CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT, dated as of _________, 1997 (the
"Agreement"), is entered into by and among Magellan Health Services, Inc., a
Delaware corporation ("Magellan"), Crescent [Opportunity Limited Partnership], a
[Delaware] limited partnership or [Crescent Corp.] ("Crescent"), and Charter
Behavioral Health Systems, LLC, formed under the laws of the State of Delaware
("OpCo").
WHEREAS, Magellan and Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership ("CREELP"), have entered into a Real
Estate Purchase and Sale Agreement dated January 29, 1997, as amended by the
First Amendment to Real Estate Purchase and Sale Agreement dated as of February
28, 1997 ("Real Estate Purchase and Sale Agreement"), pursuant to which Magellan
has agreed to cause certain of its subsidiaries listed on Exhibit A to the Real
Estate Purchase and Sale Agreement to sell to CREELP, and CREELP has agreed to
purchase from those subsidiaries, certain of the real property, related
improvements, furniture, equipment and fixtures owned by those subsidiaries (the
"Facilities") and used in the operation of Magellan's acute care psychiatric
hospitals;
WHEREAS, Magellan and Crescent desire to operate and maintain OpCo to
(i) operate the Facilities and certain leased facilities (together, the
"Hospitals"); and (ii) engage in the business of hospital-based behavioral
healthcare using OpCo as the operating entity;
WHEREAS, it is a condition to the consummation of the Real Estate
Purchase and Sale Agreement and the other Transaction Documents (as defined in
the Real Estate Purchase and Sale Agreement) that Magellan cause its
subsidiaries listed on Exhibit A to this Agreement (each a "Magellan Subsidiary"
and together the "Magellan Subsidiaries") to contribute certain assets to OpCo,
and that Crescent contribute certain assets to OpCo, in exchange for all of the
interests in OpCo (the "Contribution");
WHEREAS, upon closing of the transactions contemplated by this
Agreement and the Real Estate Purchase and Sale Agreement, (i) OpCo and Magellan
will enter into that certain Franchise Agreement, attached as Exhibit B to this
Agreement (the "Franchise Agreement") and will cause each OpCo Subsidiary (as
hereafter defined) to enter into that certain Franchise Agreement attached as
Exhibit B-1 (the "Subsidiary Franchise Agreement" and, collectively with the
Master Franchise Agreement, the "Franchise Agreement"), (ii) Magellan and
Crescent will enter into that certain Operating Agreement of OpCo attached as
Exhibit C to this Agreement (the "OpCo LLC Agreement"), and (iii) unless
financing is provided by a financial
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institution, OpCo and Magellan will enter into that certain Bridge Loan and
Security Agreement and Promissory Note attached as Exhibits D and D-1 to this
Agreement (the "Bridge Loan Agreement");
WHEREAS, in connection therewith, Crescent [Opportunity Corp.,] a
[Delaware] corporation ("Crescent Corp.") and Magellan also will enter into that
certain Warrant Purchase Agreement, attached as Exhibit E to this Agreement (the
"Warrant Agreement");
A G R E E M E N T:
In consideration of the mutual covenants contained in this Agreement
the parties agree as follows:
SECTION 1.
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings unless the context otherwise requires:
"Business" shall mean the business of the operation of an acute care
psychiatric hospital, part of an acute care general hospital operating an acute
care psychiatric unit, a behavioral healthcare residential treatment center, a
part of a facility operating a behavioral healthcare residential treatment
center, or other similar facility providing 24-hour behavioral healthcare, and
the delivery of behavioral healthcare from such facility and other affiliated
facilities; such behavioral healthcare to include inpatient hospitalization,
partial hospitalization programs, outpatient therapy, intensive outpatient
therapy, ambulatory detoxification, behavioral modification programs and related
services.
"Contribution Date" shall mean the moment in time immediately prior to
the Closing Date.
1.2 Other Defined Terms. Capitalized terms not otherwise defined in this
Agreement shall have the meanings given them in the Real Estate
Purchase and Sale Agreement.
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SECTION 2.
CONTRIBUTION
2.1 Contribution of Assets Relating to the Hospitals by Magellan. On the
Contribution Date, on the terms and subject to the conditions set
forth in this Agreement, and in consideration for a 50% interest in
OpCo, Magellan will cause the relevant Magellan Subsidiary to (either
directly or through Magellan) contribute or assign to OpCo or a
relevant, wholly owned subsidiary of OpCo (an "OpCo Subsidiary") all
of such Magellan Subsidiary's right, title and interest in the
following assets (the "Contributed Assets") related to the Hospitals:
(a) All patient medical records;
(b) All licenses and permits used in the operation of the Hospitals,
to the extent that such licenses and permits are transferable;
(c) All of the leasehold interests held by any Magellan Subsidiary as
lessee, in real or personal property including, but not limited
to:
(i) the leasehold interests in those Hospitals set forth on
Schedule 2.1(c)(i) and
(ii) the leasehold interests in the medical office buildings set
forth on Schedule 2.1(c)(ii);
(d) All of the furniture, fixtures equipment and leasehold
improvements owned by Magellan or a Magellan Subsidiary and
located at a Hospital set forth on Schedule 2.1(c)(i) or a
medical office building set forth on Schedule 2.1(c)(ii);
(e) All contracts with physicians and other healthcare professionals;
(f) All operating, service, maintenance and loaned employee
contracts;
(g) All payor contracts including but not limited to contracts with
employers, health maintenance organizations, preferred provider
organizations, managed care companies, and insurance companies
but excluding all national and regional contracts with vendors
and payors, the benefits of which will be provided to OpCo by
Magellan pursuant to the Franchise Agreement;
(h) The employment contract between Magellan and John M. DeStefanis;
(i) The stock of Charter Medical Executive Corporation ("CMEC"); and
(j) Employment files and records.
