Consent Solicitation Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
PHC, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
(2)
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(3)
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0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
(4)
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filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing:
The Boards of Directors of PHC, Inc. (“PHC”) and
Acadia Healthcare Company, Inc. (“Acadia”) have
approved a merger combining PHC and Acadia.
If the merger is completed, PHC will become a wholly-owned
subsidiary of Acadia. The terms of the merger agreement provide
for Acadia to issue shares of its common stock to PHC
stockholders in exchange for all of the outstanding shares of
PHC, with holders of PHC Class A Common Stock receiving
one-quarter of a share of Acadia common stock for each share of
PHC common stock that they hold and holders of PHC Class B
Common Stock receiving one-quarter of a share of Acadia common
stock for each share of PHC Class B Common Stock that they
hold and an amount of cash equal to $5,000,000
divided by
the aggregate number of issued and outstanding shares of PHC
Class B Common Stock immediately prior to the effective
time of the merger (other than (i) any shares of PHC
Class B Common Stock to be cancelled pursuant to the merger
agreement and (ii) any share of PHC Class B Common
Stock owned by a subsidiary of PHC). Based on the number of
shares of PHC Class B Common Stock outstanding as of
May 23, 2011, this calculation would have resulted in a
cash payment of $6.46 per share of PHC Class B Common
Stock. Upon completion of the merger, Acadia stockholders will
retain 77.5% and the former PHC stockholders will own 22.5% of
Acadia’s common stock on a fully diluted basis (as defined
in the merger agreement). All of the outstanding options and
warrants to purchase PHC Class A Common Stock will be
assumed by Acadia in connection with the merger. The merger is
intended to qualify for federal income tax purposes as a
reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended.
PHC and Acadia anticipate that concurrent with the closing of
the merger, Acadia’s common stock will be listed for
trading on The NASDAQ National Market (“NASDAQ”) under
the symbol “ACHC.” Acadia has applied for listing on
NASDAQ and, in order to be listed, will be required to meet the
initial listing requirements established by NASDAQ. Following
the merger, PHC will be delisted from the NYSE Amex Stock Market.
You are requested, at the special meeting of PHC stockholders,
to approve the merger agreement. Your vote is important. We
cannot complete the merger unless the merger agreement is
approved by the affirmative vote of the holders of at least
(i) two-thirds of our outstanding Class A Common Stock
and Class B Common Stock, voting together as a single class
(with the holders of our Class A Common Stock having one
vote per share and the holders of our Class B Common Stock
having five votes per share), (ii) two-thirds of our
outstanding Class A Common Stock, voting as a separate
class and (iii) two-thirds of our outstanding Class B
Common Stock, voting as a separate class.
The PHC board of
directors recommends that you vote FOR approval of the merger
agreement.
The proxy statement/prospectus provides you with detailed
information about Acadia, PHC, the merger agreement and the
proposed merger. We encourage you to read and carefully consider
the proxy statement/prospectus in its entirety. For a discussion
of significant matters that should be considered before voting
at the special meeting, see “Risk Factors” beginning
on page 18.
Your vote is important regardless of the number of shares you
own. Even if you plan to attend the special meeting, you may
vote your shares via the toll-free telephone number or via the
Internet, or you may complete, sign and date the enclosed proxy
card or voting instruction card and return it in the enclosed,
postage-paid envelope. Instructions regarding all three methods
of voting are contained on the proxy card and voting instruction
card and in the attached proxy statement/prospectus. If you
attend the annual meeting and prefer to vote in person, you may
do so in accordance with the procedures described in the
accompanying proxy statement/prospectus. If you hold shares in
the name of a brokerage firm, bank, nominee or other
institution, you must provide a proxy from that institution in
order to vote your shares at the special meeting, except as
otherwise discussed in the proxy statement/prospectus.
Sincerely,
/s/ Bruce
A. Shear
Bruce A. Shear
President and Chief Executive Officer
Peabody, Massachusetts
September 27, 2011
Important Notice Regarding the Availability of Proxy Materials
for the Special Meeting: The proxy statement/prospectus is
available at
www.proxyvote.com.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of this
transaction or the Acadia common stock to be issued in the PHC
merger or determined whether this proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a
criminal offense.
This proxy
statement/prospectus is dated September 27, 2011, and is
first being mailed to
PHC stockholders on or about September 28, 2011
PHC, Inc.
200 Lake Street
Suite 102
Peabody, Massachusetts 01960
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS
TO BE HELD ON OCTOBER 26, 2011
Dear PHC Stockholder:
You are cordially invited to attend a special meeting of
Stockholders of PHC, Inc. (“PHC”), which will be held
on October 26, 2011, at 9:00 a.m., at the corporate
offices of PHC, Inc., 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960, for the purpose of acting upon the
following proposals:
1. To consider and vote on a proposal to approve the
Agreement and Plan of Merger, dated as of May 23, 2011,
among PHC, Inc., Acadia Healthcare Company, Inc. and Acadia
Merger Sub, LLC, a wholly-owned subsidiary of Acadia (the
“merger agreement”), pursuant to which PHC will merge
with and into Acadia Merger Sub, LLC;
2. To consider and cast an advisory vote on the
compensation to be received by PHC’s named executive
officers in connection with the merger;
3. To consider and vote on a proposal to approve the
adjournment of the special meeting, if necessary or appropriate,
to solicit additional proxies, in the event that there are not
sufficient votes at the time of such adjournment to approve the
merger agreement; and
4. To transact such other business as may properly come
before the meeting or any adjournments thereof.
The PHC board of directors recommends that you vote FOR the
resolution to approve the merger agreement
. The PHC board of
directors has fixed the close of business on September 19,
2011 as the record date for determination of stockholders
entitled to notice of, and to vote at, the special meeting and
at any adjournments or postponements thereof.
Stockholders are entitled to appraisal rights under the
Massachusetts Business Corporation Act (the “MBCA”) in
connection with the merger. Any stockholder seeking to assert
appraisal rights should carefully follow the procedures
described in the accompanying proxy statement/prospectus. A copy
of the applicable provisions of the MBCA is attached as
Annex B to the accompanying proxy statement/prospectus.
This summary highlights selected information contained
elsewhere in this proxy statement/prospectus relating to the
merger. To understand the merger and related transactions fully
and for a more complete description of the merger and other
transactions contemplated by the merger agreement, you should
carefully read this entire proxy statement/prospectus as well as
the additional documents to which it refers, including the
merger agreement attached to this proxy statement/prospectus as
Annex A. For instructions on obtaining more information,
see “Who Can Answer Other Questions” on
page 8.
Acadia Healthcare Company, Inc.
(“Acadia”).
Founded in December 2005,
Acadia is a leading provider of behavioral health care services
in the United States. Acadia operates 19 inpatient behavioral
health care facilities in 13 states. On April 1, 2011,
Acadia acquired Youth & Family Centered Services, Inc.
(“YFCS”), the largest private, for-profit provider of
behavioral health, education and long term support services
exclusively for abused and neglected children and adolescents.
YFCS’ services include residential treatment care,
community-based services, acute care, specialized education
services, therapeutic group homes, therapeutic foster care and
medical and behavioral services. The address of Acadia’s
principal executive offices is 830 Crescent Centre Drive, Suite
610, Franklin, TN 37067.
Acadia Merger Sub, LLC (“Merger
Sub”).
Acadia Merger Sub, LLC is a
wholly-owned subsidiary of Acadia that was recently formed in
Delaware solely for the purpose of completing the merger. It
does not conduct any business and has no material assets. Its
principal executive offices have the same address and telephone
number as Acadia.
PHC, Inc. (“PHC”).
PHC is a national
healthcare company, which, through wholly-owned subsidiaries,
provides psychiatric services to individuals who have behavioral
health disorders, including alcohol and drug dependency, and to
individuals in the gaming and transportation industries.
PHC’s subsidiaries operate various substance abuse
treatment and psychiatric facilities in Delaware, Michigan,
Nevada, Pennsylvania, Utah and Virginia. PHC provides
management, administrative and help line services through
contracts with major railroads and operates a call center
through a contract with Wayne County, Michigan. PHC also
operates a website, Wellplace.com, which provides education and
training for behavioral health professionals and internet
support services to all of PHC’s subsidiaries. On
July 1, 2011, PHC acquired substantially all of the assets
of HHC Delaware, Inc. and its subsidiary (“HHC
Delaware”), relating to MeadowWood Behavioral Health System
(the assets acquired are referred to in this proxy
statement/prospectus as “MeadowWood”), an acute care
psychiatric hospital located in New Castle, Delaware, with 58
beds providing services to adults suffering with mental illness
and substance abuse. PHC was incorporated in 1976 and is a
Massachusetts corporation with corporate offices located at 200
Lake Street, Suite 102, Peabody, MA 01960.
The Combined Company.
The combined
company’s corporate name will be Acadia Healthcare Company,
Inc. Acadia will do business as Pioneer Behavioral Health
following the effective time of the merger. The combined company
will be the leading publicly traded pure-play provider of
inpatient behavioral health care services based upon the number
of licensed beds. Acadia’s principal executive office
located in Franklin, Tennessee will be the combined
company’s principal executive office. Upon the completion
of the merger, Acadia stockholders will own 77.5% and PHC
stockholders will own 22.5% of the combined company’s
issued and outstanding common stock on a fully diluted basis.
“Fully diluted” (as defined in the merger agreement
and as used in this proxy statement/prospectus with respect to a
party’s post-closing ownership percentage in the combined
company) means the sum of (i) the aggregate number of
shares of Acadia common stock issued and outstanding immediately
prior to the effective time of the merger, plus (ii) the
aggregate number of shares of Acadia common stock into which
shares of PHC Class A Common Stock and Class B Common
Stock issued and outstanding immediately prior to the effective
time of the merger will be converted in accordance with the
merger agreement, plus (iii) the aggregate number of shares
of Acadia common stock issuable pursuant to PHC stock options
and warrants issued and outstanding immediately prior to the
effective time of the merger that have an exercise price equal
to or less than the average per share closing prices of PHC
Class A Common Stock as reported on AMEX for the ten full
trading days ending on May 20, 2011. Acadia has applied for
listing of its common stock to be issued in the merger on
NASDAQ. Joey A. Jacobs, the Chairman and Chief Executive Officer
of Acadia, will become the Chairman and Chief Executive
Officer of the combined company. Bruce A. Shear,
President & Chief Executive Officer of PHC, will
become the Executive Vice Chairman and a member of the board of
directors of the combined company.
From and after the effective time of the merger, unless
otherwise contemplated by Acadia’s certificate of
incorporation, the authorized number of directors on the Acadia
board of directors will be established and maintained at 12, and
the Acadia board of directors will be divided into three classes
designated as Class I, Class II and Class III.
The term of office of the initial Class I directors will
expire at the first annual meeting of stockholders after the
merger, the term of office of the initial Class II
directors will expire at the second succeeding annual meeting of
stockholders after the merger and the term of office of the
initial Class III directors will expire at the third
succeeding annual meeting of the stockholders after the merger.
At each annual meeting of stockholders after the merger,
directors elected to replace those of a class whose terms expire
at such annual meeting will be elected to hold office until the
third succeeding annual meeting after their election and until
their respective successors will have been duly elected and
qualified.
Except as set forth below, the following persons will be
appointed to the Acadia board of directors as of immediately
prior to the effective time of the merger and nominated for
re-election and elected to the Acadia board of directors as
follows: (i) Mr. Jacobs, as a Class III director
and, after the expiration of his initial term as a director, for
so long as he serves as the chief executive officer of Acadia or
any of its subsidiaries; (ii) Mr. Shear, as a
Class III director and, after the expiration of his initial
term as a director, for one additional three-year term as a
Class III director; (iii) William F. Grieco, a
Class II director designated by Mr. Shear and a
current director of PHC; and (iv) four directors designated
by Waud Capital Partners. Pursuant to the stockholders agreement
to be entered into in connection with the consummation of the
merger; provided that (A) so long as Waud Capital Partners,
L.L.C. and certain of its affiliates (collectively, “Waud
Capital Partners”) retain voting control over at least 50%
of the outstanding voting securities of Acadia, Waud Capital
Partners will have the right to designate seven directors, four
of which will be Class I directors and three of which will
be Class II directors and (B) in the event Waud
Capital Partners ceases to have voting control over at least 50%
of the outstanding voting securities of Acadia, Waud Capital
Partners will have the right to designate such number of
directors of the total authorized number of directors in
proportion to the total number of shares of Acadia over which
Waud Capital Partners retains voting control relative to the
total number of shares of Acadia then issued and outstanding
(with the number of representatives rounded up to the next whole
number in all cases); provided that all such rights will
terminate when Waud Capital Partners ceases to hold at least
17.5% of Acadia’s outstanding voting securities.
The merger poses a number of risks to each company and its
respective stockholders. In addition, both Acadia and PHC are
subject to various risks associated with their businesses and
their industry. These risks are discussed in detail under the
caption “Risk Factors” beginning on page 18. You
are encouraged to read and consider all of these risks carefully.
The purpose of the special meeting is to hold a vote on the
merger agreement and related matters. The special meeting will
be held on October 26, 2011, at 9:00 a.m., local time,
at PHC’s headquarters located at 200 Lake Street,
Suite 102, Peabody, MA 01960.
After careful consideration, the PHC board of directors has
unanimously (with Mr. Shear abstaining) approved the merger
agreement and determined that the merger agreement is fair to,
and in the best interests of, the stockholders of PHC.
Therefore, the PHC board of directors recommends PHC
stockholders vote FOR the approval of the merger agreement.
In connection with the merger, Stout Risius Ross, Inc.
(“SRR”) delivered a written opinion to the PHC board
of directors as to the fairness, from a financial point of view,
as of the date of their opinion, to the holders of PHC’s
Class A Common Stock and Class B Common Stock
(collectively, the “PHC common stock”), of the merger
consideration to be received by such holders (in the aggregate),
and to the holders of PHC’s Class A Common Stock, of
the merger consideration to be received by such holders (in the
aggregate). The full text of SRR’s written opinion, dated
May 19, 2011, is attached hereto as Annex C. You are
encouraged to read this opinion carefully in its entirety for a
description of the procedures followed, assumptions made,
matters considered and limitations on the review undertaken.
SRR’s opinion is addressed to the PHC board of directors
and does not constitute a recommendation to any stockholder as
to any matters relating to the merger.
In connection with the merger, Acadia has entered into a second
amendment, dated July 12, 2011 (the “Second
Amendment”), to its senior secured credit facility (the
“Senior Secured Credit Facility”). The Second
Amendment will, among other things, permit the merger and other
transactions contemplated by the merger agreement. The
effectiveness of the Second Amendment is subject to certain
closing conditions as described in “Acadia
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital
Resources — Following the Merger,” including
consummation of the merger and related transactions on or prior
to December 15, 2011.
In connection with the merger agreement, Acadia received an
amended and restated debt commitment letter, dated July 12,
2011 (the “Debt Commitment Letter”), from Jefferies
Finance LLC (“Jefferies Finance”) to provide a senior
unsecured bridge loan facility of up to $150 million in the
event that $150 million of senior unsecured notes (the
“Senior Notes”) are not issued by Acadia to finance
the merger (the “Bridge Facility”). Net proceeds from
the issuance of $150 million of Senior Notes or, if the
Senior Notes are not issued, drawings under the
$150 million Bridge Facility will be used, in addition to
existing cash balances, to pay the aggregate $5.0 million
in cash payable to holders of PHC Class B Common Stock in
connection with the merger, pay a dividend to Acadia’s
existing stockholders, refinance certain existing indebtedness
of PHC and pay fees and expenses incurred in connection with the
merger. Acadia expects to issue $150.0 million in aggregate
principal amount of the Senior Notes
and/or
borrow $150.0 million in aggregate principal amount under
the Bridge Facility. A portion of the borrowings will be used to
make a payment to Waud Capital in connection with the
termination of the Professional Services Agreement between
Acadia and Waud Capital (as more fully described in “Acadia
Interested Transactions — Professional Services
Agreement,” the “Professional Services
Agreement”) and to pay a dividend to the stockholders of
Acadia immediately prior to the merger. The aggregate amount of
such payments will be between $90 million and
$80 million depending on the amount of net cash available
after repayment of PHC’s indebtedness, the Class B
merger consideration and fees and expenses related to the
merger. We refer to such amount as the “net proceeds”.
For a description of this calculation, see “The Merger
Agreement — Acadia Dividend.” To the extent the
amount available for such payments is less than
$90 million, up to $10 million may be paid to
Acadia’s stockholders in the form of promissory notes (each
a “Deficit Note”) issued by Acadia. Pursuant to the
terms of the merger agreement, it is a condition to the
obligation of both PHC and Acadia to complete the merger that
the net proceeds not be less than $80 million. The first
$15.6 million of the net proceeds will be used to make a
payment to Waud Capital in connection with the termination of
the Professional Services Agreement, with the remainder
(including any Deficit Notes) issued to Acadia stockholders
immediately prior to the merger as a dividend.
The Bridge Facility commitment is subject to certain closing
conditions described under “Acadia Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital
Resources — Following the Merger.” The Bridge
Facility commitment will terminate on December 15, 2011 if
the closing of the Bridge Facility has not been consummated on
or before such date or if the merger agreement has been
terminated or if the merger has been abandoned. In addition, the
commitments to provide and arrange unsecured bridge loans will
terminate upon the issuance of the Senior Notes.
Each of Acadia and PHC is obligated under the merger agreement
to use its reasonable best efforts to arrange the debt financing
on the terms contemplated. The receipt of the debt financing on
the terms and conditions set forth in the Debt Commitment Letter
is a condition to the obligation of both Acadia and PHC to
consummate the merger.
The PHC board of directors has fixed the close of business on
September 19, 2011, as the record date for determining the
holders of PHC’s Class A Common Stock and Class B
Common Stock entitled to notice of and to
vote at the special meeting. As of the record date, PHC had
18,771,679 shares of Class A Common Stock and
773,717 shares of Class B Common Stock outstanding.
PHC stockholders are being asked to vote on a proposal to
approve the merger agreement. The merger agreement provides that
it is a condition to completion of the merger that the proposal
to approve the merger agreement be approved by the stockholders
of PHC. Approval of this proposal requires an affirmative vote
of (i) at least two-thirds of the outstanding Class A
Common Stock and Class B Common Stock entitled to vote,
voting as a single class, (ii) at least two-thirds of the
outstanding Class A Common Stock entitled to vote, voting
as a single class and (iii) at least two-thirds of the
outstanding Class B Common Stock entitled to vote, voting
as a single class.
Each record holder of shares of PHC Class A Common Stock
will be entitled at the special meeting to one vote for each
share of PHC Class A Common Stock held on the record date.
Each record holder of shares of PHC Class B Common Stock
will be entitled at the special meeting to five votes for each
share of PHC Class B Common Stock held on the record date
on any matter on which they vote together with the holders of
the Class A Common Stock.
Each share of PHC Class A Common Stock issued and
outstanding immediately prior to the effective time (other than
(i) any shares of PHC Class A Common Stock to be
cancelled pursuant to the merger agreement, (ii) any shares
of PHC Class A Common Stock owned by any PHC subsidiary and
(iii) any shares held by stockholders that properly demand
and perfect their appraisal rights under the Massachusetts
Business Corporation Act (“MBCA”) and the merger
agreement (“Excluded Shares”)) will be converted into
and become exchangeable for one-quarter
(
1
/
4
)
of one fully paid and nonassessable share of Acadia common
stock, par value $0.01 per share. Each share of PHC Class B
Common Stock issued and outstanding immediately prior to the
effective time (other than the Excluded Shares) will be
converted into and become exchangeable for (x) one-quarter
(
1
/
4
)
of one fully paid and nonassessable share of Acadia common
stock, par value $0.01 per share and (y) an amount of cash
equal to $5.0 million
divided by
the aggregate
number of issued and outstanding shares of PHC Class B
Common Stock immediately prior to the effective time of the
merger (other than (i) any shares of PHC Class B
Common Stock to be cancelled pursuant to the merger agreement
and (ii) any share of PHC Class B Common Stock owned
by a subsidiary of PHC). Based on the number of shares of PHC
Class B Common Stock outstanding as of May 23, 2011,
this calculation would have resulted in a cash payment of $6.46
per share of PHC Class B Common Stock.
The directors and executive officers of PHC, who as of
May 23, 2011 held in the aggregate approximately 11% of the
outstanding PHC Class A Common Stock, 93.2% of PHC
Class B Common Stock and 24.8% of the outstanding voting
power of the PHC Class A Common Stock and the PHC
Class B Common Stock voting together as a single class,
have agreed to vote their shares in favor of approval of the
merger agreement.
Upon completion of the merger and the issuance of Acadia common
stock in the merger, the directors and executive officers of PHC
will collectively beneficially own approximately 3.2% of the
outstanding stock of Acadia, calculated on the basis set forth
under “Beneficial Ownership of Acadia Common Stock After
the Merger.”
The directors and executive officers of PHC have interests in
the merger that are different from, and in addition to, the
interests of PHC stockholders generally.
Pursuant to the merger agreement, upon completion of the merger,
holders of PHC’s Class B Common Stock will
collectively receive cash consideration in the merger of $5.0
million. Mr. Shear, PHC’s current Chief Executive
Officer, beneficially owns approximately 93.2% of PHC’s
Class B Common Stock and will be entitled to receive cash
merger consideration of approximately $4.7 million.
Mr. Shear, Robert H. Boswell, PHC’s current Senior
Vice President, and Paula C. Wurts, PHC’s current Chief
Financial Officer, are participants in the PHC
change-in-control
supplemental benefit plan for certain executive
employees. Pursuant to such plan, upon the closing of the
merger, Mr. Shear, Mr. Boswell and Ms. Wurts are
entitled to receive change in control payments of approximately
$1,530,000, $465,000 and $408,000, respectively, payable as soon
as practicable, but in no event later than 30 days,
following the date of the closing of the merger.
Mr. Shear, Mr. Boswell and Ms. Wurts hold stock
options to purchase shares of PHC Class A Common Stock,
subject to various vesting provisions. Pursuant to the merger
agreement, upon completion of the merger, Acadia will assume
these options in accordance with their existing terms, with the
number of shares and the exercise prices adjusted in accordance
with the merger exchange rate. Mr. Shear currently holds
170,000 options exercisable at prices ranging from $1.08 per
share to $2.95 per share, Mr. Boswell currently holds
85,000 options exercisable at prices ranging from $1.08 per
share to $2.95 per share and Ms. Wurts currently holds
85,000 options exercisable at prices ranging from $1.08 per
share to $2.95 per share.
Upon the closing of the merger, notwithstanding the terms and
conditions of the corresponding PHC stock option plan or as
otherwise set forth in a stock option agreement, with respect to
the assumed PHC options granted to current PHC directors,
(i) all such assumed options (other than those held by
Mr. Shear) will be fully vested at closing, and
(ii) such assumed options will not terminate as a result of
such holder ceasing or failing to be a director or employee and
will be fully exercisable at any time prior to the expiration of
the option term.
After the closing of the merger, Messrs. Shear and Boswell
are expected to be employed by the combined company pursuant to
employment agreements which are to become effective upon the
closing of the merger.
Upon the closing of the merger, Mr. Shear will join the
Acadia board of directors. In addition, upon the closing of the
merger, Mr. Shear will become Acadia’s Executive Vice
Chairman. After the closing of the merger, Messrs. Shear
and Boswell may receive stock options to purchase shares of
Acadia common stock.
At the completion of the merger, PHC will be merged with and
into Merger Sub, and Merger Sub will continue as the surviving
company of the merger and a wholly-owned subsidiary of Acadia.
After the completion of the merger, each outstanding PHC option
granted under PHC’s stock option plans will be assumed by
Acadia and will be converted into an option to purchase
one-quarter of one share of Acadia common stock and each warrant
to purchase one share of PHC stock will be assumed by Acadia and
will be converted into a warrant to purchase one-quarter of one
share of Acadia common stock. Except with respect to stock
options previously granted to PHC directors (other than
Mr. Shear), as further described in “The Merger
Agreement — Assumption of Stock Options,” each
assumed option and warrant will be subject to the same terms and
conditions (including expiration date and exercise provisions as
contemplated by the applicable award agreement) as were
applicable to the corresponding option or warrant, as
applicable, immediately prior to the effective time of the
merger.
Acadia and PHC expect to complete the merger when all of the
conditions to completion of the merger contained in the merger
agreement have been satisfied or waived. The merger will become
effective upon the filing of a certificate of merger with the
Secretary of State of the State of Delaware and the Secretary of
the Commonwealth of Massachusetts.
Acadia and PHC are working toward satisfying the conditions to
the merger and expect to complete the merger in the fourth
quarter of 2011.
The merger agreement contains restrictions on the ability of PHC
to solicit or engage in discussions or negotiations with a third
party with respect to a proposal to acquire a significant
interest in the equity or assets of PHC. Notwithstanding these
restrictions, the merger agreement provides that, under
specified circumstances, if PHC receives an unsolicited proposal
from a third party to acquire a significant interest in PHC that
PHC may engage in discussions or
negotiations with a third party if the PHC board of directors
determines in good faith, after consultation with outside legal
counsel, that failure to take such action would be inconsistent
with the directors’ fiduciary duties under applicable laws,
and the PHC board of directors determines in good faith, based
on the information then available and after consultation with
its independent financial advisor and outside legal counsel,
that such acquisition proposal either constitutes a superior
proposal or is reasonably likely to result in a superior
proposal.
Acadia’s and PHC’s obligations to complete the merger
are subject to certain conditions described under the heading
“The Merger Agreement — Conditions to the
Merger.”
Acadia and PHC may terminate the merger agreement by mutual
agreement and under certain other circumstances. Acadia and PHC
have agreed that if the merger agreement is terminated under the
circumstances described under “The Merger
Agreement — Termination Fee,” PHC will pay Acadia
$3,000,000 in fees.
The merger agreement provides that, except in circumstances
described below, regardless of whether the merger is completed,
Acadia and PHC will each pay their own expenses incurred in
connection with the merger, except that Acadia and PHC will pay
75% and 25%, respectively, of all fees and expenses, other than
attorneys’ and accountants’ fees, incurred in relation
to the printing and filing with the Securities and Exchange
Commission (the “SEC”) of the registration statement
of which this proxy statement/prospectus is a part, the proxy
statement/prospectus
and any amendments or supplements to any of such filings, the
filing fees under any applicable antitrust law or regulation or
state “blue sky” laws or the listing fees incurred in
obtaining (or attempting to obtain) listing
and/or
eligibility on NASDAQ or another national securities exchange.
In the event the merger agreement is terminated by PHC due to
the fact that Acadia or Merger Sub has breached any of its
covenants, agreements, representations or warranties set forth
in the merger agreement such that a condition related to
PHC’s obligation to close would not be satisfied, then
Acadia will pay all of PHC’s reasonably documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred by PHC and its affiliates on or prior to the
termination of merger agreement in connection with the
transactions contemplated by the merger agreement, which amount
will in no event exceed $1,000,000 in the aggregate and shall be
paid in four annual installments, with the first annual
installment due within two business days of such termination,
and the remaining payments being made on the first, second and
third anniversary of such termination date.
In the event the merger agreement is terminated by Acadia under
circumstances in which the termination fee is not then payable,
due to the fact that (i) PHC has breached any of its
covenants, agreements, representations or warranties such that a
condition related to Acadia’s obligation to close would not
be satisfied or (ii) the supplement to the disclosure
schedules delivered to Acadia in connection with PHC’s
recent acquisition of MeadowWood would cause a breach of a PHC
representation or warranty such that a condition related to
Acadia’s obligation to close would not be satisfied, then
PHC will pay all of Acadia’s reasonably documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred by Acadia and its affiliates on or prior to
the termination of the merger agreement in connection with the
transactions contemplated by the merger agreement, which amount
will in no event exceed $1,000,000 in the aggregate and shall be
paid in four annual installments, with the first annual
installment due within two business days of such termination,
and the remaining payments being made on the first, second and
third anniversary of such termination date.
Acadia, certain members of Acadia’s management and Waud
Capital Partners and certain of its affiliates will enter into a
stockholders agreement in connection with the consummation of
the merger. The stockholders agreement will contain certain
voting agreements and transfer restrictions with respect to
equity of Acadia held by the stockholders party to the
stockholders agreement and impose certain negative and
affirmative covenants on
Acadia and its subsidiaries. The stockholders agreement will
also grant certain board nomination, information and consent
rights to Waud Capital Partners. See “Stockholders
Agreement” for a description of the agreement.
The closing of the merger is conditioned upon the receipt by
Acadia and PHC of opinions that the merger will constitute a
reorganization for United States federal income tax purposes and
that Acadia and PHC will be parties to the reorganization for
United States federal income tax purposes. Assuming the merger
constitutes a reorganization, subject to the limitations and
qualifications described in “The Merger —
Material United States Federal Income Tax Consequences of the
Merger,” PHC stockholders whose shares of PHC common stock
are exchanged in the merger solely for shares of Acadia common
stock will not recognize capital gain or loss for United States
federal income tax purposes on the exchange (except to the
extent they receive cash in lieu of a fractional share of Acadia
common stock), and PHC stockholders whose shares of PHC common
stock are exchanged in the merger for shares of Acadia common
stock and cash will recognize capital gain (but not loss)
realized on the exchange in an amount not exceeding the amount
of cash received (excluding cash received in lieu of a
fractional share of Acadia common stock). This tax treatment may
not apply to certain PHC stockholders, as described in “The
Merger — Material United States Federal Income Tax
Consequences of the Merger.” Determining the actual tax
consequences of the merger to you may be complex and will depend
on the facts of your own situation. You should consult your own
tax advisors to fully understand the tax consequences to you of
the merger, including estate, gift, state, local or
non-United
States tax consequences of the merger.
In accordance with accounting principles generally accepted in
the United States of America (“GAAP”), Acadia will
account for the acquisition of shares of PHC Class A Common
Stock and Class B Common Stock through the merger under the
acquisition method of accounting for business combinations.
Holders of shares of PHC Class A Common Stock and
Class B Common Stock that are issued and outstanding
immediately prior to the effective time who have not voted in
favor of or consented in writing to the merger and who have
properly demanded and perfected their rights to be paid the fair
value of such shares in accordance with Section 13.02 of
the MBCA, will not have such shares converted into or
exchangeable for the right to receive merger consideration and
will be entitled only to receive payment of the fair value of
such shares, in accordance with Section 13.02 of the MBCA,
unless and until such stockholder withdraws or effectively loses
the right to dissent.
Following the effective time of the merger, Acadia will cause a
letter of transmittal to be mailed to all holders of PHC
Class A Common Stock and Class B Common Stock
containing instructions for surrendering their certificates.
Certificates should not be surrendered until the letter of
transmittal is received, fully completed and returned as
instructed in the letter of transmittal.
We do not believe that notification will be required under the
Hart-Scott-Rodino
Antitrust Act of 1976, as amended (the “HSR Act”), and
the rules promulgated thereunder. However, given uncertainties
regarding the future market price of the publicly traded stock
of PHC and the uncertain closing date, we cannot currently
predict with certainty whether notification will be required
under the HSR Act. If such notification is required, the merger
cannot be completed until each of Acadia and PHC files a
notification and report form with the FTC and the Antitrust
Division of the Department of Justice under the HSR Act and the
applicable waiting period has expired or been terminated.
Acadia
and/or
PHC
currently intend to obtain approvals from, file new license
and/or
permit applications with, or provide notice to applicable
governmental authorities in connection with the merger. The
approval of such governmental authorities, if any, is not a
condition to Acadia or PHC’s obligation to complete the
merger except where the failure to obtain any such approval
would reasonably be expected to have a “Pioneer Material
Adverse
Effect” or an “Acadia Material Adverse Effect”
(each as defined in the merger agreement) or a material adverse
effect on the parties’ ability to consummate such
transactions.
In connection with the merger, a putative stockholder class
action lawsuit (as amended) has been filed in Massachusetts
state court. A second lawsuit has also been filed in federal
district court in Massachusetts making essentially the same
allegations against the same defendants. PHC, Acadia and Merger
Sub believe that these lawsuits are without merit and intend to
defend them vigorously.
