CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT, dated as of June 16, 1997 (the
"Agreement"), is entered into by and among Magellan Health Services, Inc., a
Delaware corporation ("Magellan"), Crescent Operating, Inc., a Delaware
corporation ("Crescent"), and Charter Behavioral Health Systems, LLC, formed
under the laws of the State of Delaware ("Charter LLC").
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 and as further amended ("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 or an affiliate of CREELP ("Crescent Affiliate"), and CREELP has agreed
to purchase, or to cause Crescent Affiliate 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 Charter
LLC to (i) operate the Facilities and certain leased facilities (together, the
"Hospitals"); and (ii) engage in the business of hospital-based behavioral
healthcare using Charter LLC 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
Charter LLC, and that Crescent contribute certain assets to Charter LLC, in
exchange for all of the interests in Charter LLC (the "Contribution");
WHEREAS, upon closing of the transactions contemplated by this
Agreement and the Real Estate Purchase and Sale Agreement, (i) Charter LLC and
Magellan, through its wholly owned subsidiary Charter Franchise Services, LLC
("CFS," collectively with Magellan, "Franchisor"), will enter into a Franchise
Agreement, dated the date hereof (the "Franchise Agreement") and will cause each
Charter LLC Subsidiary (as hereafter defined) to enter into a Franchise
Agreement dated the date hereof (the "Subsidiary Franchise Agreement" and,
collectively with the Master Franchise Agreement, the "Franchise Agreement"),
(ii) Charter Behavioral Health Systems, Inc. ("Charter Inc.") and Crescent will
enter into that certain Operating Agreement of Charter LLC dated the date hereof
(the "Charter LLC Agreement"), and (iii) Magellan, Crescent Affiliate, CFS and
Charter LLC will enter into a Subordination Agreement dated the date hereof (the
"Subordination Agreement");
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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.
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 Charter LLC, Magellan
will cause the relevant Magellan Subsidiary to (either directly or through
Magellan) contribute or assign to Charter LLC or a relevant, wholly owned
subsidiary of Charter LLC (a "Charter LLC 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;
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(c) All of the leasehold interests held by any Magellan Subsidiary as
lessee, in real or personal property including, but not limited to the leasehold
interests in those Hospitals set forth on Schedule 2.1(c);
(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) or any other leased premises included in Section 2.1(c);
(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 Charter LLC by Franchisor 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 Charter LLC or any Charter LLC 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"):
(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;
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(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) (except as provided in Section 3.1);
(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 Charter 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 CFS, Magellan, a Magellan
subsidiary, Charter LLC or a Charter LLC 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 CFS, Magellan, a
Magellan subsidiary, Charter LLC or an Charter LLC Subsidiary;
(q) All cash, cash equivalents, short-term investments, marketable
securities, andaccounts 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;
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(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 Franchisor 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 Charter LLC 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 Charter LLC pursuant
to Section 8 of this Agreement (the "Assumed Obligations") shall be assumed by
Charter LLC as of the Contribution Date regardless of whether such liabilities
are accrued on the books of Magellan or a Magellan Subsidiary, (or Charter LLC
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;
(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 Charter LLC's
participation in the contracts excluded from Section 2.1(g); and
(g) All such liabilities and obligations related to software
sublicensed to Charter LLC 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
Charter LLC and shall remain the liabilities and
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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 Charter LLC, Crescent shall contribute to
Charter LLC 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).
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SECTION 3.
PURCHASE OF CERTAIN ASSETS BY CHARTER LLC
3.1 Asset Purchase. On the Closing Date, Charter LLC shall (a) purchase
from Charter Medical Information Systems ("CMIS") the assets of CMIS listed on
the computer printout (the "CMIS Assets") delivered by Magellan to Crescent on
the date hereof, which computer printout is separately bound and (b) shall
purchase from certain Magellan subsidiaries their respective interest in
Alliance for Behavioral Health ("Alliance," together with the CMIS Assets, the
"Purchased Assets").
3.2 Purchase of Working Capital. On the Closing Date, Charter LLC 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, Charter LLC shall pay
to Magellan or its designated subsidiary cash equal to $5.0 million, with
payment for the Working Capital Assets to be made at the Closing or within two
business days of the Closing Date.
3.4 Post-Closing Adjustment. Within sixty (60) days after the Closing
Date, Magellan shall deliver to Charter LLC 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. Charter LLC shall have thirty (30)
days to deliver to Magellan any objections ("Objections") it has to the
Statement. If Charter LLC does not submit any such Objections, the Statement
shall become final. If Charter LLC does deliver any Objections, Magellan and
Charter LLC shall negotiate in good faith to resolve the Objections as promptly
as practical. In the event Magellan and Charter LLC are unable to resolve the
Objections within thirty (30) days after such Objections are delivered to
Magellan,
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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 Charter LLC 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"), Charter
LLC 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 the transfer and contribution of the Contributed Assets to
Charter LLC, Charter LLC shall deliver to the Magellan Subsidiaries fifty
percent (50%) (when aggregated with the membership interest held by Magellan
affiliates) of the issued and outstanding capital equity interests in Charter
LLC (the "Magellan Interest"), and (ii) in consideration of Crescent's transfer
and contribution of the Crescent Contribution to Charter LLC, Charter LLC shall
deliver to Crescent fifty percent (50%) of the issued and outstanding capital
equity interests in Charter LLC (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, CFS, Crescent, Charter LLC and each
Charter LLC Subsidiary (as applicable) shall execute and deliver the following
documents:
(i) the Charter LLC Agreement;
(ii) the Franchise Agreement;
(iii) the Warrant Agreement;
(iv) the Warrant Agreements dated the date of this Agreement
between Magellan and Crescent Operating (the "COI Warrant Agreements").