2.2 Excluded Assets. Magellan and Crescent expressly understand and agree
that neither Magellan nor any Magellan Subsidiary is conveying or
contributing to OpCo or any OpCo Subsidiary pursuant to Section 2.1
any of the following assets, rights or properties or any assets which
are not used in the conduct of the business of the Hospitals (the
"Excluded Assets"):
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(a) Supplies and inventory relating to the Hospitals;
(b) Notes receivable relating to the Hospitals;
(c) Prepaid assets relating to the Hospitals;
(d) Prepaid expenses relating to the Hospitals;
(e) Lease deposits paid by either Magellan or any Magellan Subsidiary
as tenant in any lease relating to the Hospitals;
(f) Utility deposits relating to the Hospitals;
(g) Cash held in escrow accounts relating to the Hospitals;
(h) The capital stock of any subsidiary of Magellan (other than CMEC)
or Magellan's interest in any joint venture including but not
limited to the joint ventures set forth on Schedule 2.2(h);
(i) Corporate seals, minute books, stock ledgers or other books and
records pertaining to the organization, issuance of stock and
capitalization of the Magellan Subsidiaries;
(j) All rights, properties, and assets used by Magellan primarily in
a business other than the Business and not reasonably necessary
for the operation of the Business;
(k) All rights, properties, and assets that shall have been
transferred or disposed of by Magellan or any of its subsidiaries
prior to the date of this Agreement or prior to Closing in the
ordinary course of business;
(l) Trademarks, trade names (including the "Charter" name), corporate
names and logos owned by Magellan and any of its subsidiaries;
(m) All real estate, furniture, fixtures and equipment to be
transferred to Crescent under the Real Estate Purchase and Sale
Agreement;
(n) Any deferred tax asset of a Magellan Subsidiary at the Closing
Date;
(o) The Cocoon System (as defined in the Franchise Agreement)
including but not limited to all treatment protocols, written or
unwritten, and future improvements and modifications, whether
made by Magellan, a Magellan Subsidiary, OpCo or an OpCo
Franchisee as defined in the Franchise Agreement;
(p) Policy and procedure manuals, written or unwritten, and future
improvements and modifications to such manuals, whether made by
Magellan, a Magellan Subsidiary, OpCo or an OpCo Subsidiary;
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(q) All cash, cash equivalents, short-term investments, marketable
securities, and accounts receivable of Magellan and each Magellan
Subsidiary;
(r) Patient related software systems;
(s) TRIMS system;
(t) Purchasing/ordering systems;
(u) Accounting systems;
(v) Call center system;
(w) Intellectual property rights;
(x) Tax refunds, cost report adjustments and settlements relating to
periods prior to the Closing Date and liabilities or assets
related to depreciation recapture relating to periods prior to
the Closing Date;
(y) Disproportionate Share Payments; and
(z) Assets (including business records) required in order to provide
the services to be provided by Magellan pursuant to the Franchise
Agreement.
2.3 Assumed Obligations. Magellan and Crescent expressly understand and
agree that all of the debts, obligations, duties and liabilities,
liquidated or unliquidated, contingent or fixed, relating to or
arising out of the operation of the Hospitals and the business of OpCo
after the Closing (as well as those in subsections (c) and (d) below)
but excluding each and every liability and obligation for which
Magellan has agreed to indemnify OpCo pursuant to Section 8 of this
Agreement (the "Assumed Obligations") shall be assumed by OpCo as of
the Contribution Date regardless of whether such liabilities are
accrued on the books of Magellan or a Magellan Subsidiary, (or OpCo
shall otherwise be responsible for such debts, liabilities, duties and
liabilities), including, without limitation, the following:
(a) All such liabilities and obligations relating to the Contributed
Assets;
(b) All such liabilities and obligations relating to the Purchased
Assets (as hereafter defined);
(c) All liabilities and obligations relating to paid days off and
accrued vacation arising prior to the Contribution Date;
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(d) All liabilities and obligations relating to sick days arising
prior to the Contribution Date;
(e) All such liabilities and obligations (excluding any payment
obligations) arising from the Consent Decrees and Settlements
listed on Schedule 6.1(p) to the Real Estate Purchase and Sale
Agreement;
(f) All such liabilities and obligations arising from OpCo's
participation in the contracts excluded from Section 2.1(f); and
(g) All such liabilities and obligations related to software
sublicensed to OpCo pursuant to the Franchise Agreement which are
licensed from third parties.
2.4 Excluded Liabilities. Any and all liabilities of Magellan or a
Magellan Subsidiary arising prior to the Closing, except as set forth
in Section 2.3(c) and (d) (the "Excluded Liabilities"), shall not be
assumed by OpCo and shall remain the liabilities and obligations of
Magellan or the relevant Magellan Subsidiary except to the extent
covered by insurance, subject to Section 8.1. Without limiting the
effect of the foregoing, the term "Excluded Liabilities" includes the
following liabilities which arose or were incurred prior to the
Closing:
(a) Any liability or obligation in respect of any federal, state,
local, foreign or other tax, levy, assessment or other
governmental charge, including, without limitation, income,
business, occupation, franchise, property, payroll, personal
property, sales, transfer, employment, occupancy, franchise or
withholding taxes, and any premium, including, without
limitation, interest, penalties and additions in connection
therewith;
(b) Any liability (to the extent not covered by insurance) arising
from any injury to or death of any person or damage to or
destruction of any property, whether based on negligence, breach
of warranty, strict liability, enterprise liability or any other
legal or equitable theory, arising from the ownership or
operation of the Hospitals or the services performed by Magellan
or any of its subsidiaries prior to the Closing;
(c) The charges and taxes which Magellan has agreed to pay pursuant
to Section 9.1 of this Agreement;
(d) Adjustments or refunds of payments required by Medicare, Medicaid
or any other payor as a result of payments prior to the
Contribution Date; and
(e) Fines or penalties assessed and arising out of activities
occurring prior to the Contribution Date.
2.5 Contribution of Cash by Crescent. On the Contribution Date, on the
terms and subject to the conditions set forth in this Agreement and in
consideration for a 50% interest in
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OpCo, Crescent shall contribute to OpCo cash in the amount of $5.0
million (the "Crescent Contribution"), which is equal to the purchase
price of the Purchased Assets (as defined below).
