Exhibit 2.4
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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:
In re : Chapter 11 Case No.
:
Magellan Health Services, Inc., et al., : 03-40515 (PCB)
:
Debtors. :
: (Jointly
: Administered)
:
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ORDER CONFIRMING DEBTORS' THIRD
AMENDED JOINT PLAN OF REORGANIZATION, AS
MODIFIED, PURSUANT TO CHAPTER 11 OF THE BANKRUPTCY CODE
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Magellan Health Services, Inc. ("Magellan") and its affiliated
debtors, as debtors and debtors in possession (collectively, with Magellan, the
"Debtors"), having proposed and filed their Third Amended Joint Plan of
Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code,
dated August 18, 2003 (as modified by the Modifications to Debtors' Third
Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code,
dated September 25, 2003, and the Modifications to Debtors' Third Amended Joint
Plan of Reorganization under chapter 11 of the Bankruptcy Code, dated October 8,
2003 (collectively, the "Modifications"), the "Plan"), (1) and the Disclosure
Statement in respect of the Plan, dated August 18, 2003 (the "Disclosure
Statement"); and the Disclosure Statement having been approved by the Court
pursuant to an order, dated August 19, 2003, as containing "adequate
information" pursuant to section 1125 of the Bankruptcy Code (the "Disclosure
Statement Order"); and the Affidavits of Mailing by Bankruptcy Services, LLC
("BSI") of Solicitation Packages (the "BSI Affidavit"), dated September 8, 2003,
having been filed with the Court on September 12, 2003, and the Affidavit of
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(1) Capitalized terms used but not defined herein have the meanings ascribed to
them in the Plan.
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Service of Solicitation Packages by Innisfree M&A, Inc. ("Innisfree" and,
together with BSI, the "Voting Agents"), dated October 6, 2003 having been filed
with the Court on October 7, 2003 (collectively, the "Affidavits of Mailing");
and the Affidavit of Miriam Bloom of BSI regarding the methodology for the
tabulation of and results of voting with respect to the Plan (the "BSI
Certification"), the Certification of Jane Sullivan of Innisfree with respect to
the tabulation of votes on the Plan (the "Innisfree Certification") and the
Supplement to the Innisfree Certifications (collectively, the "Certifications")
having been filed with the Court on October 6, 2003; and the Debtors having
filed with this Court the Plan Supplement and the affidavits in support of
confirmation of the Plan of (i) Mark S. Demilio, Executive Vice President and
Chief Financial Officer of the Debtors (the "Demilio Affidavit"), and (ii)
William D. Forrest, CTP, Managing Director of Gleacher Partners, LLC
("Gleacher"), financial advisors to the Debtors (the "Forrest Affidavit" and,
together with the Demilio Affidavit, collectively, the "Affidavits in Support of
Plan Confirmation") (collectively, with the Affidavits of Mailing and the
Certifications, the "Debtors' Confirmation Documents"); and each of the
Objections (as hereinafter defined) having been resolved, withdrawn or
overruled; and the Court having conducted a hearing to consider confirmation of
the Plan on October 8, 2003 (the "Confirmation Hearing"); and the Court having
reviewed and considered the Plan, the Plan Supplement, the Debtors' Confirmation
Documents, the Disclosure Statement, the Disclosure Statement Order, and the
entire record of the Confirmation Hearing, and the Court being familiar with the
Plan and other relevant factors affecting the Debtors' chapter 11 cases (the
"Chapter 11 Cases"); and the Court having taken judicial notice of the entire
record of the Chapter 11 Cases since the Commencement Date; and the appearance
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of all interested parties having been duly noted in the record of the
Confirmation Hearing; and after due deliberation and sufficient cause appearing
therefor;
IT IS HEREBY FOUND, CONCLUDED, ORDERED, ADJUDGED, AND DECREED, AS
FOLLOWS:
FINDINGS OF FACT (2)
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BACKGROUND
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1. The Debtors each filed with this Court a voluntary petition for
relief under chapter 11 of the Bankruptcy Code on March 11, 2003 (the
"Commencement Date"). (Debtors' Chapter 11 Petitions, Docket No. 1).
2. Each of the Debtors continues to operate its business and manage
its properties as a debtor in possession pursuant to sections 1107(a) and 1108
of the Bankruptcy Code.
3. By order of the Court, dated March 11, 2003, these chapter 11
cases were consolidated for procedural purposes only pursuant to Bankruptcy Rule
1015(b). (Docket No. 28).
4. On March 18, 2003, the United States Trustee for the Southern
District of New York (the "United States Trustee") appointed the Official
Committee. (Notice of Appointment of Official Committee, Docket No. 65).
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(2) The Findings of Fact and Conclusions of Law contained herein constitute the
findings of fact and conclusions of law required to be entered by this Court
pursuant to Rule 52 of the Federal Rules of Civil Procedure, as made applicable
herein by Rules 7052 and 9014 of the Federal Rules of Bankruptcy Procedure (the
"Bankruptcy Rules").
FORMULATION OF THE PLAN
AND DEVELOPMENT OF THE DEBTORS' BUSINESS PLAN
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5. Prior to the commencement of these chapter 11 cases, the Debtors
engaged in discussions with the Senior Secured Lenders, Aetna, their largest
customer, and an ad hoc committee of holders of the Magellan's Senior Notes and
Senior Subordinated Notes toward the formulation of a plan of reorganization. As
a result of such discussions, on the Commencement Date, the Debtors filed a plan
of reorganization. One of the conditions of confirmation and consummation of
such plan of reorganization was that the Debtors realize not less than $50
million in proceeds (and $47.5 million in net proceeds) from an equity or debt
investment. (Debtors' Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code, dated March 11, 2003)
6. Prior to the Commencement Date, the Debtors sought a commitment
from, among other parties, their primary creditor constituencies, as well as a
third party investor, Onex Corporation ("Onex"), for an equity and/or debt
infusion to be made in conjunction with the effectiveness of the Plan. Because
Onex required more time to complete its due diligence, it was unable to provide
the Debtors with a commitment letter at that time. The Debtors did, however,
receive two definitive proposals to provide financing in connection with the
consummation of the restructuring, the most favorable of which was made by
Amalgamated Gadget, L.P. ("AG") and Pequot Capital Management, Inc. ("PCM" and,
together with AG, the "Initial Investors"), both on behalf of certain managed
funds and accounts. (Demilio Affidavit, at P. 4).
7. After extensive negotiation with the Initial Investors, the
Debtors and the Initial Investors reached an agreement on the terms and
provisions of an investment that was set forth in a commitment letter dated
March 10, 2003 (the "PCM/AG Equity Commitment Letter"). (Demilio Affidavit at P.
5). The PCM/AG Equity Commitment Letter provides, among other things, for
indemnification obligations, expense reimbursement and the payment of various
fees, including a break-up fee of $1 million and a commitment fee of $1.5
million, of which $750,000 was paid on March 11, 2003 and the remainder was paid
in September 2003. PCM/AG Equity Commitment Letter. (Demilio Affidavit at P. 5).
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8. On March 11, 2003, the Debtors filed their Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code. On March 26, 2003, the
Debtors filed their First Amended Joint Plan of Reorganization under Chapter 11
of the Bankruptcy Court and the proposed disclosure statement in connection
therewith.
9. On April 4, 2003, the Court approved the PCM/AG Equity Commitment
Letter and, specifically, the break-up fee, indemnification, expense
reimbursement obligation and commitment fee contained therein. (Docket No. 147).
10. On April 23, 2003, the Court approved the Debtors' assumption of
the Aetna Amended MSA, including all documents and instruments related thereto,
finding that such assumption was in the best interests of the Debtors, their
creditors, and all parties in interest. (Docket No. 397).
11. Although the Debtors had negotiated an equity commitment from AG,
the Debtors nevertheless continued to solicit proposals from other potential
investors, including Onex, for an equity commitment that would be even more
favorable to the Debtors and their creditors. After completing its due diligence
and engaging in extensive negotiations with the Debtors, on May 21, 2003, Onex
presented the Debtors with a funding commitment, pursuant to which Onex agreed
to provide the Debtors with, among other things, a commitment to purchase up to
$200 million of common stock of Reorganized Magellan in conjunction with the
consummation of a plan of reorganization. (Demilio Affidavit at P. 6).
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12. In June and July of 2003, the Debtors conducted an informal
auction process, pursuant to which AG and Onex submitted competing bids. At the
conclusion of such process, the final bid by Onex was supported by the board of
directors of Magellan and the Official Committee. In selecting Onex bid, the
Board of Directors considered, among other factors, Onex's strength as a
strategic investor. (Demilio Affidavit at P. 7). As a result, the Debtors and
Onex entered into the Equity Commitment Letter, which, subject to modifications
requested by the Court, was approved by this Court on July 14, 2003. (Docket No.
814). The terms of the Equity Commitment Letter are embodied in the Plan.
13. On July 25, 2003, the Debtors filed their Second Amended Plan of
Reorganization under Chapter 11 of the Bankruptcy Code (the "Second Amended
Plan") and the proposed disclosure statement in connection therewith (the "July
25 Disclosure Statement"). On August 11, 2003, the Court held a hearing on
approval of the July 25 Disclosure Statement (the "Disclosure Statement
Hearing").
14. On August 18, 2003, the Debtors filed the Plan and Disclosure
Statement to, inter alia, address the comments made by the Court at the
Disclosure Statement Hearing and to make other agreed changes.
THE DISCLOSURE STATEMENT ORDER
AND SOLICITATION OF VOTES ON THE PLAN
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15. On August 19, 2003, by the Disclosure Statement Order, this Court
approved the Disclosure Statement as containing "adequate information" within
the meaning of section 1125 of the Bankruptcy Code. (Disclosure Statement Order,
Docket No.763).
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16. The Disclosure Statement Order authorized and directed the Voting
Agents, on behalf of the Debtors, to solicit acceptances and rejections of the
Plan in a manner consistent with the Bankruptcy Code, the Bankruptcy Rules and
in accordance with the procedures set forth in the Disclosure Statement Order.
(Disclosure Statement Order, Docket No.763).
17. The Disclosure Statement Order authorized and directed the
Debtors to provide or cause to be provided notice by publication (the
"Publication Notice") of the approval of the Disclosure Statement, the Voting
Deadline, the time and place of the Confirmation Hearing, the time and date by
which objections to confirmation of the Plan were required to be filed, and
other pertinent information. (Disclosure Statement Order, Docket No.763).
18. The Disclosure Statement Order (i) established September 30, 2003
at 4:00 p.m. (Eastern Time) (the "Voting Deadline") as the date and time by
which all Ballots were required to be completed, executed, marked and received
by the BSI for Classes 1, 4 and 9, and by Innisfree for Classes 7, 8, 13 and 14,
in order to be counted as timely acceptances or rejections of the Plan; (ii)
established September 25, 2003, at 4:00 p.m. (Eastern Time) as the date and time
for filing objections to the Plan (the "Objection Deadline"); (iii) established
certain procedures for the solicitation and tabulation of votes to accept or
reject the Plan; (iv) approved the form of Ballots to be used for Classes 1, 4,
7, 8, 9, 13 and 14 of the Plan; (v) scheduled the Confirmation Hearing for
October 8, 2003 at 11:00 a.m. (Eastern Time), and (vi) established certain
procedures for the Equity Offering.
19. Pursuant to the Disclosure Statement Order, the record date for
determining creditors entitled to vote on the Plan was August 21, 2003 (the
"Record Date").
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20. In compliance with the Disclosure Statement Order, the Debtors
caused to be transmitted by first class mail, postage prepaid, on or before
August 29, 2003 to each holder of a Claim or Equity Interest in Classes 1, 4, 7,
8, 9, 13 and 14 of the Plan (a) a copy of the Disclosure Statement and all
exhibits thereto, including, without limitation, the Plan annexed thereto as
Exhibit "A" and the Disclosure Statement Order annexed thereto as Exhibit "B;"
(b) the Notice of (i) Approval of Proposed Disclosure Statement, (ii)
Establishment of Record Date, (iii) Establishment of a Date for a Hearing on
Confirmation of the Plan of Reorganization and Notice and Objection Procedures
in Respect Thereof, (iv) Approval of Solicitation Packages and Procedures for
Distribution Thereof, (v) Approval of Forms of Ballot and Establishment of
Procedures for Voting on the Plan of Reorganization, and (vi) Approval of Forms
and Procedures for Equity Offering (the "Confirmation Hearing Notice"); (c) if
such holder was entitled, pursuant to the Disclosure Statement Order, to vote,
an appropriate Ballot for each class in which such holder was entitled to vote
and a pre-addressed return envelope for each such Ballot, and (d) for holders of
Claims in Classes 8 and 9 entitled to participate in the Equity Offering, a
subscription form for participation in the Equity Offering (collectively, a
"Solicitation Package"). Pursuant to the Disclosure Statement Order, the Debtors
were required to complete such transmittal on or before August 29, 2003 and, as
except as described below, such transmittal was timely completed in accordance
with the requirements of the Disclosure Statement Order.
21. At the time of the solicitation, the Debtors mistakenly
classified certain holders of Claims in Class 9 as holders of claims in an
Unimpaired Class. (Demilio Affidavit at P. 11). As a result, the Debtors did not
cause to be transmitted Disclosure Statements, Class 9 Ballots and Subscription
Forms to such holders on or before August 29, 2003. On September 4, 2003, the
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Debtors caused Class 9 Ballots and Disclosure Statements to be sent to such
entities via overnight courier and extended the Voting Deadline and Objection
Deadline for such creditors to October 6, 2003. (Demilio Affidavit at P. 11).
Considering the extensions of the Voting Deadline and the Objection Deadline
afforded to these creditors, these creditors had sufficient notice of the
Confirmation Hearing, the Voting Deadline, and the Objection Deadline. On
September 9, 2003, the Debtor caused Subscription Forms to be sent to such
entities.
