Exhibit 4b
MAGELLAN HEALTH SERVICES, INC.
$625,000,000
9% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
February 5, 1998
CHASE SECURITIES INC.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
Magellan Health Services, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell $625,000,000 aggregate principal
amount of its 9% Senior Subordinated Notes due 2008 (the "Securities"). The
Securities will be issued pursuant to an Indenture (the "Indenture") to be
dated as of the Closing Date (as defined below) between the Company and
Marine Midland Bank, as trustee (the "Trustee"). The Company hereby confirms
its agreement with Chase Securities Inc. (the "Initial Purchaser") concerning
the purchase of the Securities from the Company by the Initial Purchaser.
The Securities will be offered and sold to the Initial Purchaser
without being registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon an exemption therefrom. The Company has
prepared a preliminary offering memorandum dated January 21, 1998 (the
"Preliminary Offering Memorandum") and will prepare an offering memorandum
dated the date hereof (the "Offering Memorandum") setting forth information
concerning the Company and the Securities. Copies of the Preliminary
Offering Memorandum have been, and copies of the Offering Memorandum will be,
delivered by the Company to the Initial Purchaser pursuant to the terms of
this Agreement. Any references herein to the Preliminary Offering Memorandum
and the Offering Memorandum shall be deemed to include all amendments and
supplements thereto, unless otherwise noted. The Company hereby confirms
that it has authorized the use of the Preliminary Offering Memorandum and the
Offering Memorandum in connection with the offering and resale of the
Securities by the Initial Purchaser in accordance with Section 2.
Holders of the Securities (including the Initial Purchaser and its
direct and indirect transferees) will be entitled to the benefits of an
Exchange and Registration Rights Agreement, substantially in the form
attached hereto as Annex A (the "Registration Rights Agreement"), pursuant to
which the Company will agree to file with the Securities and Exchange
Commission (the "Commission") (a) a registration statement under the
Securities Act (the "Exchange Offer Registration Statement") registering an
issue of senior subordinated notes of the Company (the "Exchange Securities")
which are identical in all material respects to the Securities (except that
the Exchange Securities will not contain terms with respect to transfer
restrictions) and (b) under certain circumstances, a shelf registration
statement pursuant to Rule 415 under the Securities Act (the "Shelf
Registration Statement").
The Securities are being issued in connection with the acquisition
by the Company of Merit Behavioral Care Corporation ("Merit"). Pursuant to
the Agreement and Plan of Merger (the "Merger Agreement") among the Company,
Merit and MBC Merger Corporation dated October 24, 1997, Merit will become a
wholly owned subsidiary of the Company.
Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Offering Memorandum.
1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to, and agrees with, the Initial Purchaser on
and as of the date hereof and the Closing Date that (it being understood that
to the extent the following representations and warranties relate to Merit
and are not otherwise qualified as to the knowledge of the Company, such
representations and warranties are made to the best knowledge of the Company):
(a) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, did not, and on the Closing Date
the Offering Memorandum will not, contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided that the Company makes no representation or warranty as to
information contained in or omitted from the Preliminary Offering
Memorandum or the Offering Memorandum in reliance upon and in conformity
with written information relating to the Initial Purchaser furnished to
the Company by or on behalf of the Initial Purchaser specifically for
use therein (the "Initial Purchaser's Information").
(b) Assuming the accuracy of the representations and warranties of
the Initial Purchaser contained in Section 2 and its compliance with the
agreements set forth therein, it is not necessary, in connection with
the issuance and sale of the Securities to the Initial Purchaser and the
offer, resale and delivery of the Securities by the Initial Purchaser in
each case in the manner contemplated by this Agreement and the Offering
Memorandum, to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
(c) The Company, Merit and each of their respective subsidiaries
have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification, and have all power
and authority necessary to own or hold their respective
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properties and to conduct the businesses in which they are engaged,
except where the failure to so qualify or have such power or authority
would not, singularly or in the aggregate, have a material adverse
effect on the condition (financial or otherwise), results of operations,
business or prospects of the Company, Merit and their respective
subsidiaries taken as a whole (a "Material Adverse Effect").
(d) All the outstanding shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable. All of the outstanding shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and nonassessable and, except with respect to the
subsidiaries that are not wholly owned by the Company and are listed on
Schedule 1 hereto, are owned directly or indirectly by the Company, free
and clear of any lien, charge, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third
party except for those to be created pursuant to the New Credit
Agreement or permitted thereunder.
(e) The Company has full right, power and authority to execute and
deliver this Agreement, the Indenture, the Registration Rights
Agreement, the Securities, the Merger Agreement and the New Credit
Agreement (collectively, the "Transaction Documents") and to perform its
obligations hereunder and thereunder; and all corporate action required
to be taken for the due and proper authorization, execution and delivery
of each of the Transaction Documents and the consummation of the
transactions contemplated thereby have been duly and validly taken.
(f) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered
in a proceeding in equity or at law) and except to the extent that the
indemnification provisions thereof may be unenforceable.
(g) The Registration Rights Agreement has been duly authorized by
the Company and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law).
(h) The Indenture has been duly authorized by the Company and,
when duly executed and delivered in accordance with its terms by each of
the parties thereto, will constitute a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered
in a proceeding in equity or at law). On the
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Closing Date, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
(i) The Securities have been duly authorized by the Company and,
when duly executed, authenticated, issued and delivered as provided in
the Indenture and paid for as provided herein, will be duly and validly
issued and outstanding and will constitute valid and legally binding
obligations of the Company, entitled to the benefits of the Indenture
and enforceable against the Company in accordance with their terms,
except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered
in a proceeding in equity or at law).
(j) The Merger Agreement has been duly authorized, executed and
delivered by the Company and Merit and constitutes a valid and legally
binding agreement of the Company and Merit enforceable against each of the
Company and Merit in accordance with its terms, except to the extent that
such enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law).
(k) The New Credit Agreement has been duly authorized by the
Company and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and
legally binding agreement of the Company, enforceable against the
Company in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law).
(l) Each Transaction Document conforms in all material respects to
the description thereof contained in the Offering Memorandum.