SECTION 3.
PURCHASE OF CERTAIN ASSETS BY OPCO
3.1 Asset Purchase. On the Closing Date, OpCo shall purchase from Charter
Medical Information Systems ("CMIS") the assets of CMIS listed on the
computer printout (the "Purchased Assets") delivered by Magellan to
Crescent on the date hereof, which computer printout is separately
bound.
3.2 Purchase of Working Capital. On the Closing Date, OpCo shall purchase
(with payment to be made within two business days of purchase) from
the Magellan Subsidiaries the following assets (the "Working Capital
Assets") relating to or used in the Hospitals and as the same exist on
the Closing Date:
(a) Supplies and inventory relating to the Hospitals;
(b) Notes receivable relating to the Hospitals;
(c) Prepaid assets relating to the Hospitals;
(d) Prepaid expenses relating to the Hospitals;
(e) Lease deposits paid by either Magellan or any Magellan Subsidiary
as tenant in any lease relating to the Hospitals; and
(f) Utility deposits relating to the Hospitals.
3.3 Purchase Price. The aggregate purchase price for the Purchased Assets
is $5.0 million, and for the Working Capital Assets is $8.0 million
(in the aggregate, the "Purchase Price"). On the Closing Date, OpCo
shall pay to Magellan or its designated subsidiary cash equal to $5.0
million, with payment for the Working Capital Assets to be made within
two business days of the Closing Date from the proceeds of the
financing contemplated by Section 7.4.
3.4 Post-Closing Adjustment. Within sixty (60) days after the Closing
Date, Magellan shall deliver to OpCo a statement (the "Statement")
setting forth the net book value of the Working Capital Assets as of
the Closing Date, together with appropriate supporting information.
The net book value of the Working Capital Assets shall be calculated
from the books and records of Magellan, in accordance with past
practice. OpCo shall have thirty (30) days to deliver to Magellan any
objections ("Objections") it has to the Statement. If OpCo does
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not submit any such Objections, the Statement shall become final. If
OpCo does deliver any Objections, Magellan and OpCo shall negotiate in
good faith to resolve the Objections as promptly as practical. In the
event Magellan and OpCo are unable to resolve the Objections within
thirty (30) days after such Objections are delivered to Magellan, the
matter shall be referred to Arthur Andersen LLP for final resolution
of the Objections, which resolution shall be binding upon the parties.
Arthur Andersen LLP shall resolve the Objections as promptly as
practical, but in any event within forty-five (45) days. If at any
time the Objections to the Statement are resolved in any manner set
forth above, the Statement shall become final (the "Final Statement").
If the Final Statement shows that the amount of Working Capital Assets
as of the Closing Date are less than $8.0 million (the difference, the
"Shortfall"), Magellan shall promptly pay OpCo the amount of the
Shortfall. If the Final Statement shows that the Working Capital
Assets as of the Closing Date are greater than $8.0 million (the
"Surplus"), OpCo shall promptly pay Magellan the amount of the
Surplus.
SECTION 4.
CONSIDERATION AND CLOSING
4.1 Amount and Form of Consideration. On the Closing Date (i) in
consideration of Magellan's transfer and contribution of the
Contributed Assets to OpCo, OpCo shall deliver to Magellan fifty
percent (50%) of the issued and outstanding capital equity interests
in OpCo (the "Magellan Interest"), and (ii) in consideration of
Crescent's transfer and contribution of the Crescent Contribution to
OpCo, OpCo shall deliver to Crescent fifty percent (50%) of the issued
and outstanding capital equity interests in OpCo (the "Crescent
Interest").
4.2 The Closing.
(a) The Contribution shall occur on the date, at the time and place,
and subject to the conditions set forth in the Real Estate
Purchase and Sale Agreement and herein.
(b) On the Closing Date, Magellan, Crescent, OpCo and each OpCo
Subsidiary (as applicable) shall execute and deliver the
following documents:
(i) the OpCo LLC Agreement;
(ii) the Franchise Agreement;
(iii)subject to Section 7.1(t) of the Real Estate Purchase and
Sale Agreement, the Bridge Loan Agreement;
(iv) the Warrant Agreement;
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(v) subject to obtaining any required consent, assignments of
the contracts and leases included in the Contributed Assets,
the Purchased Assets and the Working Capital Assets; and
(vi) such other instruments and documents, in form and substance
reasonably acceptable to Magellan and Crescent, as may be
necessary to effect the closing of the transactions
contemplated by this Agreement or to evidence the
Contribution.
(c) On the Closing Date, Magellan shall execute and deliver to OpCo
the following:
(i) Assignments, bills of sale or other documents or instruments
of transfer to transfer to OpCo all tangible and intangible
personal property included in the Contributed Assets, the
Purchased Assets and the Working Capital Assets (which
documents shall include a general warranty to title of such
assets except for those assets which are leased, purchased
on an installment basis or encumbered by an Assumed
Obligation);
(ii) Such instruments of assumption and other instruments or
documents as may be necessary to effect OpCo's assumption of
the Assumed Obligations; and
(iii)Such other instruments or documents as may be necessary to
effect the closing of the transactions contemplated by this
Agreement.
(d) At the closing, Crescent shall deliver by wire transfer, to an
account number designated by OpCo, the Crescent Contribution in
immediately available funds.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Magellan. Magellan represents and
warrants to OpCo, as of the date hereof as follows:
(a) Organization and Power. Magellan and the Magellan Subsidiaries
are corporations or limited liability companies duly organized,
validly existing and in good standing under the laws of their
respective states of incorporation or formation, with power and
authority to conduct the businesses in which they are engaged, to
lease and own the properties leased or owned by them and to enter
into and perform their obligations under this Agreement. Each of
Magellan and the Magellan Subsidiaries is qualified to do
business and is in good standing as a foreign corporation or
limited liability company in each jurisdiction where each of them
is required to be so qualified, except where the failure to so
qualify would not have a material adverse effect on a Hospital or
on the business of the Hospitals taken as whole.
