EXHIBIT 10.6
EXECUTION VERSION
THIS TRANSACTION AND MONITORING FEE AGREEMENT is dated as of
September 23, 2004 (this "AGREEMENT") and is between Vanguard Health Systems,
Inc., a Delaware corporation (the "COMPANY"), Blackstone Management Partners IV
L.L.C., a Delaware limited liability company ("BMP"), and Metalmark Management
LLC ("MSCP MANAGER"). BMP and MSCP Manager are referred to herein collectively
as the "SPONSOR MANAGEMENT ENTITIES".
BACKGROUND
1. Certain affiliates of BMP and certain affiliates of MSCP
Manager (collectively the "SPONSORS") will invest in membership interests in VHS
Holdings LLC ("PARENT") in connection with the transactions contemplated by the
Agreement and Plan of Merger, dated as of July 23, 2004 (the "MERGER
AGREEMENT"), among the Company, Parent and Health Systems Acquisition Corp.
2. The Sponsor Management Entities have expertise in the areas of
finance, strategy, investment, acquisitions and other matters relating to the
Company and its business and has facilitated the transactions referred to above
and certain other related transactions (collectively, the "TRANSACTIONS")
through their provision of financial and structural analysis, due diligence
investigations, other advice and negotiation assistance with all relevant
parties to the Transactions. The Sponsor Management Entities have also provided
advice and negotiation assistance with relevant parties in connection with the
financing of certain of the Transactions as contemplated under the Merger
Agreement.
3. The Company desires to avail itself, for the term of this
Agreement, of the Sponsor Management Entities' expertise in providing financial
and structural analysis, due diligence investigations, corporate strategy, other
advice and negotiation assistance, which the Company believes will be beneficial
to it, and the Sponsor Management Entities wish to provide the services to the
Company as set forth in this Agreement in consideration of the payment of the
fees described below.
4. In addition to any fees paid pursuant to this Agreement,
certain members of the Company's management will receive Parent Units in respect
of services provided to Parent with respect to Parent's investment in the
Company.
In consideration of the premises and agreements contained herein and
of other good and valuable consideration, the sufficiency of which are hereby
acknowledged, the parties agree as follows:
AGREEMENT
SECTION 1. TRANSACTION AND ADVISORY FEE. In consideration of |BMP
undertaking financial and structural analysis, due diligence investigations, and
other advice and negotiation assistance necessary in order to enable the
Transactions to be consummated, the Company will pay| to BMP, at the Effective
Time (as defined herein), |a transaction and advisory fee of $20,000,000.
SECTION 2. APPOINTMENT. The Company hereby engages the Sponsor
Management Entities to provide the services described in Section 3 (the
"SERVICES") for the term of this Agreement on the terms and subject to the
conditions of this Agreement.
SECTION 3. SERVICES. (a) The Sponsor Management Entities agree that
during the term of this Agreement, they will provide to the Company, by and
through themselves, their affiliates and such respective officers, employees,
representatives and third parties as the Sponsor Management Entities in their
sole discretion may designate from time to time, monitoring, advisory and
consulting services in relation to the affairs of the Company and its
subsidiaries, including, without limitation, (a) advice regarding the structure,
terms, conditions and other provisions, distribution and timing of debt and
equity offerings and advice regarding relationships with the Company's and its
subsidiaries' lenders and bankers, (b) advice regarding the strategy of the
Company, (c) advice regarding dispositions and/or acquisitions and (d) such
other advice directly related or ancillary to the above financial advisory
services as may be reasonably requested by the Company. It is expressly agreed
that the services to be performed hereunder will not include investment banking
or other financial advisory services which may be provided by the Sponsor
Management Entities or any of their affiliates to the Company in connection with
any specific acquisition, divestiture, refinancing or recapitalization by the
Company or any of its subsidiaries. The Sponsor Management Entities may be
entitled to receive additional compensation for providing services of the type
specified in the preceding sentence by mutual agreement of the Company or such
subsidiary, on the one hand, and one or both of the Sponsor Management Entities
or their relevant affiliates, on the other hand.
