTION>
Weighted
Number Average
of Option Exercise
Shares Price Price
------ ------ ---------
<S> <C> <C> <C> <C>
Options outstanding at June 30, 1996 207,348 $ 7.50 - $18.93 $ 11.16
Granted 403,500 $ 7.32 - $ 8.25 $ 8.16
Exercised --
Canceled (14,563) $ 7.50 - $12.75 $ 9.54
---------
Options outstanding at June 30, 1997 596,285 $ 7.32 - $18.93 $ 9.06
Granted 35,000 $13.14 $ 13.14
Exercised (6,939) $10.14 - $12.75 $ 11.49
Canceled (19,128) $ 8.25 - $18.93 $ 11.79
---------
Options outstanding at June 30, 1998 605,218 $ 7.32 - $18.93 $ 9.12
Granted 79,500 $4.69 $ 4.69
Exercised --
Canceled (120,292) $ 7.32 - $18.93 $ 9.51
---------
Options outstanding at December 31, 1998 564,426 $ 4.69 - $18.93 $ 8.43
Granted 1,680,500 $2.69 $ 2.69
Exercised --
Canceled (90,607) $ 4.69 - $18.93 $ 9.78
---------
Options outstanding at December 31, 1999 2,154,319 $ 2.69 - $18.93 $ 3.87
=========
Exercisable at December 31, 1999 326,631 $ 8.16
=========
Exercisable at December 31, 1998 267,150 $ 9.12
=========
Exercisable at June 30, 1998 247,916 $ 9.89
=========
Exercisable at June 30, 1997 161,336 $ 11.39
=========
</TABLE>
F-25
<PAGE> 53
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Options not exercisable until the closing price for the Common Stock as
quoted on the NASDAQ National Market System equals or exceeds $21.00 per share
for at least 15 trading days:
<TABLE>
<CAPTION>
Weighted
Number Average
of Option Exercise
Shares Price Price
------ ----- --------
<S> <C> <C> <C>
Options outstanding at June 30, 1996 476,860 $7.50 $7.50
Granted 199,283 $8.25 $8.25
Exchanged in connection with merger 104,804 $9.00 $9.00
Exercised -- --
Canceled (330,313) $7.50 $7.50
-------------
Options outstanding at June 30, 1997 450,634 $7.50 - $9.00 $8.16
Granted -- --
Exercised (4,161) $7.50 $7.50
Canceled (15,105) $7.50- $9.00 $8.58
-------------
Options outstanding at June 30, 1998 431,368 $7.50 - $9.00 $8.37
Granted --
Exercised --
Canceled (125,128) $7.50 - $9.00 $8.13
-------------
Options outstanding at December 31, 1998 306,240 $7.50 - $9.00 $8.46
Granted --
Exercised --
Canceled (30,552) $7.50 - $9.38 $8.40
-------------
Options outstanding at December 31, 1999 275,688 $7.50 - $9.38 $8.33
=============
</TABLE>
Shares of common stock reserved for future issuance at December 31,
1999 are as follows:
Options ................. 2,430,007
Warrants ................ 555,168
---------
2,985,175
=========
Pro forma information regarding net income and earnings per share has
been determined as if the Company had accounted for its employee stock options
under the fair value method of SFAS No. 123. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions for grants in the year ended
December 31, 1999, the six months ended December 31, 1998 and 1997 and the years
ended June 30, 1998 and 1997:
o expected volatility rates of 90% for the year ended December 31, 1999
and 50.6% for both the six months ended December 31, 1998 and 1997 and
the years ended June 30, 1998 and 1997
o risk-free interest rates of 5.2% for the year ended December 31, 1999
and 6% for both the six months ended December 31, 1998 and 1997
and the years ended June 30, 1998 and 1997
o expected lives of ten years for all periods
o a dividend yield of zero for all periods
F-26
<PAGE> 54
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
compensation expense from stock option awards on pro forma net income reflects
only the vesting of fiscal year ended 1996 awards in 1996 and the vesting of
fiscal year ended 1997 and 1996 awards in 1997, in accordance with SFAS No. 123.
Because compensation expense associated with a stock option award is recognized
over the vesting period, the initial impact of applying SFAS No. 123 may not be
indicative of compensation expense in future years, when the effect of the
amortization of multiple awards will be reflected in pro forma net income. The
Company's actual and pro forma information follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended December 31, Year Ended June 30,
December 31, ----------------------------- -----------------------------
1999 1998 1997 1998 1997
------------ ------------ ------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) attributable to common
stockholders as reported $ 3,117,000 $ 1,371,000 $ (2,820,000) $(59,541,000) $ 3,050,000
Basic net income (loss) per share as
reported $ .35 $ .30 $ (.79) $ (16.56) $ 1.09
Diluted net income (loss) per share as
reported $ .33 $ .23 $ (.68) $ (16.56) $ 1.00
Pro forma net income (loss) attributable to
common stockholders $ 1,847,000 $ 1,011,000 $ (3,394,000) $(60,690,000) $ 2,847,000
Basic pro forma net income (loss) per share $ .21 $ .23 $ (.95) $ (16.88) $ .88
Diluted pro forma net income (loss) per
share $ .19 $ .17 $ (.82) $ (16.88) $ .85
</TABLE>
F-27
<PAGE> 55
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------ June 30,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Book basis of fixed assets over tax basis .... $ 195,000 $ 103,000 $ 2,938,000
Economic performance ......................... 216,000 216,000 513,000
Other ........................................ 318,000 156,000 55,000
------------ ------------ ------------
Total deferred tax liabilities ......... 729,000 475,000 3,506,000
Deferred tax assets:
Allowance for doubtful accounts .............. 1,297,000 1,053,000 740,000
General and professional liability insurance . 1,474,000 1,604,000 1,074,000
Accrued employee benefits .................... 288,000 478,000 1,817,000
Investment in nonconsolidated subsidiaries ... -- -- 294,000
Capital loss carryovers ...................... 1,020,000 597,000 605,000
Impairment of assets ......................... -- 440,000 6,712,000
Other accrued liabilities .................... 3,204,000 4,858,000 4,507,000
Other ........................................ 68,000 89,000 --
Net operating loss carryovers ................ 17,483,000 15,945,000 6,996,000
Alternative minimum tax credit carryovers .... 1,109,000 1,139,000 1,139,000
------------ ------------ ------------
Total deferred tax assets .............. 25,943,000 26,203,000 23,884,000
Valuation allowance for deferred tax assets ..... (25,214,000) (25,728,000) (20,378,000)
------------ ------------ ------------
Deferred tax assets, net of valuation
allowance ............................ 729,000 475,000 3,506,000
------------ ------------ ------------
Net deferred tax assets ................ $ -- $ -- --
============ ============ ============
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Year Ended December 31, June 30,
December 31, -------------------------- --------------------------
1999 1998 1997 1998 1997
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Income taxes currently payable:
Federal ........................ $ -- $1,358,000 $ -- $ 60,000 $ 280,000
State .......................... 68,000 233,000 -- 240,000 313,000
Deferred income taxes:
Federal ........................ -- -- -- 8,680,000 1,039,000
State .......................... -- -- -- 1,005,000 183,000
---------- ---------- ---------- ---------- ----------
$ 68,000 $1,591,000 $ -- $9,985,000 $1,815,000
========== ========== ========== ========== ==========
</TABLE>
F-28
<PAGE> 56
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A reconciliation from the U.S. statutory federal income tax rate to the
effective income tax rate follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Year Ended December 31, June 30,
December 31, ------------------ ------------------
1999 1998 1997 1998 1997
----- ----- ----- ----- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
U.S. Federal statutory rate .................... 34.0% 34.0% 34.0% (34.0%) 34.0%
(Decrease) increase in valuation allowance ..... (16.1) 83.2 -- 30.5 19.2
Non-deductible intangible assets ............... -- 8.8 3.5 20.4 --
State income taxes, net of federal benefit ..... -- 2.4 4.0 (4.0) (3.7)
Benefit of net operating loss recognized ....... (17.1) -- (37.7) -- (8.5)
Tax effect of loss recognition on sale of
assets ...................................... -- (104.7) -- -- --
Other .......................................... 1.3 1.0 (3.8) 9.7 (6.3%)
----- ----- ----- ----- -----
Effective income tax rate ...................... 2.1% 24.7% 0% 22.6% 34.7%
===== ===== ===== ===== =====
</TABLE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Previously, the Company evaluated the
realizability of its deferred tax assets and the need for a valuation allowance
by considering the effects of implementing tax planning strategies that
contemplated the sales of certain appreciated property. In connection with the
Company's change in strategic direction, announced on February 19, 1998, the
Company re-evaluated its tax planning strategies and determined that such
strategies will not be realized. Consequently, the Company's net operating loss
carryforwards were not considered more likely than not to be realized.
The Company has no net deferred tax assets at December 31, 1999,
December 31, 1998 and June 30, 1998. The Company's valuation allowance related
to deferred tax assets was decreased by $514,000 in 1999. The Company's
valuation allowance related to deferred tax assets was increased by $5,350,000
during the six month period ended December 31, 1998 and $15,004,000 during the
year ended June 30, 1998.
At December 31, 1999, the Company had net operating loss carryovers of
approximately $46,008,000, and alternative minimum tax credit carryovers of
approximately $1,109,000 available to reduce future federal income taxes,
subject to certain annual limitations. The net operating loss carryovers expire
as follows:
Year of
Amount Expiration
----------- -----------
$6,627,000 2000
7,002,000 2001
32,379,000 2010-18
-----------
$46,008,000
===========
13. REIMBURSEMENT FROM THIRD-PARTY CONTRACTUAL AGENCIES
The Company records amounts due to or from third-party contractual
agencies based on its best estimates of amounts to be ultimately received or
paid under cost reports filed with the appropriate intermediaries. Final
determination of amounts earned under contractual reimbursement programs is
subject to review and audit by these intermediaries. Differences between amounts
recorded as estimated settlements and the audited amounts are reflected as
adjustments to provider based revenues in the period the final determination is
made.
F-29
<PAGE> 57
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
During the year ended June 30, 1997, the Company received a favorable
cash judgment totaling approximately $2,900,000, net of related costs, by the
courts of the State of Missouri. In this matter, the courts ruled that the
Company's facility in Nevada, Missouri had received insufficient reimbursement
from the Missouri Department of Social Services for the provision of behavioral
healthcare to Medicaid patients from 1990 to 1996. The Company also recorded
during the year ended June 30, 1997, a $1,500,000 benefit related to
intermediary audits of prior year cost reports.
During the fourth quarter of fiscal year ended June 30, 1998, the
Company increased its estimated reimbursement for fiscal 1998 by $1,700,000,
primarily as a result of increased Corporate expenses by the Company during the
year ended June 30, 1998.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations. Management believes that
adequate provision has been made for any adjustments that may result from future
intermediary reviews and audits and is not aware of any claims, disputes or
unsettled matters concerning third-party reimbursement that would have a
material adverse effect on the Company's financial statements.
The Company derived approximately 81%, 81%, 70%, 71% and 65% of its
revenues from services provided to individuals covered by various federal and
state governmental programs in the year ended December 31, 1999, the six months
ended December 31, 1998 and 1997, and the years ended June 30, 1998 and 1997,
respectively.
14. SAVINGS PLAN
The Company has a 401(k) tax deferred savings plan, administered by an
independent trustee, covering substantially all employees over age twenty-one
meeting a one-year minimum service requirement. The plan was adopted for the
purpose of supplementing employees' retirement, death and disability benefits.
The Company may, at its option, contribute to the plan through an Employer
Matching Account, but is under no obligation to do so. An employee becomes
vested in his Employer Matching Account over a four-year period.
The Company did not contribute to the plan during the year ended
December 31, 1999, the six months ended December 31, 1998 and 1997, or the years
ended June 30, 1998 and 1997.
15. COMMITMENTS AND CONTINGENCIES
The Company is party to certain claims, suits and complaints, including
those matters described below, whether arising from the acts or omissions of its
employees, providers or others, which arise in the ordinary course of business.
The Company has established reserves at December 31, 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 December 31, 1998.
F-30
<PAGE> 58
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Prior to the merger with the Company, Ramsay Managed Care, Inc. sold
its subsidiary which, as a licensed HMO in Louisiana, Alabama and Mississippi,
managed and provided prepaid healthcare services to its members. On September
29, 1997, RMCI received a demand for indemnification by the purchaser of this
subsidiary in an amount totaling approximately $5.8 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 the fiscal year ended June 30, 1996, the State of Louisiana
requested repayment of disproportionate share payments received by two of the
Company's Louisiana facilities in fiscal years ended June 30, 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 year ended June 30, 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 State of Louisiana improperly used the monies. 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.
16. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's Valuation and Qualifying Accounts consists of
the following:
<TABLE>
<CAPTION>
December 31,
------------------------------- June 30,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Allowance for Doubtful Accounts:
Balance at beginning of period .......................... $ 3,159,000 $ 2,395,000 $ 4,386,000
Provision for doubtful accounts .......................... 1,896,000 1,549,000 6,649,000
Write-offs of uncollectible accounts receivable .......... (2,631,000) (594,000) (6,368,000)
Allowance eliminated in connection with the sale of
FPMBH ................................................. -- -- (530,000)
Decrease (increase) in allowance related to assets
held for sale ......................................... 191,000 (191,000) (1,742,000)
------------ ------------ ------------
Balance at end of period ................................. $ 2,615,000 $ 3,159,000 $ 2,395,000
============ ============ ============
Valuation Allowance on Property and Equipment:
Balance at beginning of period ........................... $ 1,159,000 $ 17,576,000 $ --
Additions, charged to cost and expenses .................. -- -- 17,576,000
Deductions ............................................... (205,000) (16,417,000) --
------------ ------------ ------------
Balance at end of period ................................. $ 954,000 $ 1,159,000 $ 17,576,000
============ ============ ============
Tax Valuation Allowance for Deferred Tax Assets:
Balance at beginning of period ........................... $ 25,728,000 $ 20,378,000 $ 5,374,000
Additions, charged to cost and expenses .................. -- 5,350,000 15,004,000
Deductions ............................................... (514,000) -- --
------------ ------------ ------------
Balance at end of period ................................. $ 25,214,000 $ 25,728,000 $ 20,378,000
============ ============ ============
</TABLE>
F-31
<PAGE> 59
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's non-cash investing and financing activities were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
Year Ended December 31, June 30,
December 31, ------------------------ ---------------------------
1999 1998 1997 1998 1997
------------ ---------- -------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Financed acquisition of property and
equipment ................................. $37,000 $ -- $ -- $ -- $ --
Forgiveness of amounts due from affiliates ... -- 5,569,000 -- -- --
Issuance of stock in connection with
conversion of Senior Subordinated Bridge
Note (including accrued interest) ......... -- $2,584,000 -- -- --
Issuance of common stock in connection with
conversion of Junior Subordinated Note
(including accrued interest) .............. -- 5,423,000
Issuance of stock upon conversion of
Preferred Stock, Series 1997-A ............ -- 4,422,000 -- -- --
Issuance of common stock upon conversion of
Preferred Stock, Series C ................. -- 580,000 -- -- --
Issuance of common stock upon conversion of
Preferred Stock, Series 1996 .............. -- 3,181,000 -- -- --
Issuance of Common Stock in connection with
employment agreement ...................... -- 175,000 -- -- --
Note received in connection with sale of
property and equipment .................... -- -- -- 1,500,000 --
Issuance of stock in lieu of cash payment
for accrued liabilities ................... -- -- -- 355,000 --
Issuance of warrants in connection with
Summa merger .............................. -- -- -- 657,000 --
Issuance of stock in connection with Summa
merger .................................... -- -- -- 813,000 --
Issuance of stock in lieu of debt payment .... -- -- -- 250,000 --
Issuance of stock in lieu of dividend
payments .................................. -- -- -- 610,000 --
Merger with RMCI:
Cost in excess of net asset value of
purchased businesses .................... -- -- -- -- 18,048,000
Other intangible assets ................... -- -- -- -- 4,740,000
Issuance of Common Stock .................. -- -- -- -- 6,408,000
Issuance of Series 1996 Preferred Stock ... -- -- -- -- 3,000,000
Noncurrent liabilities .................... -- -- -- -- 750,000
Issuance of stock in lieu of cash payment
for management and directors' fees ........ -- -- -- -- 922,000
</TABLE>
F-32
<PAGE> 60
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As mentioned previously, on December 8, 1998, the Company acquired all
of the issued and outstanding shares of common stock of The Rader Group,
Incorporated for $1,000,000 plus an earn-out in future years if certain
financial targets are met. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets acquired ..... $ 1,096,000
Cash paid for capital stock ....... (1,000,000)
Transaction costs ................. (48,000)
-----------
Liabilities assumed .......... $ 48,000
===========
F-33
<PAGE> 61
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. QUARTERLY RESULTS OF OPERATIONS AND OTHER SUPPLEMENTAL INFORMATION
(UNAUDITED)
Following is a summary of the Company's quarterly results of operations
for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
1999 (b)
- --------------------------------------------
Net revenues ............................... $ 18,894,000 $ 19,923,000 $ 20,413,000 $ 22,244,000
Income from operations ..................... 484,000 719,000 702,000 996,000
Income before income taxes and
extraordinary item ...................... 1,752,000 412,000 396,000 625,000
Net income ................................. 1,705,000 357,000 396,000 659,000
INCOME PER COMMON SHARE (a)
Basic:
Before extraordinary item ............... $ 0.19 $ 0.04 $ 0.04 $ 0.07
Extraordinary item:
Loss from early extinguishment of
debt ................................ -- -- -- --
-------------- -------------- -------------- ------------
$ 0.19 $ 0.04 $ 0.04 $ 0.07
============== ============== ============== ============
Diluted:
Before extraordinary item ............... $ 0.19 $ 0.04 $ 0.04 $ 0.07
Extraordinary item:
Loss from early extinguishment of
debt ................................ -- -- -- --
-------------- -------------- -------------- ------------
$ 0.19 $ 0.04 $ 0.04 $ 0.07
============== ============== ============== ============
1998 (c)
- --------------------------------------------
Net revenues ............................... $ 37,051,000 $ 40,678,000 $ 29,081,000 $ 18,989,000
Income (loss) from operations .............. (29,058,000) 552,000 (117,000) (772,000)
Income (loss) before income taxes and
extraordinary item ...................... (31,807,000) (13,621,000) 8,588,000 (2,159,000)
Net income (loss) .......................... (41,218,000) (14,943,000) 4,627,000 (2,600,000)
INCOME (LOSS) PER COMMON SHARE (a)
Basic:
Before extraordinary item ............... $ (11.46) $ (3.99) $ 1.44 $ (.20)
Extraordinary item:
Loss from early extinguishment of
debt ................................ -- (0.21) (0.24) (.36)
-------------- -------------- -------------- ------------
$ (11.46) $ (4.20) $ 1.20 $ (.56)
============== ============== ============== ============
Diluted:
Before extraordinary item ............... $ (11.46) $ (3.99) $ 1.18 $ (.20)
Extraordinary item:
Loss from early extinguishment of
debt ................................ -- (0.21) (0.19) (.36)
-------------- -------------- -------------- ------------
$ (11.46) $ (4.20) $ .99 $ (.56)
============== ============== ============== ============
</TABLE>
(a) The quarterly earnings per share amounts may not equal the annual amounts
due to changes in the average common and dilutive common equivalent shares
outstanding during the year.
F-34
<PAGE> 62
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(b) During the three months ended March 31, 1999, the Company recorded $1.5
million in other income primarily as a result of two non-recurring
settlements in favor of the Company.
(c) In connection with the Company's change in strategic direction, during the
quarter ended March 31, 1998, the Company (i) initiated a restructuring of
personnel at its corporate headquarters and (ii) decided to close or sell
certain operations that were identified as not compatible with the
Company's future operating plans. As a result of the foregoing, the Company
recorded restructuring and asset impairment charges of $2.3 million and
$18.3 million, respectively. During the three months ended March 31, 1998,
the Company also recorded a provision for income taxes of $10.0 million
primarily as a result of a full valuation allowance on its previously
recorded deferred tax assets.
During the three months ended June 30, 1998, the Company sold certain
assets and used the proceeds from the sale to prepay a portion of the
Senior Credit Facility. In connection with the sales and prepayment of
debt, the Company recorded a loss on sale of assets of $12.5 million and an
extraordinary loss from early extinguishment of debt of $.7 million.
During the three months ended September 30, 1998, the Company (i) sold its
behavioral health care facility in Morgantown, West Virginia and recorded a
gain of $2.0 million and (ii) recorded approximately $7.9 million in other
income primarily related to the settlement of amounts due form third party
contractual agencies.
During the three months ended December 31, 1998, the Company recorded a
loss from asset sales and closed business of $.9 million and a loss from
early extinguishment of debt of $2.1 million.
F-35
<PAGE> 63
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
2.1 Recapitalization Agreement dated as of June 30, 1993 by and among the Company, Ramsay Holdings
HSA Limited and Paul Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 2.2 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994)........................ --
2.2 Agreement of sale and purchase dated April 12, 1995 by and between Mesa Psychiatric Hospital,
Inc. and Capstone Capital Corporation (incorporated by reference to Exhibit 2.7 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1995). Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and Exhibits to such
Agreement to the Commission upon request.......................................................... --
2.3 Agreement of sale and purchase dated April 12, 1995 by and between RHCI San Antonio, Inc. and
Capstone Capital Corporation (incorporated by reference to Exhibit 2.8 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995). Pursuant to Reg. S-K, Item 601(b)(2),
the Company agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request........................................................................... --
2.4 Agreement and Plan of Merger dated as of October 1, 1996 among Ramsay Managed Care, Inc., the
Company and RHCI Acquisition Corp. (incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated October 2, 1996). Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the Disclosure Schedules to such Agreement to the
Commission upon request........................................................................... --
2.5 Agreement and Plan of Merger dated as of July 1, 1997 among Summa Healthcare Group, Inc., the
Company and Ramsay Acquisition Corporation (incorporated by reference to Exhibit 2.5 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997)............................ --
2.6 Agreement of Purchase and Sale dated as of March 18, 1998 by and between Ramsay Louisiana, Inc.
and Health-One Properties, LLC (incorporated by reference to Exhibit 2.6 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules and attachments to
such Agreement to the Commission upon request..................................................... --
2.7 Stock Purchase Agreement dated as of May 1, 1998 by and among the Company, Ramsay Managed Care,
Inc. and Horizon Health Corporation (incorporated by reference to Exhibit 2.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules and
attachments to such Agreement to the Commission upon request...................................... --
2.8 Asset Purchase Agreement dated as of May 15, 1998 by and among Greenbrier Hospital, Inc., the
Company and Provider Options Holdings, L.L.C (incorporated by reference to Exhibit 2.8 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). Pursuant to
Reg. S- K, Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules and
attachments to such Agreement to the Commission upon request...................................... --
</TABLE>
E-1
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C> <C>
2.9 Purchase Agreement dated as of June 24, 1998 among Charter Behavioral Health Systems, LLC, the
Company, Carolina Treatment Center, Inc., Houma Psychiatric Hospital, Inc., Mesa Psychiatric
Hospital, Inc., RHCI San Antonio, Inc., The Haven Hospital, Inc., Transitional Care Ventures
(Arizona), Inc., Transitional Care Ventures (North Texas), Inc. and Transitional Care Ventures
(Texas), Inc. (incorporated by reference to Exhibit 2.9 to the Company's Current Report on Form
8-K dated October 9, 1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish
a copy of the Disclosure Schedules and attachments to such Agreement to the Commission upon
request........................................................................................... --
2.10 Purchase and Sale Contract dated as of June 25, 1998 among Charter Behavioral Health Systems,
LLC, Carolina Treatment Center, Inc. and Mesa Psychiatric Hospital, Inc. (incorporated by
reference to Exhibit 2.10 to the Company's Current Report on Form 8-K dated October 9, 1998).
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure
Schedules and attachments to such Agreement to the Commission upon request........................ --
2.11 Purchase and Sale Contract dated as of June 26, 1998 among Crescent Real Estate Equities
Limited Partnership and The Haven Hospital, Inc. (incorporated by reference to Exhibit 2.11 to
the Company's Current Report on Form 8-K dated October 9, 1998). Pursuant to Reg. S-K, Item
601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules and attachments to
such Agreement to the Commission upon request..................................................... --
2.12 Asset Purchase Agreement dated as of July 2, 1998 among West Virginia University Hospitals,
Inc., Psychiatric Institute of West Virginia, Inc. and the Company (incorporated by reference
to Exhibit 2.12 to the Company's Current Report on Form 8-K dated October 9, 1998). Pursuant to
Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure Schedules and
attachments to such Agreement to the Commission upon request...................................... --
2.13 Amendment No. 1 dated as of September 28, 1998 Purchase Agreement dated as of June 24, 1998
among Charter Behavioral Health Systems, LLC, the Company, Carolina Treatment Center, Inc.,
Houma Psychiatric Hospital, Inc., Mesa Psychiatric Hospital, Inc., RHCI San Antonio, Inc., The
Haven Hospital, Inc., Transitional Care Ventures (Arizona), Inc., Transitional Care Ventures
(North Texas), Inc. and Transitional Care Ventures (Texas), Inc. (incorporated by reference to
Exhibit 2.13 to the Company's Current Report on Form 8-K dated October 9, 1998)................... --
2.14 Agreement of Sale and Purchase dated as of September 28, 1998 by and among Havenwyck Hospital,
Inc., Michigan Psychiatric Services, Inc. and Capstone Capital Corporation (incorporated by
reference to Exhibit 2.14 to the Company's Current Report on Form 8-K dated October 9, 1998).
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Disclosure
Schedules and attachments to such Agreement to the Commission upon request........................ --
2.15 Stock Purchase Agreement dated as of November 19, 1998 The Rader Group, Incorporated, a Florida
corporation, The Rader Group, Incorporated, a Colorado corporation, Bill T. Rader, Ph.D. and
Ramsay Educational Services, Inc. (incorporated by reference to Exhibit 2.15 to the Company's
Transition Report on Form 10-K for the six months ended December 31, 1998)........................ --
2.16 Stock Purchase Agreement dated May 14, 1999 between the Company, Ramsay Hospital Corporation of
Louisiana, Inc. and Paul Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit
2.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).......... --
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3.1 Restated Certificate of Incorporation of the Company, as amended (incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended June 30, 1990)......... --
3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Company filed on April
17, 1991 (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-2, Registration No. 33-40762).............................................................. --
3.3 Certificate of Correction to Certificate of Amendment of Restated Certificate of Incorporation
of the Company filed on April 18, 1991 (incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-2, Registration No. 33-40762).......................... --
3.4 By-Laws of the Company, as amended to date (incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994)............................ --
3.5 Certificate of Designation of Preferred Stock of the Company filed on June 27, 1991
(incorporated by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-2,
Registration No. 33-40762)........................................................................ --
3.6 Certificate of Designation of Preferred Stock of the Company filed on July 9, 1991
(incorporated by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-2,
Registration No. 33-40762)........................................................................ --
3.7 Certificate of Designation of Preferred Stock of the Company filed on June 29, 1993
(incorporated by reference to Exhibit 3.7 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994)......................................................................... --
3.8 Certificate of Designation of Preferred Stock of the Company with respect to its Class B
Preferred Stock, Series 1996 filed on June 10, 1997 (incorporated by reference to Exhibit 3.8
to the Company's Annual Report on Form 10-K for the year ended June 30, 1997)..................... --
3.9 Certificate of Designation of Preferred Stock of the Company with respect to its Class B
Preferred Stock, Series 1997 filed on September 30, 1997 (incorporated by reference to Exhibit
3.9 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997)................. --
3.10 Certificate of Designation of Preferred Stock of the Company with respect to its Class B
Preferred Stock, Series 1997-A filed on September 30, 1997 (incorporated by reference to Exhibit
3.10 to the Company's Annual Report on Form 10-K for the year ended June 30, 1997)................ --
3.11 Preferred Stock Purchase Agreement dated as of September 30, 1997 between the Company and
General Electric Capital Corporation (incorporated by reference to Exhibit 3.11 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997)............................ --
3.12 Preferred Stock Purchase Agreement dated as of September 30, 1997 between the Company and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 3.12 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)............................................. --
3.13 Common Stock Purchase Agreement dated as of September 30, 1997 between the Company and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 3.13 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1997)............................................. --
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3.14 Schedules to Preferred Stock Purchase Agreement described in exhibit 3.11 above (incorporated
by reference to Exhibit 3.14 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997)......................................................................... --
3.15 Preferred Stock and Junior Subordinated Promissory Note Exchange Agreement dated December 16,
1998 between the Company and Paul Ramsay Holdings Pty. Limited.................................... --
4.1 Trust Indenture dated as of March 31, 1990, between the Company, Bountiful Psychiatric
Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric Services Corporation,
Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc., Psychiatric Institute of West
Virginia, Inc., and The Citizens and Southern National Bank and Susan L. Adams (incorporated by
reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended June
30, 1990)......................................................................................... --
4.2 First Supplemental Trust Indenture dated as of June 15, 1991 between the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric Services
Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc. and Psychiatric
Hospital of West Virginia, Inc. and The Citizens and Southern National Bank, a national banking
association, and an individual trustee, as Trustees (incorporated by reference to Exhibit 4.4
to the Company's Registration Statement on Form S-2, Registration No. 33-40762)................... --
4.3 Second Supplemental Trust Indenture dated as of May 15, 1993 between the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric Services
Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc. and Psychiatric Hospital
of West Virginia, Inc., and NationsBank of Georgia, National Association, and Susan L. Adams
(incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994)......................................................................... --
4.4 Third Supplemental Trust Indenture dated as of April 12, 1995 between the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric Services
Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc. and Psychiatric Hospital
of West Virginia, Inc., and NationsBank of Georgia, National Association, and Elizabeth Talley,
as Trustee (incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996)............................................................ --
4.5 Fourth Supplemental Trust Indenture dated as of September 15, 1995 between the Company,
Bountiful Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric
Services Corporation, Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc. and Psychiatric
Institute of West Virginia, Inc. and NationsBank of Georgia, National Association, and
Elizabeth Talley, as Trustee (incorporated by reference to Exhibit 10.100 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)........................... --
4.6 Fifth Supplemental Trust Indenture dated as of June 1, 1997 between the Company, Bountiful
Psychiatric Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric Services
Corporation, Havenwyck Hospital, Inc. and Psychiatric Institute of West Virginia, Inc. and The
Bank of New York and Thomas Zakrzewski, as Trustees (incorporated by reference to Exhibit 4.6
to the Company's Annual Report on Form 10-K for the year ended June 30, 1997)..................... --
4.7 Subsidiary Borrower Note of Atlantic Treatment Center, Inc. dated May 21, 1993 in the principal
amount of $4,607,945 payable to the order of Societe Generale, New York Branch (incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year ended June
30, 1994.......................................................................................... --
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4.8 Subsidiary Borrower Note of Carolina Treatment Center, Inc. dated May 21, 1993 in the principal
amount of $5,030,000 payable to the order of Societe Generale, New York Branch (substantially
identical to Exhibit 4.7)......................................................................... --
4.9 Subsidiary Borrower Note of Greenbrier Hospital, Inc. dated May 21, 1993 in the principal
amount of $5,973,125 payable to the order of Societe Generale, New York Branch (substantially
identical to Exhibit 4.7)......................................................................... --
4.10 Subsidiary Borrower Note of Gulf Coast Treatment Center, Inc. dated May 21, 1993 in the
principal amount of $4,392,500 payable to the order of Societe Generale, New York Branch
(substantially identical to Exhibit 4.7).......................................................... --
4.11 Subsidiary Borrower Note of Houma Psychiatric Hospital, Inc. dated May 21, 1993 in the
principal amount of $3,979,589 payable to the order of Societe Generale, New York Branch
(substantially identical to Exhibit 4.7).......................................................... --
4.12 Subsidiary Borrower Note of HSA of Oklahoma, Inc. dated May 21, 1993 in the principal amount of
$3,445,562 payable to the order of Societe Generale, New York Branch (substantially identical
to Exhibit 4.7)................................................................................... --
4.13 Amended and Restated Subscription Agreement dated October 26, 1998 between the Company and Paul
Ramsay Holdings Pty. Limited ("Holdings Pty."). Pursuant to Reg. S-K, Item 601(b)(2), the
Company agrees to furnish a copy of the Schedules and Exhibits to such Agreement to the
Commission upon request (incorporated by reference to Exhibit 4.13 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)..................................... --
4.14 Amended and Restated Subscription Agreement dated October 26, 1998 between the Company and Luis
E. Lamela. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request (incorporated by
reference to Exhibit 4.14 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)............................................................................... --
4.15 Subscription Agreement dated October 26, 1998 between the Company and Haythe & Curley. Pursuant
to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon request (incorporated by reference to Exhibit 4.15
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).......... --
4.16 Subscription Agreement dated as of October 26, 1998 between the Company and Dauphin Capital
Partners I, LP. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of
the Schedules and Exhibits to such Agreement to the Commission upon request (incorporated by
reference to Exhibit 4.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)............................................................................... --
4.17 Subscription Agreement dated as of October 26, 1998 between the Company and Moises Hernandez,
M.D. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request (incorporated by
reference to Exhibit 4.17 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)............................................................................... --
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4.18 Subscription Agreement dated as of October 26, 1998 between the Company and Tom Hodapp. Pursuant
to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon request (incorporated by reference to Exhibit 4.18
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).......... --
4.19 Subscription Agreement dated as of October 26, 1998 between the Company and Aaron Beam. Pursuant
to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and Exhibits
to such Agreement to the Commission upon request (incorporated by reference to Exhibit 4.19
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998).......... --
4.20 Subscription Agreement dated as of October 26, 1998 between the Company and Sanford R.
Robertson. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request (incorporated by
reference to Exhibit 4.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998)............................................................................... --
4.21 Revolving Credit Note dated October 30, 1998 by the Company in the aggregate principal amount
of $8,000,000 payable to the order of Fleet Capital Corporation (incorporated by reference to
Exhibit 4.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)............................................................................................. --
4.22 Secured Promissory Note (Term Note) by the Company in the aggregate principal amount of
$8,000,000 payable to the order of Fleet Capital Corporation (incorporated by reference to
Exhibit 4.22 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)............................................................................................. --
4.23 Secured Promissory Note (Acquisition Note) by the Company in the aggregate principal amount of
$6,000,000 payable to the order of Fleet Capital Corporation (incorporated by reference to
Exhibit 4.23 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1998)............................................................................................. --
10.1 Note Purchase Agreement dated as of March 31, 1990, among the Company, Bountiful Psychiatric
Hospital, Inc., Cumberland Mental Health, Inc., East Carolina Psychiatric Services Corporation,
Havenwyck Hospital, Inc., Mesa Psychiatric Hospital, Inc., Psychiatric Institute of West
Virginia, Inc., and Aetna Life Insurance Company regarding the purchase by Aetna Life Insurance
Company of $26,000,000 principal amount of 11.6% Senior Secured Notes, $1,000,000 principal
amount of 15.6% Subordinated Secured Notes and Warrants to Purchase Common Stock of the Company
(incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1990)......................................................................... --
10.2 Note Purchase Agreement pursuant to which Monumental Life Insurance Company purchased
$15,500,000 principal amount of 11.6% Senior Secured Notes, $2,000,000 principal amount of
15.6% Subordinated Secured Notes and Warrants to Purchase Common Stock of the Company
(substantially identical to Exhibit 10.1)......................................................... --
10.3 Note Purchase Agreement pursuant to which Connecticut Mutual Life Insurance Company purchased
$15,000,000 principal amount of 11.6% Senior Secured Notes (substantially identical to Exhibit
10.1)............................................................................................. --
10.4 Pledge and Security Agreement between Bountiful Psychiatric Hospital, Inc. and The Citizens and
Southern National Bank (incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996)............................................. --
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10.5 Pledge and Security Agreement dated as of March 31, 1990 between the Company and The Citizens
and Southern National Bank (substantially identical to Exhibit 10.4).............................. --
10.6 Pledge and Security Agreement between Michigan Psychiatric Services, Inc. and The Citizens and
Southern National Bank (substantially identical to Exhibit 10.4).................................. --
10.7 Pledge and Security Agreement between Americare of Galax, Inc. and The Citizens and Southern
National Bank (substantially identical to Exhibit 10.4)........................................... --
10.8 Deed of Trust, Security Agreement, and Financing Statement dated as of March 31, 1990 from
Bountiful Psychiatric Hospital, Inc. to Merrill Title Company for the benefit of The Citizens
and Southern National Bank and Susan L. Adams covering certain property in Woods Cross, Utah
(incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1990)......................................................................... --
10.9 Deed of Trust and Security Agreement from Cumberland Mental Health, Inc. to First American
Title Insurance Company for the benefit of The Citizens and Southern National Bank and Susan L.
