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EXHIBIT 10.19
MEMORANDUM OF AGREEMENT
THIS MEMORANDUM OF AGREEMENT executed on November 16, 1997, to be
effective as of September 30, 1997, by and among CHARTER BEHAVIORAL HEALTH
SYSTEMS, LLC, a Delaware limited liability company (the "Company"), CHARTER
BEHAVIORAL HEALTH SYSTEMS, INC., a Delaware corporation ("Charter, Inc."), and
CRESCENT OPERATING, INC., a Delaware corporation ("COI"; Charter Inc. and COI
being herein referred to individually as a "Member" and together as the
"Members").
BACKGROUND
A. Charter Inc. and COI are the sole members of the Company and are parties,
together with Magellan Health Services, Inc., to a certain Amended and Restated
Operating Agreement of Charter Behavioral Health Systems, LLC, dated as of June
16, 1997 (the "Operating Agreement").
B. Charter Inc. is the holder of loans previously made by CCM, Inc., an
affiliate of Charter, Inc., to the Company pursuant to the Operating Agreement
aggregating $17,500,000 (the "Charter Inc. Loans") as evidenced by those two
certain Promissory Notes in the principal sums of $10,000,000 and $7,500,000
dated August 1, 1997 and September 2, 1997, respectively (collectively, the
"Charter Inc. Notes").
C. COI has previously made to the Company pursuant to the Operating Agreement
loans aggregating $17,500,000 (the "COI Loans"; the Charter Inc. Loans and COI
Loans being herein collectively referred to as the "Member Loans") as evidenced
by those two certain Promissory Notes in the principal sums of $10,000,000 and
$7,500,000 dated August 1, 1997 and September 2, 1997, respectively
(collectively, the "COI Notes"; the Charter Inc. Notes and the COI Notes being
herein collectively referred to as the "Member Notes").
D. Charter Inc. and COI have each agreed to exchange its respective Member
Loans and Member Notes for a cumulative redeemable preferred interest in the
Company more particularly described in this Memorandum of Agreement on the
terms, and subject to the conditions, herein set forth, such exchange being
made effective for all purposes as of September 30, 1997 (herein the
"Exchange").
Accordingly, in order to give effect to the Exchange, the parties hereto agree
as follows:
1. Exchange. Each of Charter Inc. and COI hereby exchanges the aggregate
principal amount of its Member Loans and its Member Notes for the Cumulative
Redeemable Preferred Interests in the Company more particularly described in
paragraph 2 below. Upon request by the Company, each of Charter Inc. and COI
agrees to surrender to the Company its original Member Notes evidencing its
Member Loans. For purposes of Section 3.2(e) of the Operating Agreement, the
foregoing exchange shall not be deemed to have any effect on the status of the
Member Commitments as they existed immediately prior to such exchange.
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2. Cumulative Redeemable Preferred Interests. Each of Charter Inc. and COI is
hereby granted, in consideration of the Member Loans being exchanged by it as
set forth herein, an additional interest in the Company (the "Cumulative
Redeemable Preferred Interest") having an initial amount (the "Initial Amount")
equal to the aggregate principal amount of its Member Loans outstanding as of
September 30, 1997 (being, in each case, $17,500,000) as follows:
(a) Each holder of such Cumulative Redeemable Preferred Interest
shall be entitled to receive a preferential allocation of Profits of the
Company (the "Preferred Return") computed like interest on the Initial
Amount at the rate of ten percent (10%) per annum, determined monthly in
arrears, commencing on October 1, 1997 and continuing on the first day of
each succeeding calendar month thereafter, on the basis of a 360-day year
for the actual number of days elapsed. Such Preferred Return shall
initially be calculated with respect to the Initial Amount and thereafter
shall be calculated on a cumulative basis, compounded monthly.
Additionally, each Cumulative Redeemable Preferred Interest shall have a
similar preferred position in the event of the dissolution and winding up
of the Company.