Upon completion of the merger, PHC stockholders will become
stockholders of Acadia. The internal affairs of Acadia will be
governed by Acadia’s amended and restated certificate of
incorporation and amended and restated bylaws attached hereto as
Annexes D and E. The internal affairs of PHC are governed
by PHC’s restated articles of organization and bylaws. Due
to differences between the governing documents of Acadia and
PHC, the merger will result in PHC stockholders having different
rights once they become Acadia stockholders.
If you have any questions about the mergers or the other
transactions contemplated by the merger agreement or, if you are
a PHC stockholder, how to submit your proxy or would like
additional copies of this proxy statement/prospectus, you should
contact PHC’s proxy solicitor:
Georgeson Inc.
199 Water Street, 26th Floor
New York, New York
10038-3560
Banks and Brokers Call (212) 440-9800
All Others Call Toll-Free (888) 658-3624
The following table sets forth summary historical condensed
consolidated financial data for Acadia Healthcare Company, Inc.
and its subsidiaries on a consolidated basis for the periods
ended and at the dates indicated and does not give effect to
YFCS operating results prior to April 1, 2011 or the
consummation of the merger. Acadia has derived the historical
consolidated financial data as of December 31, 2009 and
2010 and for each of the three years in the period ended
December 31, 2010 from Acadia Healthcare Company,
LLC’s audited consolidated financial statements included
elsewhere in this proxy statement/prospectus. Acadia has derived
the summary consolidated financial data as of and for the six
months ended June 30, 2010 and 2011 from Acadia Healthcare
Company, Inc.’s unaudited interim condensed consolidated
financial statements included elsewhere in this proxy
statement/prospectus. Acadia has derived the summary
consolidated financial data as of December 31, 2008 from Acadia
Healthcare Company, LLC’s audited consolidated financial
statements not included in this proxy statement/prospectus. The
results for the six months ended June 30, 2010 and 2011 are
not necessarily indicative of the results that may be expected
for the entire fiscal year. The summary consolidated financial
data below should be read in conjunction with “Acadia
Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” “Unaudited Pro Forma
Condensed Combined Financial Statements” and Acadia
Healthcare Company, LLC’s consolidated financial statements
and the notes thereto included elsewhere in this proxy
statement/prospectus. On May 13, 2011, Acadia Healthcare
Company, LLC elected to convert to a corporation (Acadia
Healthcare Company, Inc.) in accordance with Delaware law.
Six Months Ended
Year Ended December 31,
June 30,
2008
2009
2010
2010
2011
($ in thousands)
Income Statement Data:
Net patient service revenue
$
33,353
$
51,821
$
64,342
$
32,472
$
82,961
Salaries, wages and benefits*
22,342
30,752
36,333
18,374
70,538
Professional fees
952
1,977
3,612
1,240
3,130
Provision for doubtful accounts
1,804
2,424
2,239
1,186
1,002
Other operating expenses**
8,328
12,116
13,286
6,523
23,406
Depreciation and amortization
740
967
976
480
2,201
Interest expense, net
729
774
738
358
2,215
Income (loss) from continuing operations, before income taxes
(1,542
)
2,811
7,158
4,311
(19,531
)
Income tax provision (benefit)
20
53
477
287
2,517
Income (loss) from continuing operations
(1,562
)
2,758
6,681
4,024
(22,048
)
(Loss) income from discontinued operations, net of income taxes
(156
)
119
(471
)
96
(58
)
Net income (loss)
$
(1,718
)
$
2,877
$
6,210
$
4,120
$
(22,106
)
December 31,
June 30,
2008
2009
2010
2010
2011
($ in thousands)
Balance Sheet Data (as of end of period):
Cash and equivalents
$
45
$
4,489
$
8,614
$
6,961
$
3,456
Total assets
32,274
41,254
45,412
42,938
266,643
Total debt
11,062
10,259
9,984
10,103
140,313
Total members’ equity
15,817
21,193
25,107
22,781
73,863
*
Salaries, wages and benefits for the six months ended
June 30, 2011 includes $19.8 million of equity-based
compensation expense recorded related to equity units issued in
conjunction with the YFCS acquisition.
**
Expenses of $8.4 million related to the YFCS acquisition
and PHC merger are reflected in other operating expenses for the
six months ended June 30, 2011.
The following table sets forth summary historical condensed
consolidated financial data for YFCS and its subsidiaries on a
consolidated basis for the periods ended and at the dates
indicated and does not give effect to Acadia’s acquisition
of YFCS or the consummation of the merger . Acadia has derived
the historical consolidated financial data as of
December 31, 2009 and 2010 and for each of the three years
in the period ended December 31, 2010 from YFCS’
audited consolidated financial statements included elsewhere in
this proxy statement/prospectus. Acadia has derived the summary
consolidated financial data as of and for the three months ended
March 31, 2010 and 2011 from YFCS’ unaudited interim
condensed consolidated financial statements included elsewhere
in this proxy statement/prospectus. Acadia has derived the
summary consolidated financial data as of December 31, 2008 from
YFCS’ audited consolidated financial statements not
included in this proxy statement/prospectus. The results for the
three months ended March 31, 2010 and 2011 are not
necessarily indicative of the results that may have been
expected for the entire fiscal year. The summary financial data
below should be read in conjunction with “Acadia
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — YFCS Acquisition” and
“Unaudited Pro Forma Condensed Combined Financial
Statements” and YFCS’ consolidated financial
statements and the notes thereto included elsewhere in this
proxy statement/prospectus.
Three Months Ended
Year Ended December 31,
March 31,
2008
2009
2010
2010
2011
($ in thousands)
Income Statement Data:
Revenue
$
180,646
$
186,586
$
184,386
$
45,489
$
45,686
Salaries and benefits
110,966
113,870
113,931
27,813
29,502
Other operating expenses
37,704
37,607
38,146
8,944
9,907
Provision for bad debts
1,902
(309
)
525
56
208
Interest expense
12,488
9,572
7,514
1,954
1,726
Depreciation and amortization
9,419
7,052
3,456
914
819
Impairment of goodwill
—
—
23,528
—
—
Income (loss) from continuing operations, before income taxes
8,167
18,794
(2,714
)
5,808
3,524
Provision for income taxes
3,132
7,133
5,032
2,267
1,404
Income (loss) from continuing operations
5,035
11,661
(7,746
)
3,541
2,120
Income (loss) from discontinued operations, net of income taxes
The following table sets forth summary historical condensed
consolidated financial data for PHC and its subsidiaries on a
consolidated basis for the periods ended and at the dates
indicated and does not give effect to the acquisition of
MeadowWood (substantially all of the assets of HHC Delaware)
completed on July 1, 2011 or the consummation of the
merger. The consolidated financial statements of HHC Delaware
and notes related thereto are included elsewhere in this proxy
statement/prospectus. PHC has derived the historical
consolidated financial data as of June 30, 2010 and 2011
and for each of the two years in the period ended June 30,
2011 from PHC’s audited financial statements included
elsewhere in this proxy statement/prospectus. Certain amounts
for all periods presented have been reclassified to be
consistent with Acadia’s financial information. PHC has
derived the historical consolidated financial data as of
June 30, 2009 and for the year ended June 30, 2009
from PHC’s audited financial statements not included in
this proxy statement/prospectus. The summary financial data
below should be read in conjunction with the “PHC
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Unaudited Pro Forma
Condensed Combined Financial Statements” and PHC’s
consolidated financial statements and the notes thereto included
elsewhere in this proxy statement/prospectus.
Summary
Unaudited Pro Forma Condensed Combined Financial
Data
The following summary unaudited pro forma condensed combined
statements of operations for the six months ended June 30,
2011 and year ended December 31, 2010 reflect
(i) Acadia’s acquisition of YFCS on April 1,
2011, (ii) PHC’s acquisition of MeadowWood on
July 1, 2011 and (iii) consummation of the merger and
related transactions, as if the transactions had occurred on
June 30, 2011 for the unaudited pro forma combined balance
sheet and January 1, 2010 for the unaudited pro forma
condensed statements of operations. The YFCS acquisition is
reflected in Acadia’s consolidated balance sheet as of
June 30, 2011 and the following unaudited pro forma
condensed combined balance sheet data as of June 30, 2011
reflects the MeadowWood acquisition and the consummation of the
merger and related transactions as if each had occurred on
June 30, 2011.
The unaudited pro forma condensed combined financial data is
based on the historical financial statements of Acadia, YFCS,
PHC and HHC Delaware and certain assumptions and adjustments as
discussed in the section entitled “Unaudited Pro Forma
Condensed Combined Financial Information” beginning on
page 37 of this proxy statement/prospectus, including
assumptions relating to the fair value of consideration
transferred, assets acquired and liabilities assumed in the
acquisitions of YFCS, MeadowWood and PHC. MeadowWood was
acquired in an asset acquisition. The assets acquired consisted
of substantially all of the assets of HHC Delaware. The pro
forma adjustments reflect the elimination of any assets of HHC
Delaware not acquired by PHC. The fiscal years of Acadia, YFCS
and HHC Delaware end December 31 while the fiscal year of PHC
ends on June 30. The combined company will use
Acadia’s fiscal year ending December 31. The unaudited
pro forma condensed combined balance sheet data combines
Acadia’s unaudited consolidated balance sheet as of
June 30, 2011 with the consolidated balance sheet of PHC
and the unaudited condensed consolidated balance sheet of HHC
Delaware as of June 30, 2011. The unaudited pro forma
condensed combined statement of operations for the year ended
December 31, 2010 combines Acadia’s audited
consolidated statement of operations for the year ended
December 31, 2010 with the audited consolidated statement
of operations of YFCS for the year ended December 31, 2010,
the audited consolidated statement of operations of HHC
Delaware for the year ended December 31, 2010 and the
unaudited condensed consolidated statement of operations of PHC
for the twelve months ended December 31, 2010 (which was
derived from the audited consolidated statement of operations of
PHC for the fiscal year ended June 30, 2010 less the
unaudited condensed consolidated statement of operations of PHC
for the six months ended December 31, 2009 plus the
unaudited condensed consolidated statement of operations of PHC
for the six months ended December 31, 2010). The unaudited
pro forma condensed combined statement of operations for the six
months ended June 30, 2011 combines Acadia’s unaudited
condensed consolidated statement of operations for the six
months ended June 30, 2011 with the unaudited condensed
consolidated statement of operations of YFCS from
January 1, 2011 through the date of the YFCS acquisition,
the unaudited condensed consolidated statement of operations of
HHC Delaware for the six months ended June 30, 2011 and
the unaudited condensed consolidated statement of operations of
PHC for the six months ended June 30, 2011 (which was
derived from the audited consolidated statement of operations of
PHC for the fiscal year ended June 30, 2011 less the
unaudited condensed consolidated statement of operations of PHC
for the six months ended December 31, 2010). The
adjustments necessary to fairly present the unaudited pro forma
condensed combined financial data have been made based on
available information and in the opinion of management are
reasonable. Assumptions underlying the pro forma adjustments are
described in the section of this proxy statement/prospectus
entitled “Unaudited Pro Forma Condensed Combined Financial
Information” beginning on page 37 of this proxy
statement/prospectus. and other information included in this
proxy statement/prospectus. The following should be read in
conjunction with the “Selected Historical Financial
Information,” “Acadia Management’s Discussion and
Analysis of Financial Condition and Results of Operations,”
“PHC Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” the consolidated
financial statements and the notes thereto included elsewhere in
this proxy statement/prospectus and other information included
in this proxy statement/prospectus.
Preliminary estimates of the fair value of assets acquired and
liabilities assumed in the YFCS, MeadowWood and PHC acquisitions
have been incorporated into the unaudited condensed combined
financial information. The finalization of the fair value of
assets acquired and liabilities assumed will most likely result
in changes in the values assigned to property and equipment and
other assets acquired and liabilities assumed. The unaudited pro
forma condensed combined financial data is for illustrative
purposes only and does not purport to represent what
Acadia’s
financial position or results of operations actually would have
been had the events noted above in fact occurred on the assumed
dates or to project our financial position or results of
operations for any future date or future period.
December 31, 2010
June 30, 2011
($ in thousands)
(Unaudited)
(Unaudited)
Unaudited Pro Forma Condensed Combined Statement of
Operations Data:
Revenue
$
320,298
$
168,493
Salaries, wages and benefits
189,000
121,587
Professional fees
18,245
9,180
Supplies
15,305
8,152
Rent
10,046
5,219
Other operating expenses
32,723
17,683
Provision for doubtful accounts
6,141
3,292
Depreciation and amortization
5,977
2,378
Interest expense, net
22,467
11,270
Impairment of goodwill
23,528
—
Sponsor management fees
90
Legal settlement
—
446
Total expenses
323,432
179,297
Income (loss) from continuing operations before income taxes
(3,134
)
(10,804
)
Provision for income taxes
5,019
6,473
Income (loss) from continuing operations
$
(8,153
)
$
(17,277
)
Unaudited Pro Forma Condensed Combined Balance Sheet Data (as
of June 30, 2011):
Cash and equivalents
$
7,474
Total assets
358,442
Total debt
290,313
Total stockholders’ equity
7,424
The foregoing unaudited pro forma condensed combined financial
data does not give effect to any anticipated cost savings or
synergies. For a discussion of anticipated cost savings and
synergies, see page 133 in “Acadia Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Anticipated Synergies, Cost Savings and
Revenue Improvements.”
The following are some questions that you, as a stockholder
of PHC, may have regarding the merger and the other matters
being considered at the special meeting and brief answers to
those questions. Acadia and PHC urge you to read carefully the
remainder of this proxy statement/prospectus, including the
documents attached to this proxy statement/prospectus.
Q:
Why are Acadia and PHC proposing the merger? (See
pages 57 and 58)
A:
Acadia and PHC are proposing the merger because they believe the
resulting combined company will be a stronger, more competitive
company capable of achieving greater financial strength, earning
power, access to capital and growth potential than either
company would have separately.
Acadia and PHC believe that the merger may result in a number of
benefits, including the following positive factors that they
believe will contribute to the success of the combined
enterprise:
• the opportunity to diversify service types and payor
mix;
• the ability to expand the number of facilities and
beds and expand into additional new states;
• Acadia’s and PHC’s facilities are
complementary and their combination will increase geographic
diversity;
• the increased ability to access private and public
equity markets, including for purposes of acting on attractive
opportunities to further expand Acadia’s business;
• Acadia’s management will provide additional
resources and has a demonstrated record of achievement;
• the opportunity to expand PHC’s internet and
telephonic-based support services, which include crisis
intervention, critical incidents coordination, employee
counselor support, client monitoring, case management and health
promotion; and
• the opportunity for PHC stockholders to own 22.5% of
the combined company on a fully diluted basis (as defined in the
merger agreement).
Q:
What percentage of Acadia will the former PHC stockholders
own collectively immediately following the merger? (See
page 53)
A:
Upon completion of the merger, Acadia stockholders will retain
77.5% and the former PHC stockholders will own 22.5% of the
combined company’s common stock issued and outstanding on a
fully diluted basis (as defined in the merger agreement).
Q:
What will PHC stockholders receive in exchange for PHC common
stock in the merger? (See page 85)
A:
Each share of PHC Class A Common Stock issued and
outstanding immediately prior to the effective time will be
converted into and become exchangeable for one-quarter
(
1
/
4
)
of one fully paid and nonassessable share of Acadia common
stock, par value $0.01 per share. Each share of PHC Class B
Common Stock issued and outstanding immediately prior to the
effective time will be converted into and become exchangeable
for (x) one-quarter
(
1
/
4
)
of one fully paid and nonassessable share of Acadia common
stock, par value $0.01 per share and (y) and an amount of
cash equal to $5.0 million
divided by
the aggregate
number of issued and outstanding shares of PHC Class B
Common Stock immediately prior to the effective time of the
merger (other than (i) any shares of PHC Class B
Common Stock to be cancelled pursuant to the merger agreement
and (ii) any share of PHC Class B Common Stock owned
by a subsidiary of PHC). Based on shares of PHC Class B
Common Stock outstanding as of May 23, 2011, this
calculation would have resulted in a cash payment of $6.46 per
share of PHC Class B Common Stock.
Q:
Will PHC stockholders be able to trade the Acadia common
stock that they receive in the merger? (See page 94)
A:
Yes. Each of Acadia and PHC have agreed to cooperate and use
reasonable best efforts to take all actions necessary to
authorize for listing on NASDAQ the shares of Acadia common
stock to be issued in the merger or if such listing is not
possible, to be listed on NYSE Amex Stock Market or another
securities exchange. In
addition, it is a condition to completion of the merger that the
shares of Acadia common stock to be issued in the merger are
authorized for listing on a national securities exchange or
eligible for trading on the over the counter bulletin board.
Acadia has applied to be listed on NASDAQ under the symbol
‘‘ACHC.” Please see the risk factors beginning on
page 18 for a discussion of risks associated with these
listings.
Q:
Who will be the directors of Acadia following the merger?
(See page 103)
A:
Except as set forth below the following persons will be
appointed to the Acadia board of directors as of immediately
prior to the effective time of the merger and nominated for
re-election and elected to the Acadia board of directors as
follows: (i) Mr. Jacobs, as a Class III director
and, after the expiration of his initial term as a director, for
so long as he serves as the chief executive officer of Acadia or
any of its subsidiaries; (ii) Mr. Shear, as a
Class III director and, after the expiration of his initial
term as a director, for one additional three-year term as a
Class III director; (iii) Mr. Grieco, a
Class II director designated by Mr. Shear and a
current director of PHC; and (iv) four directors designated
by Waud Capital Partners pursuant to the stockholders agreement
to be entered into in connection with the consummation of the
merger; provided that (A) so long as Waud Capital Partners
retains voting control over at least 50% of the outstanding
voting securities of Acadia, Waud Capital Partners will have the
right to designate seven directors, four of which will be
Class I directors and three of which will be Class II
directors and (B) in the event Waud Capital Partners ceases to
have voting control over at least 50% of the outstanding voting
securities of Acadia, Waud Capital Partners will have the right
to designate such number of directors of the total authorized
number of directors in proportion to the total number of shares
of Acadia over which Waud Capital Partners retains voting
control relative to the total number of shares of Acadia then
issued and outstanding (with the number of representatives
rounded up to the next whole number in all cases); provided that
all such rights will terminate when Waud Capital Partners ceases
to hold at least 17.5% of Acadia’s outstanding voting
securities.
Q:
What constitutes a quorum for the special meeting? (See
page 51)
A:
A majority of the votes entitled to be cast by holders of issued
and outstanding shares of PHC common stock must be present or
represented by proxy to constitute a quorum for action on each
of the matters to be voted upon at the special meeting. All
shares of PHC common stock represented at the special meeting,
including abstentions and broker non-votes, will be treated as
present for purposes of determining the presence or absence of a
quorum for all matters voted on at the special meeting of the
PHC stockholders.
Q:
What stockholder approval is needed to complete the merger?
(See page 50)
A:
Approval of the merger agreement requires an affirmative vote of
(i) at least two-thirds of the outstanding Class A
Common Stock and Class B Common Stock entitled to vote,
voting as a single class, (ii) at least two-thirds of the
outstanding Class A Common Stock entitled to vote, voting
as a single class and (iii) at least two-thirds of the
outstanding Class B Common Stock entitled to vote, voting
as a single class.
Each record holder of shares of PHC Class A Common Stock
will be entitled at the special meeting to one vote for each
share of PHC Class A Common Stock held on the record date.
Each record holder of shares of PHC Class B Common Stock
will be entitled at the special meeting to five votes for each
share of PHC Class B Common Stock held on the record date
on any matter on which they vote together with the holders of
the Class A Common Stock.
Q:
What vote of PHC’s stockholders is required to approve
the non-binding, advisory proposal regarding certain
merger-related executive compensation arrangements? (See
pages 50 and 200)
A:
Approval of the non-binding, advisory proposal regarding certain
merger-related executive compensation arrangements requires the
affirmative vote of holders of majority of the outstanding
shares of PHC Class A Common Stock and the outstanding
shares of PHC Class B Common Stock present and voting
(voting together, with the shares of Class B Common Stock
casting five votes for each share held). Stockholders should
note that the proposal regarding certain merger-related
executive compensation arrangements is merely an advisory vote
which will not be binding on PHC, Acadia or the Acadia board of
directors.
After reading and considering the information contained in and
incorporated into this proxy statement/prospectus, please submit
your proxy card according to the instructions on the enclosed
proxy card as soon as possible. If you do not submit a proxy
card or attend the special meeting and vote in person, your
shares will not be represented or voted at the meeting. This
will have the same effect as voting against the proposal to
approve the merger agreement.
Q:
If my shares of PHC common stock are held in “street
name” by my bank or broker, will my bank or broker vote my
shares for me? (See page 51)
A:
Your bank or broker will vote your shares only if you provide
instructions on how to vote by following the information
provided to you by your bank or broker.
Without instructions from you on how to vote your shares, your
bank or broker will not have discretionary authority to vote
your shares on the matters currently proposed to be presented at
the special meeting. As a result, your bank or broker may
deliver a proxy card expressly indicating that it is NOT voting
your shares. This indication that a broker is not voting your
shares is referred to as a “broker non-vote.” Broker
non-votes will be counted for the purpose of determining the
presence or absence of a quorum at the special meeting. However,
a broker non-vote will not be entitled to vote on the proposal
to approve the merger agreement, and thus a broker non-vote will
have the effect of a vote against this proposal.
Q:
What will happen if I abstain from voting or fail to vote?
(See page 51)
A:
With respect to the proposal to approve the merger agreement, if
you abstain from voting on the proposal, fail to cast your vote
in person or by proxy or if your shares are held by your broker
or other nominee (i.e., in “street name”) and you fail
to give voting instructions to your broker or other nominee on
how to vote your shares, it will have the same effect as a vote
“AGAINST” the proposal to approve the merger agreement.
With respect to the non-binding, advisory proposal regarding
certain merger-related executive compensation and the proposal
to approve any adjournment of the special meeting for the
purpose of soliciting additional proxies, if you abstain from
voting on either proposal, fail to cast your vote in person or
by proxy or if you hold your shares in “street name”
and fail to give voting instructions to your broker or other
nominee on how to vote your shares, it will not have any effect
on the outcome of the vote on such proposal.
Q:
If I am a PHC stockholder, what do I do if I want to change
my vote after I have submitted my proxy? (See page 52)
A:
You may change your vote at any time before your proxy is voted
at the special meeting. There are three ways for you to do this:
• by delivering to the clerk of PHC a signed notice
that you wish to revoke your proxy;
• by delivering to the clerk of PHC a signed and
later-dated proxy; or
• by attending the special meeting and voting in
person.
If your shares are held in “street name” by a bank or
broker and you have instructed your bank or broker to vote your
shares, you must follow your bank’s or broker’s
instructions to change your vote.
Q:
When do you expect the merger to be completed? (See
page 85)
A:
PHC and Acadia are working to complete the merger as quickly as
possible. Acadia and PHC expect to complete the merger in the
fourth quarter of 2011.
Q:
Will the merger trigger the recognition of gain or loss for
United States federal income tax purposes for PHC stockholders?
(See page 77)
A:
The closing of the merger is conditioned upon the receipt by PHC
and Acadia of legal opinions that the merger will constitute a
reorganization for United States federal income tax purposes.
Assuming the merger constitutes a reorganization, subject to the
limitations and qualifications described in “The
Merger — Material United States Federal Income Tax
Consequences of the Merger,” PHC stockholders whose shares
of PHC common
stock are exchanged in the merger solely for shares of Acadia
common stock will not recognize capital gain or loss for United
States federal income tax purposes on the exchange (except to
the extent they receive cash in lieu of a fractional share of
Acadia common stock), and PHC stockholders whose shares of PHC
common stock are exchanged in the merger for shares of Acadia
common stock and cash will recognize capital gain (but not loss)
realized on the exchange in an amount not exceeding the amount
of cash received (excluding cash received in lieu of a
fractional share of Acadia common stock). The tax consequences
to PHC stockholders will depend on each stockholder’s own
circumstances. This tax treatment may not apply to certain PHC
stockholders, as described in “The Merger —
Material United States Federal Income Tax Consequences of the
Merger.” Determining the actual tax consequences of the
merger to you may be complex and will depend on the facts of
your own situation. You should consult your own tax advisors to
fully understand the tax consequences to you of the merger,
including estate, gift, state, local or
non-United
States tax consequences of the merger.
Q:
Should PHC stockholders send in their stock certificates now?
(See page 87)
A:
No. After the merger is completed, Acadia will send you
written instructions for exchanging your PHC stock certificates
for Acadia stock certificates.
Q:
Whom should I call with questions? (See page 51)
A:
Georgeson Inc.
199 Water Street, 26th Floor
New York, New York
10038-3560
Banks and Brokers Call
(212) 440-9800
All Others Call Toll-Free (888) 658-3624
You should carefully consider the following risk factors,
together with all of the other information included in this
proxy statement/prospectus, before you decide whether to vote or
direct your vote to be cast to approve the merger or the merger
agreement. References to “we,” “us” and
“our” in this “Risk Factor” section refer to
the operations of the combined company following completion of
the merger.
The
directors and executive officers of PHC have interests that
differ from those of PHC stockholders.
The directors and executive officers of PHC have interests in
the merger as individuals that are different from, and in
addition to, the interests of PHC stockholders generally,
including the following:
•
Holders of Class B Common Stock of PHC will receive
$5.0 million in aggregate cash consideration for shares of
Class B Common Stock exchanged for shares of Acadia common
stock in the merger. Mr. Shear, PHC’s current Chief
Executive Officer, beneficially owns approximately 93.2% of
PHC’s Class B Common Stock and will be entitled to
receive cash merger consideration of approximately
$4.7 million;
•
Mr. Shear, Mr. Boswell, PHC’s current Senior Vice
President, and Ms. Wurts, PHC’s current Chief
Financial Officer, are participants in the PHC
change-in-control
supplemental benefit plan. Pursuant to such plan, upon the
closing of the merger, Mr. Shear, Mr. Boswell and
Ms. Wurts are entitled to receive certain change in control
payments in the amount of approximately $1,530,000, $465,000 and
$408,000, respectively;
•
Mr. Shear, Mr. Boswell and Ms. Wurts hold stock
options to purchase shares of PHC Class A Common Stock,
subject to various vesting provisions. Pursuant to the merger
agreement, upon completion of the merger, Acadia will assume
these options in accordance with their existing terms, with the
number of shares and the exercise prices adjusted in accordance
with the merger exchange rate. Mr. Shear currently holds
170,000 options exercisable at prices ranging from $1.08 per
share to $2.95 per share, Mr. Boswell currently holds
85,000 options exercisable at prices ranging from $1.08 per
share to $2.95 per share and Ms. Wurts currently holds
85,000 options exercisable at prices ranging from $1.08 per
share to $2.95 per share;
•
Upon the closing of the merger, notwithstanding the terms and
conditions of the corresponding PHC stock option plan or as
otherwise set forth in a stock option agreement, with respect to
the assumed PHC options granted to current PHC directors other
than Mr. Shear, (i) all such assumed options will be
fully vested at closing, and (ii) such assumed options will
not terminate as a result of such holder ceasing or failing to
be a director or employee and will be fully exercisable at any
time prior to the expiration of the option term;
•
Upon the closing of the merger, notwithstanding the terms and
conditions of the corresponding stock option plan or otherwise
set forth in Mr. Shear’s stock option agreement, with
respect to the assumed PHC options granted to Mr. Shear,
(i) all such assumed options shall be subject to the same
vesting conditions to which they were subject prior to the
assumption and (ii) the vested portion of such assumed
options will not terminate as a result of Mr. Shear ceasing
or failing to become a director or employee and, subject to
satisfaction of the vesting conditions, will be fully
exercisable at any time prior to the expiration of the option
term;
•
Upon the closing of the merger, Mr. Shear will become a
director of Acadia and the Executive Vice Chairman of the Acadia
board of directors and Mr. Boswell will become
Acadia’s Senior Vice President and their new employment
agreements will become effective upon the closing of the
merger; and
•
Acadia will maintain all rights to indemnification existing in
favor of the directors and officers of PHC and its subsidiaries
for their acts and omissions occurring prior to the completion
of the merger and will maintain the directors’ and
officers’ liability insurance to cover any such liabilities
for six years following the completion of the merger.
In addition, you should be aware that Mr. Shear has a
significant relationship with PHC due to his position as a
current director of PHC and will have a significant relationship
with Acadia following the merger as a future director of Acadia,
which is why his assumed options will be treated differently
than those of the other PHC
directors. This relationship may have influenced his decision to
vote his PHC Class B Common Stock in favor of the merger
agreement. Mr. Shear abstained from the vote of the PHC
directors on the merger.
PHC stockholders should consider whether these interests may
have influenced these directors and executive officers to vote
in favor of the merger agreement and to recommend that PHC
stockholders vote in favor of the merger agreement.
Following
the merger the combined company will have a substantial amount
of indebtedness, which could adversely affect our financial
health.
Following the merger the combined company will have a
substantial amount of indebtedness. As of June 30, 2011, on
a pro forma basis giving effect to the merger, the combined
company would have had approximately $290 million of total
indebtedness and approximately $23 million of available
borrowing capacity under its revolving credit facility. Between
$80.0 million and $90.0 million of Acadia’s
borrowings under the Senior Notes
and/or
Bridge Facility shall be used to pay a dividend to Acadia’s
existing shareholders and to make a payment to Waud Capital
Partners in connection with the termination of the Professional
Services Agreement. For a description of the expected financing
for the merger, see “The Merger — Acadia’s
Financing for the Merger” and “Unaudited Pro Forma
Condensed Consolidated Financial Statements.”
Our substantial level of indebtedness could have important
consequences to you. For example, it could:
•
increase our vulnerability to adverse economic and industry
conditions;
•
limit our ability to obtain additional financing for future
working capital, capital expenditures, raw materials, strategic
acquisitions and other general corporate requirements;
•
expose us to interest rate fluctuations because the interest on
the debt under our the Senior Secured Credit Facility is imposed
at variable rates;
•
require us to dedicate a substantial portion of our cash flow
from operations to payments on our debt (including scheduled
repayments on our outstanding term loan borrowings under the
Senior Secured Credit Facility), thereby reducing the
availability of our cash flow for operations and other purposes;
•
make it more difficult for us to satisfy our obligations to our
lenders, resulting in possible defaults on and acceleration of
such indebtedness;
•
limit our ability to refinance indebtedness or increase the
associated costs;
•
require us to sell assets to reduce debt or influence our
decision about whether to do so;
•
limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate or prevent
us from carrying out capital spending that is necessary or
important to our growth strategy and efforts to improve
operating margins or our business; and
•
place us at a competitive disadvantage compared to any
competitors that have less debt or comparable debt at more
favorable interest rates and that, as a result, may be better
positioned to withstand economic downturns.
We
will incur substantial expenses related to the merger and issue
a significant cash dividend to Acadia’s stockholders prior
to the merger in connection with the merger.
Acadia and PHC estimate that they will incur aggregate costs of
approximately $40.6 million associated with the merger, as
well as severance costs relating to employees of PHC of
approximately $3.7 million. In addition, the combined
company expects to incur certain costs in connection with the
integration of the two companies. Such costs cannot now be
reasonably estimated, because they depend on future decisions to
be made by management of the combined company, but they could be
material. Between $80.0 million and $90.0 million of
Acadia’s borrowings under the Senior Notes
and/or
Bridge Facility shall be used to pay a dividend to Acadia’s
existing shareholders and to make a payment to Waud Capital
Partners in connection with the termination of the Professional
Services Agreement.
PHC
stockholders will have a reduced ownership and voting interest
after the merger and will exercise less influence over
management of the combined company following the
merger.
After the merger, PHC stockholders will own a significantly
smaller percentage of Acadia than they currently own of PHC.
Following completion of the merger, PHC stockholders will own
22.5% of the combined company on a fully diluted basis (as
defined in the merger agreement). Consequently, PHC stockholders
will be able to exercise less influence over the management and
policies of Acadia than they currently exercise over the
management and policies of PHC.
If we
do not successfully integrate the operations of Acadia and PHC
and realize the expected benefits of the merger, our results of
operations could be adversely affected.