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(b) Authorization. The execution and delivery of this Agreement by
Magellan and the Magellan Subsidiaries, the performance by
Magellan and the Magellan Subsidiaries of all obligations under
this Agreement and the sale and delivery of the Contributed
Assets, the Purchased Assets and the Working Capital Assets have
been duly authorized by all necessary corporate action on the
part of Magellan and the Magellan Subsidiaries. This Agreement
has been duly executed and delivered by Magellan and the Magellan
Subsidiaries and constitutes the legal, valid and binding
obligation of each of them, enforceable against each of Magellan
and the Magellan Subsidiaries in accordance with its terms,
except as enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's
rights generally.
(c) No Violation. The execution and delivery of this Agreement by
Magellan and the Magellan Subsidiaries, and the consummation by
Magellan and the Magellan Subsidiaries of the transactions
contemplated in this Agreement will not conflict with or result
in the breach or violation of any of the terms or conditions of,
or constitute (or with notice or lapse of time or both would
constitute) a default under, (i) the Certificate or Articles of
Incorporation or Bylaws of Magellan or any Magellan Subsidiary,
(ii) except as set forth on Schedule 5.1(c), any material
instrument, contract or other agreement to which Magellan or any
Magellan Subsidiary is a party or by which Magellan or any
Magellan Subsidiary is bound, (iii) any material provision of
law, statute, rule or regulation of any court or governmental
authority to which Magellan or any Magellan Subsidiary is subject
(assuming applicable approvals and consents in Schedule 5.1(d)
are obtained), or (iv) except as set forth on Schedule 5.1(c),
any judgment, decree, franchise, order, license or permit
applicable to Magellan or any Magellan Subsidiary, except where
such conflict, breach, violation or default would not have a
material adverse effect on a Hospital or on the business of the
Hospitals taken as a whole.
(d) Consents. Except as set forth in Schedule 5.1(d), no material
consent, approval, license or authorization of any third party,
governmental agency, commission, board or public authority is
required in connection with the execution, delivery and
performance of this Agreement by Magellan or any Magellan
subsidiary.
(e) Insurance. A complete and accurate schedule of all insurance
policies (including a statement of policy limits and deductibles)
held by Magellan and the Magellan Subsidiaries relating to the
Hospitals or the Business now in force, including, without
limitation, malpractice, public liability, property damage and
workers compensation or other coverage, has been made available
to Crescent. All insurance policies remain in full force and
effect except where such failure to remain in full force and
effect will not have a material adverse effect on a Hospital or
on the business of the Hospitals taken as a whole.
(f) Litigation. Except as set forth in Schedule 5.1(f), there are no
lawsuits, proceedings, actions, arbitrations, claims or
governmental investigations, inquiries or proceedings pending or,
to the knowledge of Magellan, threatened, against Magellan or any
Magellan Subsidiary seeking damages for an amount in excess of $1
million, and there is no action, suit or proceeding by any person
or agency pending or, to the knowledge of Magellan, threatened
which questions the legality or validity of the transactions
contemplated hereby.
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(g) Licenses, Accreditation and Third-Party Payors. Magellan and the
Magellan Subsidiaries hold all licenses, permits, registrations,
approvals, certificates, contracts, consents, accreditations,
approvals and franchises ("Licenses and Permits") necessary to
own or lease the Contributed Assets and to conduct and operate
the Hospitals in the manner presently operated and for
participation in the Medicare and Medicaid reimbursement
programs, including, without limitation, all licenses,
certificates of need and permits required by the state in which
they operate and by all other appropriate health care facility
licensing agencies, federal, state, county or local governmental
authorities and regulatory agencies, except where the failure to
hold such Licenses and Permits would not have a material adverse
effect on a Hospital or on the business of the Hospitals taken as
a whole.
(h) The Business. Upon transfer to OpCo of the Contributed Assets,
the Purchased Assets and the Working Capital Assets, and
consummation of the transactions contemplated by the other
Transactional Documents, (i) OpCo will have or, through the
Franchise Agreement, will have access to all tangible and
intangible assets and all personnel reasonably necessary to
conduct a business that is substantially the same as and that
operates in accordance with the same standards of operation as
the business of the Hospitals prior to the Closing, and (ii) OpCo
will have the means to provide the services specified in Section
7.9.
(i) Contracts. Schedule 5.1(i) contains a listing of all contracts or
series of related contracts which are material to the business of
the Hospitals, taken as a whole ("Material Contracts"), including
all amendments, modifications and side letters thereto, currently
in existence. With respect to each Material Contract, neither
Magellan nor any Magellan Subsidiary has received a notice of
termination, has sent a notice of termination, is in default, or
has any knowledge that any other party to such Material Contracts
is in default thereunder.
(j) No Other Owned Hospitals. Except as described on Schedule 5.1(j),
no Magellan Subsidiary owns or operates any Hospital other than
the Hospitals operated using the assets which are being
contributed or sold pursuant to this Agreement.
(k) Financial Statements. All books and records relating to operating
income and expenses of the Hospitals made available to CREELP or
Crescent by Magellan were and shall be those maintained by
Magellan in regard to the Hospitals in the normal course of
business. The audited Financial Statements as of and for the year
ended September 30, 1996 (the "1996 Financial Statements")
furnished by Magellan to CREELP as a part of Magellan's
Deliveries (as defined in the Real Estate Purchase and Sale
Agreement) have been prepared from the books and records of
Magellan in the ordinary course of business and present fairly in
all material respects the results of operations of Magellan for
the periods then ended and the financial condition of Magellan as
of the date of the 1996 Financial Statements.
(l) No Material Adverse Change. Since the date of Magellan's 1996
Financial Statements, there has been no material adverse change
in the business or results of operations of
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Magellan and the Magellan Subsidiaries taken as a whole or the
business of the Hospitals taken as a whole.