Adams covering certain property in Fayetteville, North Carolina (substantially identical to
Exhibit 10.8)..................................................................................... --
10.10 Deed of Trust and Security Agreement from East Carolina Psychiatric Services Corporation to
First American Title Insurance Company for the benefit of The Citizens and Southern National
Bank and Susan L. Adams covering certain property in Jacksonville, North Carolina
(substantially identical to Exhibit 10.8)......................................................... --
10.11 Mortgage and Security Agreement dated as of March 31, 1990 from Havenwyck Hospital, Inc. to The
Citizens and Southern National Bank and Susan L. Adams covering certain property in Auburn
Hills, Michigan (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1990)....................................................... --
10.12 Leasehold Deed of Trust, Assignment of Rents and Security Agreement with Financing Statement
dated as of March 31, 1990 from Mesa Psychiatric Hospital, Inc. to Transamerica Title Insurance
Company for the benefit of The Citizens and Southern National Bank and Susan L. Adams covering
certain property in Mesa, Arizona (incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990)...................................... --
10.13 Leasehold Deed of Trust and Security Agreement from Psychiatric Institute of West Virginia,
Inc. to J. Nicholas Barth, Esq., for the benefit of The Citizens and Southern National Bank and
Susan L. Adams covering certain property in Morgantown, West Virginia (substantially identical
to Exhibit 10.12)................................................................................. --
10.14 Obligor Subrogation and Contribution Agreement dated as of April 30, 1990 among The Citizens
and Southern National Bank, Susan L. Adams, the Company, Bountiful Psychiatric Hospital, Inc.,
Cumberland Mental Health, Inc., East Carolina Psychiatric Services Corporation, Havenwyck
Hospital, Inc., Mesa Psychiatric Hospital, Inc., and Psychiatric Institute of West Virginia,
Inc. (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1990)................................................................. --
10.15 Credit Agreement dated as of May 15, 1993 among the Company and certain of its subsidiaries
named therein, Societe Generale, New York Branch, First Union National Bank of North Carolina
and Hibernia National Bank, as lenders, and Societe Generale, as issuing bank and agent
(incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994)......................................................................... --
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10.16 Second Amendment to Credit Agreement dated as of September 15, 1995 among the Company and
certain of its subsidiaries named therein, Societe Generale, New York Branch, First Union
National Bank of North Carolina and Hibernia National Bank, as lenders, and Societe Generale,
as issuing bank and agent (incorporated by reference to Exhibit 10.99 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995............................ --
10.17 Third Amendment to Credit Agreement dated as of August 15, 1996 among the Company and certain
subsidiaries named therein, Societe Generale, New York Branch, First Union National Bank of
North Carolina and Hibernia National Bank, as lenders, and Societe Generale, as issuing bank
and agent (incorporated by reference to Exhibit 10.93 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996............................................................. --
10.18 Fourth Amendment to Credit Agreement, First Amendment to Waiver, Consent to Merger and
Extension Agreement dated as of May 15, 1997 among the Company and certain subsidiaries named
therein, Societe Generale, New York Branch, First Union National Bank of North Carolina and
Hibernia National Bank, as lenders, and Societe Generale, as issuing bank and agent
(incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1997)......................................................................... --
10.19 Fifth Amendment to Credit Agreement, Amendment to Fourth Amendment and Amendment to Waiver
dated as of June 4, 1997 among the Company and certain subsidiaries named therein, Societe
Generale, New York Branch, First Union National Bank of North Carolina, as lenders, and Societe
Generale, as issuing bank and agent (incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1997)............................ --
10.20 Security Agreement dated as of May 15, 1993 by Atlantic Treatment Center, Inc. in favor of
Societe Generale, as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above, and covering certain property in Daytona Beach, Florida
(incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994)......................................................................... --
10.21 Security Agreement dated as of May 15, 1993 by Carolina Treatment Center, Inc. in favor of
Societe Generale, as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to Exhibit 10.20)....................... --
10.22 Security Agreement dated as of May 15, 1993 by Great Plains Hospital, Inc., in favor of
Societe Generale, as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to Exhibit 10.20)....................... --
10.23 Security Agreement dated as of May 15, 1993 by Greenbrier Hospital, Inc. in favor of Societe
Generale, as agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to Exhibit 10.20)................................. --
10.24 Security Agreement dated as of May 15, 1993 by Gulf Coast Treatment Center, Inc. in favor of
Societe Generale, as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to Exhibit 10.20)....................... --
10.25 Security Agreement dated as of May 15, 1993 by Houma Psychiatric Hospital, Inc. in favor of
Societe Generale, as agent for the lenders which are parties to that certain Credit Agreement
described in Exhibit 10.15 above (substantially identical to Exhibit 10.20)....................... --
10.26 Security Agreement dated as of May 15, 1993 by HSA of Oklahoma, Inc. in favor of Societe
Generale, as agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to Exhibit 10.20)................................. --
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10.27 Security Agreement dated as of May 15, 1993 by The Haven Hospital, Inc. in favor of Societe
Generale, as agent for the lenders which are parties to that certain Credit Agreement described
in Exhibit 10.15 above (substantially identical to Exhibit 10.20)................................. --
10.28 Security Agreement dated as of May 15, 1993 by the Company in favor of Societe Generale, as
agent for the lenders which are parties to that certain Credit Agreement described in Exhibit
10.15 above (substantially identical to Exhibit 10.20)............................................ --
10.29 Accounts Receivable Security Agreement dated as of May 15, 1993 by Americare of Galax, Inc. in
favor of Societe Generale, as agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (incorporated by reference to Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994)............................ --
10.30 Accounts Receivable Security Agreement dated as of May 15, 1993 by Bountiful Psychiatric
Hospital, Inc. in favor of Societe Generale, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.29)............................................................................................ --
10.31 Accounts Receivable Security Agreement dated as of May 15, 1993 by Cumberland Mental Health,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.29).................................................................................... --
10.32 Accounts Receivable Security Agreement dated as of May 15, 1993 by East Carolina Psychiatric
Services Corporation in favor of Societe Generale, New York Branch, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.29)........................................................ --
10.33 Accounts Receivable Security Agreement dated as of May 15, 1993 by Havenwyck Hospital, Inc. in
favor of Societe Generale, New York Branch as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.29)............................................................................................ --
10.34 Accounts Receivable Security Agreement dated as of May 15, 1993 by Mesa Psychiatric Hospital,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.29).................................................................................... --
10.35 Accounts Receivable Security Agreement dated as of May 15, 1993 by Michigan Psychiatric
Services, Inc. in favor of Societe Generale, New York Branch, as agent for the lenders which
are parties to that certain Credit Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.29)....................................................................... --
10.36 Accounts Receivable Security Agreement dated as of May 15, 1993 by Psychiatric Institute of
West Virginia, Inc. in favor of Societe Generale, New York Branch, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit 10.15 above
(substantially identical to Exhibit 10.29)........................................................ --
10.37 Stock Pledge Agreement dated as of May 15, 1993, among the Company in favor of Societe
Generale, New York Branch, as agent for the lenders which are parties to that certain Credit
Agreement described in Exhibit 10.15 above (incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994)............................ --
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10.38 Revolving Credit Guarantee dated as of May 15, 1993 by Americare of Galax, Inc. in favor of
Societe Generale, New York Branch, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (incorporated by reference to Exhibit 10.35
to the Company's Annual Report on Form 10-K for the year ended June 30, 1994)..................... --
10.39 Revolving Credit Guarantee dated as of May 15, 1993 by Bethany Psychiatric Hospital, Inc. in
favor of Societe Generale, New York Branch, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.38)............................................................................................ --
10.40 Revolving Credit Guarantee dated as of May 15, 1993 by Bountiful Psychiatric Hospital, Inc. in
favor of Societe Generale, New York Branch, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.38)............................................................................................ --
10.41 Revolving Credit Guarantee dated as of May 15, 1993 by Cumberland Mental Health, Inc. in favor
of Societe Generale, New York Branch, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.38)............................................................................................ --
10.42 Revolving Credit Guarantee dated as of May 15, 1993 by East Carolina Psychiatric Services
Corporation in favor of Societe Generale, New York Branch, as agent for the lenders which are
parties to that certain Credit Agreement described in Exhibit 10.15 above (substantially
identical to Exhibit 10.38)....................................................................... --
10.43 Revolving Credit Guarantee dated as of May 15, 1993 by Havenwyck Hospital, Inc. in favor of
Societe Generale, New York Branch, as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit 10.38)...... --
10.44 Revolving Credit Guarantee dated as of May 15, 1993 by Mesa Psychiatric Hospital, Inc. in favor
of Societe Generale, New York Branch, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.38)............................................................................................ --
10.45 Revolving Credit Guarantee dated as of May 15, 1993 by Michigan Psychiatric Services, Inc. in
favor of Societe Generale, New York Branch, as agent for the lenders which are parties to that
certain Credit Agreement described in Exhibit 10.15 above (substantially identical to Exhibit
10.38)............................................................................................ --
10.46 Revolving Credit Guarantee dated as of May 15, 1993 by Psychiatric Institute of West Virginia,
Inc. in favor of Societe Generale, New York Branch, as agent for the lenders which are parties
to that certain Credit Agreement described in Exhibit 10.15 above (substantially identical to
Exhibit 10.38).................................................................................... --
10.47 Management Fee Subordination Agreement dated May 15, 1993, among Paul J. Ramsay and Ramsay
Health Care Pty. Ltd. in favor of Societe Generale, New York Branch, as agent for the lenders
which are parties to that certain Credit Agreement described in Exhibit 10.15 above
(incorporated by reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994)......................................................................... --
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10.48 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15, 1993 granted
by Atlantic Treatment Center, Inc. to Societe Generale, individually and as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit 10.15 above,
with respect to certain real property located in Volusia County, Florida (incorporated be
reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended June
30, 1994)......................................................................................... --
10.49 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15, 1993 granted
by Carolina Treatment Center, Inc. to Societe Generale, individually and as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit 10.15 above,
with respect to certain real property located in Horry County, South Carolina (substantially
identical to Exhibit 10.48)....................................................................... --
10.50 Deed of Trust and Fixture Filing and Assignment of Leases and Rents dated as of May 15, 1993
granted by Great Plains Hospital, Inc. to Jacob W. Bayer, Jr. as Trustee for the benefit of
Societe Generale, individually and as agent for the lenders which are parties to that certain
Credit Agreement described in Exhibit 10.15 above, with respect to certain real property
located in Vernon County, Missouri (substantially identical to Exhibit 10.48)..................... --
10.51 Mortgage, Security and Assignment of Leases and Rents dated as of May 15, 1993 by Greenbrier
Hospital, Inc. to Societe Generale individually as agent for the lenders which are parties to
that certain Credit Agreement described in Exhibit 10.15 above, with respect to certain real
property located in St. Tammany Parish, Louisiana (substantially identical to Exhibit 10.48)...... --
10.52 Mortgage and Fixture Filing and Assignment of Leases and Rents dated as of May 15, 1993 granted
by Gulf Coast Treatment Center, Inc. to Societe Generale, individually and as an agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit 10.15 above,
with respect to certain real property located in Okaloosa County, Florida (substantially
identical to Exhibit 10.48)....................................................................... --
10.53 Mortgage, Security Agreement and Assignment of Leases and Rents dated as of May 15, 1993
granted by Houma Psychiatric Hospital, Inc. to Societe Generale, individually and as an agent
for the lenders which are parties to that Certain Credit Agreement described in Exhibit 10.15
above, with respect to certain real property located in the City of Houma, Parish of
Terrebonne, Louisiana (substantially identical to Exhibit 10.48).................................. --
10.54 Mortgage with Power of Sale and Fixture Filing and Assignment of Leases and Rents dated as of
May 15, 1993 granted by HSA of Oklahoma, Inc. to Societe Generale, individually and as agent
for the lenders which are parties to that certain Credit Agreement described in Exhibit 10.15
above, with respect to certain real property located in Garfield County, Oklahoma
(substantially identical to Exhibit 10.48)........................................................ --
10.55 Deed of Trust and Fixture Filing and Assignment of Leases and Rents dated as of May 15, 1993
granted by the Haven Hospital, Inc. to Societe Generate, individually and as agent for the
lenders which are parties to that certain Credit Agreement described in Exhibit 10.15 above,
with respect to certain real property located in the City of DeSoto, Dallas County, Texas
(substantially identical to Exhibit 10.48)........................................................ --
10.56 Loan Agreement between Okaloosa County, Florida and Gulf Coast Treatment Center, Inc. dated
October 1, 1984, relating to the issuance of bonds for Gulf Coast Treatment Center, Inc.
(incorporated by reference to Exhibit 10.16 to the Company's Registration Statement on Form
S-1, Registration No. 2-98921).................................................................... --
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10.57 Loan Agreement between Louisiana Public Facilities Authority and Greenbrier Hospital, Inc.
dated November 1, 1984, relating to the issuance of bonds for Greenbrier Hospital, Inc.
(incorporated by reference to Exhibit 10.17 to the Company's Registration Statement on Form
S-1, Registration No. 2-98921).................................................................... --
10.58 Loan Agreement between Horry County, South Carolina and Carolina Treatment Center, Inc. dated
December 1, 1984, relating to the issuance of bonds for Carolina Treatment Center, Inc.
(incorporated by reference to Exhibit 10.18 to the Company's Registration Statement on Form
S-1, Registration No. 2-98921).................................................................... --
10.59 Loan Agreement between Louisiana Public Facilities Authority and Houma Psychiatric Hospital,
Inc. dated September 1, 1985, relating to the issuance of bonds for Houma Psychiatric Hospital,
Inc. (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1994)................................................................. --
10.60 Ground Lease between Facilities Management Corporation, as landlord, and Psychiatric Institute of
West Virginia, Inc., as tenant, dated as of September 30, 1985 (incorporated by reference to
Exhibit 10.57 to the Company's Annual Report on Form 10-K for the year ended June 30, 1994)....... --
10.61 Lease Agreement between Houma Psychiatric Hospital, Inc. and Hospital Service District No. 1 of
the Parish of Terrebonne, State of Louisiana, effective February 1, 1985 (incorporated by
reference to Exhibit 10.38 to the Company's Registration Statement on Form S-1, Registration
No. 2-98921)...................................................................................... --
10.62 Lease among Bethany Psychiatric Hospital, Inc., Bethany General Hospital, the City of Bethany,
Oklahoma and the Bethany General Hospital Trust dated December 9, 1985 (ground lease)
(incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996)......................................................................... --
10.63 Loan Agreement between The Enid Development Authority and HSA of Oklahoma, Inc. dated as of
October 1, 1985, relating to The Enid Development Authority Variable Rate Demand Revenue Bonds
(Meadowlake Hospital Project) (incorporated by reference to Exhibit 10.60 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994)...................................... --
10.64 Ramsay Health Care, Inc. 1990 Stock Option Plan, as amended to date (incorporated by reference
Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed on March 6, 1991)........... --
10.65 Lease Agreement dated August 30, 1988 between the Company and Ayshire Land Dome Joint Venture
relating to office space at One Poydras Plaza, New Orleans, Louisiana (incorporated by
reference to Exhibit 10.78 to the Company's Registration Statement on Form S-2, Registration
No. 33-40762)..................................................................................... --
10.66 Ramsay Health Care, Inc. Deferred Compensation and Retirement Plan (incorporated by reference
to Exhibit 10.79 to the Company's Registration Statement on Form S-2, Registration
No. 33-40762)..................................................................................... --
10.67 Personnel and Facility Sharing Agreement dated as of June 27, 1991 between the Company and
Ramsay Holdings HSA Limited (incorporated by reference to Exhibit 10.83 to the Company's
Registration Statement on Form S-2, Registration No. 33-40762).................................... --
10.68 Indemnity Agreement dated as of June 1991 between the Company and Ramsay Holdings HSA Limited
(incorporated by reference to Exhibit 10.84 to the Company's Registration Statement on Form
S-2, Registration No. 33-40762)................................................................... --
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10.69 Management Agreement dated as of June 25, 1992 between the Company and Ramsay Health Care Pty.
Limited (incorporated by reference to Exhibit 10.90 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1992)................................................................. --
10.70 Ramsay Health Care, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.91 to
the Company's Annual Report on Form 10-K for the year ended June 30, 1992)........................ --
10.71 Employment Agreement dated January 23, 1992 between the Company and Wallace E. Smith
(incorporated by reference to Exhibit 10.94 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992)......................................................................... --
10.72 Employment Agreement dated January 23, 1992 between the Company and John A. Quinn (incorporated
by reference to Exhibit 10.95 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1992).................................................................................... --
10.73 Lease dated April 4, 1992 between the Union Labor Life Insurance Company and the Company
(incorporated by reference to Exhibit 10.98 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1992)......................................................................... --
10.74 Lease dated May 27, 1992 between Gail Buy and Bountiful Psychiatric Hospital (incorporated by
reference to Exhibit 10.99 to the Company's Annual Report on Form 10-K for the year ended June
30, 1992)......................................................................................... --
10.75 Lease Agreement dated as of February 12, 1993 by and between Gulf Coast Treatment Center, Inc.
and Vendell of Florida, Inc. (incorporated by reference to Exhibit 10.82 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994)...................................... --
10.76 Ramsay Health Care, Inc. 1993 Stock Option Plan (incorporated by reference to Exhibit 10.83 to
the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993).............. --
10.77 Ramsay Health Care, Inc. 1993 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.84 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31,
1993)............................................................................................. --
10.78 Fourth Modification, Extension and Amendment of Lease Agreement dated November 15, 1993 between
the Company and One Poydras Plaza Venture relating to the Company's office space at One Poydras
Plaza, New Orleans, Louisiana (incorporated by reference to Exhibit 10.84 to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994)...................................... --
10.79 Employment Agreement dated July 19, 1994 between the Company and Brent J. Bryson (incorporated
by reference to Exhibit 10.85 to the Company's Annual Report on Form 10-K for the year ended
June 30, 1995).................................................................................... --
10.80 Rights Agreement dated as of August 1, 1995 between the Company and First Union National Bank
of North Carolina, as Rights Agent, which includes the form of Right Certificate as Exhibit A
and the Summary Rights to Purchase Common Shares as Exhibit B (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated August 1, 1995).................... --
10.81 Amendment to Rights Agreement, dated October 3, 1995 between the Company and First Union National
Bank of North Carolina, as Rights Agent (incorporated by reference to Exhibit 10.102 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995)................. --
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10.82 Amendment No. 2 to Rights Agreement, dated as of November 1, 1996 between the Company and First
Union National Bank of North Carolina, as Rights Agent (incorporated by reference to
Exhibit 10.101 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)............................................................................... --
10.83 Letter Agreement dated June 30, 1995 among the Company, Ramsay Holdings HSA Limited and Paul
Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K dated August 1, 1995........................................................... --
10.84 Lease Agreement dated April 12, 1995 between Capstone Capital Corporation and Mesa Psychiatric
Hospital, Inc. (incorporated by reference to Exhibit 10.88 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995)....................................................... --
10.85 Lease Agreement dated April 12, 1995 between Capstone Capital of San Antonio, LTD, d/b/a
Cahaba of San Antonio, LTD. and RHCI San Antonio, Inc. (incorporated by reference to Exhibit
10.89 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995)............. --
10.86 Facility Lease Agreement dated June 26, 1995 by and between Charter Canyon Behavioral Health
Systems, Inc. and Bountiful Psychiatric Hospital, Inc. (incorporated by reference to Exhibit
10.90 to the Company's Annual Report on Form 10-K for the year ended June 30, 1995................ --
10.87 Employment termination letter dated September 15, 1995 between the Company and Gregory H.
Browne (incorporated by reference to Exhibit 10.91 to the Company's Annual Report on Form 10-K
for the year ended June 30, 1995)................................................................. --
10.88 Second Amended and Restated Distribution Agreement between the Company and Ramsay Managed Care,
Inc. ("RMCI") (incorporated by reference to Exhibit 10.1 to RMCI's Registration Statement on
Form S-1 (Registration No. 33-78034) filed with the Commission on April 24, 1995)................. --
10.89 Employee Benefit Agreement dated as of February 1, 1995 between the Company and RMCI
(incorporated by reference to Exhibit 10.4 to RMCI's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on April 24, 1995).......................... --
10.90 Tax Sharing Agreement dated as of October 25, 1994 between the Company and RMCI (incorporated
by reference to Exhibit 10.5 to RMCI's Registration Statement on Form S-1 (Registration No.
33-78034) filed with the Commission on April 24, 1995)............................................ --
10.91 Corporate Services Agreement dated as of January 2, 1995 between the Company and RMCI
(incorporated by reference to Exhibit 10.6 to RMCI's Registration Statement on Form S-1
(Registration No. 33-78034) filed with the Commission on April 24, 1995).......................... --
10.92 Form of Withholding Tax Agreement between the Company, Ramsay Holdings HSA Limited, Paul Ramsay
Holdings Pty. Limited and Ramsay Health Care Pty. Limited (incorporated by reference to Exhibit
10.7 to RMCI's Registration Statement on Form S-1 (Registration No. 33-78034) filed with the
Commission on April 24, 1995...................................................................... --
10.93 $6,000,000 Subordinated Promissory Note of RMCI, as amended (incorporated by reference to
Exhibit 10.13 to RMCI's Registration Statement on Form S-1 (Registration No.33-78034) filed
with the Commission on April 24, 1995)............................................................ --
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10.94 Consent and Amendment dated April 12, 1996 among the Company and certain of its subsidiaries
named therein, Societe Generale, New York Branch, First Union National Bank of North Carolina
and Hibernia National Bank, as lenders, and Societe Generale, as issuing bank and agent
(incorporated by reference to Exhibit 10.88 to the Company's Annual Report on Form 10-K for the
year ended June 30, 1996)......................................................................... --
10.95 Amended and Restated Stock Purchase Agreement dated October 12, 1995 by and among Paul Ramsay
Holdings Pty. Limited, Ramsay Health Care, Inc. and, solely for the purpose of Section I, III and
VI of the agreement, Ramsay Health Care Pty. Limited (incorporated by reference to Exhibit 10.101
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995........... --
10.96 Amendment to Rights Agreement, date October 3, 1995 between Ramsay Health Care, Inc. and First
Union National Bank of North Carolina, as Rights Agent incorporated by reference to Exhibit 10.102
to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995).......... --
10.97 Ramsay Health Care, Inc. 1995 Long Term Incentive Plan (incorporated by reference to
Exhibit 10.103 to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995)................................................................................ --
10.98 Stock Purchase Agreement dated as of August 13, 1996 by and among Paul Ramsay Holdings Pty.
Limited, the Company and, solely for purposes of Sections I, III and IV thereof, Ramsay Health
Care Pty. Limited (incorporated by reference to Exhibit 10.94 to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996)....................................................... --
10.99 Amended and Restated Employment Agreement dated as of August 15, 1996 by and between Reynold
Jennings and the Company (incorporated by reference to Exhibit 10.95 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1996)............................................. --
10.100 Exchange Agreement dated September 10, 1996, by and among the Company, Paul Ramsay Hospitals
Pty. Limited and Paul J. Ramsay, including a related Warrant Certificate dated September 10,
1996 issued to Ramsay Hospitals Pty. Limited (incorporated by reference to Exhibit 10.96 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1996)............................ --
10.101 Consulting Agreement dated as of January 1, 1996 between the Company and Summa Healthcare
Group, Inc. (incorporated by reference to Exhibit 10.97 to the Company's Annual Report on Form
10-K for the year ended June 30, 1996)............................................................ --
10.102 Consulting Agreement dated as of February 1, 1997 between the Company and Summa Healthcare
Group, Inc........................................................................................ --
10.103 Letter Agreement dated as of September 10, 1996 by and among the Company, Ramsay Health Care
Pty. Limited Paul Ramsay Holdings Pty. Limited, including a related Warrant Certificate dated
September 10, 1996 issued to Paul Ramsay Holdings Pty. Limited (incorporated by reference to
Exhibit 10.98 to the Company's Annual Report on Form 10-K for the year ended June 30, 1996)....... --
10.104 Employment Agreement dated August 12, 1996 by and between the Company and Remberto Cibran
(incorporated by reference to Exhibit 10.99 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996)............................................................. --
10.105 Services Agreement dated August 12, 1996 by and between the Company and HealthLink Enterprises,
Inc. (incorporated by reference to Exhibit 10.100 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996).................................................... --
</TABLE>
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10.106 Credit Agreement, including all Annexes thereto, dated September 30, 1997 among the Company,
The Lenders from Time to Time Party Thereto, General Electric Capital Corporation, as
Administrative Agent, and GECC Capital Markets Group, as Syndication Agent........................ --
10.107 Subordinated Note Purchase Agreement dated as of September 30, 1997 among the Company, as
Issuer, and General Electric Capital Corporation and Paul Ramsay Holdings Pty. Limited, as
Purchasers........................................................................................ --
10.108 Registration Rights Agreement dated as of September 30, 1997 between the Company and General
Electric Capital Corporation...................................................................... --
10.109 Release of Collateral, Termination and Cash Collateral Agreement dated as of September 30, 1997
among the Company and certain subsidiaries named therein, Societe Generale, New York Branch,
First Union National Bank of North Carolina and Hibernia National Bank, as lenders, and Societe
Generale, as issuing bank and agent............................................................... --
10.110 Employment Agreement dated as of October 1, 1997 by and between the Company and Luis E. Lamela
(incorporated by reference to Exhibit 10.110 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997)............................................................. --
10.111 Schedules to Credit Agreement described in Exhibit 10.106 above (incorporated by reference to
Exhibit 10.111 to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997)......................................................................................... --
10.112 Schedules to Subordinated Note Purchase Agreement described in Exhibit 10.107 above
(incorporated by reference to Exhibit 10.112 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997)............................................................. --
10.113 First Amendment to Credit Agreement dated as of March 27, 1998 by and among the Company,
certain subsidiaries of the Company on the signature pages thereto, General Electric Capital
Corporation, as Administrative Agent and Lender, and The ING Capital Senior Secured High Income
Fund, L.P., as Lender (incorporated by reference to Exhibit 10.113 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998)......................................... --
10.114 First Amendment to Subordinated Note Purchase Agreement dated as of March 27, 1998 by and among
the Company, General Electric Capital Corporation and Paul Ramsay Holdings Pty. Limited
(incorporated by reference to Exhibit 10.114 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998)................................................................. --
10.115 Junior Subordinated Note Purchase Agreement dated as of March 25, 1998 by and between the
Company and Paul Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit 10.115 to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998)................. --
10.116 Lease Agreement dated as of September 28, 1998 between Capstone Capital Corporation and
Havenwyck Hospital, Inc. (incorporated by reference to Exhibit 10.116 to the Company's Current
Report on Form 8-K dated October 9, 1998)......................................................... --
10.117 Guaranty of Obligations Pursuant to Lease Agreement described in Exhibit 10.116 above dated as of
September 28, 1998 by the Company in favor of Capstone Capital Corporation (incorporated by
reference to Exhibit 10.117 to the Company's Current Report on Form 8-K dated October 9, 1998).... --
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10.118 Second Amendment to Credit Agreement dated as of May 20, 1998 by and among the Company, certain
subsidiaries of the Company on the signature pages thereto, General Electric Capital
Corporation, as Administrative Agent and Lender, and The ING Capital Senior Secured High Income
Fund, L.P., as Lender (incorporated by reference to Exhibit 10.118 to the Company's Annual
Report on Form 10-K for the year ended June 30, 1998)............................................. --
10.119 Second Amendment to Subordinated Note purchase Agreement dated as of May 20, 1998 by and among
the Company, General Electric Capital Corporation and Paul Ramsay Holdings Pty. Limited
(incorporated by reference to Exhibit 10.119 to the Company's Annual Report on Form 10-K/A for
the year ended June 30, 1998)..................................................................... --
10.120 Third Amendment to Credit Agreement dated as of June 29, 1998 by and among the Company, certain
subsidiaries of the Company on the signature pages thereto, General Electric Capital
Corporation, as Administrative Agent and Lender, and The ING Capital Senior Secured High Income
Fund, L.P., as Lender (incorporated by reference to Exhibit 10.120 to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998)........................................... --
10.121 Third Amendment to Subordinated Note Purchase Agreement dated as of June 29, 1998 by and among
the Company, General Electric Capital Corporation and Paul Ramsay Holdings Pty. Limited
(incorporated by reference to Exhibit 10.121 to the Company's Annual Report on Form 10-K/A for
the year ended June 30, 1998)..................................................................... --
10.122 Fourth Amendment to Credit Agreement dated as of July 29, 1998 by and among the Company,
certain subsidiaries of the Company on the signature pages thereto, General Electric Capital
Corporation, as Administrative Agent and Lender, and The ING Capital Senior Secured High Income
Fund, L.P., as Lender (incorporated by reference to Exhibit 10.122 to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998)........................................... --
10.123 Fourth Amendment to Subordinated Note Purchase Agreement dated as of July 29, 1998 by and among
the Company, General Electric Capital Corporation and Paul Ramsay Holdings Pty. Limited
(incorporated by reference to Exhibit 10.123 to the Company's Annual Report on Form 10-K/A for
the year ended June 30, 1998)..................................................................... --
10.124 Amended and Restated Credit Agreement dated as of September 30, 1998 by and among the Company,
the Lenders from time to time party thereto and General Electric Capital Corporation, as
Administrative Agent (incorporated by reference to Exhibit 10.124 to the Company's Annual
Report on Form 10-K/A for the year ended June 30, 1998)........................................... --
10.125 Amended and Restated Subordinated Note Purchase Agreement dated as of September 30, 1998 by and
between the Company and Paul Ramsay Holdings Pty. Limited (incorporated by reference to Exhibit
10.125 to the Company's Annual Report on Form 10-K/A for the year ended June 30, 1998)............ --
10.126 Amendment No. 3 to Rights Agreement dated as of October 15, 1998 between the Company and First
Union National Bank of North Carolina, as Rights Agent (incorporated by reference to
Exhibit 10.126 to the Company's Annual Report on Form 10-K/A for the year ended June 30, 1998).... --
</TABLE>
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10.127 Loan and Security Agreement dated as of October 30, 1998 by and among the Company, certain
subsidiaries of the Company on the signature pages thereto, Fleet Capital Corporation, as a
Lender and as Agent, and the Lenders from time to time party thereto. Pursuant to Reg. S-K,
Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and Exhibits to such
Agreement to the Commission upon request (incorporated by reference to Exhibit 10.127 to the
Company's Annual Report on Form 10-K/A for the year ended June 30, 1998).......................... --
10.128 Subordination Agreement dated October 30, 1998 by and among Holdings Pty., Paul Ramsay
Hospitals Pty. Limited, Ramsay Holdings HSA Limited and Fleet Capital Corporation, as Agent,
and consented to by the Company and certain of its subsidiaries on the signature pages thereto
(incorporated by reference to Exhibit 10.128 to the Company's Annual Report on Form 10-K/A for
the year ended June 30, 1998)..................................................................... --
10.129 Junior Subordinated Loan and Exchange Agreement dated as of October 30, 1998 by and between
Holdings Pty. and the Company (incorporated by reference to Exhibit 10.129 to the Company's
Annual Report on Form 10-K/A for the year ended June 30, 1998).................................... --
10.130 Amended and Restated Exchange Agreement dated as of October 26, 1998 by and between Holdings
Pty. and the Company. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a
copy of the Schedules and Exhibits to such Agreement to the Commission upon request
(incorporated by reference to Exhibit 10.130 to the Company's Annual Report on Form 10-K/A for
the year ended June 30, 1998)..................................................................... --
10.131 First Amendment to Loan and Security Agreement dated as of March 19, 1999 by and among the
Company, certain subsidiaries of the Company on the signature pages thereto, Fleet Capital
Corporation, as a Lender and as Agent for the Lenders, and the Lenders from time to time party
thereto. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request........................... --
10.132 Guaranty dated as of March 19, 1999 by and among The Rader Group, Incorporated, Ramsay Youth
Services Puerto Rico, Inc. in favor of Fleet Capital Corporation, as Lender and Agent for the
Lenders, and the Lenders from time to time party thereto (incorporated by reference to the
Company's Transition Report on Form 10-K for the six months ended December 31, 1998).............. --
10.133 Security Agreement dated as of March 19, 1999 by and among The Rader Group, Incorporated,
Ramsay Youth Services Puerto Rico, Inc. in favor of Fleet Capital Corporation, as Lender and
Agent for the Lenders, and the Lenders from time to time party thereto (incorporated by
reference to the Company's Transition Report on Form 10-K for the six months ended December 31,
1998). Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request........................... --
10.134 Pledge Amendment dated as of March 19, 1999 by the Company in favor of Fleet Capital
Corporation, as Secured Party (incorporated by reference to the Company's Transition Report on
Form 10-K for the six months ended December 31, 1998)............................................. --
10.135 Pledge Agreement dated as of March 19, 1999 by and between Ramsay Educational Services, Inc. in
favor of Fleet Capital Corporation, as Agent for the Lenders (incorporated by reference to the
Company's Transition Report on Form 10-K for the six months ended December 31, 1998).
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and
Exhibits to such Agreement to the Commission upon request......................................... --
</TABLE>
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10.136 First Amendment to Employment Agreement dated December 1, 1998 between the Company and Luis E.
Lamela (incorporated by reference to the Company's Transition Report on Form 10-K for the six
months ended December 31, 1998)................................................................... --
10.137 First Amendment to Employment Agreement dated December 1, 1998 between the Company and Remberto
Cibran (incorporated by reference to the Company's Transition Report on Form 10-K for the six
months ended December 31, 1998)................................................................... --
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 (incorporated by reference to Exhibit 10.138 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)................................ --
10.139 Third Amendment to Loan and Security Agreement dated as of November 28, 1999 by and among the
Company, the subsidiaries of the Company and Fleet Capital Corporation as agent and lender.
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and
Exhibits to such Agreement to the Commission upon request......................................... --
10.140 Fourth Amendment to Loan and Security Agreement dated as of January 25, 2000 by and among the
Company, the subsidiaries of the Company and Fleet Capital Corporation, as agent and lender.
Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the Schedules and
Exhibits to such Agreement to the Commission upon request......................................... --
10.141 Subordinated Note and Warrant Purchase Agreement dated as of January 25, 2000 by and among the
Company, the subsidiaries of the Company as Guarantors and SunTrust Banks, Inc. as the
Purchaser. Pursuant to Reg. S-K, Item 601(b)(2), the Company agrees to furnish a copy of the
Schedules and Exhibits to such Agreement to the Commission upon request........................... --
10.142 Registration Rights Agreement dated as of January 25, 2000 by and between the Company and
SunTrust Banks, Inc............................................................................... --
10.143 Ramsay Youth Services, Inc. 1999 Stock Option Plan................................................ --
11 Computation of Net Income (Loss) Per Share........................................................ --
21 Subsidiaries of the Company....................................................................... --
23 Consent of Ernst & Young LLP...................................................................... --
23.1 Consent of Deloitte & Touche LLP.................................................................. --
27 Financial Data Schedule........................................................................... --
</TABLE>
Copies of exhibits filed with this Annual Report on Form 10-K or incorporated
herein by reference do not accompany copies hereof for distribution to
stockholders of the Company. The Company will furnish a copy of such exhibits to
any stockholder requesting it.