Achieving the expected benefits of the merger will depend in
part upon the retention of the chief executive officer, chief
financial officer, medical director, physicians and other key
personnel at the facilities owned and operated by Acadia and PHC
and the successful integration of the operations, medical and
management personnel, suppliers and technology of Acadia and PHC
in a timely and efficient manner. Retention and integration
efforts may be difficult and unpredictable because of possible
cultural conflicts and different opinions on technical
decisions, strategic plans and other decisions. We do not know
whether we will be successful in these retention and integration
efforts and cannot give assurances that we will realize the
expected benefits of the merger.
In addition, successful integration of the operations of Acadia
and PHC may place a significant burden on our management and
internal resources. The diversion of management’s attention
and any difficulties encountered in the transition and
integration process could have an adverse effect on the future
business, financial condition and operating results of the
combined company.
Although
the PHC board of directors received a “fairness
opinion” with respect to some aspects of the merger
consideration, the opinion is limited and does not address the
“fairness” of all aspects of the merger.
SRR has delivered to the PHC board of directors an opinion dated
May 19, 2011 to the effect that, as of that date and
subject to the assumptions made, matters considered and
limitations as set forth therein, (i) the merger
consideration to be received by the holders of outstanding
shares of PHC’s Class A Common Stock and Class B
Common Stock (in the aggregate) was fair, from a financial point
of view, to such holders, and (ii) the merger consideration
to be received by the holders of the outstanding shares of
PHC’s Class A Common Stock (in the aggregate) was
fair, from a financial point of view, to such holders. SRR was
not requested to opine as to, and its opinion does not in any
manner address: (A) PHC’s underlying business decision
to proceed with or effect the merger, (B) the amount of the
merger consideration to be paid to holders of PHC’s
Class B Common Stock, the amount of any distribution paid
to Acadia stockholders, the allocation of the merger
consideration among the PHC stockholders or the amount per share
of the merger consideration, the amount of the merger
consideration paid to the holders of PHC’s Class A
Common Stock relative to the merger consideration paid to the
holders of PHC’s Class B Common Stock or relative to
the merger consideration paid to all holders of PHC common
stock, the amount of any payments made to PHC directors,
officers or employees relative to the amount of the merger
consideration paid to the holders of PHC’s common stock or
any other term or condition or any agreement or document related
to, or the form or any other portion or aspect of, the merger,
except as expressly stated in its opinion letter, or
(C) the solvency, creditworthiness or fair value of PHC,
Acadia or any other participant in the merger under any
applicable laws relating to bankruptcy, insolvency or similar
matters.
Our
revenues and results of operations are significantly affected by
payments received from the government and third-party
payers.
A significant portion of our revenues is from the government,
principally Medicare and Medicaid. For the year ended
December 31, 2010, Acadia derived approximately 68% of its
revenues (on a pro forma basis giving effect to the YFCS
acquisition) from the Medicare and Medicaid programs. PHC
derived approximately 27% of its revenues from such programs for
the fiscal year ended June 30, 2011 (on a pro forma basis
giving effect to the MeadowWood
acquisition). Changes in government health care programs may
reduce the reimbursement we receive and could adversely affect
our business and results of operations.
Changes in these government programs in recent years have
resulted in limitations on reimbursement and, in some cases,
reduced levels of reimbursement for healthcare services.
Payments from federal and state government programs are subject
to statutory and regulatory changes, administrative rulings,
interpretations and determinations, requirements for utilization
review, and federal and state funding restrictions, all of which
could materially increase or decrease program payments, as well
as affect the cost of providing service to patients and the
timing of payments to facilities. We are unable to predict the
effect of recent and future policy changes on our operations. In
addition, since most states operate with balanced budgets and
since the Medicaid program is often a state’s largest
program, some states can be expected to enact or consider
enacting legislation formulated to reduce their Medicaid
expenditures. Furthermore, the current economic downturn has
increased the budgetary pressures on the federal government and
many states, which may negatively affect the availability of
taxpayer funds for Medicare and Medicaid programs. If the rates
paid or the scope of services covered by government payers are
reduced, there could be a material adverse effect on our
business, financial position and results of operations.
On August 2, 2011, the Budget Control Act of 2011 (the
“Budget Control Act”) was enacted into law. The Budget
Control Act imposes annual spending limits on many federal
agencies and programs aimed at reducing budget deficits by
$917 billion between 2012 and 2021, according to a report
released by the Congressional Budget Office. The Budget Control
Act also establishes a bipartisan joint select committee of
Congress that is responsible for developing recommendations to
reduce future federal budget deficits by an additional $1.2
trillion over 10 years. If the joint select committee is
unable to reach an agreement,
across-the-board
cuts to mandatory and discretionary federal spending could be
automatically implemented, which could result in reductions of
payments to Medicare providers of up to 2%. We cannot predict if
reductions to future Medicare or other government payments to
providers will be implemented as a result of the Budget Control
Act or what impact, if any, the Budget Control Act will have on
our business or results of operations.
In addition to changes in government reimbursement programs, our
ability to negotiate favorable contracts with private payers,
including managed care providers, significantly affects the
revenues and operating results of our facilities.
We expect continued third-party efforts to aggressively manage
reimbursement levels and cost controls. Reductions in
reimbursement amounts received from third-party payers could
have a material adverse effect on our financial position and our
results of operations.
A
worsening of the economic and employment conditions in the
United States could materially affect our business and future
results of operations.
During periods of high unemployment, governmental entities often
experience budget deficits as a result of increased costs and
lower than expected tax collections. These budget deficits at
the federal, state and local levels have decreased, and may
continue to decrease, spending for health and human service
programs, including Medicare and Medicaid, which are significant
payer sources for our facilities. In periods of high
unemployment, we also face the risk of potential declines in the
population covered under managed care agreements, patient
decisions to postpone or decide against receiving behavioral
health services, potential increases in the uninsured and
underinsured populations we serve and further difficulties in
collecting patient co-payment and deductible receivables.
Furthermore, the availability of liquidity and credit to fund
the continuation and expansion of many business operations
worldwide has been limited in recent years. Our ability to
access the capital markets on acceptable terms may be severely
restricted at a time when we would like, or need, access to
those markets, which could have a negative impact on our growth
plans, our flexibility to react to changing economic and
business conditions and our ability to refinance existing debt
(including indebtedness under the Senior Secured Credit
Facility). The current economic downturn or other economic
conditions could also adversely affect the counterparties to our
agreements, including the lenders under the Acadia Senior
Secured Facility, causing them to fail to meet their obligations
to us.
If we
fail to comply with extensive laws and government regulations,
we could suffer penalties or be required to make significant
changes to our operations.
Our industry is required to comply with extensive and complex
laws and regulations at the federal, state and local government
levels relating to, among other things: billing practices and
prices for services; relationships with psychiatrists,
physicians and other referral sources; necessity and quality of
medical care; condition and adequacy of facilities;
qualifications of medical and support personnel;
confidentiality, maintenance and security issues associated with
health-related information and patient personal information and
medical records; the screening, stabilization
and/or
transfer of patients who have emergency medical conditions;
certification, licensure and accreditation of our facilities;
operating policies and procedures, activities regarding
competitors; and addition or expansion of facilities and
services.
Among these laws are the Anti-Kickback Statute, the Stark Law,
the federal False Claims Act and similar state laws. These laws,
and particularly the Anti-Kickback Statute and the Stark Law,
impact the relationships that we may have with psychiatrists and
other referral sources. We have a variety of financial
relationships with physicians who refer patients to our
facilities, including employment contracts, leases and
professional service agreements. These laws govern those
relationships. The Office of the Inspector General of the
Department of Health and Human Services (the “OIG”)
has enacted safe harbor regulations that outline practices that
are deemed protected from prosecution under the Anti-Kickback
Statute. While we endeavor to comply with applicable safe
harbors, certain of our current arrangements with physicians and
other referral sources may not qualify for safe harbor
protection. Failure to meet a safe harbor does not mean that the
arrangement necessarily violates the Anti-Kickback Statute, but
may subject it to greater scrutiny. We cannot offer assurances
that practices that are outside of a safe harbor will not be
found to violate the Anti-Kickback Statute. Allegations of
violations of the Anti-Kickback Statute may be brought under the
federal Civil Monetary Penalty Law, which requires a lower
burden of proof than other fraud and abuse laws, including the
Anti-Kickback Statute.
These laws and regulations are extremely complex, and, in many
cases, we do not have the benefit of regulatory or judicial
interpretation. In the future, it is possible that different
interpretations or enforcement of these laws and regulations
could subject our current or past practices to allegations of
impropriety or illegality or could require us to make changes in
our facilities, equipment, personnel, services, capital
expenditure programs and operating expenses. A determination
that we have violated one or more of these laws could subject us
to liabilities, including civil penalties (including the loss of
our licenses to operate one or more facilities), exclusion of
one or more facilities from participation in the Medicare,
Medicaid and other federal and state health care programs and,
for violations of certain laws and regulations, criminal
penalties. Even the public announcement that we are being
investigated for possible violations of these laws could have a
material adverse effect on our business, financial condition or
results of operations, and our business reputation could suffer.
In addition, we cannot predict whether other legislation or
regulations at the federal or state level will be adopted, what
form such legislation or regulations may take or what their
impact on us may be.
We may
be required to spend substantial amounts to comply with
legislative and regulatory initiatives relating to privacy and
security of patient health information and standards for
electronic transactions.
There are currently numerous legislative and regulatory
initiatives at the federal and state levels addressing patient
privacy and security concerns. In particular, federal
regulations issued under the Health Insurance Portability and
Accountability Act of 1996, or HIPAA, require our facilities to
comply with standards to protect the privacy, security and
integrity of health care information. These regulations have
imposed extensive administrative requirements, technical and
physical information security requirements, restrictions on the
use and disclosure of individually identifiable patient health
and related financial information and have provided patients
with additional rights with respect to their health information.
Compliance with these regulations requires substantial
expenditures, which could negatively impact our financial
results. In addition, our management has spent, and may spend in
the future, substantial time and effort on compliance measures.
Violations of the privacy and security regulations could subject
our inpatient facilities to civil penalties of up to $25,000 per
calendar year for each provision contained in the privacy and
security regulations that are violated and criminal penalties of
up to $250,000 per violation for certain other violations, in
each case with the size of such
penalty based on certain factors. Because there is no
significant history of enforcement efforts by the federal
government at this time, it is not possible to ascertain the
likelihood of enforcement efforts in connection with these
regulations or the potential for fines and penalties that may
result from the violation of the regulations.
We may
be subject to liabilities from claims brought against our
facilities.
We are subject to medical malpractice lawsuits and other legal
actions in the ordinary course of business. Some of these
actions may involve large claims, as well as significant defense
costs. We cannot predict the outcome of these lawsuits or the
effect that findings in such lawsuits may have on us. All
professional and general liability insurance we purchase is
subject to policy limitations. We believe that, based on our
past experience and actuarial estimates, our insurance coverage
is adequate considering the claims arising from the operations
of our facilities. While we continuously monitor our coverage,
our ultimate liability for professional and general liability
claims could change materially from our current estimates. If
such policy limitations should be partially or fully exhausted
in the future, or payments of claims exceed our estimates or are
not covered by our insurance, it could have a material adverse
effect on our operations.
We
have been and could become the subject of governmental
investigations, regulatory actions and whistleblower
lawsuits.
Healthcare companies are subject to numerous investigations by
various governmental agencies. Further, under the federal False
Claims Act, private parties are permitted to bring qui tam or
“whistleblower” lawsuits against companies that submit
false claims for payments to, or improperly retain overpayments
from, the government. Because qui tam lawsuits are filed under
seal, we could be named in one or more such lawsuits of which we
are not aware.
Certain of our facilities have received, and other facilities
may receive, government inquiries from, and may be subject to
investigation by, federal and state agencies. Depending on
whether the underlying conduct in these or future inquiries or
investigations could be considered systemic, their resolution
could have a material adverse effect on our financial position,
results of operations and liquidity.
If any of our existing health care facilities lose their
accreditation or any of our new facilities fail to receive
accreditation, such facilities could become ineligible to
receive reimbursement under Medicare or Medicaid.
The construction and operation of healthcare facilities are
subject to extensive federal, state and local regulation
relating to, among other things, the adequacy of medical care,
equipment, personnel, operating policies and procedures, fire
prevention, rate-setting and compliance with building codes and
environmental protection. Additionally, such facilities are
subject to periodic inspection by government authorities to
assure their continued compliance with these various standards.
We are
subject to uncertainties regarding recent health care reform,
which represents a significant change to the health care
industry.
On March 23, 2010, President Obama signed into law the
Patient Protection and Affordable Care Act (the
“PPACA”). The Healthcare and Education Reconciliation
Act of 2010 (the “Reconciliation Act”), which contains
a number of amendments to the PPACA, was signed into law on
March 30, 2010. Two primary goals of the PPACA, combined
with the Reconciliation Act (collectively referred to as the
“Health Reform Legislation”), are to provide for
increased access to coverage for healthcare and to reduce
healthcare-related expenses.
The expansion of health insurance coverage under the Health
Reform Legislation may increase the number of patients using our
facilities who have either private or public program coverage.
In addition, a disproportionately large percentage of new
Medicaid coverage is likely to be in states that currently have
relatively low income eligibility requirements and may include
states where we have facilities. Furthermore, as a result of the
Health Reform Legislation, there may be a reduction in uninsured
patients, which should reduce our expense from uncollectible
accounts receivable.
Notwithstanding the foregoing, the Health Reform Legislation
makes a number of other changes to Medicare and Medicaid which
we believe may have an adverse impact on us. The Health Reform
Legislation revises
reimbursement under the Medicare and Medicaid programs to
emphasize the efficient delivery of high quality care and
contains a number of incentives and penalties under these
programs to achieve these goals. The Health Reform Legislation
provides for decreases in the annual market basket update for
federal fiscal years 2010 through 2019, a productivity offset to
the market basket update beginning October 1, 2011 for
Medicare Part B reimbursable items and services and
beginning October 1, 2012 for Medicare inpatient hospital
services. The Health Reform Legislation will reduce Medicare and
Medicaid disproportionate share payments beginning in 2014,
which would adversely impact the reimbursement we receive under
these programs.
The various provisions in the Health Reform Legislation that
directly or indirectly affect reimbursement are scheduled to
take effect over a number of years. Health Reform Legislation
provisions are likely to be affected by the incomplete nature of
implementing regulations or expected forthcoming interpretive
guidance, gradual implementation, future legislation, and
possible judicial nullification of all or certain provisions of
the Health Reform Legislation. Further Health Reform Legislation
provisions, such as those creating the Medicare Shared Savings
Program and the Independent Payment Advisory Board, create
certain flexibilities in how healthcare may be reimbursed by
federal programs in the future. Thus, we cannot predict the
impact of the Health Reform Legislation on our future
reimbursement at this time.
The Health Reform Legislation also contains provisions aimed at
reducing fraud and abuse in healthcare. The Health Reform
Legislation amends several existing laws, including the federal
Anti-Kickback Statute (the “Anti-Kickback Statute”)
and the False Claims Act, making it easier for government
agencies and private plaintiffs to prevail in lawsuits brought
against healthcare providers. Congress revised the intent
requirement of the
Anti-Kickback
Statute to provide that a person is not required to “have
actual knowledge or specific intent to commit a violation
of” the Anti-Kickback Statute in order to be found guilty
of violating such law. The Health Reform Legislation also
provides that any claims for items or services that violate the
Anti-Kickback Statute are also considered false claims for
purposes of the federal civil False Claims Act. The Health
Reform Legislation provides that a healthcare provider that
knowingly retains an overpayment in excess of 60 days is
subject to the federal civil False Claims Act. The Health Reform
Legislation also expands the Recovery Audit Contractor program
to Medicaid. These amendments also make it easier for severe
fines and penalties to be imposed on healthcare providers that
violate applicable laws and regulations.
The impact of the Health Reform Legislation on each of our
facilities may vary. Because Health Reform Legislation
provisions are effective at various times over the next several
years and in light of federal lawsuits challenging the
constitutionality of the Health Reform Legislation, we
anticipate that many of the provisions in the Health Reform
Legislation may be subject to further revision or judicial
nullification. We cannot predict the impact the Health Reform
Legislation may have on our business, results of operations,
cash flow, capital resources and liquidity, or whether we will
be able to successfully adapt to the changes required by the
Health Reform Legislation.
We
operate in a highly competitive industry, and competition may
lead to declines in patient volumes.
The healthcare industry is highly competitive, and competition
among healthcare providers (including hospitals) for patients,
psychiatrists and other healthcare professionals has intensified
in recent years. There are other healthcare facilities that
provide behavioral and other mental health services comparable
to at least some of those offered by our facilities in each of
the geographical areas in which we operate. Some of our
competitors are owned by tax-supported governmental agencies or
by nonprofit corporations and may have certain financial
advantages not available to us, including endowments, charitable
contributions, tax-exempt financing and exemptions from sales,
property and income taxes.
If our competitors are better able to attract patients, recruit
and retain psychiatrists, physicians and other healthcare
professionals, expand services or obtain favorable managed care
contracts at their facilities, we may experience a decline in
patient volume and our business may be harmed.
The
trend by insurance companies and managed care organizations to
enter into sole source contracts may limit our ability to obtain
patients.
Insurance companies and managed care organizations are entering
into sole source contracts with healthcare providers, which
could limit our ability to obtain patients. Private insurers,
managed care organizations and, to a
lesser extent, Medicaid and Medicare, are beginning to carve-out
specific services, including mental health and substance abuse
services, and establish small, specialized networks of providers
for such services at fixed reimbursement rates. Continued growth
in the use of carve-out arrangements could materially adversely
affect our business to the extent we are not selected to
participate in such smaller specialized networks or if the
reimbursement rate is not adequate to cover the cost of
providing the service.
Our
performance depends on our ability to recruit and retain quality
psychiatrists and other physicians.
The success and competitive advantage of our facilities depends,
in part, on the number and quality of the psychiatrists and
other physicians on the medical staffs of our facilities and our
maintenance of good relations with those medical professionals.
Although we employ psychiatrists and other physicians at many of
our facilities, psychiatrists and other physicians generally are
not employees of our facilities, and, in a number of our
markets, they have admitting privileges at hospitals providing
acute or inpatient behavioral health services. Such physicians
(including psychiatrists) may terminate their affiliation with
us at any time or admit their patients to competing healthcare
facilities or hospitals. If we are unable to attract and retain
sufficient numbers of quality psychiatrists and other physicians
by providing adequate support personnel and facilities that meet
the needs of those psychiatrists and other physicians, they may
be discouraged from referring patients to our facilities and our
results of operations may decline.
It may
become difficult for us to attract and retain an adequate number
of psychiatrists and other physicians to practice in certain of
the communities in which our facilities are located. Our failure
to recruit psychiatrists and other physicians to these
communities or the loss of such medical professionals in these
communities could make it more difficult to attract patients to
our facilities and thereby may have a material adverse effect on
our business, financial condition and results of
operations.
Additionally, our ability to recruit psychiatrists and other
physicians is closely regulated. The form, amount and duration
of assistance we can provide to recruited psychiatrists and
other physicians is limited by the federal physician
self-referral law (the “Stark Law”), the Anti-Kickback
Statute, state anti-kickback statutes, and related regulations.
For example, the Stark Law requires, among other things, that
recruitment assistance can only be provided to psychiatrists and
other physicians who meet certain geographic and practice
requirements, that the amount of assistance cannot be changed
during the term of the recruitment agreement, and that the
recruitment payments cannot generally benefit psychiatrists and
other physicians currently in practice in the community beyond
recruitment costs actually incurred by them.
Our
facilities face competition for staffing that may increase our
labor costs and reduce our profitability.
Our operations depend on the efforts, abilities, and experience
of our management and medical support personnel, including our
therapists, nurses, pharmacists and mental health technicians,
as well as our psychiatrists and other physicians. We compete
with other healthcare providers in recruiting and retaining
qualified management, physicians (including psychiatrists) and
support personnel responsible for the daily operations of our
facilities.
The nationwide shortage of nurses and other medical support
personnel has been a significant operating issue facing us and
other healthcare providers. This shortage may require us to
enhance wages and benefits to recruit and retain nurses and
other medical support personnel or require us to hire more
expensive temporary or contract personnel. In addition, certain
of our facilities are required to maintain specified
nurse-staffing levels. To the extent we cannot meet those
levels, we may be required to limit the services provided by
these facilities, which would have a corresponding adverse
effect on our net operating revenues.
Increased labor union activity is another factor that could
adversely affect our labor costs. To date, labor unions
represent employees at only three of our facilities. Although we
are not aware of any union organizing activity at any of our
other facilities, we are unable to predict whether any such
activity will take place in the future. To the extent that a
greater portion of our employee base unionizes, it is possible
that our labor costs could increase materially.
We cannot predict the degree to which we will be affected by the
future availability or cost of attracting and retaining talented
medical support staff. If our general labor and related expenses
increase, we may not be able to raise our rates correspondingly.
Our failure to either recruit and retain qualified management,
nurses and other medical support personnel or control our labor
costs could harm our results of operations.
We
depend heavily on key management personnel and the departure of
one or more of our key executives or a significant portion of
our local facility management personnel could harm our
business.
The expertise and efforts of our senior executives and the chief
executive officer, chief financial officer, medical director,
physicians and other key members of our facility management
personnel are critical to the success of our business. The loss
of the services of one or more of our senior executives or of a
significant portion of our facility management personnel could
significantly undermine our management expertise and our ability
to provide efficient, quality healthcare services at our
facilities, which could harm our business.
We
could face risks associated with, or arising out of,
environmental, health and safety laws and
regulations.
We are subject to various federal, state and local laws and
regulations that (i) regulate certain activities and
operations that may have environmental or health and safety
effects, such as the generation, handling and disposal of
medical wastes, (ii) impose liability for costs of cleaning
up, and damages to natural resources from, past spills, waste
disposals on and off-site, or other releases of hazardous
materials or regulated substances, and (iii) regulate
workplace safety. Compliance with these laws and regulations
could increase our costs of operation. Violation of these laws
may subject us to significant fines, penalties or disposal
costs, which could negatively impact our results of operations,
financial position or cash flows. We could be responsible for
the investigation and remediation of environmental conditions at
currently or formerly operated or leased sites, as well as for
associated liabilities, including liabilities for natural
resource damages, third party property damage or personal injury
resulting from lawsuits that could be brought by the government
or private litigants, relating to our operations, the operations
of facilities or the land on which our facilities are located.
We may be subject to these liabilities regardless of whether we
lease or own the facility, and regardless of whether such
environmental conditions were created by us or by a prior owner
or tenant, or by a third party or a neighboring facility whose
operations may have affected such facility or land. That is
because liability for contamination under certain environmental
laws can be imposed on current or past owners or operators of a
site without regard to fault. We cannot assure you that
environmental conditions relating to our prior, existing or
future sites or those of predecessor companies whose liabilities
we may have assumed or acquired will not have a material adverse
affect on our business.
Acadia
may not be able to successfully integrate its acquisition of
YFCS or realize the potential benefits and synergies of the
acquisition, which could cause an adverse effect on the combined
company.
Acadia may not be able to combine successfully the operations of
YFCS with its operations, and, even if such integration is
accomplished, Acadia may never realize the potential benefits of
the acquisition. The integration of YFCS with the Acadia
operations requires significant attention from management, may
impose substantial demands on Acadia’s operations or other
projects and may impose challenges on the combined business
including, but not limited to, consistencies in business
standards, procedures, policies and business cultures. The
integration of YFCS also involves a significant capital
commitment, and the return that Acadia achieves on any capital
invested may be less than the return that Acadia would achieve
on our other projects or investments. Furthermore, we cannot
assure you that the combined company will achieve anticipated
cost savings and synergies in a timely manner or at all. Any of
these factors could cause delays or increased costs of combining
YFCS with Acadia and could adversely affect our operations,
financial results and liquidity.
Our
growth strategy depends, in part, on acquisitions, and we may
not be able to continue to acquire facilities that meet our
target criteria.
Acquisitions of other behavioral healthcare facilities are a key
element of our growth strategy. We face competition for
acquisition candidates primarily from other for-profit
healthcare companies, as well as from
not-for-profit
entities. Some of our competitors have greater resources than we
do. Our principal competitors for
acquisitions have included Universal Health Services, Inc.
(“UHS”), Aurora Behavioral Health Care
(“Aurora”) and Ascend Health Corporation
(“Ascend”). Also, suitable acquisitions may not be
accomplished due to unfavorable terms.
Further, the cost of an acquisition could result in a dilutive
effect on our results of operations, depending on various
factors, including the amount paid for an acquired facility, the
acquired facility’s results of operations, the fair value
of assets acquired and liabilities assumed, effects of
subsequent legislation and limits on rate increases.
We may
not achieve all of the expected benefits from synergies, cost
savings and recent improvements to our revenue
base.
Although we have identified certain synergies and cost savings
in connection with the merger, as well as recent improvements to
our revenue base, we may not realize any benefits from expected
operating improvements. The improvements to our revenue base
result from a rate increase on one of our contracts effective in
March 2011 and the expansion of one of our existing contracts in
December 2010. In an effort to illustrate the impact of these
items on our operating income, we have made an estimate of the
impact of these improvements for 2010, even though they were not
effective for the entire 2010 fiscal year. In addition, we have
made an estimate of start up losses at the Seven Hills
Behavioral Center, which was opened in the fourth quarter of
2008 and became CMS certified in July 2010, because we incurred
certain of these start up losses in 2010 but do not expect to
incur them in the future. See “Acadia Management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Anticipated Synergies, Cost Savings and
Revenue Improvements.” Although these estimates are
presented in “Acadia Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Anticipated Synergies, Cost Savings and
Revenue Improvements” with numerical specificity, they are
inherently uncertain and are not intended to represent what our
financial position or results of operations might be for any
future period. Our ability to realize the expected benefits from
these improvements are subject to significant business, economic
and competitive uncertainties and contingencies, many of which
are beyond our control, such as changes to government regulation
governing or otherwise impacting the behavioral health care
industry, reductions in reimbursement rates from third party
payors, reductions in service levels under our contracts,
operating difficulties, client preferences, changes in
competition and general economic or industry conditions. If we
are unsuccessful in implementing these improvements or if we do
not achieve our expected results, it may adversely impact our
results of operations.
If we
are unable to improve the operations of the facilities we
acquire, our growth strategy may be adversely
affected.
We may be unable to timely and effectively integrate the
facilities that we acquire (including from YFCS and PHC) with
our ongoing operations. We may experience delays in implementing
operating procedures and systems in newly acquired facilities.
Integrating a new facility could be expensive and time consuming
and could disrupt our ongoing business, negatively affect cash
flow and distract management and other key personnel. In
addition, some of the facilities we acquired may have had
significantly lower operating margins than the facilities we
operated prior to the time of our acquisition thereof or had
operating losses prior to such acquisition. If we fail to
improve the operating margins of the facilities we acquire,
operate such facilities profitably or effectively integrate the
operations of acquired facilities, our results of operations
could be negatively impacted.
If we
acquire facilities with unknown or contingent liabilities, we
could become liable for material obligations.
Facilities that we acquire may have unknown or contingent
liabilities, including, but not limited to, liabilities for
failure to comply with healthcare laws and regulations. Although
we typically attempt to exclude significant liabilities from our
acquisition transactions and seek indemnification from the
sellers of such facilities for at least a portion of these
matters, we may experience difficulty enforcing those
obligations or we may incur material liabilities for the past
activities of acquired facilities. Such liabilities and related
legal or other costs
and/or
resulting damage to a facility’s reputation could
negatively impact our business.
State
efforts to regulate the construction or expansion of health care
facilities could impair our ability to operate and expand our
operations.
A majority of the states in which we operate facilities have
enacted Certificates of Need (“CON”) laws as a
condition to the construction or expansion of healthcare
facilities, to make certain capital expenditures or to make
changes in services or bed capacity. In giving approval, these
states consider the need for additional or expanded healthcare
facilities or services. Our failure to obtain necessary state
approval could result in our inability to acquire a targeted
facility, complete a desired expansion or make a desired
replacement, make a facility ineligible to receive reimbursement
under the Medicare or Medicaid programs, result in the
revocation of a facility’s license or impose civil or
criminal penalties on us, any of which could harm our business.
In addition, significant CON reforms have been proposed in a
number of states that would increase the capital spending
thresholds and provide exemptions of various services from
review requirements. In the past, we have not experienced any
material adverse effects from those requirements, but we cannot
predict the impact of these changes upon our operations.
Controls
designed to reduce inpatient services may reduce our
revenues.
Controls imposed by Medicare, Medicaid and commercial
third-party payers designed to reduce admissions and lengths of
stay, commonly referred to as “utilization review,”
have affected and are expected to continue to affect our
facilities. Utilization review entails the review of the
admission and course of treatment of a patient by health plans.
Inpatient utilization, average lengths of stay and occupancy
rates continue to be negatively affected by payer-required
preadmission authorization and utilization review and by payer
pressure to maximize outpatient and alternative healthcare
delivery services for less acutely ill patients. Efforts to
impose more stringent cost controls are expected to continue.
For example, the Health Reform Legislation potentially expands
the use of prepayment review by Medicare contractors by
eliminating statutory restrictions on its use. Utilization
review is also a requirement of most non-governmental
managed-care organizations and other third-party payers.
Although we are unable to predict the effect these controls and
changes will have on our operations, significant limits on the
scope of services reimbursed and on reimbursement rates and fees
could have a material adverse effect on our business and results
of operations.
We
expect that our stock price will experience significant
volatility due to external factors in our quarterly operating
results.
We intend that our common stock will trade on NASDAQ. Acadia is
currently a private company and its common stock does not
currently trade on an exchange. Historically, PHC’s common
stock has generally experienced relatively low daily trading
volumes in relation to the aggregate number of shares
outstanding. Many economic and seasonal factors outside of our
control could cause fluctuations in our quarterly earnings and
adversely affect the price of our common stock. These factors
include certain of the risks discussed herein, demographic
changes, operating results of other behavioral healthcare
companies (including hospitals providing such services), changes
in our financial estimates or recommendations of securities
analysts, speculation in the press or investment community, the
possible effects of war, terrorist and other hostilities,
adverse weather conditions, managed care contract negotiations
and terminations, changes in general conditions in the economy
or the financial markets, or other developments affecting the
health care industry. If we are unable to operate our facilities
as profitably as our stockholders expect us to in the future,
the market price of our common stock will likely decline as
stockholders could sell shares of our common stock when it
becomes apparent that the market expectations may not be met.
The stock markets have experienced volatility that has often
been unrelated to operating performance. These broad market
fluctuations may adversely affect the trading price of our
common stock and cause significant volatility in the market
price of our common stock.
If the
ownership of Acadia common stock following the completion of the
merger continues to be highly concentrated, it may prevent you
and other stockholders from influencing significant corporate
decisions and may result in conflicts of interest that could
cause Acadia’s stock price to decline.
Waud Capital Partners and Acadia’s executive officers,
directors and their affiliates will beneficially own 77.5% of
the outstanding shares of Acadia common stock on a fully diluted
basis (as defined in the merger agreement) following the
completion of the merger. Accordingly, Waud Capital Partners and
these executive officers, directors and their affiliates, acting
as a group, will have substantial influence over the outcome of
corporate actions requiring stockholder approval, including the
election of directors, any merger, consolidation or sale of all
or substantially all of our assets or any other significant
corporate transactions. These stockholders may also delay or
prevent a change of control of us, even if such a change of
control would benefit our other stockholders. The significant
concentration of stock ownership may cause the trading price of
our common stock to decline due to investor perception that
conflicts of interest may exist or arise.
Additionally, the stockholders agreement to be entered into by
Acadia, Waud Capital Partners and certain of its affiliates and
certain members of Acadia and PHC management in connection with
the merger will grant Waud Capital Partners certain board
nomination, information and consent rights. It will also impose
certain restrictions on Acadia’s business and operations
for so long as Waud Capital Partners and its affiliates hold at
least 17.5% of Acadia’s outstanding voting securities. See
“Stockholders Agreement” for a description of this
agreement and the related restrictions.
We are
a “controlled company,” controlled by Waud Capital
Partners, whose interest in our business may be different from
ours or yours.