(m) SEC Reports. The periodic reports filed by Magellan with the
Securities and Exchange Commission with respect to Magellan's
immediately preceding fiscal year and any interim periods in its
current fiscal year did not as of their respective dates contain
any untrue statements of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
(n) Compliance With Laws. Magellan has delivered to Crescent or
CREELP a draft dated __________, 1997 ("Proxy Statement") of its
proxy statement to shareholders for its Annual Meeting of
Shareholders at which, among other matters, shareholders of
Magellan will consider and vote on the transactions which are the
subject of the Transaction Documents. Except as described in the
Proxy Statement, or in documents filed with the Securities and
Exchange Commission pursuant to applicable law, Magellan is not
aware of any material risk that Magellan is, in the conduct of
the Business prior to the closing of the transactions
contemplated by the Transaction Documents or that OpCo will be,
in the conduct of the Business after the closing of the
transactions contemplated by the Transaction Documents, in
violation of any applicable federal law specifically designed to
regulate the healthcare industry, which violation will have a
material adverse effect on Magellan or OpCo.
5.2 Representations and Warranties of Crescent. Crescent hereby represents
and warrants to OpCo as follows:
(a) Authorizations, etc. The execution and delivery of this Agreement
by Crescent and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary action on the
part of Crescent, including its General Partner. This Agreement
has been duly executed and delivered by Crescent and constitutes
the valid and binding obligation of Crescent, enforceable against
Crescent in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or
similar laws of affecting creditor's rights generally.
(b) No Violation. Neither the execution and delivery of this
Agreement, nor the consummation by Crescent of the transactions
contemplated hereby will conflict with or result in the breach or
violation of any of the terms or conditions of, or constitute (or
with notice or lapse of time or both would constitute) a default
under, (i) organizational documents, including the Partnership
Agreement of Crescent, (ii) any material instrument, contract or
other agreement to which Crescent is a party or by which Crescent
is bound, (iii) any material provision of law, statute, rule or
regulation of any court or governmental authority to which
Crescent is subject, including any provision relating to the
status of Crescent Real Estate Equities Company ("CEI") as a real
estate investment trust, or (iv) any judgment, decree, franchise,
order, license or permit applicable to Crescent, except where
such conflict, breach, violation or default would not have a
material adverse effect on Crescent.
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(c) Consents. Except as set forth in Schedule 5.2(c), no material
consent, approval, license or authorization of any third party,
governmental agency, commission, board or public authority is
required in connection with the execution, delivery and
performance of this Agreement by Crescent.
(d) SEC Reports. The periodic reports filed by CEI with the
Securities and Exchange Commission with respect to CEI's
immediately preceding fiscal year and any interim periods in its
current fiscal year did not as of their respective dates contain
any untrue statements of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under
which they were made, not misleading.
SECTION 6.
CONDITIONS TO CLOSING
6.1 Pre-Closing Conditions. The consummation of the transactions
contemplated by this Agreement by each party is subject to
satisfaction of the following conditions, as applicable:
(a) Satisfaction of all of the conditions to closing set forth in the
Real Estate Purchase and Sale Agreement;
(b) Execution of the Franchise Agreement in the form of Exhibit B and
B-1 hereto (except that (i) the "Territory" for each Franchise
Owner (as defined in the Franchise Agreement) shall be specified
prior to execution thereof in accordance with the criteria set
forth on Schedule 6.1(b) and as reasonably determined by Magellan
with input from the individuals who have been designated to be
the President and the Chairman of the Governing Board of OpCo,
(ii) the identities and fees payable by each Franchise Owner
shall be specified prior to execution thereof and (iii) all other
missing information shall be completed prior to execution thereof
and reflecting any change in the amount of the Franchise Fee
thereunder as mutually agreed by the parties);
(c) Execution of the OpCo L.L.C. Agreement in the form of Exhibit C
hereto, updated to reflect any change in the name or form of
organization of Crescent, the names of the Directors and the
source of the initial bank financing referred to therein and with
all missing information completed prior to execution thereof;
(d) Unless working capital financing has been obtained from a
financial institution as provided in Section 7.1(t) of the Real
Estate Purchase and Sale Agreement, execution of the Bridge Loan
Agreement in the form of Exhibit D and D-1;
(e) Execution of the Warrant Agreement in the form of Exhibit E
hereto (updated to reflect any change in the name or form of
organization of Crescent Corp. and with the number of
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shares issuable under the Warrant completed and the exercise
price completed, reflecting the same premium as used to calculate
the exercise price for the warrants under the Magellan Warrant
Agreement, and based upon a valuation of Crescent Corp. conducted
by a mutually agreed upon independent appraiser); and
(f) The truth and accuracy in all material respects of the
representations and warranties made herein and compliance in all
material respects with all covenants and the delivery by each
party of an officer's certificate so stating.
6.2 Failure of Conditions. If any condition described in subsections (a) -
(f) of Section 6.1 is not satisfied by the Closing Date, Crescent
shall have the right to terminate this Agreement by giving written
notice of such action to Magellan and Magellan shall have the right to
terminate by giving written notice to Crescent. Upon delivery of any
such termination notice, this Agreement shall terminate, and all
rights and obligations of the parties hereunder shall be released and
discharged, except that Magellan, on the one hand, and Crescent, on
the other hand, shall each remain liable to the other for all damages
suffered by the other if the unsatisfied condition was due to a breach
by one party of any of the covenants, obligations, representations or
warranties of such party in this Agreement or any other failure by
such party to use its commercially reasonable best efforts to satisfy
conditions precedent to Closing that are within the control of such
party to satisfy.
SECTION 7.
COVENANTS AND AGREEMENTS
Magellan covenants and agrees, and will cause each Magellan Subsidiary
to covenant and agree, and, as applicable, Crescent and OpCo covenant and agree
as follows:
7.1 Unlisted Assets. To the extent that, subsequent to Closing, an asset
or right that is used in the conduct of the business of the Hospitals
prior to Closing and that was not listed as a Contributed Asset,
Purchased Asset, Working Capital Asset or an Excluded Asset is
discovered to exist, either such asset or right shall be conveyed to
OpCo without charge or OpCo shall receive the benefits of ownership of
such asset through the Franchise Agreement at no additional charge
(except to the extent that the asset results in an increase in
franchise fees due to the gross revenue component of the franchise
fees);
7.2 Assignment or Transfer of Contributed Assets. To the extent that any
of the Contributed Assets cannot be assigned or otherwise transferred
to OpCo, Magellan will use its commercially reasonable best efforts to
create an alternative structure that will provide OpCo with
substantially the same rights, and produce substantially the same
economic effect, as that which would have been provided or produced if
the Contributed Assets had been transferred or assigned.