E-19
<PAGE> 1
EXHIBIT 10.139
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Third Amendment to Loan and Security Agreement (this "THIRD
AMENDMENT") is entered into as of the 17th day of November, 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 Third 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
Third 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, the Borrowers have requested certain amendments to the Loan
Agreement; and
WHEREAS, subject to the terms and conditions herein contained, Agent
and Lenders have agreed to the Borrowers' requests.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confessed,
Borrowers, Agent and Lenders hereby agree as follows:
SECTION 1. Subject to the satisfaction of each condition precedent set
forth in SECTION 2 hereof and in reliance on the representations, warranties,
covenants and agreements contained in this Third Amendment, the Loan Agreement
shall be amended effective November 17, 1999 (the "THIRD AMENDMENT EFFECTIVE
DATE") in the manner provided in this SECTION 1:
1.1 AMENDED DEFINITIONS. The definitions of Acquisition Loan Commitment
Termination Date and Pro Forma Quarterly Availability contained in APPENDIX A to
the Loan Agreement shall be amended by deleting those definitions in their
entirety and inserting in their place, respectively, the following definitions:
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<PAGE> 2
ACQUISITION LOAN COMMITMENT TERMINATION DATE - THE EARLIEST OF (I) WITH
RESPECT TO ACQUISITION ADVANCES, NOVEMBER 30, 1999, OR WITH RESPECT TO
BRIDGE LOAN ADVANCES, FEBRUARY 28, 2000, (II) THE DATE OF TERMINATION
OF THE COMMITMENT TO MAKE FURTHER ACQUISITION LOANS PURSUANT TO SECTION
4.2, AND (III) THE DATE OF TERMINATION OF THE COMMITMENT TO MAKE
FURTHER REVOLVING CREDIT LOANS PURSUANT TO SECTION 10.2.
PRO FORMA QUARTERLY AVAILABILITY - FOR ANY FISCAL QUARTER OF HOLDINGS
THE SUM OF (I) THE AVERAGE DAILY BALANCE OF THE AVAILABILITY, MINUS
(II) THE AVERAGE DAILY LC AMOUNT, MINUS (III) 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, PLUS (IV) THE AMOUNT OF THE LIQUIDITY RESERVE AS
CALCULATED BY AGENT PURSUANT TO SECTION 1.1.1(A)(V).
1.2 ADDITIONAL DEFINITIONS. Appendix A to the Loan Agreement shall
be amended to add the following definitions to such Appendix:
ACQUISITION ADVANCES - AS DEFINED IN SECTION 1.2.2.
BRIDGE LOAN ADVANCES - AS DEFINED IN SECTION 1.2.2.
BENCHMARK YOUTH RESIDENTIAL FACILITY - THE FACILITY LOCATED AT 592 WEST
1350 SOUTH STREET, WOODS CROSS, UTAH 84087.
CAPITAL STOCK - ANY AND ALL SHARES, INTERESTS, PARTICIPATIONS OR OTHER
EQUIVALENTS (HOWEVER DESIGNATED) OF CORPORATE STOCK, INCLUDING WITHOUT
LIMITATION, WITH RESPECT TO HOLDINGS, ALL COMMON STOCK.
CHARTER SALE INDEMNIFICATION - THE INDEMNIFICATION CLAIM ASSERTED
AGAINST HOLDINGS BY CHARTER BEHAVIORAL HEALTH SYSTEMS, L.L.C. REGARDING
THE DIFFERENCE BETWEEN ESTIMATED AND ACTUAL WORKING CAPITAL ACQUIRED BY
CHARTER IN THE CHARTER SALE.
CONTINGENT LIABILITIES - THE CHARTER SALE INDEMNIFICATION, THE JENNINGS
LAWSUIT, AND THE RHCL ASSUMED TAX LIABILITY.
DISQUALIFIED STOCK - ANY CAPITAL STOCK WHICH, BY ITS TERMS (OR BY THE
TERMS OF ANY SECURITY INTO WHICH IT IS CONVERTIBLE OR FOR WHICH IT IS
EXCHANGEABLE), OR UPON THE HAPPENING OF ANY EVENT, (I) MATURES OR IS
MANDATORILY REDEEMABLE, PURSUANT TO A SINKING FUND OBLIGATION OR
OTHERWISE, OR IS REDEEMABLE AT THE SOLE OPTION OF THE HOLDER THEREOF,
IN WHOLE OR IN PART, IN ANY CASE, ON OR PRIOR TO THE MATURITY DATE,
(II) PERMITS OR REQUIRES THE PAYMENT OF ANY DIVIDENDS IN CASH PRIOR TO
THE PAYMENT IN FULL OF ALL OF THE OBLIGATIONS AND TERMINATION OF THE
AGREEMENT, OR (III) IS NOT SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF
ALL OF THE OBLIGATIONS AND TERMINATION OF THE AGREEMENT ON TERMS
ACCEPTABLE TO AGENT.
2
<PAGE> 3
JENNINGS LAWSUIT - THE LAWSUIT FILED BY REYNOLD JENNINGS, A FORMER
CHIEF OPERATING OFFICER OF HOLDINGS, AGAINST HOLDINGS FOR DAMAGES
INCLUDING LOST WAGES, SEVERANCE PAYMENTS AND STOCK OPTIONS.
LIQUIDITY EVENT - THE RECEIPT BY HOLDINGS, AFTER THE THIRD AMENDMENT
EFFECTIVE DATE, OF AN AGGREGATE AMOUNT OF AT LEAST $7,000,000.00, PLUS
THE AGGREGATE AMOUNT OF ALL RHCL PAYMENTS, IF ANY, FROM THE OCCURRENCE
OF ANY ONE OR MORE OF THE FOLLOWING EVENTS: (I) THE PLACEMENT OF
SUBORDINATED INDEBTEDNESS ON TERMS AND CONDITIONS SATISFACTORY TO AGENT
IN ITS SOLE AND ABSOLUTE DISCRETION, (II) THE CONSUMMATION OF THAT
CERTAIN SALE/LEASEBACK OF HOLDINGS' BENCHMARK YOUTH RESIDENTIAL
FACILITY, (III) THE CONSUMMATION OF A SALE OF THE MISSION VISTA
FACILITY ON TERMS AND CONDITIONS SATISFACTORY TO AGENT IN ITS SOLE AND
ABSOLUTE DISCRETION, (IV) THE SALE AND ISSUANCE BY HOLDINGS OF ITS
CAPITAL STOCK (OTHER THAN DISQUALIFIED STOCK), AND (V) RHCL RECEIPTS.
RHCL ASSUMED TAX LIABILITY - THE $1,800,000 FEDERAL TAX LIABILITY OF
RHCL ASSUMED BY HOLDINGS AS PART OF THE PURCHASE PRICE OF RHCL IN THE
RHCL STOCK PURCHASE.
RHCL PAYMENTS - ANY AND ALL PAYMENTS MADE BY HOLDINGS OR ANY OF ITS
SUBSIDIARIES, AFTER THE DATE OF THE THIRD AMENDMENT, TO THE STATE OF
LOUISIANA OR ANY AGENCY OR GOVERNMENTAL BODY THEREOF IN CONNECTION WITH
THE LOUISIANA MEDICAID DISPROPORTIONATE SHARE PAYMENTS.
RHCL RECEIPTS - ANY AND ALL PAYMENTS RECEIVED BY HOLDINGS OR ANY OF ITS
SUBSIDIARIES, AFTER THE DATE OF THE THIRD AMENDMENT, FROM THE STATE OF
LOUISIANA OR ANY AGENCY OR GOVERNMENTAL BODY THEREOF IN CONNECTION WITH
THE LOUISIANA MEDICAID DISPROPORTIONATE SHARE PAYMENTS.
RHCL STOCK PURCHASE - AS DEFINED IN THE FIRST RECITAL OF THE SECOND
AMENDMENT TO LOAN AND SECURITY AGREEMENT, CONSENT AND BORROWING BASE
CHANGE NOTICE, DATED AS OF JUNE 30, 1999 BETWEEN HOLDINGS, HOLDINGS
SUBSIDIARIES, AGENT AND LENDER.
SUSPENSION EVENT - THE EXISTENCE OF ANY ONE OR MORE OF THE FOLLOWING:
(I) A DEFAULT OR EVENT OF DEFAULT, (II) AN AGREEMENT BETWEEN BORROWERS,
AGENT AND LENDERS THAT AGENT AND LENDERS SHALL FORBEAR FROM EXERCISING
ANY RIGHTS OR REMEDIES PURSUANT TO THE LOAN DOCUMENTS OR (III) THE
ACCELERATION OF ANY AMOUNTS DUE WITH RESPECT TO THE LOAN DOCUMENTS.
THIRD AMENDMENT - THE THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
AMONG BORROWERS, LENDERS AND AGENT DATED NOVEMBER 17, 1999.
3
<PAGE> 4
THIRD AMENDMENT EFFECTIVE DATE - AS DEFINED IN THE THIRD AMENDMENT.
1.3 AMENDMENT ACKNOWLEDGING ADDITION TO BORROWING BASE RESERVE.
SECTION 1.1.1(A)(V) of the Loan Agreement shall be amended in its entirety to
read as follows:
(V) IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT A RESERVE EQUAL
TO THE SUM OF THREE MILLION AND NO/100 DOLLARS ($3,000,000.00) MINUS
THE AGGREGATE AMOUNT OF ANY BRIDGE LOAN ADVANCES MADE FROM TIME TO TIME
PURSUANT TO SECTION 1.2.2, SHALL BE ESTABLISHED AND MAINTAINED AGAINST
THE AMOUNT OF REVOLVING CREDIT LOANS THAT BORROWERS MAY OTHERWISE
REQUEST UNDER THIS AGREEMENT (THE "LIQUIDITY RESERVE"), WHICH LIQUIDITY
RESERVE SHALL REMAIN IN PLACE UNTIL THE OCCURRENCE OF A LIQUIDITY EVENT
AND THE SETTLEMENT AND SATISFACTION OF ALL CONTINGENT LIABILITIES.
1.4 AMENDMENT TO ACQUISITION LOANS. SECTION 1.2.2 of the Loan
Agreement shall be amended in its entirety to read as follows:
1.2.2 ACQUISITION LOANS. DURING THE PERIOD COMMENCING
MARCH 1, 1999, AND ENDING ON THE DAY PRECEDING THE ACQUISITION LOAN
COMMITMENT TERMINATION DATE WITH RESPECT TO ACQUISITION ADVANCES AND
BRIDGE LOAN ADVANCES, AS THE CASE MAY BE, (THE "ACQUISITION LOAN
PERIOD"), EACH LENDER AGREES, FOR SO LONG AS NO DEFAULT OR EVENT OF
DEFAULT EXISTS, TO MAKE LOANS ("ACQUISITION LOAN(S)") TO BORROWERS (I)
TO FINANCE PERMITTED ACQUISITIONS CONSUMMATED WITHIN THE ACQUISITION
LOAN PERIOD (THE "ACQUISITION ADVANCES") AND (II) FOR WORKING CAPITAL
AND GENERAL CORPORATE PURPOSES (THE "BRIDGE LOAN ADVANCES"); PROVIDED
THAT BRIDGE LOAN ADVANCES SHALL BE MADE IN THE SOLE AND ABSOLUTE
DISCRETION OF AGENT AND THE REQUIRED LENDERS AND, EXCEPT FOR THE
INITIAL BRIDGE LOAN ADVANCE, SUBJECT TO THE RECEIPT BY AGENT OF
EVIDENCE SATISFACTORY TO AGENT AND REQUIRED LENDERS THAT THE PROCEEDS
OF ANY AND ALL PRIOR BRIDGE LOAN ADVANCES WERE USED SOLELY TO SATISFY
CONTINGENT LIABILITIES OR, WITH THE PRIOR WRITTEN APPROVAL OF AGENT,
WHICH SHALL NOT BE UNREASONABLY WITHHELD, THE SATISFACTION OF OTHER
LIABILITIES OF BORROWERS, AS THEY BECOME DUE. THE AGGREGATE AMOUNT OF
ALL BRIDGE LOAN ADVANCES SHALL NOT EXCEED $3,000,000 AND THE AGGREGATE
AMOUNT OF ALL ACQUISITION ADVANCES SHALL NOT EXCEED $500,000 AFTER THE
THIRD AMENDMENT CLOSING DATE. THE AGGREGATE AMOUNT OF THE ACQUISITION
LOANS TO BE MADE BY EACH LENDER (SUCH LENDER'S "ACQUISITION LOAN
COMMITMENT"), PURSUANT TO THE TERMS HEREOF, SHALL BE THE AMOUNT SET
BELOW SUCH LENDER'S NAME ON THE SIGNATURE PAGES OF THE THIRD AMENDMENT
OR IN THE MOST RECENT ASSIGNMENT AND ACCEPTANCE AGREEMENT, IF ANY,
EXECUTED BY SUCH LENDER. THE AGGREGATE PRINCIPAL AMOUNT OF THE
ACQUISITION LOAN COMMITMENTS IS SIX MILLION DOLLARS ($6,000,000). THE
4
<PAGE> 5
ACQUISITION LOAN SHALL BE EVIDENCED BY ONE OR MORE ACQUISITION NOTES TO
BE EXECUTED AND DELIVERED BY BORROWERS TO LENDERS ON THE THIRD
AMENDMENT CLOSING DATE, WHICH SHALL BEAR INTEREST AS SPECIFIED IN
SECTION 2.1 AND SHALL BE REPAYABLE IN ACCORDANCE WITH THE TERMS OF
ACQUISITION NOTES. THE PERCENTAGE EQUAL TO THE QUOTIENT OF (X) EACH
LENDER'S ACQUISITION LOAN COMMITMENT, DIVIDED BY (Y) THE AGGREGATE OF
ALL ACQUISITION LOAN COMMITMENTS, IS THAT LENDER'S "ACQUISITION LOAN
PERCENTAGE." SUBJECT TO ALL OF THE TERMS AND CONDITIONS OF THIS
AGREEMENT, EACH LENDER AGREES, FOR SO LONG AS NO DEFAULT OR EVENT OF
DEFAULT EXISTS, TO MAKE ACQUISITION LOANS TO BORROWERS FROM TIME TO
TIME, AS REQUESTED BY BORROWERS IN ACCORDANCE WITH THE TERMS OF SECTION
3.1, UP TO A MAXIMUM PRINCIPAL AMOUNT AT ANY TIME OUTSTANDING EQUAL TO
THE PRODUCT OF (A) SIX MILLION DOLLARS ($6,000,000), MULTIPLIED BY (B)
SUCH LENDER'S ACQUISITION LOAN PERCENTAGE. AMOUNTS REPAID WITH RESPECT
TO THE ACQUISITION LOANS MAY NOT BE REBORROWED. IN NO EVENT SHALL ANY
ONE REQUEST BY BORROWERS FOR ACQUISITION LOANS BE IN AN AGGREGATE
AMOUNT OF LESS THAN TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000).
1.5 AMENDMENT TO UNUSED LINE FEE. SECTION 2.4 of the Loan
Agreement is hereby amended to read in its entirety as follows:
2.4 UNUSED LINE FEE. BORROWERS, ON A JOINT AND SEVERAL
BASIS, SHALL PAY TO AGENT FOR THE RATABLE BENEFIT OF LENDERS AN UNUSED
LINE FEE EQUAL TO (A) ONE-HALF PERCENT (0.50%) PER ANNUM OF THE AMOUNT
BY WHICH THE AVERAGE MONTHLY REVOLVING CREDIT LOAN BALANCE IS LESS THAN
THE REVOLVING CREDIT LOAN COMMITMENT PLUS (B)(I) DURING THE PERIOD FROM
MARCH 1, 1999, THROUGH OCTOBER 31, 1999, ONE-HALF PERCENT (0.50%) PER
ANNUM OF THE AMOUNT BY WHICH THE AVERAGE MONTHLY ACQUISITION LOAN
BALANCE IS LESS THAN THE ACQUISITION LOAN COMMITMENT, (II) DURING THE
PERIOD FROM NOVEMBER 1, 1999, THROUGH FEBRUARY 28, 2000, ONE-HALF
PERCENT (0.50%) PER ANNUM OF THE AMOUNT BY WHICH THE AVERAGE MONTHLY
ACQUISITION LOAN BALANCE IS LESS THAN $4,240,000. THE UNUSED LINE FEE
SHALL BE PAYABLE MONTHLY IN ARREARS ON THE FIRST DAY OF EACH CALENDAR
MONTH AFTER THE CLOSING DATE.
1.6 AMENDMENT OF MANDATORY PREPAYMENTS. SECTION 3.3 of the Loan
Agreement is hereby amended to read in its entirety as follows:
3.3 MANDATORY PREPAYMENTS.
3.3.1
(A) PROCEEDS OF SALE, LOSS, DESTRUCTION OR
CONDEMNATION OF COLLATERAL. EXCEPT AS PROVIDED IN SECTION
6.4.2, IF ANY BORROWER SELLS ANY OF THE EQUIPMENT, THE
MEADOWLAKE FACILITY, OR ANY OTHER REAL PROPERTY (OTHER THAN
THE MISSION VISTA FACILITY OR THE PERMITTED DISPOSITION OF THE
BENCHMARK YOUTH RESIDENTIAL FACILITY), OR IF A PERMITTED
DISPOSITION OF THE MISSION VISTA FACILITY OR THE BENCHMARK
YOUTH RESIDENTIAL FACILITY IS CONSUMMATED DURING THE
CONTINUANCE OF AN EVENT OF DEFAULT, OR IF ANY OF THE
COLLATERAL IS LOST OR DESTROYED OR TAKEN BY CONDEMNATION,
BORROWERS, ON A JOINT AND SEVERAL BASIS, SHALL PAY TO AGENT
FOR THE RATABLE BENEFIT OF LENDERS, UNLESS OTHERWISE AGREED BY
REQUIRED LENDERS, AS AND WHEN RECEIVED BY SUCH BORROWER AND AS
A MANDATORY PREPAYMENT OF (X) THE ACQUISITION ADVANCES OR (Y)
IF THE ACQUISITION ADVANCES ARE PAID IN FULL, THE TERM LOANS,
A SUM EQUAL TO THE PROCEEDS (INCLUDING INSURANCE PAYMENTS)
RECEIVED BY SUCH BORROWER FROM SUCH SALE, LOSS, DESTRUCTION OR
CONDEMNATION, PROVIDED, THAT IF NO EVENT OF DEFAULT EXISTS
WHEN SUCH PROCEEDS ARE RECEIVED BY SUCH BORROWER, THE AMOUNT
OF SUCH PROCEEDS PAYABLE TO AGENT UNDER THIS SECTION 3.3.1
SHALL BE NET OF (A) ANY REASONABLE COSTS OF SALE OR
DISPOSITION INCURRED BY BORROWERS IN CONNECTION THEREWITH, (B)
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PROVISIONS FOR ANY INCOME TAX EXPENSE REASONABLY EXPECTED TO
BE INCURRED BY BORROWERS AS A RESULT OF SUCH SALE OR
DISPOSITION, AND, (C) CASH ESCROW OR SIMILAR DEPOSITS REQUIRED
TO BE MADE BY SUCH BORROWER FOR THE BENEFIT OF THE PURCHASER
IN SUCH SALE TRANSACTION AS SECURITY FOR POST-CLOSING
CONTINGENT LIABILITIES OF SUCH BORROWER IN ORDER TO ENABLE
SUCH BORROWER TO CONSUMMATE SUCH SALE TRANSACTION (BUT ANY
AMOUNTS RELEASED TO SUCH BORROWER FROM ANY DEPOSIT OF THE TYPE
DESCRIBED IN THE PRECEDING CLAUSE (C) MADE BY SUCH BORROWER
SHALL, UPON RECEIPT BY BORROWER, BE DEEMED PROCEEDS SUBJECT TO
THE PROVISIONS OF THIS SECTION 3.3.1 AND SHALL BE PROMPTLY
PAID OVER TO AGENT FOR APPLICATION IN ACCORDANCE WITH THE
PROVISIONS HEREOF).
ANY SUCH PREPAYMENTS (OTHER THAN PREPAYMENTS RELATING TO A
PERMITTED DISPOSITION OF THE BENCHMARK YOUTH RESIDENTIAL
FACILITY CONSUMMATED IN THE ABSENCE OF AN EVENT OF DEFAULT)
SHALL BE APPLIED RATABLY AMONG LENDERS TO PRINCIPAL
INSTALLMENTS DUE UNDER THE ACQUISITION NOTES OR TERM NOTES, AS
APPLICABLE, IN THE INVERSE ORDER OF MATURITY. NOTWITHSTANDING
THE FOREGOING, UNLESS AN EVENT OF DEFAULT EXISTS AT THE TIME
SUCH PROCEEDS ARE RECEIVED BY BORROWER, UP TO $250,000 OF THE
AGGREGATE AMOUNT OF SUCH NET PROCEEDS RECEIVED BY ALL
BORROWERS DURING ANY PERIOD OF TWELVE CONSECUTIVE MONTHS BY
REASON OF SUCH TRANSACTIONS OR OCCURRENCES, PLUS ADDITIONAL
AMOUNTS SO RECEIVED AND EXPENDED PURSUANT TO AND FOR THE
PURPOSES REFERENCED IN SECTION 6.4.2(II) MAY BE RETAINED BY
BORROWERS AND SHALL NOT BE SUBJECT TO PREPAYMENT UNDER THIS
SECTION 3.3.1.
(B) PERMITTED DISPOSITION OF BENCHMARK YOUTH
RESIDENTIAL FACILITY. IF ANY BORROWER CONSUMMATES A PERMITTED
DISPOSITION OF THE BENCHMARK YOUTH RESIDENTIAL FACILITY IN THE
ABSENCE OF AN EVENT OF DEFAULT, BORROWERS, ON A JOINT AND
SEVERAL BASIS, SHALL PAY TO AGENT FOR THE RATABLE BENEFIT OF
LENDERS, UNLESS OTHERWISE AGREED BY REQUIRED LENDERS, AS AND
WHEN RECEIVED BY SUCH BORROWER, AND AS A MANDATORY PREPAYMENT
OF THE TERM LOANS AND THE REVOLVING CREDIT LOAN, AS
APPLICABLE, A SUM EQUAL TO THE PROCEEDS RECEIVED BY SUCH
BORROWER FROM SUCH PERMITTED DISPOSITION. ANY SUCH PREPAYMENTS
RELATING TO A PERMITTED DISPOSITION OF THE BENCHMARK YOUTH
6
<PAGE> 7
RESIDENTIAL FACILITY CONSUMMATED IN THE ABSENCE OF AN EVENT OF
DEFAULT SHALL (I) BE FIRST APPLIED TO REDUCE THE OUTSTANDING
PRINCIPAL BALANCE OF THE TERM NOTES BY AN AMOUNT EQUAL TO THE
LESSER OF (A) THE AGGREGATE OUTSTANDING PRINCIPAL BALANCE OF
THE TERM NOTES AND (B) $1,900,000, (II) THEREAFTER, BE APPLIED
TO THE OUTSTANDING PRINCIPAL BALANCE OF THE REVOLVING CREDIT
LOANS AND (III) NOT BE SUBJECT TO RETENTION BY BORROWERS OR
ANY OF THEM NOTWITHSTANDING ANY PROVISIONS TO THE CONTRARY SET
FORTH IN THIS SECTION 3.3.1.
(C) PREPAYMENTS RELATING TO THE LIQUIDITY
EVENT. UNTIL SUCH TIME AS ANY OF THE EVENTS DESCRIBED IN
CLAUSES (I) THROUGH (V) OF THE DEFINITION OF LIQUIDITY EVENT
RESULTS IN THE RECEIPT BY BORROWERS OF AT LEAST THE AGGREGATE
NET PROCEEDS REQUIRED FOR A LIQUIDITY EVENT, SO LONG AS NO
SUSPENSION EVENT HAS OCCURRED AND IS CONTINUING AT THE TIME
SUCH EVENT OCCURS, ALL PROCEEDS FROM THE OCCURRENCE OF ANY
SUCH EVENTS SHALL BE APPLIED TO THE OUTSTANDING PRINCIPAL
BALANCE OF THE REVOLVING CREDIT LOANS UNLESS THE APPLICATION
OF SUCH PROCEEDS IS OTHERWISE EXPRESSLY SET FORTH IN THIS
SECTION 3.3.1. UPON THE RECEIPT BY BORROWERS OF THE AGGREGATE
NET PROCEEDS REQUIRED FOR A LIQUIDITY EVENT, BORROWERS MAY,
SUBJECT TO SECTION 3.1 AND PROVIDED THAT NO SUSPENSION EVENT
HAS OCCURRED AND IS CONTINUING AND ALL CONTINGENT LIABILITIES
HAVE BEEN SETTLED AND SATISFIED, REQUEST A REVOLVING CREDIT
LOAN TO MAKE THE PREPAYMENT OF THE BRIDGE LOAN ADVANCES
REQUIRED BY THE ACQUISITION NOTES, AND LENDERS AGREE TO MAKE
SUCH REVOLVING CREDIT LOANS IN ACCORDANCE WITH AND SUBJECT TO
THE TERMS OF THIS AGREEMENT.
IN ADDITION, UNLESS AN EVENT OF DEFAULT EXISTS AT THE TIME OF
SUCH DISPOSITION, THE PROVISIONS OF THIS SECTION 3.3.1 SHALL
NOT BE APPLICABLE TO A DISPOSITION OF THE MISSION VISTA
FACILITY MADE IN ACCORDANCE WITH SECTION 6.3.2. THE PROVISIONS
OF THIS SECTION 3.3.1 SHALL NOT BE APPLICABLE TO A DISPOSITION
OF THE MIDVALE FACILITY MADE IN ACCORDANCE WITH SECTION 6.3.3
OR TO A DISPOSITION OF THE OKLAHOMA LLC INTERESTS MADE IN
ACCORDANCE WITH SECTION 6.3.4.
3.3.2 EXCESS CASH FLOW RECAPTURE. BORROWERS, ON A
JOINT AND SEVERAL BASIS, SHALL PREPAY THE TERM LOAN IN AMOUNTS EQUAL TO
HOLDINGS' EXCESS CASH FLOW WITH RESPECT TO EACH FISCAL YEAR OF HOLDINGS
ENDING ON OR AFTER JUNE 30, 1999, SUCH PREPAYMENTS TO BE MADE WITHIN 2
BUSINESS DAYS FOLLOWING THE DUE DATE FOR DELIVERY BY BORROWERS TO AGENT
AND LENDERS OF THE ANNUAL FINANCIAL STATEMENTS REQUIRED BY SECTION
8.1.3(I) AND EACH SUCH PREPAYMENT SHALL BE APPLIED TO THE INSTALLMENTS
OF PRINCIPAL DUE UNDER THE TERM LOAN IN THE INVERSE ORDER OF THEIR
MATURITIES UNTIL PAYMENT THEREOF IN FULL.
1.7 AMENDMENT TO NEGATIVE COVENANT REGARDING PAYMENT WITH RESPECT
TO RHCL STOCK PURCHASE. SUBSECTION 8.2.19 of the Loan Agreement shall be amended
in its entirety to read as follows:
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<PAGE> 8
8.2.19 LIMITS ON PAYMENT WITH RESPECT TO RHCL STOCK
PURCHASE. HOLDINGS SHALL NOT PAY THE REMAINING BALANCE OF THE $700,000
CASH PURCHASE PRICE, WHICH AMOUNT DOES NOT EXCEED $600,000, WITH
RESPECT TO ITS PURCHASE OF ALL OF THE CAPITAL STOCK OF RAMSAY HOSPITAL
CORPORATION OF LOUISIANA, INC. UNTIL A LIQUIDITY EVENT HAS OCCURRED AND
ALL CONTINGENT LIABILITIES HAVE BEEN SETTLED AND SATISFIED.
1.8 ADDITION OF NEGATIVE COVENANT REGARDING USE OF PROCEEDS OF
BRIDGE LOAN ADVANCES. SECTION 8.2 of the Loan Agreement shall be amended by
inserting a new SUBSECTION 8.2.20 as follows:
8.2.20 LIMIT ON USE OF PROCEEDS OF BRIDGE LOAN ADVANCES. USE
THE PROCEEDS OF ANY BRIDGE LOAN ADVANCE FOR ANY PURPOSE OTHER THAN TO
SATISFY CONTINGENT LIABILITIES OR, WITH THE PRIOR WRITTEN APPROVAL OF
AGENT, WHICH SHALL NOT BE UNREASONABLY WITHHELD, THE SATISFACTION OF
OTHER LIABILITIES OF BORROWERS, AS THEY BECOME DUE.
1.9 ADDITION OF NEGATIVE COVENANT REGARDING SETTLEMENT OF
CONTINGENT LIABILITIES. SECTION 8.2 of the Loan Agreement shall be amended by
inserting a new SUBSECTION 8.2.21 as follows:
8.2.21 LIMIT ON SETTLEMENT OF CONTINGENT LIABILITIES.
OBLIGATE BORROWERS OR ANY ONE OF THEM TO MAKE PAYMENTS WITH RESPECT TO
THE SETTLEMENT OF ANY OF THE CONTINGENT LIABILITIES IN AN AMOUNT OR
AMOUNTS THE PAYMENT OF WHICH WOULD CAUSE EITHER (I) THE AGGREGATE OF
PAYMENTS IN SETTLEMENT OF THE CONTINGENT LIABILITIES MADE ON OR AFTER
THE THIRD AMENDMENT EFFECTIVE DATE TO EXCEED $3,100,000 (TOGETHER WITH
ANY STATUTORY INTEREST OR PENALTIES, IF ANY, IN RESPECT OF THE RHCL
ASSUMED TAX LIABILITY, WHICH ARE DEEMED BY AGENT, PRIOR TO THE PAYMENT
THEREOF, NOT TO BE MATERIAL IN AGENT'S REASONABLE CREDIT JUDGMENT) OR
(II) A MATERIAL ADVERSE EFFECT UPON ANY BORROWER.
1.10 AMENDMENT TO SPECIFIC FINANCIAL COVENANT REGARDING PRO FORMA
QUARTERLY AVAILABILITY. SUBSECTION 8.3.4 of the Loan Agreement shall be amended
in its entirety to read as follows:
8.3.4 PRO FORMA AVAILABILITY COVENANT. PERMIT, AT ANY TIME,
PRO FORMA QUARTERLY AVAILABILITY TO BE LESS THAN THE LIQUIDITY RESERVE.
1.11 NOTICES. Subsections (A) and (B) of SECTION 12.8 of the Loan
Agreement shall be amended in its entirety to read as follows:
(A) IF TO AGENT PRIOR TO
NOVEMBER 19, 1999: FLEET CAPITAL CORPORATION
2711 N. HASKELL AVENUE, SUITE 2100
DALLAS, TEXAS 75204
8
<PAGE> 9
ATTENTION: LOAN ADMINISTRATION MANAGER
FACSIMILE NO.: (214) 828-6530
IF TO AGENT AFTER
NOVEMBER 19, 1999: FLEET CAPITAL CORPORATION
5950 SHERRY LANE, SUITE 300
DALLAS, TEXAS 75225
FACSIMILE NO.: (214) 706-7066
(B) IF TO ANY BORROWER: RAMSAY YOUTH SERVICES, INC.
ONE ALHAMBRA PLAZA, SUITE 750
CORAL GABLES, FLORIDA 33134
ATTENTION: CHIEF FINANCIAL OFFICER
FACSIMILE NO.: (305) 569-4647
WITH A COPY TO: TORY HAYTHE
237 PARK AVENUE
NEW YORK, NEW YORK 10017
ATTENTION: BRADLEY P. COST
FACSIMILE NO.: (212) 682-0200
AND A COPY TO: PAUL RAMSAY HOLDINGS PTY. LIMITED
154 PACIFIC HIGHWAY, 9TH FLOOR
ST. LEONARDS, NSW 2065
AUSTRALIA
ATTENTION: PETER J. EVANS
FACSIMILE NO.: 011-612-94-333-460
1.12 AMENDMENT OF ACQUISITION NOTE FORM. EXHIBIT A-2 attached
hereto as Annex I to this Third Amendment hereby replaces in its entirety
EXHIBIT A-2 attached to the Loan Agreement.
SECTION 2. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENTS. The
amendments to the Loan Agreement contained in SECTION 1 of this Third Amendment
shall be effective only upon the satisfaction of each of the conditions set
forth in this SECTION 2. If each condition set forth in this SECTION 2 has not
been satisfied by November 30, 1999, this Third Amendment and all obligations of
Lenders contained herein shall, at the option of Lenders, terminate.
2.1 DOCUMENTATION. Agent and Lenders shall have received, in form
and substance acceptable to Agent and Lenders and their counsel a duly executed
copy of this Third Amendment, and 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.
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2.2 ACQUISITION NOTES. Borrowers shall have executed and delivered
an amended and restated Acquisition Note in the stated principal amount of
$6,000,000 to restate in its entirety the outstanding Acquisition Note executed
on the Closing Date.
2.3 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 Third Amendment.
2.4 NO DEFAULT. No Default or Event of Default shall exist.
2.5 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 Third Amendment, the Agreement or the consummation of the
transactions contemplated hereby.
2.6 PERFECTION OF LIENS IN COLLATERAL. Agent and Lenders shall
have received such financing statements on Form UCC-1 or Form UCC-3 (or any
other form required by Agent and Lenders) as Agent and Lenders shall require
which shall be duly executed and delivered by the appropriate Loan Party.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BORROWERS. To induce Agent
and Lenders to enter into this Third Amendment, each Borrower hereby represents
and warrants to Agent and Lenders as follows:
3.1 AMOUNT REQUIRED TO SETTLE CONTINGENT LIABILITIES. The
aggregate amount of remaining payments required to fully and finally settle all
Contingent Liabilities is not expected to exceed $3,100,000.
3.2 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.
3.3 CORPORATE AUTHORITY; NO CONFLICTS. The execution, delivery and
performance by each Borrower of this Third 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.
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3.4 ENFORCEABILITY. This Third 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.
3.5 NO DEFENSES. No Loan Party has any defenses to payment,
counterclaims or rights of set off with respect to the Obligations.
SECTION 4. MISCELLANEOUS.
4.1 REAFFIRMATION OF LOAN DOCUMENTS; EXTENSION OF LIENS. Any and
all of the terms and provisions of the Loan Agreement and the Loan Documents
shall, except as amended and modified hereby, remain in full force and effect.
Borrowers hereby extend the Liens securing the Obligations until the Obligations
have been paid in full, and agree that the amendments and modifications herein
contained shall in no manner affect or impair the Obligations or the Liens
securing the payment and performance thereof.
4.2 PARTIES IN INTEREST. All of the terms and provisions of this
Third Amendment shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
4.3 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 Third Amendment and all
related documents.
4.4 COUNTERPARTS. This Third Amendment may be executed in
counterparts, and all parties need not execute the same counterpart. However, no
party shall be bound by this Third Amendment until all parties have executed a
counterpart. Facsimiles shall be effective as originals.
4.5 COMPLETE AGREEMENT. THIS THIRD 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.
4.6 HEADINGS. The headings, captions and arrangements used in this
Third Amendment are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify or modify the terms of this Third Amendment, nor
affect the meaning thereof.
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( Signature Pages Follow )
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IN WITNESS WHEREOF, the parties hereto have caused this Third 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:/s/ Marcio Cabrera
------------------------------
Marcio Cabrera
Executive Vice President
H. C. PARTNERSHIP
By: H.C. CORPORATION, General Partner
By: HSA HILL CREST CORPORATION, General Partner
By:/s/ Marcio Cabrera
------------------------------
Marcio Cabrera
Executive Vice President
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CONSENT AND REAFFIRMATION
Each of the undersigned (each a "GUARANTOR") hereby (i) acknowledges
receipt of a copy of the foregoing Third Amendment to Loan and Security
Agreement (the "THIRD 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 Third Amendment.
GUARANTORS:
THE RADER GROUP, INCORPORATED,
a Florida corporation
By:/s/ Marcio Cabrera
------------------------------
Marcio Cabrera
Executive Vice President
RAMSAY YOUTH SERVICES PUERTO RICO, INC.,
a Puerto Rico corporation
By:/s/ Marcio Cabrera
------------------------------
Marcio Cabrera
Executive Vice President
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Accepted in Dallas, Texas:
Acquisition Loan Commitment: FLEET CAPITAL CORPORATION
$6,000,000 ("Agent" and "Lender")
By: /s/ Dennis M. Hansen
--------------------------------
Name: Dennis M. Hansen
Title: Senior Vice President
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ANNEX I TO THIRD AMENDMENT
EXHIBIT A-2
SECURED PROMISSORY NOTE
(Acquisition Note)
$------------- --------------, ----
-----------, -------
FOR VALUE RECEIVED, each of the undersigned, jointly and severally,
(hereinafter collectively referred to as "BORROWERS", and each individually, a
"BORROWER"), hereby promise (as hereinafter defined) with respect to the
Acquisition Loan to pay to the order of , a corporation
(hereinafter "Lender"), or its registered assigns at the office of Fleet Capital
Corporation, as agent for such Lender, or at such other place in the United
States of America as the holder of this Note may designate from time to time in
writing, in lawful money of the United States, in immediately available funds,
at the time of payment, the principal sum of Dollars ($ ), or
such lesser principal amount as may be outstanding pursuant to the Loan
Agreement together with interest from and after the date hereof on the unpaid
principal balance outstanding from time to time.