After consummation of the merger, Waud Capital Partners will
control approximately 63.0% of the voting power of our common
stock and be able to elect a majority of our board of directors.
As a result, we will be considered a “controlled
company” for the purposes of the NASDAQ listing
requirements. As a “controlled company,” we will be
permitted to, and we intend to, opt out of the NASDAQ listing
requirements that would otherwise require a majority of the
members of our board of directors to be independent and require
that we either establish a compensation committee and a
nominating and governance committee, each comprised entirely of
independent directors, or otherwise ensure that the compensation
of our executive officers and nominees for directors are
determined or recommended to our board of directors by the
independent members of our board of directors. The NASDAQ
listing requirements are intended to ensure that directors who
meet the independence standard are free of any conflicting
interest that could influence their actions as directors. It is
possible that the interests of Waud Capital Partners may in some
circumstances conflict with our interests and the interests of
our other stockholders.
If
securities or industry analysts do not publish research or
reports about our business, if they were to change their
recommendations regarding Acadia stock adversely or if the
operating results of the combined company do not meet their
expectations, Acadia’s stock price and trading volume could
decline.
Following the merger, the trading market for Acadia’s
common stock will be influenced by the research and reports that
industry or securities analysts publish about the combined
company. If one or more of these analysts cease coverage of
Acadia or fail to regularly publish reports on Acadia, we could
lose visibility in the financial markets, which in turn could
cause Acadia’s stock price or trading volume to decline.
Moreover, if one or more of the analysts who cover Acadia
downgrade its stock or if the operating results of the combined
company do not meet their expectations, Acadia’s stock
price could decline.
Future
sales of common stock by Acadia’s existing stockholders may
cause the Acadia stock price to fall.
The market price of Acadia’s common stock could decline as
a result of sales by Acadia’s then existing stockholders in
the market after the completion of the merger, or the perception
that these sales could occur. These sales might also make it
more difficult for Acadia to sell equity securities at a time
and price that it deems appropriate.
Waud Capital Partners and certain of its affiliates, along with
certain members of our management, have certain demand and
piggyback registration rights with respect to shares of Acadia
common stock beneficially owned by them. The presence of
additional shares of Acadia common stock trading in the public
market, as a result of the exercise of such registration rights,
may have an adverse effect on the market price of Acadia’s
securities.
Different
interpretations of accounting principles could have a material
adverse effect on our results of operations or financial
condition.
Generally accepted accounting principles are complex,
continually evolving and may be subject to varied interpretation
by us, our independent registered public accounting firm and the
SEC. Such varied interpretations could result from differing
views related to specific facts and circumstances. Differences
in interpretation of generally accepted accounting principles
could have a material adverse effect on our financial position
or results of operations.
Although
we have facilities in 18 states, we have substantial
operations in each of Arkansas, Indiana, Michigan, Mississippi
and Nevada, which makes us sensitive to regulatory, economic,
environmental and competitive conditions and changes in those
states.
We operated 34 treatment facilities as of June 30,
2011 (on a pro forma basis giving effect to the merger,
including PHC’s acquisition of MeadowWood), 14 of which are
located in Arkansas, Indiana, Michigan, Mississippi or Nevada.
Our revenues in those states represented approximately 53% of
our consolidated revenue for the year ended December 31,
2010 (on a pro forma basis giving effect to the YFCS acquisition
and the merger, including PHC’s acquisition of MeadowWood).
This concentration makes us particularly sensitive to
legislative, regulatory, economic, environmental and competition
changes in those states. Any material change in the current
payment programs or regulatory, economic, environmental or
competitive conditions in these states could have a
disproportionate effect on our overall business results.
In addition, our facilities in Florida, Louisiana and
Mississippi and other areas across the Gulf Coast (including
Texas) are located in hurricane-prone areas. In the past,
hurricanes have had a disruptive effect on the operations of our
facilities in the Gulf Coast and the patient populations in
those states. Our business activities could be marked by a
particularly active hurricane season or even a single storm, and
our property insurance may not be adequate to cover losses from
such storms or other natural disasters.
An
increase in uninsured and underinsured patients or the
deterioration in the collectability of the accounts of such
patients could harm our results of operations.
Collection of receivables from third-party payers and patients
is critical to our operating performance. Our primary collection
risks relate to uninsured patients and the portion of the bill
that is the patient’s responsibility, which primarily
includes co-payments and deductibles. We estimate our provisions
for doubtful accounts based on general factors such as payer
source, the agings of the receivables and historical collection
experience. At December 31, 2010, the combined
company’s allowance for doubtful accounts represented
approximately 19% of its accounts receivable balance as of such
date (calculated on a pro forma basis to give effect to the YFCS
acquisition, the MeadowWood acquisition and the merger). We
routinely review accounts receivable balances in conjunction
with these factors and other economic conditions that might
ultimately affect the collectability of the patient accounts and
make adjustments to our allowances as warranted. Significant
changes in business office operations, payer mix, economic
conditions or trends in federal and state governmental health
coverage (including implementation of the Health Reform
Legislation) could affect our collection of accounts receivable,
cash flow and results of operations. If we experience unexpected
increases in the growth of uninsured and underinsured patients
or in bad debt expenses, our results of operations will be
harmed.
Provisions
of our charter documents following the completion of the merger
or Delaware law could delay or prevent an acquisition of us,
even if the acquisition would be beneficial to our stockholders,
and could make it more difficult for you to change
management.
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws following the
completion of the merger may discourage, delay or prevent a
merger, acquisition or other change in control that stockholders
may consider favorable, including transactions in which
stockholders might otherwise receive a premium for their shares.
This is because these provisions may prevent or frustrate
attempts by stockholders to replace or remove our management
following the completion of the merger. These provisions include:
•
a classified board of directors;
•
a prohibition on stockholder action through written consent
(once Waud Capital Partners no longer beneficially own at least
a majority of our outstanding common stock);
•
a requirement that special meetings of stockholders be called
upon a resolution approved by a majority of our directors then
in office;
•
advance notice requirements for stockholder proposals and
nominations; and
•
the authority of the board of directors to issue preferred stock
with such terms as the board of directors may determine.
Section 203 of the Delaware General Corporation Law (the
“DGCL”) prohibits a publicly held Delaware corporation
from engaging in a business combination with an interested
stockholder, generally a person that together with its
affiliates owns or within the last three years has owned 15% of
voting stock, for a period of three years after the date of the
transaction in which the person became an interested
stockholder, unless the business combination is approved in a
prescribed manner. Although we have elected not to be subject to
Section 203 of the DGCL, Acadia’s amended and restated
certificate of incorporation will contain provisions that have
the same effect as Section 203, except that they will
provide that both Waud Capital Partners, its affiliates and any
investment fund managed by Waud Capital Partners and any persons
to whom Waud Capital Partners sells at least five percent (5%)
of outstanding voting stock of Acadia will be deemed to have
been approved by our board of directors, and thereby not subject
to the restrictions set forth in Acadia’s amended and
restated certificate of incorporation that have the same effect
as Section 203 of the DGCL. Accordingly, the provision in
Acadia’s amended and restated certificate of incorporation
that adopts a modified version of Section 203 of the DGCL
may discourage, delay or prevent a change in control of us.
As a result of these provisions in our charter documents
following the completion of the merger and Delaware law, the
price investors may be willing to pay in the future for shares
of our common stock may be limited.
Acadia
does not anticipate paying any cash dividends in the foreseeable
future.
Following the completion of the merger and the payment of the
dividend to holders of Acadia’s common stock prior to the
merger, Acadia intends to retain its future earnings, if any,
for use in the business of the combined company or for other
corporate purposes and does not anticipate that cash dividends
in respect to common stock will be paid in the foreseeable
future. Any decision as to the future payment of dividends will
depend on the results of operations, the financial position of
the combined company and such other factors, as the Acadia board
of directors, in its discretion, deems relevant. In addition,
the terms of Acadia’s existing debt substantially limit its
ability to pay these dividends. We anticipate that the
indebtedness incurred in connection with the merger will also
substantially limit Acadia’s ability to pay dividends. As a
result, capital appreciation, if any, of Acadia common stock
will be your sole source of gain for the foreseeable future.
The SEC encourages companies to disclose forward-looking
information so that investors can better understand a
company’s future prospects and make informed investment
decisions. This proxy statement/prospectus contains
“forward-looking statements.” All statements included
in this proxy statement/prospectus or made by management of
Acadia or PHC, other than statements of historical fact
regarding Acadia or PHC, are forward-looking statements.
Factors that could cause actual results to differ materially
from those forward-looking statements included in this proxy
statement/prospectus include, among others:
•
the impact of payments received from the government and
third-party payers on our revenues and results of operations;
•
the impact of the economic and employment conditions in the
United States on our business and future results of operations;
•
the impact of recent health care reform;
•
the impact of our highly competitive industry on patient volumes;
•
the impact of recruitment and retention of quality psychiatrists
and other physicians on our performance;
•
the impact of competition for staffing on our labor costs and
profitability;
•
our dependence on key management personnel, key executives and
our local facility management personnel;
•
compliance with laws and government regulations;
•
the impact of claims brought against our facilities;
•
the impact of governmental investigations, regulatory actions
and whistleblower lawsuits;
•
difficulties in successfully integrating Acadia’s
acquisition of YFCS and PHC (including Meadow Wood) or realizing
the potential benefits and synergies of these acquisitions;
•
the impact on our growth strategy from difficulties in acquiring
facilities in general and from
not-for-profit
entities due to regulatory scrutiny;
•
difficulties in improving the operations of the facilities we
acquire;
•
the impact of unknown or contingent liabilities on facilities we
acquire;
•
the impact of state efforts to regulate the construction or
expansion of health care facilities on our ability to operate
and expand our operations;
•
the impact of controls designed to reduce inpatient services on
our revenues;
•
the impact of fluctuations in our operating results, quarter to
quarter earnings and other factors on the price of our common
stock;
•
the impact of different interpretations of accounting principles
on our results of operations or financial condition;
•
the impact of an increase in uninsured and underinsured patients
or the deterioration in the collectability of the accounts of
such patients on our results of operations;
•
the impact of legislative and regulatory initiatives relating to
privacy and security of patient health information and standards
for electronic transactions;
•
the impact of the trend for insurance companies and managed care
organizations to enter into sole source contracts on our ability
to obtain patients;
•
our status as a “controlled company”; and
•
the merger and the transactions contemplated by the merger
agreement or the announcement thereof.
This proxy statement/prospectus contains forward-looking
statements based on current projections about operations,
industry, financial condition and liquidity. Words such as
“will,” “should,” “anticipate,”
“predict,” “potential,”
“estimate,” “expect,” “continue,”
“may,” “project,” “intend,”
“plan,” “believe” and words and terms of
similar substance used in connection with any discussion of
future operating or financial performance, the merger or the
business of the combined company identify forward-looking
statements. In addition, any statements that refer to
expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions,
are forward-looking statements. Those statements are not
guarantees of future performance and are subject to risks,
uncertainties and assumptions that are difficult to predict.
Therefore, actual results could differ materially and adversely
from these forward-looking statements.
All forward-looking statements reflect present expectations of
future events by Acadia’s and PHC’s management and are
subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described
in the forward-looking statements. In addition to the risks
related to the businesses of Acadia, PHC and the combined
company, the uncertainty concerning the completion of the merger
and the matters discussed above under “Risk Factors,”
among others, could cause actual results to differ materially
from those described in the forward-looking statements. These
factors include the relative valuations of Acadia and PHC, the
market’s difficulty in valuing the combined business, the
possible failure to realize the anticipated benefits of the
merger and the conflicts of interest of directors recommending
the merger. Investors are cautioned not to place undue reliance
on the forward-looking statements. Neither Acadia nor PHC is
under any obligation, and each expressly disclaims any
obligation, to update or alter any forward-looking statements,
whether as a result of new information, future events or
otherwise.
The selected financial data presented below as of and for the
fiscal years ended December 31, 2006, 2007, 2008, 2009 and
2010 and as of and for the six months ended June 30, 2010
and 2011 do not give effect to the YFCS operating results prior
to April 1, 2011 or the consummation of the merger. Acadia
has derived the selected consolidated financial data presented
below as of December 31, 2009 and 2010 and for each of the
three years in the period ended December 31, 2010 from
Acadia Healthcare Company, LLC’s audited consolidated
financial statements included elsewhere in this proxy
statement/prospectus. Acadia has derived the selected
consolidated financial data presented below as of
December 31, 2006, 2007 and 2008 and for each of the two
years in the period ended December 31, 2007 from Acadia
Healthcare Company, LLC’s audited consolidated financial
statements not included in this proxy statement/prospectus.
Acadia has derived the selected consolidated financial data
presented below as of and for the six months ended June 30,
2010 and 2011 from Acadia Healthcare Company, Inc.’s
unaudited interim condensed consolidated financial statements
included elsewhere in this proxy statement/prospectus. The
results for the six months ended June 30, 2010 and 2011 are
not necessarily indicative of the results that may be expected
for the entire fiscal year. The selected consolidated financial
data below should be read in conjunction with the “Acadia
Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and “Unaudited Pro Forma
Condensed Combined Financial Statements” and Acadia
Healthcare Company, LLC’s consolidated financial statements
and the notes thereto included elsewhere in this proxy
statement/prospectus. In addition to the acquisitions described
in the notes to the consolidated financial statements included
elsewhere in this proxy statement/prospectus, Acadia completed
the acquisitions of the Vermillion and Montana facilities in
2006 and the Abilene facility in 2007. On May 13, 2011,
Acadia Healthcare Company, LLC elected to convert to a
corporation (Acadia Healthcare Company, Inc.) in accordance with
Delaware law.
Six Months Ended
Year Ended December 31,
June 30,
2006
2007
2008
2009
2010
2010
2011
($ in thousands, except per unit data)
Income Statement Data:
Net patient service revenue
$
8,542
$
25,512
$
33,353
$
51,821
$
64,342
$
32,472
$
82,961
Salaries, wages and benefits*
7,269
19,212
22,342
30,752
36,333
18,374
70,538
Professional fees
1,103
1,349
952
1,977
3,612
1,240
3,130
Provision for doubtful accounts
304
991
1,804
2,424
2,239
1,186
1,002
Other operating expenses**
4,865
8,112
8,328
12,116
13,286
6,523
23,406
Depreciation and amortization
202
522
740
967
976
480
2,201
Interest expense, net
171
992
729
774
738
358
2,215
Income (loss) from continuing operations, before income taxes
(5,372
)
(5,666
)
(1,542
)
2,811
7,158
4,311
(19,531
)
Income tax provision (benefit)
—
—
20
53
477
287
2,517
Income (loss) from continuing operations
(5,372
)
(5,666
)
(1,562
)
2,758
6,681
4,024
(22,048
)
(Loss) gain from discontinued operations, net of income taxes
(838
)
(3,208
)
(156
)
119
(471
)
96
(58
)
(Loss) income on disposal of discontinued operations, net of
income taxes
—
(2,019
)
—
—
—
—
—
Net income (loss)
$
(6,210
)
$
(10,893
)
$
(1,718
)
$
2,877
$
6,210
$
4,120
$
(22,106
)
Income (loss) from continuing operations per unit
$
(0.54
)
$
(0.57
)
$
(0.16
)
$
0.28
$
0.67
$
0.40
$
(2.20
)
Cash dividends per unit
—
—
—
—
$
0.23
$
0.08
$
0.04
December 31,
June 30,
2006
2007
2008
2009
2010
2010
2011
($ in thousands)
Balance Sheet Data (as of end of period):
Cash and equivalents
$
28
1,681
$
45
$
4,489
$
8,614
$
6,961
$
3,456
Total assets
17,878
23,414
32,274
41,254
45,412
42,938
266,643
Total debt
3,889
11,608
11,062
10,259
9,984
10,103
140,313
Total members’ equity
7,568
7,135
15,817
21,193
25,107
22,781
73,863
*
Salaries wages and benefits for the six months ended
June 30, 2011 includes $19.8 million of equity-based
compensation expense recorded related to equity units issued in
conjunction with the YFCS Acquisition.
**
Expenses of $8.4 million related to the YFCS acquisition
and PHC merger are reflected in other operating expenses for the
six months ended June 30, 2011.
The selected financial data presented below as of and for the
fiscal years ended December 31, 2006, 2007, 2008, 2009 and
2010 and as of and for the three months ended March 31,
2010 and 2011 do not give effect to Acadia’s acquisition of
YFCS or the consummation of the merger. Acadia has derived the
selected financial data presented below for the fiscal years
ended December 31, 2009 and 2010 and for each of the three
years in the period ended December 31, 2010 from YFCS’
audited consolidated financial statements included elsewhere in
this proxy statement/prospectus. Acadia has derived the selected
consolidated financial data presented below for the fiscal years
ended December 31, 2006, 2007 and 2008 and for each of the
two years in the period ended December 31, 2007 from
YFCS’ audited financial statements not included in this
proxy statement/prospectus. Acadia has derived the selected
consolidated financial data presented below as of and for the
three months ended March 31, 2010 and 2011 from YFCS’
unaudited interim condensed consolidated financial statements
included elsewhere in this proxy statement/prospectus. The
results for the three months ended March 31, 2010 and 2011
are not necessarily indicative of the results that may have been
expected for the entire fiscal year. The selected consolidated
financial data below should be read in conjunction with the
“Acadia Management’s Discussion and Analysis of
Financial Condition and Results of Operations — YFCS
Acquisition” and “Unaudited Pro Forma Condensed
Combined Financial Statements” and YFCS’ consolidated
financial statements and the notes thereto included elsewhere in
this proxy statement/prospectus.
Three Months Ended
Year Ended December 31,
March 31,
2006
2007
2008
2009
2010
2010
2011
($ in thousands)
Income Statement Data:
Revenue
$
149,837
$
171,425
$
180,646
$
186,586
$
184,386
$
45,489
$
45,686
Salaries and benefits
88,870
105,754
110,966
113,870
113,931
27,813
29,502
Other operating expenses
32,216
36,799
37,704
37,607
38,146
8,944
9,907
Provision for bad debts
365
1,411
1,902
(309
)
525
56
208
Interest expense
14,280
14,768
12,488
9,572
7,514
1,954
1,726
Depreciation and amortization
8,846
9,890
9,419
7,052
3,456
914
819
Impairment of goodwill
—
—
—
—
23,528
—
—
Income (loss) from continuing operations, before income taxes
5,260
2,803
8,167
18,794
(2,714
)
5,808
3,524
Provision for income taxes
1,491
1,252
3,132
7,133
5,032
2,267
1,404
Income (loss) from continuing operations
3,769
1,551
5,035
11,661
(7,746
)
3,541
2,120
Income (loss) from discontinued operations, net of income taxes
The selected financial data presented below for the fiscal years
ended June 30, 2007, 2008, 2009, 2010 and 2011 do not give
effect to the recently completed acquisition of MeadowWood
(substantially all of the assets of HHC Delaware) or
consummation of the merger. The consolidated financial
statements of HHC Delaware and notes related thereto are
included elsewhere in this proxy statement/prospectus. PHC has
derived the selected financial data presented below as of
June 30, 2010 and 2011 and for each of the two years in the
period ended June 30, 2011 from PHC’s audited
consolidated financial statements included elsewhere in this
proxy statement/prospectus. PHC has derived the selected
financial data presented below as of June 30, 2007, 2008
and 2009 and for each of the three years in the period ended
June 30, 2009 from PHC’s audited consolidated
financial statements not included in this proxy
statement/prospectus. Certain amounts for all periods presented
have been reclassified to be consistent with Acadia’s
financial information. The selected financial data below should
be read in conjunction with “PHC Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and “Unaudited Pro Forma Condensed
Combined Financial Statements” and PHC’s consolidated
financial statements and the notes thereto included elsewhere in
this proxy statement/prospectus.
Year Ended June 30,
2007
2008
2009
2010
2011
($ in thousands, except per share data)
Income Statement Data:
Revenues
$
40,563
$
45,397
$
46,411
$
53,077
$
62,008
Patient care expenses
19,738
22,133
23,835
26,307
30,236
Contract expenses
3,103
3,390
3,016
2,965
3,618
Provision for doubtful accounts
1,933
1,311
1,638
2,131
3,406
Administrative expenses
12,722
15,465
18,721
19,111
22,206
Legal settlement
—
—
—
—
446
Operating income (loss)
3,067
3,098
(799
)
2,563
2,096
Other income including interest expense, net
(8
)
(148
)
(177
)
(37
)
(108
)
Income (loss) before income taxes
3,059
2,950
(976
)
2,526
1,988
Provision for (benefit from) income taxes
1,144
1,366
65
1,106
1,408
Net income (loss) from continuing operations
1,915
1,584
(1,041
)
1,420
580
Net income (loss) from discontinued operations
(233
)
(1,259
)
(1,413
)
—
—
Net income (loss)
$
1,682
$
325
$
(2,454
)
$
1,420
$
580
Net income (loss) from continuing operations per share of common
stock
The following tables set forth the unaudited pro forma condensed
combined financial data for Acadia, YFCS, PHC and MeadowWood as
a combined company, giving effect to (1) Acadia’s
acquisition of YFCS and the related debt and equity financing
transactions on April 1, 2011, (2) PHC’s
acquisition of MeadowWood and related debt financing transaction
on July 1, 2011 and (3) Acadia’s merger with PHC
and the related transactions described elsewhere in this proxy
statement/prospectus, as if the transactions had occurred on
June 30, 2011 for the unaudited pro forma condensed
combined balance sheet and January 1, 2010 for the
unaudited pro forma condensed combined statements of operations.
Acadia’s condensed consolidated balance sheet as of
June 30, 2011 reflects the acquisition of YFCS and related
debt and equity transactions and Acadia’s condensed
consolidated statement of operations reflects the results of
YFCS operations for the period from April 1, 2011 to
June 30, 2011.
MeadowWood was acquired by PHC in an asset acquisition. The
assets acquired consisted of substantially all of the assets of
HHC Delaware. The pro forma adjustments reflect the elimination
of any assets of HHC Delaware not acquired by PHC. The fiscal
years of Acadia, YFCS and HHC Delaware end December 31 while the
fiscal year of PHC ends on June 30. The combined company
will use Acadia’s fiscal year ending December 31. The
unaudited pro forma condensed combined balance sheet combines
Acadia’s unaudited consolidated balance sheet as of June
30, 2011 with the consolidated balance sheet of PHC and the
unaudited condensed consolidated balance sheet of HHC Delaware
as of June 30, 2011. The unaudited pro forma condensed combined
statement of operations for the year ended December 31,
2010 combines Acadia’s audited consolidated statement of
operations for the year ended December 31, 2010 with the
audited consolidated statement of operations of YFCS for the
year ended December 31, 2010, the audited consolidated
statement of operations of HHC Delaware for the year ended
December 31, 2010 and the unaudited condensed consolidated
statement of operations of PHC for the twelve months ended
December 31, 2010 (which was derived from the audited
consolidated statement of operations of PHC for the fiscal year
ended June 30, 2010 less the unaudited condensed
consolidated statement of operations of PHC for the six months
ended December 31, 2009 plus the unaudited condensed
consolidated statement of operations of PHC for the six months
ended December 31, 2010). The unaudited pro forma condensed
combined statement of operations for the six months ended
June 30, 2011 combines Acadia’s unaudited condensed
consolidated statement of operations for the six months ended
June 30, 2011 with the unaudited condensed consolidated
statement of operations of YFCS from January 1, 2011
through the date of the YFCS acquisition, the unaudited
condensed consolidated statement of operations of HHC Delaware
for the six months ended June 30, 2011 and the unaudited
condensed consolidated statement of operations of PHC for the
six months ended June 30, 2011 (which was derived from the
audited consolidated statement of operations of PHC for the
fiscal year ended June 30, 2011 less the unaudited
condensed consolidated statement of operations of PHC for the
six months ended December 31, 2010).
The unaudited pro forma condensed combined financial data has
been prepared using the acquisition method of accounting for
business combinations under GAAP. The adjustments necessary to
fairly present the unaudited pro forma condensed combined
financial data have been made based on available information and
in the opinion of management are reasonable. Assumptions
underlying the pro forma adjustments are described in the
accompanying notes, which should be read in conjunction with
this unaudited pro forma condensed combined financial data. The
pro forma adjustments are preliminary and revisions to the fair
value of assets acquired and liabilities assumed and the
financing of the transactions may have a significant impact on
the pro forma adjustments. A final valuation of assets acquired
and liabilities assumed in the YFCS, MeadowWood and PHC
acquisitions cannot be made prior to the completion of the
merger and the completion of fair value determinations will most
likely result in changes in the values assigned to property and
equipment and other assets (including intangibles) acquired and
liabilities assumed.
The unaudited pro forma condensed combined financial data is for
illustrative purposes only and does not purport to represent
what Acadia’s financial position or results of operations
actually would have been had the events noted above in fact
occurred on the assumed dates or to project our financial
position or results of operations for any future date or future
period.
The unaudited pro forma condensed combined financial data does
not reflect the effects of any future restructuring activities
or operating efficiencies pertaining to the combined operations
(for a discussion of anticipated cost savings and synergies, see
page 133 of “Acadia Management’s Discussion and
Analysis of
Financial Condition and Results of Operations —
Anticipated Synergies, Cost Savings and Revenue
Improvements”).
The unaudited pro forma condensed combined financial data should
be read in conjunction with “Selected Historical Financial
Information,” “Acadia Management’s Discussion and
Analysis of Financial Condition and Results of Operations,
” “PHC Management’s Discussion and Analysis of
Financial Condition and Results of Operations ” and the
consolidated financial statements and the notes thereto of
Acadia, YFCS, PHC and MeadowWood included elsewhere in this
proxy statement/prospectus.
The amounts in this column represent, for Acadia, actual
balances as of June 30, 2011 or actual results for the
periods presented.
(2)
The amounts in this column represent, for YFCS, actual results
for the periods from January 1, 2011 to the April 1,
2011 acquisition date and for the year ended December 31,
2010.
(3)
The amounts in this column represent, for PHC, actual balances
as of June 30, 2011 or actual results for the periods
presented. The condensed consolidated statements of operations
of PHC have been reclassified to conform to Acadia’s
expense classification policies.
(4)
The amounts in this column represent, for HHC Delaware, actual
balances as of June 30, 2011 or actual results for the
periods presented.
(5)
Represents the elimination of $32 of cash, $643 of deferred tax
assets, $52 of current capital lease liabilities, $53 of
long-term capital lease liabilities, $635 of accrued salaries
and benefits, $305 of other accrued liabilities, $954 of
deferred tax liabilities and a $26,790 payable to
MeadowWood’s former parent company not acquired by PHC in
the MeadowWood acquisition.
(6)
Reflects the elimination of the equity accounts and accumulated
earnings of HHC Delaware and PHC.
(7)
Represents the adjustments to acquired property and equipment
and license intangible assets based on preliminary estimates of
fair value and the adjustment to goodwill derived from the
difference in the estimated total consideration transferred and
the estimated fair value of assets acquired and liabilities
assumed by PHC in the MeadowWood acquisition, calculated as
follows:
Consideration transferred
$
21,500
Accounts receivable
1,482
Other current assets
412
Property and equipment
9,674
Licenses
700
Accounts payable
(157
)
Other accrued liabilities
(152
)
Fair value of assets acquired less liabilities assumed
11,959
Estimated goodwill
9,541
Less: Historical goodwill
(18,677
)
Goodwill adjustment
$
(9,136
)
The acquired assets and liabilities assumed will be recorded at
their estimated fair values as of the closing date of the
MeadowWood acquisition. Estimated goodwill is based upon a
determination of the fair value of assets acquired and
liabilities assumed that is preliminary and subject to revision
as the value of total consideration is finalized and additional
information related to the fair value of property and equipment
and other assets acquired and liabilities assumed becomes
available. The actual determination of the fair value of assets
acquired and liabilities assumed will differ from that assumed
in these unaudited pro forma condensed combined financial
statements and such differences may be material.
(8)
Represents a $522 increase in cash as a result of the MeadowWood
acquisition. The sources and uses of cash for the MeadowWood
acquisition were as follows:
Sources:
Incurrence of indebtedness under PHC’s senior credit
facility
The transaction costs paid at closing of $2,258 include $577 of
acquisition-related costs, $1,611 of debt financing costs and
debt prepayment penalties of $70
(b)
Represents $401 of transaction-related expenses accrued as of
June 30, 2011, including $189 of acquisition-related costs
and $212 of capitalized debt financing costs
(c)
Represents acquisition-related costs of $577 less $189 accrued
as of June 30, 2011
(d)
Represents debt financing costs of $1,611 less $212 already
deferred as of June 30, 2011
(9)
Represents the effect of the MeadowWood acquisition on the
current portion and long-term portion of total debt, as follows:
Current Portion
Long-term Portion
Total Debt
Repayment of PHC historical debt
$
(2,163
)
$
(57
)
$
(2,220
)
Incurrence of indebtedness under PHC’s senior credit
facility
265
26,235
26,500
Adjustments
$
(1,898
)
$
26,178
$
24,280
(10)
Represents the elimination of PHC deferred financing costs in
connection with the repayment of debt.
(11)
Acadia plans to effect a stock split or issuance on or prior to
the closing of the Merger with PHC such that approximately
17,676,101 shares of common stock will be issued and
outstanding. Thus, on a pro forma basis, common stock has been
increased by $77 based on the increase of 7,676,101 shares
of common stock ($0.01 par value), and additional paid-in
capital has been decreased by $77.
(12)
Represents the adjustments to acquired property and equipment
and intangible assets based on preliminary estimates of fair
value and the adjustment to goodwill derived from the difference
in the estimated total consideration transferred by Acadia and
the estimated fair value of assets acquired and liabilities
assumed by Acadia in the PHC merger, calculated as follows:
Estimated equity consideration(a)
$
46,891
Estimated fair value of vested replacement share-based awards
1,543
Estimated repayment of indebtedness under PHC’s senior
credit facility
26,500
Estimated cash consideration to Class B common stockholders
5,000
Estimated total consideration
79,934
Cash and cash equivalents
4,191
Accounts receivable
12,561
Other current assets
5,027
Property and equipment
14,494
Contract-based and other intangible assets
1,800
Other long-term assets
2,039
Accounts payable
(3,047
)
Accrued salaries and benefits
(2,027
)
Other accrued liabilities
(2,138
)
Deferred tax liability-long-term(b)
(183
)
Other long-term liabilities
(843
)
Fair value of assets acquired less liabilities assumed
31,874
Estimated goodwill
48,060
Less: Historical goodwill
(10,510
)
Goodwill adjustment
$
37,550
(a)
The estimated fair value of Acadia common shares issuable to PHC
stockholders is based on total outstanding PHC Class A and
Class B shares of 19,537,835 as of June 30, 2011
multiplied by a current stock price of $2.40. The fair value of
equity consideration will be adjusted based on the fair value of
Acadia common stock distributed to PHC stockholders upon closing
of the Merger. The equity consideration is reflected as a $49
increase in common stock based on the conversion of each PHC
share into one-quarter of a share of Acadia common stock
($0.01 par value) and a $46,842 increase in additional
paid-in capital. The total increase in additional paid-in
capital of $48,495 also includes the estimated fair value of the
vested portion of replacement equity-based awards of $1,543 and
the $110 charge resulting from the accelerated vesting of the
stock options held by PHC directors.
(b)
The deferred tax liability of $183 represents the
reclassification of PHC’s deferred tax asset of $648 from
other assets to other liabilities less acquisition adjustments
of $831 related to book and tax basis differences in intangible
assets acquired.
The acquired assets and liabilities assumed will be recorded at
their estimated fair values as of the closing date of the
Merger. Estimated goodwill is based upon a determination of the
fair value of assets acquired and liabilities assumed that is
preliminary and subject to revision as the value of total
consideration is finalized and additional information related to
the fair value of property and equipment and other assets
(including intangible assets) acquired and liabilities assumed
becomes available. The actual determination of the fair value of
assets acquired and liabilities assumed will differ from that
assumed in these unaudited pro forma condensed combined
financial statements and such differences may be material.
Qualitative factors comprising goodwill include efficiencies
derived through synergies expected by the elimination of certain
redundant corporate functions and expenses, the ability to
leverage call center referrals to a broader provider base,
coordination of services provided across the combined network of
facilities, achievement of operating efficiencies by
benchmarking performance and applying best practices throughout
the combined company.
