SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report: April 23, 1997
Date of earliest event
reported: April 23, 1997
MAGELLAN HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter).
Delaware 1-6639 58-1076737
_______________________ ______________________ ______________________________
(State of incorporation)(Commission File Number)(IRS Employer Identification No)
3414 Peachtree Road, N.E., Suite 1400, Atlanta, Georgia 30326
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(Address of principal executive offices) (Zip Code)
(404) 841-9200
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(Registrant's telephone number, including area code)
Item 5. Other Events
On January 30, 1997, the Registrant ("Company" or "Magellan") announced
that it had entered into a definitive agreement to sell substantially all of its
domestic hospital real estate and related personal property (the "Assets") to
Crescent Real Estate Equities Limited Partnership ("Crescent"). In addition, the
Company's domestic portion of its provider business segment will be operated as
a joint venture ("CBHS") that is initially owned equally by Magellan and
Crescent Operating, Inc., an affiliate of Crescent ("COI"). The Company will
receive $400 million in cash (before costs estimated to be $12.5 million)
subject to adjustment, and warrants in COI for the purchase of 2.5% of the COI's
common stock, exercisable over 12 years, as consideration for the Assets. In
addition to the Assets, Crescent and COI will each receive 1,283,311 warrants
(2,566,622 warrants in aggregate) to purchase Magellan Common Stock at $30 per
share, exercisable over 12 years.
In related agreements, (i) Crescent will lease the real estate and
related assets to CBHS for annual rent beginning at $40 million, subject to
adjustment, with a 5% annual escalation clause compounded annually and (ii) CBHS
will pay Magellan approximately $81 million in annual franchise fees, subject to
increase, for the use of assets retained by Magellan and for support in certain
areas. The franchise fees to be paid by CBHS to the Company will be subordinated
to the lease obligations in favor of Crescent. The assets retained by Magellan
include, but are not limited to, the "CHARTER" name, intellectual property,
protocols and procedures, clinical quality management, operating processes and
the "1-800-CHARTER" telephone call center. Magellan will provide CBHS ongoing
support in areas including managed care contracting services, advertising and
marketing assistance, risk management services, outcomes monitoring, and
consultation on matters relating to reimbursement, government relations,
clinical strategies, regulatory matters, strategic planning and business
development.
The Company intends to initially use the proceeds from the sale of the
Assets to reduce its long-term debt, including borrowings under its Revolving
Credit Agreement. Under the terms of its Senior Subordinated Notes (the "Notes")
indenture the Noteholders will have the right to put their Notes to the Company
at 101% of face value. The Company intends to maintain adequate cash reserves
and borrowing capacity to extinguish all the Notes, if necessary. The
Noteholders right to put the Notes will expire up to 70 days subsequent to the
consummation of the Crescent Transactions. The Company intends to use the
remaining proceeds from the sale of the Assets, if any after debt reductions, to
pursue acquisitions in its managed care and public sector business segments,
develop new products and increase managed care and public sector marketing
efforts.
The Company will account for its 50% investment in CBHS under the
equity method of accounting. The Company expects to record a loss before income
taxes of approximately $45 million to $55 million as a result of these proposed
transactions, including, but not limited to, the write-off of certain
hospital-based intangible assets, collection fees associated with accounts
receivable and certain restructuring and exit costs offset by the gain or loss
on the sale of the Assets.
These transactions are subject to approval by Magellan stockholders and
other customary closing conditions, including the negotiation of certain
financing matters.
Item 7. Financial Statements and Exhibits
Exhibits
2(a) Real Estate Purchase and Sale Agreement, dated January 29, 1997,
between the Company and Crescent Real Estate Equities Limited
Partnership.
2(b) Amendment No. 1, dated February 28, 1997, to the Real Estate
Purchase and Sale Agreement, dated January 29, 1997, between the
Company and Crescent Real Estate Equities Limited Partnership.
2(c) Form of Contribution Agreement between the Company and Crescent
Real Estate Equities Limited Partnership.
4(a) Warrant Purchase Agreement, dated January 29, 1997, between the
Company and Crescent Real Estate Equities Limited Partnership.
99(a)Press Release, dated January 30, 1997.
99(b)Form or Master Lease Agreement between Crescent Real Estate
Equities Limited Partnership, as Landlord, and Charter Behavioral
Health Systems, LLC, as Tenant.
99(c)Form of Master Franchise Agreement between the Company and
Charter Behavioral Health Systems, LLC.
99(d)Form of Franchise Agreement between the Company, as Franchisor,
and Franchise Owners.
99(e)Form of Subordination Agreement between the Company, Charter
Behavioral Health Systems, LLC and Crescent Real Estate Equities
Limited Partnership.
99(f)Form of Operating Agreement of Charter Behavioral Health
Systems, LLC, between the Company and a designee of Crescent Real
Estate Equities Limited Partnership.
99(g)Form of Warrant Purchase Agreement between the Company and
Crescent Operating, Inc.
99(h)Form of Loan and Security Agreement between the Company and
Charter Behavioral Health Systems, LLC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 23, 1997 Magellan Health Services, Inc.
By: /s/ Craig L. McKnight
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Executive Vice President and
Chief Financial Officer