22. On August 29, 2003, the Debtors caused Solicitation Packages to
be sent to parties to unexpired leases and executory contracts whose leases and
contracts are listed on Schedule 8.1 of the Plan as executory contracts and
unexpired leases to be rejected pursuant to the Plan. (BSI Affidavit P. 2).
23. In compliance with the Disclosure Statement Order, the Debtors
caused the Confirmation Hearing Notice and a notice of non-voting status (the
"Notice of Non-Voting Status") to be transmitted by first class mail, postage
prepaid, on or before August 29, 2003 to all entities required to receive notice
of the Confirmation Hearing and Plan but not entitled to vote on the Plan,
including holders of Claims in Classes 2, 3, 5, 6, 10, 11 and 12 of the Plan
(collectively, the "Unimpaired Classes"), as well as counterparties to executory
contracts and unexpired leases not being rejected pursuant to the Plan.
24. Accordingly, the Debtors' distribution of the Solicitation
Packages was substantially in accordance with the Disclosure Statement Order.
25. In addition, the Disclosure Statement Order required that the
Debtors publish the Confirmation Hearing Notice in the national editions of the
Wall Street Journal and The New York Times no less than twenty-five (25) days
before the Objection Deadline. On September 11, 2003, fourteen (14) days before
the Objection Deadline, the Confirmation Hearing Notice was published in the
national editions of the Wall Street Journal and The New York Times.
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(Certificates of Publication, Docket Nos. 991, 992). Given the widespread actual
notice provided by the Debtors of the Confirmation Hearing, the Voting Deadline
and the Objection Deadline, the delay in publication of the Confirmation Hearing
Notice did not adversely affect the rights of any parties in interest, and all
parties in interest had sufficient notice of the Confirmation Hearing, the
Voting Deadline and the Objection Deadline.
FILING OF THE PLAN SUPPLEMENT
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26. In accordance with sections 1.88 and 1.91 of the Plan, on
September 25, 2003 the Debtors filed with this Court the Plan Supplement, which
includes draft forms of (i) the Amended Bylaws, (ii) the Amended Certificate of
Incorporation, (iii) the New Note Indenture, (iv) the New Warrants, (v) the New
Management Incentive Plan, (vi) the New Aetna Note, (vii) the guarantees and
security agreements related to the New Aetna Note and the Aetna Purchase Option
(and any related intercreditor agreement(s)), (viii) the New Aetna Warrant, (ix)
the Aetna Amended MSA, (x) the Registration Rights Agreement (which includes
provisions related to Aetna's registration rights), (xi) the employment
agreements to be entered into between the Debtors and certain employees and
(xii) the Equity Commitment Letter. (Plan Supplement, Docket No.935).
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN
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27. The Plan designates the following classes of Claims and Equity
Interests:
Class 1 - Senior Secured Lender Claims
Class 2 - Other Secured Claims
Class 3 - Priority Non-Tax Claims
Class 4 - Aetna Claim
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Class 5 - Provider Claims
Class 6 - Customer Claims
Class 7 - Senior Note Claims
Class 8 - Senior Subordinated Note Claims
Class 9 - Other General Unsecured Claims
Class 10 -Convenience Claims
Class 11 - Intercompany Claims
Class 12 - Subsidiary Equity Interests
Class 13 - Magellan Preferred Stock Interests
Class 14 - Magellan Common Stock Interests
(Plan, Sections 3 and 4).
OVERVIEW OF TREATMENT OF CLAIMS UNDER THE PLAN
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28. As described above, the Plan provides for an equity investment by
Onex. Additionally, the Plan provides for Classes 8 and 9 to participate in an
Equity Offering. Holders of eligible Claims in Classes 8 and 9 had the right to
purchase an aggregate of 2,631,579 shares of New Common Stock at a price of
$28.50 per share.
29. Holders of Claims in Class 1 shall receive either (i) Cash in the
amount of $50 million and the New Senior Secured Obligations or (ii) (a) Cash in
the amount of their Allowed Claims to the extent such Allowed Claims are for
amounts other than amounts that represent undrawn letters of credit under the
Senior Secured Credit Agreement and (b) Cash and/or a standby letter of credit
from a financial institution reasonably satisfactory to the Administrative Agent
(which letter of credit shall be in form and substance satisfactory to the
Administrative Agent) in an amount equal to 105% of such Allowed Claim
representing undrawn letters of credit under the Senior Secured Credit
Agreement. The Senior Secured Lender Claims shall be Allowed in the following
amounts: $120,324,657.07 on account of Revolving Loans and unreimbursed letter
of credit disbursements and issued but undrawn letters of credit under the
Senior Secured Credit Agreement as of the Commencement Date (including
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unreimbursed drawings made under letters of credit under the Senior Secured
Credit Agreement to the extent drawn after the Commencement Date and prior to
the Effective Date), $57,881,095.64 on account of Tranche B Term Loans under the
Senior Secured Credit Agreement and $57,881,095.97 on account of Tranche C Term
Loans under the Senior Secured Credit Agreement provided that such Allowed
Claims shall be reduced to the extent (i) such Allowed Claims have been paid in
Cash or (ii) such Allowed Claims relate to letters of credit that have expired
since the Commencement Date and no related draw has been made thereunder. Plan,
Section 4.1.
30. Aetna, as holder of the Claim in Class 4, will receive, on
account of such Claim, and on account of Aetna's rights under the Aetna Amended
MSA: (a) $15 million in Cash, (b) the New Aetna Note, in the principal amount of
$45 million plus an amount equal to interest on $60 million from February 15,
2003 through and including the Effective Date at the interest rate set forth in
the New Aetna Note, (c) the New Aetna Warrant, (d) the rights provided for under
the Aetna Registration Rights Agreement and (e) the rights provided for under
the Aetna Amended MSA including all documents and instruments related thereto
(including, but not limited to, the Aetna Asset Purchase Agreement, the Aetna
Note, the Aetna Warrant and the Vendor Contracts (as such term is defined in the
Aetna Amended MSA)). Plan, Section 4.4.
31. Each holder of an Allowed Claim in Class 7 shall receive its
Ratable Proportion of (a) the Note Claim Percentage of the Cash Distribution
Amount and (b) New Notes equal to (x) the amount of the Senior Note Claims
(including any interest that would have accrued on the Senior Notes through the
Effective Date but for the Commencement Date at a rate of 10 3/8% per annum)
less (y) the Cash payment described in (a) above. Plan, Section 4.7.
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32. Each holder of an Allowed Claim in Class 8 will receive (i) its
Ratable Proportion of a number of shares of New Common Stock equal to the
product of the Class 8/Class 9 Distributable Share Amount and the Note Claim
Percentage, subject to the Partial Cash-Out Election as described in Section
4.8(b) of the Plan, and (ii) the right to participate in the Equity Offering on
the terms set forth in Section 9 of the Plan. Based on the assumptions set forth
in the Disclosure Statement and the estimates of the Claims contained therein,
the holders of Allowed Senior Subordinated Note Claims are estimated to receive
approximately 8,997,664 shares of New Common Stock and the right to purchase
2,428,067 shares of New Common Stock in the Equity Offering at a price of $28.50
per share. Plan, Section 4.8.
33. Each holder of an Allowed Claim in Class 9 will receive for each
$1,000 of Allowed Other General Unsecured Claims: (i) (A) a principal amount of
New Notes equal to the Note Distribution Amount, (B) such holder's Ratable
Proportion of the Other General Unsecured Claim Percentage of the Cash
Distribution Amount and (C) such holder's Ratable Proportion of shares of New
Common Stock equal to the product of the Other General Unsecured Claim
Percentage and Class 8/Class 9 Distributable Share Amount, subject to the
Partial Cash-Out Election as described in Section 4.9(b) of the Plan, and (ii)
the right to participate in the Equity Subscription Rights on the terms set
forth in Section 9 of the Plan. Based on the assumptions set forth in the
Disclosure Statement and the estimates of the Claims contained therein, the
holders of Allowed Other General Unsecured Claims are estimated to receive, in
the aggregate, New Notes, in an aggregate principal amount of $18.9 million,
Cash in the aggregate amount of $1.7 million, an aggregate of approximately
681,557 shares of New Common Stock, and the right to purchase an aggregate of
183,992 shares of New Common Stock in the Equity Offering at a price of $28.50
per share. Plan, Section 4.9.
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34. Holders of Magellan Preferred Stock Interests (Class 13) will
receive their Ratable Proportion of (a) the Class 13 Distributable Share Amount
of shares of New Common Stock (or 198,548 shares) and (b) New Warrants to
purchase a number of shares of New Common Stock equal to the Class 13
Distributable Share Amount (or 198,548 shares). Plan, Section 4.13.
35. Holders of Magellan Common Stock Interests (Class 14) will
receive their Ratable Proportion of (a) the Class 14 Distributable Share Amount
of shares of New Common Stock equal to 0.5% of the New Common Stock to be issued
on the Effective Date (or 49,637 shares) and (b) New Warrants to purchase a
number of shares of New Common Stock equal to the Class 14 Distributable Share
Amount (or 49,637 shares). Plan, Section 4.14.
36. Claims in Classes 5, 6, 11, and 12 are or will be reinstated and
are therefore unimpaired. In the event that the Debtors elect Alternate
Treatment B with respect to the Claims in Class 1, Class 1 will be paid in cash,
in full, and provided cash or a backstop letter of credit to repay Letter of
Credit Obligations outstanding under the Senior Secured Credit Agreement and
are, therefore, unimpaired or, alternatively, will be impaired but will be
receiving the indubitable equivalent of their Allowed Claims under section
1129(b)(2)(A)(iii) of the Bankruptcy Code. Claims in Classes 2, 3 and 10 will be
paid in full and are also unimpaired. In the event that the Debtors elect
Alternate Treatment A with respect to the Claims in Class 1, the Debtors will
distribute $50,000,000 in cash and the New Senior Secured Obligations and Class
1 will be impaired.
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37. With respect to any Missouri Department of Revenue tax returns
not due as of the Confirmation Hearing, the Debtors have agreed to file any such
returns and pay any deficiencies reflected in such returns on the later of (a)
the Effective Date and (b) the date such deficiencies would be paid in the
ordinary course of business.
38. Pursuant to the Plan, each holder of an Allowed Senior
Subordinated Note Claim in Class 8 or an Allowed Other General Unsecured Claim
in Class 9 had the right to elect to receive a portion of a certain amount of
Cash in lieu of New Common Stock to be distributed to such holder pursuant to
Section 4 of the Plan at a price of $22.50 per share. Such holders electing to
receive a Cash payment in lieu of shares of New Common Stock that such holders
are otherwise entitled to receive may only make such an election in respect of
all (but not less than all) of such shares.
39. Pursuant to Section 9 of the Plan, the holders of Senior
Subordinated Note Claims and Other General Unsecured Claims had the right to
subscribe to purchase an aggregate of 2,631,579 shares of New Common Stock at a
price of $28.50 per share. Pursuant to Section 9 of the Plan, holders of Senior
Subordinated Note Claims subscribed for 2,202,592 shares of New Common Stock and
Houlihan Lokey subscribed for 19,590 shares of New Common Stock, for an
aggregate of 2,222,182 shares. (BSI Certification, P. 3, Innisfree
Certification, P. 9)
40. The foregoing proposed treatment of Claims is appropriate because
each of the Debtors is a co-obligor on the Senior Secured Credit Agreement,
pursuant to which substantially all of the Debtors' assets have been pledged to
the Senior Secured Lenders.
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41. Neither the Plan nor this Order eliminates, reduces or otherwise
impairs any and all rights of setoff and recoupment under the Bankruptcy Code
and applicable non-bankruptcy law of National Mentor, Inc. and National Mentor
Holdings, Inc. against the Debtors.
42. As required by section 1122 of the Bankruptcy Code, all Claims
within each class are substantially similar to the other Claims in that class,
and all Equity Interests within each class are substantially similar to the
other Equity Interests in that class. (Plan, Section 4; Demilio Affidavit, at P.
10).
43. The classification scheme was not proposed to create a consenting
impaired class or to manipulate class voting. (Plan, Section 4; Demilio
Affidavit, at P. 10).
OFFICERS AND DIRECTORS OF REORGANIZED DEBTORS
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44. On the Effective Date, the board of directors of Reorganized
Magellan will consist of the following individuals:
CLASS I CLASS II CLASS III
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Steven L. Shulman Robert M. LeBlanc Michael P. Ressner
(3 year term) (1 year term) (3 year term)
Mark L. Hilson Rene Lerer Michael Diament
(2 year term) (2 year term) (3 year term)
Robert Haft Saul Burian
(1 year term) (3 year term)
Christopher A. Govan
(1 year term)
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(Demilio Affidavit at P. 15)
45. The officers of Reorganized Magellan will be as follows:
Steven J. Shulman Chief Executive Officer
Rene Lerer President & Chief Operating Officer
Mark S. Demilio Chief Financial Officer
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Megan M. Arthur General Counsel
Jeff D. Emerson Chief Information Officer
Gregory A. Bayer Chief Restructuring Officer
Caskie Lewis-Clapper Chief Human Resources Officer
Dennis P. Moody Senior Vice President, Aetna Operations
Jonathan Book Senior Vice President, Chief Medical Officer
Deb Heggie Acting Chief Clinical Officer
Linton C. Newlin Senior Vice President, Tax
Jeffrey N. West Senior Vice President & Controller
Keith Kudla Senior Vice President of Business Initiatives
Melissa Rose Vice President, Investor Relations
Gary Ross Vice President, Facilities
Suzanne Kunis Senior Vice President
Wayne Feest Senior Vice President
Danna Mezin Senior Vice President
(Demilio AffidavitP. 8)
46. The boards of directors of the other Debtors will be selected by
Reorganized Magellan on or before the Effective Date. Following the Effective
Date, Reorganized Magellan shall enter into employment agreements with each of
Steven J. Shulman, Dr. Rene Lerer and Mark S. Demilio (collectively, the "Senior
Executives"). The material terms of the employment agreements of each of the
Senior Executives were disclosed at the Confirmation Hearing. Definitive
employment agreements substantially consistent with such terms will be
negotiated among Magellan, each of the Senior Executives and the Equity
Investor. Such employment agreements shall be in form and substance satisfactory
to Magellan, the Senior Executives and the Equity Investor and the Official
Committee.