(13)
Represents a $173 decrease in cash as a result of the merger.
The sources and uses of cash in connection with the merger are
expected to be as follows:
Sources:
Issuance of $150,000 of Senior Notes
$
150,000
Uses:
Dividend to be paid to Acadia stockholders
(74,441
)
Repayment of indebtedness under PHC’s senior credit facility
(26,500
)
Cash portion of PHC merger consideration
(5,000
)
Transaction costs(a)
(44,232
)
Cash adjustment
$
(173
)
(a)
Costs incurred in connection with the PHC merger and related
transactions are estimated to be $19,873 of acquisition-related
expenses (including approximately $2,403 of change in control
payments due to certain PHC executives), $20,559 to terminate
the Professional Services Agreement and $3,800 of debt financing
costs associated with the Senior Notes, the amendment to the
Senior Secured Credit Facility and the Debt Commitment Letter.
(14)
Represents the effect of the merger on the current portion and
long-term portion of total debt, as follows:
Current Portion
Long-term Portion
Total Debt
Repayment of indebtedness under PHC’s senior credit facility
(265
)
(26,235
)
(26,500
)
Issuance of Senior Notes
—
150,000
150,000
Adjustments
$
(265
)
$
123,765
$
123,500
(15)
Reflects the reclassification from YFCS other operating expenses
of: (a) professional fees of $1,901 and $6,724 for the
three months ended March 31, 2011 and the twelve months
ended December 31, 2010, respectively, (b) supplies
expense of $2,204 and $8,380 for the three months ended
March 31, 2011 and the twelve months ended
December 31, 2010, respectively, and (c) rent expense
of $1,320 and $5,244 for the three months ended March 31,
2011 and the twelve months ended December 31, 2010,
respectively, to conform to Acadia’s classification of
expenses.
(16)
Reflects the removal of acquisition-related expenses included in
the historical statements of operations of Acadia and YFCS
relating to Acadia’s acquisition of YFCS and the merger
between Acadia and PHC. Acadia recorded $8,362 and $849 of
acquisition-related expenses in the six months ended
June 30, 2011 and the twelve months ended December 31,
2010, respectively. YFCS recorded $534 of acquisition-related
expenses
in the twelve months ended December 31, 2010. PHC recorded
$1,608 of acquisition-related and sale-related expenses in the
six months ended June 30, 2011.
(17)
Reflects the reclassification of workers’ compensation
insurance expense of $1,239 for the twelve months ended
December 31, 2010 to salaries, wages and benefits.
(18)
Represents the adjustments to depreciation and amortization
expense as a result of recording the property and equipment and
intangible assets at preliminary estimates of fair value as of
the respective dates of the acquisitions, as follows:
(a)
YFCS acquisition:
Useful
Six Months
Twelve Months
Lives
Monthly
Ended
Ended
Amount
(In Years)
Depreciation
June 30, 2011
December 31, 2010
Land
$
5,122
N/A
$
—
$
—
$
—
Land improvements
2,694
10
22
66
264
Building and improvements
21,832
25, or
lease term
73
219
876
Equipment
2,024
3-7
53
159
636
Construction in progress
239
N/A
—
—
—
31,911
148
444
1,776
Non-compete intangible asset
321
1
27
81
321
Patient-related intangible assets
1,200
0.25
400
—
1,200
Total depreciation and amortization
525
3,297
Less: historical depreciation and amortization expense
(2,019
)
(3,456
)
Depreciation and amortization expense adjustment
$
(1,494
)
$
(159
)
The adjustment to decrease depreciation and amortization expense
relates to the excess of the historical amortization of the
pre-acquisition intangible assets of YFCS over the amortization
expense resulting from the intangible assets identified by
Acadia in its acquisition of YFCS.
(b)
MeadowWood acquisition:
Useful
Six Months
Twelve Months
Lives
Monthly
Ended
Ended
Amount
(In Years)
Depreciation
June 30, 2011
December 31, 2010
Land
$
1,420
N/A
$
—
$
—
$
—
Building and improvements
7,700
25
26
156
312
Equipment
554
3-7
9
54
108
9,674
35
210
420
Indefinite-lived license intangibles
700
N/A
—
—
—
Total depreciation and amortization
210
420
Less: historical depreciation and amortization expense
Less: PHC pro forma depreciation and amortization expense
(769
)
(1,549
)
Depreciation and amortization expense adjustment
$
83
$
155
(19)
Represents adjustments to interest expense to give effect to the
Senior Secured Credit Facility entered into by Acadia on
April 1, 2011, the debt incurred by PHC to fund the
MeadowWood acquisition, and the amendment of the Senior Secured
Credit Facility and the Senior Notes to be issued on the closing
date of the merger.
(a)
The YFCS pro forma interest expense adjustment assumes that the
interest rate of 4.2% at April 1, 2011, the closing date of
the YFCS acquisition and the Senior Secured Credit Facility, was
in effect for the entire period, as follows:
Six Months
Twelve Months
Ended
Ended
June 30, 2011
December 31, 2010
Interest related to Senior Credit Facility
$
1,489
$
6,134
Amortization of debt discount and deferred loan costs
291
1,165
1,780
7,299
Less: historical interest expense of Acadia and YFCS
(1,949
)
(8,252
)
Interest expense adjustment
$
(169
)
$
(953
)
An increase or decrease of 0.125% in the assumed interest rate
would result in a change in interest expense of $43 and $178 for
the six months ended June 30, 2011 and twelve months ended
December 31, 2010, respectively.
(b)
The PHC pro forma interest expense adjustment assumes that the
interest rate of 7.25% at July 1, 2011, the closing date of
the loans under PHC’s senior credit facility funding the
MeadowWood acquisition, was in effect for the entire period, as
follows:
Six Months
Twelve Months
Ended
Ended
June 30, 2011
December 31, 2010
Interest related to PHC’s senior credit facility
$
950
$
1,914
Amortization of debt discount and deferred loan costs
191
381
1,141
2,295
Less: historical interest expense of PHC and MeadowWood
An increase or decrease of 0.125% in the assumed interest rate
would result in a change in interest expense of $16 and $33 for
the six months ended June 30, 2011 and twelve months ended
December 31, 2010, respectively.
(c)
The pro forma interest expense adjustment for the merger assumes
that the Senior Notes will have an interest rate of 9.25%, which
represents an estimate of the fixed interest rate of the Senior
Notes based on current market interest rates, and reflects a
0.50% increase in the interest rate applicable to the Senior
Secured Credit Facility related to the amendment, as follows:
Six Months
Twelve Months
Ended
Ended
June 30, 2011
December 31, 2010
Interest related to Senior Notes
$
6,938
$
13,875
Interest related to Senior Credit Facility amendment
344
712
Amortization of debt discount and deferred loan costs
380
760
7,662
15,347
Less: Interest related to PHC’s senior credit facility to
be repaid in connection with the merger
(1,141
)
(2,295
)
Interest expense adjustment
$
6,521
$
13,052
An increase or decrease of 0.125% in the assumed interest rate
would result in a change in interest expense of $178 and $366
for the six months ended June 30, 2011 and twelve months
ended December 31, 2010, respectively.
(20)
Reflects a decrease in income taxes of $133 for the six months
ended June 30, 2011 and an increase in income taxes of
$2,448 for the twelve months ended December 31, 2010 to
give effect to the election by Acadia Healthcare Company, LLC to
be treated as a taxable corporation on April 1, 2011.
(21)
Reflects adjustments to income taxes to reflect the impact of
the above pro forma adjustments applying combined federal and
state statutory tax rates for the respective periods.
(22)
Represents the elimination of advisory fees paid to Waud Capital
Partners pursuant to our professional services agreement dated
April 1, 2011. The adjustment to eliminate advisory fees is
factually supportable and directly attributable to the Merger
given the termination of the professional services agreement in
connection with the Merger and is expected to have a continuing
impact.
(23)
Adjustments to weighted average shares used to compute basic and
diluted earnings per
unit/share
are as follows:
Basic earnings per
unit/share
•
Prior to the closing of the merger, Acadia will effect a stock
split or issuance such that Acadia stockholders immediately
prior to the closing of the merger will own 77.5% of the
combined company’s issued and outstanding common stock on a
fully diluted basis (as defined in the merger agreement) and
approximately 17,676,101 shares of common stock will be issued
and outstanding.
•
The conversion and exchange of each Class A and
Class B common share of PHC, Inc. for one-quarter
(
1
/
4
)
of a share of common stock of Acadia Healthcare Company, Inc.
The estimated issuance of Acadia common stock based on the
one-to-four
conversion rate and the weighted average shares outstanding for
the respective periods is 4,878,122 and 4,903,097 for the six
months ended June 30, 2011 and the twelve months ended
December 31, 2010, respectively. Weighted average shares
outstanding are derived from PHC, Inc. consolidated financial
statements for the respective periods.
Diluted earnings per
unit/share
•
The adjustments described above related to basic earnings per
unit/share.
•
The conversion of outstanding PHC employee stock options and
warrants into substantially equivalent Acadia stock options and
warrants. The estimated incremental dilutive effect of the stock
options and warrants, derived from the consolidated financial
statements of PHC, Inc. based on the
one-to-four
conversion rate applicable to such awards, is 105,253 and 23,474
for the six months ended June 30, 2011 and the twelve
months ended December 31, 2010, respectively.
The following table sets forth selected historical share, net
income (loss) per share and book value per share information of
Acadia and PHC. The table also sets forth the Acadia unaudited
pro forma share, net income (loss) per share and book value per
share information after giving effect to (i) the YFCS
acquisition and (ii) both the YFCS acquisition and the
merger (including PHC’s acquisition of MeadowWood). The pro
forma equivalent information of PHC was derived by multiplying
the pro forma share, net income (loss) per share and book value
per share information by the exchange ratio of 0.25. You should
read this information in conjunction with the selected
historical financial information included elsewhere in this
proxy statement/prospectus. The unaudited pro forma share, net
income (loss) per share and book value per share information is
derived from, and should be read in conjunction with, the
Unaudited Pro Forma Condensed Combined Financial Statements and
related notes included in this proxy statement/prospectus. The
historical share, net income (loss) per share and book value per
share information of Acadia is derived from the audited
consolidated financial statements of Acadia as of and for the
fiscal year ended December 31, 2010 and the unaudited
condensed consolidated financial statements of Acadia as of and
for the six months ended June 30, 2011. PHC’s
fiscal year ends on June 30. Accordingly, PHC’s net
income (loss), basic and diluted net income (loss) per common
share, and the number of shares used in the computation of basic
and diluted earnings per common share for the year ended
December 31, 2010, were not obtained from PHC’s annual
audited financial statements. PHC’s financial data
presented in this table has been prepared assuming a December 31
fiscal year end. See the unaudited pro forma condensed combined
financial statements contained elsewhere in this proxy
statement/prospectus.
December 31, 2010
Acadia
PHC
Pro Forma
Pro Forma
Equivalent of
Pro Forma
for YFCS
One Acadia
Historical(1)
for YFCS
and Merger
Historical
Share(2)
Net income (loss) per share attributable to common stockholders
Basic
$
0.62
$
(0.55
)
$
(0.56
)
$
0.11
$
(0.14
)
Diluted
0.62
(0.55
)
(0.56
)
0.11
(0.14
)
Shares used in calculating income (loss) per share attributable
to common stockholders:
Basic
10,000,000
10,000,000
22,579,198
19,612,388
Diluted
10,000,000
10,000,000
22,602,672
19,706,284
June 30, 2011
Acadia
PHC
Pro Forma
Pro Forma
Equivalent of
Pro Forma
for YFCS
One Acadia
Historical(1)
for YFCS
and Merger
Historical
Share(2)
Net income (loss) per share attributable to common stockholders
Basic
$
(2.21
)
$
(1.39
)
$
(0.77
)
$
(0.03
)
$
(0.19
)
Diluted
(2.21
)
(1.39
)
(0.77
)
(0.03
)
(0.19
)
Book value per share
Basic
$
7.39
$
7.46
$
0.29
$
0.92
$
0.07
Diluted
7.39
7.46
0.29
0.91
0.07
Shares used in calculating net income (loss) per share and book
value per share attributable to common stockholders:
Basic
10,000,000
10,000,000
22,554,223
19,512,489
Diluted
10,000,000
10,000,000
22,659,476
19,698,086
(1)
All Acadia share numbers have been restated for the stock split
effected by means of a stock dividend on May 20, 2011 such
that 10,000,000 shares of common stock were issued and
outstanding on such date. An additional stock split or issuance
will be effected immediately prior to the merger to the extent
required in order
for the Acadia common stock outstanding immediately prior to the
merger to represent 77.5% of the common stock on fully diluted
basis (as defined in the merger agreement) post-merger.
(2)
These amounts were calculated by applying the exchange ratio of
0.25 to the Acadia per share amounts giving effect to the YFCS
acquisition and the merger.
PHC’s common stock currently trades on the NYSE Amex Stock
Market under the symbol “PHC”. The following table
shows the high and low sales price for the Class A Common
Stock by quarter, as reported by the NYSE Amex for the periods
indicated:
Price Range
Period
High
Low
Fiscal Year Ended June 30, 2011
First Quarter (July 1, 2010 — September 30,
2010)
$
1.34
$
1.04
Second Quarter (October 1, 2010 —
December 31, 2010)
1.80
1.31
Third Quarter (January 1, 2011 — March 31,
2011)
2.74
1.61
Fourth Quarter (April 1, 2011 — June 30,
2011)
3.61
2.19
Fiscal Year Ended June 30, 2010
First Quarter (July 1, 2009 — September 30,
2009)
$
1.70
$
1.22
Second Quarter (October 1, 2009 —
December 31, 2009)
$
1.34
$
0.99
Third Quarter (January 1, 2010 — March 31,
2010)
$
1.55
$
1.06
Fourth Quarter (April 1, 2010 — June 30,
2010)
$
1.35
$
0.98
On May 23, 2011, the last full trading day immediately
preceding the public announcement date of the merger, and on
September 26, 2011, the most recent practicable date prior
to the mailing of this proxy statement/prospectus, the last
reported sales prices of PHC’s Class A Common Stock,
as reported by the NYSE Amex Stock Market, were $3.00 and $2.45
per share, respectively. You are encouraged to obtain current
trading prices for PHC’s Class A Common Stock in
considering whether to vote to approve the merger. As of
September 2, 2011, there were approximately 645 holders of
record of PHC’s Class A Common Stock and approximately
297 holders of record of PHC’s Class B Common
Stock. PHC has not paid cash dividends on its common stock and
has no intention to do so in the foreseeable future.
Acadia’s common stock is not listed for trading on any
securities exchange, and Acadia has not previously filed reports
with the SEC. Upon completion of the merger, it is anticipated
that Acadia’s common stock will be listed on NASDAQ, and
Acadia will be an SEC reporting company.
Acadia has never declared or paid cash dividends on its capital
stock other than the dividend to be paid to Acadia stockholders
immediately prior to the merger. Acadia does not anticipate
paying any cash dividends on its capital stock in the
foreseeable future and will be substantially restricted from
doing so under the terms of the agreements governing its
indebtedness following the merger. See “Acadia
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital
Resources.”
The special meeting of PHC stockholders will be held on
October 26, 2011, at 9:00 a.m., local time, at the
corporate offices of PHC, 200 Lake Street, Suite 102,
Peabody, Massachusetts 01960.
At the special meeting of PHC stockholders, and any adjournments
thereof, PHC stockholders will be asked:
•
to consider and vote on a proposal to approve the Agreement and
Plan of Merger, dated as of May 23, 2011, by and among PHC,
Acadia Healthcare, Inc. and Acadia Merger Sub, LLC, a
wholly-owned subsidiary of Acadia, pursuant to which PHC will be
merged with and into Merger Sub;
•
to consider and cast an advisory vote on the compensation to be
received by PHC’s named executive officers in connection
with the merger;
•
to consider and vote on a proposal to approve the adjournment of
the special meeting, if necessary, to solicit additional
proxies, in the event that there are not sufficient votes at the
time of the adjournment to approve the merger agreement; and
•
To transact such other business as may properly come before the
meeting or any adjournments thereof.
The PHC board of directors has fixed September 19, 2011, as the
record date for determination of PHC stockholders entitled to
notice of, and to vote at, the special meeting of PHC
stockholders and any adjournments thereof. As of the close of
business on the record date for the special meeting of PHC
stockholders, there were 18,771,679 shares of PHC
Class A Common Stock outstanding and entitled to vote, held
by approximately 651 holders of record, and 773,717 shares
of PHC Class B Common Stock outstanding and entitled to
vote, held by approximately 297 holders of record.
Approval of the merger agreement will require the affirmative
vote of the holders of at least (i) two-thirds of the
outstanding Class A Common Stock and Class B Common
Stock, voting together as a single class (with the holders of
the Class A Common Stock having one vote per share and the
holders of the Class B Common Stock having five votes per
share), (ii) two-thirds of the outstanding Class A
Common Stock, voting as a separate class and
(iii) two-thirds of the outstanding Class B Common
Stock, voting as a separate class.
Advisory approval of the change in control payments to be made
to PHC’s named executive officers and approval of any
necessary adjournment will each require the affirmative vote of
the holders of a majority of the Class A Common Stock and
the Class B Common Stock casting votes at the special
meeting, voting together as a single class (with the holders of
the Class A Common Stock having one vote per share and the
holders of the Class B Common Stock having five votes per
share).
As of the record date for the special meeting of PHC
stockholders, the directors and executive officers of PHC and
their affiliates owned approximately 11% of the outstanding
shares of PHC Class A Common Stock, approximately 93% of
the outstanding shares of PHC Class B Common Stock and
approximately 25% of the outstanding voting power of the PHC
Class A Common Stock and the PHC Class B Common Stock
voting together as a single class. Each of PHC’s directors
and executive officers has entered into a voting agreement with
Acadia
dated as of May 23, 2011, pursuant to which they have
agreed to vote all shares of PHC capital stock owned by them as
of the record date in favor of the proposal to approve the
merger agreement. See “The Voting Agreement.”
The presence of a quorum is separately determined with respect
to each matter to be acted on at the special meeting. The
presence, in person or by proxy, of the holders of shares having
the right to cast a majority of the votes which may be cast with
respect to such matter constitutes the required quorum for such
matter. Abstentions will be included in determining the number
of shares present at the special meeting of PHC stockholders for
the purpose of determining the presence of a quorum.
Abstaining from the vote on the proposal to approve the merger
agreement will have the effect of a vote against this proposal.
The failure of a PHC stockholder to return a proxy or to vote in
person, or if a stockholder’s shares are held by a broker
or other nominee (i.e., in “street name”), the failure
to give voting instructions to the broker or other nominee on
how to vote the shares, also will have the effect of a vote
against this proposal. Shares abstaining from the advisory vote
on the compensation of the named executive officers or the vote
on the proposal to approve the adjournment of the special
meeting to solicit additional proxies will have no effect on the
vote with respect to these proposals because approval of each of
these proposals requires a majority of votes cast with respect
to the proposal at the special meeting.
PHC stockholders are encouraged to return the enclosed proxy
card marked to indicate their vote as described in the
instructions accompanying the proxy card.
After careful consideration, the PHC board of directors has
unanimously (with Mr. Shear abstaining) approved the merger
agreement and determined that the merger agreement is fair to,
and in the best interests of, the stockholders of PHC.
Therefore, the PHC board of directors recommends PHC
stockholders vote FOR the approval of the merger agreement.
In considering this recommendation, PHC stockholders should be
aware that the PHC directors and executive officers have
interests in the merger that are different from, or in addition
to, those of other PHC stockholders generally. See “The
Merger — Interests of PHC’s Directors and
Executive Officers.”
PHC and Acadia shall bear 25% and 75%, respectively, of the
aggregate fees and expenses incurred in connection with the
filing with the SEC, printing and mailing of this proxy
statement/prospectus. Solicitation of proxies by mail may be
supplemented by telephone, facsimile and other electronic means,
advertisements and personal solicitation by the directors,
officers or employees of PHC. No additional compensation will be
paid to directors, officers or employees for those solicitation
efforts. PHC has engaged Georgeson Inc. (“Georgeson”)
to assist in the solicitation of proxies for the special
meeting, and PHC has agreed to pay Georgeson a fee of $8,500 and
will reimburse them for reasonable out of pocket expenses
incurred in connection with the solicitation.
PHC requests that its stockholders complete, date and sign the
enclosed proxy card and promptly return it by mail in the
accompanying envelope in accordance with the instructions
accompanying the proxy card. All properly signed and dated
proxies that PHC receives prior to the vote at the special
meeting of PHC stockholders, and not subsequently revoked, will
be voted in accordance with the instructions indicated on the
proxies. All properly signed and dated proxies received by PHC
prior to the vote at the special meeting that do not contain any
direction as to how to vote in regards to any or all of the
proposals will be voted for approval of any proposal in regards
to which no directions are provided.
Stockholders may revoke their proxies at any time prior to their
use:
•
by delivering to the clerk of PHC a signed notice of revocation;
•
by delivering to the clerk of PHC a later-dated, signed
proxy; or
•
by attending the special meeting of PHC stockholders and voting
in person.
Attendance at the special meeting of PHC stockholders does not
in itself constitute the revocation of a proxy.
Even if a PHC stockholder plans to attend the special meeting in
person, PHC requests that the stockholder sign and return the
enclosed proxy card as described in the proxy
statement/prospectus and in accordance with the instructions
accompanying the proxy card, thus ensuring that the shares held
by the stockholder will be represented at the special meeting.
If a PHC stockholder does attend the special meeting and wishes
to vote in person, he or she may withdraw the proxy and vote in
person.
At the effective time of the merger, PHC will merge with and
into Merger Sub. PHC stockholders will receive one-quarter of a
share of Acadia common stock in exchange for each share of PHC
common stock they own. In addition, holders of PHC Class B
Common Stock will receive their pro rata share of
$5.0 million of cash consideration for each share of PHC
Class B Common Stock exchanged in the merger. PHC warrant
holders holding warrants will receive warrants to purchase
one-quarter of a share of Acadia common stock for each share of
PHC common stock subject to such warrants. PHC option holders
holding options, whether vested or unvested, will receive
options to purchase one-quarter of a share of Acadia common
stock for each share of PHC common stock subject to such options.
Upon completion of the merger, Acadia stockholders will retain
77.5% of the combined company on a fully diluted basis (as
defined in the merger agreement) and the former PHC stockholders
will receive 22.5% of the combined company on a fully diluted
basis (as defined in the merger agreement).
Mr. Jacobs, Acadia’s Chairman and Chief Executive
Officer, and other members of Acadia’s current management
team were previously executive officers of Psychiatric
Solutions, Inc. (“PSI”), a publicly traded behavioral
health care company that owned and operated 95 inpatient
facilities with approximately 11,000 beds in 32 states,
Puerto Rico and the U.S. Virgin Islands. Mr. Jacobs
was a founder of PSI and served as its Chairman, Chief Executive
Officer and President from 1997 to the time of its sale to
Universal Health Services, Inc. (“UHS”) in November
2010. Mr. Jacobs and the senior management team grew PSI
from a market capitalization of approximately $50 million
when it went public in July 2002, to over $1.8 billion in
November 2010.
Mr. Jacobs and Mr. Shear, PHC’s Chief Executive
Officer, have served together as directors of the National
Association of Psychiatric Hospital Systems (“NAPHS”)
for several years. Mr. Jacobs also was familiar with PHC
and its business from his experience as Chairman, Chief
Executive Officer and President of PSI. In 2008, PSI approached
PHC about a possible combination of the two companies and in
connection therewith, Messrs. Jacobs and Shear discussed
the possible combination, although the discussions never
progressed beyond the exploratory stage. Following the sale of
PSI to UHS in November 2010, Mr. Jacobs called
Mr. Shear and during that conversation, they arranged to
meet in person.
In December 2010, Mr. Jacobs and Mr. Shear met to
discuss PHC’s strategic plans, including the possibility of
Mr. Jacobs and other former PSI senior executive officers
joining PHC. Concurrently, Mr. Jacobs discussed with
representatives of Acadia and Waud Capital Partners the
possibility of Mr. Jacobs and other former PSI senior
executive officers joining Acadia. On January 31, 2011,
Mr. Jacobs and other former PSI senior executive officers
entered into employment agreements with Acadia.
On January 31, 2011, Mr. Jacobs contacted
Mr. Shear and informed him that he and other former PSI
executive officers had entered into employment agreements with
Acadia. Messrs. Jacobs and Shear further discussed a possible
strategic combination of Acadia and PHC and agreed it would be
helpful to meet with Jefferies & Company, Inc.
(“Jefferies”). Jefferies had previously been retained
by PHC to act as a financing source in connection with
PHC’s proposed acquisition of MeadowWood, which PHC was
exploring at that time.
On January 31, 2011, Mr. Shear updated the PHC board
of directors on his discussions with Mr. Jacobs and
discussed the possibility of a strategic combination of PHC and
Acadia. Mr. Shear indicated to the PHC board of directors
that if the companies combined operations, Mr. Shear
believed that Mr. Jacobs would be able to generate further
growth through additional acquisitions by virtue of his
experience at PSI.
On February 2, 2011, Mr. Jacobs and Brent Turner,
Co-President of Acadia, met with Mr. Shear and
representatives of Jefferies in Fort Lauderdale, Florida to
discuss a possible strategic combination of Acadia and PHC,
including initial discussions regarding relative valuations and
deal terms.
Following the February 2, 2011 meeting, the parties
continued discussions regarding the possible combination on
periodic conference calls. On February 8, 2011,
Mr. Shear and representatives from Acadia, Waud Capital
Partners and Jefferies met in Chicago, Illinois to further
discuss the possible combination of Acadia and PHC.
After the February 8, 2011 meeting, the parties continued
to share models regarding the possible combination and further
discussed potential terms.
During these discussions, Mr. Shear expressed several
principles which guided the discussions on behalf of PHC:
•
PHC desired a combination in which PHC stockholders would
participate in the growth of the combined company;
•
In view of PHC’s recent growth and prospects, PHC’s
contribution to the combination should take into account
PHC’s 12 month projections as well as its recent
historical performance; and
•
Any acquisition must fairly compensate the holders of PHC’s
Class B Common Stock for their control rights, including
their right to elect a majority of PHC’s directors and
their right to five votes per share.
On February 18, 2011, Mr. Shear updated the PHC board of
directors on discussions with Acadia and the PHC board of
directors approved PHC’s retention of Jefferies to act as
exclusive advisor in connection with a possible combination of
Acadia and PHC.
On February 24, 2011, representatives of Acadia, Waud
Capital Partners, Jefferies and a potential acquisition target
met in Chicago, Illinois to have preliminary discussions
regarding a possible combination with Acadia and PHC. The
parties elected not to pursue this opportunity at that time due
to differences of opinion with the potential target over
valuation issues and complexities of structuring a three-way
combination.
On March 7, 2011, the NAPHS held its annual meeting in
Washington, D.C. While attending this meeting,
Mr. Turner and Mr. Shear continued their discussions
regarding the terms of a possible transaction between Acadia and
PHC. In subsequent discussions the parties agreed to discuss a
letter of intent reflecting proposed terms.
On March 16, 2011, Mr. Shear further updated the PHC
board of directors on discussions with Acadia.
On March 22, 2011, Acadia delivered a letter of intent to
the PHC board of directors. The parties and their respective
counsel negotiated the letter of intent between March 23,
2011 and March 28, 2011.
On March 28, 2011, the PHC board of directors met to
consider the proposed letter of intent. Jefferies made a
presentation to the PHC board of directors, describing reasons
for a combination of PHC and Acadia and providing background
information with respect to Acadia, a summary of the transaction
proposed by the letter of intent and pro forma financial
information for the proposed combined company. The PHC board of
directors discussed the presentation and the letter of
intent and authorized PHC’s execution of the letter of
intent. The PHC board of directors also appointed
Mr. William Grieco as the lead independent director with
respect to the following: (i) discussions regarding the
combination; (ii) working with PHC’s Chief Executive
Officer and management team; (iii) facilitating discussions
amongst the members of the PHC board of directors;
(iv) interacting with external advisors; and
(v) assisting with PHC stockholder communications.
Mr. Grieco was further directed to interview, select and
engage a financial advisory firm without an interest in the
completion of the transaction to evaluate the fairness of the
proposed combination from a financial point of view, in light of
Jefferies’ potential role in providing financing to the
combined company. The PHC board of directors did not form a
special committee based upon its determination that, other than
Mr. Shear, none of the directors had interests in the
proposed transaction that would prevent them from making an
independent evaluation of the transaction, its appointment of
Mr. Grieco as lead independent director and its
determination, based upon the advice of counsel, that under
applicable Massachusetts law a special committee was not
required to be appointed under the circumstances of the proposed
transaction.
The letter of intent that was signed on March 28, 2011 was
non-binding, except that PHC granted exclusivity to Acadia and
the parties agreed to maintain confidentiality regarding the
proposed transaction. The letter of intent reflected that:
•
PHC stockholders would receive common stock constituting 22.5%
of the combined company, on a fully diluted basis (as defined in
the merger agreement), and Acadia stockholders would receive
common stock constituting 77.5% of the combined company, on a
fully diluted basis (as defined in the merger agreement);
Based upon the relative values of PHC and Acadia and in order to
achieve the proposed 22.5% — 77.5% proportion, Acadia
stockholders would receive a distribution of approximately
$90 million in cash;
•
In order to induce holders of PHC’s Class B Common
Stock to give up their control rights and exchange their
Class B Common Stock for ordinary common stock, PHC
stockholders would receive common stock constituting 22.5% of
the combined company, on a fully diluted basis (as defined in
the merger agreement), and holders of PHC’s Class B
Common Stock would recapitalize into common stock of the
combined company and receive an aggregate of $5 million in
cash;
•
Mr. Shear would serve as Vice Chairman of the combined
company and, along with another representative designated by
Mr. Shear, would serve as a director of the combined
company;
•
the senior executive officers of PHC would enter into employment
agreements on terms and conditions satisfactory to the parties
and the employees; and
•
PHC, Waud Capital Partners and specified other stockholders
would enter into an investment agreement that would provide
certain rights in favor of Waud Capital Partners, including
registration rights and such other rights as agreed to by the
parties.
In reaching agreement to the proposed 22.5%-77.5%
post-merger
split of ownership interests in Acadia and the $90 million
distribution of cash to the Acadia stockholders, the parties
considered a number of factors, including the following:
(i) the respective trailing 12 month revenue and
adjusted EBITDA for each of Acadia and PHC; (ii) the
relative contributions of each party to the proposed combined
company; (iii) the opportunity to improve the operations at
each party’s facilities; (iii) the proven record of
substantial growth demonstrated by Acadia’s senior
management team; and (iv) the opportunity for PHC’s
stockholders to own a substantial percentage of the combined
company.
On March 30, 2011, Mr. Grieco engaged Pepper Hamilton
LLP (“Pepper Hamilton”) on behalf of PHC to provide
advice regarding Massachusetts corporate law in connection with
the proposed combination with Acadia. Pepper Hamilton was also
engaged to represent Messrs. Shear and Boswell in
connection with related employment agreement negotiations.
On March 31, 2011, the parties entered into a
confidentiality agreement and began due diligence and
Kirkland & Ellis LLP (“Kirkland &
Ellis”), outside counsel to Acadia, delivered an initial
draft of a merger agreement to Arent Fox LLP (“Arent
Fox”), outside counsel to PHC. Mr. Shear and
Mr. Grieco reviewed the draft agreement and provided
comments on key issues to Arent Fox. On April 6, 2011,
representatives of Kirkland & Ellis and Arent Fox
discussed the draft merger agreement and the proposed structure.
A meeting was held in Franklin, Tennessee on April 8, 2011
to discuss the structure and proposed terms of the transaction
and proposed financing for the transaction. Mr. Shear and
other representatives from PHC, representatives from Jefferies,
members of Acadia’s management team, representatives from
Waud Capital Partners, representatives from Kirkland &
Ellis, representatives from Arent Fox, representatives from
Ernst & Young LLP, Acadia’s accountants, and BDO
USA, LLP, PHC’s accountants, were either in attendance or
participated by telephone. Discussions were also held between
Mr. Jacobs, other members of Acadia management,
Mr. Shear and a representative from Jefferies with respect
to the proposed terms of the employment agreements of
Messrs. Shear and Boswell with the combined company.