(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
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(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 Charter
LLC the following:
(i) Assignments, bills of sale or other documents or
instruments of transfer to transfer to Charter LLC 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 Charter LLC'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 Charter LLC, the Crescent Contribution in
immediately available funds.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Magellan. Magellan represents
and warrants to Charter LLC, 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.
(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
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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) any organizational documents 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.
(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
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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 Charter LLC of the Contributed
Assets, the Purchased Assets and the Working Capital Assets, and consummation of
the transactions contemplated by the other Transactional Documents, (i) Charter
LLC will have or, through the Franchise Agreement or the Administrative Services
Agreement dated the date of this Agreement between Magellan and Charter LLC,
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) Charter LLC 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 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
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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
its Proxy Statement to Shareholders for its 1997 Annual Meeting of Shareholders
held on May 30, 1997, at which, among other matters, shareholders of Magellan
approved 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 Charter LLC 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 Charter LLC.
5.2 Representations and Warranties of Crescent. Crescent hereby
represents and warrants to Charter LLC 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 corporate action on the part of Crescent.
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 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 for federal income
tax purposes, 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.
(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.
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(d) SEC Reports. The Registration Statement on Form S-1 (File No.
333-25223) of Crescent, as declared effective by the Securities and Exchange
Commission on June 12, 1997, did not at such time 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;
(c) Execution of the Charter LLC Agreement;
(d) Execution of the Warrant Agreement and the COI Warrant Agreements;
and
(e) 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
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Magellan covenants and agrees, and will cause each Magellan Subsidiary
to covenant and agree, and, as applicable, Crescent and Charter LLC 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 Charter LLC without charge or Charter
LLC 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
Charter LLC, Magellan will use its commercially reasonable best efforts to
create an alternative structure that will provide Charter LLC 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.
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. Charter LLC shall pay to Magellan all amounts
actually received by Charter LLC 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 Charter LLC by
Magellan equal to 5% of receivables collected by Charter LLC and received by
Charter LLC or Magellan. The receivables will be collected in accordance with
the procedures (including the level of effort to be expended) established by
Charter Inc. prior to the Closing Date and disclosed to Charter LLC 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
Charter LLC 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
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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 Charter LLC's business resulting, or that could
reasonably be expected to result after the date hereof, from the failure to
obtain such consent.
(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 Charter LLC for each such Hospital owned or operated by
a Joint Venture, pursuant to which Charter LLC 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 Charter LLC 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 Charter LLC, 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 Charter LLC 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
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and the Working Capital Assets (to Charter LLC or such Charter LLC Subsidiary as
Charter LLC 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 Charter LLC 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.
Charter LLC shall grant Magellan access to any business records transferred to
Charter LLC during reasonable business hours and upon reasonable prior notice.
SECTION 8.
INDEMNIFICATION
8.1 Indemnification Obligations of Magellan. Magellan shall indemnify
and hold harmless Charter LLC 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 "Charter LLC 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 Obligations 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 Charter
LLC Indemnified Parties for such debts, liabilities and obligations. The Claims
and Damages of the Charter LLC Indemnified Parties described in this Section 8.1
as to which the Charter LLC Indemnified Parties are entitled to indemnification
are hereinafter collectively referred to as "Charter LLC 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 Charter LLC.
8.2 Indemnification Obligations of Charter LLC. Charter LLC 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
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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,
Charter LLC'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 a Charter LLC 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 Charter LLC, if the Indemnified Party is a Magellan
Indemnified Party, or Magellan, if the Indemnified Party is a Charter LLC
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
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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 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 Charter LLC Losses
against Magellan is based upon the alleged inaccuracy of any representation or
warranty contained in Section 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 Charter LLC Losses solely to the extent that any such Charter LLC
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 Charter LLC Losses solely to the extent that any such Charter
LLC Losses exceed in the aggregate during such period, ten million dollars
($10,000,000.00); provided, however, that to the extent a claim for Charter LLC
Losses is not based on the inaccuracy of a representation or warranty contained
in Section 5 of this Agreement, then such claim shall not be subject to the
limitations above, nor shall the amount of any such Charter LLC Losses be
included with other Charter LLC Losses in determining whether such basket
amounts have been reached.
(e) Claim Periods. Indemnification obligations under this Section 8 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
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Contributed Assets, the Purchased Assets and the Working Capital Assets to
Charter LLC and in connection with the transfer of any licenses or permits to
Charter LLC.
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 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
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(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
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.
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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.
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.
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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 OPERATING, INC.
By: \s\ Jeffrey L. Stevens
-------------------------------------
Name: Jeffrey L. Stevens
Title: Chief Financial Officer,
Treasurer and Secretary
MAGELLAN HEALTH SERVICES, INC.
By: \s\ Linton C. Newlin
-------------------------------------
Name: Linton C. Newlin
Title: Vice President and Secretary
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