(b) If BMP is entitled to receive any additional fee for any
services provided (a "SUBSEQUENT TRANSACTION FEE") with respect to any
acquisition made by the Company or any of its subsidiaries after the date
hereof, MSCP Manager shall be entitled to receive: (i) if the Sponsors
affiliated with BMP do not provide any equity financing for such acquisition, a
Subsequent Transaction Fee equal to 15% of the Subsequent Transaction Fee
receivable by BMP or (ii) if the Sponsors affiliated with BMP provide equity
financing for such acquisition, a Subsequent Transaction Fee equal to (A) the
total amount of the Subsequent Transaction Fees receivable by BMP, MSCP Manager
and any other parties TIMES (B) a fraction the numerator of which is the amount
of such equity financing provided by the Sponsors affiliated with MSCP Manager
and the denominator of which is the total amount of such equity financing
provided by all of the Sponsors and any other parties.
(c) If BMP is entitled to receive any Subsequent Transaction Fee
for any services provided with respect to any disposition of the Company or any
of its subsidiaries or any of its assets or in connection with an initial public
offering of the Company or any of its subsidiaries, in each case, after the date
hereof, MSCP Manager shall be entitled to receive a Subsequent Transaction Fee
equal to 15% of the Subsequent Transaction Fee receivable by BMP.
SECTION 4. MONITORING FEE.
(a) In consideration of the Services being provided by the Sponsor
Management Entities, the Company will pay to BMP an annual monitoring fee of
$4,000,000 in cash and will pay to MSCP Manager an annual monitoring fee of
30.0% of the BMP monitoring fee in cash
(collectively, the "MONITORING FEE"), provided that any such payment to MSCP
Manager shall be reduced (but not below zero) such that on any payment date the
cumulative aggregate Monitoring Fee paid to MSCP Manager does not exceed 15% of
the sum of the $20,000,000 transaction and advisory fee paid to BMP hereunder
and the cumulative aggregate Monitoring Fee paid to BMP hereunder on or prior to
such date of determination. The Monitoring Fee will be payable quarterly in
advance on the first day of each quarter, by wire transfer in same-day funds to
the bank account designated by each of the Sponsor Management Entities,
commencing at the Effective Time (as defined herein) through the Termination
Date (as defined below). Any Monitoring Fee for the first calendar year of this
Agreement will be prorated for the period of such year commencing at the
Effective Time. Any Monitoring Fee for the last calendar year of this Agreement
will be prorated for the period of such year ending on the Termination Date. For
purposes of this Agreement, "TERMINATION DATE" means, with respect to any
Sponsor Management Entity, the earliest of (i) the date on which such Sponsor
Management Entity beneficially owns less than 5% of the outstanding common stock
of the Company , (ii) when such Sponsor Management Entity no longer is entitled
to any payment of the Monitoring Fee in accordance with Section 4(c) and (iii)
such earlier date as the Company and such Sponsor Management Entity may mutually
agree upon. Upon a Termination Date pursuant to clause (i) or (iii) thereof with
respect to MSCP Manager, the Company shall pay to MSCP Manager an amount equal
to the excess, if any, of 15% of the sum of the $20,000,000 transaction and
advisory fee paid to BMP hereunder and the cumulative aggregate Monitoring Fee
paid to BMP hereunder minus the cumulative aggregate Monitoring Fee previously
paid to MSCP Manager.
(b) To the extent the Company does not pay the Monitoring Fee for any
reason, including by reason of any prohibition on such payment pursuant to the
terms of any debt financing of the Company or its subsidiaries, the payment by
the Company to the Sponsor Management Entities of the accrued and payable
Monitoring Fee will be payable immediately on the earlier of (i) the first date
on which the payment of such deferred Monitoring Fee is no longer prohibited
under any contract applicable to the Company and the Company is otherwise able
to make such payment, and (ii) total or partial liquidation, dissolution or
winding up of the Company. Any installment of the Monitoring Fee not paid on the
scheduled due date will bear interest, payable in cash on each scheduled due
date, at an annual rate of 10%, compounded quarterly, from the date due until
paid.
(c) Notwithstanding anything to the contrary contained in subparagraph
(a) above, BMP may elect at any time in connection with or in anticipation of a
change of control or an initial public offering (or at any time thereafter)
(which election can be made in its sole discretion by the delivery of written
notice to the Company and MSCP Manager) to have each of the Sponsor Management
Entities receive, in lieu of annual payments of the Monitoring Fee, a single
lump sum cash payment equal to the then present value (using a discount rate
equal to the yield to maturity on the date of such written notice of the class
of outstanding U.S. government bonds having a final maturity closest to the
tenth anniversary of such written notice (the "DISCOUNT RATE")) of all then
current and future Monitoring Fees payable under this Agreement, assuming the
Termination Date to be the tenth anniversary of the date hereof (the "LUMP SUM
FEE")|; provided that with respect to MSCP Manager, the Lump Sum Fee shall not
in any event be less than an amount equal to 15% of the sum of the $20,000,000
transaction and advisory fee paid to BMP hereunder and the cumulative aggregate
Monitoring Fee and the Lump Sum Fee paid or to be paid (in each case) to BMP
hereunder minus the cumulative aggregate Monitoring
Fee previously paid to MSCP Manager. The Lump Sum Fee will be payable to each
Sponsor Management Entity by wire transfer in same-day funds to the bank account
designated by such Sponsor Management Entity.