On April 18, 2011, Arent Fox provided Kirkland &
Ellis with a revised draft of the merger agreement.
During the weeks of April 18th and April 25th,
the parties and their respective counsel continued to discuss
the merger agreement and the proposed structure of the
transaction and the parties continued to conduct their
respective due diligence. In particular, the parties decided to
revise the merger agreement to reflect that PHC would merge with
and into a subsidiary of Acadia and that Acadia would issue
common stock to the former PHC stockholders representing 22.5%
of the combined company on a fully diluted basis (as defined in
the merger agreement).
On April 25, 2011, Mr. Shear and Mr. Grieco
updated the PHC board of directors on discussions with Acadia,
including the engagement of accountants to conduct financial due
diligence. The PHC board of directors provided Mr. Shear
and Mr. Grieco comments on the key issues and instructions
with respect to due diligence. Following the meeting,
Mr. Grieco retained SRR on behalf of the PHC board of
directors to provide an opinion to the PHC board of directors
with respect to the fairness, from a financial point of view of
(i) the proposed merger consideration to be
received by holders of PHC’s common stock (in the
aggregate) and (ii) the proposed merger consideration to be
received by holders of PHC’s Class A Common Stock (in
the aggregate). On May 2, 2011, representatives of SRR met
with Mr. Shear, Mr. Grieco and other members of PHC
management in Peabody, Massachusetts in connection with
SRR’s review of PHC, and on May 5, 2011,
representatives of SRR met with Acadia management in Franklin,
Tennessee in connection with SRR’s review of Acadia.
On May 3, 2011, Kirkland & Ellis distributed a
revised draft of the merger agreement to Arent Fox that
reflected a structure in which PHC would merge with and into an
Acadia entity. After discussing the revised draft,
Kirkland & Ellis distributed a further revised draft
of the merger agreement to Arent Fox on May 9, 2011 that
reflected the status of negotiations to date.
On May 9, 2011, a meeting of the PHC board of directors was
held in Peabody, Massachusetts at which Jefferies presented a
summary of the combination, including a discussion of certain
deal terms, financing and pro forma financial statements for the
combined company. Mr. Shear and Jefferies, based upon their
familiarity with the participants in the behavioral health
market, and Jefferies based upon its familiarity with potential
financial investors in the behavioral health market, discussed
with the PHC board of directors the absence of other viable
candidates for a combination with PHC. Because the PHC board of
directors, based upon discussions with its financial advisor,
believed that a strategic combination of Acadia and PHC would
best maximize the value to PHC stockholders in a transaction and
there was an absence of other viable merger candidates, the PHC
board of directors determined not to actively solicit potential
alternative transactions. Instead, the PHC board of directors
determined to confirm that there were no reasonably available
alternative transactions by including in the merger agreement
customary provisions permitting the PHC board of directors to
terminate the agreement and pursue any superior alternate
transaction that might arise following the announcement of an
agreement with Acadia.
Following the May 9th meeting, Mr. Grieco
discussed the revised draft merger agreement with the PHC board
members and collected their comments. He then discussed his
comments and the other directors’ comments with PHC
management and Arent Fox. During the week of May 9th,
Mr. Shear and Mr. Grieco continued to review the draft
merger agreement and provided comments to Arent Fox, Jefferies
and Acadia.
On May 11, 2011, Arent Fox delivered to
Kirkland & Ellis a revised draft of the merger
agreement reflecting the status of current negotiations.
On May 12, 2011, Jefferies Finance delivered to Acadia a
draft commitment letter and a draft engagement letter with
respect to Jefferies Finance’s proposed financing of the
combination.
During the negotiations regarding the merger agreement, the
parties negotiated closing conditions, covenants and termination
provisions of the merger agreement, including the termination
fee and expense reimbursement provisions set forth in the merger
agreement. Acadia had initially requested a termination fee of
$5 million. PHC rejected this proposal, at which point
Acadia proposed a termination fee of up to $3 million.
Subsequently, PHC proposed a fee of $2 million payable by
PHC upon its acceptance of a superior offer and a
break-up
fee
of $6 million payable by Acadia. Acadia proposed that
PHC’s fee would be payable upon the happening of specified
events, including termination due to a failure to consummate the
merger by the end date, failure to receive stockholder approval
or breach by PHC of its representations and warranties.
Following extensive negotiation, the parties agreed that PHC may
adversely change its recommendation under certain circumstances
if it receives a superior proposal, as described in the merger
agreement. PHC would pay Acadia a termination fee of
$3 million in the event the merger agreement is terminated
because the PHC board of directors has adversely changed its
recommendation to approve the merger or if PHC enters into or
consummates an alternative transaction within 12 months of
the merger agreement being terminated because the merger has not
been consummated by the December 15, 2011, PHC has not
obtained the required stockholder approval or PHC would be
unable to satisfy its closing conditions regarding its covenants
and agreements or representations and warranties. Additionally,
if either party terminates the merger agreement as a result of
the other party breaching any of its covenants, agreements,
representations or warranties such that a condition related to
close would not be satisfied (and the termination fee is not
otherwise payable in connection with such termination), the
breaching party will pay (in four annual payments) up to
$1 million of the non-breaching parties reasonably
documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred in connection with the transactions
contemplated by the merger agreement, with the first
annual installment due within two business days of such
termination, and the remaining payments being made on the first,
second and third anniversary of such termination date.
During the weeks of May 9th and May 16th,
Kirkland & Ellis and Acadia continued to negotiate
with Jefferies Finance and its counsel the terms of the proposed
debt financing.
On May 13, 2011, the Acadia board of directors held a
telephonic meeting. Kirkland & Ellis and members of
Acadia’s management also attended the meeting
telephonically. Acadia’s CFO reviewed the financial terms
of the proposed merger. Kirkland & Ellis reviewed the
terms of the merger agreement.
On May 15, 2011, Kirkland & Ellis distributed a
revised draft of the merger agreement to Arent Fox, reflecting
the status of continued negotiations.
The Acadia board of directors held a subsequent telephonic
meeting on May 16, 2011. At this meeting,
Kirkland & Ellis reviewed the terms of the merger
agreement with the Acadia board of directors. Acadia’s
General Counsel and representatives of Kirkland &
Ellis reviewed with the Acadia board of directors additional due
diligence findings and representatives of Kirkland &
Ellis reviewed the terms of the merger agreement. After further
discussion, the Acadia board of directors then approved
Acadia’s entering into the merger agreement and authorized
Acadia management to finalize the merger agreement.
On May 16, 2011, Mr. Shear and Mr. Grieco updated
the PHC board of directors on the proposed revised terms of the
merger agreement and reviewed remaining concerns with the PHC
board members.
On May 17th, 19th, 20th and 22nd, Kirkland &
Ellis distributed revised drafts of the merger agreement to
Arent Fox, reflecting, in each case, the status of negotiations
at that time.
On May 19, 2011, the PHC board of directors met to consider
the proposed merger. Arent Fox, Jefferies and Mr. Grieco
reviewed the principal terms of the merger agreement and related
agreements, and SRR reviewed the financial analysis that it had
performed related to the consideration to be paid in the
proposed merger. After further discussion of the proposed
transaction, SRR provided the PHC board of directors with its
opinion that, as of that date, based upon certain assumptions
and qualifications, (i) the merger consideration to be
received by the holders of outstanding PHC common stock (in the
aggregate) is fair, from a financial point of view, to such
holders and (ii) the consideration to be paid to holders of
the PHC Class A Common Stock (in the aggregate) is fair,
from a financial point of view, to such holders. After further
discussion, the PHC board of directors unanimously voted (with
Mr. Shear abstaining from the vote) to approve the merger
agreement and authorized management to enter into the merger
agreement on behalf of PHC and submit the merger agreement to
PHC’s stockholders for approval, subject to finalization of
the merger agreement.
On May 23, 2011, Acadia and PHC signed the merger agreement
and on May 24, 2011 issued a joint press release announcing
the signing. On May 23, 2011, certain members of PHC’s
management, including Mr. Shear, entered into voting
agreements pursuant to which they agreed to vote in favor of the
merger.
In approving and authorizing the merger and the merger
agreement, the Acadia board of directors considered a number of
factors, including, among others, the facts discussed in the
following paragraphs. Although the foregoing discussion sets
forth the material factors considered by the Acadia board in
reaching its determination, it may not include all of the
factors considered by the Acadia board. In light of the number
and wide variety of factors considered in connection with its
evaluation of the merger, the Acadia board did not consider it
practicable to, and did not attempt to, quantify or otherwise
assign relative weights to the specific factors it considered in
reaching its determination. The Acadia board viewed its position
and determinations as being based on all of the information
available and the factors presented to and considered by it. In
addition, individual directors may have given different weight
to different factors.
In reaching its decision, the Acadia board consulted with
Acadia’s management with respect to strategic and
operational matters and with Acadia’s legal counsel with
respect to the merger agreement and the transactions
contemplated thereby. The decision of the Acadia board to enter
into the merger agreement was the result of careful
consideration by the Acadia board of numerous factors, including
the following positive factors that it believes will contribute
to the success of the combined enterprise:
•
the opportunity to diversify service types and payor mix;
•
the ability to expand the number of facilities and beds and
expand into additional new states;
•
Acadia’s and PHC’s facilities are complementary and
their combination will increase geographic diversity;
•
the increased ability to access private and public equity
markets, including for purposes of acting on attractive
opportunities to further expand Acadia’s business;
•
Acadia’s management will provide additional resources and
has a demonstrated record of achievement;
•
the opportunity to expand PHC’s internet and
telephonic-based support services, which include crisis
intervention, critical incidents coordination, employee
counselor support, client monitoring, case management and health
promotion;
•
the opportunity to retain 77.5% of the combined company while
achieving partial liquidity through a pre-merger dividend;
•
the fact that the merger will provide Acadia stockholders, who
currently hold shares in a private company, with shares of
common stock in a publicly traded company, which would provide
liquidity to Acadia stockholders;
•
the increased ability to access private and public equity
markets, including for purposes of acting on attractive
opportunities to further expand Acadia’s business; and
•
its understanding of Acadia’s business, operations,
financial condition and prospects, and of PHC’s business,
operations, financial condition and prospects.
The Acadia board also identified and considered a number of
uncertainties and risks including the following:
•
the risk that the potential benefits of the merger might not be
realized;
•
the risk that the merger may not be completed;
•
the challenges, costs, resource constraints and risks of
entering into the merger agreement and integrating the
businesses of Acadia and PHC and the potential management,
customer and employee disruption that may be associated with the
merger;
•
the amount of indebtedness required to finance the merger and
the related restrictions to which the combined company would be
subject; and
•
various other applicable risks associated with the combined
company and the merger, including those described under the
section entitled “Risk Factors” beginning on
page 18 of this proxy statement/prospectus.
The Acadia board weighed the benefits, advantages and
opportunities against the negative factors described above,
including the possible diversion of management attention for an
extended period of time. The Acadia board realized that there
can be no assurance about future results, including results
expected or considered in the factors listed above. However, the
Acadia board concluded that the potential benefits significantly
outweighed the potential risks of completing the merger.
After taking into account these and other factors, the Acadia
board unanimously approved and authorized the merger agreement
and the transactions contemplated thereby, including the merger.
In approving and authorizing the merger agreement, the PHC board
of directors considered a number of factors. Although the
following discussion sets forth the material factors considered
by the PHC board of directors in reaching its determination, it
may not include all of the factors considered by the PHC board
of directors. In light of the number and wide variety of factors
considered in connection with its evaluation of the merger
agreement, the
PHC board of directors did not consider it practicable to, and
did not attempt to, quantify or otherwise assign relative
weights to the specific factors it considered in reaching its
determination. The PHC board of directors viewed its position
and determinations as being based on all of the information
available and the factors presented to and considered by it. In
addition, individual directors may have given different weight
to different factors.
In reaching its decision, the PHC board of directors consulted
with PHC’s management with respect to strategic and
operational matters and with PHC’s legal counsel with
respect to the merger agreement and the transactions
contemplated thereby. The PHC board of directors also consulted
with Jefferies, PHC’s financial advisor, with respect to
the financial aspects of the merger.
Among the factors considered by the PHC board of directors in
its decision to approve the merger agreement were the following:
•
its knowledge of PHC’s business, operations, financial
condition, earnings and prospects, as well as the risks in
achieving those prospects;
•
its belief that the merger is more favorable to PHC’s
stockholders than any other alternative reasonably available,
including the alternative of remaining a stand-alone,
independent company and seeking to grow by pursuing acquisitions
and the alternative of seeking another merger partner, as well
as the potential rewards, risks and uncertainties associated
with those alternatives;
•
the judgment, advice and analysis of PHC’s senior
management with respect to the potential benefits of the merger,
based on the business, financial, accounting and legal due
diligence investigations performed with respect to Acadia;
•
the opinion of SRR to the PHC board of directors that the merger
consideration specified in the merger agreement was fair, from a
financial point of view, to the holders of PHC Class A
Common Stock (in the aggregate) and to the holders of all of the
PHC common stock (in the aggregate), as of the date thereof;
•
historical information concerning Acadia’s business,
financial performance and condition, funding ability,
operations, management and competitive position and the related
prospects for the combined company;
•
the fact that financial and other terms and conditions of the
merger agreement were the product of extensive arm’s-length
negotiations among the parties and were designed to provide as
much certainty as was possible that the merger would ultimately
be consummated on a timely basis;
•
the fact that Acadia obtained a firm commitment for the
financing necessary to complete the merger and the associated
transactions, including the fact that Jefferies Finance, an
affiliate of Jefferies, with PHC’s prior consent, provided
the commitment;
•
the fact that negotiations were conducted under the oversight of
a lead independent director who is not an employee of PHC;
•
the fact that the lead independent director selected SRR to
provide its opinion to the PHC board of directors as to the
fairness of the merger consideration from a financial point of
view;
•
the fact that the merger agreement must be approved by the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of PHC Class A Common Stock, voting
separately, as well as the vote of the holders of the PHC
Class A Common Stock and the PHC Class B Common Stock
voting together;
•
the current conditions in the behavioral health market and the
positioning of the combined company within that market after the
merger;
•
the current conditions of the equity and debt market, as it
relates to PHC’s ability to raise additional capital from
new investors for the continued growth of PHC’s business,
and as it relates to the potential prospects for the combined
company; and
In reaching its determination to approve the merger agreement,
the members of the PHC board of directors identified and
considered a number of the potential benefits of the merger,
including the following:
•
Acadia’s assembled set of seasoned behavioral health
facilities;
•
PHC’s and Acadia’s facilities are complementary and
their combination will increase geographic diversity;
•
the combination of the businesses will diversify the revenue and
the payor base;
•
the combination of the businesses will improve the scale of
operations and operating leverage;
•
Acadia’s management will provide additional resources and
has a demonstrated record of achievement;
•
the combined company will provide a platform for additional
acquisitions;
•
the opportunity to own 22.5% of the combined company on a fully
diluted basis (as defined in the merger agreement);
•
the combined company’s greater outstanding equity should
result in increased stock liquidity and research
coverage; and
•
the combined company should have a greater range of options to
access private and public equity and debt markets to fund future
capital needs, which are likely be greater than the options
available to PHC alone.
The members of the PHC board of directors also identified and
considered a number of uncertainties and risks, including the
following:
•
the risk that the potential benefits of the merger might not be
realized;
•
the risk that Acadia’s stockholders will control the
combined company and the fact that Acadia’s stock ownership
is concentrated in the hands of relatively few stockholders;
•
the amount of indebtedness required to finance the merger and
the related restrictions to which the combined company would be
subject;
•
the interests that PHC’s directors and executive officers
have with respect to the merger, in addition to their interests
as holders of PHC Class A Common Stock, as described in
“The Merger — Interests of PHC’s Directors
and Executive Officers”;
•
the possible diversion of management attention for an extended
period of time;
•
the substantial expenses expected to be incurred in connection
with the merger;
•
the risk that the merger may not be completed; and
•
various other applicable risks associated with the combined
company and the merger, including those described under the
section entitled “Risk Factors” beginning on
page 18 of this proxy statement/prospectus.
The PHC board of directors weighed the benefits, advantages and
opportunities of a potential transaction against the risk
factors described above. The PHC board of directors considered
the uncertainties associated with the relative valuations of PHC
and Acadia, including the analysis involved in determining that
a distribution to the Acadia shareholders (as described below in
“The Merger Agreement — Acadia Dividend”)
was required to in order to arrive at the 22.5%-77.5%
post-merger split of ownership interests. The PHC board of
directors also considered the borrowing needed to fund the
distribution and the payment to Waud Capital Partners in
connection with the termination of the Professional Services
Agreement (as further described in “Acadia Interested
Transactions — Professional Services Agreement”).
The PHC board of directors viewed the merger as a strategic
combination that would best maximize the value to PHC
stockholders in a transaction and determined that the PHC’s
shareholders’ opportunity to participate in the potential
benefits of the combination represented by the 22.5% interest in
the combined company was preferable to a smaller share of the
combined company and a smaller distribution to the Acadia
shareholders. The PHC board of directors also evaluated the
additional debt required to be carried by the combined company
to fund the distribution. The PHC board of directors believe
that the debt is supportable by the combined company.
In evaluating the proposed transaction, the PHC board of
directors noted that the holders of the Class B Common
Stock were entitled to be fairly compensated for the surrender
of their control rights and that Mr. Shear, in his capacity
as a holder of the Class B Common Stock, had negotiated a
$5 million cash payment to the holders of the Class B
Common Stock as part of the merger. The PHC board of directors,
in reaching its conclusion that the merger agreement is fair to,
and in the best interests of, the PHC stockholders, considered a
number of factors in evaluating the proposed payment to the
holders of the Class B Common Stock, including the rights
of the holders of the Class B Common Stock, the fact that
the proposed transaction could not be completed without the
approval of the holders of the Class B Common Stock and the
opinion of SRR to the PHC board of directors that, from a
financial point of view, the merger consideration to be received
by the holders of PHC Class A Common Stock (in the
aggregate) was fair to such holders and the merger consideration
to be received by the holders of all of the PHC common stock (in
the aggregate) was fair to such holders.
The PHC board of directors realized that there can be no
assurance about future results, including results expected or
considered in the factors listed above. However, the PHC board
of directors concluded that the potential benefits significantly
outweighed the potential risks of completing the merger.
After taking into account these and other factors, the PHC board
of directors approved the merger agreement and the transactions
contemplated therewith, including the merger.
After careful consideration, the PHC board of directors has
unanimously (with Mr. Shear abstaining) approved the merger
agreement and determined that the merger agreement is fair to,
and in the best interests of, the stockholders of PHC.
Therefore, the PHC board of directors recommends PHC
stockholders vote FOR the approval of the merger agreement.
In considering the recommendation of the PHC board of directors
with respect to the merger agreement, you should be aware that
the directors and executive officers of PHC have interests in
the merger that are different from, or are in addition to, the
interests of other PHC stockholders. Please see “The
Merger — Interests of PHC’s Directors and
Executive Officers.”
Acadia has obtained from PHC’s directors and executive
officers their agreement to vote their shares of capital stock
to approve the merger agreement.
On May 19, 2011, SRR delivered to the PHC board of
directors its oral opinion, which opinion was subsequently
confirmed by delivery of a written opinion dated May 19,
2011, to the effect that, as of that date, and subject to
assumptions made, matters considered and limitations as set
forth therein, (i) the merger consideration to be received
by the holders of outstanding shares of PHC’s Class A
Common Stock and Class B Common Stock (in the aggregate)
was fair, from a financial point of view, to such holders, and
(ii) the merger consideration to be received by the holders
of the outstanding shares of PHC’s Class A Common
Stock (in the aggregate) was fair, from a financial point of
view, to such holders.
The full text of the written opinion of SRR, dated
May 19, 2011, is attached as Annex C to this proxy
statement/prospectus and is incorporated by reference in its
entirety into this proxy statement/prospectus. The opinion sets
forth, among other things, the assumptions made, work performed,
procedures followed, matters considered and qualifications and
limitations on the scope of the review undertaken by SRR. You
should read the opinion carefully and in its entirety.
SRR’s opinion was directed to the PHC board of directors
and addresses only the fairness, from a financial point of view,
of (i) the merger consideration to be received by the
holders of outstanding shares of PHC’s Class A Common
Stock and Class B Common Stock (in the aggregate) and
(ii) the merger consideration to be received by the holders
of the outstanding shares of PHC’s Class A Common
Stock (in the aggregate), in each case to the respective holders
thereof. The opinion does not address any other aspect of the
merger and does not constitute a recommendation to the PHC board
of directors or to any other person in respect to the merger,
including as to how any holder of shares of PHC common stock
should vote or act in respect to the merger. The summary of the
opinion of SRR set forth in this proxy statement/prospectus is
qualified in its entirety by reference to the full text of the
opinion. SRR has consented to the inclusion in this proxy
statement/prospectus of its opinion and the description of its
opinion appearing below.
The sources of information used in performing SRR’s
analysis included, but were not limited to:
•
PHC’s
10-K
filings
for the fiscal years ended June 30, 2006 through 2010;
•
PHC’s
10-Q
filing
for the quarter ended March 31, 2011;
•
Acadia Holdings’ audited financial statements for the years
ending December 31, 2006 though 2010;
•
YFCS’ audited financial statements for the years ending
December 31, 2006 through 2010;
•
Acadia Holdings’ internally prepared unaudited financial
statements for the three-month periods ended March 31, 2010
and 2011;
•
YFCS’ internally prepared unaudited financial statements
for the three-month periods ended March 31, 2010 and 2011;
•
draft of the merger agreement, dated May 19, 2011;
•
PHC’s five-year financial forecast (including MeadowWood)
for the fiscal years ending December 31, 2011 through 2015
and subsequent long-term growth rates prepared by PHC management;
•
Acadia’s five-year financial forecast (including YFCS) for
the fiscal years ending December 31, 2011 through 2015 and
subsequent growth rates prepared by Acadia management;
•
combined (both PHC and Acadia) five-year financial forecast for
the fiscal years ending December 31, 2011 through 2015 and
subsequent long-term growth rates prepared by PHC and Acadia
management;
•
a review of publicly available financial data of certain
publicly traded companies that SRR deemed relevant;
•
a review of publicly available information regarding certain
publicly available merger and acquisition transactions that SRR
deemed relevant;
•
a review of other financial and other information for PHC and
Acadia that was publicly available or provided to SRR by
management of PHC or Holdings;
•
discussions with PHC and Acadia management concerning their
business, industry, history, and prospects;
•
discussions with PHC’s financial advisors,
Jefferies; and
•
an analysis of other facts and data resulting in our conclusions.
SRR was not requested to opine as to, and its opinion does not
in any manner address: (i) PHC’s underlying business
decision to proceed with or effect the merger, (ii) the
amount of the merger consideration to be paid to holders of
PHC’s Class B Common Stock, any distribution paid to
Acadia stockholders, the allocation of the merger consideration
among the PHC stockholders or the amount per share of the merger
consideration, the amount of the merger consideration paid to
the holders of PHC’s Class A Common Stock relative to
the merger consideration paid to the holders of PHC’s
Class B Common Stock or relative to the merger
consideration paid to all holders of PHC common stock, or
any other term or condition of any agreement or document related
to, or the form or any other portion or aspect of, the merger,
except as expressly stated in its opinion letter, or
(iii) the solvency, creditworthiness or fair value of PHC,
Acadia or any other participant in the merger under any
applicable laws relating to bankruptcy, insolvency or similar
matters. Further, SRR was not requested to consider, and its
opinion does not address, the merits of the merger relative to
any alternative business strategies that may have existed for
PHC or the effect of any other transactions in which PHC might
have engaged, nor did SRR offer any opinion as to the terms of
the merger. Moreover, SRR was not engaged to recommend, and did
not recommend, a transaction price or exchange ratio, or
participate in the merger negotiations. Furthermore, no opinion,
counsel or interpretation was intended in matters that require
legal, regulatory, accounting, insurance, tax or other similar
professional advice. SRR’s opinion does not constitute, and
they have not made, a recommendation to the PHC board of
directors or any security holder of PHC or any other person as
to how to act or vote with respect to the merger or otherwise.
SRR also assumed, with PHC’s consent, that the final
executed form of the merger agreement would not differ from the
draft of the merger agreement that they examined, that the
conditions to the merger as set forth in the draft merger
agreement would be satisfied, and that the merger would be
consummated on a timely basis in the manner contemplated by the
draft merger
agreement, without any limitations, restrictions, or conditions,
regulatory or otherwise. SRR expressed no opinion as to the
price at which the shares of any of PHC, Acadia and the combined
company might trade at any time.
The SRR opinion was intended to be utilized by the PHC board of
directors as only one input to consider in its process of
analyzing the merger.
SRR assumed that the assets, liabilities, financial condition
and prospects of PHC and Acadia as of the date of its opinion
had not changed materially since the date of the most recent
financial information made available to them. SRR also assumed
and relied upon the accuracy and completeness of all financial
and other information that was publicly available, furnished by
PHC or Acadia, or otherwise reviewed by or discussed with them,
and of the representations and warranties of PHC and Acadia
contained in the draft merger agreement, in each case without
independent verification of such information. SRR assumed,
without independent verification, that the financial forecasts
and projections, as well as the synergy estimates, provided to
them were reasonably prepared and reflected the best currently
available estimates of the future financial results of PHC,
Acadia and the combined company and represent reasonable
estimates, and SRR relied upon such forecasts, projections and
estimates in arriving at its opinion. SRR was not engaged to
assess the reasonableness or achievability of such forecasts,
projections and estimates or the assumptions upon which they
were based, and expressed no view as to the forecasts,
projections, estimates or assumptions. SRR assumed that the
merger would be consummated on the terms described in the merger
agreement, without any waiver of any material terms or
conditions by PHC or Acadia.
SRR did not conduct any physical inspection, evaluation or
appraisal of PHC’s or Acadia’s facilities, assets or
liabilities. SRR’s opinion was based on business, economic,
market and other conditions as they existed and could be
evaluated as of the date of its opinion letter. It should be
noted that although subsequent developments may affect its
opinion, SRR does not have any obligation to update, revise or
reaffirm its opinion.
SRR did not form a conclusion as to whether any individual
analysis, when considered independently of the other analyses
conducted by SRR, supported or failed to support its opinion.
SRR did not specifically rely or place any specific weight on
any individual analysis. Accordingly, SRR believes that the
analyses must be considered in their entirety, and that
selecting portions of the analyses or the factors it considered,
without considering all analyses and factors together, could
create an imperfect view of the processes underlying the
analyses performed by SRR in connection with the preparation of
its opinion.
The following is a brief summary of the material analyses
performed by SRR in connection with its oral opinion and the
preparation of its written opinion dated May 19, 2011. This
summary of financial analyses includes information presented in
tabular format. In order to fully understand the financial
analyses used by SRR, the tables must be read together with the
accompanying text. The tables alone do not constitute a complete
description of the financial analyses.
Financial
Analyses with respect to PHC
Historical
Trading Performance — PHC
To provide context, SRR reviewed the historical stock price and
volume of PHC Class A Common Stock for the five-year period
ending May 17, 2011. SRR noted that the low and high
closing prices of PHC Class A Common Stock during this
period were $0.50 and $3.75 per share. SRR also noted that the
low and high closing prices during the three-year period ending
May 17, 2011 were $0.50 and $2.90 per share and during the
one-year period ending May 17, 2011 were $0.98 and $2.89
per share.
Discounted
Cash Flow Method — PHC
SRR performed a discounted cash flow analysis of PHC in order to
derive an implied enterprise value of PHC based on the present
value of PHC’s future cash flows. In performing its
discounted cash flow analysis of PHC, SRR relied on the
financial forecast prepared by PHC management. This financial
forecast includes PHC management’s estimate of the impact
of the MeadowWood acquisition. The residual year growth rate was
provided by PHC management.
SRR estimated the debt free cash flows that PHC could generate
through the period ending December 31, 2015 based upon the
PHC management forecast. These cash flows were discounted to a
present value-equivalent using a range of discount rates of
13.5% to 14.5%, which was based upon PHC’s estimated
weighted average cost of capital
(“WACC”) and residual year growth rates ranging from
2.5% to 3.5%. The estimated WACC was based upon estimates of
PHC’s cost of equity capital, cost of debt capital and an
assumed capital structure, all of which were based upon
information from various independent sources (including market
risk-free interest rates, market equity risk premiums, small
stock risk premiums, equity betas and corporate bond rates).
Based on the assumptions described above, the discounted cash
flow analysis indicated an implied enterprise value from
operations (“EV”) range for PHC of approximately
$67.3 million to $78.4 million.
Guideline
Company Method — PHC
SRR reviewed and compared specific financial and operating data
relating to PHC to that of several publicly-traded companies
that SRR deemed to have certain characteristics that are similar
to those of PHC. These selected companies were:
•
Universal Health Services, Inc.,
•
Tenet Healthcare Corp.,
•
The GEO Group, Inc.,
•
Health Management Associates, Inc.,
•
Lifepoint Hospitals Inc., and
•
Community Health Systems, Inc.
SRR noted, however, that none of the selected publicly traded
companies is identical or directly comparable to PHC.
As part of its analysis, SRR reviewed multiples of EV of the
selected companies, which were calculated as equity value, plus
debt and preferred stock, plus minority interests, less cash and
cash equivalents,
divided by
the selected companies’
earnings before interest, taxes, depreciation and amortization
(commonly known as EBITDA), for the next fiscal year
(“NFY”) and NFY+1 estimates. Multiples for the
selected companies were based on stock prices for the selected
companies as of May 17, 2011. Estimates of future
performance for the selected companies were compiled from equity
analyst estimates, as provided by Capital IQ, Inc. This analysis
indicated the following EV multiples for the selected companies:
Market
Multiples of the Guideline Companies
EV/NFY
EV/NFY+1
Company
EV
EBITDA
EBITDA
(In millions
of U.S. dollars)
Universal Health Services Inc.
$
9,348.8
7.9
x
7.4
x
Tenet Healthcare Corp.
7,794.0
6.3
x
6.0
x
The GEO Group, Inc.
3,018.7
9.7
x
8.7
x
Health Management Associates Inc.
5,812.0
7.2
x
6.7
x
Lifepoint Hospitals Inc.
3,571.9
6.7
x
6.3
x
Community Health Systems, Inc.
11,929.7
6.4
x
6.1
x
Low
3,018.7
6.3
x
6.0
x
High
11,929.7
9.7
x
8.7
x
Mean
6,912.5
7.4
x
6.9
x
Median
6,803.0
7.0
x
6.5
x
PHC financial metrics for 2011 and 2012 were taken from the
financial forecast for PHC provided by the management of PHC.
Based on this analysis and on SRR’s judgment and experience
with respect to the differences in size, profitability and risk,
among other quantitative and qualitative factors of PHC relative
to the selected companies, SRR selected for PHC a range of NFY
EBITDA multiples of 7.5x to 8.0x and NFY+1 EBITDA
multiples of 5.5x to 6.0x. This analysis indicated a range of EV
for PHC of approximately $71.2 million to
$76.8 million.
Merger
and Acquisition Method — PHC
SRR identified for consideration in its analysis 12 recent
transactions (for which sufficient disclosure of financial terms
was publicly available) involving the acquisition of healthcare
companies that SRR deemed to have certain characteristics that
are similar to those of PHC. SRR noted, however, that none of
the companies included in the selected transactions is identical
or directly comparable to PHC and that none of the selected
transactions is identical or directly comparable to the merger.
SRR compared selected information of PHC with the corresponding
data indicated in the selected transactions.
SRR examined multiples of EV to latest twelve months
(“LTM”) EBITDA. Multiples for the selected
transactions were based upon the information available in the
latest financial statements issued prior to the transaction
announcement date. Financial data for the selected transactions
was obtained from various independent sources including Capital
IQ, Inc. The EV multiples implied by the selected transactions
are as follows:
Market
Multiples of the Selected Mergers and Acquisitions
Date
Indicated Multiples
Announced
Target
Acquirer
EV/LTM EBITDA
3/16/2011
MeadowWood Behavioral Health System
PHC, Inc.
n/a
2/8/2011
RehabCare Group Inc.