RELEASE, EXCULPATION AND INDEMNIFICATION PROVISIONS
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47. The Plan provides for the release by the Debtors of the Debtors'
claims and causes of action, if any, against the Debtors' officers, directors,
employees, financial advisors, professionals, accountants and attorneys who have
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served with, or been employed or retained by, the Debtors, on or after the
Commencement Date, other than claims and causes of action for willful misconduct
or gross negligence, intentional fraud, breach of fiduciary duty that results in
a personal profit at the expense of the Debtors' estates, and/or the knowing
misuse of confidential information. Nothing in Section 5.7 of the Plan shall
effect a release of any claim of the United States Government or any of its
agencies or any state and local authority whatever, including without limitation
any claim arising under the Internal Revenue Code, the environmental laws or any
criminal laws of the United States or any state and local authority against the
Releasees, nor shall anything in the Confirmation Order or the Plan enjoin the
United States or any state or local authority from bringing any claim, suit,
action or other proceedings against the Releasees for any liability whatever,
including, without limitation, any claim arising under the Internal Revenue
Code, the environmental laws or any criminal laws of the United States or any
state and local authority. (Plan, Section 5.7).
48. The Plan provides that none of the Debtors, Aetna, the
Administrative Agent, the Official Committee, the Informal Committee, the Equity
Investor nor any of their respective members, officers, directors, employees,
agents, counsel or other professionals shall have or incur any liability to any
Debtor, any Reorganized Debtor, any holder of any Claim or Equity Interest or
any other entity for any act or omission in connection with, or arising out of,
the Chapter 11 Cases, the formulation, dissemination, implementation or
confirmation of the Plan, the consummation of, or the administration of, the
Plan or property to be distributed under the Plan or any other act or omission
in connection with the Plan, the Disclosure Statement or any contract,
18
instrument, release, document or other agreement related thereto; provided,
however that the foregoing shall not affect the liability of any person that
otherwise would result from any such act or omission to the extent such act or
omission is determined by a Final Order to have constituted willful misconduct
or gross negligence, intentional fraud, and/or breach of fiduciary duty that
results in a personal profit at the expense of the Estate, or the liability of
the Equity Investor with respect to the Equity Commitment Letter and provided
further that nothing in the Plan discharges Aetna of its obligations under the
Aetna Amended MSA (and the other agreements and documents entered into with
respect thereto). Any of the foregoing parties in all respects shall be entitled
to rely on the advice of counsel with respect to any of the foregoing. Nothing
in Section 11.7 of the Plan shall limit the liability of the members of the
Official Committee for the knowing misuse of confidential information or ultra
vires acts. (Plan, Section 11.7).
49. Any and all obligations of the Debtors to indemnify and reimburse
persons who are or were directors, officers or employees of any Debtor on the
Commencement Date or any time thereafter against and for any obligations
(including, without limitation, fees and expenses incurred by the Board of
Directors of any Debtor or the members thereof in connection with the Chapter 11
Cases) pursuant to articles of incorporation, codes of regulations, bylaws,
applicable state law or specific agreement, or any combination of the foregoing,
shall survive the confirmation of the Plan, remain unaffected thereby, and not
be discharged in accordance with section 1141 of the Bankruptcy Code,
irrespective of whether indemnification or reimbursement is owed in connection
with an event occurring before, on, or after the Commencement Date. In
furtherance of the foregoing, Reorganized Magellan shall maintain insurance for
the benefit of such directors, officers, or employees at levels no less
favorable than those existing as of the date of entry of the Confirmation Order
for a period of no less than three years following the Effective Date. Plan,
Section 8.5
19
50. The limited release, exculpation and indemnification provisions
of the Plan were negotiated at arm's-length and are integral to the Plan.
(Demilio Affidavit, at P. 13).
INJUNCTION REGARDING WORTHLESS STOCK DEDUCTION
- ----------------------------------------------
51. The Reorganized Debtors will have available certain net operating
tax loss carryforwards and will use a portion thereof to offset taxable income
following the Effective Date. The Debtors have reported, as of September 30,
2002, net operating loss carryforwards for federal income tax purposes in excess
of $700 million. (Disclosure Statement, Section XIII.A). The ability of the
Reorganized Debtors to utilize such carryforwards could be adversely affected by
the actions of equity security holders of Magellan in taking worthless stock
deductions with respect to the Equity Interests in Magellan during certain tax
years.
"BEST INTERESTS" TEST
- ---------------------
52. Under the Plan, Claims or Equity Interests in Classes 1, 4, 7, 8,
9, 13, and 14 are impaired. (Plan, Section 4). Consequently, each holder of a
Claim or Equity Interest in such classes must either accept the Plan or receive
or retain under the Plan property of a value, as of the Effective Date, that is
not less than the value such holder would receive or retain if the Debtors were
liquidated under chapter 7 of the Bankruptcy Code. 11 U.S.C. ss. 1129(a)(7).
53. The Claims in Classes 2, 3, 5, 6, 10, 11, and 12 are unimpaired
under the Plan. (Plan, Section 2). Consequently, each holder of a Claim or
Equity Interest in each of such classes is conclusively deemed to have accepted
the Plan under section 1126(f) of the Bankruptcy Code. 11 U.S.C. ss. 1126(f).
The "best interests" test of section 1129(a)(7) of the Bankruptcy Code, is,
accordingly, not applicable to the recoveries of such Classes.
20
54. The holder of Claims in Classes 4 and the holder of Equity
Interests in Class 13 of the Plan unanimously voted to accept the Plan.
Accordingly, the "best interests" test is not applicable to the holders of
Claims and Equity Interest in Classes 4 and 13 of the Plan.
55. The liquidation analysis set forth in the Disclosure Statement
accompanying the Plan (the "Liquidation Analysis") was prepared by the Debtors
with the assistance of Gleacher, the Debtors' financial advisors. (Forrest
Affidavit, at P. 19; Disclosure Statement, XI.D, 94-96). The Liquidation
Analysis provides a summary of the liquidation values of the Debtors' assets, on
a consolidated basis, assuming a chapter 7 liquidation in which a bankruptcy
trustee appointed by the Court would liquidate the assets of the Debtors'
estates. The information and conclusions in the Liquidation Analysis are
reasonable. (Forrest Affidavit, at P. 20) (Liquidation Analysis)
56. In the Liquidation Analysis, the Debtors estimate that a chapter
7 liquidation would generate total proceeds from the liquidation of all of the
Debtors' assets and cash on hand of approximately $356.7 million. The Debtors
estimate that the costs of such liquidation would be approximately $55.7
million. The net liquidation proceeds, therefore, would be approximately $301
million, and such proceeds would be applied first to satisfy the Senior Lender
Claims, which aggregate approximately $160.8 million. The remainder of such
proceeds would be used to satisfy Administrative Expense Claims. Little or no
liquidation proceeds would be available to creditors holding priority claims or
general unsecured claims. (Forrest Affidavit, at P. 22) (Liquidation Analysis).
21
57. Because holders of Senior Lender Claims in Class 1 and
Administrative Expense Claims would receive all of the proceeds from a
liquidation, holders of Claims and Equity Interests in Classes 2 through 14,
inclusive, would not receive any distributions in a chapter 7 liquidation.
(Forrest Affidavit, P. 20, 21) (Liquidation Analysis). Accordingly, the Plan
satisfies the "best interests" test of section 1129(a)(7) of the Bankruptcy Code
as to Classes 2 through 14.
58. Based upon the Liquidation Analysis and the discussion of the
"best interests" test described in Section XI.C. of the Disclosure Statement and
the Forrest Affidavit, each entity in a class entitled to vote that did not
accept the Plan will receive at least as much under the Plan as it would receive
in a chapter 7 liquidation.
FEASIBILITY OF THE PLAN
- -----------------------
59. Based on the cash flow projections incorporated in the Disclosure
Statement (Disclosure Statement, IV. B.), and the cash required to satisfy
projected Administrative Expense Claims, Priority Tax Claims and Priority
Non-Tax Claims, the Debtors have, or will have available, sufficient cash
resources to fund all such payments on the Effective Date. (Forrest Affidavit,
at P. 7).
60. On the Effective Date, the Reorganized Debtors will consummate
the Investment, as described in Section 5.19 of the Plan, and the Equity
Offering, as described in Section 9 of the Plan. As a result of the equity
investments, the Debtors will have an additional $150 million of cash. (Forrest
Affidavit at P. 8).
22
61. Also, on or prior to the Effective Date, the Reorganized Debtors
shall either elect Alternate Treatment A (under which the holders of Class 1
Claims will receive $50 million in Cash and the New Senior Secured Obligations)
or Alternate Treatment B (under which the holders of Class 1 Claims will receive
Cash and letters of credit in an amount not less than the amount of their
Allowed Claims).
62. Under Alternate Treatment A for the Class 1 Claims, the
Reorganized Debtors will enter into the New Facilities consisting of (i) a
Rollover Facility in an aggregate principal amount of $94,841,522.84, (ii) a New
Tranche B Facility in an aggregate principal amount of $45,622,662,79, and (iii)
a New Tranche C Facility in an aggregate amount of $45,622,663.05. (Forrest
Affidavit at P. 10).
63. Under Alternate Treatment B for the Class 1 Claims, the
Reorganized Debtors will obtain Exit Financing arranged by Deutsche Bank
Securities Inc. ("DBSI"), pursuant to which Deutsche Bank Trust Company
Americas, Inc. ("DBTCA" and together with DBSI, "DB") and a syndicate of lenders
(collectively, the "Exit Financing Senior Lenders") will provide financing in
the amount of $230 million to Magellan on terms and conditions substantially the
same as those that are set forth in the commitment letter executed by DB and
Magellan and approved by Court order dated September 15, 2003 (the "DB
Commitment Letter"). (Forrest Affidavit, at P. 11). (DB Commitment Letter Docket
No. 850).
64. The Plan provides that on the Effective Date, the Reorganized
Debtors are authorized to execute such agreements and documents as may be
necessary to effect the transactions contemplated by the Exit Financing (if the
Debtors elect Alternate Treatment B), and that the Exit Financing will be
available to be drawn by Magellan; provided, that Magellan is able to meet the
23
conditions precedent set forth in the definitive credit agreement to be executed
in connection therewith (the "DB Credit Agreement") and the other loan documents
related thereto. The proceeds from the Exit Financing can be used for, among
other things, satisfying the existing secured financing under the Senior Secured
Credit Agreement, funding cash distributions under the Plan and the working
capital needs of the Reorganized Debtors. The Plan will enable the Debtors to
emerge from chapter 11 on a sound financial footing, thereby enabling the
Reorganized Debtors to have a sound capital structure going forward. Moreover,
the cash flow projections for the future operations of the Reorganized Debtors
from the Effective Date through year 2007, as such information is set forth in
Section IV. B. of the Disclosure Statement, are fair and reasonable.
65. In addition, the Exit Financing permits consummation of the
transactions required or contemplated by the Aetna Amended MSA, including but
not limited to the Aetna Purchase Option (provided that, consummation of the
transactions required or contemplated by the Aetna Amended MSA will not affect
the rights of the Exit Financing Senior Lenders under the Exit Financing), and
is thus consistent with and does not violate this Court's Order of April 23,
2003, approving the Debtors' assumption of the Aetna Amended MSA and related
documents and instruments.
66. Therefore, under Alternate Treatment B, in addition to the $150
million of equity issued pursuant to the Investment and the Equity Offering,
under the Exit Financing, Magellan will have $230 million of credit available on
and after the Effective Date, of which the Debtors estimate that $50 million
will be undrawn.
67. Moreover, under either Alternate Treatment A or Alternate
Treatment B, because all Unsecured Claims other than Convenience Claims will be
settled and paid in accordance with the treatment provided in Classes 7, 8 and 9
24
of the Plan, the Reorganized Debtors' capital structure will be significantly
improved. The Projections (as defined in the Forrest Affidavit) are a reasonable
estimate of the Reorganized Debtors' future performance. Based on the cash
projected to be generated through the Reorganized Debtors' operations, the cash
investment pursuant to the Investment and the Equity Offering, and, the cash
expected to be available under either Alternate Treatment A or Alternate
Treatment B, the Reorganized Debtors will have the liquidity necessary to (i)
continue their operations for at least the next five years, (ii) meet their
ongoing obligations under the Plan and (iii) meet their obligations during that
time under the Exit Financing or the New Senior Secured Credit Agreement, as
applicable, and thereafter have the ability to pay off or refinance their
obligations on a long-term basis. (Forrest Affidavit, P. 15). Accordingly, the
Plan meets the feasibility test of section 1129(a)(11) of the Bankruptcy Code.
THE VOTING
- ----------
68. Section 3.1 of the Plan identifies each of the following Classes
as unimpaired under the Plan: Class 2 (Other Secured Claims), Class 3 (Priority
Non-Tax Claim), Class 5 (Provider Claims), Class 6 (Customer Claims), Class 10
(Convenience Claims), Class 11 (Intercompany Claims), and Class 12 (Subsidiary
Equity Interests). Pursuant to section 1126(f) of the Bankruptcy Code, the
holders of Claims and Equity Interests in these Classes, and, therefore, these
Classes, are conclusively presumed to have accepted the Plan.
69. The Plan was voted on by all Classes of impaired Claims and
Equity Interests that were entitled to vote pursuant to the Bankruptcy Code, the
Bankruptcy Rules and the Disclosure Statement Order.