(d) To the extent the Company does not pay any portion of the Lump Sum
Fee by reason of any prohibition on such payment pursuant to the terms of any
agreement or indenture governing indebtedness of the Company or its
subsidiaries, any unpaid portion of the Lump Sum Fee shall be paid to the
Sponsor Management Entities on the first date on which the payment of such
unpaid amount is permitted under such agreement or indenture, to the extent
permitted by such agreement or indenture. Any portion of the Lump Sum Fee not
paid on the scheduled due date shall bear interest at an annual rate equal to
the Discount Rate, compounded quarterly, from the date due until paid.
SECTION 5. REIMBURSEMENTS. In addition to the fees payable pursuant
to this Agreement, the Company will pay directly or reimburse the Sponsor
Management Entities and each of their respective affiliates for their respective
Out-of-Pocket Expenses (as defined below). For the purposes of this Agreement,
the term "OUT-OF-POCKET EXPENSES" means the reasonable out-of-pocket costs and
expenses incurred by a Sponsor Management Entity and their respective affiliates
in connection with the Services provided under this Agreement (including prior
to the Effective Time), including, without limitation, (a) fees and
disbursements of any independent professionals and organizations, including
independent accountants, outside legal counsel or consultants, retained by such
Sponsor Management Entity, Sponsor or any of their affiliates, (b) costs of any
outside services or independent contractors such as couriers, business
publications, on-line financial services or similar services, retained or used
by such Sponsor Management Entity, Sponsor or any of their respective affiliates
and (c) transportation, per diem costs, word processing expenses or any similar
expense not associated with their or their affiliates' ordinary operations. All
payments or reimbursements for Out-of-Pocket Expenses will be made by wire
transfer in same-day funds to the bank account designated by such Sponsor
Management Entity or its relevant affiliate (if such Out-of-Pocket Expenses were
incurred by such Sponsor Management Entity, Sponsor or their respective
affiliates) promptly upon or as soon as practicable following request for
reimbursement in accordance with this Agreement, to the account indicated to the
Company by the relevant payee.
SECTION 6. INDEMNIFICATION. The Company will indemnify and hold
harmless the Sponsor Management Entities, their affiliates and their respective
partners (both general and limited), members (both managing and otherwise),
officers, directors, employees, agents and representatives (each such person
being an "INDEMNIFIED PARTY") from and against any and all losses, claims,
damages and liabilities, including in connection with seeking indemnification,
whether joint or several (the "LIABILITIES"), related to, arising out of or in
connection with the Services contemplated by this Agreement or the engagement of
the Sponsor Management Entities pursuant to, and the performance by the Sponsor
Management Entities of the Services contemplated by, this Agreement, whether or
not pending or threatened, whether or not an Indemnified Party is a party,
whether or not resulting in any liability and whether or not such action, claim,
suit, investigation or proceeding is initiated or brought by the Company. The
Company will reimburse any Indemnified Party for all reasonable costs and
expenses (including reasonable attorneys' fees and expenses) as they are
incurred in connection with investigating, preparing, pursuing, defending or
assisting in the defense of any action, claim, suit, investigation
or proceeding for which the Indemnified Party would be entitled to
indemnification under the terms of the previous sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
thereto. The Company will not be liable under the foregoing indemnification
provision with respect to any particular loss, claim, damage, liability, cost or
expense of an Indemnified Party that is determined by a court, in a final
judgment from which no further appeal may be taken, to have resulted primarily
from the gross negligence or willful misconduct of such Indemnified Party. The
attorneys' fees and other expenses of an Indemnified Party shall be paid by the
Company as they are incurred upon receipt, in each case, of an undertaking by or
on behalf of the Indemnified Party to repay such amounts if it is finally
judicially determined that the Liabilities in question resulted primarily from
the gross negligence or willful misconduct of such Indemnified Party.