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7.3 Parties' Commercially Reasonable Best Efforts. Magellan and Crescent
agree to use their commercially reasonable best efforts to cause all
their covenants and agreements and all conditions precedent to the
consummation of the Transactions contemplated by this Agreement to be
performed, satisfied and fulfilled.
7.4 Insurance Reserves. Magellan will cause Plymouth Insurance Company
Ltd. ("Plymouth") to maintain reserves in amounts that are reasonably
actuarially adequate to cover risks insured by Plymouth associated
with the operation of the business of the Hospitals.
7.5 Accounts Receivable. OpCo shall pay to Magellan all amounts actually
received by OpCo in payment of receivables relating to the business of
the Hospitals, which receivables were existing as of (or accrued prior
to) the Closing Date, in exchange for a fee payable to OpCo by
Magellan equal to 5% of receivables collected by OpCo and received by
OpCo or Magellan. The receivables will be collected in accordance with
the procedures (including the level of effort to be expended)
established by Charter Behavioral Health Systems, Inc. prior to the
Closing Date and disclosed to OpCo in writing on or before the Closing
Date. Any receivables remaining uncollected 120 days or more after the
Closing Date will be turned over to Magellan at its request and OpCo
shall have no further obligations as to such receivables but will
continue collection efforts for all receivables not so delivered to
Magellan.
7.6 Brokers. Each party represents and warrants to the other that it has
not engaged, dealt with or otherwise discussed this Agreement or the
Transactions with any broker, agent or finder.
7.7 Specific Performance. The parties acknowledge and agree that their
respective rights and obligations that will arise out of this
Agreement are unique and irreplaceable, and that the failure of either
party to perform its obligations under this Agreement or any of the
Transaction Documents would result in damage to the other party that
could not be adequately compensated by a monetary award. Subject to
Section 8.4 of the Real Estate Purchase and Sale Agreement but
notwithstanding anything else to the contrary, the parties therefore
agree that if either party fails to perform its obligations hereunder
or with respect to any of the Transaction Documents, the other party
may, in addition to all other remedies, seek an order of specific
performance from a court of appropriate jurisdiction.
7.8 Third Party Consents; Further Assurances.
(a) If any party shall fail to obtain any third party consent
necessary, proper or advisable to effect the consummation of the
Contribution, the purchase of the Purchased Assets or the
purchase of the Working Capital Assets, such party shall use all
commercially reasonable best efforts, and shall take any such
actions reasonably requested by the other parties hereto, to
minimize any adverse effect upon OpCo's business resulting, or
that could reasonably be expected to result after the date
hereof, from the failure to obtain such consent.
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(b) In addition to the actions, contracts and other agreements and
documents and other papers specifically required to be taken or
delivered pursuant to this Agreement, each of the parties hereto
shall execute such contracts and other agreements and documents
and take such further actions as may be reasonably required or
desirable to carry out the provisions of this Agreement.
7.9 Services Agreements. Prior to closing, Magellan, in its capacity as a
joint venturer, will or will cause any Magellan Subsidiary which is a
joint venturer in any Joint Venture that owns or operates a domestic
Hospital, which Joint Ventures are set forth on Schedule 7.9 and
defined in the Franchise Agreement as "Existing Joint Ventures" (a
"Joint Venture"), to enter into a services agreement with OpCo for
each such Hospital owned or operated by a Joint Venture, pursuant to
which OpCo will perform, to the extent agreed by joint venture
partners, all of Magellan's obligations under the Joint Venture
agreement in exchange for the payment to OpCo by Magellan of all
distributions and fees paid to Magellan by or on behalf of the Joint
Venture. Magellan will use its commercially reasonable best efforts to
obtain the consent of Magellan's joint venture partners to the
performance, by OpCo, of Magellan's obligations under the Joint
Venture Agreements. Each service agreement, as referred to in this
Section 7.9, shall be approved by Crescent, which approval shall not
be unreasonably withheld. The services agreement(s) shall continue in
effect until termination of the Facilities Lease.
7.10 Employee Benefits. The parties agree to establish employee benefit
plans for the employees of OpCo providing for overall benefits in an
amount similar to the benefits provided by the employee benefit plans
in effect on the date hereof at Magellan and the Magellan
Subsidiaries.
7.11 Title to Property. Magellan and the Magellan Subsidiaries shall convey
at the Closing pursuant to the form of bill of sale attached as
Exhibit I to the Real Estate Purchase and Sale Agreement, (i) good and
marketable title to the Contributed Assets, the Purchased Assets and
the Working Capital Assets (to OpCo or such OpCo Subsidiary as OpCo
directs) owned by Magellan or a Magellan Subsidiary, subject to no
liens, encumbrances or material claims whatsoever, except for the
Assumed Obligations and except for any liens, encumbrances and claims
related to the purchase of property on an installment basis in the
ordinary course of business, and (ii) all of their rights and interest
in the Contributed Assets, the Purchased Assets, and the Working
Capital Assets leased by Magellan or a Magellan Subsidiary.
7.12 Right to Inspect. Magellan shall grant OpCo the right to inspect any
and all business records retained by Magellan pursuant to Section
2.2(z) during reasonable business hours and upon reasonable prior
notice. OpCo shall grant Magellan access to any business records
transferred to OpCo during reasonable business hours and upon
reasonable prior notice.
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SECTION 8.