25
70. The Voting Agents have made a final determination of the validity
of, and tabulation respecting, all acceptances and rejections of the Plan by the
impaired Classes of Claims and Equity Interests entitled to vote on the Plan,
and the Certifications set forth such results, including the amount and number
of Claims and Equity Interests of each Class voting to accept or reject the
Plan. As set forth in the Certifications, (i) each of Classes 4, 7, 8, and 9 has
accepted the Plan by at least two-thirds in amount and a majority in number of
the Claims in each such Class actually voting, and (ii) each of Classes 13 and
14 has accepted the Plan by holders of two-thirds in amount of the Equity
Interests in such Class actually voting.
71. The holders of Claims in Class 1 have voted to reject the Plan.
However, in the event that the Debtors elect Alternative Treatment B, the
Debtors will pay the holders of Allowed Claims in Class 1 in full, in Cash and
provide Cash and/or a backstop letter of credit sufficient to repay the letter
of credit obligations owing to the Senior Secured Lenders, on the Effective Date
in accordance with Alternate Treatment B. Accordingly, under Alternate Treatment
B, the Claims in Class 1 are unimpaired. Alternatively, the Court can confirm
the Plan over the dissenting votes of Class 1 if the Plan provides the holders
of Claims in Class 1 with the "indubitable equivalent" of their Claims in
accordance with section 1129(b)(2)(A)(iii) of the Bankruptcy Code.
72. In the event that the Debtors elect Alternate Treatment A, the
holders of Claims in Class 1 will retain the liens securing their Claims and
will receive current and deferred Cash payments totaling at least the allowed
amount of their Claims and having a value, as of the Effective Date, of at least
the Allowed amount of the Senior Secured Lender Claims, in accordance with
section 1129(b)(2)(A)(i) of the Bankruptcy Code. (Forrest Affidavit at P. 18).
Accordingly, under Alternate Treatment A, the Plan satisfies section
1129(b)(2)(A)(i) of the Bankruptcy Code as to Class 1.
26
73. The determination of the Voting Agents with respect to the voting
on the Plan validly and correctly sets forth the tabulation of votes, as
required by the Bankruptcy Code, Bankruptcy Rules, and the Disclosure Statement
Order.
74. Pursuant to section 9 of the Plan, certain holders of Claims in
Classes 8 and 9 of the Plan who were eligible to participate in the Equity
Offering and Houlihan Lokey have subscribed for an aggregate of 2,222,182 shares
of New Common Stock. (BSI Certification at P. 3 and Innisfree Certification at
Exhibit A). MODIFICATIONS TO THE PLAN
75. On September 25, 2003, the Debtors filed the Modifications dated
September 25, 2003. Among other things, the Modifications provide for (i) a
change in the composition of the board of directors of Reorganized Magellan from
seven directors to nine directors, (ii) certain tag-along rights, (iii)
co-investment rights for R2 and (iv) a change in the Management Incentive Plan.
76. On October 8, 2003, the Debtors filed the Modifications dated
October 8, 2003. Among other things, these modifications (i) modify the terms of
payment of Allowed Priority Tax Claims, (ii) modify the releases and
exculpations as requested by the United States Trustee, and (iii) make one of
the conditions to confirmation of the Plan a condition to consummation, not
confirmation, of the Plan.
77. In addition, the Debtors are hereby authorized, if so elected by
the Debtors, to adjust, prior to the Effective Date, the authorized and issued
number of shares of New Common Stock (and MVS Securities). All such actions to
27
effectuate any such adjustment shall be authorized and approved in all respects
in each case without further action under applicable law, regulation, order or
rule, including, without limitation, any action by the stockholders of Magellan
or Reorganized Magellan. The number of shares of New Common Stock and related
exercise price in respect of New Warrants and the Aetna Warrant, the shares of
New Common Stock and MVS Securities to be authorized and issued under the Plan,
as well as all subscription prices shall be adjusted accordingly. To the extent
such election to effectuate such an adjustment is made by the Debtors, the Plan
shall be deemed modified to reflect such adjustment.
78. Notice of the proposed Modifications was provided to the United
States Trustee, the attorneys for the Official Committee, the attorneys for the
agent for the Debtors' Senior Secured Lenders, the attorneys for R2, the
attorneys for Onex, the attorneys for DB, and the attorneys for Aetna. The
Modifications do not adversely affect the treatment of the Claim of any creditor
or the Equity Interests of any equity security holder who has not accepted in
writing the Modifications.
OBJECTIONS TO CONFIRMATION OF THE PLAN
- --------------------------------------
79. By the Objection Deadline, objections to confirmation of the Plan
(collectively, the "Objections") were filed by the following parties:
o The Office of the United States Trustee for the Southern District of New
York
o Commonwealth of Pennsylvania
o Missouri Department of Revenue
o Epotec, Inc.
o Pennsylvania Psychiatric Society
o Black Diamond Capital Management, LLC, Highland Capital Management, L.P.,
and Van Kampen Investment Advisory Corp. (collectively, "Black Diamond")
o National Mentor, Inc. and National Mentor Holdings, Inc.,
o Continental Insurance Company and Columbia Casualty Company
o St. Paul Fire and Marine Insurance Company ("PPS") and
o Horizon Health Care Services, d/b/a Horizon Blue Cross Blue Shield of New
Jersey
28
80. All of the Objections, other than the Objection of Black Diamond,
have been either withdrawn or resolved. The Objection of Black Diamond is hereby
overruled.
MISCELLANEOUS
- -------------
81. To the extent that any of the foregoing findings of fact
constitute conclusions of law, they are adopted as such. To the extent any of
the conclusions of law delineated below constitute findings of fact, they are
adopted as such.
CONCLUSIONS OF LAW
------------------
JURISDICTION AND VENUE
- ----------------------
1. This Court has jurisdiction over the Chapter 11 Cases and to
confirm the Plan pursuant to 28 U.S.C.ss. 1334.
2. Confirmation of the Plan is a core proceeding pursuant to 28
U.S.C. ss. 157(b), and this Court has jurisdiction to enter a final order with
respect thereto.
3. Venue of the Chapter 11 Cases in this district was proper as of
the Commencement Date and continues to be proper pursuant to 28 U.S.C. ss.ss.
1408 and 1409.
4. The Debtors are entities qualified to be debtors under section 109
of the Bankruptcy Code, and the Debtors are proper proponents of the Plan under
section 1121(a) of the Bankruptcy Code.
SOLICITATION
- ------------
5. All persons required to receive notice of the Confirmation Hearing
have received proper, timely and adequate notice substantially in accordance
with the Disclosure Statement Order and have had an opportunity to appear and be
heard with respect thereto.
29
6. The Debtors have solicited and tabulated votes with respect to the
Plan in good faith and in a manner consistent with the Bankruptcy Code, the
Bankruptcy Rules and the Disclosure Statement Order.
THE PLAN SATISFIES SECTION 1129(A)(1) OF THE BANKRUPTCY CODE
- ------------------------------------------------------------
7. Section 1129(a)(1) of the Bankruptcy Code requires that a plan
comply with the applicable provisions of the Bankruptcy Code. This Court finds
and concludes that the Plan satisfies all of the applicable provisions of the
Bankruptcy Code, and, as required by Bankruptcy Rule 3016(a), the Plan is dated
and identifies the Debtors as the proponents of the Plan.
A. DUE AND PROPER NOTICE OF THE CONFIRMATION
HEARING WAS GIVEN TO ALL PARTIES IN INTEREST
--------------------------------------------
8. This Court has taken judicial notice of the Affidavits of Mailing,
Certifications, and Affidavits of Publication filed by the Debtors and the
Voting Agents, and finds and concludes that (a) the Debtors complied in all
material respects with Bankruptcy Rules 2002 and 3017(a) in providing notice of
the Confirmation Hearing, (b) the errors in not timely sending out Ballots to
those entities that were entitled to vote, as described in paragraph 20 of the
Findings of Fact, are harmless in light of the corrective actions taken, and (c)
the Debtors complied in all material respects with the Disclosure Statement
Order in providing notice of the Confirmation Hearing in the method and manner
as prescribed in the Disclosure Statement Order. All Entities entitled to and
required to receive notice of the Confirmation Hearing pursuant to the
Bankruptcy Code, applicable non-bankruptcy law, and the orders of this Court
have received due, proper, timely and adequate notice of such hearings and have
had an opportunity to appear at and be heard at such hearings. Mullane v.
Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1957).
30
B. THE PLAN SATISFIES THE REQUIREMENTS
OF SECTION 1123(A)(1) OF THE BANKRUPTCY CODE
9. Section 1123(a)(1) of the Bankruptcy Code provides that a plan
must designate classes of claims and interests. The Plan adequately and properly
classifies all Claims and Equity Interests required to be so classified, and,
accordingly, satisfies section 1123(a)(1) of the Bankruptcy Code. Classes of
Administrative Expense Claims and Priority Tax Claims are not required to be
designated pursuant to section 1123(a)(1) of the Bankruptcy Code.
C. THE PLAN SATISFIES THE REQUIREMENTS
OF SECTION 1122 OF THE BANKRUPTCY CODE
--------------------------------------
10. Section 1122(a) of the Bankruptcy Code provides that a plan may
place a claim or interest in a particular class if such claim or interest is
substantially similar to the other claims or interests of such class. A
classification structure satisfies section 1122 of the Bankruptcy Code when a
reasonable basis exists for the structure, and the claims or interests within
each particular class are substantially similar. See In re Jersey City Medical
Center, 817 F.2d 1055, 1060-61 (3d Cir. 1987); In re U.S. Truck Co., 800 F.2d
581, 586 (6th Cir. 1986); In re LeBlanc, 622 F.2d 872, 879 (5th Cir. 1986).
11. In accordance with section 1122(a) of the Bankruptcy Code,
Section 4 the Plan separately classifies Claims against and Equity Interests in
the Debtors together with Claims against or Equity Interests that are
substantially similar to the other Claims or Equity Interests of such class. The
Plan, therefore, satisfies section 1122(a) of the Bankruptcy Code. 12. Section
4.10 of the Plan provides treatment for holders of Convenience Claims. The
convenience class established in Section 4.10 of the Plan is reasonable and
necessary for administrative convenience and, therefore, the classification of
Convenience Claims in the Plan satisfies section 1122(b) of the Bankruptcy Code.
31
D. THE PLAN SATISFIES THE REQUIREMENTS
OF SECTION 1123(A)(2) OF THE BANKRUPTCY CODE
--------------------------------------------
13. Section 1123(a)(2) of the Bankruptcy Code provides that a plan must specify
any class of claims or interests that is not impaired under the Plan. Pursuant
to Section 4 of the Plan, each of Classes 1, 4, 7, 8, 9, 13 and 14 is identified
as impaired, and each of Classes 2, 3, 5, 6, 10, 11 and 12, is identified as
unimpaired. Accordingly, the Plan satisfies section 1123(a)(2) of the Bankruptcy
Code. In the event that the Debtors elect Alternate Treatment B, Class 1 will be
paid in full, in Cash, on the Effective Date and will be deemed to be
unimpaired.
E. THE PLAN SATISFIES THE REQUIREMENTS
OF SECTION 1123(A)(3) OF THE BANKRUPTCY CODE
--------------------------------------------
14. Section 1123(a)(3) of the Bankruptcy Code provides that a plan
must specify the treatment of each impaired class of claims and equity
interests. Section 4 of the Plan specifies the treatment of each impaired class
of Claims and Equity Interests. Accordingly, the Plan satisfies section
1123(a)(3) of the Bankruptcy Code.
F. THE PLAN SATISFIES THE REQUIREMENTS
OF SECTION 1123(A)(4) OF THE BANKRUPTCY CODE
--------------------------------------------
15. Section 1123(a)(4) of the Bankruptcy Code requires a plan to
provide the same treatment for each claim or interest of a particular class,
unless the holder of the claim or interest agrees to less favorable treatment of
such particular claim or interest. The Plan provides the same treatment for each
Claim or Equity Interest in each class. Accordingly, the Plan satisfies section
1123(a)(4) of the Bankruptcy Code.
32
G. THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1123(A)(5) OF THE BANKRUPTCY CODE
16. Section 1123(a)(5) of the Bankruptcy Code provides that a plan
must provide adequate means of implementation of the plan. Section 5 and other
provisions of the Plan provide adequate means for implementation of the Plan. In
particular, Section 5 and other provisions of the Plan provide for, among other
things, (i) revesting of the assets of the Debtors' estates in the Reorganized
Debtors, (ii) adoption of a proposed charter and by-laws by Reorganized
Magellan, (iii) either (a) effectuation of the transactions contemplated by the
Exit Financing including, without limitation, by authorizing the execution and
delivery by the Debtors and/or the Reorganized Debtors of and any documents,
instruments and agreements related thereto and the granting of the security
interests and liens described in the DB Commitment Letter in connection
therewith or (b) implementation of Alternate Treatment A, (iv) issuance of the
New Common Stock and (v) the consummation of the other transactions contemplated
by the Plan. Accordingly, the Plan satisfies section 1123(a)(5) of the
Bankruptcy Code.
H. THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1123(A)(6) OF THE BANKRUPTCY CODE
-----------------------------------------
17. Section 1123(a)(6) of the Bankruptcy Code requires a plan to
provide for the inclusion in the charter of the debtor, if the debtor is a
corporation, or of any corporation to which the debtor transfers all or any part
of the debtor's estate or with which the debtor has merged or consolidated, of a
provision prohibiting the issuance of non-voting equity securities. In
furtherance of Section 5 of the Plan, the certificate of incorporation of
Reorganized Magellan will contain provisions prohibiting the issuance of
non-voting equity securities. (Plan Supplement, Docket No. 935). In addition,
each of the other Reorganized Debtors will amend its charter or certificate of
incorporation to prohibit the issuance of such non-voting equity securities.
(Demilio Affidavit at P. 21). Accordingly, the Plan satisfies section 1123(a)(6)
of the Bankruptcy Code.