This Secured Promissory Note (the "Note") is one of the Acquisition
Notes referred to in, and is issued pursuant to, that certain Loan and Security
Agreement dated as of October 30, 1998 by and among Borrowers, the lenders
signatories thereto (including Lender) and Fleet Capital Corporation ("FCC") as
Agent for said lenders (FCC in such capacity "Agent") (as amended from time to
time, the "Loan Agreement"), and is entitled to all of the benefits and security
of the Loan Agreement. All of the terms, covenants and conditions of the Loan
Agreement and the Security Documents are hereby made a part of this Note and are
deemed incorporated herein in full. All capitalized terms used herein, unless
otherwise specifically defined in this Note, shall have the meanings ascribed to
them in the Loan Agreement.
For so long as no Event of Default shall have occurred and be
continuing the principal amount and accrued interest of this Note shall be due
and payable on the dates and in the manner hereinafter set forth:
(a) Interest on the unpaid principal balance outstanding from time to
time shall be paid at such interest rates and at such times as are
specified in the Loan Agreement;
(b) Principal shall be due and payable monthly commencing on December
1, 1999, and continuing on the first day of each month thereafter to and
including the first day of the month in which the Commitment Termination
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Date occurs, in installments equal to the aggregate outstanding principal
balance of all Acquisition Advances made by Lender prior to December 1,
1999 DIVIDED BY 48; and
(c) The entire remaining principal amount then outstanding, together
with any and all other amounts due hereunder, shall be due and payable on
the Commitment Termination Date.
In addition to the foregoing, immediately upon the receipt by any
Borrower or any of their Subsidiaries of the amount necessary to constitute the
Liquidity Event and provided that no Suspension Event shall have occurred and be
continuing and all Contingent Liabilities have been settled and satisfied,
Borrower shall prepay this Acquisition Note in an amount equal to the aggregate
amount of all Bridge Loan Advances made to Borrowers plus all accrued but unpaid
interest on the Bridge Loan Advances as of the date of such prepayment. All such
prepayments shall first be applied to the accrued but unpaid interest on the
Bridge Loan Advances and then in payment of the outstanding principal balance of
the Bridge Loan Advances in the inverse order of maturity.
Notwithstanding the foregoing, the entire unpaid principal balance of
and accrued interest on this Note shall be due and payable immediately upon any
termination of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to mandatory prepayment in accordance with
the provisions of Section 3.3 of the Loan Agreement. Borrowers may also prepay
this Note in the manner provided in Section 4 of the Loan Agreement.
Upon the occurrence, and during the continuation, of an Event of
Default, this Note shall or may, as provided in the Loan Agreement, and become
or be declared immediately due and payable.
The right to receive principal of, and stated interest on, this Note
may only be transferred in accordance with the provisions of the Loan Agreement.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by each Borrower.
This Note is issued in substitution for and replacement of, but not in
payment of the Secured Promissory Note of Borrowers dated October 30, 1998,
payable to the order of Lender in the original principal amount of
$6,000,000.00.
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This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas.
RAMSAY HEALTH CARE, INC.
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: __________________________________
Name: __________________________________
Its: __________________________________
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EXHIBIT 10.140
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Fourth Amendment to Loan and Security Agreement (this "FOURTH
AMENDMENT") is entered into as of the 25th day of January, 2000, 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 Fourth 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 5950 Sherry Lane, Suite 300,
Dallas, Texas 75225, 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 Fourth
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, the Borrowers have requested certain amendments to the Loan
Agreement to (i) permit Holdings to incur certain subordinated debt in favor of
SunTrust Banks, Inc., a Georgia corporation ("SUNTRUST"), in an aggregate
principal amount of $5,000,000, to be evidenced by a certain Subordinated Note
and Warrant Purchase Agreement by and between SunTrust and Holdings (the
"SUNTRUST PURCHASE AGREEMENT") and one or more Subordinated Notes (the "SUNTRUST
SUBORDINATED NOTES"), and (ii) permit SunTrust to purchase certain Warrants (the
"SUNTRUST WARRANTS") convertible, under certain circumstances, into capital
stock of Holdings, pursuant to that certain Warrant Agreement by and between
SunTrust and Holdings (the "SUNTRUST WARRANT AGREEMENT"; together with the
SunTrust Purchase Agreement, SunTrust Subordinated Notes, SunTrust Warrants,
that certain Registration Rights Agreement by and between SunTrust and Holdings
of even date herewith ("SUNTRUST REGISTRATION AGREEMENT") and all other
instruments, documents and agreements executed by or on behalf of any Loan Party
in connection therewith, collectively, the "SUNTRUST SUBORDINATED DEBT
DOCUMENTS"); and
WHEREAS, subject to the terms and conditions herein contained, Agent
and Lenders have agreed to the Borrowers' requests.
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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 2 hereof and in reliance on the representations, warranties,
covenants and agreements contained in this Fourth Amendment, the Loan Agreement
shall be amended effective January 25, 2000 (the "FOURTH AMENDMENT EFFECTIVE
DATE") in the manner provided in this SECTION 1:
1.1 AMENDED DEFINITIONS. The following definitions contained in
APPENDIX A to the Loan Agreement shall be amended to read in their entirety as
follows:
SUBORDINATED DEBT - (I) ALL INDEBTEDNESS EVIDENCED BY THE SUNTRUST
SUBORDINATED DEBT DOCUMENTS, (II) ALL INDEBTEDNESS WITH RESPECT TO THE
PREFERRED STOCK, AND (III) ALL OTHER INDEBTEDNESS OF ANY BORROWER THAT
IS SUBORDINATED TO THE OBLIGATIONS IN A MANNER SATISFACTORY TO AGENT.
SUBORDINATION AGREEMENT - THE JUNIOR SUBORDINATED DEBT SUBORDINATION
AGREEMENT OR THE SUNTRUST SUBORDINATION AGREEMENT, AS THE CASE MAY BE.
1.2 ADDITIONAL DEFINITIONS. Appendix A to the Loan Agreement shall
be amended to add the following definitions to such Appendix:
FOURTH AMENDMENT - THE FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AMONG BORROWERS, LENDERS AND AGENT DATED JANUARY 25, 2000.
FOURTH AMENDMENT EFFECTIVE DATE - AS DEFINED IN THE FOURTH AMENDMENT.
JUNIOR SUBORDINATED DEBT SUBORDINATION AGREEMENT - SUBORDINATION
AGREEMENT DATED ON OR ABOUT THE CLOSING DATE BETWEEN AGENT AND ONE OR
MORE HOLDERS OF THE JUNIOR SUBORDINATED DEBT AND PREFERRED STOCK, AS
THE SAME MAY BE AMENDED OR MODIFIED FROM TIME TO TIME.
SUNTRUST - SUNTRUST BANKS, INC., A GEORGIA CORPORATION.
SUNTRUST REGISTRATION AGREEMENT - THAT CERTAIN REGISTRATION RIGHTS
AGREEMENT, DATED AS OF THE FOURTH AMENDMENT EFFECTIVE DATE BETWEEN
HOLDINGS AND SUNTRUST IN ITS CAPACITY AS A HOLDER OF THE SUNTRUST
WARRANTS, TOGETHER WITH ALL AMENDMENTS AND MODIFICATIONS THERETO.
SUNTRUST SUBORDINATED DEBT - THE SUBORDINATED INDEBTEDNESS EVIDENCED BY
THE SUNTRUST SUBORDINATED DEBT DOCUMENTS.
SUNTRUST SUBORDINATED DEBT DOCUMENTS - THE SUNTRUST SUBORDINATED LOAN
AGREEMENT, THE SUNTRUST SUBORDINATED NOTES, THE SUNTRUST WARRANT
AGREEMENT, THE SUNTRUST REGISTRATION AGREEMENT, THE SUNTRUST WARRANTS,
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AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED BY OR ON
BEHALF OF ANY LOAN PARTY AND DELIVERED CONCURRENTLY THEREWITH OR AT ANY
TIME HEREAFTER TO OR FOR THE BENEFIT OF THE HOLDERS OF THE SUNTRUST
SUBORDINATED NOTES OR THE HOLDERS OF THE SUNTRUST WARRANTS, OR ANY
AGENT OR REPRESENTATIVE THEREOF IN CONNECTION WITH THE SUNTRUST
SUBORDINATED DEBT AND OTHER TRANSACTIONS CONTEMPLATED BY THE SUNTRUST
SUBORDINATED LOAN AGREEMENT, ALL AS AMENDED, SUPPLEMENTED OR MODIFIED
FROM TIME TO TIME AS PERMITTED UNDER THE LOAN AGREEMENT; BUT EXCLUDING
ALL LOAN DOCUMENTS.
SUNTRUST PURCHASE AGREEMENT - THAT CERTAIN SUBORDINATED NOTE AND
WARRANT PURCHASE AGREEMENT DATED ON OR ABOUT THE FOURTH AMENDMENT
EFFECTIVE DATE, BY AND BETWEEN SUNTRUST AND HOLDINGS.
SUNTRUST SUBORDINATED NOTE - COLLECTIVELY, THAT CERTAIN SUBORDINATED
NOTE DUE JANUARY 25, 2007, EXECUTED BY HOLDINGS, AS MAKER, ON OR ABOUT
THE FOURTH AMENDMENT EFFECTIVE DATE, AND BEARING INTEREST AT AN INITIAL
FIXED RATE OF TWELVE AND ONE-HALF PERCENT (12 1/2%) PER ANNUM, AND
PAYABLE TO THE ORDER OF SUNTRuST BANKS, INC., IN THE AGGREGATE ORIGINAL
PRINCIPAL AMOUNT OF $5,000,000.
SUNTRUST SUBORDINATION AGREEMENT - THAT CERTAIN SUBORDINATION AGREEMENT
DATED ON OR ABOUT THE FOURTH AMENDMENT EFFECTIVE DATE, BY AND BETWEEN
AGENT AND SUNTRUST, AS THE SAME MAY BE AMENDED OR MODIFIED FROM TIME TO
TIME.
SUNTRUST WARRANT AGREEMENT - THAT CERTAIN WARRANT AGREEMENT, DATED AS
OF THE FOURTH AMENDMENT EFFECTIVE DATE, BETWEEN HOLDINGS AND SUNTRUST
IN ITS CAPACITY AS A HOLDER OF THE SUNTRUST WARRANTS, TOGETHER WITH ALL
AMENDMENTS AND MODIFICATIONS THERETO.
SUNTRUST WARRANTS - THAT (THOSE) CERTAIN WARRANT(S), CONVERTIBLE, UNDER
CERTAIN CIRCUMSTANCES, INTO CAPITAL STOCK OF HOLDINGS, ACQUIRED BY
SUNTRUST PURSUANT TO THAT CERTAIN WARRANT AGREEMENT, DATED ON OR ABOUT
THE FOURTH AMENDMENT EFFECTIVE DATE, BY AND BETWEEN SUNTRUST AND
HOLDINGS, AS MORE FULLY DESCRIBED THEREIN.
1.3 AMENDMENT TO TOTAL INDEBTEDNESS. SECTION 8.2.3 of the Loan
Agreement is hereby amended to read in its entirety as follows:
8.2.3 TOTAL INDEBTEDNESS. CREATE, INCUR, ASSUME, OR SUFFER
TO EXIST, OR PERMIT ANY OF THEIR RESPECTIVE SUBSIDIARIES TO CREATE, INCUR OR
SUFFER TO EXIST, ANY INDEBTEDNESS, EXCEPT:
(I) OBLIGATIONS OWING TO AGENT AND LENDERS;
(II) THE SUNTRUST SUBORDINATED DEBT AND
INDEBTEDNESS, IF ANY, RELATING TO THE PREFERRED STOCK;
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(III) INDEBTEDNESS OF A LOAN PARTY OR A SUBSIDIARY
IF AND TO THE EXTENT PERMITTED BY SECTION 8.2.2;
(IV) ACCOUNTS PAYABLE TO TRADE CREDITORS AND
CURRENT OPERATING EXPENSES(OTHER THAN FOR MONEY BORROWED)
NINETY PERCENT (90%) OF WHICH ARE AGED NOT MORE THAN 45 DAYS
FROM THE DUE DATE, OR, IF AGED OUTSIDE OF THE PRECEDING
PARAMETERS, THAT ARE BEING PROPERLY CONTESTED, BUT IN EACH
CASE INITIALLY INCURRED IN THE ORDINARY COURSE OF BUSINESS AND
EITHER PAID WITHIN SUCH TIME PERIOD OR, IF BEING PROPERLY
CONTESTED AT THE TIME AND IN THE MANNER CONTEMPLATED IN THE
DEFINITION OF THE TERM "PROPERLY CONTESTED";
(V) OBLIGATIONS TO PAY RENTALS PERMITTED BY
SECTION 8.2.16;
(VI) PERMITTED PURCHASE MONEY INDEBTEDNESS;
(VII) CONTINGENT LIABILITIES ARISING OUT OF
ENDORSEMENTS OF CHECKS AND OTHER NEGOTIABLE INSTRUMENTS FOR
DEPOSIT OR COLLECTION IN THE ORDINARY COURSE OF BUSINESS;
(VIII) CAPITALIZED LEASE OBLIGATIONS TO THE EXTENT
THE UNDERLYING CAPITAL LEASE IS PERMITTED BY THE TERMS OF
SECTION 8.2.9;
(IX) INDEBTEDNESS IN RESPECT TO DEFERRED TAXES;
(X) INDEBTEDNESS EXISTING ON THE CLOSING DATE
AND DESCRIBED IN EXHIBIT T ATTACHED HERETO; AND
(XI) INDEBTEDNESS NOT INCLUDED IN PARAGRAPHS (I)
THROUGH (X) ABOVE WHICH BY ITS TERMS IS UNSECURED AND DOES NOT
EXCEED AT ANY TIME, IN THE AGGREGATE, THE SUM OF FIVE HUNDRED
THOUSAND DOLLARS ($500,000).
1.4 AMENDMENT TO DISTRIBUTIONS. SECTION 8.2.8 of the Loan
Agreement is hereby amended to read in its entirety as follows:
8.2.8 DISTRIBUTIONS. DECLARE OR MAKE, OR PERMIT ANY OF
THEIR RESPECTIVE SUBSIDIARIES TO DECLARE OR MAKE, ANY DISTRIBUTIONS (INCLUDING,
WITHOUT LIMITATION, THE REDEMPTION OF ANY SUNTRUST WARRANT OR ANY OTHER
OUTSTANDING OPTION TO PURCHASE, OR WARRANT TO SUBSCRIBE FOR, ANY SHARES OF THE
CAPITAL STOCK OF ANY LOAN PARTY) EXCEPT THAT SO LONG AS NO DEFAULT OR EVENT OF
DEFAULT EXISTS, (A) ANY SUBSIDIARY OF ANY LOAN PARTY MAY MAKE DISTRIBUTIONS TO
ANY LOAN PARTY, (B) ANY LOAN PARTY MAY MAKE DISTRIBUTIONS TO ANY OTHER LOAN
PARTY, AND (C) HOLDINGS MAY PAY REGULARLY SCHEDULED DISTRIBUTIONS ON THE
PREFERRED STOCK, BUT ONLY IF AND TO THE EXTENT PERMITTED UNDER THE JUNIOR
SUBORDINATED DEBT SUBORDINATION AGREEMENT.
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1.5 AMENDMENT TO PREFERRED STOCK LIMITATIONS. SECTION 8.2.18 of
the Loan Agreement is hereby amended to read in its entirety as follows:
8.2.18 LIMITS ON PREFERRED STOCK. ISSUE ANY ADDITIONAL
SHARES OF PREFERRED STOCK, UNLESS ANY LIABILITIES OR OBLIGATIONS WITH RESPECT
THERETO ARE SUBORDINATED TO THE OBLIGATIONS IN THE MANNER SET FORTH IN THE
JUNIOR SUBORDINATED DEBT SUBORDINATION AGREEMENT OR OTHERWISE IN A MANNER
SATISFACTORY TO AGENT.
1.6 AMENDMENT TO TOTAL INDEBTEDNESS TO EBITDA. SECTION 8.3.3 of
the Loan Agreement shall be amended in its entirety to read as follows:
8.3.3 TOTAL INDEBTEDNESS TO EBITDA. AS OF THE LAST DAY OF
EACH FISCAL QUARTER SET FORTH BELOW (THE "CALCULATION DATE"), A RATIO OF (I)
HOLDINGS' TOTAL INDEBTEDNESS ON SUCH CALCULATION DATE, TO (II) HOLDINGS' EBITDA
FOR THE TWELVE CALENDAR MONTH PERIOD ENDING ON SUCH CALCULATION DATE, OF NOT
GREATER THAN THE RATIO SET FORTH BELOW ON THE CALCULATION DATE CORRESPONDING
THERETO:
CALCULATION DATE RATIO
---------------- -----
(I) DECEMBER 31, 1998 (I) 6.00 TO 1.0
(II) MARCH 31, 1999 (II) 6.00 TO 1.0
(III) JUNE 30, 1999 (III) 4.00 TO 1.0
(IV) SEPTEMBER 30, 1999 (IV) 4.00 TO 1.0
(V) DECEMBER 31, 1999 (V) 3.50 TO 1.0
(VI) MARCH 31, 2000 (VI) 3.50 TO 1.0
(VII) JUNE 30, 2000 (VII) 3.50 TO 1.0
(VIII) SEPTEMBER 30, 2000 (VIII) 3.50 TO 1.0
(IX) DECEMBER 31, 2000 (IX) 3.50 TO 1.0
(X) MARCH 31, 2001 (X) 3.50 TO 1.0
(XI) JUNE 30, 2001 (XI) 3.50 TO 1.0
(XII) SEPTEMBER 30, 2001 (XII) 3.00 TO 1.0
AND ON THE LAST DAY OF
EACH THEREAFTER OCCURRING
FISCAL QUARTER;
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PROVIDED, HOWEVER, THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED
HEREIN, (A) HOLDINGS' EBITDA FOR PURPOSES OF THE DECEMBER 31, 1998 CALCULATION
DATE SHALL BE THE AMOUNT EQUAL TO (I) HOLDINGS' EBITDA FOR THE THREE MONTHS
ENDING DECEMBER 31, 1998, MULTIPLIED BY (II) FOUR; (B) HOLDINGS' EBITDA FOR
PURPOSES OF THE MARCH 31, 1999 CALCULATION DATE SHALL BE THE AMOUNT EQUAL TO (I)
HOLDINGS' EBITDA FOR THE SIX MONTHS ENDING MARCH 31, 1999, MULTIPLIED BY (II)
TWO; AND (C) HOLDINGS' EBITDA FOR PURPOSES OF THE JUNE 30, 1999 CALCULATION DATE
SHALL BE THE AMOUNT EQUAL TO (I) HOLDINGS' EBITDA FOR THE NINE MONTHS ENDING
JUNE 30, 1999, MULTIPLIED BY (II) FOUR, AND DIVIDED BY (III) THREE.
1.7 AMENDMENT TO OTHER DEFAULTS. Section 10.1.6 is hereby amended
in its entirety to read as follows:
10.1.6 OTHER DEFAULTS. (A) THERE SHALL OCCUR ANY DEFAULT OR
EVENT OF DEFAULT ON THE PART OF ANY LOAN PARTY UNDER ANY AGREEMENT, DOCUMENT OR
INSTRUMENT TO WHICH LOAN PARTY IS A PARTY OR BY WHICH ANY LOAN PARTY OR ANY
PROPERTY OF ANY LOAN PARTY IS BOUND, CREATING OR RELATING TO ANY INDEBTEDNESS IN
EXCESS OF $250,000 (OTHER THAN THE OBLIGATIONS AND THE SUNTRUST SUBORDINATED
DEBT, BUT INCLUDING THE SUBORDINATED DEBT OTHER THAN THE SUNTRUST SUBORDINATED
DEBT) IF THE PAYMENT OR MATURITY OF SUCH INDEBTEDNESS IS OR COULD BE ACCELERATED
IN CONSEQUENCE OF SUCH EVENT OF DEFAULT OR IF DEMAND FOR PAYMENT OF SUCH
INDEBTEDNESS IS MADE BY THE HOLDER OR HOLDERS THEREOF, OR (B) THERE SHALL OCCUR
ANY DEFAULT OR EVENT OF DEFAULT ON THE PART OF ANY LOAN PARTY UNDER ANY OF THE
SUNTRUST SUBORDINATED DEBT DOCUMENTS IF THE PAYMENT OR MATURITY OF SUCH
INDEBTEDNESS IS OR COULD BE ACCELERATED IN CONSEQUENCE OF SUCH DEFAULT OR EVENT
OF DEFAULT OR IF DEMAND FOR PAYMENT OF SUCH INDEBTEDNESS IS MADE BY THE HOLDER
OR HOLDERS THEREOF.
1.8 AMENDMENT TO OTHER REMEDIES. The first sentence of SECTION
10.3 is hereby amended in its entirety to read as follows:
10.3 OTHER REMEDIES. AFTER THE OCCURRENCE, AND DURING THE
CONTINUATION OF AN EVENT OF DEFAULT, AGENT ON BEHALF OF LENDERS MAY, AND AT THE
REQUEST OF REQUIRED LENDERS SHALL, EXERCISE FROM TIME TO TIME THE FOLLOWING
RIGHTS AND REMEDIES:
1.9 AMENDMENT TO NOTICE PROVISION. SECTION 12.8 is hereby amended
by replacing the address for Agent with the following:
FLEET CAPITAL CORPORATION
5950 SHERRY LANE
SUITE 300
DALLAS, TEXAS 75225
ATTENTION: LOAN ADMINISTRATION MANAGER
FACSIMILE NO.: (214) 706-7066
1.10 AMENDMENT TO EXHIBITS. Exhibit E to the Loan Agreement shall
be amended in its entirety by substituting the attached Exhibit E.
6
<PAGE> 7
1.11 CONSENT TO ASSIGNMENT TO SUNTRUST. By their execution hereof,
Holdings and Agent hereby consent to the sale and assignment, on or about the
date hereof, to SunTrust of an aggregate amount of Revolving Loan and Term Loan
Commitments aggregating $2,500,000.
SECTION 2. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AMENDMENTS. The
amendments to the Loan Agreement contained in SECTION 1 of this Fourth Amendment
shall be effective only upon the satisfaction of each of the conditions set
forth in this SECTION 2. If each condition set forth in this SECTION 2 has not
been satisfied by January 25, 2000, this Fourth Amendment and all obligations of
Lenders contained herein shall, at the option of Lenders, terminate.
2.1 DOCUMENTATION. Agent and Lenders shall have received, in form
and substance acceptable to Agent and Lenders and their counsel a duly executed
copy of this Fourth Amendment, copies of the SunTrust Subordinated Debt
Documents, and 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.
2.2 SUNTRUST SUBORDINATION AGREEMENT. SunTrust shall have executed
and delivered, and each Loan Party shall have acknowledged, the SunTrust
Subordination Agreement expressly subordinating the obligations of the Loan
Parties under the SunTrust Subordinated Debt Documents to the Obligations, in
form and substance satisfactory to Agent and Lenders and their counsel.
2.3 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 Loan Party of this Fourth Amendment.
2.4 NO DEFAULT. No Default or Event of Default shall exist.
2.5 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 Fourth Amendment, the Loan Agreement or the consummation of the
transactions contemplated hereby.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BORROWERS. To induce Agent
and Lenders to enter into this Fourth Amendment, each Borrower hereby represents
and warrants to Agent and Lenders as follows:
3.1 REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each
representation and warranty of any Loan Party contained in the Loan Agreement
and the other Loan Documents, as amended hereby, is true and correct on the date
7
<PAGE> 8
hereof and will be true and correct after giving effect to the amendments set
forth in SECTION 1 hereof.
3.2 NO OUTSTANDING JUNIOR SUBORDINATED DEBT OR PREFERRED STOCK. As
of the date hereof, there is no outstanding Indebtedness with respect to the
Junior Subordinated Debt Documents and no Preferred Stock is outstanding.
3.3 CORPORATE AUTHORITY; NO CONFLICTS. The execution, delivery and
performance by each Borrower of this Fourth 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.
3.4 ENFORCEABILITY. This Fourth 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.
3.5 NO DEFENSES. No Loan Party has any defenses to payment,
counterclaims or rights of set off with respect to the Obligations.
SECTION 4. MISCELLANEOUS.
4.1 REAFFIRMATION OF LOAN DOCUMENTS; EXTENSION OF LIENS. Any and
all of the terms and provisions of the Loan Agreement and the Loan Documents
shall, except as amended and modified hereby, remain in full force and effect.
Borrowers hereby extend the Liens securing the Obligations until the Obligations
have been paid in full, and agree that the amendments and modifications herein
contained shall in no manner affect or impair the Obligations or the Liens
securing the payment and performance thereof.
4.2 PARTIES IN INTEREST. All of the terms and provisions of this
Fourth Amendment shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
4.3 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 Fourth Amendment and all
related documents.
8
<PAGE> 9
4.4 COUNTERPARTS. This Fourth Amendment may be executed in
counterparts, and all parties need not execute the same counterpart. However, no
party shall be bound by this Fourth Amendment until all parties have executed a
counterpart. Facsimiles shall be effective as originals.
4.5 COMPLETE AGREEMENT. THIS FOURTH 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.
4.6 HEADINGS. The headings, captions and arrangements used in this
Fourth Amendment are, unless specified otherwise, for convenience only and shall
not be deemed to limit, amplify or modify the terms of this Fourth Amendment,
nor affect the meaning thereof.
( Signature Pages Follow )
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
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: /s/ Marcio Cabrera
--------------------------------
Marcio Cabrera
Executive Vice President
H. C. PARTNERSHIP
By: H.C. CORPORATION, General Partner
By: HSA HILL CREST CORPORATION, General Partner
By: /s/ Marcio Cabrera
--------------------------------
Marcio Cabrera
Executive Vice President
10
<PAGE> 11
CONSENT AND REAFFIRMATION
The undersigned (the "GUARANTOR") hereby (i) acknowledges receipt of a
copy of the foregoing Fourth Amendment to Loan and Security Agreement (the
"FOURTH 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 that certain Guaranty dated
March 19, 1999 (the "GUARANTY") and reaffirms that the Guaranty is and shall
continue to remain in full force and effect. Although Guarantor has been
informed of the matters set forth herein and has acknowledged and agreed to
same, Guarantor understands that the Lenders have no obligation to inform
Guarantor of such matters in the future or to seek Guarantor's acknowledgment or
agreement to future amendments or waivers, and nothing herein shall create such
duty.
IN WITNESS WHEREOF, the undersigned has executed this Consent and
Reaffirmation on and as of the date of the Fourth Amendment.
GUARANTOR:
RAMSAY YOUTH SERVICES PUERTO RICO, INC.,
a Puerto Rico corporation
By: /s/ Marcio Cabrera
--------------------------------
Marcio Cabrera
Executive Vice President
Accepted in Dallas, Texas:
FLEET CAPITAL CORPORATION
("Agent" and a "Lender")
By: /s/ Dennis M. Hansen
--------------------------
Name: Dennis M. Hansen
Title: Senior Vice President
SUNTRUST BANK
(a "Lender")
By: /s/ William H. Craword
--------------------------
Name: William H. Crawford
Title:
11
<PAGE> 12
[REPLACEMENT EXHIBIT E
TO BE PROVIDED BY
BORROWER]
12
<PAGE> 1
EXHIBIT 10.141
EXECUTION COUNTERPART
THIS SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT IS SUBJECT TO THAT CERTAIN
SUBORDINATION AGREEMENT, DATED AS OF THE DATE HEREOF, AMONG RAMSAY YOUTH
SERVICES, INC., THE GUARANTORS, SUNTRUST BANKS, INC. AND FLEET CAPITAL
CORPORATION, AS AGENT, AS AMENDED FROM TIME TO TIME.
SUBORDINATED NOTE
AND WARRANT PURCHASE AGREEMENT
Dated as of January 25, 2000
by and among
RAMSAY YOUTH SERVICES, INC.,
as the Company,
THE SUBSIDIARIES OF THE COMPANY SET FORTH
ON THE SIGNATURE PAGES HERETO,
as Guarantors
and
SUNTRUST BANKS, INC.,
as the Purchaser
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE 1. DEFINITIONS.....................................................................................1
Section 1.1 Definitions..........................................................................1
ARTICLE 2. ISSUANCE AND PURCHASE OF NOTE AND WARRANT......................................................11
Section 2.1 Authorization of Issuance of Notes and Warrants.....................................11
Section 2.2 Purchase and Sale of Note and Warrants..............................................11
Section 2.3 Allocation of Purchase Price........................................................12
Section 2.4 Interest on the Notes...............................................................12
Section 2.5 Amortization and Maturity of Notes; Prepayments; Funding Losses.....................12
ARTICLE 3. OTHER PROVISIONS RELATING TO THE NOTES.........................................................13
Section 3.1 Making of Payments..................................................................13
Section 3.2 Increased Costs.....................................................................14
Section 3.3 Capital Adequacy....................................................................14
Section 3.4 Default Rate of Interest............................................................15
Section 3.5 Calculation of Interest.............................................................15
Section 3.6 Usury...............................................................................15
ARTICLE 4. GUARANTY.......................................................................................15
ARTICLE 5. CONDITIONS PRECEDENT TO PURCHASE OF THE NOTES AND THE WARRANTS.................................18
Section 5.1 Closing Date Conditions.............................................................18
Section 5.2 Closing Date Conditions of the Consolidated Companies...............................20
ARTICLE 6. REPRESENTATIONS AND WARRANTIES.................................................................20
Section 6.1 Representations and Warranties Generally............................................20
6.1.1 Corporate Existence; Subsidiaries......................................................20
6.1.2 Authorization; No Conflict.............................................................21
6.1.3 Approvals..............................................................................21
6.1.4 Tax Returns; Status....................................................................21
6.1.5 Binding Obligations....................................................................21
6.1.6 Litigation.............................................................................21
6.1.7 No Defaults............................................................................22
6.1.8 No Material Restrictions...............................................................22
6.1.9 Information............................................................................22
6.1.10 Financial Statements...................................................................22
6.1.11 Title to Properties....................................................................23
6.1.12 Compliance with Laws...................................................................23
6.1.13 Possession of Franchises, Licenses, Etc................................................23
6.1.14 Insurance..............................................................................23
6.1.15 Federal Reserve Regulations............................................................24
6.1.16 Material Contracts.....................................................................24
6.1.17 ERISA..................................................................................24
6.1.18 Broker's Fees..........................................................................24
6.1.19 Offering of Notes and Warrants.........................................................24
6.1.20 Registration Rights....................................................................25
</TABLE>
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<TABLE>
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6.1.21 Solvency...............................................................................25
6.1.22 Continuing Business of Company.........................................................25
6.1.23 Year 2000 Compliance...................................................................25
6.1.24 Disclosure.............................................................................25
Section 6.2 Representations and Warranties of the Purchaser.....................................26
ARTICLE 7. AFFIRMATIVE COVENANTS..........................................................................27
Section 7.1 Preservation of Corporate Existence.................................................27
Section 7.2 Compliance with Laws................................................................27
Section 7.3 Maintenance of Insurance............................................................27
Section 7.4 Visitation Rights...................................................................28
Section 7.5 Records and Accounts................................................................28
Section 7.6 Payment of Debts, Taxes.............................................................28
Section 7.7 Further Assurances..................................................................28
Section 7.8 Maintenance of Properties...........................................................28
Section 7.9 Business............................................................................29
Section 7.10 Reporting Covenants.................................................................29
Section 7.11 Use of Proceeds.....................................................................30
Section 7.12 Compliance with Material Contracts..................................................31
ARTICLE 8. NEGATIVE COVENANTS.............................................................................31
Section 8.1 Liens and Other Encumbrances........................................................31
Section 8.2 Investments.........................................................................31
Section 8.3 Merger and Sale of Assets...........................................................31
Section 8.4 Creation or Issuance of Stock by Subsidiaries.......................................32
Section 8.5 Transactions with Affiliates........................................................32
Section 8.6 Debt................................................................................32
Section 8.7 Lease Obligations...................................................................33
Section 8.8 Restricted Payments.................................................................33
Section 8.9 Sale and Leasebacks.................................................................34
Section 8.10 Sale or Discount of Receivables.....................................................34
Section 8.11 Compliance with ERISA...............................................................34
Section 8.12 Financial Covenants.................................................................34
Section 8.13 Fiscal Year.........................................................................34
Section 8.14 Modifications to Material Contracts.................................................34
Section 8.15 Inconsistent Agreement..............................................................34
Section 8.16 No Repurchase Agreements............................................................34
ARTICLE 9. EVENTS OF DEFAULT..............................................................................35
Section 9.1 Events of Default...................................................................35
Section 9.2 Remedies on Default.................................................................37
ARTICLE 10. MISCELLANEOUS..................................................................................37
Section 10.1 Notices.............................................................................37
Section 10.2 No Waiver...........................................................................38
Section 10.3 Expenses............................................................................39
Section 10.4 Amendments, Etc.....................................................................39
Section 10.5 Successors and Assigns..............................................................40
Section 10.6 GOVERNING LAW.......................................................................40
Section 10.7 Survival of Representations and Warranties..........................................40
</TABLE>
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<TABLE>
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Section 10.8 Severability........................................................................40
Section 10.9 Counterparts........................................................................40
Section 10.10 Set-Off...............................................................................40
Section 10.11 Termination of Agreement..............................................................40
Section 10.12 JURISDICTION AND VENUE................................................................40
Section 10.13 WAIVER OF JURY TRIAL..................................................................41
Section 10.14 Entire Agreement......................................................................41
</TABLE>
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EXHIBITS AND SCHEDULES
Exhibit A - Form of Note
Exhibit B - Form of Warrant Agreement
Exhibit C - Form of Warrant
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Compliance Certificate As To Financial Covenants
Exhibit F - Subordination Agreement
Schedule 6.1.1 - Subsidiaries
Schedule 6.1.6 - Litigation
Schedule 6.1.16 - Material Contracts
Schedule 6.1.20 - Registration Rights
Schedule 8.4 - Issuance of Stock
Schedule 8.6 - Existing Debt
Schedule 8.9 - Sale/Leaseback Agreement
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SUBORDINATED NOTE AND WARRANT
PURCHASE AGREEMENT
THIS SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT dated as of
January 25, 2000 by and between RAMSAY YOUTH SERVICES, INC., a corporation
organized under the laws of the State of Delaware, as issuer of the Subordinated
Note and the Warrants (the "Company"), each of the subsidiaries of the Company
listed on the signature pages hereto, as guarantors (individually, a "GUARANTOR"
and, collectively, the "GUARANTORS") and SUNTRUST BANKS, INC., a corporation
organized under the laws of the State of Georgia (the "Purchaser").
WHEREAS, the Company has requested that the Purchaser make a certain
subordinated debt investment in the Company, the proceeds of which will be used
by the Company to effect acquisition and expansion, to pay related fees and
expenses, and for general corporate purposes;
WHEREAS, the Purchaser has agreed to make a $5,000,000 subordinated
debt investment in the Company on the terms and subject to the conditions set
forth herein, such investment to be evidenced by subordinated notes in such
amount from the Company and certain warrants issued by the Company as more fully
described below;
WHEREAS, the Company has previously entered into that certain Loan and
Security Agreement, dated as of October 30, 1998, as amended, by and among the
Company (formerly known as Ramsey Health Care, Inc.), various subsidiaries of
the Company (such subsidiaries and the Company, collectively the "Borrowers"),
Fleet Capital Corporation, as Agent (in such capacity, the "Agent") for the
lenders party thereto (the "Senior Lenders") and the Senior Lenders, pursuant to
which the Borrowers may borrow up to $22,000,000.