INDEMNIFICATION
8.1 Indemnification Obligations of Magellan. Magellan shall indemnify and
hold harmless OpCo and its subsidiaries and affiliates, each of their
respective officers, directors, partners, employees, agents and
representatives and each of the permitted successors and assigns of
any of the foregoing (collectively, the "OpCo Indemnified Parties")
from, against and in respect of any and all claims, liabilities,
obligations, losses, costs, expenses, penalties, fines and other
judgments (at equity or at law) and damages (including, without
limitation, amounts paid in settlement, costs of investigation and
reasonable attorneys' fees and expenses) (collectively, "Claims and
Damages") arising out of or relating to (i) any breach of any
representation, warranty, covenant, agreement or undertaking made by
Magellan in this Agreement or in any certificate, agreement, exhibit
or schedule delivered pursuant to this Agreement, or (ii) the
ownership, lease or operation of the Hospitals and attributable to
events arising prior to the Closing (including claims made after
Closing related to events occurring prior to Closing) other than
Assumed Liabilities or liabilities to the extent they are covered by
existing insurance, provided, however, that if the insurer does not
pay insured amounts under the terms of the policies, Magellan shall
indemnify the OpCo Indemnified Parties for such debts, liabilities and
obligations. The Claims and Damages of the OpCo Indemnified Parties
described in this Section 8.1 as to which the OpCo Indemnified Parties
are entitled to indemnification are hereinafter collectively referred
to as "OpCo Losses." Notwithstanding anything to the contrary
contained herein, Magellan's indemnity obligations hereunder will not
extend to claims arising out of willful misconduct or fraud of OpCo.
8.2 Indemnification Obligations of OpCo. OpCo shall indemnify and hold
harmless Magellan and its subsidiaries and affiliates and each of
their respective officers, directors, partners, employees, agents and
representatives and each of the permitted successors and assigns of
any of the foregoing (collectively, the "Magellan Indemnified
Parties") from, against and in respect of any and all Claims and
Damages arising out of or relating to any debts, liabilities and
obligations relating to (i) the ownership, lease or operation of the
Hospitals and attributable to events which arise after the Closing or
(ii) the Assumed Obligations. The Claims and Damages of the Magellan
Indemnified Parties described in this Section 8.2 as to which the
Magellan Indemnified Parties are entitled to indemnification are
hereinafter collectively referred to as "Magellan Losses."
Notwithstanding anything to the contrary contained herein, OpCo's
indemnity obligations hereunder will not extend to claims arising out
of willful misconduct or fraud of Magellan.
8.3 Indemnification Procedure.
(a) Promptly after receipt by an OpCo Indemnified Party or a Magellan
Indemnified Party (each an "Indemnified Party") of notice by a
third party of any complaint or the commencement of any action or
proceeding with respect to which indemnification is being sought
hereunder, such Indemnified Party shall notify OpCo, if the
Indemnified Party is a
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Magellan Indemnified Party, or Magellan, if the Indemnified Party
is a OpCo Indemnified Party (the "Indemnifying Party"), of such
complaint or of the commencement of such action or proceeding;
provided, however, that the failure to so notify the Indemnifying
Party shall not relieve the Indemnifying Party from liability for
such claim arising otherwise than under this Agreement and such
failure to so notify the Indemnifying Party shall relieve the
Indemnifying Party from liability which the Indemnifying Party
may have under this Agreement with respect to such claim if, but
only if, and only to the extent that, such failure to notify the
Indemnifying Party results in the forfeiture by the Indemnifying
Party of rights and defenses otherwise available to the
Indemnifying Party with respect to such claim. The Indemnifying
Party shall have the right, upon written notice to the
Indemnified Party, to assume the defense of such action or
proceeding, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of the
reasonable fees and disbursements of such counsel. In the event,
however, that the Indemnifying Party declines or fails to assume
the defense of the action or proceeding or to employ counsel
reasonably satisfactory to the Indemnified Party, in either case
in a timely manner, then such Indemnified Party may employ
counsel to represent or defend it in any such action or
proceeding and the Indemnifying Party shall pay the reasonable
fees and disbursements of such counsel as incurred; provided,
however, that the Indemnifying Party shall not be required to pay
the fees and disbursements of more than one counsel for all
Indemnified Parties in any jurisdiction in any single action or
proceeding. In any action or proceeding with respect to which
indemnification is being sought hereunder, the Indemnified Party
or the Indemnifying Party, whichever is not assuming the defense
of such action, shall have the right to participate in such
litigation and to retain its own counsel at such party's own
expense. The Indemnifying Party or the Indemnified Party, as the
case may be, shall at all times use reasonable efforts to keep
the Indemnifying Party or the Indemnified Party, as the case may
be, reasonably apprised of the status of the defense of any
action, the defense of which it is maintaining and to cooperate
in good faith with the Indemnifying Party or the Indemnified
Party, as the case may be, with respect to the defense of any
such action.
(b) No Indemnified Party may settle or compromise any claim or
consent to the entry of any judgment with respect to which
indemnification is being sought hereunder without the prior
written consent of the Indemnifying Party, unless such
settlement, compromise or consent includes an unconditional
release of the Indemnifying Party from all liability arising out
of such claim. An Indemnifying Party may not, without the prior
written consent of the Indemnified Party, settle or compromise
any claim or consent to the entry of any judgment with respect to
which indemnification is being sought hereunder unless such
settlement, compromise or consent includes an unconditional
release of the Indemnified Party from all liability arising out
of such claim and does not contain any equitable order, judgment
or term which in any manner affects, restrains or interferes with
the business of the Indemnified Party or any of the Indemnified
Party's respective affiliates.
(c) In the event an Indemnified Party shall claim a right to payment
pursuant to this Agreement, such Indemnified Party shall send
written notice of such claim to the appropriate Indemnifying
Party. Such notice shall specify the basis for such claim. As
promptly as possible after the Indemnified Party has given such
notice, such Indemnified Party and the appropriate
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Indemnifying Party shall establish the merits and amount of such
claim (by mutual agreement, litigation, arbitration or otherwise)
and, within five business days of the final determination of the
merits and amount of such claim, the Indemnifying Party shall
deliver to the Indemnified Party immediately available funds in
an amount equal to such claim as determined hereunder.