33
I. THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1123(A)(7) OF THE BANKRUPTCY CODE
-----------------------------------------
18. Section 1123(a)(7) of the Bankruptcy Code requires that the
manner of selection of any director, officer or trustee of the reorganized
debtor, or any successor to such officer, director or trustee, be consistent
with the interests of creditors and equity security holders and with public
policy. In furtherance of the Plan, the identities of those persons who will
serve, on the Effective Date as officers of the Reorganized Debtors have been
disclosed by the Debtors and are set forth above in the Findings of Fact. 19.
The appointment, or continuation in office, of the boards of directors of the
Reorganized Debtors, as described in paragraphs 44 and 45 of the Findings of
Fact, is consistent with the interests of creditors and with public policy.
(Demilio Affidavit, at P. P. 18-20). Accordingly, the Plan satisfies section
1123(a)(7) of the Bankruptcy Code.
J. SECTION 1123(B)(2) OF THE BANKRUPTCY CODE:
THE REJECTION AND ASSUMPTION
OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
ARE IN THE BEST INTERESTS OF THE DEBTORS' ESTATES
-------------------------------------------------
20. Pursuant to section 1123(b)(2) of the Bankruptcy Code, a plan may
provide for the rejection or assumption of any executory contract or unexpired
lease of the debtor not previously rejected under section 365.
21. Under section 365 of the Bankruptcy Code, a debtor may assume an
executory contract or unexpired lease if (i) outstanding defaults under the
contract or lease have been cured under section 365(b)(1) of the Bankruptcy
34
Code, and (ii) the debtor's decision to assume such executory contract or
unexpired lease is supported by valid business justifications. See In re Klein
Sleep Prods., Inc., 78 F.3d 18, 25 (2d Cir. 1996); Orion Pictures Corp. v.
Showtime Networks, Inc. (In re Orion Pictures Corp.), 4 F.3d 1095, 1098-99 (2d
Cir. 1993), cert. dismissed, 511 U.S. 1026, 114 S. Ct. 1418 (1994); Control Data
Corp. v. Zelman (In re Minges), 602 F.2d 38, 42 (2d Cir. 1979); In re Kopel, 232
B.R. 57, 63 (Bankr. E.D.N.Y. 1999); Westbury Real Estate Ventures, Inc. v.
Bradlees, Inc. (In re Bradlees Stores, Inc.), 194 B.R. 555, n.1 (Bankr. S.D.N.Y.
1996); In re Child World, Inc., 142 B.R. 87, 89 (Bankr. S.D.N.Y. 1992).
22. The assumption of executory contracts and unexpired leases
pursuant to Section 8.1 and 8.2 of the Plan, subject to the occurrence of the
Effective Date, (i) is in the best interests of the Debtors, their estates, and
their creditors, (ii) is based upon and within the Debtors' sound business
judgment, (iii) is necessary to the implementation of the Plan, and (iv)
satisfies the requirements of section 365(a) of the Bankruptcy Code.
23. Schedule 8.1 to the Plan sets forth contracts and leases that, to
the extent they constitute executory contracts and unexpired leases, the Debtors
wish to reject, subject to the occurrence of and effective as of the Effective
Date. Section 8.1 of the Plan provides that the executory contracts and
unexpired leases set forth on Schedule 8.1 of the Plan are to be rejected, as of
the Confirmation Date, subject to the occurrence of, and effective as of, the
Effective Date.
24. Courts have uniformly deferred to the business judgment of the
debtor to determine whether the rejection of an executory contract or unexpired
lease by the debtor is appropriate under section 365(a) of the Bankruptcy Code.
See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 525 (1984); Lubrizol Enterp.,
35
Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.),
756 F.2d 1043, 1046-47 (4th Cir. 1985); Minges, 602 F.2d at 42; In re Lawson,
146 B.R. 663, 664-65 (Bankr. E.D. Va. 1992), aff'd in part, rev'd in part, 14
F.3d 595 (4th Cir. 1993); In re Chipwich, Inc., 54 B.R. 427 (Bankr. S.D.N.Y.
1985). To the extent that sound business reasons justify the debtor's rejection
of a particular lease or contract, rejection should be approved.
25. The rejection of the executory contracts and unexpired leases set
forth in Schedule 8.1 of the Plan, subject to the occurrence of and effective as
of the Effective Date, (i) is in the best interests of the Debtors, their
estates, and their creditors, (ii) is based upon and within the Debtors' sound
business judgment, (iii) is necessary to the implementation of the Plan, and
(iv) satisfies the requirements of section 365(a) of the Bankruptcy Code.
Accordingly, the Plan satisfies the requirements of section 1123(b)(2) of the
Bankruptcy Code.
K. SECTION 1123(B)(3) OF THE BANKRUPTCY CODE IS SATISFIED
------------------------------------------------------
26. Section 1123(b)(3) of the Bankruptcy Code requires that
settlements accomplished under a plan of reorganization be fair and reasonable.
The Plan does not incorporate any settlements requiring approval and,
accordingly, section 1123(b) of the Bankruptcy Code is not applicable.
L. THE TRANSFERS OF PROPERTIES UNDER THE PLAN
ARE GOVERNED BY THE EXEMPTIONS PROVIDED
IN SECTION 1146(C) OF THE BANKRUPTCY CODE
-----------------------------------------
27. Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer or exchange or a security, or the making or delivery of an instrument
of transfer under a confirmed plan may not be taxed under any law imposing a
stamp tax or similar tax. The Plan contemplates issuance of the New Common
Stock, MVS Securities and New Notes and entry into the DB Credit Agreement; the
DB Credit Agreement requires a pledge of certain of the Reorganized Debtors'
assets to secure the obligations thereunder.
36
28. On May 1, 2003, the Bankruptcy Court entered an Order authorizing the sale
of the Debtors' NurseAccess business (Docket No. 434) and an Order authorizing
the sale of certain real property and personal property located in Dona Ana, New
Mexico (Docket No. 433). These asset sales made by the Debtors during the
pendency of the Chapter 11 Cases were an integral part of the Debtors' efforts
to restructure and streamline their business and, therefore, were a necessary
predicate to the Debtors' successful emergence from chapter 11. Pursuant to
section 1146(c) of the Bankruptcy Code, issuance of the New Common Stock, MVS
Securities and New Notes ,recordation of the security interests granted in
connection with the Exit Financing or other instruments delivered in connection
therewith, and the transfers made in connection with the Debtors' asset sales
during the pendency of the Chapter 11 Cases are not and will not be subject to
taxation under any law imposing a stamp, transfer or similar tax. In re 995
Fifth Ave. Assocs., 963 F.2d 503 (2d Cir. 1992).
THE DEBTORS HAVE SATISFIED SECTION
- ----------------------------------
1129(A)(2) OF THE BANKRUPTCY CODE
29. Section 1129(a)(2) of the Bankruptcy Code requires the proponent
of a plan to comply with all of the applicable provisions of the Bankruptcy
Code. The Debtors, as proponents of the Plan, have complied with all of the
provisions of the Bankruptcy Code and the Bankruptcy Rules governing notice,
disclosure and solicitation in connection with the Plan, the Disclosure
Statement and all other matters considered by this Court in connection with
these Chapter 11 Cases. In re Johns-Manville Corp., 68 B.R. 618, 630 (Bankr.
S.D.N.Y. 1986), aff'd, 78 B.R. 407 (S.D.N.Y. 1987); In re Toy & Sports
Warehouse, Inc., 37 B.R. 141, 149 (Bankr. S.D.N.Y. 1984).
37
30. The Debtors have complied with the operating guidelines and
financial reporting requirements enacted by the United States Trustee by (i)
timely filing all operating reports and financial statements and (ii)
maintaining and providing proof of insurance.
31. The Debtors have paid all statutory fees required to be paid
during the Chapter 11 Cases and filed all fee statements required to be filed.
32. The Debtors have timely filed with the Court all schedules, lists
of executory contracts, and statements of financial affairs.
33. Sufficient and timely notice of the Confirmation Hearing and all
other hearings in these Chapter 11 Cases has been given to holders of Claims and
Equity Interests and all other parties in interest to whom notice was required
to have been given.
34. The solicitation of votes was made following approval and
dissemination of the Disclosure Statement to holders of Claims and Equity
Interests in Classes that are impaired and entitled to vote, and was made in
good faith and in compliance with the provisions of the Bankruptcy Code and the
Bankruptcy Rules. The Ballots of holders of Claims and Equity Interests were
properly solicited and tabulated.
35. The Debtors have complied with all applicable provisions of the
Bankruptcy Code, the Bankruptcy Rules and all orders of this Court and have
fulfilled all of the obligations and duties owed to their estates and creditors
as required by and set forth in sections 1107 and 1108 of the Bankruptcy Code.
Accordingly, the Debtors have satisfied section 1129(a)(2) of the Bankruptcy
Code.
38
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(3) OF THE BANKRUPTCY CODE
- -----------------------------------------
36. Section 1129(a)(3) of the Bankruptcy Code states that a plan must
be proposed in good faith and not by any means forbidden by law. See Kane v.
Johns-Manville Corp., 843 F.2d 636, 649 (2d Cir. 1988), citing Koelbl v.
Glessing (In re Koelbl), 751 F.2d 137, 139 (2d Cir. 1984) (quoting Manati Sugar
Co. v. Mock, 75 F.2d 284 (2d Cir. 1935)); In re Texaco Inc., 84 B.R. 893, 899
(Bankr. S.D.N.Y.), appeal dismissed, 92 B.R. 38 (S.D.N.Y. 1988).
37. This Court has examined the totality of the circumstances
surrounding the formulation of the Plan. The Plan is based on extensive arm's
length negotiations between and among the Debtors, the Senior Secured Lenders,
Aetna, certain holders of the Senior Secured Notes and the Senior Subordinated
Notes, Onex, R2 and the Official Committee. The Plan and the Disclosure
Statement reflect the culmination of such efforts and the substantial input of
each representative group. Additionally, as evidenced by the overwhelming
acceptance of the Plan by creditors, the Plan achieves the goal of consensual
reorganization embodied in the Bankruptcy Code. Further, the limited release and
exculpation provided in Sections 5.7 and 11.7 of the Plan have been agreed to in
good faith and are consistent with sections 105 and 1129 of the Bankruptcy Code.
The terms of the Exit Financing, including, without limitation, the DB
Commitment Letter and the DB Credit Agreement have been negotiated in good faith
and at arm's length and are fair, just and reasonable under the circumstances.
Thus, the Debtors have complied with the "good faith and not by any means
forbidden by law" requirement of section 1129(a)(3) of the Bankruptcy Code.
(Demilio Affidavit, at P. 13).
39
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(4) OF THE BANKRUPTCY CODE
- -----------------------------------------
38. Section 1129(a)(4) of the Bankruptcy Code requires that all
payments made or to be made by the plan proponent, by the debtor or by a person
issuing securities or acquiring property under the plan, for services or for
costs and expenses in or in connection with the case, or in connection with the
plan and incident to the case, have been approved by, or are subject to the
approval of, the Court as reasonable.
39. All payments made by the Debtors on account of "out of the
ordinary course of business" transactions have been approved by the Court as
reasonable, and all payments made or to be made to professionals retained by
Order of the Court will be, as set forth in Section 2.1 of the Plan, subject to
review and approval by this Court upon final application under section 330, 331
or 503(b) of the Bankruptcy Code. Accordingly, the Plan satisfies section
1129(a)(4) of the Bankruptcy Code.
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(5) OF THE BANKRUPTCY CODE
- -----------------------------------------
40. Section 1129(a)(5) of the Bankruptcy Code requires the proponent
of a plan of reorganization to disclose the identity and affiliations of any
individual proposed to serve, after confirmation of the plan, as a director,
officer, or voting trustee of the debtor, an affiliate of the debtor
participating in a joint plan with the debtor or a successor to the debtor under
the plan, and to show that the appointment to, or continuance in, such office of
such individual is consistent with the interests of creditors and equity
security holders and with public policy. Section 1129(a)(5) of the Bankruptcy
Code also requires the proponent of a plan of reorganization to disclose the
identity of any insider that will be employed or retained by the reorganized
debtor, and the nature of any compensation for such insider.
40
41. The Debtors have disclosed the identities of those persons who
will serve, on the Effective Date of the Plan, as officers of the Reorganized
Debtors. Following the Effective Date, the boards of directors of the
Reorganized Debtors will determine what changes, if any, will be made to the
composition of the Reorganized Debtors' officers and their compensation. The
Debtors also have disclosed the name and affiliation of the individuals proposed
to serve as directors of the Reorganized Magellan. The appointment, or
continuation in office, of such individuals is consistent with the interests of
creditors and with public policy. Accordingly, the Plan satisfies section
1129(a)(5) of the Bankruptcy Code.
SECTION 1129(A)(6) OF THE BANKRUPTCY
CODE IS NOT APPLICABLE TO THE PLAN
- ----------------------------------
42. Section 1129(a)(6) of the Bankruptcy Code requires a debtor to
obtain the approval of any governmental regulatory commission, with jurisdiction
over the debtor, with respect to any rate changes provided for in the debtor's
plan of reorganization. The Plan does not provide for any changes in rates that
require regulatory approval of any governmental agency. Section 1129(a)(6) of
the Bankruptcy Code is, accordingly, not applicable.
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(7) OF THE BANKRUPTCY CODE
- -----------------------------------------
43. Section 1129(a)(7) of the Bankruptcy Code requires each creditor
or equity interest holder in an impaired class to accept the plan of
reorganization or receive or retain under such plan on account of such claim or
interest property of a value, as of the effective date of such plan, that is not
less than the amount that such holder would receive or retain if the debtor were
liquidated under chapter 7 of the Bankruptcy Code. In re Crowthers McCall
Pattern, Inc., 120 B.R. 279, 297 (Bankr. S.D.N.Y. 1990).
41
44. Based upon the Findings of Fact (paragraphs 1 to 66 hereinabove)
contained in this Confirmation Order, the Liquidation Analysis set forth in
Section XI.D of the Disclosure Statement, and the sworn statements made in the
Forrest Affidavit, this Court concludes that the Plan satisfies the "best
interest" test under section 1129(a)(7) of the Bankruptcy Code.