NOW, THEREFORE, for and in consideration of the mutual premises,
covenants and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1 DEFINITIONS. In addition to the other terms defined herein,
the following terms used herein shall have the meanings herein specified (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"ADJUSTED NET EARNINGS FROM OPERATIONS (OR LOSS)" shall mean, with
respect to any fiscal period, the net earnings (or loss) after provision for
income taxes for such fiscal period of the Company, as reflected on the
financial statement of the Company supplied to the Purchaser pursuant to SECTION
7.10, but excluding:
<PAGE> 7
(i) any gain or loss arising from the sale of capital
assets;
(ii) any gain or loss arising from any write-up or
write-down of assets;
(iii) earnings of any subsidiary of the Company accrued
prior to the date it became a Subsidiary;
(iv) earnings of any corporation, substantially all the
assets of which have been acquired in any manner by the Company or any
Subsidiary of the Company, realized by such corporation prior to the date of
such acquisition;
(v) net earnings of any business entity (other than a
domestic Subsidiary of the Company) in which the Company has an ownership
interest unless such net earnings shall have actually been received by the
Company in the form of cash distributions;
(vi) any portion of the net earnings of any Subsidiary of
the Company which for any reason (other than the provisions of this Agreement)
is unavailable for payment of dividends to the Company;
(vii) any restoration to income of any reserve;
(viii) the earnings of any Person to which any assets of any
Consolidated Company shall have been sold, transferred or disposed of, or into
which such Consolidated company shall have merged, or been a party to any
consolidation or other form of reorganization, prior to the date of such
transaction;
(ix) any gain arising from the acquisition of any
Securities or any Borrower;
(x) the effect of the application of the rules of
Purchase Accounting (as set forth in APB No. 16, as amended); and
(xi) 1998 year end accruals arising from asset purchase
price adjustments related to the West Virginia University Hospitals Sale and the
Charter Sale;
(xii) any gain from extraordinary or non-recurring items.
"AFFILIATE" shall mean with respect to any Person (the "Specified
Person"), any Person other than the Specified Person directly or indirectly
controlling, controlled by or under direct or indirect common control with, the
Specified Person. For purposes of this definition, the term "control" when used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, partnership
interests, by contract or otherwise; PROVIDED that the holding by Purchaser of
2
<PAGE> 8
the Warrants (or the Stock into which such Warrants are converted) shall not be
deemed to constitute the Purchaser as an Affiliate of the Company hereunder.
"AGENT" shall have the meaning given to such term in the recitals
hereof, or any successor thereof.
"AGREEMENT" shall mean this Subordinated Note and Warrant Purchase
Agreement, as the same may be amended, restated, supplemented or modified from
time to time in accordance with the terms hereof.
"AMORTIZATION" shall mean, for any period, all amortization expense of
the Consolidated Companies determined on a consolidated basis in accordance with
GAAP.
"APPLICABLE LAW" shall mean all applicable provisions of constitutions,
statutes, rules, regulations and orders of all governmental bodies and all
orders and decrees of all courts, tribunals and arbitrators.
"BANKRUPTCY CODE" shall mean The Bankruptcy Code of 1978, as amended
and in effect from time to time (11 U.S.C.ss. 101 Et SEQ.).
"BUSINESS DAY" shall mean any day on which commercial banks located in
Atlanta, Georgia are required or permitted by law to be open for the purpose of
conducting a commercial banking business.
"CAPITAL LEASE" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of the
Company or a Subsidiary, any such lease under which the Company or a wholly
owned Subsidiary is the lessor.
"CAPITAL LEASE OBLIGATION" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder which would, in
accordance with GAAP, appear on a balance sheet of such lessee in respect of
such Capital Lease.
"CHANGE IN CONTROL" shall mean (a) any "person" or "group", other than
members of the Controlling Shareholder Group, becoming the "beneficial owner(s)"
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended, and the applicable rules and regulations thereunder) of
shares of Stock of the Company which entitle the holder thereof to control more
than fifty percent (50%) of all voting rights with respect to all shares of
Stock of the Company (excluding preferred stock) without the approval in advance
of the board of directors of the Company; (b) approval by the stockholders of
the Company of a merger, reorganization, consolidation, exchange of shares,
recapitalization, restructuring or other business combination which could result
in the occurrence of any event described in clause (a) of this definition or any
"person" or "group", other than members of the Controlling Shareholder Group,
becoming the "beneficial owner(s)" (within the meaning of Sections 13(d) and
14(d)2 of the Securities Exchange Act of 1934, as amended, and the applicable
rules and regulations thereunder) of shares of Stock of the surviving
3
<PAGE> 9
corporation which entitle the holder thereof to control more than fifty percent
(50%) of all voting rights with respect to all shares of Stock of the surviving
corporation (excluding preferred stock) without the approval in advance of the
board of directors of the Company; (c) sale of all or substantially all of the
Company's assets; (d) any Controlling Shareholder or any member of the
Controlling Shareholder's Group selling or otherwise transferring shares of
Stock of the Company held by such Controlling Shareholder or member of the
Controlling Shareholder Group on the Closing Date other than in connection with
a Permitted Transfer; (e) any recapitalization occurring in which any dividends
or other distributions, direct or indirect, on account of any shares of the
Stock of the Company or any of the Subsidiaries are not paid to the Purchaser on
a PARI PASSU basis with all other shareholders of the Company as if the Warrants
had been exercised for or converted into Stock; or (f) after any transaction not
approved in advance by the board of directors of the Company, the Company's
Common Stock is no longer required to be registered under Section 12 of the
Exchange Act.
"CHARTER SALE" shall mean, the sale by the Company to Charter
Behavioral Health Systems, LLC and affiliates of the Company's contract
management business and Bayou Oaks, Coastal Carolina, The Haven and Desert Vista
psychiatric hospitals and certain transitional care units and other assets
pursuant to that certain Purchase Agreement and purchase and sale contracts of
even date therewith between the Company and Charter Behavioral Health Systems,
LLC and the other parties thereto dated as of June 24, 1998, as amended by
Amendment No. 1 dated as of September 30, 1998.
"CLOSING DATE" shall mean, January 25, 2000 or such later date that the
conditions set forth in SECTIONS 5.1 and 5.2 hereof are satisfied.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
"COMMON STOCK" shall mean the Common Stock, par value $0.01 per share,
of the Company.
"COMPANY" has the meaning set forth in the introductory paragraph
hereof and shall include the Company's successors and assigns.
"CONSOLIDATED" shall mean consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
"CONSOLIDATED COMPANIES" shall mean, collectively, the Company and all
of its Subsidiaries, and "Consolidated Company" shall mean, individually, the
Company or any of its Subsidiaries.
"CONTROLLING SHAREHOLDER" shall mean Paul J. Ramsay.
"CONTROLLING SHAREHOLDER GROUP" shall mean, collectively, (i) the
Controlling Shareholder, (ii) any lineal descendants (by birth or adoption) and
4
<PAGE> 10
spouse, (iii) any trusts established for the sole benefit of the foregoing, (iv)
any charitable organization and (v) any Affiliate of the Controlling
Shareholder.
"DEBT" of any Person shall mean, without duplication, (i) indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services (other than trade accounts payable on customary terms in the
ordinary course of business), (ii) financial obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (iii) Capital
Lease Obligations, (iv) all obligations of such Person under conditional sale or
other title retention agreements relating to property or assets purchased by
such Person, (v) any obligation or liability of others secured by a Lien (or for
which the holder of such Debt has an existing right, contingent or otherwise, to
be secured by any Lien) on property or assets owned or acquired by such Person,
(vi) all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging agreements, (vii) any letter of credit issued for such Person or
its Subsidiaries as account debtor, or (viii) all obligations under direct or
indirect guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor against loss in
respect of obligations of other Persons of the kinds referred to above.
"DEFAULT" shall mean any event that, with notice or lapse of time or
both, would constitute an Event of Default.
"DEPRECIATION" shall mean, for any period, all depreciation expense of
the Consolidated Companies determined on a consolidated basis in accordance with
GAAP.
"DIVIDENDS" shall mean any direct or indirect distribution, dividend or
payment to any Person on account of the Stock of the Company or any of its
Subsidiaries.
"DOLLAR" and the sign "$" shall mean the lawful money of the United
States of America.
"EBIT" shall mean, with respect to any fiscal period, the Consolidation
Adjusted Net Earnings From Operations (or Loss) of the Company, before interest
expense and taxes for such period as determined in accordance with GAAP,
excluding the impact, if any, from purchase accounting.
"EBITDA" with respect to any fiscal period shall mean EBIT PLUS
Depreciation and Amortization expense for such period.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA AFFILIATE" shall mean any trade or business (whether or not
incorporated) which, together with the Company, is treated as a single employer
under Section 414(b), (c), (m) or (o) of the Code.
"EVENT OF DEFAULT" means any of the events specified in SECTION 9.1
hereof.
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"FACILITY FEE" shall mean the non-refundable $125,000 facility fee
payable by the Company in accordance with the terms of the commitment letter of
which $50,000 has been paid by the Company at the time of execution of the
Commitment Letter.
"FULLY DILUTED BASIS" includes, without duplication, (i) all shares of
Stock of the Company outstanding at the time of determination, (ii) the Stock
issuable upon exercise of all outstanding warrants, options and other rights to
acquire Stock of the Company directly or indirectly and (iii) the Stock of the
Company issuable upon conversion of all securities convertible directly or
indirectly into Stock of the Company.
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or any successor
authority) that are applicable to the circumstances as of the date of
determination, consistently applied and maintained through the periods
indicated.
"GUARANTY" shall mean any contractual obligation, contingent or
otherwise, of a Person with respect to any Indebtedness or other obligation or
liability of another Person, including without limitation, any such
Indebtedness, obligation or liability directly or indirectly guaranteed,
endorsed, co-made or discounted or sold with recourse by that Person, or in
respect of which that Person is otherwise directly or indirectly liable,
including contractual obligations (contingent or otherwise) arising through any
agreement to purchase, repurchase, or otherwise acquire such Indebtedness,
obligation or liability or any security therefor, or any agreement to provide
funds for the payment or discharge thereof (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
solvency, assets, level of income, or other financial condition, or to make any
payment other than for value received. The amount of any Guaranty shall be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which guaranty is made or, if not so stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"INTANGIBLE ASSETS" shall mean those assets of any Person which are (i)
deferred assets, other than prepaid insurance and prepaid taxes; (ii) patents
and applications therefor, copyrights, trademarks, service marks, trade names,
trademark and trade name registrations and applications, goodwill, franchises,
permits, experimental expenses and other similar assets which would be
classified as "intangible assets" under GAAP; and (iii) treasury stock and any
write-up of the value of any assets after the date of such Person's most recent
year end financial statements provided to the Purchaser prior to the Closing
Date, unless in accordance with GAAP.
"INTEREST EXPENSE" shall mean, for any period, all interest expense of
the Consolidated Companies (including without limitation, interest expense
attributable to capitalized leases in accordance with GAAP, all capitalized
interest, all commissions, discounts and other fees and charges owed with
respect to banker acceptance financing, and total interest expense (whether
shown as interest expense or as loss and expenses on sale of receivables) under
a receivables purchase facility) determined on a consolidated basis in
accordance with GAAP.
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"INVESTMENT" shall have the meaning set forth in SECTION 7.2 hereof.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any written agreement to give any of the
foregoing), any conditional sale or other title retention agreement and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction.
"LOAN DOCUMENTS" shall mean, collectively, each of the Transaction
Documents other than the Warrant Documents, in each case either as originally
executed or as the same may from time to time be supplemented, modified,
amended, restated, extended or supplanted.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the properties, operations, business, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole, (b) the
Company's ability to pay the Notes and the other Obligations in accordance with
the terms thereof, or (c) the Company's ability to perform its obligations under
the Transaction Documents to which it is a party.
"MATERIAL CONTRACT" shall mean any contract or other arrangement (other
than Transaction Documents), whether written or oral, to which the Company or
any of its Subsidiaries is a party as to which the breach, nonperformance,
cancellation or failure to renew by any party thereto could reasonably likely
have a Material Adverse Effect, as the same are listed on SCHEDULE 6.1.16 as of
the Closing Date. The term "Material Contract" shall not include the Senior
Credit Agreement or the Senior Debt Documents.
"MATURITY DATE" shall mean January 24, 2007.
MONEY BORROWED shall mean, without duplication, (i) Debt arising from
the lending of money by any Person to the Company or any Subsidiary; (ii) Debt,
whether or not in any such case arising from the lending by any Person of money
to the Company or any Subsidiary, (A) which is represented by notes payable or
drafts accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments, or (C)
upon which interest charges are customarily paid (other than accounts payable)
or that was issued or assumed as full or partial payment for Property (as
defined in the Senior Credit Agreement); (iii) Debt that constitutes a Capital
Lease Obligation (as defined in the Senior Credit Agreement); (iv) reimbursement
obligations with respect to letters of credit or guaranties of letters of credit
and (v) Debt of the Company or any Subsidiary under any guaranty of obligations
that would constitute Debt for Money Borrowed under clauses (i) through (iii)
hereof, if owed directly by the Company or any Subsidiary. The calculation of
Money Borrowed shall exclude the Ramsay Group Payable.
"MULTIEMPLOYER PLAN" shall mean, as of any date, a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA that is subject to Title IV of ERISA
to which the Company or any ERISA Affiliate is making or accruing an obligation
to make contributions, or has within any of the preceding seven plan years made
or accrued an obligation to make contributions.
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<PAGE> 13
"NET SECURITIES PROCEEDS" means, with respect to the issuance or sale
by the Company or any Subsidiary of any securities representing Stock or
Indebtedness of such Person, the excess of (a) the gross cash proceeds received
from such issuance and sale, MINUS (b) all reasonable out-of-pocket fees and
expenses incurred in connection with such issuance and sale and paid to Persons
that are not Affiliates of the Company.
"NOTE" shall mean, collectively, each subordinated promissory note
issued by the Company pursuant to SECTION 2.1 or any other provision hereof, in
substantially the form of EXHIBIT A hereto, maturing on the Maturity Date, or
such earlier date as provided herein, at which time all principal, interest and
other amounts owing hereunder shall be due and payable in full, and bearing
interest as set forth in this Agreement, and each Note delivered in
substitution, amendment, modification, extension or exchange for any such Note
pursuant to the provisions of this Agreement.
"OBLIGATIONS" shall mean all present and future debt, liabilities and
obligations of the Company owing to the Purchaser, or any Person entitled to
indemnification hereunder, or any of their respective successors, permitted
transferees or permitted assigns, arising under or in connection with this
Agreement, the Notes or any other Loan Document.
"PERMITTED LIENS" shall mean the following Liens: (a) Liens securing
Senior Debt; (b) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being actively contested in good faith by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Company in accordance with GAAP consistently applied; (c)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
materialmen and other Liens imposed by law created in the ordinary course of
business for amounts not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves are being
maintained; (d) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workmen's
compensation, unemployment insurance or other types of social security; (e)
easements, rights-of-way, restrictions and other similar charges or encumbrances
not materially detracting from the value of the properties of the Company or any
of its Subsidiaries or materially interfering with the ordinary conduct of the
business of the Company, any of its Subsidiaries or any of their respective
properties; (f) UCC filings made in connection with the lease of equipment in
the ordinary course of business; (g) Liens securing purchase money indebtedness
permitted by SECTION 8.6(H) which Liens encumber only the asset financed by such
indebtedness; and (h) extensions, renewals or replacements of any Lien referred
to in clause (a) herein.
"PERMITTED TRANSFER" shall mean the transfer by (i) any member of the
Controlling Shareholder Group of Stock to any other member of the Controlling
Shareholder Group, or (ii) any member of the Controlling Shareholder Group of
Stock to any Person, provided that following any such transfer or transfers
pursuant to clause (ii), the Controlling Shareholder Group, taken as a whole,
shall at no time own less than 95% of the Stock owned by the Controlling
Shareholder Group, taken as a whole, as of the Closing Date.
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<PAGE> 14
"PERSON" shall mean an individual, corporation, limited liability
company, partnership, joint venture, trust, unincorporated association, or other
entity, or a government or any political subdivision or agency thereof.
"PLAN" shall mean any "employee pension benefit plan" maintained by or
on behalf of the Company or any ERISA Affiliate as defined in Section 3(3) of
ERISA, including, but not limited to, any defined benefit pension plan, profit
sharing plan, money purchase pension plan, 401(k) plan, employee stock ownership
plan or Multiemployer Plan.
"PRINCIPAL OFFICE" means 303 Peachtree Street, Suite 2400, Atlanta,
Georgia 30308, Attention Mr. Robert L. Dudiak.
"PURCHASER" means, collectively, SunTrust Banks, Inc., a Georgia
corporation, together with its successors and assigns.
"RAMSAY GROUP" shall mean Paul Ramsay Holdings Pty. Limited, an
Australian corporation, Paul Ramsay Hospitals Pty. Limited, an Australian
corporation, Ramsay Holdings HSA Limited, a Barbados corporation, or any other
Affiliate of the Controlling Shareholder Group from time to time beneficially
holding Stock of the Company.
"RAMSAY GROUP PAYABLE" shall mean the $600,000 payable of the Company
to the Ramsay Group in connection with the Company's prior purchase of Ramsay
Hospital Corporation of Louisiana, Inc., a Louisiana corporation.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement, dated as of the date hereof, between the Company and the Purchaser in
its capacity as holder of the Warrants, in substantially the form of EXHIBIT D,
together with all amendments and modifications thereto.
"REQUIRED PURCHASERS" shall mean Purchasers who individually or
collectively hold more than seventy-five (75%) of the outstanding principal
amount of the Note or Notes.
"SECURITY" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
"SENIOR CREDIT AGREEMENT" shall mean that certain Loan and Security
Agreement, dated as of October 30, 1998, as amended, by and between the Senior
Lenders, the Agent, and the Company, providing for an aggregate credit facility
to the Company of $22,000,000, as the same may be hereafter amended, modified,
restated, supplemented, refinanced or replaced in accordance with SECTION 8.6(F)
and the other provisions hereof.
"SENIOR DEBT" shall have the meaning ascribed to the term "Senior
Indebtedness" in the Subordination Agreement.
"SENIOR DEBT DOCUMENTS" shall mean the Senior Credit Agreement and all
other Transaction Documents (as defined in the Senior Credit Agreement).
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<PAGE> 15
"SENIOR LENDERS" shall have the meaning given to such term in the
recitals hereof.
"SOLVENT" shall mean, with respect to any Person at any time, that (i)
each of the fair value and the present fair saleable value of such Person's
assets (including any rights of subrogation or contribution to which such Person
is entitled, under any of the Transaction Documents or otherwise) is greater
than such Person's debts and other liabilities (including contingent, unmatured
and unliquidated debts and liabilities) and the maximum estimated amount
required to pay such debts and liabilities as such debts and liabilities mature
or otherwise become payable; (ii) such Person is able and expects to be able to
pay its debts and other liabilities (including, without limitation, contingent,
unmatured and unliquidated debts and liabilities) as they mature; and (iii) such
Person does not have unreasonably small capital to carry on its business as
conducted and as proposed to be conducted.
"STOCK" means all shares of capital stock of or in a corporation,
whether voting or non-voting, and including, without limitation, common stock
and preferred stock.
"SUBORDINATION AGREEMENT" shall mean that certain Subordination
Agreement, dated as of the date hereof, by and among the Agent, for the benefit
of and on behalf of the Senior Lenders, each Senior Lender and the Purchaser,
and acknowledged by the Company, either as originally executed or as hereafter
amended, modified or supplemented with the consent of the Purchaser.
"SUBORDINATED DEBT" shall mean (i) the Debt evidenced by the Notes, and
(ii) additional Debt incurred by the Company after the Closing Date which is
expressly subordinated to the Obligations in form and substance satisfactory to
the Purchaser in its sole discretion.
"SUBSIDIARY" shall mean, as to any person, any corporation, limited
liability company, partnership or joint venture, whether now existing or
hereafter organized or acquired: (i) in the case of a corporation, of which at
least a majority of the outstanding shares of stock having by the terms thereof
ordinary voting power to elect a majority of the board of directors of such
corporation (other than stock having such voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned or
controlled by such Person and/or one or more of its Subsidiaries or (ii) in the
case of a limited liability company, partnership or joint venture, in which such
Person or a Subsidiary of such Person is a member, general partner or joint
venturer and of which a majority of the partnership or other ownership interests
are at the time owned by such Person or one or more of its Subsidiaries.
"TAXES" shall mean any present or future taxes, levies, imposts,
duties, fees, assessments, deductions, withholdings or other charges of whatever
nature, including without limitation, income, receipts, excise, property, sales,
transfer, license, payroll, withholding, social security and franchise taxes now
or hereafter imposed or levied by the United States, or any state, local or
foreign government or by any department, agency or other political subdivision
or taxing authority thereof or therein and all interest, penalties, additions to
tax and similar liabilities with respect thereto.
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"TOTAL DEBT TO EBITDA RATIO" shall mean, with respect to the Company
and its Subsidiaries on a consolidated basis, as of any calculation date, the
ratio of (a) Money Borrowed as of such date, to (b) EBITDA for the preceding
four fiscal quarter period then ending.
"TRANSACTION DOCUMENTS" shall mean, collectively, this Agreement, the
Note, each Warrant, the Warrant Agreement, the Registration Rights Agreement,
the Subordination Agreement and any other agreements of any type or nature in
any way relating to or in furtherance of this Agreement, in each case either as
originally executed or as the same may from time to time be supplemented,
modified, amended, restated, extended or supplanted.
"WARRANT AGREEMENT" shall mean that certain Warrant Agreement, dated as
of the date hereof, between the Company and the Purchaser in its capacity as
holder of the Warrants, in substantially the form of EXHIBIT B hereto, together
with all amendments and modifications thereto.
"WARRANT DOCUMENTS" shall mean, collectively, the Warrant Agreement,
the Warrants and the Registration Rights Agreement.
"WARRANTS" shall mean, collectively, the common stock purchase warrants
issued and delivered by the Company on the Closing Date, in substantially the
form of EXHIBIT C hereto, and each common stock purchase warrant issued and
delivered in substitution or exchange for any Warrant.
"WEST VIRGINIA UNIVERSITY HOSPITALS SALE" shall mean, the sale by the
Company to West Virginia University Hospitals, Inc. of Chestnut Ridge Hospital
and other assets pursuant to that certain Asset Purchase Agreement between the
Company, Psychiatric Institute of West Virginia, Inc. and West University
Hospitals, Inc. dated as of July 1, 1998, as amended by Amended No. 1 dated as
of September 30, 1998.
ARTICLE 2.
ISSUANCE AND PURCHASE OF NOTE AND WARRANT
SECTION 2.1 AUTHORIZATION OF ISSUANCE OF NOTES AND WARRANTS. The
Company has duly authorized the issuance and sale, on the terms and subject to
the conditions set forth herein, of Notes in the aggregate principal amount of
$5,000,000, to be dated as of the Closing Date. The Company has duly authorized
the issuance and sale, on the terms and subject to the conditions set forth
herein and in the Warrant Agreement, of the Warrant for the purchase of 475,000
shares of the Common Stock of the Company.
SECTION 2.2 PURCHASE AND SALE OF NOTE AND WARRANTS. Subject to the
terms and conditions contained herein and in reliance upon the representations
and warranties of the Purchaser contained herein, the Company hereby agrees to
sell to the Purchaser and, subject to the terms and conditions set forth herein
and in reliance upon the representations and warranties of the Company contained
herein, Purchaser agrees to purchase from the Company the Notes with the
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Warrants for an aggregate purchase price of $5,000,000 (the "Purchase
Commitment"). The purchase price paid by the Purchaser for each Note shall be
equal to the principal amount thereof and no additional consideration.
SECTION 2.3 ALLOCATION OF PURCHASE PRICE. Under both generally accepted
accounting standards consistently applied and the regulations of the Internal
Revenue Service, the issuance to the Purchaser of the Notes and the Warrants for
an aggregate purchase price equal to the aggregate principal amount of such
Notes being so purchased results in the creation of "original issue discount" on
such Notes (which original issue discount may also be deemed to constitute the
value of any Warrant issued in connection with the issuance of such Notes), and
such regulations require the determination of the value of any Warrant so
delivered. Pursuant to generally accepted accounting principles consistently
applied and applicable Treasury Regulations, the Company and the Purchaser agree
that the aggregate amount of such original issue discount and the aggregate
value of the Warrant for 475,000 shares of the Common Stock of the Company is
$461,000, which original issue discount and value of such Warrant shall be
allocated to the Note. The Company and the Purchaser agree to recognize and
adhere to the determinations and allocations of original issue discount and
valuation of each Warrant set forth herein for all federal and state income tax
purposes. In the event of any proposed transfer of any Note by the Purchaser,
the Purchaser shall, prior to such transfer, mark such Note with a legend
pertaining to the original issue discount in the form required by Treasury
Regulation Section 1.1275-3(b)(1).
SECTION 2.4 INTEREST ON THE NOTES.
(a) Interest on the Note shall accrue at a rate per annum
equal to twelve and one-half percent (12.50%), subject to SECTION 3.5
below; PROVIDED, HOWEVER, that if the definition of "Senior
Indebtedness" in the Subordination Agreement is amended such that
interest, fees, costs and charges accruing subsequent to the
commencement of an Insolvency Event (as such term is defined in the
Subordination Agreement) but not allowed as a claim in such Insolvency
Event are excluded from such definition, then interest on the Note
shall accrue from the date of such amendment at a rate per annum equal
to twelve percent (12.00%), subject to SECTION 3.5 below. Interest
shall be payable (i) on the last Business Day of each calendar quarter,
commencing on March 31, 2000 and continuing thereafter until such Note
has been paid in full, (ii) upon any prepayment of any Note to the date
of prepayment on the amount prepaid and (iii) at maturity of the Notes,
whether by acceleration or otherwise.
(b) After maturity, whether by acceleration or otherwise,
interest shall accrue on the Notes at the Default Rate set forth in
SECTION 3.3 below.
SECTION 2.5 AMORTIZATION AND MATURITY OF NOTES; PREPAYMENTS; FUNDING
LOSSES.
(a) The principal amount of the Note shall be payable on the
Maturity Date, unless sooner accelerated in accordance with the terms
hereof.
(b) The Company may prepay the Notes in whole from time to
time, PROVIDED THAT (i) the Company provides at least thirty (30) days'
prior written notice to the Purchaser of such prepayment, and (ii) such
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prepayment is accompanied by all accrued and unpaid interest on the
amount prepaid through the date of prepayment and all other amounts
then owing by the Company hereunder in connection with the Notes.
(c) Prepayment of the Notes shall not preclude the Purchaser
from continuing to own the Warrants or from exercising any of its
rights pursuant to the Warrants, the Warrant Agreement or the
Registration Rights Agreement at a later date.
SECTION 2.6 PREPAYMENT FEE.
(a) Upon any prepayment of the Notes in full on or prior to
the first anniversary of the Closing Date, the Company shall pay to the
Purchaser prior to or concurrently with such prepayment a prepayment
fee in an amount equal to three percent (3%) of the amount of such
prepayment.
(b) Upon any prepayment of the Notes in full after the first
anniversary of the Closing Date and on or prior to the second
anniversary of the Closing Date, the Company shall pay to the Purchaser
prior to or concurrently with such prepayment a prepayment fee in an
amount equal to two percent (2%) of the amount of such prepayment.
(c) Upon any prepayment of the Notes in full after the second
anniversary of the Closing Date and on or prior to the third
anniversary of the Closing Date, the Company shall pay to the Purchaser
prior to or concurrently with such prepayment a prepayment fee in an
amount equal to one percent (1%) of the amount of such prepayment.
(d) Upon any prepayment of the Note in full after the third
anniversary of the Closing Date, the Company shall pay to the Purchaser
prior to or concurrently with such prepayment a prepayment fee in an
amount equal to zero percent (0%) of the amount of such prepayment.
SECTION 2.7 MANDATORY PREPAYMENT. Subject to the prior written consent
of the Senior Lenders (or any requisite percentage thereof), the Company shall,
upon receipt of the Company or any of its Subsidiaries of any Net Securities
Proceeds in excess of $5,000,000, make a mandatory prepayment of the Notes in an
amount equal to twenty-five percent (25%) of the total amount of such Net
Securities Proceeds.
ARTICLE 3.
OTHER PROVISIONS RELATING TO THE NOTES
SECTION 3.1 MAKING OF PAYMENTS. The Company shall make each payment
hereunder and under the Notes not later than 1:00 p.m. (Atlanta, Georgia time)
on the day when due in Dollars in same day funds to the Purchaser at its
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Principal Office. All payments received after that hour shall be deemed to have
been received by the Purchaser on the next following Business Day.
SECTION 3.2 INCREASED COSTS. In the event that any change in any
Applicable Law, treaty or governmental regulation, or in the interpretation or
application thereof, or compliance by the Purchaser with any guideline, request
or directive (whether or not having the force of law) from any central bank or
other U.S. financial, monetary or other governmental authority, shall: (a)
subject the Purchaser to any tax of any kind whatsoever with respect to this
Agreement, the Notes or the Warrants or change the basis of taxation of payments
to the Purchaser of principal, interest, fees or any other amount payable
hereunder (except for changes in the rate of tax on the overall net income of
the Purchaser); (b) impose, modify, or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by or
committed to be extended by any office of the Purchaser, including, without
limitation, pursuant to Regulation D of the Board of Governors of the Federal
Reserve System; or (c) impose on the Purchaser any other condition with respect
to this Agreement, the Notes or the Warrants hereunder; and the result of any of
the foregoing is to increase the cost to the Purchaser of making or maintaining
the Notes or the Warrants or to reduce the amount of any payment (whether of
principal, interest or otherwise) in respect of the Notes or the Warrants, then,
in any case, the Company shall promptly pay from time to time, upon demand of
the Purchaser, such additional amounts as will compensate the Purchaser for such
additional cost or such reduction, as the case may be. The Purchaser shall
certify the amount of such additional cost or reduced amount to the Company, and
such certification shall be conclusive absent manifest error.
SECTION 3.3 CAPITAL ADEQUACY. If, after the date of this Agreement, the
Purchaser shall have determined that the adoption of any Applicable Law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Purchaser with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the Purchaser's capital (whether on
this credit facility or otherwise) as a consequence of its obligations hereunder
to a level below that which the Purchaser could have achieved but for such
adoption, change or compliance (taking into consideration the Purchaser's
policies with respect to capital adequacy) by an amount deemed by the Purchaser
to be material, then from time to time, promptly upon demand by the Purchaser,
the Company shall pay the Purchaser such additional amount or amounts as will
compensate the Purchaser for such reduction. A certificate of the Purchaser
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be PRIMA FACIE evidence of the
matters contained therein. In determining any such amount, the Purchaser may use
any reasonable averaging and attribution methods. The Purchaser agrees to make
reasonable efforts to allocate any such cost increase among its similarly
situated customers in good faith and on an equitable basis; provided, however,
that the Purchaser shall not be entitled to such amounts unless similar
assessments are generally imposed by the Purchaser on other borrowers of the
Purchaser that Purchaser determines to be comparable to the Company.
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SECTION 3.4 DEFAULT RATE OF INTEREST. If the Company shall fail to pay
on the due date therefor, whether by acceleration or otherwise, any principal
owing under the Notes or any other Obligations, then interest shall accrue on
such unpaid principal or other Obligation from the due date until and including
the date on which such principal is paid in full at a rate per annum that is two
percent (2%) in excess of the rate of interest otherwise payable hereunder (the
"DEFAULT RATE"). Interest calculated at the Default Rate shall be due and
payable upon demand by the Purchaser.
SECTION 3.5 CALCULATION OF INTEREST. Interest payable on the Notes
shall be calculated on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed. If the date for any payment of principal is
extended (whether by operation of this Agreement, any provision of law or
otherwise), interest shall be payable for such extended time at the rates
provided herein. Whenever any payment hereunder shall be stated to be due on a
day other than a Business Day, such payment shall be due on the next succeeding
Business Day.
SECTION 3.6 USURY. In no event shall the amount of interest due or
payable on any Obligation, when aggregated with all amounts payable by the
Company under any of the Transaction Documents that are deemed or construed to
be interest, exceed the maximum rate of interest allowed by Applicable Law and,
in the event any such payment is paid by the Company or received by the
Purchaser, then such excess sum shall be credited as a payment of principal,
unless the Company, as applicable, shall notify the Purchaser in writing that it
elects to have such excess sum returned to it forthwith. It is the express
intent of the parties hereto that the Company not pay, and the Purchaser not
receive, directly or indirectly, in any manner whatsoever, interest in excess of
that which may be lawfully paid by the Company under Applicable Law.
ARTICLE 4.
GUARANTY
SECTION 4.1 THE GUARANTY.
Each Guarantor hereby jointly and severally guarantees to the
Purchaser, as primary obligor and not as surety, the prompt payment of the
Obligations in full when due (whether at stated maturity, as a mandatory
prepayment, by acceleration, as a mandatory cash collateralization or otherwise)
strictly in accordance with the terms thereof. Each Guarantor hereby further
agrees that if any of the Obligations are not paid in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration, or otherwise), the
Guarantors will promptly pay the same, without any demand or notice whatsoever,
and that in the case of any extension of time of payment or renewal of any of
the Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration, as a mandatory
cash collateralization or otherwise) in accordance with the terms of such
extension or renewal.
Notwithstanding any provision to the contrary contained herein or in
any other of the Transaction Documents, the obligations of the Guarantors under
this Agreement and the other Transaction Documents shall be limited to an
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aggregate amount equal to the largest amount that would not render such
obligations subject to avoidance under Section 548 of the Bankruptcy Code or any
comparable provisions of any applicable state law.
SECTION 4.2 OBLIGATIONS UNCONDITIONAL.
The obligations of the Guarantors under SECTION 4.1 are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Transaction Documents, or
any other agreement or instrument referred to therein, or any substitution,
release, impairment or exchange of any other guarantee of or security for any of
the Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this SECTION 4.2 that the obligations of each Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.
Each Guarantor agrees that it shall have no right of subrogation, indemnity,
reimbursement or contribution against the Company or any other Guarantor for
amounts paid under this SECTION 4 until such time as the Purchaser has been paid
in full in respect of all Obligations, and no Person or governmental authority
shall have any right to request any return or reimbursement of funds from the
Purchaser in connection with monies received under the Transaction Documents.
Without limiting the generality of the foregoing, it is agreed that, to the
fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(a) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of
the Obligations shall be extended, or such performance or compliance
shall be waived;
(b) any of the acts mentioned in any of the provisions of any
of the Transaction Documents, or any other agreement or instrument
referred to in the Transaction Documents shall be done or omitted;
(c) the maturity of any of the Obligations shall be
accelerated, or any of the Obligations shall be modified, supplemented
or amended in any respect, or any right under any of the Transaction
Documents, or any other agreement or instrument referred to in the
Transaction Documents shall be waived or any other guarantee of any of
the Obligations or any security therefor shall be released, impaired or
exchanged in whole or in part or otherwise dealt with; or
(d) any of the Obligations shall be determined to be void or
voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of
any Person (including, without limitation, any creditor of any
Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Purchaser exhaust any right, power or
remedy or proceed against any Person under any of the Transaction Documents, or
any other agreement or instrument referred to in the Transaction Documents, or
against any other Person under any other guarantee of, or security for, any of
the Obligations.
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SECTION 4.3 REINSTATEMENT.
The obligations of each Guarantor under this SECTION 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Obligations is rescinded or must be
otherwise restored by any holder of any of the Obligations, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, and Guarantor
agrees that it will indemnify the Purchaser on demand for all reasonable costs
and expenses (including, without limitation, fees and expenses of counsel)
incurred by the Purchaser in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
SECTION 4.4 CERTAIN ADDITIONAL WAIVERS.
Without limiting the generality of the provisions of this SECTION 4,
each Guarantor hereby specifically waives the benefits of O.C.G.A. ss.10-7-24 to
the extent applicable. Each Guarantor further agrees that it shall have no right
of recourse to security for the Obligations, except through the exercise of
rights of subrogation pursuant to SECTION 4.2 and through the exercise of rights
of contribution pursuant to SECTION 4.6.
SECTION 4.5 REMEDIES.
Each Guarantor agrees that, to the fullest extent permitted by law, as
between any Guarantor, on the one hand, and the Purchaser, on the other hand,
the Obligations may be declared to be forthwith due and payable as provided in
SECTION 9.2 (and shall be deemed to have become automatically due and payable in
the circumstances provided in said SECTION 9.2) for purposes of SECTION 4.1
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Obligations from becoming automatically due and
payable) as against any other Person and that, in the event of such declaration
(or the Obligations being deemed to have become automatically due and payable),
the Obligations (whether or not due and payable by any other Person) shall
forthwith become due and payable by the Guarantors for purposes of SECTION 4.1.
SECTION 4.6 GUARANTEE OF PAYMENT; CONTINUING GUARANTEE.