(m) The execution, delivery and performance by the Company of each
of the Transaction Documents and by Merit of the Merger Agreement, the
issuance, authentication, sale and delivery of the Securities and
compliance by the Company with the terms thereof and the consummation of
the transactions contemplated by the Transaction Documents will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or, except as contemplated
by the Offering Memorandum, result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company,
Merit or any of their respective subsidiaries pursuant to, any material
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company, Merit or any of their
respective subsidiaries is a party (other than with respect to certain
managed care contracts that otherwise permit the customer to terminate
the contract upon the provision of a specified number of days notice to
the Company or Merit or one of their respective subsidiaries, as the
case may be, and the termination of which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect) or
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by which the Company, Merit or any of their respective subsidiaries is
bound or to which any of the property or assets of the Company, Merit or
any of their respective subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Company, Merit or any of their respective subsidiaries or any
statute or any judgment, order, decree, rule or regulation of any court
or arbitrator or governmental agency or body having jurisdiction over
the Company, Merit or any of their respective subsidiaries or any of
their properties or assets; and no consent, approval, authorization or
order of, or filing or registration with, any such court or arbitrator
or governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required for the execution, delivery and
performance by the Company of each of the Transaction Documents and by
Merit of the Merger Agreement, the issuance, authentication, sale and
delivery of the Securities and compliance by the Company and Merit with
the terms thereof and the consummation of the transactions contemplated
by the Transaction Documents, except for such consents, approvals,
authorizations, filings, registrations or qualifications (i) which shall
have been obtained or made prior to the Closing Date, (ii) as may be
required to be obtained or made under the Securities Act and applicable
state securities laws as provided in the Registration Rights Agreement
or (iii) the failure of which to obtain would not reasonably be likely
to restrain, prevent or impose burdensome conditions on the transactions
contemplated by the Transaction Documents or have a Material Adverse
Effect.
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(n) Arthur Andersen LLP ("AA") are independent certified public
accountants with respect to the Company and its subsidiaries and CBHS
and its subsidiaries within the meaning of Rule 101 of the Code of
Professional Conduct of the American Institute of Certified Public
Accountants ("AICPA") and its interpretations and rulings thereunder.
The historical financial statements (including the related notes) of the
Company and its subsidiaries and CBHS and its subsidiaries contained in
the Offering Memorandum comply in all material respects with the
requirements applicable to a registration statement on Form S-1 under
the Securities Act (except that certain supporting schedules are
omitted); such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
throughout the periods covered thereby and fairly present the financial
position of the entities purported to be covered thereby at the
respective dates indicated and the results of their operations and their
cash flows for the respective periods indicated; and the financial
information contained in the Offering Memorandum under the headings
"Summary--Summary Historical and Unaudited Pro Forma Financial Data",
"Capitalization", "Magellan Selected Historical Consolidated Financial
Information", "Merit Selected Historical Consolidated Financial
Information", "Magellan's Management's Discussion and Analysis of
Financial Condition and Results of Operations", "Merit's Management's
Discussion and Analysis of Financial Condition and Results of
Operations", and "Management--Executive Compensation" are derived from
the accounting records of the Company and its subsidiaries, CBHS, Merit
or HAI, as applicable, and fairly present the information purported to
be shown thereby. The pro forma financial information contained in the
Offering Memorandum has been prepared on a basis consistent with the
historical financial statements contained in the Offering Memorandum
(except for the pro forma adjustments specified therein), includes all
material adjustments to the historical financial information required by
Rule 11-02 of Regulation S-X under the Securities Act and the Exchange
Act to reflect the transactions described in the Offering Memorandum,
gives effect to assumptions made on a reasonable basis and fairly
presents the historical and proposed transactions contemplated by the
Offering Memorandum and the Transaction Documents. The other historical
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, fairly presented.
(o) There are no legal or governmental proceedings pending to
which the Company, Merit or any of their subsidiaries is a party or of
which any property or assets of the Company, Merit or any of their
subsidiaries is the subject which (A) singularly or in the aggregate, if
determined adversely to the Company, Merit or any of their subsidiaries,
could reasonably be expected to have a Material Adverse Effect or (B)
questions the validity or enforceability of any of the Transaction
Documents or any action taken or to be taken pursuant thereto; and to
the best knowledge of the Company, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(p) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Securities or suspends the sale
of the Securities in any jurisdiction; no injunction, restraining order
or order of any nature by any federal or state court of competent
jurisdiction has been issued with respect to the Company, Merit or any
of their subsidiaries which would prevent or suspend the issuance or
sale of the Securities or the use of the Preliminary Offering Memorandum
or the Offering Memorandum in any
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jurisdiction; no action, suit or proceeding is pending against or, to
the best knowledge of the Company, threatened against or affecting the
Company, Merit or any of their respective subsidiaries before any court
or arbitrator or any governmental agency, body or official, domestic or
foreign, which could reasonably be expected to interfere with or
adversely affect the issuance of the Securities or in any manner draw
into question the validity or enforceability of any of the Transaction
Documents or any action taken or to be taken pursuant thereto; and the
Company has not received any requests by any securities authority in any
jurisdiction for additional information to be included in the
Preliminary Offering Memorandum and the Offering Memorandum.
(q) Neither the Company, Merit nor any of their respective
subsidiaries is (i) in violation of its charter or by-laws, (ii) in
default in any material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which it is a
party or by which it is bound or to which any of its property or assets
is subject or (iii) in violation in any material respect of any law,
ordinance, governmental rule, regulation or court decree to which it or
its property or assets may be subject.
(r) The Company, Merit and each of their subsidiaries possess all
material licenses, certificates, authorizations and permits issued by,
and have made all declarations and filings with, the appropriate
federal, state or foreign regulatory agencies or bodies which are
necessary or desirable for the ownership of their respective properties
or the conduct of their respective businesses as described in the
Offering Memorandum, except where the failure to possess or make the
same would not, singularly or in the aggregate, have a Material Adverse
Effect, and neither the Company, Merit nor any of their subsidiaries has
received notification of any revocation or modification of any such
license, certificate, authorization or permit or has any reason to
believe that any such license, certificate, authorization or permit will
not be renewed in the ordinary course.
(s) The Company, Merit and each of their subsidiaries have filed
all federal, state, material local and foreign income and franchise tax
returns required to be filed through the date hereof and have paid all
taxes due thereon, and no tax deficiency has been determined adversely
to the Company, Merit or any of their respective subsidiaries which has
had (nor does the Company or any of its subsidiaries have any knowledge
of any tax deficiency which, if determined adversely to the Company,
Merit or any of their respective subsidiaries, could reasonably be
expected to have) a Material Adverse Effect.