Kindred Healthcare Inc.
7.7
x
11/22/2010
Cocentra, Inc.
Humana, Inc.
n/a
7/27/2010
Wuesthoff Health System, Inc.
Health Management Associates, Inc.
n/a
5/27/2010
Shands HealthCare
Health Management Associates, Inc.
n/a
5/17/2010
Psychiatric Solutions, Inc.
Universal Health Services, Inc.
9.4
x
4/19/2010
Cornell Companies, Inc.
The GEO Group, Inc.
8.3
x
4/1/2010
Clark Regional Medical Center, Inc.
Lifepoint Hospitals Inc.
n/a
3/31/2010
University Community Health, Inc.
Adventist Health System, Inc.
n/a
4/14/2009
Brotman Medical Center, Inc.
Prospect Hospital Advisory Services, Inc.
6.8
x
11/4/2008
Correctional Mental Health Services LLC
Conmed Healthcare Management, Inc.
n/a
11/27/2007
Community Health Systems, Inc.
Capella Healthcare, Inc.
n/a
Low
6.8
x
High
9.4
x
Mean
8.1
x
Median
8.0
x
Based on this analysis, and on SRR’s judgment and
experience with respect to the differences in size,
profitability, and risk, among other quantitative and
qualitative factors of PHC relative to the selected companies,
SRR selected a range of EV to EBITDA (for the last twelve
months) multiples of 7.5x to 8.0x. This analysis indicated a
range of EV for PHC of approximately $68.8 million to
$73.4 million.
Summary
of Valuation Methodologies — PHC
SRR utilized the enterprise values for PHC implied by the
discounted cash flow, guideline company and merger and
acquisition analyses described above in determining an implied
range of equity value for PHC. After adjustments to implied
enterprise value for debt, cash and certain investments, as
provided by PHC management, these analyses indicated an implied
equity range for PHC of $47.1 million to
$54.2 million, as illustrated in the chart below, or $2.37
to $2.73 per share of PHC common stock.
Divided by: Diluted Weighted Average Shares Outstanding
19,872
19,872
Indicated Value of Equity Per Share
$
2.37
$
2.73
Financial
Analyses with respect to Acadia
Discounted
Cash Flow Method — Acadia
SRR performed a discounted cash flow analysis of Acadia in order
to derive an implied enterprise value of Acadia based on the
present value of Acadia’s future cash flows. In performing
its discounted cash flow analysis of Acadia, SRR relied on the
financial forecast prepared by Acadia management. The residual
year growth rate was provided by Acadia management.
SRR estimated the debt free cash flows that Acadia could
generate through the period ending December 31, 2015 based
upon the Acadia management forecast. These cash flows were
discounted to a present value-equivalent using a range of
discount rates of 11.5% to 12.5%, which was based upon
Acadia’s estimated WACC and residual year growth rates
ranging from 3.0% to 4.0%. The estimated WACC was based upon
estimates of Acadia’s cost of equity capital, cost of debt
capital and an assumed capital structure, all of which were
based upon information from various independent sources
(including market risk-free interest rates, market equity risk
premiums, small stock risk premiums, equity betas and corporate
bond rates).
Based on the assumptions described above, the discounted cash
flow analysis indicated an implied enterprise value range for
Acadia of approximately $356.4 million to
$432.3 million.
Guideline
Company Method — Acadia
SRR reviewed and compared specific financial and operating data
relating to Acadia to that of the six selected publicly traded
companies described above with respect to its analysis of PHC.
SRR noted, however, that none of the selected publicly traded
companies is identical or directly comparable to Acadia.
Acadia financial metrics for 2011 and 2012 were taken from the
financial forecast for Acadia provided by the management of
Acadia. Based on this analysis, and on SRR’s judgment and
experience with respect to the differences in size, historical
and projected growth rates, profitability and risk, among other
quantitative and qualitative factors of Acadia relative to the
selected companies, SRR selected a range of NFY EBITDA multiples
of 8.5x to 9.0x and NFY+1 EBITDA multiples of 8.0x to 8.5x. This
analysis indicated a range of EV for Acadia of approximately
$364.8 million to $386.9 million.
SRR compared selected information of Acadia with the
corresponding data indicated in the 12 acquisition transactions
described above with respect to its analysis of PHC. SRR noted,
however, that none of the companies included in the selected
transactions is identical or directly comparable to Acadia and
that none of the selected transactions is identical or directly
comparable to the merger.
Based on this analysis, and on SRR’s judgment and
experience with respect to the differences in size,
profitability and risk, among other quantitative and qualitative
factors of Acadia relative to the selected companies, SRR
selected a range of EV to EBITDA multiples of 8.5x to 9.0x. This
analysis indicated a range of EV for Acadia of approximately
$362.4 million to $383.7 million.
Summary
of Valuation Methodologies — Acadia
SRR utilized the enterprise values for Acadia implied by the
discounted cash flow, guideline company and merger and
acquisition analyses described above in determining an implied
range of value of equity for Acadia. After adjustments to
implied enterprise value for debt and cash, as provided by the
management of Acadia, these analyses indicated an implied range
of equity value for Acadia of $224.2 million to
$264.0 million, as illustrated in the chart below.
Valuation
Summary — Acadia
Indicated Range of Value
as of 5/17/2011
In thousands of U.S. dollars
Discounted Cash Flow Method
$
356,400
$
432,300
Guideline Public Company Method
364,800
386,900
Merger and Acquisition Method
362,400
383,700
Indicated Enterprise Value
$
361,200
$
401,000
Less: Interest-Bearing Debt
(145,000
)
(145,000
)
Add: Cash and Cash Equivalents
8,028
8,028
Total Adjustments to Enterprise Value
(136,972
)
(136,972
)
Indicated Value of Equity
$
224,228
$
264,028
Financial
Analyses with respect to the Combined Company
Discounted
Cash Flow Method — Combined Company
SRR performed a discounted cash flow analysis of the combined
company in order to derive an implied enterprise value of the
combined company based on the present value of the combined
company’s estimated future cash flows. In performing its
discounted cash flow analysis of the combined company, SRR
relied on the financial forecast jointly prepared by PHC and
Acadia management. The residual year growth rate was jointly
provided by PHC and Acadia management.
SRR estimated the debt free cash flows that the combined company
could generate through the period ending December 31, 2015
based upon the joint management forecast. These cash flows were
discounted to a present value-equivalent using a range of
discount rates of 10.5% to 11.5%, which was based upon the
combined company’s estimated WACC, and residual year growth
rates ranging from 3.0% to 4.0%. The estimated WACC was based
upon estimates of the combined company’s cost of equity
capital, cost of debt capital and an assumed capital structure,
all of which were based upon information from various
independent sources (including market risk-free interest rates,
market equity risk premiums, small stock risk premiums, equity
betas and corporate bond rates).
Based on the assumptions described above, the discounted cash
flow indicated an implied enterprise value range for the
combined company of approximately $516.4 million to
$646.9 million.
SRR reviewed and compared specific financial and operating data
relating to the combined company to that of the six publicly
traded companies described above with respect to its analysis of
PHC. SRR noted, however, that none of the selected publicly
traded companies is identical or directly comparable to the
combined company.
The combined company’s estimated financial metrics for 2011
and 2012 were provided by the joint management of PHC and
Acadia. Based on this analysis, and on SRR’s judgment and
experience with respect to the differences in size, historical
and projected growth rates, profitability and risk, among other
quantitative and qualitative factors of the combined company
relative to the selected companies, SRR selected a range of NFY
EBITDA multiples of 9.0x to 9.5x and NFY+1 EBITDA multiples of
8.0x to 8.5x. This analysis indicated a range of EV for the
combined company of approximately $499.0 million to
$528.5 million.
Merger
and Acquisition Method — Combined Company
SRR compared selected information of to the combined company
with the corresponding data indicated in the 12 acquisition
transactions described above with respect to its analysis of
PHC. SRR noted, however, that none of the companies included in
the selected transactions is identical or directly comparable to
the combined company and that none of the selected transactions
is identical or directly comparable to the merger.
Based on this analysis, and on SRR’s judgment and
experience with respect to the differences in size,
profitability and risk, among other quantitative and qualitative
factors of the combined company relative to the selected
companies, SRR selected a range of EV to EBITDA multiples of
9.0x to 10.0x. This analysis indicated a range of EV for the
combined company of approximately $496.8 million to
$552.0 million.
Summary
of Valuation Methodologies — Combined
Company
SRR utilized the enterprise values for to the combined company
implied by the discounted cash flow, guideline company and
merger and acquisition analyses described above in determining
an implied range of value of equity for the combined company.
After adjustments to implied enterprise value for debt and cash,
as provided by the management of PHC and Acadia, these analyses
indicated an implied range of equity value for the combined
company of $220.6 million to $292.4 million, as
illustrated in the chart below.
Valuation
Summary — Combined Company
Indicated Range of Value
as of 5/17/2011
In thousands of U.S. dollars
Discounted Cash Flow Method
$
516,400
$
646,900
Guideline Public Company Method
499,000
528,500
Merger and Acquisition Method
496,800
552,000
Indicated Enterprise Value
$
504,100
$
575,800
Less: Pro Forma Interest-Bearing Debt
(293,500
)
(293,500
)
Add: Pro Forma Cash and Cash Equivalents
10,082
10,082
Total Adjustments to Enterprise Value
(283,418
)
(283,418
)
Indicated Value of Equity
$
220,682
$
292,382
Total
Consideration
Based on the implied equity values of PHC and Acadia resulting
from the financial analyses described above, SRR compared the
relative pre-merger equity contributions to the combined company
of both PHC and Acadia.
Based on the relative implied equity values of PHC and Acadia,
the holders of outstanding shares of PHC common stock (in the
aggregate) would contribute between 15.1% (based on the ratio of
the low-end implied equity
value of PHC to the sum of the low-end implied equity value of
PHC plus the high-end implied equity value of Acadia) and 19.5%
(based on the ratio of the high-end implied equity value of PHC
to the sum of the high-end implied equity value of PHC plus the
low-end implied equity value of Acadia) of the total pre-merger
combined implied equity value (prior to any distributions to
stockholders of PHC or Acadia).
The results of this analysis are reflected in the following
chart:
Indicated
Allocation of Total Consideration
Indicated Range of Value as of 5/17/2011
In thousands of
U.S. dollars
Indicated Range of Equity Value — PHC
$
47,141
$
54,241
Indicated Range of Equity Value — Acadia
224,228
264,028
Total Combined Equity Value (Pre-Merger)
$
271,369
$
318,269
PHC % of Total Consideration
15.1
%[a]
19.5
%[b]
[a]
Calculated based on the low-end of the range for PHC and the
high-end of the range for Acadia.
[b]
Calculated based on the high-end of the range for PHC and the
low-end of the range for Acadia.
SRR also analyzed the allocation of the implied equity value of
Acadia resulting from the financial analyses described above,
based on the allocation of capital of Acadia pursuant to the
terms of the merger (22.5% to the holders of PHC Class A
Common Stock and Class B Common Stock), together with the
cash merger consideration to be paid to holders of PHC’s
Class B Common Stock. This analysis indicated that the
holders of outstanding shares of PHC common stock (in the
aggregate) would receive between 17.3% and 18.3% of such total
value allocated between PHC and Acadia stockholders in the
merger (including the cash merger consideration to be paid to
holders of PHC’s Class B Common Stock).
The results of this analysis are reflected in the following
chart:
Fairness
Conclusion — Total Consideration
Indicated Range of Value as of 5/17/2011
In thousands of
U.S. dollars
Indicated Equity Value of Combined Company
$
220,682
$
292,382
Add: Cash Payments to PHC/Acadia Shareholders
95,000
95,000
Total Value to PHC/Acadia Stockholders
$
315,682
$
387,382
22.5% Equity Interest Received By PHC Stockholders on a
Fully-Diluted Basis
$
49,654
$
65,786
Add: Cash Payment to PHC Class B Stockholders
5,000
5,000
Total Consideration to PHC Stockholders
$
54,654
$
70,786
% Allocation
17.3
%
18.3
%
Class A
Consideration
SRR compared the implied value of the consideration to be
received by the holders of PHC Class A Common Stock with
the implied equity value of PHC Class A Common Stock
indicated by the financial analyses with respect to PHC
described above SRR noted that the range of implied equity value
of a PHC equivalent share of Acadia common stock is $2.50 to
$3.31 per share, compared to a stand-alone range of implied
equity value of PHC Class A Common Stock of $2.37 to $2.73
per share.
This comparison is illustrated in the following chart:
Valuation
Summary — Class A Consideration
Indicated Range of Value as of 5/17/2011
In thousands of
U.S. dollars
Indicated Equity Value of Combined Company
$
220,682
$
292,382
Divided by: Diluted Weighted Average Shares Outstanding[a]
22,080
22,080
Post-Transaction Equity Value Per Share
$
9.99
$
13.24
Post-Transaction PHC Share Equivalent[b]
$
2.50
$
3.31
Pre-Transaction Equity Value Per Share
$
2.37
$
2.73
[a]
Based on 19,872,000 pre-merger shares of PHC divided by 22.5%
and multiplied by the 1/4 exchange ratio.
[b]
Based on an exchange ratio of 1/4 share of the combined
company Common Stock for each share of PHC Common Stock.
Accretion/Dilution
Analysis
SRR also prepared a pro forma analysis of the potential impact
of the merger on the forecasted earnings per share of PHC common
stock. Using the combined company financial forecast provided
jointly by the managements of PHC and Acadia, SRR calculated the
PHC equivalent pro forma earnings per share of the combined
company for 2011, 2012 and 2013. SRR compared the resulting
earnings per share with the earnings per share of PHC common
stock for each of those years as indicated in the financial
forecast for PHC prepared by management of PHC. This comparison
indicated that on a pro forma basis the merger would result in
earnings per PHC equivalent share that would be neutral compared
to the forecasted earnings per share of PHC common stock on a
stand-alone basis in 2011 and 2012, and accretive compared to
the forecasted earnings per share of PHC common stock on a
stand-alone basis in 2013.
General
In connection with the review of the proposed merger by the PHC
board of directors, SRR performed a variety of financial and
comparative analyses for purposes of rendering its opinion. The
preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary described above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying SRR’s opinion. In arriving at its fairness
determination, SRR considered the results of all the analyses
and did not draw, in isolation, conclusions from or with regard
to any one analysis or factor considered by it for purposes of
its opinion. SRR made its determination as to fairness on the
basis of its experience and professional judgment after
considering the results of all the analyses. In addition, SRR
may have considered various assumptions more or less probable
than other assumptions. As a result, the ranges of valuations
resulting from any particular analysis or combination of
analyses described above should not be taken to be the view of
SRR with respect to the actual value of PHC, Acadia or to the
combined company. In performing its analyses, SRR made numerous
assumptions with respect to industry performance, general
business, regulatory, economic, market and financial conditions
and other matters. Many of these assumptions are beyond the
control of PHC and Acadia. Any estimates contained in SRR’s
analyses are not necessarily indicative of future results or
actual values, which may be significantly more or less favorable
than those suggested by such estimates.
SRR’s opinion was furnished for the use and benefit of the
PHC board of directors in connection with its evaluation of the
merger.
SRR’s opinion and its presentation to the PHC board of
directors was one of many factors taken into consideration by
the PHC board of directors in deciding to approve the merger
agreement and the related documents and the transactions
contemplated thereby. Consequently, the analyses as described
above should not be viewed as determinative of the opinion of
the PHC board of directors with respect to the terms of the
merger or of whether the PHC board of directors would have been
willing to agree to different terms.
The issuance of its opinion was approved by a committee of SRR
authorized to approve opinions of this nature.
Pursuant to an engagement letter dated April 25, 2011, the
PHC board of directors engaged SRR to provide to the PHC board
of directors an opinion with respect to the fairness, from a
financial point of view, of the merger consideration to be
received by holders of the outstanding shares of PHC’s
Class A Common Stock and Class B Common Stock (in the
aggregate) and of the merger consideration to be received by the
holders of the outstanding shares of PHC’s Class A
Common Stock (in the aggregate). Under the terms of its
engagement letter, PHC has paid SRR a fee of $225,000 for its
services, of which a portion was payable upon signing of the
engagement letter and the remainder became payable upon delivery
of SRR’s opinion. SRR’s compensation is neither based
upon nor contingent on the results of its engagement or the
consummation of the merger. PHC has also agreed to reimburse SRR
for expenses reasonably incurred by SRR in performing its
services, including fees and expenses of its legal counsel, and
to indemnify SRR and related persons against liabilities,
including liabilities under the federal securities laws, arising
out of its engagement. SRR has not been requested to opine to,
and its opinion does not address, the fairness of the amount or
nature of the compensation to any of PHC’s officers,
directors or employees, or class of such persons, relative to
the compensation to PHC’s public stockholders.
The PHC board of directors selected SRR to provide an opinion to
the PHC board in connection with its consideration of the merger
because SRR is a financial advisory firm with experience in
similar transactions. SRR is regularly engaged in the valuation
of businesses and their securities in connection with mergers
and acquisitions, leveraged transactions, and private
placements. SRR has not previously provided financial advisory
services to PHC, Acadia Holdings or Acadia.
PHC does not publicly disclose, as a matter of course, financial
forecasts as to future financial performance, earnings or other
results. PHC is especially cautious of making financial
forecasts for extended periods due to unpredictability of the
underlying assumptions and estimates. However, in connection
with the evaluation of the merger, PHC prepared and provided to
SRR certain non-public internal financial forecasts regarding
the projected future operations of PHC and the combined company,
in each case for the 2011 through 2015 fiscal years, in
connection with SRR’s evaluation of the fairness of the
merger consideration. As a private company, Acadia does not
publicly disclose any financial information. However, it
provided to PHC and SRR for purposes of the foregoing financial
forecasts for Acadia for such periods.
A summary of these financial forecasts is not being included in
this proxy statement/prospectus to influence your decision
whether to vote for or against the proposal to approve the
merger agreement, but because these financial forecasts were
made available to SRR and the PHC board of directors for
purposes of evaluating the merger. The inclusion of this
information should not be regarded as an indication that Acadia,
PHC or any of their respective advisors or any other person
considered, or now considers, such financial forecasts to be
material or to be a reliable prediction of actual future
results. Each management’s internal financial forecasts,
upon which the financial forecasts were based, are subjective in
many respects. There can be no assurance that these financial
forecasts will be realized or that actual results will not be
significantly higher or lower than forecasted. The financial
forecasts cover multiple years and such information by its
nature becomes subject to greater uncertainty with each
successive year. As a result, the inclusion of the financial
forecasts in this proxy statement/prospectus should not be
relied on as necessarily predictive of actual future events.
In addition, the financial forecasts were prepared solely for
internal use in evaluating the merger, and not with a view
toward public disclosure or toward complying with GAAP, the
published guidelines of the SEC regarding projections and the
use of non-GAAP measures or the guidelines established by the
American Institute of Certified Public Accountants for
preparation and presentation of prospective financial
information. The financial forecasts included below were
prepared by, and are the responsibility of, Acadia (with respect
to the Acadia financial
forecasts) and PHC (with respect to the PHC financial forecasts
and those of the combined company). None of Ernst &
Young, LLP or BDO USA, LLP or any other independent registered
public accounting firms have compiled, examined or performed any
procedures with respect to the financial forecasts contained
herein or expressed any opinion or any other form of assurance
on such information or its achievability. The reports of these
independent registered public accounting firms, which are
included elsewhere in this proxy statement/prospectus, relate to
the historical financial information of Acadia, YFCS, PHC and
HHC Delaware, as applicable. They do not extend to the financial
forecasts and should not be read to do so.
These financial forecasts were based on numerous variables and
assumptions that are inherently uncertain and may be beyond the
control of Acadia and PHC. Important factors that may affect
actual results and cause these financial forecasts to not be
achieved include, but are not limited to, risks and
uncertainties relating to the Acadia and PHC businesses and that
of the combined company (including their ability to achieve
strategic goals, objectives and targets over the applicable
periods), industry performance, the regulatory environment,
general business and economic conditions and other factors
described under “Risk Factors” beginning on
page 18 of this proxy
statement/prospectus
and “Cautionary Statement Concerning Forward-Looking
Statements” beginning on page 31 of this proxy
statement/prospectus. In addition, the forecasts do not reflect
revised prospects for the Acadia, PHC or combined company
business, changes in general business or economic conditions or
any other transaction or event that has occurred or that may
occur and that was not anticipated at the time the financial
forecasts were prepared. As a result, actual results may differ
materially from those contained in these internal financial
forecasts. Accordingly, there can be no assurance that these
financial forecasts will be realized or that the future
financial results of the combined company will not materially
vary from these financial forecasts.
The inclusion of a summary of these internal financial forecasts
in this proxy statement/prospectus should not be regarded as an
indication that any of Acadia, PHC or their respective
affiliates, advisors or representatives considered these
internal financial forecasts to be predictive of actual future
events, and these internal financial forecasts should not be
relied upon as such nor should the information contained in
these internal financial forecasts be considered appropriate for
other purposes. None of Acadia, PHC or their respective
affiliates, advisors, officers, directors, managers or
representatives can give you any assurance that actual results
will not differ materially from these internal financial
forecasts, and none of them undertakes any obligation to update
or otherwise revise or reconcile these internal financial
forecasts to reflect circumstances existing after the date these
internal financial forecasts were generated or to reflect the
occurrence of future events, even in the event that any or all
of the assumptions underlying these forecasts are shown to be in
error. Neither PHC nor Acadia intends to make publicly available
any update or other revision to these internal financial
forecasts, even in the event that any or all of the underlying
assumptions are shown to be in error.
None of Acadia, PHC or any of their respective affiliates,
advisors, officers, directors, managers or representatives made
or makes any representation to any stockholder or anyone else
regarding the information included in the financial forecasts
set forth below, which are forward-looking statements and speak
only as of the date they were prepared. Readers of this proxy
statement/prospectus are cautioned not to rely on the forecasted
financial information. The below forecasts for Acadia and PHC do
not give effect to the merger.
On July 12, 2011, Acadia entered into the Second Amendment
to the Senior Secured Credit Facility. The Second Amendment
will, among other things, permit the merger and other
transactions contemplated by the merger agreement. The
effectiveness of the Second Amendment is subject to certain
closing conditions as described in “Acadia
Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Liquidity and Capital
Resources — Following the Merger — Second
Amendment to Senior Secured Credit Facility,” including
consummation of the merger and related transactions on or prior
to December 15, 2011.
In connection with the entry into the merger agreement, Acadia
received the Debt Commitment Letter from Jefferies Finance to
provide the Bridge Facility of up to $150 million in the
event that $150 million of Senior Notes are not issued by
Acadia to finance the merger. Net proceeds from the issuance of
$150 million of Senior Notes, or, if the Senior Notes are
not issued, drawings under the $150 million Bridge Facility
will be used, in addition to existing cash balances, to pay the
$5 million in cash payable to holders of PHC Class B
Common Stock in connection with the merger and to refinance
certain existing indebtedness of PHC and pay fees and expenses
incurred in connection with the merger. A portion of the
borrowings will also be used to make a payment to Waud Capital
Partners in connection with the termination of the Professional
Services Agreement and to pay a dividend to the stockholders of
Acadia immediately prior to the merger. The aggregate amount of
such payments will be between $80.0 million and
$90.0 million depending on the amount of net cash available
after repayment of PHC’s indebtedness, the Class B
merger consideration and fees and expenses related to the
merger. We refer to such amount as the “net proceeds”.
To the extent the amount available for such payments is less
than $90 million, up to $10 million may be paid to
Acadia’s stockholders in the form of Deficit Notes issued
by Acadia. Pursuant to the terms of the merger agreement, it is
a condition to the obligation of both PHC and Acadia to complete
the merger that the net proceeds not be less than
$80 million. The first $15.6 million of the net
proceeds will be used to make a payment to Waud Capital in
connection with the termination of the Professional Services
Agreement, with the remainder (including any Deficit Notes)
issued to Acadia stockholders immediately prior to the merger as
a dividend.
The Bridge Facility is subject to certain closing conditions
described under “Acadia Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Liquidity and Capital
Resources — Debt Commitment Letter.” The Bridge
Facility commitment will terminate on December 15, 2011, if
the closing of the Bridge Facility has not been consummated on
or before such date or if the merger agreement has been
terminated or if the merger has been abandoned. In addition, the
commitments to provide and arrange unsecured bridge loans will
terminate upon the issuance of the Senior Notes. Each of Acadia
and PHC is obligated under the merger agreement to use its
reasonable best efforts to arrange the debt financing on the
terms contemplated. The receipt of the debt financing on the
terms and conditions set forth in the Debt Commitment Letter are
condition to the obligation of both Acadia and PHC to consummate
the merger.
Existing GAAP requires the use of the acquisition method of
accounting for business combinations. In applying the
acquisition method, it is necessary to identify the acquirer and
the acquiree for accounting purposes. In a business combination
effected through an exchange of equity interests, the entity
that issues the equity interests is generally considered the
acquirer, but there are other factors that must also be
considered. Acadia management considered these other factors and
determined that Acadia will be considered the acquirer of PHC
for accounting purposes. The assets acquired and liabilities
assumed from PHC will be recorded at their fair values as of the
date of the completion of the transaction, with any excess
recorded to goodwill. Reports of financial condition and results
of operations of Acadia issued after completion of the merger
will reflect Acadia’s balances and results after completion
of the merger but will not be restated retroactively to reflect
the historical financial position or results of operations of
PHC. Following the completion of the merger, the earnings of the
combined company will reflect acquisition accounting
adjustments; for example, additional depreciation of property,
plant and equipment, amortization of identified intangible
assets or other impacts from the adjustment of assets acquired
and liabilities assumed to their fair values as of the
acquisition date.
In accordance with existing GAAP, goodwill and indefinite-lived
intangible assets resulting from the purchase business
combination will not be amortized but instead will be tested for
impairment at least annually (more
frequently if certain indicators are present). If Acadia
management determines that the value of goodwill and
indefinite-lived intangible assets have become impaired, the
combined company will incur an impairment loss during the fiscal
quarter in which the determination is made.
The following discussion is a summary of certain material
U.S. federal income tax consequences of the merger to
holders of PHC common stock and represents the opinion of Arent
Fox LLP, counsel to PHC, and Kirkland & Ellis LLP,
counsel to Acadia. This discussion is based on the Code,
applicable Treasury regulations promulgated thereunder,
administrative rulings and judicial authorities, each as in
effect as of the date of this document and all of which are
subject to change at any time, possibly with retroactive effect.
In addition, this discussion does not address any state, local
or foreign tax consequences of the merger.
This discussion addresses only PHC stockholders who hold PHC
common stock as a capital asset within the meaning of
Section 1221 of the Code (generally, property held for
investment). It does not address all aspects of
U.S. federal income taxation that might be relevant to a
particular PHC stockholder in light of that stockholder’s
individual circumstances or to a PHC stockholder that is subject
to special treatment under U.S. federal income tax law,
including, without limitation, a stockholder that is:
•
a bank, insurance company or other financial institution;
•
a tax-exempt organization;
•
a mutual fund;
•
a holder that, for U.S. federal income tax purposes, is not
a “United States person” within the meaning of
Section 7701(a)(30) of the Code;
•
a holder who acquired its PHC common stock pursuant to the
exercise of an employee stock option or right or otherwise as
compensation;
•
a U.S. expatriate;
•
an entity or arrangement treated as a partnership for
U.S. federal income tax purposes or an investor in such
partnership;
•
a dealer in securities;
•
a holder who has a functional currency other than the United
States dollar;
•
a holder who holds PHC common stock as part of a hedge, straddle
or conversion transaction;
•
a holder liable for the alternative minimum tax; or
•
a trader in securities who elects to apply a
mark-to-market
method of accounting.
This discussion does not address other U.S. federal tax
consequences (such as gift or estate taxes or alternative
minimum taxes), or consequences under state, local or foreign
tax laws, nor does it address certain tax reporting requirements
that may be applicable with respect to the transaction. Also,
this discussion does not address U.S. federal income tax
considerations applicable to holders of options or warrants to
purchase PHC common stock.
If a partnership (or any other entity treated as a partnership
for U.S. federal income tax purposes) holds PHC common
stock, the tax treatment of a partner in the partnership will
generally depend upon the status of the partner and the
activities of the partnership. A partner in a partnership
holding PHC common stock should consult its own tax advisors
with respect to the consequences of the merger.
Holders should consult their tax advisors as to the specific
tax consequences to them of the merger in light of their
particular circumstances, including the applicability and effect
of U.S. federal, state, local and foreign income and other
tax laws.
In the opinion of Arent Fox LLP, counsel to PHC, and
Kirkland & Ellis LLP, counsel to Acadia, (i) the
merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code, and (ii) PHC and Acadia
will each
be a party to the reorganization within the meaning of
Section 368(b) of the Code. It is a condition to the
completion of the merger that Acadia and PHC each receives an
additional written opinion from its counsel, dated the effective
time, substantially to the same effect.
The opinions described above have been (or will be) based, in
part, on the accuracy of certain assumptions and representations
as to factual matters and covenants and undertakings. If any
such assumptions, representations, covenants or undertakings are
inaccurate as of the effective time of the merger, or are
violated in any material respect, the tax consequences to
holders of PHC common stock of the merger could differ
materially from those described below. No ruling has been or
will be sought from the Internal Revenue Service as to the
U.S. federal income tax consequences of the merger. An
opinion of counsel represents counsel’s best legal judgment
but is not binding on the Internal Revenue Service or any court.
Accordingly, there can be no assurances that the Internal
Revenue Service or a court would not disagree with or challenge
any of the conclusions described herein.
Assuming treatment of the merger as a reorganization within the
meaning of Section 368(a) of the Code, and of each of PHC
and Acadia as a party to the reorganization within the meaning
of Section 368(b) of the Code, is proper, the material
U.S. federal income tax consequences to a holder of PHC
common stock will differ depending on whether (i) the
holder’s shares are exchanged in the merger solely for
shares of Acadia common stock (except for cash received in lieu
of a fractional share of Acadia common stock) or (ii) the
holder’s shares are exchanged in the merger for shares of
Acadia common stock and cash.
The material U.S. federal income tax consequences to a
holder of PHC common stock whose shares are exchanged in the
merger solely for shares of Acadia common stock will be as
follows:
•
a holder will not recognize capital gain or loss on the exchange
(except as described below in connection with receipt of cash in
lieu of a fractional share);
•
a holder will have an aggregate tax basis in the shares of
Acadia common stock received in the exchange (including a
fractional share of Acadia common stock for which cash is
received) equal to the stockholder’s aggregate tax basis in
its shares of PHC common stock surrendered;
•
the holding period of the shares of Acadia common stock received
in the exchange will include the holding period of the shares of
PHC common stock surrendered in exchange therefor;
•
a holder receiving cash in lieu of a fractional share of Acadia
common stock will generally be treated as if it received the
fractional share in the merger and then received cash in
redemption thereof. It should generally recognize capital gain
or loss equal to the difference, if any, between the amount of
cash received and the tax basis in the fractional share
(determined as described above). Any gain or loss recognized
will be long-term capital gain or loss if, as of the effective
time, the shares of PHC common stock exchanged were held for
more than one year.
The material U.S. federal income tax consequences to a
holder of PHC common stock whose shares are exchanged in the
merger for shares of Acadia common stock and cash will be as
follows:
•
a holder will recognize capital gain (but not loss) realized on
the exchange in an amount not exceeding the amount of cash
received (excluding cash received in lieu of a fractional share
of Acadia common stock). Any gain recognized will be long-term
capital gain if, as of the effective time, the shares of PHC
common stock exchanged were held for more than one year unless
the holder’s receipt of cash has the effect of a dividend
distribution, as described below;
•
a holder will have an aggregate tax basis in the shares of
Acadia common stock received in the exchange (including a
fractional share of Acadia common stock for which cash is
received) equal to the stockholder’s aggregate tax basis in
its shares of PHC common stock surrendered, reduced by the
amount of cash received (excluding cash received in lieu of a
fractional share of Acadia common stock) and increased by the
amount of any gain recognized by the holder in the exchange (but
excluding any gain or loss from the deemed receipt and
redemption of any fractional share);
the holding period of the shares of Acadia common stock received
in the exchange will include the holding period of the shares of
PHC common stock surrendered in exchange therefor; and
•
a holder will recognize capital gain or loss with respect to
cash received in lieu of a fractional share of Acadia common
stock equal to the difference, if any, between the amount of
cash received and the tax basis in the fractional share
(determined as described above). Any gain or loss recognized
will be long-term capital gain or loss if, as of the effective
time, the shares of PHC common stock exchanged were held for
more than one year.