(d) Liability Limits. To the extent any claim for OpCo Losses against
Magellan is based upon the alleged inaccuracy of any
representation or warranty contained in Article 5 of this
Agreement, then, for a period beginning on the Closing Date and
ending two years later, Magellan shall only be liable for such
OpCo Losses solely to the extent that any such OpCo Losses exceed
in the aggregate in any one year, one million dollars
($1,000,000.00). Beginning two years after the Closing Date,
Magellan shall be liable for such OpCo Losses solely to the
extent that any such OpCo Losses exceed in the aggregate during
such period, ten million dollars ($10,000,000.00); provided,
however, that to the extent a claim for OpCo Losses is not based
on the inaccuracy of a representation or warranty contained in
Article 4 of this Agreement, then such claim shall not be subject
to the limitations above, nor shall the amount of any such OpCo
Losses be included with other OpCo Losses in determining whether
such basket amounts have been reached.
(e) Claim Periods. Indemnification obligations under this Article 7
for pre-closing and post-closing debts, liabilities or
obligations and for a breach of representations, warranties or
covenants shall survive until expiration of the applicable
statute of limitations.
SECTION 9.
MISCELLANEOUS
9.1 Fees and Expenses; Transfer Costs. Fees and expenses incident to the
negotiation, preparation and execution of this Agreement and the
performance of the Contribution (including attorneys', accountants',
financial advisors' and other advisors' fees and disbursements) shall
be borne by the party incurring the expense. Magellan shall pay all
sales, transfer and other recording charges and conveyance taxes in
connection with the transfer of the Contributed Assets, the Purchased
Assets and the Working Capital Assets to OpCo and in connection with
the transfer of any licenses or permits to OpCo.
9.2 Notices. Whenever any notice is required or permitted hereunder, such
notice shall be in writing and (a) sent by certified mail, postage
prepaid, return receipt requested, (b) given by established overnight
commercial courier for delivery on the next business day with delivery
charges prepaid or duly charged, (c) personally hand-delivered or (d)
sent by facsimile
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transmission with confirmation of receipt received, to the applicable
address or facsimile number set forth below:
(i) if to Crescent:
Gerald W. Haddock, Esq.
President and Chief Operating Officer
Crescent
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
with a copy to:
David M. Dean, Esq.
Senior Vice President, Law
Crescent
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 878-0429
Wendelin A. White, Esq.
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Facsimile: (202) 663-8007
(ii) if to Magellan:
Steve J. Davis, Esq.
Executive Vice President,
Administrative Services and General Counsel
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Facsimile: (404) 814-5793
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with a copy to:
Robert W. Miller, Esq.
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile:(404) 572-5100
Notices which are mailed shall be deemed effective upon receipt. Notices which
are hand- delivered shall be deemed effective upon tender to a natural person at
the address shown. Notices which are delivered by overnight courier shall be
deemed given on the next business day after delivery to such courier. Notices
which are delivered by facsimile transmission shall be deemed received upon
electronic confirmation of delivery.
9.3 Entire Agreement. This Agreement and the Transaction Documents
(together with the exhibits and schedules hereto and thereto)
supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter
hereof, all of which are null, void and of no force or effect.
9.4 Waivers and Amendments. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms and
conditions of this Agreement may be waived, only by a written
instrument signed by the parties hereto or, in the case of a waiver,
by the party waiving compliance.
9.5 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without regard to the application of choice of law
principles. The rule that an Agreement should be construed against the
party drafting it shall not apply to this Agreement because all
parties have played a significant role in negotiating and drafting
this Agreement.
9.6 Severability. If any term, covenant or condition of this Agreement is
held to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision, and this
Agreement shall be construed as if such invalid or unenforceable
provision had never been contained in this Agreement.
9.7 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors
and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or
their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
9.8 No Assignment. This Agreement may not be assigned without the prior
written consent of the other party, except that Crescent shall assign
all of its rights and obligations hereunder to New Crescent.
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9.9 Arbitration.
(a) Following Closing, any controversy, claim or question of
interpretation arising out of or relating to this Agreement or
the breach thereof shall be finally settled by arbitration in
Delaware, under the then-effective Commercial Arbitration Rules
of the American Arbitration Association as modified by this
Agreement, and judgment on the award rendered by the arbitrators
may be entered in any court having jurisdiction. The award
rendered by the arbitrators shall be final and binding on the
parties and not subject to further appeal. Such arbitration can
be initiated by written notice by either party (the "Claimant")
to the other party, which notice shall identify the Claimant's
selected arbitrator. The party receiving such notice (the
"Respondent") shall identify its arbitrator within ten (10)
business days following its receipt of such notice. The
arbitrator selected by the Claimant and the arbitrator selected
by the Respondent shall, within ten (10) business days of their
appointment, select a third neutral arbitrator. In the event that
they are unable to do so, either party may request the American
Arbitration Association to appoint the third neutral arbitrator.
The arbitrators shall have the authority to award any remedy or
relief that a court in Delaware could order or grant, including,
without limitation, specific performance of any obligation
created under this Agreement, the issuance of injunctive or other
provisional relief, or the imposition of sanctions for abuse or
frustration of the arbitration process. The arbitration award
will be in writing and specify the factual and legal basis for
the award.
(b) The arbitrators shall instruct the non-prevailing party to pay
all costs of the proceedings, including the fees and expenses of
the arbitrators and the reasonable attorneys' fees and expenses
of the prevailing party. If the arbitrators determine that there
is not a prevailing party, each party shall be instructed to bear
its own costs and to pay one-half of the fees and expenses of the
arbitrators.
9.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which taken together shall constitute one and the same instrument.
9.11 Exhibits and Schedules. The exhibits and schedules delivered or to be
delivered pursuant to this Agreement are a part of this Agreement as
if set forth in full within the Agreement.
9.12 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
CRESCENT
By: _____________________________________
Name:
Title:
MAGELLAN HEALTH SERVICES, INC.
By: _____________________________________
Name:
Title:
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