(t) Neither the Company, Merit nor any of their respective
subsidiaries is (i) an "investment company" or a company "controlled by"
an investment company within the meaning of the Investment Company Act
of 1940, as amended (the "Investment Company Act"), and the rules and
regulations of the Commission thereunder or (ii) a "holding company" or
a "subsidiary company" of a holding company or an "affiliate" thereof
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(u) The Company, Merit and each of their respective subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i)
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transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(v) The Company, Merit and each of their subsidiaries have
insurance covering their respective properties, operations, personnel
and businesses, which insurance is in amounts and insures against such
reasonably foreseeable losses and risks as are adequate to protect the
Company, Merit and their respective subsidiaries and their respective
businesses. Neither the Company, Merit nor any of their respective
subsidiaries has received notice from any insurer or agent of such
insurer that any material capital improvements or other expenditures are
required or necessary to be made in order to continue such insurance.
(w) The Company, Merit and each of their respective subsidiaries
own or possess adequate rights to use all material patents, patent
applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures) necessary for the conduct of their respective businesses;
and the conduct of their respective businesses will not conflict in any
material respect with, and the Company, Merit and their subsidiaries
have not received any notice of any claim of conflict with, any such
rights of others.
(x) The Company, Merit and each of their respective subsidiaries
have good and marketable title in fee simple to, or have valid rights to
lease or otherwise use, all items of real and personal property which
are material to the business of the Company, Merit and their respective
subsidiaries, in each case free and clear of all liens, encumbrances,
claims and defects and imperfections of title except (i) those to be
created pursuant to the New Credit Agreement or permitted thereunder and
(ii) those that (x) do not materially interfere with the use made and
proposed to be made of such property by the Company, Merit and their
respective subsidiaries or (y) could not reasonably be expected to have
a Material Adverse Effect.
(y) No labor disturbance by or dispute with the employees of the
Company, Merit or any of their subsidiaries exists or, to the best
knowledge of the Company, is contemplated or threatened that could
reasonably be expected to have a Material Adverse Effect.
(z) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as amended from time
to time (the "Code")) or "accumulated funding deficiency" (as defined in
Section 302 of ERISA) or any of the events set forth in Section 4043(b)
of ERISA (other than events with respect to which the 30-day notice
requirement under Section 4043 of ERISA has been waived) has occurred
with respect to any
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employee benefit plan of the Company, Merit or any of their subsidiaries
which could reasonably be expected to have a Material Adverse Effect;
each such employee benefit plan is in compliance in all material
respects with applicable law, including ERISA and the Code; the Company,
Merit and each of their subsidiaries have not incurred and do not expect
to incur liability under Title IV of ERISA with respect to the
termination of, or withdrawal from, any pension plan for which the
Company, Merit or any of their subsidiaries would have any liability;
and each such pension plan that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which
could reasonably be expected to cause the loss of such qualification.
(aa) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission or other release of
any kind of toxic or other wastes or other hazardous substances by, due
to or caused by the Company, Merit or any of their subsidiaries (or, to
the best knowledge of the Company, any other entity (including any
predecessor) for whose acts or omissions the Company, Merit or any of
their subsidiaries is or could reasonably be expected to be liable) upon
any of the property now or previously owned or leased by the Company,
Merit or any of their subsidiaries, or upon any other property, in
violation of any statute or any ordinance, rule, regulation, order,
judgment, decree or permit or which would, under any statute or any
ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability, except for any
violation or liability that could not reasonably be expected to have,
singularly or in the aggregate with all such violations and liabilities,
a Material Adverse Effect; and there has been no disposal, discharge,
emission or other release of any kind onto such property or into the
environment surrounding such property of any toxic or other wastes or
other hazardous substances with respect to which the Company has
knowledge, except for any such disposal, discharge, emission or other
release of any kind which could not reasonably be expected to have,
singularly or in the aggregate with all such discharges and other
releases, a Material Adverse Effect.
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(bb) Neither the Company or Merit nor, to the best knowledge of
the Company, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or Merit has (i) used
any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; (ii) made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; (iii) violated or
is in violation of any provision of the Foreign Corrupt Practices Act of
1977; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
(cc) On and immediately after the Closing Date, the Company (after
giving effect to the issuance of the Securities and to the other
transactions related thereto as described in the Offering Memorandum)
will be Solvent. As used in this paragraph, the term "Solvent" means,
with respect to a particular date, that on such date (i) the present
fair market value (or present fair saleable value) of the assets of the
Company is not less than the total amount required to pay the probable
liabilities of the Company on its total existing debts and liabilities
(including contingent liabilities) as they become absolute and matured,
(ii) the Company is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and commitments as they
mature and become due in the normal course of business, (iii) assuming
the sale of the Securities as contemplated by this Agreement and the
Offering Memorandum, the Company is not incurring debts or liabilities
beyond its ability to pay as such debts and liabilities mature and (iv)
the Company, on a consolidated basis, is not engaged in any business or
transaction, and is not about to engage in any business or transaction,
for which its property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which the Company is engaged. In computing the amount of such
contingent liabilities at any time, it is intended that such liabilities
will be computed at the amount that, in the light of all the facts and
circumstances existing at such time and known to the Company, represents
the amount that can reasonably be expected to become an actual or
matured liability.
(dd) Except as described in the Offering Memorandum, there are no
outstanding subscriptions, rights, warrants, calls or options to
acquire, or instruments convertible into or exchangeable for, or
agreements or understandings with respect to the sale or issuance of,
any shares of capital stock of or other equity or other ownership
interest in the Company or any of its subsidiaries other than those
given to employees and directors of the Company in the ordinary course
of business and those listed on Schedule 2 hereto.
(ee) Neither the Company nor any of its subsidiaries owns any
"margin securities" as that term is defined in Regulations G and U of
the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), and none of the proceeds of the sale of the Securities
will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security, for the purpose of reducing or retiring
any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the
Securities to be considered a "purpose credit" within the meanings of
Regulation G, T, U or X of the Federal Reserve Board.
(ff) Neither the Company, Merit nor any of their respective
subsidiaries is a party to any contract, agreement or understanding with
any person that would give rise to a valid claim against the Company,
Merit or the Initial Purchaser for a brokerage
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commission, finder's fee or like payment in connection with the offering
and sale of the Securities.
(gg) The Securities satisfy the eligibility requirements of Rule
144A(d)(3) under the Securities Act.
(hh) Assuming the accuracy of the representations and warranties
of the Initial Purchaser in Section 2(c)(iii) hereof, none of the
Company, any of its affiliates or any person acting on its or their
behalf has engaged or will engage in any directed selling efforts (as
such term is defined in Regulation S under the Securities Act
("Regulation S")), and all such persons have complied and will comply
with the offering restrictions requirement of Regulation S to the extent
applicable.