THE PLAN SATISFIES EITHER THE
REQUIREMENTS OF SECTION 1129(A)(8) OR SATISFIES THE
REQUIREMENTS OF SECTION 1129(B) OF THE BANKRUPTCY CODE
- ------------------------------------------------------
45. Section 1129(a)(8) of the Bankruptcy Code requires that, with respect to
each class of claims or interests under a plan, such class has either accepted
the plan or is not impaired under the plan. According to the BSI Certification
and the Innisfree Certification, Classes 4, 7, 8, 9,13 and 14 have voted to
accept the Plan. Class 1 has voted to reject the Plan. The Claims in each of
Classes 2, 3, 5, 6, 10, 11 and 12 are unimpaired under the Plan and, pursuant to
section 1126(f) of the Bankruptcy Code, holders of unimpaired Claims in such
classes are deemed to have accepted the Plan. As to Class 1, if the Debtors
elect Alternate Treatment B, the Debtors have agreed to pay the Allowed Claims
in Class 1 in full, in Cash and to cause the issuance of a letter of credit to
backstop any letters of credit obligations owing to the Senior Secured Lenders,
on the Effective Date. Accordingly, the Claims in Class 1 would be unimpaired in
such extent and the Plan satisfies the requirements of Section 1129(a)(8) of the
Bankruptcy Code. Alternatively, the Debtors' treatment of the Allowed Claims in
Class 1 under Alternate Treatment B provides the holders of the Allowed Claims
in Class 1 with the "indubitable equivalent" of their Allowed Claims in
accordance with section 1129(b)(2)(A)(iii) of the Bankruptcy Code and,
therefore, the Plan satisfies section 1129(b)(2)(A)(iii) of the Bankruptcy Code
42
as to such Class. Additionally, if the Debtors elect Alternate Treatment A, the
holders of Allowed Claims in Class 1 will retain the liens securing their
Allowed Claims and will receive current Cash payments and deferred Cash payments
totaling at least the allowed amount of their Claims, as of the Effective Date,
in accordance with section 1129(b)(2)(A)(i) of the Bankruptcy Code, and
therefore, satisfies section 1129(b)(2)(A)(i) of the Bankruptcy Code as to such
Class.
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(9) OF THE BANKRUPTCY CODE
- -----------------------------------------
46. Section 1129(a)(9) of the Bankruptcy Code provides for certain
mandatory treatment of claims entitled to priority under the Bankruptcy Code.
47. As required by section 1129(a)(9)(A) of the Bankruptcy Code,
Section 2.1 of the Plan provides that, except as otherwise agreed to by a holder
of an Allowed Administrative Expense Claim, the Debtors shall pay to each holder
of an Allowed Administrative Expense Claim Cash in an amount equal to such
Allowed Claim on, or as soon thereafter as is reasonably practicable after, the
later of the Effective Date and the first Business Day after the date that is
thirty (30) calendar days after the date such Administrative Expense Claim
becomes an Allowed Administrative Expense Claim; provided, however, that Allowed
Administrative Expense Claims representing liabilities incurred in the ordinary
course of business by the Debtors, as debtors in possession, or liabilities
arising under loans or advances to or other obligations incurred by the Debtors,
as debtors in possession, whether or not incurred in the ordinary course of
business, shall be paid by the Debtors in the ordinary course of business,
consistent with past practice and in accordance with the terms and subject to
the conditions of any agreements governing, instruments evidencing, or other
documents relating to such transactions. In addition, pursuant to Section 2.2 of
the Plan, all payments made or to be made (as Administrative Expense Claims) to
professionals retained by orders of the Court will be subject to review and
approval by this Court upon final application under section 328, 330, 331 or
503(b) of the Bankruptcy Code.
43
48. Consistent with section 1129(a)(9)(B) of the Bankruptcy Code,
Section 4.3 of the Plan provides that, except as otherwise agreed to by a holder
of an Allowed Priority Non-Tax Claim, such holder shall receive, in full
satisfaction of such Allowed Priority Non-Tax Claim, Cash in an amount equal to
such Claim, on or as soon as reasonably practicable after the latest of (i) the
Effective Date, (ii) the date such Claim becomes Allowed, and (iii) the date for
payment provided by any agreement or understanding between the applicable
Debtors and the holder of such Claim.
49. Consistent with section 1129(a)(9)(C) of the Bankruptcy Code,
Section 2.3 of the Plan provides that a holder of an Allowed Priority Tax Claim
shall, on account of such Allowed Priority Tax Claim be paid in full, in cash,
on the Effective Date or as soon thereafter as is reasonably practicable, or on
the Business Day after the date that is thirty (30) calendar days after the date
such Priority Tax Claim becomes an Allowed Priority Tax Claim.
50. Accordingly, the Plan satisfies section 1129(a)(9) of the
Bankruptcy Code.
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(10) OF THE BANKRUPTCY CODE
- ------------------------------------------
51. Section 1129(a)(10) of the Bankruptcy Code provides that at least
one impaired class of claims must accept a plan of reorganization, determined
without including any acceptance of such plan by any insider.
44
52. The Plan satisfies section 1129(a)(10) of the Bankruptcy Code
because Classes 4, 7, 8, and 9, which are impaired classes, have voted to accept
the Plan by the requisite majorities, determined without including any
acceptance of the Plan by insiders. (Demilio Affidavit at P. 23).
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(11) OF THE BANKRUPTCY CODE
- ------------------------------------------
53. Section 1129(a)(11) of the Bankruptcy Code requires that a plan
be feasible and that the debtor or its successor under such plan would not
likely require liquidation or further financial reorganization, except as
provided under such plan. In re Clarkson, 767 F.2d 417, 420 (8th Cir. 1985)
(citing Chase Manhattan Mortgage & Realty Trust v. Bergman (In re Bergman), 585
F.2d 1171, 1179 (2d Cir. 1978)); In re Texaco, Inc., 84 B.R. 893, 907 (Bankr.
S.D.N.Y. 1988) (citing In re Johns-Manville Corp., 68 B.R. 618, 635 (Bankr.
S.D.N.Y. 1986), aff'd, 78 B.R. 407 (S.D.N.Y. 1987)).
54. Based upon the Findings of Fact and the Conclusions of Law
contained in this Confirmation Order, this Court concludes that the Plan
satisfies section 1129(a)(11) of the Bankruptcy Code, and the Debtors will not
likely require liquidation or further financial reorganization after
confirmation.
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(12) OF THE BANKRUPTCY CODE
- ------------------------------------------
55. Section 1129(a)(12) of the Bankruptcy Code requires that all fees
payable under section 1930 of title 28 of the United States Code, as determined
by the court at the hearing on confirmation of the plan, either have been paid
or the plan provides for the payment of all such fees on the effective date of
the plan.
45
56. Section 13.1 of the Plan provides for the payment on the
Effective Date (or as soon as practicable thereafter) of all fees payable under
section 1930 of title 28 of the United States Code. All post-consummation fees
that are due and payable will be payable by the Reorganized Debtors until the
Chapter 11 Cases are closed pursuant to section 350(a) of the Bankruptcy Code.
Accordingly, the Plan satisfies section 1129(a)(12) of the Bankruptcy Code.
THE PLAN SATISFIES THE REQUIREMENTS OF
SECTION 1129(A)(13) OF THE BANKRUPTCY CODE
- ------------------------------------------
57. Section 1129(a)(13) of the Bankruptcy Code requires the
continuation of payment of all retiree benefits, at the level established
pursuant to section 1114 of the Bankruptcy Code at any time prior to
confirmation of the plan, for the duration of the period the debtor has
obligated itself to provide such benefits.
58. Section 13.2 of the Plan provides that, on and after the
Effective Date, the Reorganized Debtors shall continue to pay all retiree
benefits (within the meaning of section 1114 of the Bankruptcy Code) for the
duration of the period the Debtors have obligated themselves to provide such
benefits. Accordingly, the Plan satisfies section 1129(a)(13) of the Bankruptcy
Code.
THE PLAN SATISFIES THE REQUIREMENTS
OF SECTION 1129(D) OF THE BANKRUPTCY CODE
- -----------------------------------------
59. Section 1129(d) of the Bankruptcy Code provides that, on request of a
governmental unit, the court may not confirm a plan if its principal purpose is
the avoidance of taxes or the avoidance of the application of section 5 of the
Securities Act of 1933, as amended. The principal purpose of the Plan is not
avoidance of taxes or avoidance of the requirements of section 5 of the
Securities Act of 1933, as amended, and there has been no objection to the Plan
by any governmental unit alleging any such avoidance. (Demilio Affidavit, at P.
28). Accordingly, the Plan satisfies section 1129(d) of the Bankruptcy Code.
46
THE RELEASES, EXCULPATION AND INDEMNITY
PROVISIONS ARE CONSISTENT WITH SECTIONS 105
AND OTHER PROVISIONS OF THE BANKRUPTCY CODE
- -------------------------------------------
60. This Court has jurisdiction to approve the provisions in Section
11.7 of the Plan (Exculpation) and Section 5.7 of the Plan (Release of
Representatives) pursuant to sections 1334(a), (b) and (d) of title 28 of the
United States Code.
61. Section 105(a) of the Bankruptcy Code empowers the Court and
permits Court approval of the limited release, exculpation and indemnification
provisions where, as here, such provisions are essential to the formulation and
implementation of the Plan and confer material benefits on the Debtors, their
estates and creditors. On the basis of the Affidavits in Support of Confirmation
and the record presented at the Confirmation Hearing, this Court finds and
concludes that it has jurisdiction to approve of the limited release,
exculpation and indemnification provisions set forth in the Plan and that such
provisions of the Plan are consistent with sections 105 and 1129 of the
Bankruptcy Code and other applicable provisions of the Bankruptcy Code and are
in the best interests of the Debtors' estates and creditors. See A.H. Robins
Co., Inc. v. Piccinin, 788 F.2d 994, 1002-03 (4th Cir.), cert. denied, 479 U.S.
876 (1986); In re Johns-Manville Corp., 801 F.2d 60, 63-64 (2d Cir. 1986); In re
The Leslie Fay Companies, Inc., 207 B.R. 764 (Bankr. S.D.N.Y. 1997); see also In
re Drexel Burnham Lambert Group, Inc., 138 B.R. 717 (Bankr. S.D.N.Y.), aff'd,
140 B.R. 347 (S.D.N.Y. 1992).
THE INJUNCTION AGAINST WORTHLESS
STOCK DEDUCTION IS CONSISTENT
WITH THE BANKRUPTCY CODE AND CASELAW
- ------------------------------------
62. Section 13.14 of the Plan states that any "fifty percent
shareholder" of Magellan shall be enjoined from claiming a worthless stock
deduction with respect to any Equity Interests held by such entity for any
47
taxable year of such shareholder ending prior to the Effective Date. This Court
finds and concludes that an injunction against claiming a worthless stock
deduction is proper because, if a fifty percent shareholder were allowed to
claim such deduction, there would be an immediate "ownership change" for
Magellan, which would effectively eliminate or reduce substantially the use by
the Reorganized Debtors of certain net operating tax loss carryforwards (which
are property of the Debtors' estates) to offset taxable income following the
Effective Date. See Official Comm. of Unsecured Creditors v. PSS Steamship Co.
(In re Prudential Lines, Inc.), 928 F.2d 565 (2d Cir.), cert. denied, 502 U.S.
821 (1991) (upholding bankruptcy court's order enjoining worthless stock
deduction); In re Phar-Mor, Inc., 152 B.R. 924 (Bankr. N.D. Ohio 1993)
(enjoining transfer of stock by minority shareholder that might result in an
ownership change of the debtor).
THE NEW COMMON STOCK AND
NEW NOTES ARE EXEMPT FROM REGISTRATION
PURSUANT TO SECTION 1145 OF THE BANKRUPTCY CODE
- -----------------------------------------------
63. Under section 1145 of the Bankruptcy Code, the New Common Stock,
including, without limitation, the shares of New Common Stock issued pursuant to
the Equity Offering, and New Notes (including, without limitation, the 92,184
shares of New Common Stock and New Notes distributed to Houlihan Lokey under its
engagement letter, the Rights Registration Agreement and the Plan) will be
freely tradeable by the recipients thereof, subject to (i) the provisions of
section 1145(b)(1) of the Bankruptcy Code relating to the definition of an
underwriter in Section 2(a)(11) of the Securities Act and compliance with any
rules and regulations of the Securities Exchange Commission, if any, applicable
at the time of any future transfer of such securities or instruments; (ii) the
restrictions, if any, on the transferability of such securities and instruments;
and (iii) applicable regulatory approval. The issuance of New Common Stock, the
48
New Notes and the ability to participate in the Equity Offering (including,
without limitation, amounts payable to Houlihan Lokey in accordance with section
5.17 of the Plan) are or were in exchange for Claims against, or Equity
Interests in, the Debtors, or principally in such exchange and partly for cash
or property, within the meaning of section 1145(a)(1) of the Bankruptcy Code.
64. The exemption from the requirements of Section 5 of the
Securities Act of 1933, as amended, and any state or local law requiring
registration of the offer, issuance, exchange or transfer of a security provided
for in the Plan or registration or licensing of an issuer of, underwriter of, or
broker dealer in, such security is authorized by section 1145 of the Bankruptcy
Code and is applicable to the extent set forth in the Plan. The New Common Stock
and New Notes are exempt from registration pursuant to section 1145 of the
Bankruptcy Code and are freely tradeable by the holders thereof except to the
extent a holder is an "underwriter" as defined in section 1145(b) of the
Bankruptcy Code.
65. To the extent that any of the foregoing conclusions of law
constitute findings of fact, they are adopted as such.