The guarantee in this SECTION 4 is a guaranty of payment and not of
collection, is a continuing guarantee, and shall apply to all Obligations
whenever arising.
SECTION 4.7 SUBORDINATION OF GUARANTEES.
Each Guarantor, for itself and its successors, and Purchaser, by its
acceptance of this Agreement, agrees that the obligations of the Guarantors to
the Purchaser pursuant to Article 4 of this Agreement are expressly subordinate
and subject in right of payment to the prior payment in full in cash of all
Senior Debt as provided in the Subordination Agreement.
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ARTICLE 5.
CONDITIONS PRECEDENT TO PURCHASE OF THE NOTES AND THE WARRANTS
SECTION 5.1 CLOSING DATE CONDITIONS. The obligations of the
Consolidated Companies under this Agreement are subject to the satisfaction of
each of the following conditions on the Closing Date:
(A) NO INJUNCTION, ETC. 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 substantial damages in respect of, or which is related
to or arises out of, this Agreement or the Warrant Agreement or the consummation
of the transactions contemplated hereby or thereby, or which, in Purchaser's
sole discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement.
(B) DOCUMENTATION. Purchaser shall have received, on or prior to the
Closing Date, the following, each in the form and substance satisfactory to
Purchaser and its counsel:
(1) duly executed counterparts of this Agreement;
(2) a Note in the principal amount of $5,000,000;
(3) the duly executed Warrant Agreement;
(4) the duly executed Warrant for the purchase of 475,000
shares of the Common Stock of the Company;
(5) the duly executed Registration Rights Agreement;
(6) a certificate signed by a senior officer of each
Consolidated Company stating that the representations and warranties
set forth in SECTION 6.1 hereof are true and correct in all material
respects on and as of such date with the same effect as though made on
and as of such date, stating that each Consolidated Company is on such
date in compliance with all the terms and provisions of the Transaction
Documents, to which it is a party, to be observed or performed by it,
and stating that on such date, no Default or Event of Default, has
occurred or is continuing;
(7) (a) copies of the articles of incorporation of the Company
and all amendments thereto Certified by the Secretary of State of
Delaware and copies of the articles of incorporation of each other
Consolidated Company, and all amendments thereto, certified by the
Secretary of each such Consolidated Company; and (b) good standing
certificates for each Consolidated Company (other than Ramsay Youth
Services Puerto Rico, Inc.), issued by the relevant Secretary of State
and any other States in which each Consolidated Company's qualification
is required, in each case as of a recent date;
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(8) a certificate of the Secretary or an Assistant Secretary
of each Consolidated Company, certifying (a) that attached thereto is a
true and complete copy of the Bylaws of such Consolidated Company, as
in effect on the date of such certification; (b) that attached thereto
is a true and complete copy of resolutions adopted by the Board of
Directors of such Consolidated Company, authorizing the execution,
delivery and performance of this Agreement and the other Transaction
Documents to which such Consolidated Company is a party; (c) as to the
incumbency and genuineness of the signatures of the officers of such
Consolidated Company executing this Agreement or any of the other
Transaction Documents;
(9) a favorable legal opinion of counsel to each Consolidated
Company, addressed to the Purchaser, covering such matters relating to
the transactions contemplated hereby as the Purchaser may request;
(10) certified copies of the executed Senior Credit Agreement;
(11) copies of all consents and waivers, if any, required
under the Company's Material Contracts in connection with the
transactions contemplated hereby, including, without limitation, copies
of amendments or waivers of any agreements currently prohibiting
payment of interest on Subordinated Debt unless a default has occurred
under such agreement;
(12) a duly executed solvency certificate of the Company with
respect to the Consolidated Companies;
(13) written instructions from the Company to the Purchaser as
to the disbursements of the proceeds of such Note;
(14) the duly executed Subordination Agreement;
(15) evidence satisfactory to the Purchaser that the total
debt to EBITDA covenant in the Senior Credit Agreement has been amended
to be 3.5:1.0 until the year 2001;
(16) evidence satisfactory to the Purchaser that SunTrust
Bank, Atlanta has purchased a participating interest in the Senior
Debt;
(17) evidence satisfactory to the Purchaser that the Company
will earn a minimum of 4 cents per share in the fiscal quarter ending
December 31, 1999;
(18) such other documents, instruments and agreements as
Purchaser shall reasonably request.
(C) CORPORATE ACTIONS. All corporate and other action required
hereunder shall be satisfactory.
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(D) NO MATERIAL ADVERSE EFFECT. No Material Adverse Effect has occurred
since December 31, 1998.
(F) NO DEFAULT, ETC. No Default or Event of Default shall exist.
SECTION 5.2 CLOSING DATE CONDITIONS OF THE CONSOLIDATED COMPANIES. The
obligations of the Consolidated Companies under this Agreement are subject to
the satisfaction of each of the following conditions on the Closing Date:
(A) NO INJUNCTION, ETC. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit, or to obtain substantial damages in respect of, or which is related to
or arises out of, this Agreement, the Warrant Agreement or the consummation of
the transactions contemplated hereby or thereby, or which, in the Company's
reasonable discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement.
(B) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made by the Purchaser contained herein or in any of the other
Transaction Documents shall be true and correct in all material respects with
the same effect as though such representations and warranties had been made on
and as of the Closing Date.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
SECTION 6.1 REPRESENTATIONS AND WARRANTIES GENERALLY. Each Consolidated
Company (as to itself and all other Consolidated Companies) hereby represents
and warrants to the Purchaser that the following statements are true and correct
as of the date hereof and as of the Closing Date:
6.1.1 CORPORATE EXISTENCE; SUBSIDIARIES. Each of the Company
and its Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation
and has all requisite corporate power and authority to conduct its
business and to own its properties. Each of the Company and its
Subsidiaries has all requisite corporate power and authority to execute
and deliver and to perform all of its obligations under this Agreement
and the other Transaction Documents to which it is a party. Each of the
Company and its Subsidiaries is duly qualified and in good standing as
a foreign corporation authorized to do business in each jurisdiction
(other than the jurisdiction of its incorporation) in which the nature
of its activities or the character of the properties it owns or leases
makes such qualification necessary and in which the failure to be so
qualified would have a Material Adverse Effect. Except as set forth on
Schedule 6.1.1, the Company has no Subsidiaries.
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6.1.2 AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance by each of the Company and its Subsidiaries of this
Agreement and each of the other Transaction Documents to which it is a
party are within the corporate powers of the Company and its
Subsidiaries, have been duly authorized by all necessary corporate
action, and do not and will not (a) violate any provision of any
applicable law, rule or regulation, any judgment, order, or ruling of
any court or governmental agency applicable to the Company or any of
its Subsidiaries, the articles of incorporation or bylaws of the
Company or any of its Subsidiaries or any Material Contract or other
instrument to which the Company or any of its Subsidiaries is a party
or by which the Company, any of its Subsidiaries, or any of their
respective properties is bound, (b) be in conflict with, result in a
breach of or constitute with notice or lapse of time or both a default
under any such indenture, agreement or other instrument, or (c) result
in or require the creation of any material Lien upon or with respect to
any of the properties of the Company or any of its Subsidiaries, other
than Liens granted pursuant to the Senior Debt Documents.
6.1.3 APPROVALS. No consent of any Person and no authorization
or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required in connection
with the borrowings hereunder or with the execution, delivery,
performance, validity or enforcement of any Transaction Document
(including, without limitation, the issuance of the Note or the
Warrant), which has not been obtained or made as of the date hereof.
6.1.4 TAX RETURNS; STATUS. The Company and its Subsidiaries
have filed all federal, state and other tax returns which are required
to have been filed, and each has paid all taxes due and payable except
such as are being actively contested in good faith by appropriate
proceedings and with respect to which adequate reserves are being
maintained on the books of the Company in accordance with GAAP
consistently applied. None of the Company's or its Subsidiaries' tax
returns are under audit. No tax liens have been filed and, to the
Company's knowledge, no claims are being assessed with respect to any
such taxes.
6.1.5 BINDING OBLIGATIONS. Each of the Transaction Documents
to which the Company is a party constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
6.1.6 LITIGATION. Except as set forth on Schedule 6.1.6, no
action, suit or proceeding is pending or, to the knowledge of the
Company, threatened against or affecting the Company, any of its
Subsidiaries or the properties of the Company or any of its
Subsidiaries before any court or governmental department, commission,
board, bureau, agency or instrumentality which, if determined adversely
to the Company or such Subsidiary, would have a Material Adverse
Effect, or which questions the validity of any Transaction Document or
any action taken or to be taken pursuant thereto.
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6.1.7 NO DEFAULTS. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute or other law or
in default under any order, regulation or ruling of any court or other
tribunal or governmental or administrative authority or agency binding
on the Company or any of its Subsidiaries, or in default under their
respective articles of incorporation or bylaws, any material indenture,
agreement, lease, instrument or other undertaking to which the Company
or any of its Subsidiaries is a party or by which it or its property or
assets may be bound or affected, which could have a Material Adverse
Effect.
6.1.8 NO MATERIAL RESTRICTIONS. Neither the Company nor any of
its Subsidiaries is subject to any charter, corporate or, to the
knowledge of the Company and its Subsidiaries, other legal restriction,
or any contract, lease or other agreement, or any judgment, decree,
order, law, rule or regulation which, in the judgment of the Company,
currently has a Material Adverse Effect or any effect on the ability of
the Company to carry out its obligations under any Transaction
Document.
6.1.9 INFORMATION. No certificate, report or other paper
furnished by the Company to the Purchaser in connection with the
Transaction Documents, and to the best knowledge of the Company after
due inquiry, no certificate, report or other paper furnished by any
other Person at the request of the Company, in connection with the
Transaction Documents contains as of its effective date any material
misstatement of fact or fails to state a material fact or any fact
necessary to make the statements contained therein not misleading in
any material respect as of such date, and all of the information
contained therein is true, accurate and complete in all material
respects as of such date; PROVIDED, HOWEVER, that any projections and
PRO FORMA financial information contained in the materials referenced
in the preceding sentence are based upon reasonable estimates of
management of the Company and reasonable assumptions at the time made,
it being recognized by the Purchaser that such financial information as
it relates to future events is not to be viewed as fact and that actual
results during the period or periods covered by any such financial
information may differ substantially from the projected results set
forth therein.
6.1.10 FINANCIAL STATEMENTS. (a) The Company has furnished the
Purchaser with (i) the consolidated balance sheet and related
consolidated statements of operations, stockholder's equity and cash
flows of the Company for the year ending December 31, 1998, audited by
Ernst & Young, and (ii) the internally prepared consolidated balance
sheet and related consolidated statement of operations of the Company
for the fiscal quarters ending March 31, 1999, June 30, 1999 and
September 30, 1999, in each case as certified by the chief financial
officers of the Company. All such financial statements (including any
related schedules and/or notes) fairly present in all material respects
in accordance with GAAP the financial position of the Company as of
such dates (subject, as to interim statements, to changes resulting
from audits and normal year end adjustments and the absence of
footnotes) and reflect all liabilities, direct and contingent, of the
Company and their respective Subsidiaries required to be shown in
accordance with such principles (subject, as to interim statements, to
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changes resulting from audits and normal year end adjustments and the
absence of footnotes). There has been no material adverse change in the
business, financial condition, results of operations or prospects of
the Company and its Subsidiaries since December 31, 1998, nor to the
Company's knowledge any other event which could reasonably be expected
to have a Material Adverse Effect.
(b) The unaudited pro forma balance sheet of the Company
setting forth as of the Closing Date the pro forma financial position
of the Company, a copy of which has been delivered to the Purchaser,
fairly presents in all material respects, on a pro forma basis, in
conformity with generally accepted accounting principles applied on a
basis consistent with the financial statements referred to in clause
(a) above (except for adjustments consistent with purchase price
accounting methods), the financial position of the Company as of such
date and time. The Company does not have any material contingent
obligations, contingent liabilities or other obligations which are not
reflected in the balance sheet referenced above which would be required
to be reflected in accordance with GAAP (subject, as to interim
statements, to changes resulting from audits and normal year end
adjustments and the absence of footnotes) (the "Pro Forma Financial
Statements").
6.1.11 TITLE TO PROPERTIES. Each of the Company and its
Subsidiaries has good and marketable title to its real properties
(other than real properties that it leases), and good title to all of
its other properties and assets, including the properties and assets
reflected in the balance sheet of the Company (other than properties
and assets disposed of in the ordinary course of business), subject to
no Lien of any kind except Permitted Liens. Each of the Company and its
Subsidiaries enjoys peaceful and undisturbed possession under all
leases necessary in any material respect for the operation of its
properties and assets, none of which contains in the reasonable
judgment of the Company any unusual or burdensome provisions which
might materially affect or impair the operations of such properties and
assets. All such leases are valid and subsisting and in full force and
effect.
6.1.12 COMPLIANCE WITH LAWS. Each of the Company and its
Subsidiaries is in compliance with all applicable laws and regulations,
including all laws and regulations relating to ERISA and environmental
matters, except where the failure to comply would not have a Material
Adverse Effect.
6.1.13 POSSESSION OF FRANCHISES, LICENSES, ETC. Each of the
Company and its Subsidiaries possesses all franchises, certificates,
licenses, permits and other authorizations from governmental political
subdivisions or regulatory authorities, and all patents, trademarks,
service marks, trade names, copyrights, licenses and other rights, free
from burdensome restrictions, that are necessary for the ownership,
maintenance and operation of any of its properties and assets as
currently maintained, and neither the Company nor any of its
Subsidiaries is in material violation of any thereof except where the
failure to comply or have any such franchise, certificate, license,
permits or other authorization would not have a Materially Adverse
Effect.
6.1.14 INSURANCE. The Company has in place, with financially
sound and reputable insurance companies or associations, casualty,
public liability and other insurance, including without limitation,
product liability insurance, in such amounts and covering such risks as
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are customarily maintained by other companies operating similar
businesses in similar locations and of similar size.
6.1.15 FEDERAL RESERVE REGULATIONS. The proceeds of the Notes
will be used solely for the purposes set forth in this Agreement and
none of such proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any "margin security" or "margin
stock" or for the purpose of reducing or retiring any debt that
originally was incurred to purchase or carry a "margin security" or
"margin stock" or for any other purpose that might constitute this
transaction a "purpose credit" within the meaning of the regulations of
the Board of Governors of the Federal Reserve System.
6.1.16 MATERIAL CONTRACTS. SCHEDULE 6.1.16 sets forth a
complete list of all of the Material Contracts of the Company and its
Subsidiaries. Each of the Material Contracts is in full force and
effect and, to the best knowledge of the Company, no default exists
thereunder.
6.1.17 ERISA.
(1) IDENTIFICATION OF PLANS. Neither the Company or any
ERISA Affiliate maintains or contributes to, or has maintained
or contributed to, any Plan, other than its 401(k) plan.
(2) LIABILITIES. Neither the Company nor any Subsidiary
is currently subject to any liability (other than routine Plan
expenses or contributions), tax or penalty which liability,
tax or penalty is directly or indirectly related to any Plan
including, but not limited to, any penalty or liability
arising under Title I or Title IV of ERISA, or any tax or
penalty under Chapter 43 of the Code, except such liabilities,
taxes, or penalties (when taken as a whole) as will not have a
Material Adverse Effect; and
(3) FUNDING. The Company and each ERISA Affiliate has
made full and timely payment of all amounts required to be
contributed under the terms of each Plan.
6.1.18 BROKER'S FEES. Except for the Facility Fee and except
for fees owed to SunTrust Equitable Securities, Inc., no broker's or
finder's fee, commission or similar compensation will be payable with
respect to the transactions contemplated by this Agreement. No other
similar fees or commissions will be payable by the Company for any
other services rendered to any Consolidated Company or any Subsidiaries
ancillary to the transactions contemplated hereby.
6.1.19 OFFERING OF NOTES AND WARRANTS. Neither the Company
nor, to the best knowledge of the Company, anyone acting on its behalf
has offered the Notes or the Warrants for sale to, or solicited any
offer to buy any of the same from, or otherwise approached or
negotiated in respect thereof with, any person other than the
Purchaser. Subject to the representations of the Purchaser in SECTION
6.2, neither the Company nor any of its Subsidiaries nor, to the best
of knowledge of the Company, anyone acting on their behalf has taken,
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or will take, any action which would subject the issuance or sale of
the Notes and the Warrants to Section 5 of the Securities Act of 1933,
as amended or the registration or qualification provisions of the blue
sky laws of any state.
6.1.20 REGISTRATION RIGHTS. Except as set forth on Schedule
6.1.20, as of the Closing Date, except as described in the Warrant
Agreement and in the Registration Rights Agreement, the Company is
under no obligation to register under the Securities Act of 1933, as
amended, or the Trust Indenture Act of 1939, as amended, any of its
presently outstanding securities or any of its securities that may
subsequently be issued.
6.1.21 SOLVENCY. Before and after giving effect to the
transactions contemplated by this Agreement, the Company shall be
Solvent and, after excluding any Debt owed by any Subsidiary Guarantor
to any other Subsidiary Guarantor from the calculation of Solvent, each
Subsidiary Guarantor shall be Solvent.
6.1.22 CONTINUING BUSINESS OF COMPANY. (a) There exists no
actual or, to the knowledge of any Consolidated Company, threatened
termination, cancellation or limitation of, or any material
modification or change since October 18, 1999, in, (i) the business
relationships of any Consolidated Company with any customer or group of
customers of such Consolidated Company whose business individually or
in the aggregate is material to the operations or financial condition
of such Consolidated Company, (ii) the business relationships of any
Consolidated Company with any of its material suppliers or (iii) any
Material Contract; and each Consolidated Company reasonably anticipates
that after the consummation of the transactions contemplated by this
Agreement, all such material customers and suppliers will continue a
business relationship with such Consolidated Company on a basis no less
favorable to such Consolidated Company than as heretofore conducted.
6.1.23 YEAR 2000 COMPLIANCE. To the Company's best knowledge,
the operating systems for the Company's computers and all software
applications that run on its computers are Year 2000 Compliant, except
where a failure to be Year 2000 Compliance would have a Materially
Adverse Effect. "Year 2000 Compliant" shall mean neither the
performance nor functionality of the operating systems for the
Company's computers and all software applications that run on the
Company's computers is affected by dates prior to, during, spanning or
after January 1, 2000, and shall include, but not be limited to (a)
accurately processing (including, but not limited to calculating,
comparing and sequencing) date and time data from, into, and between
the years 1999 and 2000 and leap year calculations, (b) functioning
without error, interruption or decreased performance relating to such
date and time data, (c) accurately processing such date and time data
when used in combination with other technology, if the other technology
properly exchanges date and time data, (d) accurate date and time data
century recognition, (e) calculations that accurately use same century
and multi-century formulas and date and time values, (f) date and time
data interface values which reflect the correct century, and (g)
processing, storing, receiving and outputting all date and time data in
a format that accurately indicates the century of the date and time
data.
6.1.24 DISCLOSURE. To the Company's best knowledge, neither
this Agreement nor any other document, certificate or statement
furnished to the Purchaser by or on behalf of the Company in connection
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herewith contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements
contained herein and therein not misleading. There is no fact of which
the Company is aware and that is peculiar to the Company and its
Subsidiaries which materially adversely affects the business, property
or assets, or financial condition of the Company and its Subsidiaries
which has not been set forth in this Agreement or in the other
documents, certificates and statements furnished to the Purchaser by or
on behalf of the Company or any of its Subsidiaries prior to the date
hereof in connection with the transactions contemplated hereby.
SECTION 6.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company and the
other Consolidated Companies that the following statements are true and
correct, as of the date hereof and as of the Closing Date.
6.2.1 AUTHORITY. The Purchaser has full corporate power and
authority to execute and deliver this Agreement and to perform all of
its obligations hereunder the under the other Transaction Documents,
and no consent or approval of any other person or governmental
authority is required therefor. The execution and delivery of this
Agreement by it, the performance by it of its covenants and agreements
hereunder and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action.
This Agreement constitutes a valid and legally binding obligation of
it, enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity.
6.2.2 INVESTMENT IN THE COMPANY.
(i) The Purchaser understands that the Company proposes to
issue and deliver to the Purchaser the Notes and the Warrants pursuant to this
Agreement without compliance with the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"); that for such purpose
the Company will rely upon the Purchaser's representations and warranties
contained therein; and that such non-compliance with registration is not
permissible unless such representations and warranties are correct.
(ii) The Purchaser understands that, under existing rules of
the Securities and Exchange Commission (the "SEC"), the Purchaser may be unable
to sell the Notes or the Warrants except to the extent that the Notes or
Warrants may be sold (i) pursuant to an effective registration statement
covering such sale pursuant to the Securities Act and applicable state
securities laws or an applicable exemption therefrom or (ii) in a bona fide
private placement to a purchaser who shall be subject to the same restrictions
on any resale or (iii) subject to the restrictions contained in Rule 144 under
the Securities Act ("Rule 144").
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(iii) The Purchaser is not relying on the Company respecting
the financial, tax and other economic considerations of an investment in the
Notes or Warrants, and the Purchaser has relied on the advice of, or has
consulted with, only its own advisors.
(iv) The Purchaser is familiar with the provisions of Rule 144
and the limitations upon the availability and applicability of such rule.
(v) The Purchaser is purchasing the Notes and the Warrants as
an investment for its sole account, and without any present view towards the
resale or other distribution thereof.
(vi) The Purchaser is an "accredited investor," within the
meaning of Rule 501 promulgated by the Securities and Exchange Commission under
the Securities Act.
ARTICLE 7.
AFFIRMATIVE COVENANTS
So long as any Note or any other Obligations shall remain outstanding
pursuant to the Loan Documents, unless the Required Purchasers shall otherwise
consent in the manner set forth in SECTION 9.4, each Consolidated Company shall
and shall cause each of its Subsidiaries to:
SECTION 7.1 PRESERVATION OF CORPORATE EXISTENCE. Do or cause to be done
all things necessary to (a) preserve and maintain its corporate existence and
all material rights and franchises and (b) qualify and remain qualified to
conduct business in each jurisdiction where the nature of the business or
ownership of property by the Company or any of its Subsidiaries may legally
require such qualification and where failure to be so qualified would have a
Material Adverse Effect.
SECTION 7.2 COMPLIANCE WITH LAWS. Comply with all applicable federal,
state and local laws, rules, regulations and orders of any governmental
authority, noncompliance with which would have a Material Adverse Effect, such
compliance to include, without limitation, (a) paying before the same become
delinquent all material taxes, assessments and governmental charges imposed upon
it or upon its property (unless such taxes, assessments or charges are being
contested in good faith and by proper proceedings diligently pursued, and the
Company has obtained an adequate bond or adequate insurance or established
therefor a reserve of an adequate amount), and (b) complying in all material
respects with all federal, state and local laws, rules, regulations and orders
relating to pollution, reclamation, or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into air,
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or wastes.
SECTION 7.3 MAINTENANCE OF INSURANCE. Maintain with financially sound
and reputable insurance companies or associations casualty, public liability and
other insurance in such amounts and covering such risks as are customarily
maintained by other companies operating similar businesses in similar locations
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and of similar size, and, at the written request of the Purchaser, provide
evidence of compliance with this covenant to the Purchaser in the form of
certificates of insurance.
SECTION 7.4 VISITATION RIGHTS. At any reasonable time and from time to
time upon reasonable notice and without unreasonable interruption of the
Company's operations of business (provided that no notice shall be required upon
the occurrence and during the continuance of an Event of Default; provided
further that only one (1) business days' notice shall be required after the
occurrence and during the continuance of a Default), permit the Purchaser or any
agents or representatives of the Purchaser to examine and make copies of and
abstracts from the records and books of account of, and visit the properties of
the Company and its Subsidiaries and discuss the general business affairs of the
Company and its Subsidiaries (including, without limitation, significant changes
in personnel, compensation of employees, business ventures, important
acquisition and disposition of assets and significant litigation) with its
officers and its independent public accountants.
SECTION 7.5 RECORDS AND ACCOUNTS. Keep true records and books of
account in which entries will be made in accordance with GAAP consistently
applied and maintain accounts and reserves adequate in the opinion of the
Company for all taxes (including income taxes), all depreciation, depletion,
obsolescence and amortization of its properties, all other contingencies and all
other proper reserves.
SECTION 7.6 PAYMENT OF DEBTS, TAXES. Pay, or cause to be paid, all of
its debts and perform, or cause to be performed, all of its obligations promptly
and in accordance with the respective terms thereof, and promptly pay and
discharge, or cause to be paid and discharged, all taxes, assessments and
governmental charges or levies imposed upon it, upon its income or receipts or
upon any of its assets or properties before the same shall become in default, as
well as pay all lawful claims for labor, materials and supplies or otherwise
that, if not so paid, could or would result in the imposition of a Lien upon
such assets or properties or any part thereof; PROVIDED, that it shall not
constitute an Event of Default hereunder if the Company fails to perform any
such debt (except for any indebtedness serving under or in respect of any Loan
Document), tax, assessment, governmental or other charge, levy or claim that is
being contested in good faith and by proper proceedings diligently pursued, if
the effect of such failure to pay or perform has not been to accelerate the
maturity of any other material debt or obligation of the Company or to subject
any part of the assets and properties of the Company to forfeiture or a Lien,
and if the Company has obtained therefor an adequate bond or adequate insurance
or established therefor a reserve of an adequate amount.
SECTION 7.7 FURTHER ASSURANCES. Execute and deliver to the Purchaser
such further instruments, provide it with such further data and information and
take such further action as the Purchaser may reasonably request or as may be
reasonably necessary further to effect the purposes of the Loan Documents.
SECTION 7.8 MAINTENANCE OF PROPERTIES. Cause all of its properties used
or useful in the conduct of its business to be maintained and kept in good
condition, repair and working order, reasonable wear and tear excepted, and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
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connection therewith may be conducted at all times in the ordinary course of
business consistent with past practice.
SECTION 7.9 BUSINESS. Remain substantially in the business in which it
is engaged as of the date of this Agreement.
SECTION 7.10 REPORTING COVENANTS. Deliver to the Purchaser:
7.10.1 as soon as available and in any event within one
hundred fifteen (115) days after the end of each fiscal year of the
Company, a consolidated audited balance sheet of the Company and its
Subsidiaries as of the end of such fiscal year and the related
consolidated audited statements of income, retained earnings and cash
flow for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail
and accompanied by a report thereon of Deloitte & Touche or other
independent public accountants acceptable to the Purchaser, which
report will be unqualified as to scope of audit and shall state that
such consolidated financial statements present fairly the consolidated
financial condition of the Company and its Subsidiaries as at the end
of such fiscal year, and the consolidated results of operations and
statements of cash flow of the Company and its Subsidiaries for such
fiscal year in accordance with GAAP and that the audit by such
accountants in connection with such consolidated financial statements
was made in accordance with GAAP;
7.10.2 as soon as available and in any event thirty-five (35)
days after the end of each fiscal quarter in each fiscal year of the
Company, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such fiscal quarter and the related
consolidated statements of income, retained earnings and cash flows for
such fiscal quarter and for the portion of the Company's fiscal year
ended at the end of such fiscal quarter, setting forth in each case in
comparative form the figures for the corresponding fiscal quarter and
the corresponding portion of the Company's previous fiscal year, all
certified (subject to normal year end adjustments and absence of notes)
as to fairness of presentation, preparation in accordance with GAAP by
the chief financial officer of the Company;
7.10.3 simultaneously with the delivery of each set of
financial statements referred to in clauses (a) and (b) above, a
certificate of the chief financial officer of the Company substantially
in the form of EXHIBIT E hereto (i) setting forth in reasonable detail
the calculations required to establish whether the Company was in
compliance with the requirements of SECTION 7.12, on the date of such
financial statements and (ii) stating whether there exists on the date
of such certificate any Default or Event of Default and, if any Default
or Event of Default then exists, setting forth the details thereof and
the action which the Company is taking or proposes to take with respect
thereto;
7.10.4 forthwith upon the Company having knowledge of the
occurrence of any Default or Event of Default hereunder or any "Event
of Default" under any Senior Debt Documents (as such terms are defined
in the Senior Debt Documents), a certificate of the president or chief
financial officer of the Company setting forth the details thereof and
the action which the Company is taking or proposes to take with respect
thereto;
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7.10.5 promptly upon the filing thereof or otherwise becoming
available, copies of all financial statements, annual, quarterly and
special reports, proxy statements and notices sent or made available
generally by the Company to its security holders, of all regular and
periodic reports and all registration statements and prospectuses, if
any, filed by any of them with any securities exchange, and of all
press releases and other statements made available generally to the
public containing material developments in the business or financial
condition of the Company;
7.10.6 promptly after receipt thereof, copies of all financial
statements of, and all reports and management letters submitted by,
independent public accountants to the Company in connection with each
annual, interim, or special audit of the Company's financial
statements;
7.10.7 within thirty (30) days prior to the end of the
Company's fiscal year, the Company shall deliver to the Purchaser the
annual budget for the Company and its Subsidiaries, including forecasts
of the income statement, the balance sheet and a cash flow statement
for the immediately succeeding year on a month by month basis and
thereafter, shall promptly deliver any amendment thereto;
7.10.8 promptly after the sending thereof, copies of all
financial statements, reports or other information sent to any holder
of the Senior Debt;
7.10.9 promptly after becoming aware of (i) the occurrence
thereof, notice of the institution by any Person of any action, suit or
proceeding or any governmental investigation or any arbitration, before
any court or arbitrator or any governmental or administrative body,
agency, or official, against the Company or any of its Subsidiaries or
material properties of any of the foregoing, and which if adversely
determined is likely to have a Material Adverse Effect, or (ii) the
receipt of actual knowledge thereof, notice of the threat of any such
action, suit, proceeding, investigation or arbitration, each such
notice under this subsection to specify, if known, the amount of
damages being claimed or other relief being sought, the nature of the
claim, the Person instituting the action, suit, proceeding,
investigation or arbitration, and any other significant features of the
claim; and
7.10.10 such other information respecting the condition or
operations, financial or otherwise, of the Company or any of its
Subsidiaries as the Purchaser may from time to time reasonably request,
including, without limitation budget, projections, and presentations to
lenders or investor groups.
SECTION 7.11 USE OF PROCEEDS. Use proceeds from the sale of the Notes
and the Warrant (i) to finance acquisition and expansion, (ii) to partially
repay the Senior Debt, and (iii) for general corporate purposes; and the Company
shall not use any part of such proceeds to purchase or carry, or to reduce or
retire or refinance any credit incurred to purchase or carry, any margin stock
(within the meaning of Regulations U and X of the Board of Governors of the
Federal Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
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SECTION 7.12 COMPLIANCE WITH MATERIAL CONTRACTS. Comply in all material
respects with all material terms and conditions of the Senior Debt Documents and
all other Material Contracts.
ARTICLE 8.
NEGATIVE COVENANTS
For so long as any Note or any of the other Obligations remains unpaid
or unperformed, unless the Required Purchasers (or, if required pursuant to
SECTION 9.4, all Purchasers) shall otherwise consent in the manner set forth in
SECTION 9.4, each Consolidated Company shall not, directly or indirectly, and
shall not allow any Subsidiary to:
SECTION 8.1 LIENS AND OTHER ENCUMBRANCES. Create, assume, incur or
permit to exist, or to be created, assumed, incurred or permitted to exist,
directly or indirectly, any Lien upon any of its property or assets, whether now
owned or hereafter acquired, or any income or profits therefrom except Permitted
Liens.
SECTION 8.2 INVESTMENTS. Make any loan or advance, or otherwise acquire
for a consideration, evidences of indebtedness, capital stock or other
securities of any Person or acquire any Subsidiary (an "INVESTMENT"), except
that, so long as no Default or Event of Default then exists or would be caused
thereby, the Company may:
(a) make (i) draws to sales persons in the ordinary course of
business, (ii) net advances to branches in the ordinary course of
business, and (iii) other loans or advances to officers and employees
for expenses incurred in the ordinary course of business in an
aggregate amount at any time outstanding not to exceed $15,000;
(b) acquire and own prime commercial paper and certificates of
deposit in United States commercial banks (whose long-term debt is
rated "A" or better by Moody's Investors Service or Standard and Poor's
Corporation), in each case due within one year from the date of
purchase and payable in the United States in dollars;
(c) acquire and own direct obligations of the United States of
America or any agency thereof, or obligations fully guaranteed as to
principal and interest by the United States of America or any agency
thereof, in each case maturing within one year from the date of
creation of such obligation;
(d) endorse negotiable instruments for collection in the
ordinary course of business;
(e) create or form new Subsidiaries pursuant to Section 8.4.
SECTION 8.3 MERGER AND SALE OF ASSETS. (a) Enter into any transaction
of merger, consolidation, pooling of interest, joint venture, syndicate or other
combination with any other Person other than any merger or consolidation of (i)
any Subsidiary with another Subsidiary of the Company or (ii) of the Company
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with another Person; PROVIDED THAT (A) the Company is the surviving entity, (B)
the Company is Solvent, (C) the Total Net Worth of the Company equals or exceeds
the Total Net Worth of the Company, immediately preceding such merger or
consolidation, (D) any consideration for stock or assets paid in connection
therewith equals the fair market value of such property and (E) no Change of
Control or other Default or Event of Default exists or is continuing; or
(b) Sell, lease, transfer or otherwise dispose of a substantial part of
its assets (whether now owned or hereafter acquired) in any single transaction
or series of related transactions, to any Person except for fair consideration
(as determined by the board of directors of the Company) where the net proceeds
of such sale are used to repay Senior Debt, or following the repayment thereof
in full, the Obligations. Nothing set forth in this subsection (b) shall limit
the rights and remedies of the Purchaser under the Transaction Documents upon
the occurrence of a Change of Control.
SECTION 8.4 CREATION OR ISSUANCE OF STOCK BY SUBSIDIARIES. Create any
Subsidiary other than wholly-owned Subsidiaries of the Company or any other
Consolidated Company (provided that any Subsidiary created shall execute and
deliver to the Purchaser a Guaranty Agreement in substantially the form of
ARTICLE 4 hereof, at the time such Subsidiary is created) or, except as set
forth on Schedule 8.4, permit any Subsidiary (either directly or indirectly by
the issuance of rights or options for, or securities convertible into such
shares) to issue, sell or dispose of any shares of its stock of any class (other
than directors' qualifying shares, if any) except to the Company or another
Subsidiary.
SECTION 8.5 TRANSACTIONS WITH AFFILIATES. Enter into any material
transaction or series of related transactions (other than the payment of
ordinary fees and expenses of members of the Board of Directors of the Company,
and other than payment of the Ramsay Group Payable) which in the aggregate would
be material, whether or not in the ordinary course of business, with any
Affiliate of the Company or any of its Subsidiaries, other than on terms and
conditions substantially as favorable to the Company or such Subsidiary as would
be obtained by the Company or such Subsidiary at the time in a comparable arm's
length transaction with a Person other than an Affiliate.
SECTION 8.6 DEBT. Incur, create, assume, guarantee, suffer to exist or
otherwise become liable on or with respect to, directly or indirectly, any Debt,
other than:
(a) any Debt owing to Purchaser or an Affiliate of Purchaser,
including, without limitation, the Senior Debt described in Section 1
of SCHEDULE 8.6;
(b) Debt outstanding on the Closing Date (other than the
Senior Debt) and listed on SCHEDULE 8.6 hereof;
(c) endorsements of negotiable or similar instruments for
collection or deposit in the ordinary course of business;
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(d) trade payables, current liabilities or similar obligations
(other than for borrowed money or purchase money obligations) from time
to time incurred in the ordinary course of business;
(e) taxes, assessments, or other governmental charges that are
not assessed or are being contested in good faith by appropriate action
promptly initiated and diligently conducted and for which Company shall
have made adequate reserves for in accordance with generally accepted
accounting principles;
(f) Senior Debt; PROVIDED, HOWEVER, that in no event shall the
principal amount of the Senior Debt exceed the sum of (i)
$19,557,233.32 reduced by the amounts of any repayments and commitment
reductions under the Senior Credit Agreement (after the date hereof) to
the extent that such payments and reductions may not be reborrowed,
plus (ii) $2,000,000;
(g) additional Subordinated Debt incurred by the Company after
the Closing Date in an amount not to exceed $5,000,000; PROVIDED THAT
such Subordinated Debt is on terms and conditions equal to, or more
favorable to the Company as the Notes; PROVIDED FURTHER THAT after
giving effect to the creation, incurrence or assumption of such
Subordinated Debt, the Company is in compliance with the covenants set
forth in SECTION 8.12 hereof, calculated on a PRO FORMA basis as of the
last day of the most recent fiscal quarter for which a compliance
certificate is required to be furnished to the Purchaser pursuant to
SECTION 6.10(C) hereof, calculated as if such Indebtedness has been
created, incurred or assumed on the first day of such period;
(h) purchase money Debt incurred by the Company in the
ordinary course of business, provided that, after incurring such Debt,
the aggregate principal amount of such Debt outstanding shall not
exceed $750,000 and no Default or Event of Default shall occur
hereunder;
(i) Capital Lease Obligations to the extent the underlying
Capital Lease is permitted pursuant to the terms of the Senior Credit
Agreement;
(j) Debt not included in paragraphs (a) through (h) above
which by its terms is unsecured and does not exceed at any time, in the
aggregate, the sum of $750,000.