(ii) Neither the Company nor any of its affiliates has, directly
or through any agent, sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any security (as such term is
defined in the Securities Act), which is or will be integrated with the
sale of the Securities in a manner that would require registration of
the Securities under the Securities Act.
(jj) Assuming the accuracy of the representations and warranties
of the Initial Purchaser in Section 2(b)(ii) hereof, none of the Company
or any of its affiliates or any other person acting on its or their
behalf has engaged, in connection with the offering of the Securities,
in any form of general solicitation or general advertising within the
meaning of Rule 502(c) of Regulation D under the Securities Act
("Regulation D").
(kk) There are no securities of the Company or Merit registered
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or listed on a national securities exchange or quoted in a U.S.
automated inter-dealer quotation system other than the Company's common
stock and its 11 1/4% Series A Senior Subordinated Notes due 2004 and
Merit's 11 1/2% Senior Subordinated Notes due 2005 and certain of the
warrants listed on Schedule 2 hereto.
(ll) The Company has not taken and will not take, directly or
indirectly, any action prohibited by Regulation M under the Exchange Act
in connection with the offering of the Securities.
(mm) No forward-looking statement (within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act) contained
in the Preliminary Offering Memorandum or the Offering Memorandum has
been made or reaffirmed without a reasonable basis or has been disclosed
other than in good faith.
(nn) None of the Company or any of its subsidiaries does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Florida Statutes Section 517.075.
(oo) Since the date as of which information is given in the
Offering Memorandum, except as otherwise stated therein, (i) there has
been no change or any development involving a prospective change in the
condition, financial or otherwise, or in the earnings, business affairs,
management or business prospects of the Company,
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Merit and their respective subsidiaries, whether or not arising in the
ordinary course of business, that has had or could reasonably be
expected to have a Material Adverse Effect, (ii) none of the Company or
Merit has incurred any material liability or obligation, direct or
contingent, other than in the ordinary course of business, (iii) none of
the Company or Merit has entered into any material transaction other
than in the ordinary course of business and (iv) except as contemplated
by the Offering Memorandum and except for the Company's repurchase of
shares of its common stock during the first quarter of fiscal 1998 as
previously described to the Initial Purchaser, there has not been any
change in the capital stock or long-term debt of the Company, or any
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
2. Purchase and Resale of the Securities. (a) On the basis of the
representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the Company agrees to issue and
sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase
from the Company, $625,000,000 principal amount of Securities at a purchase
price equal to 97.25% of the principal amount thereof. The Company shall not
be obligated to deliver any of the Securities except upon payment for all of
the Securities to be purchased as provided herein.
(b) The Initial Purchaser has advised the Company that it proposes to
offer the Securities for resale upon the terms and subject to the conditions
set forth herein and in the Offering Memorandum. The Initial Purchaser
represents and warrants to, and agrees with the Company that (i) it is
purchasing the Securities pursuant to a private sale exempt from registration
under the Securities Act, (ii) it has not solicited offers for, or offered or
sold, and will not solicit offers for, or offer or sell, the Securities by
means of any form of general solicitation or general advertising within the
meaning of Rule 502(c) of Regulation D or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act and (iii)
it has solicited and will solicit offers for the Securities only from, and
has offered or sold and will offer, sell or deliver the Securities, as part
of its initial offering, only (A) within the United States to persons whom
it reasonably believes to be qualified institutional buyers ("Qualified
Institutional Buyers"), as defined in Rule 144A under the Securities Act
("Rule 144A"), or if any such person is buying for one or more institutional
accounts for which such person is acting as fiduciary or agent, only when
such person has represented to it that each such account is a Qualified
Institutional Buyer to whom notice has been given that such sale or delivery
is being made in reliance on Rule 144A and in each case, in transactions in
accordance with Rule 144A and (B) outside the United States to persons other
than U.S. persons in reliance on Regulation S under the Securities Act
("Regulation S").
(c) In connection with the offer and sale of Securities in reliance on
Regulation S, the Initial Purchaser represents, warrants and agrees that:
(i) the Securities have not been registered under the
Securities Act and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. persons except pursuant to
an exemption from, or in transactions not subject to, the registration
requirements of the Securities Act;
(ii) it has offered and sold the Securities, and will offer
and sell the Securities, (A) as part of its distribution at any time and
(B) otherwise until 40 days after the later of the commencement of the
offering of the Securities and the Closing Date,
12
only in accordance with Regulation S or Rule 144A or any other available
exemption from registration under the Securities Act;
(iii) none of the Initial Purchaser, any of its affiliates or
any other person acting on its or their behalf has engaged or will engage
in any directed selling efforts (as defined in Regulation S) with respect
to the Securities, and all such persons have complied and will comply with
the offering restriction requirements of Regulation S;
(iv) at or prior to the confirmation of sale of any Securities
sold in reliance on Regulation S, it will have sent to each distributor,
dealer or other person receiving a selling concession, fee or other
remuneration that purchases Securities from it during the restricted
period (as defined in Regulation S) a confirmation or notice to
substantially the following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933, as amended (the "Securities Act"),
and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40 days after the
later of the commencement of the offering of the Securities and the
date of original issuance of the Securities, except in accordance
with Regulation S or Rule 144A or any other available exemption
from registration under the Securities Act. Terms used above have
the meanings given to them by Regulation S."; and
(v) it has not and will not enter into any contractual
arrangement with any distributor with respect to the distribution of the
Securities, except with its affiliates or with the prior written consent
of the Company.
Terms used in this Section 2(c) have the meanings given to them by
Regulation S.
(d) The Initial Purchaser represents, warrants and agrees that (i)
it has not offered or sold and prior to the date six months after the Closing
Date will not offer or sell any Securities to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii)
it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 and the Public Offers of Securities Regulations
1995 with respect to anything done by it in relation to the Securities in,
from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue of the Securities to a
person who is of a kind described in Article 11 (3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person
to whom such document may otherwise lawfully be issued or passed on.
(e) The Initial Purchaser agrees that, prior to or simultaneously
with the confirmation of sale by the Initial Purchaser to any purchaser of
any of the Securities purchased by the Initial Purchaser from the Company
pursuant hereto, the Initial Purchaser shall furnish to that purchaser a copy
of the Offering Memorandum (and any amendment or supplement thereto
13
that the Company shall have furnished to the Initial Purchaser prior to the
date of such confirmation of sale). In addition to the foregoing, the
Initial Purchaser acknowledges and agrees that the Company and, for purposes
of the opinions to be delivered to the Initial Purchaser pursuant to Sections
5(d) and (e), counsel for the Company and for the Initial Purchaser,
respectively, may rely upon the accuracy of the representations and
warranties of the Initial Purchaser and its compliance with its agreements
contained in this Section 2, and the Initial Purchaser hereby consents to
such reliance.