(b) At the option of the Company, exercised by not less than 30 days'
prior written notice from the Company to the holders of the Cumulative
Redeemable Preferred Interests, the Company may redeem all, but not less
than all, of the Cumulative Redeemable Preferred Interests on or after
April 1, 1998. In connection with any such redemption, the Company shall,
in its sole discretion, deliver to each holder (i) a cash payment in
respect of its Cumulative Redeemable Preferred Interest equal to the
Initial Amount plus all the Preferred Return thereon, calculated as set
forth above through the date of such redemption, or (ii) one or more
promissory notes payable to such holder substantially in the form of the
Member Notes in an aggregate principal amount equal to the Initial Amount
plus all the Preferred Return thereon, calculated as set forth above
through the date of such redemption, and subject to the same payment terms,
including without limitation, provisions for interest rates, interest
payment dates, and maturity, as provided in the Member Notes, or (iii) any
combination of cash or promissory notes as described in the preceding
clauses (i) and (ii); provided, however, that each holder must receive the
same form or forms of consideration (i.e., cash, promissory notes, or a
combination thereof) as the other holder in such redemption.
(c) As used above, the date of redemption shall mean the date on
which the holders actually receive the applicable consideration in such
redemption of its Cumulative Redeemable Preferred Return.
(d) Any decision by the Company to exercise or not to exercise its
option under paragraph 2(b) of this Memorandum of Agreement to redeem the
Cumulative Redeemable Preferred Interests, and all decisions relating to
redemption pursuant to such paragraph 2(b) (including without limitation
the nature and amount of the redemption proceeds to be
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received by the holders) shall be treated as "Major Decisions" under the
Operating Agreement, requiring approval of eighty percent (80%) of the
Governing Board.
3. Amendment of Operating Agreement. Each of Charter Inc. and COI agrees to
enter into an amendment to the Operating Agreement and other appropriate
documents to memorialize the transactions described in this Memorandum of
Agreement; provided, however, that the parties intend and agree that the
exchanges of the Member Loans for the Cumulative Redeemable Preferred Interests
in the Company have been effected hereby and no further action on the part of
any party shall be required in order to have the same become effective for all
purposes among the parties.
4. Miscellaneous.
(a) All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made when personally
delivered, upon the date originally received if delivered by telecopy
transmission followed by registered or certified mail confirmation, one
business day following deposit with an overnight delivery service, or three
business days following deposit in the mail, registered or certified mail,
postage prepaid, to the respective addresses for such parties in the
Operating Agreement.
(b) The terms and provisions of this Memorandum of Agreement shall be
binding upon and inure to the benefit of the successors and assigns of
the parties hereto.
(c) This Memorandum of Agreement shall be deemed to be made in and in
all respects be governed by, and construed in accordance with, the laws of
the State of Delaware (without regard to principles of conflict of
laws). If any action is brought to enforce or interpret this Memorandum of
Agreement, exclusive venue for such action shall be in the State of
Delaware or the United States of America for the District of Delaware, and
the parties hereto irrevocably and unconditionally submit to the
jurisdiction of the state and federal courts located in the State of
Delaware for such purpose.
(d) Capitalized terms used herein without definition shall have the
respective meanings ascribed thereto in the Operating Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of
Agreement to be executed by their duly authorized officers as of the date first
above written.
CHARTER BEHAVIORAL HEALTH
SYSTEMS, LLC
By:
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Name:
Title: Vice President,
Financial Services
CHARTER BEHAVIORAL HEALTH
SYSTEMS, INC.
By: /s/ XXXXXXXXX X. XXXXXXX
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Name: Xxxxxxxxx X. Xxxxxxx
Title: Treasurer
CRESCENT OPERATING, INC.
By: /s/ XXXXXXX X. XXXXXXX
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Name: Xxxxxxx X. Xxxxxxx
Title: Vice President and
Chief Financial
Officer
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