DECRETAL PROVISIONS
-------------------
NOW, THEREFORE, IT IS HEREBY ORDERED AND ADJUDGED AS FOLLOWS:
1. The Plan is hereby confirmed.
2. The record of the Confirmation Hearing is hereby closed.
3. The Effective Date of the Plan shall occur on the date when the
conditions set forth in Section 10.2 of the Plan shall have been satisfied or,
if applicable, shall have been waived by Reorganized Magellan, in its sole
49
discretion, with the consent of the Official Committee, the Subject Lenders and
the Equity Investor, which consents shall not be unreasonably withheld. Any such
waiver may be effected at any time, without notice or leave or order of the
Bankruptcy Court, and without any formal action.
4. With respect to all Classes (other than Classes 7, 8, and 14) the
record date for purposes of determining the holders of Allowed Claims and Equity
Interests that are entitled to distributions that are required to be made under
the Plan on the Effective Date, shall be the date of the Confirmation Order, and
distributions with respect to Classes 7, 8, and 14 (the Debtors' public debt and
equity securities) shall be made to holders of the public debt and equity
securities surrendering such securities.
5. Any Objections that have not been withdrawn prior to the entry of
this Confirmation Order or that are not cured by the relief granted herein are
hereby overruled in their entirety, and all withdrawn Objections are hereby
deemed withdrawn with prejudice.
6. In accordance with section 1141(a) of the Bankruptcy Code and
Section 11 of the Plan (and as limited thereby), upon entry of this Confirmation
Order, the Plan shall be binding upon and inure to the benefit of the Debtors
and their respective successors and assigns, the holders of Claims and Equity
Interests and their respective successors and assigns (whether or not they voted
to accept the Plan, whether or not they are impaired under the Plan, and whether
or not any such holder has filed, or is deemed to have filed, a proof of Claim
or proof of Equity Interest), any other Entity giving, acquiring, or receiving
property under the Plan, and any lessor or lessee of property to or from any of
the Debtors. Except as qualified by Section 11.9 of the Plan, the rights
50
afforded in the Plan and the treatment of all Claims and Equity Interests
therein shall be in exchange for the discharge of all existing debts and Claims,
and termination of all Equity Interests, of any kind, nature, or description
whatsoever against or in the Debtors or any of their assets or properties to the
fullest extent permitted by section 1141 of the Bankruptcy Code. Except as
provided in the Plan, upon the Effective Date, all existing Claims against the
Debtors and Equity Interests in the Debtors shall be, and shall be deemed to be,
discharged and terminated, and all holders of Claims and Equity Interests shall
be precluded and enjoined from asserting against the Reorganized Debtors, their
successors or assignees, or any of their assets or properties, any other or
further Claim or Equity Interest based upon any act or omission, transaction, or
other activity of any kind or nature that occurred prior to the Effective Date,
whether or not such holder has filed a proof of claim or proof of equity
interest, and whether or not the facts of or legal bases therefor were known or
existed prior to the Effective Date. In addition, each holder (as well as any
trustees and agents on behalf of each holder) of a Claim or Equity Interest and
any affiliate of such holder shall be deemed to have forever waived, released,
and discharged the Debtors, to the fullest extent permitted by section 1141 of
the Bankruptcy Code, of and from any and all Claims, Equity Interests, rights,
and liabilities that arose prior to the Effective Date. Upon the Effective Date,
all such persons shall be forever precluded and enjoined, pursuant to section
524 of the Bankruptcy Code, from prosecuting or asserting any such discharged
Claim against or terminated Equity Interest in the Debtors.
7. Pursuant to the Order of this Court dated April 23, 2003,
approving the Debtors' assumption of the Amended MSA pursuant to section 365 of
the Bankruptcy Code, the Aetna Amended MSA, including all documents and
instruments related thereto (including but not limited to the Aetna Asset
Purchase Agreement, the Aetna Note, the Aetna Warrant and the Vendor Contracts),
and the Aetna Registration Rights Agreement are and shall remain binding on the
Debtors, the Reorganized Debtors, their Affiliates and their successors.
51
8. In accordance with sections 524 and 1141(d) of the Bankruptcy Code
and Section 11 of the Plan (and as limited thereby), except as otherwise set
forth in the Plan and in this Confirmation Order, on and after the Effective
Date, all persons or entities who have held, hold or may hold Claims or Equity
Interests are permanently enjoined, from and after the Effective Date, from (a)
commencing or continuing in any manner any action or other proceeding of any
kind on any such Claim or Equity Interest against any of the Debtors, (b) the
enforcement, attachment, collection or recovery by any manner or means of any
judgment, award, decree or order against any Debtor, (c) creating, perfecting,
or enforcing any encumbrance of any kind against any Debtor or against the
property or interests in property of any Debtor, and (d) asserting any right of
setoff, subrogation or recoupment of any kind against any obligation due from
any Debtor or against the property or interests in property of any Debtor, with
respect to any such Claim or Equity Interest.
9. Notwithstanding Section 11.4 of the Plan or anything in this
Confirmation Order to the contrary, the Plan shall not modify or impair any
rights of setoff, recoupment or other defenses which St. Paul Fire and Marine
Insurance Company, the successor by merger to American Continental Insurance
Company ("St. Paul"), may assert under applicable law. Furthermore,
notwithstanding Section 11.4 of the Plan or anything in this Conformation Order
to the contrary, the Plan shall not modify or impair St. Paul's right to seek
relief from the automatic stay to pursue the declaratory judgment pending
against the Debtors in the United States District Court for the District of
Maryland, Case Number S 02 C.
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10. The injunction contained in Section 11.4 of the Plan shall not
affect the rights of PPS to continue to pursue its pending injunction action
against the Debtors in the matter styled as Pennsylvania Psychiatric Society v.
Magellan Health Services, Inc., et. al ., currently pending in the United States
District Court for the Western District of Pennsylvania, as Civil Action No.
99-0937, solely to the extent that PPS is seeking to enjoin any ongoing alleged
wrongful conduct by the Debtors occurring on or after the Commencement Date and
for no other monetary or non-monetary relief against the Debtors.
11. In accordance with section 1141(b) of the Bankruptcy Code and
Section 11.1 of the Plan, all property of the Debtors' bankruptcy estates shall
vest in the Reorganized Debtors free and clear of all Claims, liens,
encumbrances, charges, and other interests, except as provided herein. The
Reorganized Debtors may operate their businesses and may use, acquire, and
dispose of property free of any restrictions of the Bankruptcy Code or the
Bankruptcy Rules and in all respects as if there were no pending cases under any
chapter or provision of the Bankruptcy Code, except as provided herein and in
the Plan. In addition, pursuant to Section 5.4 of the Plan, the distributions to
the holders of Claims in Class 8 shall not be subject to levy, garnishment,
attachment or other legal process by any holder of indebtedness senior to the
indebtedness of the holders of such Claims by reason of claimed contractual
subordination rights. On the Effective Date, all creditors shall be deemed to
have waived any and all contractual subordination rights that they may have with
respect to such distribution, and the Confirmation Order hereby enjoins,
effective as of the Effective Date, all holders of senior indebtedness from
enforcing or attempting to enforce any such rights with respect to the
distributions under the Plan to the holders of Claims in Class 8.
12. Pursuant to Section 11.6 of the Plan, all holders of Claims and
Equity Interests and other parties in interest, along with their respective
present or former employees, agents, officers, directors, or principals, shall
be enjoined from taking any actions to interfere with the implementation or
consummation of the Plan.
13. In accordance with section 1142 of the Bankruptcy Code, upon
entry of this Confirmation Order, the Debtors are authorized to enter into the
transactions described in the Plan and the Plan Supplement and are authorized
and empowered to take all actions to issue, execute, deliver, file, and record
all documents appropriate or necessary to consummate, implement, or otherwise
effectuate the transactions contemplated hereunder and thereunder.
14. In accordance with section 1142 of the Bankruptcy Code, upon
entry of this Confirmation Order (and subject to the occurrence of the Effective
Date) without limiting the immediately preceding paragraph, the following shall
be deemed authorized and approved in all respects: (i) the adoption and filing
by Reorganized Magellan of the Amended Certificate of Incorporation, (ii) the
adoption of the Amended Magellan By-Laws, (iii) the issuance of the New Common
Stock and MVS Securities, (iv) the issuance of the New Notes, (v) the issuance
of the New Warrants, (vi) the issuance of the New Aetna Note, (vii) the issuance
of the New Aetna Warrant (viii) the entering into of the DB Credit Agreement or
the New Senior Secured Credit Agreement, as the case may be, and the
transactions contemplated thereby (including, without limitation, the payment of
any fees in connection therewith), (ix) the entering into of employment
agreements with the Senior Executives, (x) the entering into of employment
agreements between the Debtors and their employees and (xi) the entering into of
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any other agreement, instrument or document necessary or desirable to effectuate
the foregoing and the Plan. On the Effective Date, the matters provided under
the Plan involving the capital and corporate structures and governance of the
Reorganized Debtors shall be deemed to have occurred and shall be in effect from
and after the Effective Date pursuant to applicable state laws without any
requirement of further action by the stockholders or directors of the Debtors or
the Reorganized Debtors.
15. The board of directors of Reorganized Magellan shall be deemed to
have approved the acquisition of the MVS Securities by the Equity Investor and
its affiliates and associates prior to the time any of such entities became the
owner of MVS Securities within the meaning of Section 203 of the Delaware
General Corporation Law. The Amended Certificate of Incorporation shall provide
that Reorganized Magellan elects not to be governed by Section 203 of the
Delaware General Corporation Law.
16. Except as otherwise set forth in the Plan, prior to, or as of,
the Effective Date, and only with the Official Committee's and the Equity
Investor's prior written consent, Reorganized Magellan may cause any or all of
the Debtors to engage in any intercompany transactions deemed necessary or
appropriate (including, without limitation, merging, dissolving, or transferring
assets, between or among the Debtors).
17. Pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code
and Section 8.1 of the Plan, all executory contracts and unexpired leases of the
Debtors not previously assumed or rejected are hereby assumed, effective as of
and subject to the occurrence of the Effective Date, except for (i) the
executory contracts and unexpired leases listed on Schedule 8.1 to the Plan,
which are to be rejected pursuant to the Plan, and (ii) any executory contracts
54
and unexpired leases that are the subject of a motion to reject, assume or
assign pending before the Court at least twenty (20) days prior to the
Confirmation Hearing. Pursuant to sections 365(a) and 1123(b)(2) of the
Bankruptcy Code, all executory contracts and unexpired leases set forth on
Schedule 8.1 to the Plan are hereby rejected, effective as of the Confirmation
Date and subject to the occurrence of the Effective Date. Entry of this
Confirmation Order shall constitute approval of the assumption of all executory
contracts and unexpired leases described in Section 8 effective as of, and
subject to, the occurrence of the Effective Date and the rejection of the
contracts and leases listed on Schedule 8.1 to the Plan effective as of the
Confirmation Date.
18. To the extent any Debtor and any Customer (as of the Confirmation
Date) and/or party to a managed care service agreement with any Debtor in effect
on the Confirmation Date have entered into amendments or agreements or have
revised their course of dealing by consent of the Debtors in any fashion,
including through the payment, advancement, credit or setoff of funds, both
prior to and after the Commencement Date, such amendments, agreements, and/or
revised consensual course of dealings are an ordinary course of business
transaction under the Plan or have otherwise been approved by the Bankruptcy
Court. Said amendments, agreements and/or revised consensual course of dealings
are assumed concomitant with the assumption of the underlying executory
contracts, and any right to any payment, credit, setoff or recoupment arising
thereunder shall remain in full force and effect and is not subject to discharge
under the Plan and this Order.
19. Effective upon entry of this Confirmation Order, all unexpired
contracts between any of the Debtors and Continental Insurance Company and/or
Columbia Casualty Company (collectively, together with their insurance
affiliates, the "CNA Companies" or "CNA") shall be assumed pursuant to section
365 of the Bankruptcy Code, including but not limited to that certain Indemnity
55
Agreement, effective as of June 25, 1999, among and between Magellan Health
Services, Inc., East River Insurance Company (Bermuda) Ltd. and Continental
Insurance Company. Notwithstanding anything to the contrary contained in the
Plan or this Order, except as otherwise previously agreed to, CNA shall not be
required to surrender or release any collateral to the Debtors absent agreement
of the parties, or further order of the Court. Nothing contained in this Order
shall constitute an adjudication or finding as to the existence or
enforceability of a prior agreement by CNA to return collateral.
20. Pursuant to Section 5.1 of the Plan, subject to the occurrence of
the Effective Date, the Debtors shall be deemed consolidated for the following
purposes under the Plan: (i) all guarantees by any of the Debtors of the
obligations of any other Debtor arising prior to the Effective Date shall be
deemed eliminated so that any Claim against any Debtor and any guaranty thereof
executed by any other Debtor and any joint and several liability of any of the
Debtors shall be deemed to be one obligation of the deemed consolidated Debtors,
and (ii) each and every Claim arising prior to the Effective Date and filed
against any of the Debtors shall be deemed filed against the deemed consolidated
Debtors and shall be deemed one Claim against and obligation of the deemed
consolidated Debtors. Without limitation of the foregoing, any holder of
duplicate Claims shall receive a distribution for only one such Claim.
21. Such deemed consolidation, however, shall not (other than for
purposes related to funding distributions under the Plan affect: (i) the legal
and organizational structure of the Reorganized Debtors; (ii) intercompany
Claims by and among the Debtors or Reorganized Debtors; (iii) pre- and
post-Commencement Date guarantees, liens, and security interests that are
56
required to be maintained (A) in connection with executory contracts or
unexpired leases that were entered into during the Chapter 11 Cases or that have
been or will be assumed pursuant to section 365 of the Bankruptcy Code, (B)
pursuant to the Plan, (C) in connection with any financing entered into by the
Reorganized Debtors on the Effective Date; or (D) in connection with any
Customer Claims and (iv) distributions out of any insurance policies or proceeds
of such policies.