(f) The Company acknowledges and agrees that the Initial Purchaser
may sell Securities to any affiliate of the Initial Purchaser and that any
such affiliate may sell Securities purchased by it to the Initial Purchaser.
(g) The Initial Purchaser agrees that it shall notify the Company
of its completion of the resale of the Securities.
3. Delivery of and Payment for the Securities. (a) Delivery of
and payment for the Securities shall be made at the offices of Cravath,
Swaine & Moore ("CS&M"), New York, New York, or at such other place as shall
be agreed upon by the Initial Purchaser and the Company, at 10:00 a.m., New
York City time, on February 12, 1998, or at such other time or date, not
later than seven full business days thereafter, as shall be agreed upon by
the Initial Purchaser and the Company (such date and time of payment and
delivery being referred to herein as the "Closing Date").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire or book-entry transfer of
same-day funds to such account or accounts as the Company shall specify prior
to the Closing Date or by such other means as the parties hereto shall agree
prior to the Closing Date against delivery to the Initial Purchaser of the
certificates evidencing the Securities. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a
further condition of the obligations of the Initial Purchaser hereunder.
Upon delivery, the Securities shall be in global form, registered in such
names and in such denominations as the Initial Purchaser shall have requested
in writing not less than two full business days prior to the Closing Date.
The Company agrees to make one or more global certificates evidencing the
Securities available for inspection by the Initial Purchaser in New York, New
York at least 24 hours prior to the Closing Date.
14
4. Further Agreements of the Company. The Company agrees with the
Initial Purchaser:
(a) to advise the Initial Purchaser promptly and, if requested,
confirm such advice in writing, of the happening of any event which makes
any statement of a material fact made in the Offering Memorandum untrue or
which requires the making of any additions to or changes in the Offering
Memorandum (as amended or supplemented from time to time) in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; to advise the Initial Purchaser promptly of any
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum, of any suspension of the
qualification of the Securities for offering or sale in any jurisdiction
and of the initiation or threatening of any proceeding for any such
purpose; and to use its best efforts to prevent the issuance of any such
order preventing or suspending the use of the Preliminary Offering
Memorandum or the Offering Memorandum or suspending any such qualification
and, if any such suspension is issued, to obtain the lifting thereof at the
earliest possible time;
(b) to furnish promptly to the Initial Purchaser and counsel for the
Initial Purchaser, without charge, as many copies of the Offering
Memorandum (and any amendments or supplements thereto) as may be reasonably
requested;
(c) prior to making any amendment or supplement to the Offering
Memorandum, to furnish a copy thereof to each of the Initial Purchaser and
counsel for the Initial Purchaser and not to effect any such amendment or
supplement to which the Initial Purchaser shall reasonably object by notice
to the Company after a reasonable period to review;
(d) if, at any time prior to completion of the resale of the
Securities by the Initial Purchaser, any event shall occur or condition
exist as a result of which it is necessary, in the opinion of counsel for
the Initial Purchaser or counsel for the Company, to amend or supplement
the Offering Memorandum in order that the Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Offering
Memorandum to comply with applicable law, to promptly prepare such
amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Offering Memorandum, as so amended or
supplemented, will comply with applicable law;
(e) for so long as the Securities are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act,
to furnish to holders of the Securities and prospective purchasers of the
Securities designated by such holders, upon request of such holders or such
prospective purchasers, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to and in compliance with Section 13 or 15(d) of the Exchange Act
(the foregoing agreement being for the benefit of the holders from time to
time of the Securities and prospective purchasers of the Securities
designated by such holders);
15
(f) for so long as the Securities are outstanding, to furnish to the
Initial Purchaser copies of any documents, reports and information as shall
be furnished by the Company to the Trustee or to the holders of the
Securities pursuant to the Indenture or the Exchange Act or any rule or
regulation of the Commission thereunder (other than routine periodic
compliance certificates and routine periodic filings pursuant to the
Exchange Act);
(g) to promptly take from time to time such actions as the Initial
Purchaser may reasonably request to qualify the Securities for offering and
sale under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchaser may designate and to continue such qualifications in
effect for so long as required for the resale of the Securities; and to
arrange for the determination of the eligibility for investment of the
Securities under the laws of such jurisdictions as the Initial Purchaser
may reasonably request; provided that the Company and its subsidiaries
shall not be obligated to qualify as foreign corporations in any
jurisdiction in which they are not so qualified or to file a general
consent to service of process in any jurisdiction;
(h) to assist the Initial Purchaser in arranging for the Securities
to be eligible for clearance and settlement through The Depository Trust
Company ("DTC");
(i) not to, and to cause its affiliates not to, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security
(as such term is defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require
registration of the Securities under the Securities Act;
(j) except following the effectiveness of the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may
be, not to, and to cause its affiliates not to, and not to authorize or
knowingly permit any person acting on their behalf to, solicit any offer to
buy or offer to sell the Securities by means of any form of general
solicitation or general advertising within the meaning of Regulation D or
in any manner involving a public offering within the meaning of Section
4(2) of the Securities Act; and not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any securities under
circumstances where such offer, sale, contract or disposition would cause
the exemption afforded by Section 4(2) of the Securities Act to cease to be
applicable to the offering and sale of the Securities as contemplated by
this Agreement and the Offering Memorandum;
(k) for a period of 90 days from the date of the Offering Memorandum,
not to offer for sale, sell, contract to sell or otherwise dispose of,
directly or indirectly, or file a registration statement for, or announce
any offer, sale, contract for sale of or other disposition of any debt
securities issued or guaranteed by the Company or any of its subsidiaries
(other than the Securities) without the prior written consent of the
Initial Purchaser;
(l) during the period from the Closing Date until two years after the
Closing Date, without the prior written consent of the Initial Purchaser,
not to, and not permit any of its affiliates (as defined in Rule 144 under
the Securities Act) to, resell any of the Securities that have been
reacquired by them, except for Securities purchased by the
16
Company or any of its affiliates and resold in a transaction registered
under the Securities Act;
(m) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder;
(n) in connection with the offering of the Securities, until the
Initial Purchaser shall have notified the Company of the completion of the
resale of the Securities, not to, and to cause its affiliated purchasers
(as defined in Regulation M under the Exchange Act) not to, either alone or
with one or more other persons, bid for or purchase, for any account in
which it or any of its affiliated purchasers has a beneficial interest, any
Securities, or attempt to induce any person to purchase any Securities; and
not to, and to cause its affiliated purchasers not to, make bids or
purchase for the purpose of creating actual, or apparent, active trading in
or of raising the price of the Securities;
(o) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Initial Purchaser;
(p) to furnish to the Initial Purchaser on the date hereof a copy of
each of the independent accountants' reports included in the Offering
Memorandum signed by the accountants rendering such reports;
(q) to do and perform all things required to be done and performed by
it under this Agreement that are within its control prior to or after the
Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(r) to not take any action prior to the execution and delivery of the
Indenture which, if taken after such execution and delivery, would have
violated any of the covenants contained in the Indenture;
(s) to not take any action prior to the Closing Date which would
require the Offering Memorandum to be amended or supplemented pursuant to
Section 4(d); provided that the Company shall not be deemed to be in breach
of its obligations pursuant to this Section 4(s) if it continues its
discussions with Crescent Operating, Inc. and its affiliates regarding the
sale of the Company's interest in CBHS and the related transactions
previously described to the Initial Purchaser;
(t) prior to the Closing Date, not to issue any press release or
other communication directly or indirectly or hold any press conference
with respect to the Company, its condition, financial or otherwise, or
earnings, business affairs or business prospects (except for routine oral
marketing communications in the ordinary course of business and consistent
with the past practices of the Company and of which the Initial Purchaser
is notified and the press release describing the sale of the Securities and
the status of the Company's discussions with Crescent Operating, Inc.