SECTION 7. ACCURACY OF INFORMATION. The Company shall furnish or
cause to be furnished to the Sponsor Management Entities such information as the
Sponsor Management Entities believe reasonably appropriate to their monitoring,
advisory and consulting services hereunder and to comply with the Securities and
Exchange Commission or other legal requirements relating to the beneficial
ownership by the Sponsors of equity securities of Parent or the Company (all
such information so furnished, the "INFORMATION"). The Company recognizes and
confirms that the Sponsor Management Entities (a) will use and rely primarily on
the Information and on information available from generally recognized public
sources in performing the Services contemplated by this Agreement without having
independently verified the same, (b) do not assume responsibility for the
accuracy or completeness of the Information and such other information and (c)
are entitled to rely upon the Information without independent verification.
SECTION 8. EFFECTIVE TIME. This Agreement will become effective (the
"EFFECTIVE TIME") as of the date hereof.
SECTION 9. TERM. This Agreement will become effective as of the
Effective Time and will continue until the Termination Date, except that Section
5 will remain in effect thereafter with respect to Out-of-Pocket Expenses which
were incurred prior to or within a reasonable period of time after the
Termination Date, but have not been paid to the Sponsor Management Entities in
accordance with Section 5. The provisions of Sections 4(b), 6, 7 and 9 will
survive the termination of this Agreement.
SECTION 10. PERMISSIBLE ACTIVITIES. Subject to applicable law,
nothing herein will in any way preclude the Sponsor Management Entities or their
affiliates (other than the Company or its subsidiaries and their respective
employees) or their respective partners (both general and limited), members
(both managing and otherwise), officers, directors, employees, agents or
representatives from engaging in any business activities or from performing
services for its or their own account or for the account of others, including
for companies that may be in competition with the business conducted by the
Company.
SECTION 11. MISCELLANEOUS.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by any party hereto from any such provision, will be
effective unless it is in
writing and signed by the parties hereto. Any amendment, waiver or consent will
be effective only in the specific instance and for the specific purpose for
which given. The waiver by any party of any breach of this Agreement will not
operate as or be construed to be a waiver by such party of any subsequent
breach.
(b) Any notices or other communications required or permitted hereunder
will be sufficiently given if delivered personally or sent by facsimile with
confirmed receipt, or by overnight courier, addressed as follows or to such
other address of which the parties may have given written notice:
if to BMP:
c/o The Blackstone Group L.P.
000 Xxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxxx
Facsimile: (000) 000-0000
with a copy (which will not constitute notice) to:
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xx Xxxxx
Facsimile: (000) 000-0000
if to MSCP Manager:
Xxxxxx Xxxxxxx Capital Partners
0000 Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxx
Fax: (000) 000-0000
with a copy to:
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxx
Fax: (000) 000-0000
if to the Company:
Vanguard Health Systems, Inc.
00 Xxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
Unless otherwise specified herein, such notices or other communications will be
deemed received (i) on the date delivered, if delivered personally or sent by
facsimile with confirmed receipt, and (ii) one business day after being sent by
overnight courier.
(c) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof, and will supersede all previous oral
and written (and all contemporaneous oral) negotiations, commitments, agreements
and understandings relating hereto.
(d) This Agreement will be governed by, and construed in accordance
with, the laws of the State of New York.
(e) Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by any Sponsor Management Entity without the prior
written consent of the Company. Subject to the foregoing, the provisions of this
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors. Subject to the next sentence, no person or
party other than the parties hereto and their respective successors is intended
to be a beneficiary of this Agreement. The parties acknowledge and agree that
the Sponsors and their affiliates and their respective partners (both general
and limited), members (both managing and otherwise), officers, directors,
employees, agents and representatives are intended to be third-party
beneficiaries under Section 6 of this Agreement.
(f) This Agreement may be executed by one or more parties to this
Agreement on any number of separate counterparts (including by facsimile), and
all of said counterparts taken together will be deemed to constitute one and the
same instrument.
(g) Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction will, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Monitoring Fee Agreement on the date first written above.
VANGUARD HEALTH SYSTEMS, INC.
By: /s/ Xxxxxx X. Xxxxx
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Name: Xxxxxx X. Xxxxx
Title: Executive Vice President, Treasurer and
Chief Financial Officer
BLACKSTONE MANAGEMENT PARTNERS IV L.L.C.
By: /s/ Xxxx Xxxxxxxx
---------------------------------------------
Name: Xxxx Xxxxxxxx
Title: Managing Director
METALMARK MANAGEMENT LLC
By: /s/ Xxxx Xxx
---------------------------------------------
Name: Xxxx Xxx
Title: Managing Director