22. In accordance with section 105 of the Bankruptcy Code, the
provisions of the Plan governing release and exculpation that are set forth in
Sections 5 and 11 of the Plan, are hereby approved in all respects. 23. In
accordance with sections 105 and 1123(b)(6) of the Bankruptcy Code and Section
13.14 of the Plan, and in furtherance of section 362 of the Bankruptcy Code, any
"fifty percent shareholder" within the meaning of section 382(g)(4)(D) of the
Internal Revenue Code of 1986, as amended, is hereby enjoined from claiming a
worthless stock deduction with respect to any Equity Interests for any taxable
year of such shareholder ending prior to the Effective Date.
24. In accordance with section 1145 of the Bankruptcy Code, the offer
or issuance, sale, exchange or other transfer of any security in accordance with
the Plan or this Confirmation Order, including the New Common Stock, the MVS
Securities and the New Notes, is hereby declared exempt from (a) the provisions
of section 5 of the Securities Act of 1933, as amended (15 U.S.C. ss. 77(e), as
amended), and (b) any state or local law requiring registration for the offer or
sale of a security or registration or licensing of the issuer or an affiliate
thereof as an underwriter, broker or dealer in securities.
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25. Under section 1145 of the Bankruptcy Code, the New Common Stock,
including, without limitation, the shares of New Common Stock issued pursuant to
the Equity Offering, and New Notes (including, without limitation, the 92,184
shares of New Common Stock and New Notes distributed to Houlihan Lokey under its
engagement letter, the Registration Rights Agreement and the Plan) will be
freely tradeable by the recipients thereof, subject to (i) the provisions of
section 1145(b)(1) of the Bankruptcy Code relating to the definition of an
underwriter in Section 2(a)(11) of the Securities Act of 1933 and compliance
with any rules and regulations of the Securities Exchange Commission, if any,
applicable at the time of any future transfer of such securities or instruments;
(ii) the restrictions, if any, on the transferability of such securities and
instruments; and (iii) applicable regulatory approval. The issuance of New
Common Stock, New Notes and the ability to participate in the Equity Offering
(including, without limitation, amounts payable to Houlihan Lokey in accordance
with section 5.17 of the Plan) are or were in exchange for claims against, or
Equity Interests in, the Debtors, or principally in such exchange and partly for
cash or property, within the meaning of section 1145(a)(1) of the Bankruptcy
Code.
26. Pursuant to section 1146(c) of the Bankruptcy Code and Section
13.12 of the Plan, the issuance, transfer or exchange of notes or equity
securities under the Plan, the creation of any mortgage, deed of trust, or other
security interest, the making or assignment of any lease or sublease, or the
making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan of Reorganization, shall not be
subject to any stamp, real estate transfer, mortgage recording or other similar
tax.
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27. All entities holding Claims against or Equity Interests in the
Debtors that are treated under the Plan are hereby directed to execute, deliver,
file or record any document, and to take any action necessary to implement,
consummate and otherwise effect the Plan in accordance with its terms, and all
such entities shall be bound by the terms and provisions of all documents
executed and delivered by them in connection with the Plan.
28. In accordance with section 1142 of the Bankruptcy Code, the
Debtors, the Reorganized Debtors, the Disbursing Agent, and any other entity
designated pursuant to the Plan are hereby authorized, empowered and directed to
issue, execute, deliver, file and record any document, and to take any action
necessary or appropriate to implement, consummate and otherwise effectuate the
Plan in accordance with its terms, and all such entities shall be bound by the
terms and provisions of all documents issued, executed and delivered by them as
necessary or appropriate to implement or effectuate the transactions
contemplated by the Plan. Without limiting the generality of the foregoing, the
Debtors and/or the Reorganized Debtors are hereby authorized and empowered to
execute the DB Credit Agreement and any other agreements instruments and
documents necessary or required to consummate, implement or otherwise effectuate
the Exit Financing, to grant the liens and security interests described in the
DB Commitment Letter in connection therewith and to pay any fees required to be
paid in connection with the Exit Financing.
29. The Debtors, are authorized to amend or modify the Plan at any
time prior to the Effective Date, in accordance with Section 13.5 of the Plan;
provided, however that any amendment or modification of paragraph 4 of the
Modifications dated September 25, 2003 shall be subject to the approval of the
Equity Investor and R2.
30. The Modifications are hereby approved.
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31. The Debtors are authorized to take any and all actions in
connection with the Equity Offering and the issuance of New Common Stock in
consummation of the Equity Offering as described in Section 9 of the Plan
32. Until the Effective Date, and except as otherwise ordered by this
Court, this Court shall retain exclusive jurisdiction over the Debtors, their
properties and operations. On and after the Effective Date, in accordance with
sections 105(a) and 1142 of the Bankruptcy Code, the Debtors, their properties
and their operations shall be released from the custody and jurisdiction of the
Bankruptcy Court, except that this Court retains jurisdiction over, and if this
Court exercises its retained jurisdiction, shall have exclusive jurisdiction
over, all matters arising out of or related to these cases and the Plan or which
otherwise are enumerated in Section 12 of the Plan, including the following:
(a) To hear and determine applications for the assumption or
rejection of executory contracts or unexpired leases and the
allowance of Claims resulting therefrom.
(b) To determine any motion, adversary proceeding,
application, contested matter, and other litigated matter pending
on or commenced after the Confirmation Date.
(c) To ensure that distributions to holders of Allowed
Claims are accomplished as provided in the Plan.
(d) To consider Claims or the allowance, classification,
priority, compromise, estimation, or payment of any Claim,
Administrative Expense Claim, or Equity Interest.
(e) To enter, implement, or enforce such orders as may be
appropriate in the event the Confirmation Order is for any reason
stayed, reversed, revoked, modified, or vacated.
(f) To issue injunctions, enter and implement other orders,
and take such other actions as may be necessary or appropriate to
restrain interference by any person with the consummation,
implementation, or enforcement of the Plan, the Confirmation
Order, or any other order of the Bankruptcy Court.
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(g) To hear and determine any application to modify the Plan
in accordance with section 1127 of the Bankruptcy Code, to remedy
any defect or omission or reconcile any inconsistency in the
Plan, the Disclosure Statement, or any order of the Bankruptcy
Court, including the Confirmation Order, in such a manner as may
be necessary to carry out the purposes and effects thereof.
(h) To hear and determine all applications under sections
330, 331, and 503(b) of the Bankruptcy Code for awards of
compensation for services rendered and reimbursement of expenses
incurred prior to the Confirmation Date.
(i) To hear and determine disputes arising in connection
with the interpretation, implementation, or enforcement of the
Plan, the Confirmation Order, any transactions or payments
contemplated by the Plan, or any agreement, instrument, or other
document governing or relating to any of the foregoing.
(j) To take any action and issue such orders as may be
necessary to construe, enforce, implement, execute, and
consummate the Plan or to maintain the integrity of the Plan
following consummation.
(k) To determine such other matters and for such other
purposes as may be provided in the Confirmation Order.
(l) To hear and determine matters concerning state, local,
and federal taxes in accordance with sections 346, 505, and 1146
of the Bankruptcy Code.
(m) To hear and determine any other matters related to the
Plan and not inconsistent with the Bankruptcy Code and title 28
of the United States Code.
(n) To determine any other matters that may arise in
connection with or are related to the Plan, the Disclosure
Statement, the Confirmation Order any of the Plan Documents, or
any other contract, instrument, release or other agreement or
document related to the Plan, the Disclosure Statement or the
Plan Supplement.
(o) To enter a final decree closing these Chapter 11 Cases.
(p) To recover all assets of the Debtors and property of the
Debtors' estates, wherever located.
(q) To hear and determine any rights, claims or causes of
action held by, or accruing to, any of the Debtors pursuant to
the Bankruptcy Code or pursuant to any federal or state statute
or legal theory;
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provided, however, that the Bankruptcy Court shall not maintain jurisdiction to
interpret, construe, enforce or determine disputes under the Registration Rights
Agreement and, from and after the Effective Date, the Equity Commitment Letter,
as set forth in such documents.
33. Any person or entity seeking an allowance of final compensation
or reimbursement of expenses for professional services rendered to the Debtors
or in relation to these cases pursuant to sections 327, 328, 330, 331, 503(b)
and 1103 of the Bankruptcy Code shall file and serve an application for
allowance of final compensation for services rendered and reimbursement of
related expenses incurred on or before the Effective Date (each, an
"Application"), on each of the following entities not later than forty-five (45)
days after the Effective Date (or such later date as may be established by
further order of the Court):
Weil, Gotshal & Manges LLP
Attorneys for the Debtors
767 Fifth Avenue
New York, New York 10153
Attn: Stephen Karotkin, Esq.
Akin Gump Straus Hauer & Feld LLP
Attorneys for the Official Committee
590 Madison Avenue
New York, NY 10022
Attn: Michael S. Stamer, Esq.
Office of the United States Trustee
33 Whitehall Street, 21st Floor
New York, New York 10004
Attn: Pamela J. Lustrin, Esq.
Wachtell, Lipton, Rosen & Katz
Attorneys for the Agent for the Senior Secured Lenders
51 W. 52nd Street
New York, New York 10019
Attn: Richard D. Feintuch, Esq.
Davis Polk & Wardwell
Attorneys for Aetna, Inc.
450 Lexington Avenue
New York, New York 10017
Attn: Marshall S. Huebner, Esq.
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34. A hearing to consider the Applications so served and filed shall
be held before the Court on __________________m., or as soon thereafter as
counsel may be heard, in Courtroom 701, United States Bankruptcy Court for the
Southern District of New York, Alexander Hamilton Custom House, One Bowling
Green, New York, New York (the "Final Fee Hearing"), or on such adjourned date
and time as may be announced at the Final Fee Hearing.
35. Each Application shall comply with the applicable provisions of
the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules and the
Guidelines for Fees and Disbursements for Professionals in the Southern District
of New York, and shall set forth, among other things, in reasonable detail, (i)
the name and address of the applicant; (ii) the nature of the professional or
other services rendered and expenses for which reimbursement is requested for
all periods from the date the particular applicant was retained through the
Effective Date; (iii) the amount of compensation and reimbursement of expenses
requested, (iv) whether any payments have been received on account and, if so,
the amount or amounts thereof; (v) the amount of any success fee or premium
requested and the basis therefor; and (vi) the amounts of compensation and
reimbursement of expenses previously allowed by the Court, if any.
36. Notwithstanding any contrary provisions in this Order, the New
Common Stock and New Notes authorized to be issued to Houlihan Lokey pursuant to
section 5.17 of the Plan will be issued on the Effective Date even if a Final
Fee Hearing has not been held. Such distributions shall, however, be subject to
disgorgement, if so ordered by this Court, in connection with a Final Fee
Application.
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37. On or before twenty days prior to the Final Fee Hearing, counsel
for the Debtors be, and they hereby are, directed to serve upon all persons who
have filed requests for notices under Bankruptcy Rule 2002, a notice setting
forth the amount of fees and disbursements requested by each applicant who filed
an Application. Upon written request made to the Debtors or their counsel, any
party in interest may obtain a copy of any Application. Objections, if any, to
any Application shall be in writing, shall set forth with specificity the basis
of the objection, shall state whether the objector is a Creditor of or the
holder of Equity Interests in the Debtors, the amount or extent of the
objector's Claim or Equity Interests, and shall be served on the applicant whose
Application is the subject of the objection and on each of the entities listed
in paragraph 33 above, by personal service or express overnight delivery and
filed with the Court, with a copy delivered to Chambers, so as to be received on
or before three (3) days prior to the Final Fee Hearing.
38. As of the Effective Date, the Official Committee shall dissolve
and its members shall be released and discharged from all further authority,
duties, responsibilities and obligations relating to the Chapter 11 Cases and
the retention and employment of the legal and financial professionals retained
by the Official Committee shall also terminate as of the Effective Date;
provided, however, that the Official Committee and its attorneys shall be
retained with respect to (a) applications filed pursuant to sections 330 and 331
of the Bankruptcy Code, (b) motions seeking the enforcement of the provisions of
the Plan and the transactions contemplated thereunder or under the Confirmation
Order and (c) any matter pending as of the Effective Date until such matter is
resolved by a Final Order. Any fees incurred by the Official Committee's
attorneys after the Effective Date shall be paid by Reorganized Magellan without
the need to file any fee application or obtain the Bankruptcy Court's approval.
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39. All fees payable pursuant to section 1930 of title 28, United
States Code, as determined by the Court, shall be paid on the Effective Date or
as soon as practicable thereafter. All post-confirmation and post-consummation
fees that are due and payable shall be paid by the Reorganized Debtors until
these Chapter 11 Cases are closed pursuant to section 350(a) of the Bankruptcy
Code.
40. Within fifteen (15) days after the entry date of this
Confirmation Order, or within such further time as this Court may allow, the
Debtors are hereby directed to mail to all known creditors, Equity Interest
holders and other parties in interest (including all professionals) a copy of
this Confirmation Order.
41. In the event of any inconsistency between the Plan, or any
agreement, instrument or document intended to implement the Plan, and this
Confirmation Order, the provisions of this Confirmation Order shall govern and
shall supersede any such document or order of this Court issued prior to the
Effective Date.
42. The provisions of this Confirmation Order are integrated with
each other and are non-severable and mutually dependent.
43. The failure specifically to include any particular provision of
the Plan in this Confirmation Order shall not diminish or impair the efficacy of
such provision, it being understood that it is the intent of this Court that the
Plan be confirmed and approved in its entirety.
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44. Nothing in this Confirmation Order, the Plan or any Plan Document
shall impair, amend or otherwise modify the rights of DBSI or DBTCA set forth in
the DB Commitment Letter or in this Court's September 15, 2003 Order approving
the DB Commitment Letter.
45. This Confirmation Order is a final order and the period in which
an appeal must be filed shall commence upon the entry hereof. Dated: New York,
New York October __, 2003
------------------------------------
UNITED STATES BANKRUPTCY JUDGE
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