described in Section 4(s) in the form previously approved by the Initial
Purchaser), without the prior
17
written consent of the Initial Purchaser (which shall not be unreasonably
withheld), unless in the judgment of the Company and its counsel, and after
notification to the Initial Purchaser, such press release or communication
is required by law;
(u) to apply the net proceeds from the sale of the Securities as set
forth in the Offering Memorandum under the heading "Use of Proceeds" and
"The Transactions"; and
(v) to promptly provide the Initial Purchaser with copies of all
closing documents relating to the Transactions.
5. Conditions of Initial Purchaser's Obligations. The obligations of
the Initial Purchaser hereunder are subject to the accuracy, on and as of the
date hereof and the Closing Date, of the representations and warranties of the
Company contained herein, to the accuracy of the statements of the Company and
its officers made in any certificates delivered pursuant hereto, to the
performance by the Company of its obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Offering Memorandum (and any amendments or supplements
thereto) shall have been printed and copies distributed to the Initial
Purchaser as promptly as practicable on or following the date of this
Agreement or at such other date and time as to which the Initial Purchaser
may agree; and no stop order suspending the sale of the Securities in any
jurisdiction shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened.
(b) The Initial Purchaser shall not have discovered and disclosed to
the Company on or prior to the Closing Date that the Offering Memorandum or
any amendment or supplement thereto contains an untrue statement of a fact
which, in the opinion of counsel for the Initial Purchaser, is material or
omits to state any fact which, in the opinion of such counsel, is material
and is required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of the Transaction Documents and
the Offering Memorandum, and all other legal matters relating to the
Transaction Documents and the transactions contemplated thereby, shall be
satisfactory in all material respects to the Initial Purchaser, and the
Company shall have furnished to the Initial Purchaser all documents and
information that it or its counsel may reasonably request to enable them to
pass upon such matters.
(d) King & Spalding shall have furnished to the Initial Purchaser
their written opinion, as counsel to the Company, addressed to the Initial
Purchaser and dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser, substantially to the effect set
forth in Annex B hereto.
(e) The Initial Purchaser shall have received from CS&M, counsel for
the Initial Purchaser, such opinion or opinions, dated the Closing Date,
with respect to such matters as the Initial Purchaser may reasonably
require, and the Company shall have furnished to such counsel such
documents and information as they request for the purpose of enabling them
to pass upon such matters.
18
(f) The Company shall have furnished to the Initial Purchaser letters
(each an "Initial Letter") from each of AA, D&T and KPMG, addressed to the
Initial Purchaser and dated the date hereof, in form and substance
satisfactory to the Initial Purchaser, substantially to the effect set
forth in Annex C-1, Annex C-2 and Annex C-3, respectively, hereto.
(g) The Company shall have furnished to the Initial Purchaser (i) a
letter of AA (the "AA Bring-Down Letter"), (ii) a letter of D&T (the "D&T
Bring-Down Letter") and (iii) a letter of KPMG (the "KPMG Bring-Down
Letter" and, together with the AA Bring-Down Letter and the D&T Bring-Down
Letter, the "Bring-Down Letters"), in each case addressed to the Initial
Purchaser and dated the Closing Date (A) confirming that they are
independent public accountants with respect to the Company and CBHS, in the
case of the AA Bring-Down Letter, Merit, in the case of the D&T Bring-Down
Letter, and HAI, in the case of the KPMG Bring-Down Letter, in each case
within the meaning of Rule 101 of the Code of Professional Conduct of the
AICPA and its interpretations and rulings thereunder, (B) stating, as of
the date of the applicable Bring-Down Letter (or, with respect to matters
involving changes or developments since the respective dates as of which
specified financial information is given in the Offering Memorandum, as of
a date not more than three business days prior to the date of the
applicable Bring-Down Letter), that the conclusions and findings of such
accountants with respect to the financial information and other matters
covered by the applicable Initial Letter are accurate and (C) confirming in
all material respects the conclusions and findings set forth in the
applicable Initial Letter.
19
(h) The Company shall have furnished to the Initial Purchaser a
certificate, dated the Closing Date, of its chief executive officer and its
chief financial officer stating that (A) such officers have carefully
examined the Offering Memorandum, (B) in their opinion, the Offering
Memorandum, as of its date, did not include any untrue statement of a
material fact and did not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and
since the date of the Offering Memorandum, no event has occurred which
should have been set forth in a supplement or amendment to the Offering
Memorandum so that the Offering Memorandum (as so amended or supplemented)
would not include any untrue statement of a material fact and would not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading and (C) as of the Closing Date,
the representations and warranties of the Company in this Agreement are
true and correct in all material respects, the Company has complied, in all
material respects, with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder on or prior to the Closing
Date, and subsequent to the date of the most recent financial statements
contained in the Offering Memorandum, there has been no change in the
financial position or results of operation of the Company, Merit and their
respective subsidiaries, taken as a whole, that has had or could reasonably
be expected to have a Material Adverse Effect, or any change, or any
development including a prospective change, in or affecting the condition
(financial or otherwise), results of operations, business or prospects of
the Company, Merit and their subsidiaries, taken as a whole, that has had
or could reasonably be expected to have a Material Adverse Effect.