SECTION 8.7 LEASE OBLIGATIONS. Create or suffer to exist any
obligations for the payment of rent for any property under operating leases or
agreements to lease (other than Capital Leases) except for rental obligations of
the Company and its Subsidiaries, on a consolidated basis, not to exceed
$750,000 in any twelve month period.
SECTION 8.8 RESTRICTED PAYMENTS. Pay or declare any dividend or make
any other distribution on or on account of any class of its stock or other
equity or make cash distributions of equity, or make interest payments on
equity, or redeem, purchase, or otherwise acquire, directly or indirectly, any
shares of its stock or other equity, or make any other payments with respect to
Debt owed to shareholders except: (i) dividends paid, or distributions made, in
the stock of the Company; (ii) dividends paid, or distributions made, in cash
with respect to Stock of the Company to the extent that the holders of the
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Warrants concurrently receives a special distribution equal to their pro rata
share of such dividend or distribution; (iii) dividends paid, or distributions
made, by a Subsidiary to another Subsidiary or to the Company; or (iv) the
repurchase of its Common Stock from an employee; (v) payment of ordinary fees
and expenses of members of the Board of Directors of the Company; and (vi)
payment of the Ramsay Group Payable.
SECTION 8.9 SALE AND LEASEBACKS. Except as set forth on Schedule 8.9,
enter into or permit any Subsidiary to enter into any arrangement, with any
lender or investor or under which such lender or investor is a party, providing
for the leasing by the Company or any Subsidiary of real or personal property,
used by the Company or any Subsidiary in the operations of the Company or any
Subsidiary, which has been or is sold or transferred by the Company or any
Subsidiary to such lender or investor or to any Person to whom funds have been
or are to be advanced by such lender or investor on the security of such rental
obligations of the Company or such Subsidiary.
SECTION 8.10 SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse or
discount or otherwise sell for less than the face value thereof, any of its
notes or accounts receivable.
SECTION 8.11 COMPLIANCE WITH ERISA. Take or fail to take, nor permit
any ERISA Affiliate to take or fail to take, any action with respect to a Plan
including, but not limited to (i) establishing any Plan, (ii) amending any Plan,
(iii) terminating or withdrawing from any Plan, or (iv) incurring an amount of
unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA, or any
withdrawal liability under Title IV of ERISA, where such action or failure could
reasonably likely have a Material Adverse Effect.
SECTION 8.12 FINANCIAL COVENANTS. At any time during the term of this
Agreement, fail to comply with the following financial covenants and ratios as
at the dates and for the fiscal periods indicated below:
(a) TOTAL DEBT TO EBITDA RATIO. The Company's Total Debt to EBITDA
Ratio, calculated on the last day of each fiscal quarter of the Company,
commencing with the quarter ending December 31, 1999, shall not exceed 3.80:1.0.
SECTION 8.13 FISCAL YEAR. Change its Fiscal Year from that in effect as
of the Closing Date.
SECTION 8.14 MODIFICATIONS TO MATERIAL CONTRACTS. Permit any Material
Contract to be terminated prior to its stated maturity in the event such
termination would result in a Material Adverse Effect.
SECTION 8.15 INCONSISTENT AGREEMENT. Enter into any contract or
agreement which would violate the terms hereof or any other Transaction
Document.
SECTION 8.16 NO REPURCHASE AGREEMENTS. Enter into any agreements to
repurchase any of its Stock upon the death or disability of any of its
shareholders, nor shall it maintain life insurance policies on any of its
shareholders for such purpose.
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ARTICLE 9.
EVENTS OF DEFAULT
SECTION 9.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether or not it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment or order of any court or any order, rule, or regulation of any
governmental or nongovernmental body:
(a) failure of the Company to pay any principal or interest on
any of the Notes or any other amount payable hereunder or under any
other Loan Document when due; or
(b) failure on the part of the Company to perform or observe
any covenant contained in ARTICLE 8 or SECTIONS 7.1, 7.3 OR 7.10
hereof; or
(c) failure on the part of the Company to perform or observe
any other term, covenant or agreement contained in this Agreement not
specifically referred to in this ARTICLE 9, and any such failure
remains unremedied for 30 days after the earlier of (i) the discovery
thereof by the Company or (ii) written notice thereof to the Company by
the Purchaser; or
(d) any warranty or representation made by or on behalf of the
Company contained herein or in any instrument furnished in compliance
with or in reference to this Agreement is false or misleading in any
material respect on the date as of which made; or
(e) the Company or any of its Subsidiaries shall fail to pay
its debts generally as they come due, or shall file any petition or
action for relief under any bankruptcy, reorganization, insolvency or
moratorium law, or any other law or laws for the relief of, or relating
to, debtors; or
(f) an involuntary petition shall be filed under any
bankruptcy statute against the Company or any of its Subsidiaries, or a
custodian, receiver, trustee, assignee for the benefit of creditors (or
other similar official) shall be appointed to take possession, custody,
or control of the properties of the Company or any of its Subsidiaries,
unless such petition or appointment is set aside or withdrawn or ceases
to be in effect within sixty (60) days from the date of said filing or
appointment or an order for relief shall be entered in any such
involuntary action; or
(g) the Company or any of its Subsidiaries (i) shall fail to
make any payment when due (whether by scheduled maturity, required
prepayment, acceleration or otherwise) with respect to any Debt (other
than Senior Debt) in excess of $500,000 in the aggregate, or (ii) shall
fail to perform or observe any other agreement, term or condition
contained in any agreement under which any Debt described in clause (i)
is created (or if any other event shall occur and be continuing
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thereunder) and the effect of such failure or other event set forth in
clause (i) or (ii) above is to cause the holders thereof to cause such
obligation to become due prior to any stated maturity; or
(h) a Change of Control shall occur; or
(i) any order or judgment for the payment of money in excess
of $600,000 shall be rendered against the Company or any of its
Subsidiaries, and such order or judgment shall continue unsatisfied and
unstayed for more than thirty (30) days, unless (i) defense of the
action, suit or proceeding has been tendered to the Company's or such
Subsidiary's insurance carrier, and (ii) the company's or such
Subsidiary's insurance carrier has not denied or disputed coverage; or
(j) any material default shall occur and be continuing
pursuant to the terms of any of the other Loan Documents or any Senior
Debt shall be declared to be due and payable or required to be prepaid,
redeemed, purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof and, in each case, other than
pursuant to the mandatory prepayment or optional prepayment provisions
of the Senior Debt Documents, or the maturity of any or all of such
Senior Debt is otherwise accelerated, or the Company or any of its
Subsidiaries shall fail to pay all or any portion of the Senior Debt in
full upon the final stated maturity of such Senior Debt; or
(k) the Company shall disavow, revoke or terminate any
Transaction Document to which it is a party or shall otherwise
challenge or contest in any action, suit or proceeding in any court or
before any arbitrator or governmental body the validity or
enforceability of this Agreement, the Notes or any other Transaction
Document; or
(l) a warrant or writ of attachment or execution or similar
process shall be issued against any property of the Company or any of
its Subsidiaries which exceeds, individually or together with all other
such warrants, writs and processes since the Closing Date, $600,000 in
amount and such warrant, writ or process shall not be discharged,
vacated, stayed or bonded for a period of 60 days; PROVIDED, HOWEVER,
that in the event a bond has been issued in favor of the claimant or
other Person obtaining such attachment or writ, the issuer of such bond
shall execute a waiver or subordination agreement in form and substance
satisfactory to the Purchaser pursuant to which the issuer of such bond
subordinates its right of reimbursement, contribution or subrogation to
the Obligations and waives or subordinates any Lien it may have on the
assets of the Company or any Subsidiary; or
(m) the Company or any of its Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material
part of its business and such order continues for more than thirty (30)
days; or
(n) the loss, suspension or revocation or failure to renew of,
any license, permit or Material Contract now held or hereafter acquired
by the Company or any of its Subsidiaries, if such loss, suspension,
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revocation or failure to renew could reasonably likely have a Material
Adverse Effect; or
(o) any order, judgment or decree is entered against the
Company or any of its Subsidiaries decreeing the dissolution or split
up of the Company or that Subsidiary and such order remains
undischarged or unstayed for a period in excess of sixty (60) days; or
SECTION 9.2 REMEDIES ON DEFAULT. (a) Upon the occurrence and
continuation of an Event of Default (other than an Event of Default described in
SECTION 9.1 (E) and (F)), the Required Purchasers, subject to the Subordination
Agreement, may, in their sole discretion, but shall not be obligated to, declare
all amounts payable by the Company under the Notes to be forthwith due and
payable, including, without limitation, costs of collection (including
reasonable attorneys' fees if collected by or through an attorney at law or in
bankruptcy, receivership or other judicial proceedings) and the same shall
thereupon become immediately due and payable without demand, presentment,
protest or further notice of any kind, all of which are hereby expressly waived,
and may exercise all of its rights and remedies under the Loan Documents or
under applicable law.
(b) Upon the occurrence of any Event of Default set forth in
clause (E) or (F) above, without any notice to the Company or any other
act by the Required Purchasers, all amounts payable by the Company
under the Notes, including, without limitation, all costs of collection
(including reasonable attorneys' fees if collected by or through an
attorney at law or in bankruptcy, receivership or other judicial
proceedings) shall be immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby
expressly waived by the Company.
(c) No remedy herein conferred or reserved is intended to be
exclusive of any other available remedy or remedies, but each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given under this Agreement or now or hereafter existing at law
or in equity or by statute. No delay or omission to exercise any right
or power accruing upon any default, omission or failure of performance
hereunder shall impair any such right or power or shall be construed to
be a waiver thereof, but any such right or power may be exercised from
time to time and as often as may be deemed expedient. In order to
exercise any remedy reserved to the Purchaser in this Agreement, it
shall not be necessary to give any notice, other than such notice as
may be herein expressly required.
ARTICLE 10.
MISCELLANEOUS
SECTION 10.1 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopier) and shall be
effective (a) if given by mail, when deposited in the mails or (b) if given by
telecopier, when so telecopied. Notices hereunder shall be mailed or telecopied
as follows:
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If to the Company or any other Consolidated Company:
If to the Company:
Ramsay Youth Services, Inc.
One Alhambra Plaza
Suite 750
Coral Gables, Florida 33134
Attn: Mr. Marcio C. Cabrera
Telecopy Number: (305) 569-4647
Telephone Number: (305) 569-4652
with a copy to:
Torys
237 Park Avenue
New York, New York 10017
Attn: Joseph J. Romagnoli, Esq.
Telecopy Number: (212) 682-0200
Telephone Number: (212) 880-6000
If to the Purchaser:
SunTrust Banks, Inc.
303 Peachtree Street, Suite 2400
Atlanta, GA 30308
Attn: Mr. Robert L. Dudiak
Telecopy Number: (404) 724-3754
Telephone Number: (404) 588-8735
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, GA 30303
Attn: Hector E. Llorens, Jr., Esq.
Telecopy Number: (404) 572-4600
Telephone Number: (404) 572-5100
SECTION 10.2 NO WAIVER. No delay or failure on the part of the
Purchaser or any holder of the Notes and the exercise of any right, power or
privilege granted under this Agreement or any other Transaction Document or
available at law or in equity, shall impair any such right, power or privilege
or be construed as a waiver of any Event of Default or any acquiescence therein.
No single or partial exercise of any such right, power or privilege shall
preclude the further exercise of such right, power or privilege. No waiver shall
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<PAGE> 44
be valid against the Purchaser unless made in writing and signed by the
Purchaser, and then only to the extent expressly specified therein.
SECTION 10.3 EXPENSES.
(1) The Company agrees to pay on demand all costs, expenses,
(i) incurred by the Purchaser in connection with the preparation,
execution and delivery of this Agreement and all other Transaction
Documents, including the reasonable fees and disbursements of counsel
for the Purchaser in an amount not to exceed $50,000; (ii) incurred by
the Purchaser in connection with the preparation, execution and
delivery of any waiver, amendment or consent by the Purchaser relating
to the Transaction Documents, including the reasonable costs and fees
of counsel for the Purchaser; and (iii) incurred by the Purchaser,
including the reasonable costs and fees of its counsel, in connection
with the enforcement of the Transaction Documents.
(2) The Company agrees to indemnify, pay and hold the
Purchaser and any holder of any of the Notes and the Warrants and the
officers, directors, employees and agents of the Purchaser and such
holders (the "INDEMNIFIED PERSONS") harmless from and against any and
all liabilities, losses, damages, costs and expenses of any kind
(including, without limitation, the reasonable fees and disbursements
of counsel for any Indemnified Person in connection with any
investigative, administrative or judicial proceeding, whether or not
such Indemnified Person shall be designated a party thereto) which may
be incurred by any Indemnified Person, relating to or arising out of
the enforcement of this Agreement, the Notes, the Warrants or any other
Transaction Document or any actual or proposed use of proceeds of the
Note; PROVIDED, that no Indemnified Person shall have the right to be
indemnified hereunder for its own gross negligence or willful
misconduct, as determined by a court of competent jurisdiction.
SECTION 10.4 AMENDMENTS, ETC. Any provision of this Agreement, the
Notes, or any other Loan Document to which the Company is a party may be amended
or waived, if such amendment or waiver is in writing and is signed by the
Company, as the case may be, and the Required Purchasers; PROVIDED THAT, without
the approval in writing of each Purchaser with respect to its Note, no
amendment, modification, supplement, termination, waiver, or consent may be
effective:
(a) to amend or modify the principal of such Note, or the
amount of principal payments or prepayments required hereunder, or the
rate of interest payable on any Note;
(b) to postpone any date fixed for any payment of principal
of, prepayment of principal of, or any installment of interest on, any
Note or to extend the term of any Note;
(c) to amend or modify the definitions of "Required
Purchasers," or the provisions of this SECTION 9.4;
Any amendment, modification, supplement, termination, waiver or consent effected
in accordance with this SECTION 9.4 shall apply equally to, and shall be binding
upon, all Purchasers.
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<PAGE> 45
SECTION 10.5 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; PROVIDED, that the Company may not assign or
otherwise transfer any of its rights or obligations under this Agreement, the
Notes or any other Transaction Document to any Person without the prior written
consent of the Purchaser. Such assignee shall have, to the extent of such
assignment (unless otherwise provided therein), the same rights, obligations and
benefits as it would have if it were the Purchaser hereunder and under the other
Loan Documents. Notwithstanding the foregoing, the Purchaser may sell or
otherwise grant participations in all or any part of the Notes. The holder of
any such participation, if the participation agreement so provides, shall have
the same rights and benefits of the Purchaser hereunder.
SECTION 10.6 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE WARRANTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
GEORGIA (WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICTS OF LAWS).
SECTION 10.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made by or furnished on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement.
SECTION 10.8 SEVERABILITY. If any part of any provision contained in
this Agreement shall be invalid or unenforceable under applicable law, said part
shall be ineffective to the extent of such invalidity only, without in any way
affecting the remaining parts of said provision or the remaining provisions.
SECTION 10.9 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which, taken together, shall constitute one and the same instrument.
SECTION 10.10 SET-OFF. Upon the occurrence and during the continuation
of an Event of Default, each Consolidated Company authorizes the Purchaser,
without notice or demand, to apply any indebtedness due or to become due to such
Consolidated Company from the Purchaser in satisfaction of any of the
indebtedness, liabilities or obligations of such Consolidated Company under this
Agreement or under any other Loan Document, including, without limitation, the
right to set-off against any deposits or other cash collateral of the Company
held by the Purchaser or an Affiliate thereof.
SECTION 10.11 TERMINATION OF AGREEMENT. This Agreement shall terminate
upon the payment in full of the Notes and all Obligations relating thereto;
provided that, SECTIONS 3.2, 3.3 and 10.3 shall survive the termination of this
Agreement.
SECTION 10.12 JURISDICTION AND VENUE. EACH CONSOLIDATED COMPANY AGREES,
WITHOUT POWER OF REVOCATION, THAT ANY CIVIL SUIT OR ACTION BROUGHT AGAINST IT AS
A RESULT OF ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT OR UNDER ANY OTHER
TRANSACTION DOCUMENT TO WHICH IT IS A PARTY MAY BE BROUGHT AGAINST IT EITHER IN
THE IN THE CIRCUIT COURT OF FULTON COUNTY, GEORGIA, OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, AND THAT SERVICE OF PROCESS
MAY BE MADE UPON IT IN ANY SUCH SUIT OR ACTION BY SERVICE OF PROCESS AS PROVIDED
BY GEORGIA LAW. EACH CONSOLIDATED COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
40
<PAGE> 46
JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTIONS THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF SUCH CIVIL SUIT OR ACTION AND ANY CLAIM THAT SUCH CIVIL SUIT OR
ACTION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH CONSOLIDATED COMPANY
AGREES THAT FINAL JUDGMENT IN ANY SUCH CIVIL SUIT OR ACTION SHALL BE CONCLUSIVE
AND BINDING UPON IT AND SHALL BE ENFORCEABLE AGAINST IT BY SUIT UPON SUCH
JUDGMENT IN ANY COURT OF COMPETENT JURISDICTION.
SECTION 10.13 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, SUBSIDIARY
GUARANTOR AND PURCHASER KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY
WAIVE THE RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION, WHETHER IN CONTRACT OR TORT, AT LAW OR EQUITY, BASED HEREON, OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER
DOCUMENT OR INSTRUMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF ANY PARTY HERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
PURCHASER ENTERING INTO THIS AGREEMENT. FURTHER, EACH CONSOLIDATED COMPANY
HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF PURCHASER, NOR THE
PURCHASER'S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT PURCHASER
WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT
TO JURY TRIAL PROVISION, NO REPRESENTATIVE OR AGENT OF THE PURCHASER, NOR
PURCHASER'S COUNSEL HAS THE AUTHORITY TO WAIVE, CONDITION, OR MODIFY THIS
PROVISION.
SECTION 10.14 ENTIRE AGREEMENT. This Agreement, the Notes, the Warrants
and the other Transaction Documents to which the Company is a party, together
with any exhibits and schedules attached hereto and thereto, constitute the
entire understanding of the parties with respect to the subject matter hereof
and thereof, and any other prior or contemporaneous agreements, whether written
or oral, with respect hereto or thereto are expressly superseded hereby. The
execution of this Agreement, the Notes, the Warrants and the other Transaction
Documents to which the Company is a party by the Company was not based upon any
facts or materials provided by the Purchaser, nor was the Company induced to
execute this Agreement, the Note, the Warrants or the other Transaction
Documents to which the Company is a party by any representation, statement or
analysis made by the Purchaser.
[SIGNATURES ON FOLLOWING PAGES]
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<PAGE> 47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized officers all as of the day and year first above
written.
COMPANY:
RAMSAY YOUTH SERVICES, INC.
By: ___________________________________
Marcio C. Cabrera
Executive Vice President
SUBSIDIARY GUARANTORS:
BETHANY PSYCHIATRIC HOSPITAL, INC.,
an Oklahoma corporation
BOUNTIFUL PSYCHIATRIC HOSPITAL, INC.,
a Utah corporation
EAST CAROLINA PSYCHIATRIC SERVICES
CORPORATION, a North Carolina corporation
GREAT PLAINS HOSPITAL, INC., a Missouri
corporation
GULF COAST TREATMENT CENTER, INC.,
a Florida corporation
H.C. CORPORATION, an Alabama corporation
HAVENWYCK HOSPITAL, INC., a Michigan
corporation
HSA HILL CREST CORPORATION, an
Alabama corporation
HSA OF OKLAHOMA, INC., an Oklahoma
corporation
MICHIGAN PSYCHIATRIC SERVICES, INC.,
a Michigan corporation
[SIGNATURE PAGE TO SUBORDINATED
NOTE AND WARRANT PURCHASE AGREEMENT]
42
<PAGE> 48
RAMSAY EDUCATIONAL SERVICES, INC.,
a Delaware corporation
RAMSAY HOSPITAL CORPORATION OF LOUISIANA,
INC., a Louisiana corporation
RAMSAY LOUISIANA, INC., a Delaware
corporation
RAMSAY MANAGED CARE, INC., a Delaware
corporation
RAMSAY YOUTH SERVICES OF ALABAMA, INC.,
a Delaware corporation
RAMSAY YOUTH SERVICES OF FLORIDA, INC., a
Delaware corporation
RAMSAY YOUTH SERVICES OF SOUTH CAROLINA, INC.,
a Delaware corporation
RAMSAY YOUTH SERVICES PUERTO RICO, INC.,
a Puerto Rico corporation
RHCI SAN ANTONIO, INC., a Delaware
corporation
TRANSITIONAL CARE VENTURES, INC., a
Delaware corporation
TRANSITIONAL CARE VENTURES (TEXAS), INC.,
a Delaware corporation
By:_____________________________
Marcio C. Cabrera
Vice President
Address For all Subsidiary's:
c/o Ramsay Youth Services
One Alhambra Plaza
Suite 750
Coral Gables, Florida 33134
Attention: Mr. Marcio C. Cabrera
[SIGNATURE PAGE TO SUBORDINATED
NOTE AND WARRANT PURCHASE AGREEMENT]
43
<PAGE> 49
H.C. PARTNERSHIP
By: H.C. CORPORATION, an Alabama
corporation, as a general partner
By:_______________________
Marcio C. Cabrera
Vice President
By: HSA HILL CREST CORPORATION,
an Alabama corporation, as a general
partner
By:_______________________
Marcio C. Cabrera
Vice President
Address for both:
c/o Ramsay Youth Services, Inc.
One Alhambra Plaza
Suite 750
Coral Gables, Florida 33134
Attention: Mr. Marcio C. Cabrera
[SIGNATURE PAGE TO SUBORDINATED
NOTE AND WARRANT PURCHASE AGREEMENT]
44
<PAGE> 50
PURCHASER:
SUNTRUST BANKS, INC.
By: ___________________________________
Robert L. Dudiak
Group Vice President
[SIGNATURE PAGE TO SUBORDINATED
NOTE AND WARRANT PURCHASE AGREEMENT]
45
<PAGE> 1
Exhibit 10.142
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of January 25, 2000, by
and between RAMSAY YOUTH SERVICES, INC., a Delaware corporation (the "COMPANY"),
and SUNTRUST BANKS, INC., a Georgia corporation (the "PURCHASER").
RECITALS
WHEREAS, the Company and the Purchaser are parties to that certain
Subordinated Note and Warrant Purchase Agreement dated as of January 25, 2000
(as amended, supplemented or otherwise modified from time to time, the "PURCHASE
AGREEMENT") providing for, among other things, the purchase by the Purchaser of
Warrants which, in accordance with the terms of the Purchase Agreement, will be
exercisable for shares of Common Stock of the Company; and
WHEREAS, in connection with the purchase by the Purchaser of the
Warrants, the Company and the Purchaser have entered into that certain Warrant
Agreement dated as of January 25, 2000 (as amended, supplemented or otherwise
modified from time to time, the "WARRANT AGREEMENT") providing for, among other
things, additional terms and conditions regarding the Warrants.
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. CERTAIN DEFINITIONS. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to such terms in the Warrant
Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"ACCEPTANCE NOTICE" shall have the meaning set forth in SECTION
2(b)(ii).
"AFFILIATE" shall mean, with respect to any Person (the "SPECIFIED
PERSON"), any other Person other than the Specified Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, the Specified Person. For purposes of this definition, the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of any Person, whether through the
ownership of voting securities, partnership interests, any contract or
otherwise; PROVIDED, HOWEVER, that the holding by Purchaser of the Warrant
Securities shall not be deemed to constitute Purchaser as an Affiliate of the
Company hereunder.
"COMMISSION" shall mean the Securities and Exchange Commission of the
United States or any other United States federal agency at the time
administering the Securities Act.
"HOLDER" shall mean the Purchaser and its transferees as permitted by
SECTION 10 holding Registrable Securities or securities convertible into or
exercisable for Registrable Securities.
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<PAGE> 2
"INDEMNIFIED PARTY" shall have the meaning set forth in SECTION 7(c).
"INDEMNIFYING PARTY" shall have the meaning set forth in SECTION 7(c).
"INITIATING HOLDER" shall mean the Holder who initiates a request for
registration pursuant to SECTION 2(a).
"OFFER" shall have the meaning set forth in SECTION 2(b)(ii).
"OTHER HOLDERS" shall mean holders of Company securities, other than
Holders, proposing to distribute their securities pursuant to a registration
under the Securities Act.
"QUOTED PRICE" of Common Stock on any day is the last reported sales
price of the Common Stock on such day as reported by Nasdaq or, if the Common
Stock is listed on a national securities exchange, the last reported sales price
of the Common Stock on such exchange (which shall be for consolidated trading if
applicable to such exchange) on such day or, if the Common Stock is neither
reported nor listed, the average of the last reported bid and asked prices of
the Common Stock on such day.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRABLE SECURITIES" shall mean the Warrant Shares. Shares of
Common Stock or other securities shall cease to be Registrable Securities if (A)
they have been effectively registered under the Securities Act and disposed of
in accordance with the registration statement covering them, (B) they have
become eligible for sale pursuant to Rule 144 (or any similar provision then in
force under the Securities Act), (C) this Agreement is terminated with respect
to the holder of such securities or (D) they are acquired by the Company or any
of its Subsidiaries. The Company shall be required to register only Common Stock
pursuant to this Agreement and, consistent therewith, any Holder shall exercise
or convert, as a condition to participation in any registration under this
Agreement, its Warrant in conjunction with the inclusion of such Warrant Shares
in any registration by the Company contemplated by this Agreement.
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<PAGE> 3
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with SECTIONS 2 AND 3 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, fees and expenses of one counsel
for all Holders, blue sky fees and expenses, fees and expenses of all
independent certified public accountants of the Company (including, without
limitation, the expenses of any special audit and, in connection with any
underwritten offering, "cold comfort" letters), fees and expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange on which securities of the same class are then listed or the
qualification for trading of the securities to be registered in each
inter-dealer quotation system in which securities of the same class are then
traded, and fees and expenses associated with any NASD filing required to be
made in connection with such registration, but excluding any and all
underwriting discounts and commissions.
"REGISTRATION NOTICE" shall have the meaning set forth in SECTION 2(A).
"RULE 145 TRANSACTION" shall mean a transaction described in clause (a)
of Rule 145 promulgated under the Securities Act.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and all fees and disbursements of counsel for each of the Holders
other than fees and expenses of one counsel for all Holders.
"SELLING HOLDERS" shall mean each Holder who holds Registrable
Securities included in a registration statement under the Securities Act
pursuant to this Agreement.
2. REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from an Initiating Holder a written request that the Company effect a
registration or qualification with respect to a public offering of shares of
then outstanding Registrable Securities (a "REGISTRATION NOTICE"), the Company
will as soon as practicable, use its best efforts to effect such registration or
qualification (including, without limitation, appropriate qualification under
applicable blue sky or other state securities laws) as may be so requested and
as would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such Registration Notice.
Notwithstanding the foregoing, the Company shall not be obligated to effect, or
to take any action to effect, any such registration or qualification pursuant to
this SECTION 2(a):
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration or qualification unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(ii) during the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company to be sold by the Company
(other than a registration of securities in a Rule 145 Transaction or with
respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective;
(iii) after the Company has effected one registration at
the request of the Holders pursuant to this SECTION 2(a) (in the aggregate for
all Holders), only if a registration statement covering all Registrable
Securities requested by the Initiating Holder to be registered pursuant to this
SECTION 2(a) shall have become effective and, if the method of disposition is a
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<PAGE> 4
firm commitment underwritten public offering, all such Registrable Securities
shall have been sold pursuant thereto;
(iv) if any firm of counsel representing the Company in
connection with any such registration shall advise the Company and the Holders
in writing that in their opinion the registration under the Securities Act
contemplated hereby is not necessary to permit the sale in the intended method
of disposition by the Holders, of the Registrable Securities in a transaction
constituting a public offering within the meaning of the Securities Act, then
the Company shall not be required to take any action with respect to such
registration; provided, however, that the provisions of this clause (iv) shall
not apply if the Holder reasonably determines that the Company's failure to take
any action with respect to such registration could result in a sale of such
Registrable Securities under terms and conditions less favorable to Holder than
if the Registrable Securities were registered as provided herein, or if such
failure to register the Registrable Securities could delay the sale of the
Registrable Securities by the Holder.
(v) if the Company shall furnish to the Initiating Holder
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future or that a delay is necessary to avoid the disclosure of material
non-public information concerning the Company or its Subsidiaries, then the
Company's obligation to use its best efforts to register or qualify under this
SECTION 2(a) shall be deferred for a period not to exceed ninety (90) days from
the date of receipt of the Registration Notice, PROVIDED, HOWEVER, that the
Company shall not utilize this right more than twice in any twelve (12) month
period; or
Subject to the foregoing clauses (i) through (v), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, and in any event within sixty (60) days after
receipt of the Registration Notice. The registration statement filed pursuant to
the request of the Initiating Holder may, subject to the provisions of Section
2(c) below, include other securities of the Company, which may be held by Other
Holders.
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<PAGE> 5
(b) COMPANY'S RIGHT TO PURCHASE.
(i) If, within ten (10) business days following the receipt by
the Company of a Registration Notice, the Company notifies the Holders of its
good faith intention to purchase such Registrable Securities in accordance with
the terms of this SECTION 2(b) and the Company notifies the Holders that the
Company reasonably believes that the Agent will unconditionally consent in
writing to the Company's purchase of such Registrable Securities, then the
Company's obligations to use its best efforts to register or qualify under
SECTION 2(A) shall be deferred for a period not to exceed ten (10) business days
following the receipt by the Holders of the Company's notice of its intent to
purchase such Registrable Securities along with a copy of the Agent's
unconditional written consent to the Company purchasing such Registrable
Securities, unless the Company delivers an Acceptance Notice (as defined in
clause (ii) below) to the Holders along with a copy of the Agent's unconditional
written consent to the Company purchasing such Registrable Securities, in which
case the Company's obligations shall be deferred for a period not to exceed
thirty (30) days following the receipt by the Holders of the Acceptance Notice.
(ii) A Holder's request for registration pursuant to SECTION
2(a) shall be an offer by such Holder (the "OFFER") to sell to the Company all
Warrant Shares proposed to be included in such registration by such Holder for a
cash purchase price equal to the product of (A) the average of the Quoted Prices
for the Common Stock for the thirty (30) consecutive trading days commencing
forty-five (45) trading days prior to such Registration Notice multiplied by (B)
the number of Warrant Shares offered to the Company by such Holder. After
receipt by the Company of a Registration Notice pursuant to SECTION 2(a), the
Company shall have ten (10) business days to give written notice of its
intention to accept or reject the Offer and agree to purchase all, but not less
than all, Warrant Shares proposed to be included in such registration. Failure
to respond within such 10-day period shall be deemed notice of rejection. In the
event that the Company notifies the Holders of its intention to accept such
Offer (the "ACCEPTANCE NOTICE"), then the Acceptance Notice, taken in
conjunction with the Offer, shall constitute a valid and legally binding
purchase and sale agreement, and payment in cash for such Warrant Shares shall
be made by the Company within thirty (30) days following the receipt by the
Holders of the Acceptance Notice. If the Company rejects or is deemed to reject
the Offer (or if the Company did not in good faith intend to accept the Offer),
the Company will expeditiously prepare and file a registration statement with
respect to, and use its best efforts to effect the registration of, the
Registrable Securities requested to be registered pursuant to SECTION 2(A).
(iii) If the Company gives an Acceptance Notice, it shall
promptly notify each Holder that elected to participate in the Registration
Notice, and the Company shall have no obligation to register the shares of
Registrable Securities as to which the election to participate was made until
subsequently obligated to do so under SECTION 2 or 3.
(c) UNDERWRITING. If the Initiating Holder intends to
distribute the Registrable Securities covered by its request by means of an
underwriting, it shall so advise the Company as a part of its request made
pursuant to Section 2(a). If Other Holders having registration rights with the
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<PAGE> 6
Company request inclusion in any such registration, the Selling Holders shall
offer to include the securities of such Other Holders in the underwriting
subject to the applicable provisions of this Section 2. The Selling Holders and
the Company shall (together with all Other Holders proposing to distribute their
securities through such underwriting) enter into underwriting and related
agreements in customary form with the representative of the underwriter or
underwriters selected for such underwriting by the Company. Such underwriting
agreement will contain such representations and warranties by the Company and
such other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, indemnities and contribution to the effect and to the extent
provided in Section 7 hereof and the provision of opinions of counsel and
accountants' letters to the effect and to the extent provided in Section 6
hereof, and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of the Selling Holders. The Company shall
reasonably cooperate with the Selling Holders and the underwriters in connection
with any underwritten offering. Notwithstanding any other provision of this
Section 2(c), if the representative advises the Selling Holders in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the securities of the Company held by Other Holders shall be
excluded from such registration to the extent so required by such limitation.
If, after the exclusion of such securities, still further reductions are still
required, the number of shares included in the registration by each Selling
Holder shall be allocated ratably among them (based on the number of shares held
by such Selling Holder), by such minimum number of shares as is necessary to
comply with such request; provided, that there shall be no reduction in the
number of shares included in the registration by any Selling Holder until all
shares of Other Holders have been excluded from such registration. No
Registrable Securities or any other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Other Holder who has requested inclusion in such
registration as provided above disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holder. The securities so withdrawn shall
also be withdrawn from registration. If the underwriter has not limited the
number of Registrable Securities or other securities to be underwritten, the
Company and officers and directors of the Company may include its or their
securities for its or their own account in such registration if the managing
underwriter of such proposed underwritten offering so agrees and if the number
of Registrable Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be limited.
3. COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time the Company
shall determine to register any of its equity securities, either for its own
account or the account of a security holder or holders (including, without
limitation, pursuant to SECTION 2), other than (i) a registration relating
solely to employee benefit plans, (ii) pursuant to a registration statement on
Form S-4, or any successor to such Form or (iii) a registration relating solely
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to a Rule 145 Transaction or a registration on any registration form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) give prompt (and in any event within twenty business (20)
days before the anticipated filing date of the related registration statement)
written notice thereof to each Holder indicating the proposed offering price and
describing the plan of distribution; and
(ii) include in such registration (and any related
qualification under blue sky laws) and, at the request of any Holder, in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within ten (10) business days
after the giving of the written notice from the Company described in clause (i)
above, except as set forth in Section 3(b) below. Such written request by a
Holder shall specify the amount of Registrable Securities intended to be
disposed of by a Holder and may specify all or a part of the Holders'
Registrable Securities.
No registration of Registrable Securities effected under this SECTION 3(a) shall
relieve the Company of its obligation to effect a registration of Registrable
Securities pursuant to SECTION 2(a).
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to SECTION 3(A)(I). In such event the right of any Holder to
registration pursuant to this SECTION 3(B) shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided in this
SECTION 3(B). All Holders proposing to distribute their securities through such
underwriting shall, together with the Company and the Other Holders, enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. The Company shall use its
reasonable best efforts to cause the managing underwriter of such proposed
underwritten offering to permit the Registrable Securities proposed to be
included in such registration to be included in the registration statement for
such offering on the same terms and conditions as any similar securities of the
Company included therein, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign corporation in any
jurisdiction where it is not so qualified, or to subject itself to taxation in
any such jurisdiction, or to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction. Notwithstanding any other
provision of this SECTION 3, the Company shall be entitled to include in the
registration all of the shares which the Company desires to sell for its own
account, and if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities and other securities to be
included in such registration. The Company shall so advise all Selling Holders
and Other Holders, and the number of shares that may be included in the
registration and underwriting by all Selling Holders and Other Holders (the
"Includable Securities") shall be allocated pro rata among them, as nearly as
practicable, as follows: FIRST, Includable Securities shall be allocated among
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the Other Holders, if any, exercising their demand registration rights; SECOND,
the Holders and Other Holders exercising "piggy back" registration rights; and
THIRD, the remainder of the Includable Securities to the remaining Other
Holders. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
or Other Holder to the nearest one hundred (100) shares. If any Holder or Other
Holder disapproves of the terms of any such underwriting, such person may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting also
shall be withdrawn from such registration, and shall not be transferred prior to
one hundred eighty (180) days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall
have the right for any reason to terminate or withdraw any registration
initiated by it under this SECTION 3 prior to the effectiveness of such
registration whether or not any Holder has elected to include Registrable
Securities in such registration and thereafter the Company shall be relieved of
its obligation to register such Registrable Securities in connection with the
registration of such equity securities.