(i) The Initial Purchaser shall have received a counterpart of the
Registration Rights Agreement which shall have been executed and delivered
by a duly authorized officer of the Company.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(k) If any event shall have occurred that requires the Company under
Section 4(d) to prepare an amendment or supplement to the Offering
Memorandum, such amendment or supplement shall have been prepared, the
Initial Purchaser shall have been given a reasonable opportunity to comment
thereon, and copies thereof shall have been delivered to the Initial
Purchaser reasonably in advance of the Closing Date.
(l) There shall not have occurred any invalidation of Rule 144A under
the Securities Act by any court or any withdrawal or proposed withdrawal of
any rule or regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the Commission
which in the judgment of the Initial Purchaser would materially impair the
ability of the Initial Purchaser to purchase, hold or effect resales of the
Securities as contemplated hereby.
(m) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement thereto), there shall
not have been any change in the capital
20
stock or long-term debt or any change, or any development involving a
prospective change, in or affecting the condition (financial or otherwise),
results of operations, business or prospects of the Company, Merit and
their respective subsidiaries taken as a whole, the effect of which, in any
such case described above, is, in the reasonable judgment of the Initial
Purchaser, so material and adverse as to make it impracticable or
inadvisable to proceed with the sale or delivery of the Securities on the
terms and in the manner contemplated by this Agreement and the Offering
Memorandum (exclusive of any amendment or supplement thereto).
(n) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body which would, as of the Closing Date, prevent the issuance or
sale of the Securities; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction
shall have been issued as of the Closing Date which would prevent the
issuance or sale of the Securities.
(o) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Securities or
any of the Company's other debt securities or preferred stock by any
"nationally recognized statistical rating organization", as such term is
defined by the Commission for purposes of Rule 436(g)(2) of the rules and
regulations of the Commission under the Securities Act and (ii) no such
organization shall have publicly announced that it has under surveillance
or review (other than an announcement with positive implications of a
possible upgrading), its rating of the Securities or any of the Company's
other debt securities or preferred stock.
(p) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or limited, or
minimum prices shall have been established on any such exchange or market
by the Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
the Company on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by federal or New York state authorities or
(iii) an outbreak or escalation of hostilities or a declaration by the
United States of a national emergency or war or (iv) a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the United
States shall be such) the effect of which, in the case of this clause (iv),
is, in the reasonable judgment of the Initial Purchaser, so material and
adverse as to make it impracticable or inadvisable to proceed with the sale
or the delivery of the Securities on the terms and in the manner
contemplated by this Agreement and in the Offering Memorandum (exclusive of
any amendment or supplement thereto).
(q) All conditions to the consummation of each of the Transactions,
other than the offering of the Securities, shall have been satisfied and
each of such Transactions shall be consummated substantially concurrently
with the sale of the Securities hereunder.
21
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchaser.
6. Termination. The obligations of the Initial Purchaser hereunder
may be terminated by the Initial Purchaser, in its absolute discretion, by
notice given to and received by the Company prior to delivery of and payment for
the Securities if, prior to that time, any of the events described in Section
5(m), (n), (o), (p) or (q) shall have occurred and be continuing.
7. Reimbursement of Initial Purchaser's Expenses. If (a) this
Agreement shall have been terminated pursuant to Section 6, (b) the Company
shall fail to tender the Securities for delivery to the Initial Purchaser for
any reason permitted under this Agreement or (c) the Initial Purchaser shall
decline to purchase the Securities for any reason permitted under this
Agreement, the Company shall reimburse the Initial Purchaser for such
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
as shall have been reasonably incurred by the Initial Purchaser in connection
with this Agreement and the proposed purchase and resale of the Securities.
22
8. Indemnification. (a) The Company shall indemnify and hold
harmless the Initial Purchaser, its affiliates, their respective officers,
directors, employees, representatives and agents, and each person, if any, who
controls the Initial Purchaser within the meaning of the Securities Act or the
Exchange Act (collectively referred to for purposes of this Section 8(a) and
Section 9 as the Initial Purchaser), from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof (including,
without limitation, any loss, claim, damage, liability or action relating to
purchases and sales of the Securities), to which the Initial Purchaser may
become subject, whether commenced or threatened, under the Securities Act, the
Exchange Act, any other federal or state statutory law or regulation, at common
law or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Preliminary Offering Memorandum or
the Offering Memorandum or in any amendment or supplement thereto or in any
information provided by the Company pursuant to Section 4(e) or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, and shall
reimburse the Initial Purchaser promptly upon demand for any legal or other
expenses reasonably incurred by the Initial Purchaser in connection with
investigating or defending or preparing to defend against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with the Initial Purchaser's
Information; and provided, further, that with respect to any such untrue
statement in or omission from the Preliminary Offering Memorandum, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of the
Initial Purchaser to the extent that the sale to the person asserting any such
loss, claim, damage, liability or action was an initial resale by the Initial
Purchaser and any such loss, claim, damage, liability or action of or with
respect to the Initial Purchaser results from the fact that both (A) to the
extent required by applicable law or Section 2(e), a copy of the Offering
Memorandum was not sent or given to such person at or prior to the written
confirmation of the sale of such Securities to such person and (B) the untrue
statement in or omission from the Preliminary Offering Memorandum was corrected
in the Offering Memorandum unless, in either case, such failure to deliver the
Offering Memorandum was a result of non-compliance by the Company with
Section 4(b).
(b) The Initial Purchaser shall indemnify and hold harmless the
Company, its affiliates, their respective officers, directors, employees,
representatives and agents, and each person, if any, who controls the Company
within the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 8(b) and Section 9 as the Company),
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Company may become subject, whether
commenced or threatened, under the Securities Act, the Exchange Act, any other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Preliminary Offering Memorandum or the Offering Memorandum
or in any amendment or supplement thereto or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with the Initial
Purchaser's Information, and shall
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reimburse the Company promptly upon demand for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
or preparing to defend against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action as such
expenses are incurred.
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(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 8(a) or 8(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not relieve it
from any liability which it may have under this Section 8 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided, further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 8. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate in the defense of such claim or action and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the indemnifying party
shall not be liable to the indemnified party under this Section 8 for any legal
or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that an indemnified party shall have the right to employ its own
counsel in any such action, but the fees, expenses and other charges of such
counsel for the indemnified party will be at the expense of such indemnified
party unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based upon advice of counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the indemnifying
party, (3) a conflict or potential conflict exists (based upon advice of counsel
to the indemnified party) between the indemnified party and the indemnifying
party (in which case the indemnifying party will not have the right to direct
the defense of such action on behalf of the indemnified party) or (4) the
indemnifying party has not in fact employed counsel reasonably satisfactory to
the indemnified party to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition of the indemnity agreements
contained in Sections 8(a) and 8(b), shall use all reasonable efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall be liable for any settlement of any such
action effected without its written consent (which consent shall not be
unreasonably withheld), but if settled with its written consent or if there be a
final judgment for the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
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The obligations of the Company and the Initial Purchaser in this
Section 8 and in Section 9 are in addition to any other liability that the
Company or the Initial Purchaser, as the case may be, may otherwise have,
including in respect of any breaches of representations, warranties and
agreements made herein by any such party.
9. Contribution. If the indemnification provided for in Section 8 is
unavailable or insufficient to hold harmless an indemnified party under Section
8(a) or 8(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Initial Purchaser, on
the other, from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, on the one
hand, and the Initial Purchaser, on the other, with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, on the one hand, and the Initial
Purchaser on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses) received
by or on behalf of the Company, on the one hand, and the total discounts and
commissions received by the Initial Purchaser with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Securities under this Agreement, in each case as set forth
in the table on the cover page of the Offering Memorandum. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to the Company or information supplied by the
Company, on the one hand, or to the Initial Purchaser's Information, on the
other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Initial Purchaser agree that it would not be just
and equitable if contributions pursuant to this Section 9 were to be determined
by pro rata allocation or by any other method of allocation that does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 9
shall be deemed to include, for purposes of this Section 9, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 9, the Initial Purchaser shall
not be required to contribute any amount in excess of the amount by which the
total discounts and commissions received by the Initial Purchaser with respect
to the Securities purchased by it under this Agreement exceeds the amount of any
damages that the Initial Purchaser has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
10. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchaser, the Company
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of
26
only those persons, except as provided in Sections 8 and 9 with respect to
affiliates, officers, directors, employees, representatives, agents and
controlling persons of the Company and the Initial Purchaser and in Section 4(e)
with respect to holders and prospective purchasers of the Securities. Nothing
in this Agreement is intended or shall be construed to give any person, other
than the persons referred to in this Section 10, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision contained
herein.
11. Expenses. The Company agrees with the Initial Purchaser to pay
(a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities and any taxes payable in that connection; (b) the
costs incident to the preparation, printing and distribution of the Preliminary
Offering Memorandum, the Offering Memorandum and any amendments or supplements
thereto; (c) the costs of reproducing and distributing each of the Transaction
Documents; (d) the costs incident to the preparation, printing and delivery of
the certificates evidencing the Securities, including stamp duties and transfer
taxes, if any, payable upon issuance of the Securities; (e) the fees and
expenses of the Company's counsel and independent accountants; (f) the
reasonable and customary fees and expenses of qualifying the Securities under
the securities laws of the several jurisdictions as provided in Section 4(h) and
of preparing, printing and distributing Blue Sky Memoranda (including related
reasonable and customary fees and expenses of counsel for the Initial
Purchaser); (g) any reasonable and customary fees charged by rating agencies for
rating the Securities; (h) the reasonable and customary fees and expenses of the
Trustee and any paying agent (including related reasonable and customary fees
and expenses of any counsel to such parties); (i) all reasonable and customary
expenses and application fees incurred in connection with the application for
the inclusion of the Securities on the PORTAL Market and the approval of the
Securities for book-entry transfer by DTC; and (j) all other reasonable and
customary costs and expenses incident to the performance of the obligations of
the Company under this Agreement which are not otherwise specifically provided
for in this Section 11; provided, however, that except as provided in this
Section 11 and Section 7, the Initial Purchaser shall pay its own costs and
expenses.
12. Survival. The respective indemnities, rights of contribution,
representations, warranties and agreements of the Company and the Initial
Purchaser contained in this Agreement or made by or on behalf of the Company or
the Initial Purchaser pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any termination or
cancelation of this Agreement or any investigation made by or on behalf of any
of them or any of their respective affiliates, officers, directors, employees,
representatives, agents or controlling persons.
13. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchaser, shall be delivered or sent by mail
or telecopy transmission to Chase Securities Inc., 270 Park Avenue, New
York, NY 10017, Attention of Mr. Peter DiLullo, (telecopier no.: (212)
270-0994); or
(b) if to the Company, shall be delivered or sent by mail or telecopy
transmission to the address of the Company set forth in the Offering
Memorandum,
27
Attention of David J. Hansen, Esq., General Counsel, (telecopier no.:
(404) 814-5795);
provided that any notice to the Initial Purchaser pursuant to Section 8(c) shall
also be delivered or sent by mail to the Initial Purchaser at its address set
forth on the signature page hereof. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
14. Definition of Terms. For purposes of this Agreement, (a) the
term "business day" means any day on which the New York Stock Exchange, Inc. is
open for trading, (b) the term "subsidiary" has the meaning set forth in
Rule 405 under the Securities Act and (c) except where otherwise expressly
provided, the term "affiliate" has the meaning set forth in Rule 405 under the
Securities Act.
15. Initial Purchaser's Information. The parties hereto acknowledge
and agree that, for all purposes of this Agreement, the Initial Purchaser's
Information consists solely of the following information in the Preliminary
Offering Memorandum and the Offering Memorandum: (i) the last paragraph on the
front cover page concerning the terms of the offering by the Initial Purchaser;
(ii) the legend on the inside front cover page concerning over-allotment and
trading activities by the Initial Purchaser; (iii) the third sentence under the
caption "Risk Factors--Absence of Public Market; Restrictions on Transfer"; and
(iv) the statements concerning the Initial Purchaser contained in the third,
ninth, twelfth and thirteenth paragraphs under the heading "Plan of
Distribution".
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. Counterparts. This Agreement may be executed in one or more
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
18. Amendments. No amendment or waiver of any provision of this
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
19. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the Initial
Purchaser in accordance with its terms.
Very truly yours,
MAGELLAN HEALTH SERVICES, INC.,
by /s/ Craig L. McKnight
-----------------------------------------
Name: Craig L. McKnight
Title: Executive Vice President and
Chief Financial Officer
Accepted:
CHASE SECURITIES INC.,
by /s/ James Casey
------------------------
Authorized Signatory
Address for notices pursuant to Section 8(c):
1 Chase Plaza, 25th Floor
New York, NY 10081
Attention of Legal Department
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