4. LIMITATIONS ON REGISTRATION RIGHTS OF OTHERS. Except as set
forth on Schedule 4 attached hereto, the Company represents and warrants that,
except pursuant to this Agreement, it has not granted to any Person the right to
request or require the Company to register any securities issued by the Company.
The Company also covenants and agrees that, from and after the date hereof, the
Company will not, without the prior written consent of holders of a majority of
the then outstanding Warrant Securities, enter into any agreement with any
holder or prospective holder of any securities of the Company that allows such
holder or prospective holder of any securities of the Company to include such
securities in any registration filed under SECTION 2 hereof, unless the rights
granted under the terms of such agreement are expressly subject to the rights of
registration granted to the Holders pursuant to SECTION 2 hereof.
5. EXPENSES OF REGISTRATION.
(a) REGISTRATION EXPENSES. The Company shall bear all
Registration Expenses incurred in connection with all registrations pursuant to
SECTIONS 2 and 3. In the event the Initiating Holder withdraws a Registration
Notice or abandons a registration statement, then all Registration Expenses in
respect of such Registration Notice shall be borne, at the Initiating Holders'
option, either by the Initiating Holders or by the Company (in which case, if
borne by the Company, such withdrawn or abandoned registration shall be deemed
to be an effective registration for purposes of SECTION 2(A)(III)).
(b) SELLING EXPENSES. All Selling Expenses relating to
securities registered on behalf of the Holders and Other Holders shall be borne
by the Holders and Other Holders pro rata on the basis of the number of shares
so registered.
6. REGISTRATION AND QUALIFICATION. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
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<PAGE> 9
Securities pursuant to SECTION 2, the Company will use its best efforts to
effect such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto it will, as promptly as is practicable:
(a) before filing a registration statement or prospectus
or any amendments or supplements thereto, furnish to the counsel of the Selling
Holders copies of all documents proposed to be filed, which documents will be
made available on a timely basis, for review by such counsel to the Holders;
(b) prepare and file with the Commission, as soon as
practicable, and use its best efforts to cause to become effective, a
registration statement under the Securities Act relating to the Registrable
Securities to be offered on such form under the Securities Act as the Initiating
Holder or, if not filed pursuant to SECTION 2 hereof, the Company, determines,
and for which the Company then qualifies;
(c) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement for a period of one hundred eighty (180)
days or until such time as all of such Registrable Securities have been disposed
of in accordance with the intended methods of disposition set forth in such
registration statement, whichever first occurs.
(d) furnish to the Selling Holders and to any underwriter
of Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus) and any amendment or supplement thereto, in conformity with
the requirements of the Securities Act, such documents incorporated by reference
in such registration statement or prospectus, and such other documents, as the
Selling Holders or such underwriter may reasonably request, and, if requested, a
copy of any and all transmittal letters or other correspondence to, or received
from, the Commission or any other governmental agency or self-regulatory body or
other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(e) make reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of such registration statement at the
earliest possible moment;
(f) if requested by a Selling Holder, (i) use its
reasonable best efforts to furnish to each Selling Holder and to any underwriter
an opinion of counsel for the Company addressed to each Selling Holder and
underwriter and dated the date of the closing under the underwriting agreement
(if any) (or if such offering is not underwritten, dated the effective date of
the registration statement), (ii) use its reasonable best efforts to furnish to
each Selling Holder a "cold comfort" or "special procedures" letter addressed to
each Selling Holder and signed by the independent public accountants who have
audited the Company's financial statements included in such registration
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<PAGE> 10
statement, (iii) make such representations and warranties to the Selling Holders
and, in connection with any underwritten offering, to the underwriters, in each
such case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are customarily
covered in opinions of issuer's counsel and in accountants letters delivered to
underwriters and in underwriting agreements in underwritten public offerings of
securities and such other matters as the Selling Holders may reasonably request
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements;
(g) immediately notify the Selling Holders in writing (i)
at any time when a prospectus relating to a registration hereunder is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (ii) of any request by the Commission or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case, at the request of a Selling Holder, prepare and furnish to
such Selling Holders a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading;
(h) use its reasonable best efforts to cause all such
Registrable Securities covered by such registration statement to be listed on
each securities exchange and inter-dealer quotation system on which a class of
common equity securities of the Company is then listed, and to pay all fees and
expenses in connection therewith;
(i) upon the transfer of shares by a Selling Holder in
connection with a registration hereunder (other than to an "affiliate" of the
Company as such term is defined in Rule 144(a)), furnish unlegended certificates
representing ownership of the Registrable Securities in such denominations as
shall be requested by the Selling Holders or the underwriters;
(j) subject to Section 2(a)(v), promptly notify the
Selling Holders and the managing underwriter, if any, and if requested by any
such Person, confirm such advice in writing,
(i) of the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement or the
initiation of any proceedings for that purpose,
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<PAGE> 11
(ii) of the Company's becoming aware at any time that the
representations and warranties of the Company contemplated by SECTION 6(F)(III)
above have ceased to be true and correct, and
(iii) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threat of any
proceeding for such purpose;
(k) if reasonably requested by the managing underwriter, if
any, or a majority in interest of the Registrable Securities being sold in
connection with an underwritten offering, promptly include in a prospectus
supplement or post-effective amendment to such registration statement such
information as the managing underwriter or such majority in interest of the
Registrable Securities being sold reasonably request to have included therein
relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
amount of Registrable Securities being sold to such underwriters and any other
terms of the underwritten (or best-efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such prospectus supplement or post-effective amendment to such
registration statement as soon as practicable after the Company is notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment to such registration statement;
(l) prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify or reasonably cooperate
with the Selling Holders, the managing underwriter, if any, and their respective
counsel in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any Selling Holder or managing underwriter reasonably requests
or as may be required by the Securities Act or applicable rule or regulations
thereunder, and do any and all other facts or things necessary to enable the
disposition in such jurisdictions of the Registrable Securities covered by such
registration statement, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign corporation in any
jurisdiction where it is not so qualified, or to subject itself to taxation in
any such jurisdiction, or to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction;
(m) reasonably cooperate and assist in any filings required to
be made with the NASD and any performance of any due diligence investigation by
any underwriter (including any "qualified independent underwriter" as required
to be retained in accordance with the rules and regulations of the NASD); and
(n) otherwise use its reasonable best efforts to comply with
the Securities Act, the Exchange Act, all applicable rules and regulations of
the Commission and all applicable state blue sky and other securities laws,
rules and regulations.
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7. INDEMNIFICATION.
(a) BY THE COMPANY. The Company will indemnify each
Holder, each of its officers and directors, partners, employees, Affiliates and
agents, and each person controlling such Holder within the meaning of Section 15
of the Securities Act, with respect to which registration or qualification has
been effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained (or incorporated by reference) in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration or qualification, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Company of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration or qualification, and the Company will reimburse each such Holder,
each of its officers, directors, partners, employees, Affiliates and agents, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable to any
such Holder, controlling person or underwriter in any such case to the extent
that any such expense claim, loss, damage, liability or action arises out of or
is based on any untrue statement or omission, or alleged untrue statement or
omission, made or incorporated by reference in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder,
controlling person or underwriter for use therein. If the Holders are
represented by counsel other than counsel for the Company, the Company will not
be obligated under this SECTION 7(a) to reimburse legal fees and expenses of
more than one separate counsel for the Holders.
(b) BY HOLDERS. Each Selling Holder will indemnify the
Company, each of its directors, officers, employees, Affiliates and agents, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other Selling Holder and
Other Holder, each of its officers, directors, partners, employees, Affiliates
and agents and each person controlling such Selling Holders and Other Holder
within the meaning of Section 15 of the Securities Act, against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement of a material fact contained (or
incorporated by reference) in any such registration statement, prospectus,
offering circular or other document, or any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company, such Selling Holders, such Other
Holders, such directors, officers, partners, employees, Affiliates and agents,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
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<PAGE> 13
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement or omission is made (or incorporated by reference) in
such registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Selling Holder for use therein. Notwithstanding the foregoing,
the liability of each Selling Holder under this subsection (b) shall be limited
in an amount equal to the gross proceeds of the shares sold by such Selling
Holder.
(c) PROCEDURE FOR INDEMNIFICATION. Each party entitled to
indemnification under paragraph (a) or (b) of this SECTION 7 (the "INDEMNIFIED
PARTY") shall, promptly after such Indemnified Party has knowledge of any claim
or the commencement of any action against such Indemnified Party in respect of
which indemnity may be sought, notify the party required to provide
indemnification (the "INDEMNIFYING PARTY") in writing of the claim or the
commencement thereof; provided that the failure of the Indemnified Party to
notify the Indemnifying Party shall not relieve the Indemnifying Party from any
liability which it may have to an Indemnified Party pursuant to the provisions
of this SECTION 7, unless the Indemnifying Party was materially prejudiced by
such failure, and in no event shall such failure relieve the Indemnifying Party
from any other liability which it may have to such Indemnified Party. If any
such claim or action shall be brought against an Indemnified Party, it shall
notify the Indemnifying Party thereof and the Indemnifying Party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified Indemnifying Party, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Party. After notice from
the Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable
(except to the extent the proviso to this sentence is applicable, in which event
it will be so liable) to the Indemnified Party under this SECTION 7 for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of investigation
prior to assumption; provided that each Indemnified Party shall have the right
to employ separate counsel to represent it and assume its defense (in which
case, counsel to the Indemnifying Party shall not represent it) if (i) upon the
written advice of counsel, the representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them (in which case, if such Indemnified Party notifies the Indemnifying
Party in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party will not have the right to assume the
defense of such claim or action on behalf of such Indemnified Party), or (ii) in
the event the Indemnifying Party has not assumed the defense thereof within
thirty (30) days of receipt of notice of such claim or commencement of action,
in which case the fees and expenses of one such separate counsel shall be paid
by the Indemnifying Party (and, in the event the Holders are an Indemnified
Party, the Indemnifying Party shall, in such event, pay for one separate counsel
for the Holders). If any Indemnified Party employs such separate counsel it will
not enter into any settlement agreement which is not approved by the
Indemnifying Party, such approval not to be unreasonably withheld or delayed. If
the Indemnifying Party so assumes the defense thereof (and by so assuming shall
be solely responsible for liabilities relating to such claim or action, and
shall release the Indemnified Party from such liabilities to the extent
permitted by law, except to the extent the Indemnified Party is not entitled to
be indemnified pursuant to this SECTION 7), it may not agree to any settlement
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<PAGE> 14
of any such claim or action as the result of which any remedy or relief, other
than monetary damages for which the Indemnifying Party shall be responsible
hereunder, shall be applied to or against the Indemnified Party, without the
prior written consent of the Indemnified Party which shall not be unreasonably
withheld or delayed. No Indemnifying Party will consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of such claim or action. In any action
hereunder as to which the Indemnifying Party has assumed the defense thereof
with counsel satisfactory to the Indemnified Party, the Indemnified Party shall
continue to be entitled to participate in the defense thereof, with counsel of
its own choice, but, except as set forth above, the Indemnifying Party shall not
be obligated hereunder to reimburse the Indemnified Party for the costs thereof.
Each Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in writing and
as shall be reasonably required in connection with the defense of such claim and
litigation recurring therefrom.
(d) CONTRIBUTION. If the indemnification provided for in
this SECTION 7 shall for any reason be unavailable to an Indemnified Party in
respect of any loss, claim, damage or liability, or any action in respect
thereof, then each Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, claim, damage or liability, or action in respect
thereof, in such proportion as shall be appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and the Indemnified Party on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault of each Indemnifying Party
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by such Indemnifying Party
on the one hand or the Indemnified Party on the other, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission, but not by reference to any Indemnified
Party's stock ownership in the Company. In no event, however, shall a Holder of
Registrable Securities be required to contribute in excess of the amount of the
gross proceeds received by such Holder in connection with the sale of
Registrable Securities in the offering which is the subject of such loss, claim,
damage or liability. The amount paid or payable by an Indemnified Party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referenced in this paragraph shall be deemed to include, for purposes of this
paragraph, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
(e) NON-SECURITIES ACT CLAIMS. Indemnification or, if
appropriate, contribution, similar to that specified in the preceding provisions
of this SECTION 7 (with appropriate modifications) shall be given by the Company
and each Selling Holder with respect to any required registration or other
qualification of Registrable Securities pursuant to this Agreement under any
federal or state law or regulation or governmental authority other than the
Securities Act.
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<PAGE> 15
8. INFORMATION BY HOLDER. Selling Holders shall furnish to the
Company such information regarding such Holders and the distribution proposed by
such Holder as shall be necessary to enable the Company to comply with the
provisions hereof in connection with any registration, qualification or
compliance referenced in this Agreement.
9. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission, which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock,
the Company agrees to use its best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act;
(b) use its reasonable best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Securities Exchange Act (at any time
after it has become subject to such reporting requirements); and
(c) so long as there are outstanding any Registrable
Securities, furnish to any Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of Rule 144 (at
any time after ninety (90) days after the effective date of the Company's first
Qualified Public Offering), and of the Securities Act and the Securities
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as such
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
10. TRANSFER OF REGISTRATION RIGHTS. The registration rights of
any Holder under SECTION 2 AND 3 of this Agreement may be assigned in connection
with any transfer or assignment by a Holder of Registrable Securities provided
that: (a) such transfer may otherwise be effected in accordance with applicable
securities laws; (b) such transfer is effected in compliance with the
restrictions on transfer contained in the Warrant Agreement and (c) such
transferee shall be bound by all obligations and limitations of this Agreement.
11. STANDOFF AGREEMENT. Each Holder agrees that if, in connection
with a secondary offering of the Company's securities after the date hereof, the
Company or the underwriters managing the offering so request, the Holders shall
not offer, sell, make any short sale of, pledge, loan, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities (other than
those included in such registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the effective date of such
registration as may be requested by the Company or the underwriters, provided
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that each member of the Controlling Shareholder Group and each officer and
director of the Company also agree to such restrictions with respect to all
securities of the Company held by such Person.
12. MISCELLANEOUS.
(a) SURVIVAL. The respective indemnities, representations
and warranties of the Holders and the Company shall survive any termination of
this Agreement or of the Holders' rights hereunder.
(b) GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of Georgia without giving
effect to the conflicts of law principles thereof.
(c) AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
at least a majority of the Registrable Securities; PROVIDED, HOWEVER, no such
waiver shall be construed to effect a continuing waiver of the provision being
waived and no such waiver shall constitute a waiver in any other instance or for
any other purpose or impair the right of the party against whom such waiver is
claimed to require full compliance with such provision in all other instances or
for all other purposes, unless such waiver by its own terms explicitly provides
to the contrary. Any amendment or waiver effected in accordance with this
paragraph will be binding upon each holder of any securities purchased under
this Agreement at the time outstanding (including securities for which such
securities are exercisable or into which such securities are convertible), each
future holder of all such securities and the Company.
(d) SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
(e) NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopier)
and shall be effective (a) if given by mail, three (3) days after having been
deposited in the mail, postage prepaid, (b) if given by reputable overnight
courier service, one (1) day after having been delivered to such overnight
delivery service, or (c) if given by telecopier, when the sender receives
written confirmation from its telecopier that the transmission was successful.
Notices hereunder shall be mailed or telecopied as follows:
-16-
<PAGE> 17
If to the Company:
Ramsay Youth Services, Inc.
One Alhambra Plaza, Suite 750
Coral Gables, Florida 33134
Attention: Marcio C. Cabrera
Telecopy Number: (305) 569-4647
Telephone Number: (305) 569-4562
with a copy to:
Torys
237 Park Avenue
New York, New York 10017
Attention: Joseph J. Romagnoli, Esq.
Telecopy Number: (212) 682-0200
Telephone Number: (212) 880-6000
If to SunTrust:
SunTrust Banks, Inc.
303 Peachtree Street, Suite 2400
Atlanta, Georgia 30308
Attention: Mr. Robert L. Dudiak
Telecopy Number: (404) 827-6514
Telephone Number: (404) 588-8735
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Hector E. Llorens, Jr., Esq.
Telecopy Number: (404) 572-5145
Telephone Number: (404) 572-4753
or, as to each party at such other address as shall be designated by such party
in a written notice to the other parties delivered in compliance with this
SECTION 12(E).
(f) COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, any of which need not contain the
signatures of more than one party, but all such counterparts then together shall
constitute one and the same agreement.
-17-
<PAGE> 18
(g) DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
(h) SPECIFIC PERFORMANCE. The Company recognizes that the
rights of the Holders under this Agreement are unique and, accordingly, the
Holders shall, in addition to such other remedies as may be available to any of
them at law or in equity, have the right to enforce their rights hereunder by
actions for injunctive relief and specific performance to the extent permitted
by law. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate. This Agreement is
not intended to limit or abridge any rights of the Holders that may exist apart
from this Agreement.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
RAMSAY YOUTH SERVICES, INC.
By: ______________________________
Marcio C. Cabrera
Executive Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
-19-
<PAGE> 20
PURCHASER:
SUNTRUST BANKS, INC.
By: ______________________________
Robert L. Dudiak
Group Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
-20-
<PAGE> 1
EXHIBIT 10.143
RAMSAY YOUTH SERVICES, INC.
1999 STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Plan, which shall be
known as the Ramsay Youth Services, Inc. 1999 Stock Option Plan and is
hereinafter referred to as the "Plan", are (i) to provide incentives for key
employees, directors, consultants and other individuals providing services to
Ramsay Youth Services, Inc., (the "Company") and its subsidiary or parent
corporations (within the respective meanings of Sections 424(f) and 424(e) of
the Internal Revenue Code of 1986, as amended (the "Code"), and referred to
herein as "Subsidiary" and "Parent", respectively) by encouraging their
ownership of the common stock, $.01 par value, of the Company (the "Stock") and
(ii) to aid the Company in retaining such key employees, directors, consultants
and other individuals upon whose efforts the Company's success and future growth
depends, and attracting other such employees, directors, consultants and other
individuals.
2. Administration. The Plan shall be administered by a committee
(the "Committee") of the Board of Directors, as hereinafter provided. For
purposes of administration, the Committee, subject to the terms of the Plan,
shall have plenary authority to establish such rules and regulations, to make
such determinations and interpretations, and to take such other administrative
actions as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be final, conclusive and binding on
all persons, including Optionees and their legal representatives and
beneficiaries.
The Committee shall be appointed from time to time by the Board of
Directors and shall consist of not fewer than two of its members. Unless
otherwise determined by the Board of Directors, no member of the Board of
Directors who serves on the Committee shall be eligible to participate in the
Plan. The Board of Directors shall designate one of the members of the Committee
as its Chairman. The Committee shall hold its meetings at such times and places
as it may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to his service on the Committee, if he acts in good faith and in a
manner he reasonably believes to be in or not opposed to the best interests of
the Company.
3. Stock Available for Options. There shall be available for
options under the Plan a total of 1,250,000 shares of Stock, subject to any
adjustments which may be made pursuant to Section 5(f) hereof. Shares of Stock
used for purposes of the Plan may be either authorized and unissued shares, or
1
<PAGE> 2
previously issued shares held in the treasury of the Company, or both. Shares of
Stock covered by options which have terminated or expired prior to exercise
shall be available for further options hereunder.
4. Eligibility. Options under the Plan may be granted to key
employees of the Company or any Subsidiary or Parent, including officers or
directors of the Company or any Subsidiary or Parent, and to directors,
consultants and other individuals providing services to the Company or any
Subsidiary or Parent. Options may be granted to eligible individuals whether or
not they hold or have held options previously granted under the Plan or
otherwise granted or assumed by the Company. In selecting individuals for
options, the Committee may take into consideration any factors it may deem
relevant, including its estimate of the individual's present and potential
contributions to the success of the Company and its Subsidiaries. Service as a
director, officer or consultant of or to the Company or any Parent or Subsidiary
shall be considered employment for purposes of the Plan (and the period of such
service shall be considered the period of employment for purposes of Section
5(d) of this Plan); provided, however, that incentive stock options may be
granted under the Plan only to an individual who is an "employee" (as such term
is used in Section 422 of the Code) of the Company or any Subsidiary or Parent.
5. Terms and Conditions of Options. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case, subject
to the following:
(a) Option Price. The price at which each share of Stock covered
by an option granted under the Plan may be purchased shall be determined by the
Committee and shall not be less than the market value per share of Stock on the
date of grant of the option. The date of grant of an option shall be the date
specified by the Committee in its grant of the option.
(b) Option Period. The period for exercise of an option shall in
no event be more than ten years from the date of grant, or in the case of any
option intended to be an incentive stock option granted to an individual owning,
on the date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary,
more than five years from the date of grant. Options may, in the discretion of
the Committee, be made exercisable in installments during the option period. Any
shares not purchased on any applicable installment date may be purchased
thereafter at any time before the expiration of the option period.
(c) Exercise of Options. In order to exercise an option, the
Optionee shall deliver to the Company written notice specifying the number of
shares of Stock to be purchased, together with cash or a certified or bank
cashier's check payable to the order of the Company in the full amount of the
purchase price therefor; provided that, for the purpose of assisting an Optionee
to exercise an option, the Company may make loans to the Optionee or guarantee
loans made by third parties to the Optionee, on such terms and conditions as the
Board of Directors may authorize; and provided further that such purchase price
may be paid in shares of Stock owned by the Optionee for a period of at least
six months prior to the date of exercise having a market value on the date of
exercise equal to the aggregate purchase price, or in a combination of cash and
Stock. For purposes of this Section 5(c), the market value per share of Stock
shall be the last sale price regular way on the date of reference, or, in case
no sale takes place on such date, the average of the closing high bid and low
asked prices regular way, in either case on the principal national securities
2
<PAGE> 3
exchange on which the Stock is listed or admitted to trading, or if the Stock is
not listed or admitted to trading on any national securities exchange, the last
sale price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or the
average of the closing high bid and low asked prices of the Stock in the
over-the-counter market reported on NASDAQ on such date, whichever is
applicable, or if there are no such prices reported on NASDAQ on such date, as
furnished to the Committee by any New York Stock Exchange member selected from
time to time by the Committee for such purpose. If there is no bid or asked
price reported on any such date, the market value shall be determined by the
Committee in accordance with the regulations promulgated under Section 2031 of
the Code, or by any other appropriate method selected by the Committee. If the
Optionee so requests, shares of Stock purchased upon exercise of an option may
be issued in the name of the Optionee or another person. An Optionee shall have
none of the rights of a stockholder until the shares of Stock are issued to him.
(d) Effect of Termination of Employment. An option may not be
exercised after the Optionee has ceased to be in the employ of the Company or
any Subsidiary or Parent, except in the following circumstances:
(i) If the Optionee's employment is terminated by
action of his employer, or by reason of disability or
retirement under any retirement plan maintained by the Company
or any Subsidiary or Parent, the option may be exercised by
the Optionee within three months after such termination, but
only as to any shares exercisable on the date the Optionee's
employment so terminates;
(ii) In the event of the death of the Optionee during
the three month period after termination of employment covered
by (i) above, the person or persons to whom his rights are
transferred by will or the laws of descent and distribution
shall have a period of one year from the date of his death to
exercise any options which were exercisable by the Optionee at
the time of his death;
(iii) In the event of the death of the Optionee while
employed, the option shall thereupon become exercisable in
full, and the person or persons to whom the Optionee's rights
are transferred by will or the laws of descent and
distribution shall have a period of one year from the date of
the Optionee's death to exercise such option. The provisions
of the foregoing sentence shall apply to any outstanding
options which are incentive stock options to the extent
permitted by Section 422(d) of the Code and such outstanding
options in excess thereof shall, immediately upon the
occurrence of the event described in the preceding sentence,
3
<PAGE> 4
be treated for all purposes of the Plan as nonstatutory stock
options and shall be immediately exercisable as such as
provided in the foregoing sentence.
In no event shall any option be exercisable more than ten years from
the date of grant thereof. Nothing in the Plan or in any option granted pursuant
to the Plan (in the absence of an express provision to the contrary) shall
confer on any individual any right to continue in the employ of the Company or
any Subsidiary or Parent or interfere in any way with the right of the Company
to terminate his employment at any time.
(e) Transferability of Options. During the lifetime of an
Optionee, options held by such Optionee shall be exercisable only by him. No
option may be transferred by the Optionee otherwise than by will, by the laws of
descent and distribution or pursuant to a qualified domestic relations order,
and during the Optionee's lifetime the option may be exercised only by him or
her; provided, however, that the Board of Directors or the Committee, as
applicable, in its discretion, may allow for transferability of non-qualified
stock options by the Optionee to "Immediate Family Members".
"Immediate Family Members: means children, grandchildren, spouse or
common law spouse, siblings or parents of the Optionee or to bona fide trusts,
partnerships or other entities controlled by and of which the beneficiaries are
Immediate Family Members of the Optionee. Any option grants that are
transferable are further conditioned on the Participant and Immediate Family
Members agreeing to abide by the Company's then current stock option transfer
guidelines.
(f) Adjustments for Change in Stock Subject to Plan. In the event
of a reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the Committee shall make such
adjustments, if any, as it deems appropriate in the number and kind of shares
subject to the Plan, in the number and kind of shares covered by outstanding
options, or in the option price per share, or both.
(g) Acceleration of Exercisability of Options Upon Occurrence of
Certain Events. In connection with any merger or consolidation involving the
Company which results in the holders of the outstanding voting securities of the
Company (determined immediately prior to such merger or consolidation) owning,
directly or indirectly, less than a majority of the outstanding voting
securities of the surviving corporation (determined immediately following such
merger or consolidation), or any sale or transfer by the Company of all or
substantially all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options under the Plan shall become exercisable in full, notwithstanding any
other provision of the Plan or of any outstanding options granted thereunder, on
and after (i) the fifteenth day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be. The provisions of the
4
<PAGE> 5
foregoing sentence shall apply to any outstanding options which are incentive
stock options to the extent permitted by Section 422(d) of the Code and such
outstanding options in excess thereof shall, immediately upon the occurrence of
the event described in clause (i) or (ii) of the foregoing sentence, be treated
for all purposes of the plan as nonstatutory stock options and shall be
immediately exercisable as such as provided in the foregoing sentence.
Notwithstanding the foregoing, in no event shall any option be exercisable after
the date of termination of the exercise period of such option specified in
Sections 5(b) and 5(d).
(h) Registration, Listing and Qualification of Shares of Stock.
Each option shall be subject to the requirement that if at any time the Board of
Directors shall determine that the registration, listing or qualification of the
shares of Stock covered thereby upon any securities exchange or under any
federal or state law, or the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
granting of such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. The Company may require
that any person exercising an option shall make such representations and
agreements and furnish such information as it deems appropriate to assure
compliance with the foregoing or any other applicable legal requirement.
(i) Other Terms and Conditions. The Committee may impose such
other terms and conditions, not inconsistent with the terms hereof, on the grant
or exercise of options, as it deems advisable.
(j) The maximum number of shares of Stock which may be subject to
options granted any person in any fiscal year of the Company shall be 400,000
shares.
6. Additional Provisions Applicable to Incentive Stock Options.
The Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of the Code, provided, however, that (a) the aggregate market value
of the Stock with respect to which incentive stock options are exercisable for
the first time by the Optionee during any calendar year shall not exceed the
limitation set forth in Section 422(d) of the Code and (b) if the Optionee owns
on the date of grant securities possessing more than 10% of the total combined
voting power of all classes of securities of the Company or of any Parent or
Subsidiary, the price per share shall not be less than 110% of the market value
per share on the date of grant.
7. Amendment and Termination. Unless the Plan shall theretofore
have been terminated as hereinafter provided, the Plan shall terminate on, and
no option shall be granted hereunder after, June 30, 2009; provided, however,
that the Board of Directors may at any time prior to that date terminate the
Plan. The Board of Directors may at any time amend the Plan; provided, however,
that, except as contemplated in Section 5(f), the Board of Directors shall not,
without approval by a majority of the votes cast thereon by the stockholders of
the Company at a meeting of stockholders at which a proposal to amend the Plan
is voted upon, increase the maximum number of shares of Stock for which options
may be granted under the Plan, or change the minimum option prices. No
termination or amendment of the Plan may, without the consent of an Optionee,
adversely affect the rights of such Optionee under any option held by such
Optionee.
5
<PAGE> 6
8. Effectiveness of Plan. The Plan shall not cease to be
effective unless approved at a meeting of stockholders of the Company duly
called and held for such purpose by a majority of the votes cast thereon by the
stockholders of the Company, and no option granted hereunder shall be
exercisable prior to such approval.
9. Withholding. It shall be a condition to the obligation of the
Company to issue shares of Stock upon exercise of an option, that the Optionee
(or any beneficiary or person entitled to act under Section 5(d) hereof) pay to
the Company, upon its demand, such amount as may be requested by the Company for
the purpose of satisfying any liability to withhold federal, state or local
income or other taxes. If the amount requested is not paid, the Company may
refuse to issue such shares of Stock.
10. Other Actions. Nothing contained in the Plan shall be
construed to limit the authority of the Company to exercise its corporate rights
and powers, including but not by way of limitation, the right of the Company to
grant or assume options for proper corporate purposes other than under the Plan
with respect to any employee or other person, firm, corporation or association.
6
<PAGE> 1
Exhibit 11
RAMSAY YOUTH SERVICES, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Year Ended Six Months Ended December 31, Year Ended June 30,
December 31, ----------------------------- ---------------------------
1999 1998 1997 1998 1997
---------- ----------- ------------- ------------ ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) before extraordinary
item, as reported ............................. $3,117,000 $ 4,838,000 $ 1,158,000 $(54,254,000) $3,412,000
Dividends, Class B convertible preferred
stock, Series C ............................... -- 166,000 181,000 362,000 362,000
Dividends, Class B convertible preferred
stock, Series 1996 ............................ -- 69,000 75,000 150,000 --
Dividends, Class B convertible redeemable
preferred stock, Series 1997 .................. -- 45,000 57,000 182,000 --
Redemption premium and other costs, Class
B convertible preferred stock, Series 1997 .... -- 225,000
Dividends, Class B redeemable preferred
stock, Series 1997-A .......................... -- 151,000 91,000 271,000 --
---------- ----------- ----------- ------------ ----------
Numerator for basic earnings (loss) per
share - income (loss) attributable to
common Stockholders, before extraordinary
item ...................................... 3,117,000 4,182,000 754,000 (55,219,000) 3,050,000
Effect of dilutive securities:
Class B convertible preferred stock,
Series C ................................. -- -- -- -- 362,000
---------- ----------- ----------- ------------ ----------
-- -- -- -- 362,000
---------- ----------- ----------- ------------ ----------
Numerator for diluted earnings (loss)
per share - income (loss) attributable
to common stockholders after
assumed conversions ...................... $3,117,000 $ 4,182,000 $ 754,000 $(55,219,000) $3,412,000
========== =========== =========== ============ ==========
Denominator:
Denominator for basic earnings (loss) per
share - weighted-average shares ............. 8,890,000 4,487,000 3,574,000 3,595,000 2,801,000
Effect of dilutive securities:
Employee stock options and warrants ......... 648,000 8,000 565,000 -- 115,000
Convertible preferred stock ................. -- 1,476,000 -- -- 493,000
---------- ----------- ----------- ------------ ----------
Dilutive potential common shares ............... 648,000 1,484,000 565,000 -- 608,000
---------- ----------- ----------- ------------ ----------
Denominator for diluted earnings (loss)
per share - adjusted weighted-average
shares and assumed conversions ........... 9,538,000 5,971,000 4,139,000 3,595,000 3,409,000
========== =========== =========== ============ ==========
Basic earnings (loss) per share, before
extraordinary item ............................. $ .35 $ .93 $ .21 $ (15.36) $ 1.09
Extraordinary item ................................ -- (.63) (1.00) (1.20) --
---------- ----------- ----------- ------------ ----------
Basic earnings (loss) per share ................... $ .35 $ .30 $ (.79) $ (16.56) $ 1.09
========== =========== =========== ============ ==========
Diluted earnings (loss) per share before
extraordinary item ............................. $ .33 $ .70 $ .18 $ (15.36) $ 1.00
Extraordinary item ................................ -- (.47) (.86) (1.20) --
---------- ----------- ----------- ------------ ----------
Diluted earnings (loss) per share ................. $ .33 $ .23 $ (.68) $ (16.56) $ 1.00
========== =========== =========== ============ ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF RAMSAY YOUTH SERVICES, INC.
Bethany Psychiatric Hospital, Inc., an Oklahoma corporation
Bountiful Psychiatric Hospital, Inc., a Utah corporation
East Carolina Psychiatric Services Corporation, a North Carolina corporation
Great Plains Hospital, Inc., a Missouri corporation
Gulf Coast Treatment Center, Inc., a Florida corporation (the Company owns
96% of the capital stock of this corporation)
Havenwyck Hospital, Inc., a Michigan corporation
H.C. Corporation, an Alabama corporation
H.C. Partnership, an Alabama general partnership (HSA Hill Crest Corporation
and H.C. Corporation each own a 50% partnership interest)
HSA Hill Crest Corporation, an Alabama corporation
HSA of Oklahoma, Inc., an Oklahoma corporation
Michigan Psychiatric Services, Inc., a Michigan corporation
Ramsay Educational Services, Inc., a Delaware corporation
Ramsay Louisiana, Inc., a Delaware corporation
Ramsay Managed Care, Inc., a Delaware corporation
Ramsay Youth Services of Alabama, Inc., a Delaware corporation
Ramsay Youth Services of Florida, Inc., a Delaware corporation
Ramsay Youth Services of South Carolina, Inc., a Delaware corporation
Ramsay Youth Services Puerto Rico, Inc., a Puerto Rico corporation
RHCI San Antonio, Inc., a Delaware corporation
Transitional Care Ventures, Inc., a Delaware corporation (the Company owns 60%
of the capital stock of this corporation)
Transitional Care Ventures (Texas), Inc., a Delaware corporation
Ramsay Hospital Corporation of Louisiana, Inc., a Louisiana corporation
River West Leasing, Inc., a Louisiana corporation
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-52991, No. 33-47997, No. 33-44697 and No. 33-39260)
of Ramsay Youth Services, Inc., of our report dated March 15, 1999 with respect
to the consolidated financial statements of Ramsay Youth Services, Inc., (which
statements are not presented separately herein) in this Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Miami, Florida
March 29, 2000
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-52991, No. 33-47997, No. 33-44697 and No. 33-39260 of Ramsay Youth Services,
Inc. on Forms S-8 of our report dated March 13, 2000, appearing in this Annual
Report on Form 10-K of Ramsay Youth Services, Inc. for the year ended December
31, 1999.
DELOITTE & TOUCHE LLP
Miami, FL
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 622,000
<SECURITIES> 0
<RECEIVABLES> 17,804,000
<ALLOWANCES> 2,615,000
<INVENTORY> 0
<CURRENT-ASSETS> 22,199,000
<PP&E> 46,799,000
<DEPRECIATION> 19,221,000
<TOTAL-ASSETS> 56,626,000
<CURRENT-LIABILITIES> 21,037,000
<BONDS> 11,561,000
0
0
<COMMON> 90,000
<OTHER-SE> 17,004,000
<TOTAL-LIABILITY-AND-EQUITY> 56,626,000
<SALES> 0
<TOTAL-REVENUES> 81,474,000
<CGS> 0
<TOTAL-COSTS> 74,307,000
<OTHER-EXPENSES> 2,366,000
<LOSS-PROVISION> 1,896,000
<INTEREST-EXPENSE> 1,268,000
<INCOME-PRETAX> 3,185,000
<INCOME-TAX> 68,000
<INCOME-CONTINUING> 3,117,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,117,000
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.33
</TABLE>