If a holder acquired different blocks of PHC common stock at
different times or different prices, the foregoing rules
generally will be applied separately with reference to each
block of PHC common stock. In particular, in computing the
amount of gain recognized, if any, a holder of PHC common stock
may not offset a loss realized on one block of shares against
the gain realized on another block of shares.
If the receipt of cash has the effect of a distribution of a
dividend under the provisions of the Code, then, notwithstanding
the foregoing, any gain recognized will be treated as a dividend
to the extent of such stockholder’s ratable share of the
undistributed earnings and profits of PHC. Holders should
consult their tax advisors as to the possibility that all or a
portion of any cash received in exchange for their shares of PHC
common stock will be treated as a dividend.
Reporting Requirements of Holders.
Holders of
PHC common stock receiving Acadia common stock in the merger
will be required to maintain records pertaining to the merger.
Holders (i) whose tax basis in the PHC common stock
surrendered in the merger equals or exceeds $1,000,000, or
(ii) who (a) with respect to those PHC stockholders
owning only shares of PHC Class A Common Stock, own
immediately before the merger at least 5% (by vote or value) of
the total outstanding stock of PHC, or (b) with respect to
all other PHC stockholders, own at least 1% (by vote or value)
of the total outstanding stock of PHC, are subject to certain
requirements with respect to the merger and should consult their
tax advisers with respect to these and other reporting
requirements.
Information Reporting and Backup
Withholding.
A holder may be subject to
information reporting and backup withholding at a rate of 28% on
any cash payment received (including any cash received in lieu
of a fractional share of Acadia common stock), unless such
stockholder properly establishes an exemption or provides a
correct taxpayer identification number, and otherwise complies
with backup withholding rules. Any amounts withheld under the
backup withholding rules are not an additional tax and may be
allowed as a refund or credit against such holder’s United
States federal income tax liability, provided the required
information is timely furnished to the Internal Revenue Service.
General.
Section 13.02(a) of the MBCA
provides generally that stockholders of Massachusetts
corporations are entitled to appraisal rights in the event of a
merger.
Any stockholder who wishes to exercise appraisal rights or who
wishes to preserve that right should review carefully the
following discussion and Sections 13.01 through 13.31 of
Part 13 of the MBCA, attached as Annex D to this proxy
statement/prospectus.
Failure to strictly comply with the
procedures specified in Part 13 of the MBCA will result in
the loss of appraisal rights.
Notice of Intent and Demand for Payment.
Any
holder of PHC common stock wishing to exercise the right to
demand appraisal under Part 13 of the MBCA must satisfy
each of the following conditions:
•
before the vote to approve the merger agreement is taken, a PHC
stockholder electing to exercise his or her appraisal rights
must deliver to PHC written notice of such stockholder’s
intent to demand payment for his or her shares if the merger is
completed. The written notice should be delivered to Paula C.
Wurts, Clerk, PHC, Inc., 200 Lake Street, Suite 102,
Peabody, MA 01960. PHC recommends you send your notice by
registered or certified mail, return receipt requested; and
•
a PHC stockholder electing to exercise his or her appraisal
rights must
NOT
vote in favor of the proposal to approve
the merger agreement. If a stockholder returns a signed proxy
but does not specify a vote against the
proposal to approve the merger agreement or a direction to
abstain, the proxy will be voted
FOR
the merger
agreement, which will have the effect of waiving that
stockholder’s appraisal rights.
Generally, a stockholder may assert appraisal rights only if the
stockholder seeks them with respect to all of the holder’s
shares of common stock. Stockholders of record for more than one
beneficial stockholder may assert appraisal rights with respect
to fewer than all the shares registered in such
stockholder’s name as holder of record, provided that such
stockholder notifies PHC in writing of the name and address of
each beneficial stockholder on whose behalf such stockholder is
asserting appraisal rights. For a beneficial stockholder to
assert appraisal rights, such beneficial stockholder must submit
to PHC such record stockholder’s written consent to the
assertion of such rights not fewer than 40 nor more than
60 days after PHC sends out written notice to the
stockholder of appraisal rights, as described below.
Stockholders who hold their shares in brokerage accounts or
other nominee forms and who wish to exercise appraisal rights
are urged to consult with their brokers to determine the
appropriate procedures for the making of a demand for appraisal
by the nominee.
Appraisal Notice and Form.
If the merger
agreement is approved, within 10 days after the effective
date of the merger, PHC will deliver a written appraisal notice
and a form containing certain information to all stockholders
who have properly demanded appraisal rights. The appraisal
notice will include a copy of Part 13 of the MBCA and a
form that specifies the date of the first announcement to
stockholders of the principal terms of the merger. The form will
require the stockholder asserting appraisal rights to certify
(i) whether or not beneficial ownership of the shares for
which appraisal rights are asserted were acquired before the
date of the first announcement of the proposed merger and
(ii) that the stockholder did not vote for the proposal to
approve the merger agreement. The form provided with the
appraisal notice will state:
•
where the form must be returned, where certificates for shares
must be deposited and the date by which such certificates must
be deposited;
•
the date on which the form is due, which will not be fewer than
40 nor more than 60 days after the date the appraisal
notice and form are sent, and notice that the stockholder shall
have waived the right to demand appraisal with respect to such
shares unless the form is received by the specified date;
•
PHC’s estimate of the fair value of the shares;
•
that, if requested in writing, PHC will provide within
10 days after the date on which all forms are due, the
number of stockholders who have returned the forms and the total
number of shares owned by such stockholders; and
•
the date by which the stockholder may withdraw his or her notice
of intent to demand appraisal rights, which date will be within
20 days after the date on which all forms are due.
Perfection of Rights.
A stockholder who wishes
to exercise appraisal rights shall execute and return the form
provided, with all certifications completed, and deposit such
stockholder’s share certificates in accordance with the
terms of the notice. Once a stockholder deposits his or her
share certificates, such stockholder loses all rights as a
stockholder unless the stockholder withdraws his or her election
in accordance with the withdrawal procedures, which are
summarized below. If a stockholder fails to make the
certification on the form that such stockholder acquired the
shares before the date of the first announcement of the proposed
merger, PHC may elect to treat those shares as
“after-acquired shares,” as described below.
Withdrawal of Appraisal Rights.
A stockholder
who has otherwise properly perfected his or her appraisal rights
may decline to exercise his or her appraisal rights and withdraw
from the appraisal process by notifying PHC in writing within
20 days after the date on which all forms were due. If the
stockholder fails to withdraw from the appraisal process before
the expiration of the withdrawal period, such stockholder may
not thereafter withdraw without PHC’s written consent.
Payment.
Within 30 days after the date on
which the form described above is due, PHC will pay in cash to
each stockholder who has properly perfected his or her appraisal
rights the amount it estimates to be the fair value of
their shares, plus interest but subject to any applicable
withholding taxes. The payment to each stockholder will be
accompanied by:
•
PHC’s financial statements;
•
a statement of PHC’s estimate of the fair value of the
shares, which estimate will equal or exceed the estimate given
with the appraisal notice; and
•
a statement that stockholders may demand further payment if the
stockholder is dissatisfied with the payment or offer in
accordance with the procedures set forth in Section 13.26 of the
MBCA (as described below).
Notwithstanding the foregoing, in the event that the stockholder
is demanding payment for “after-acquired shares,” PHC
may elect to withhold payment from such stockholder. If PHC
elects to withhold payment, it must, within 30 days after
the date on which the form described above is due, notify all
stockholder who have “after-acquired shares”:
•
of the information in PHC’s financial statements;
•
of PHC’s estimate of the fair value of the shares, which
estimate will equal or exceed the estimate given with the
appraisal notice;
•
that the stockholders may accept the estimate of fair value,
plus interest, in full satisfaction of their demands or demand
appraisal under Section 13.26 of the MBCA (as described
below);
•
that those stockholders who wish to accept PHC’s offer
shall notify PHC of their acceptance within 30 days after
receiving such offer; and
•
that those stockholders who do not satisfy the requirements for
demanding appraisal under Section 13.26 of the MBCA shall
be deemed to have accepted PHC’s offer.
Within 10 days after receiving the stockholder’s
acceptance of the offer, PHC will pay in cash the amount offered
to each stockholder who agreed to accept PHC’s offer for
his or her “after-acquired shares.” Within
40 days after sending the notice to holders of
“after-acquired shares”, PHC must pay in cash the
amount offered to each stockholder who does not satisfy the
requirements for demanding appraisal under Section 13.26 of
the MBCA.
Procedure if Stockholder is Dissatisfied with Payment or
Offer.
Pursuant to Section 13.26 of the
MBCA, within 30 days after receipt of payment for a
stockholder’s shares, a stockholder who is dissatisfied
with the amount of the payment to be received shall notify PHC
in writing of that stockholder’s estimate of the fair value
of the shares and demand payment of that estimate plus interest,
less any payment previously paid. In addition, within
30 days after receiving PHC’s offer to pay for a
stockholder’s “after-acquired shares”, a
stockholder holding “after-acquired shares” who was
offered payment (as described above) and who is dissatisfied
with that offer shall reject the offer and demand payment of the
stockholder’s stated estimate of the fair value of the
shares plus interest. A stockholder’s failure to notify PHC
within such 30 day period waives the right to demand
payment and shall be entitled only to the payment made or
offered as described above.
Court Proceedings.
If a stockholder makes a
proper and timely demand for payment that remains unsettled, PHC
will commence an equitable proceeding within 60 days after
receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If PHC does
not commence the proceeding within the
60-day
period, it will pay in cash to each stockholder the amount the
stockholder demanded, plus interest.
Any stockholder wishing to exercise appraisal rights is urged
to consult legal counsel before attempting to exercise appraisal
rights. Failure to strictly comply with all of the procedures
set forth in Part 13 of the MBCA may result in the loss of
a stockholder’s statutory appraisal rights.
All shares of Acadia common stock to be issued to PHC
stockholders in connection with the merger will be freely
transferable under the Securities Act of 1933 (as amended, the
“Securities Act”) and the Securities Exchange Act of
1934 (as amended, the “Exchange Act”), except for
shares issued to any stockholder who may be deemed to
be an “affiliate” of Acadia for purposes of
Rule 144 under the Securities Act. Affiliates include
individuals or entities that control, are controlled by, or
under the common control with Acadia. Acadia believes that its
executive officers (including Messrs. Turner, Carter, Polson,
Fincher and Howard), directors (including Messrs. Jacobs and
Shear) and Waud Capital Partners are affiliates for purposes of
Rule 144 under the Securities Act. This proxy
statement/prospectus does not cover resales of Acadia common
stock received by any person upon the completion of the merger,
and no person is authorized to make any use of this proxy
statement/prospectus in connection with any resale.
PHC’s directors and executive officers have interests in
the merger as individuals in addition to, and that may be
different from, the interests of PHC’s stockholders. The
PHC board of directors was aware of these interests and
considered them, among other matters, in its decision to approve
the merger agreement.
Pursuant to the merger agreement, upon completion of the merger,
holders of PHC’s Class B Common Stock will
collectively receive cash consideration of $5,000,000.
Mr. Shear beneficially owns approximately 93.2% of
PHC’s Class B Common Stock and will be entitled to
receive cash merger consideration of approximately
$4.7 million.
PHC’s executive officers, Messrs. Shear and Boswell
and Ms. Paula C. Wurts, hold stock options to purchase
shares of PHC Class A Common Stock, subject to various
vesting provisions. Pursuant to the merger agreement and except
as discussed below, upon completion of the merger, Acadia will
assume these options in accordance with their existing terms,
with the number of shares and the exercise prices adjusted in
accordance with the merger exchange rate. With respect to
assumed options granted to current PHC directors (i) all
such assumed options (other than those held by Mr. Shear)
will be fully vested at closing and (ii) such assumed
options will not be terminate as a result of such holder ceasing
or failing to be a director or employee and will be fully
exercisable at any time prior to the expiration of the option
term. Mr. Shear currently holds 170,000 options exercisable
at prices ranging from $1.08 per share to $2.95 per share,
Mr. Boswell currently holds 85,000 options exercisable at
prices ranging from $1.08 per share to $2.95 per share and
Ms. Wurts currently holds 85,000 options exercisable at
prices ranging from $1.08 per share to $2.95 per share.
In addition to the options held by Mr. Shear, PHC’s
other directors, Messrs. David E. Dangerfield, William F.
Grieco, Howard W. Phillips, Donald E. Robar and Douglas J.
Smith, hold stock options to purchase shares of PHC Class A
Common Stock. Pursuant to the merger agreement, upon completion
of the merger, Acadia will issue substitute options for these
options with terms substantially the same as their existing
terms, with the number of shares and the exercise prices
adjusted in accordance with the merger exchange rate.
Mr. Dangerfield currently holds 147,500 options exercisable
at prices ranging from $1.08 per share to $3.18 per share,
Mr. Grieco currently holds 195,000 options exercisable at
prices ranging from $0.22 per share to $3.18 per share,
Mr. Phillips currently holds 127,500 options exercisable at
prices ranging from $1.08 per share to $3.18 per share,
Mr. Robar currently holds 157,500 options exercisable at
prices ranging from $0.35 per share to $3.18 per share and
Mr. Smith currently holds 20,000 options exercisable at
$1.65 per share.
Mr. Shear, Mr. Boswell and Ms. Wurts are
participants in the PHC
change-in-control
supplemental benefit plan. Pursuant to the plan, upon the
closing of the merger, Messrs. Shear and Boswell and
Ms. Wurts are entitled to receive change in control
payments of approximately $1,530,000, $465,000 and $408,000,
respectively, payable as soon as practicable, but in no event
later than 30 days, following the date of the closing of
the merger.
After the closing of the merger, Messrs. Shear and Boswell
are expected to be employed by the combined company. See
“Acadia Management After the Merger — Acadia
Employment Agreements” for a description of
Mr. Shear’s employment agreement.
The term of Mr. Boswell’s employment agreement will
commence immediately following the closing of the merger. It has
a two year term subject to automatic one year extensions unless
earlier terminated. Mr. Boswell’s annual base salary
is $226,000. He is also eligible to receive an annual bonus up
to 60% of his base salary, based upon the satisfaction of
performance criteria established by Acadia’s board of
directors or compensation committee, as applicable.
In addition to base salary, Mr. Boswell is entitled to
participate in his sole discretion in all of Acadia’s
employee benefit programs for which senior executive officers
are generally eligible, on terms at least as favorable as those
received by such executives from PHC immediately prior to the
closing of the merger. Furthermore, during the term of his
employment agreement, Acadia shall pay 100% of the monthly
premiums or other costs associated with Mr. Boswell’s
participation in such employee benefit programs and benefits.
Upon the closing of the merger, Messrs. Shear and Grieco
will join the Acadia board of directors. Mr. Shear will not
receive any additional compensation for serving as a director.
The amount of compensation to be paid to Mr. Grieco for
serving as a director has yet to be determined. In addition,
upon the closing of the merger, Mr. Shear will become
Acadia’s Executive Vice Chairman. After the closing of the
merger, Messrs. Shear and Grieco may receive stock options
to purchase shares of Acadia common stock.
Acadia will maintain all rights to indemnification existing in
favor of the PHC directors and officers for their acts and
omissions occurring prior to the completion of the merger and
will maintain PHC’s directors’ and officers’
liability insurance to cover any such liabilities for six years
following the completion of the merger.
As a result of the foregoing, the directors and executive
officers of PHC may be more likely to vote to approve the merger
than PHC stockholders generally.
Under the terms of the merger agreement, the merger cannot be
completed until (i) any waiting period (and any extension
thereof) applicable to the consummation of the merger under the
HSR Act and any other antitrust, competition, or trade
regulation law, as applicable, shall have expired or been
terminated and (ii) Acadia and PHC and their respective
subsidiaries shall have timely obtained from each governmental
authority all approvals, waivers and consents, if any, necessary
for the consummation of or in connection with the transactions
contemplated by the merger agreement, free of any condition that
reasonably would be expected to have a “Pioneer Material
Adverse Effect” or an “Acadia Material Adverse
Effect” or a material adverse effect on the parties’
ability to consummate such transactions. As defined in the
merger agreement and as used in this proxy statement/prospectus,
each of “Pioneer Material Adverse Effect” and
“Acadia Material Adverse Effect” includes any event,
change, condition or effect that, individually or in the
aggregate, is, or is reasonably likely to be, materially adverse
to the financial or other condition, properties, assets,
liabilities, business, value, operations or results of
operations of PHC or Acadia, as applicable, and its
subsidiaries, in each case, taken as a whole, other than event,
change, condition or effect relating to any of the following:
(i) the merger or related transactions or the announcement
thereof; (ii) compliance with the terms of the merger
agreement or the taking of any action consented to or requested
by PHC (with respect to a Pioneer Material Adverse Effect) or
Acadia or Merger Sub (with respect to an Acadian Material
Adverse Effect); (iii) any change in accounting
requirements or principles required by GAAP, or any
interpretations thereof; (iv) the United States economy in
general; or (v) the behavioral healthcare industry in
general. Notwithstanding the foregoing, these definitions
include any change in or effect on the business of PHC or
Acadia, as applicable, and its subsidiaries that, individually
or in the aggregate is, or is reasonably likely to be,
materially adverse to the financial or other condition,
properties, assets, liabilities, business, operations or results
of operations of PHC or Acadia, as applicable, and its
subsidiaries, in each case, taken as a whole, if such change or
effect is significantly more adverse to PHC or Acadia, as
applicable, and its subsidiaries, in each case, taken as a
whole, than to the behavioral healthcare industry in general.
We do not believe that notification will be required under the
HSR Act and the rules promulgated thereunder. However, given
uncertainties regarding the future market price of the publicly
traded stock of PHC and the uncertain closing date, we cannot
currently predict with certainty whether notification will be
required under the HSR Act. If such notification is required,
the merger cannot be completed until each of Acadia and PHC
files a notification and report form with the FTC and the
Antitrust Division of the Department of Justice under the HSR
Act and the applicable waiting period has expired or been
terminated.
Acadia and/or PHC currently intend to obtain approvals from,
file new license and/or permit applications with, and provide
notice to applicable governmental authorities in connection with
the merger. Such government authorities include but are not
limited to the Michigan Department of Community Health, the
Michigan Department of Human Services, the Virginia Department
of Mental Health, the Nevada Department of Health and Human
Services, the Utah Department of Health, and the Delaware
Department of Health and Social Services, state boards of
pharmacy, state Medicaid programs, The Joint Commission and
other accrediting agencies, the U.S. Drug Enforcement
Administration, and the Centers for Medicare and Medicaid
Services.
On June 2, 2011, a putative stockholder class action
lawsuit was filed in Massachusetts state court,
MAZ Partners
LP v. Bruce A. Shear, et al.,
C.A.
No. 11-1041,
against PHC, the members of the PHC board of directors, and
Acadia and Merger Sub. The
MAZ Partners
complaint asserts
that the members of the PHC board of directors breached their
fiduciary duties by causing PHC to enter into the merger
agreement and further asserts that Acadia and Merger Sub aided
and abetted those alleged breaches of fiduciary duty.
Specifically, the
MAZ Partners
complaint alleged that the
process by which the merger agreement was entered into was
unfair and that the agreement itself is unfair in that,
according to the plaintiff, the compensation to be paid to PHC
Class A shareholders is inadequate, particularly in light
of the proposed cash payment to be paid to Class B
shareholders and the anticipated pre-closing payment of a
dividend to Acadia shareholders, and the anticipated level of
debt to be held by the merged entity. The complaint sought,
among other relief, an order enjoining the consummation of the
merger and rescinding the merger agreement.
On June 13, 2011, a second lawsuit was filed in federal
district court in Massachusetts,
Blakeslee v. PHC, Inc.,
et al.,
No. 11-cv-11049,
making essentially the same allegations against the same
defendants. On June 21, 2011, PHC removed the
MAZ
Partners
case to federal court (11-cv-11099). On July 7,
2011, the parties to the
MAZ Partners
case moved to
consolidate that action with the
Blakeslee
case and asked
the court to approve a schedule for discovery and a potential
hearing on plaintiff’s motion for a preliminary injunction.
On August 11, 2011, the plaintiffs in the
MAZ Partners
case filed an amended class action complaint. Like the
original complaint, the amended complaint asserts claims of
breach of fiduciary duty against PHC, members of the board of
directors of PHC, and claims of aiding and abetting those
alleged breaches of fiduciary duty against Acadia and Merger
Sub. The amended complaint alleges that both the merger process
and the provisions of the merger are unfair, that the directors
and executive officers of PHC have conflicts of interests with
regard to the merger, that the dividend to be paid to Acadia
shareholders is inappropriate, that a special committee or
independent director should have been appointed to represent the
interest of the Class A shareholders, that the merger
consideration is grossly inadequate and the exchange ratio is
unfair, and that the preliminary proxy filed by PHC contains
material misstatements and omissions. The amended complaint also
seeks, among other things, an order enjoining the consummation
of the merger and rescinding the merger agreement.
On August 15, 2011, PHC filed a motion to dismiss the
lawsuits and a motion for a stay discovery on the grounds that
plaintiffs’ complaints stated claims that were derivative
in nature and thus subject to dismissal for failure to make a
pre-suit demand and a stay of discovery pursuant to a provision
of Massachusetts state law providing for a stay of discovery in
cases asserting derivative claims on behalf of a corporation. On
August 19, 2011, Acadia also filed a motion to dismiss both
cases. On September 2, 2011, the court issued an order
finding that plaintiffs’ claims were in part derivative,
staying all discovery pending the filings of initial litigation
disclosures, and directing the parties to file initial
disclosures by September 16, 2011. The court has not yet
ruled on the pending motions to dismiss.
On September 6, 2011, the plaintiff in the
Blakeslee
case filed an amended complaint making allegations substantially
similar to the those in the amended complaint filed in the
Maz Partners
case and asserting claims for violations of
Section 14(a) and Rule 14(a)-9 of the Exchange Act
against the individual PHC defendants.
PHC, Acadia and Merger Sub believe that these lawsuits are
without merit and intend to defend against them vigorously.
Regardless of the disposition of the motions to dismiss, PHC and
Acadia do not anticipate the outcome to have a material impact
on the progress of the merger or to have a material adverse
effect on PHC’s financial condition or results of
operations.
The following summary describes certain material provisions
of the merger agreement. The full text of the merger agreement
is attached as Annex A to this proxy statement/prospectus
and is incorporated herein by reference. This summary may not
contain all of the information that is important to you, and you
are encouraged to read carefully the entire merger agreement.
The following description is subject to, and is qualified in its
entirety by reference to, the merger agreement.
The merger agreement has been included to provide you with
information regarding its terms. It is not intended to provide
any other factual information about Acadia or PHC. Such
information can be found elsewhere in this document and in the
other public filings PHC makes with the SEC, which are available
without charge at www.sec.gov.
The representations and warranties described below and included
in the merger agreement were made by each of Acadia and PHC to
the other. These representations and warranties were made as of
specific dates and may be subject to important qualifications,
limitations and supplemental information agreed to by Acadia and
PHC in connection with negotiating the terms of the merger
agreement. In addition, the representations and warranties may
have been included in the merger agreement for the purpose of
allocating risk between Acadia and PHC rather than to establish
matters as facts. The merger agreement is described in, and
included as Annex A hereto, only to provide you with
information regarding its terms and conditions, and not to
provide any other factual information regarding PHC, Acadia or
their respective businesses. Accordingly, the representations
and warranties and other provisions of the merger agreement
should not be read alone, and you should read the information
provided elsewhere in this document for information regarding
Acadia and PHC and their respective businesses.
At the effective time of the merger, PHC will merge with and
into Acadia’s wholly-owned subsidiary, Merger Sub. Upon
completion of the merger, Merger Sub will be the surviving
company and a wholly-owned subsidiary of Acadia.
The closing of the transactions contemplated by the merger
agreement will occur no later than the second business day after
the last of the conditions to the transaction have been
satisfied or waived, or at another time as Acadia and PHC may
agree. Acadia and PHC expect to close the merger in the fourth
quarter of 2011. Contemporaneously with the closing, Acadia and
PHC will file a Certificate of Merger with the Secretary of
State of the State of Delaware and the Secretary of the
Commonwealth of Massachusetts. The transaction will become
effective upon the filing of this certificate or at another time
as Acadia and PHC agree in writing and specify in the
certificate of merger.
At the effective time, the managers and officers of Merger Sub
will be the managers and officers of the surviving company,
subject to change thereafter.
Each share of PHC Class A Common Stock issued and
outstanding immediately prior to the effective time will be
automatically converted into and become exchangeable for a
number of shares of common stock of Acadia equal to the
Class A merger consideration. Each share of PHC
Class B Common Stock issued and outstanding immediately
prior to the effective time will be automatically converted into
and become exchangeable for a number of shares of common stock
of Acadia and portion of cash equal to the Class B merger
consideration.
The Class A merger consideration is one-quarter of one
fully paid and nonassessable share of common stock, par value
$0.01 per share, of Acadia. The Class B merger
consideration is one-quarter of one fully paid and nonassessable
share of common stock, par value $0.01 per share, of Acadia and
an amount of cash equal to $5,000,000
divided by
the
aggregate number of issued and outstanding shares of PHC
Class B Common Stock
immediately prior to the effective time of the merger (other
than (i) any shares of PHC Class B Common Stock to be
cancelled pursuant to the merger agreement and (ii) any
share of PHC Class B Common Stock owned by a subsidiary of
PHC). Based on shares of PHC Class B Common Stock
outstanding as of May 24, 2011, this calculation would have
resulted in a cash payment of $6.46 per share of PHC
Class B Common Stock.
When the merger becomes effective, each outstanding PHC option
granted under the PHC stock option plans will be assumed by
Acadia. Except with respect to stock options previously granted
to PHC directors (other than Mr. Shear), each PHC option so
assumed by Acadia will continue to have the same terms and
conditions set forth in the applicable PHC stock option plan
immediately prior to the effective time, except that
(i) each PHC option will be exercisable for one-quarter of
one share of Acadia common stock for each share of PHC common
stock subject to such PHC stock option and (ii) the per
share exercise price for the shares of Acadia common stock
issuable upon exercise of such assumed PHC option will be equal
to four
multiplied by
the exercise price per share of PHC
common stock at which such PHC option was exercisable
immediately prior to the effective time, rounded up to the
nearest whole cent. All of the assumed stock options issued to
Messrs. Howard Phillips, William Grieco, David Dangerfield,
Donald Robar and Doug Smith will be 100% vested at the time of
issuance by Acadia. All such options (along with assumed stock
options issued to Mr. Shear) will not terminate as a result
of the holder ceasing to be an employee or director and will be
fully exercisable at any time prior to the end of the option
term.
At the completion of the merger, each outstanding PHC warrant
will be assumed by Acadia. Each PHC warrant so assumed by Acadia
will continue to have, and be subject to, the same terms and
conditions set forth in the applicable PHC warrant, except that
(i) each PHC warrant will be exercisable for one-quarter of
one share of Acadia common stock for each share of PHC common
stock that was issuable upon exercise of such PHC warrant
immediately prior to the effective time and (ii) the per
share exercise price for the shares of Acadia common stock
issuable upon exercise of such assumed PHC warrant will be equal
to four
multiplied by
the exercise price per share of PHC
common stock at which such PHC warrant was exercisable
immediately prior to the effective time, rounded up to the
nearest whole cent.
Prior to the effective time of the merger, Acadia will
consummate a stock split, reverse stock split or issuance of
Acadia common stock such that the shares of Acadia common stock
issued and outstanding immediately prior to the effective time
will, immediately following the effective time, equal 77.5% of
the fully diluted shares of Acadia (as calculated in accordance
with the merger agreement).
Immediately prior to the effective time of the merger, Acadia
will have the right to declare and, if so declared, at the
effective time Acadia will pay a cash dividend to the holders of
shares Acadia common stock issued and outstanding immediately
prior to the effective time of the merger. The aggregate amount
of such dividend will be between $90 million and
$80 million, less the amount of the payment to be made to
Waud Capital Partners in connection with the termination of the
Professional Services Agreement. The aggregate amount of the
dividend will depend on the amount of net cash available after
repayment of PHC’s indebtedness, the Class B merger
consideration and fees and expenses related to the merger. We
refer to such amount as the “net proceeds”. To the
extent the amount available for such payments is less than
$90 million, up to $10 million may be paid to
Acadia’s stockholders in the form of Deficit Notes issued
by Acadia. The first $15.6 million of the net proceeds will
be used to make a payment to Waud Capital in connection with the
termination of the Professional Services Agreement, with the
remainder (including any Deficit Notes) issued to Acadia
stockholders immediately prior to the merger as a dividend.
“Net proceeds” as defined in the merger agreement and
used in this “Merger Agreement” section means the
lesser of (i) $90,000,000 and (ii) the sum of
(A) the gross cash proceeds received by Acadia and its
subsidiaries (including PHC and its subsidiaries) from any and
all debt financing incurred in connection with the merger and
the other transactions contemplated under the merger agreement
plus (B) the unrestricted cash, marketable securities
and short term investments of Acadia and PHC (as recorded on the
books and records of Acadia or PHC, as applicable, and in
accordance with GAAP) as of the effective time of the merger
minus (C) $5,000,000 minus (D) the aggregate amount of
indebtedness of Acadia and PHC actually repaid or payable in
connection with the merger and other transactions contemplated
under the merger agreement minus (E) all of the reasonably
documented out-of-pocket fees and expenses incurred by PHC and
Acadia and their respective affiliates in connection with the
merger and the other transactions contemplated under the merger
agreement, including fees relating to the filing, printing and
mailing of this proxy statement/prospectus and stock exchange
listing fees and the aggregate costs and expenses incurred by
Acadia and its affiliates under or pursuant to the Debt
Commitment Letter or in connection with obtaining financing in
connection therewith.
Acadia intends to terminate the Professional Services Agreement
pursuant to the terms of a termination agreement in connection
with consummation of the merger. Acadia will pay a related
termination fee to Waud Capital Partners in connection with such
termination. As discussed above, such fee will be paid with the
first $15.6 million of net proceeds from the anticipated
issuance of the Senior Notes
and/or
borrowings under the Bridge Facility.
No fractional shares of Acadia common stock will be issued in
the merger. Instead, as soon as practicable following the
completion of the merger, Acadia will determine the excess of
(i) the number of full shares of Acadia common stock to be
issued by Acadia pursuant to merger agreement over (ii) the
aggregate number of full shares of Acadia to be delivered
pursuant to merger agreement. Acadia will sell such excess at
then prevailing prices on the exchange or electronic market on
which such Acadia shares are traded. Until the net proceeds of
such sale or sales have been distributed to the holders of PHC
common stock (in lieu of fractional shares), Acadia will hold
such proceeds in trust.
Following the effective time of the merger, Acadia or the
exchange agent, selected by Acadia, will mail to each holder of
PHC common stock a letter of transmittal and instructions
regarding the details of the exchange. The holders will use the
letter of transmittal to exchange PHC stock certificates for the
shares of Acadia common stock, cash representing the amount of
the cash consideration to be paid to the holders of PHC
Class B Common Stock and cash in lieu of fractional shares
of Acadia common stock to which the holders of PHC common stock
are entitled to receive in connection with the merger.
Holders of shares of PHC Class A Common Stock and
Class B Common Stock that are issued and outstanding
immediately prior to the effective time of the merger who have
not voted in favor of or consented in writing to the merger and
who have properly demanded and perfected their rights to be paid
the fair value of such shares in accordance with
Section 13.02 of the MBCA, will not have such shares
converted into or exchangeable for the right to receive merger
consideration and will be entitled only to receive payment of
the fair value of such shares, in accordance with
Section 13.02 of the MBCA, unless and until such
stockholder withdraws or effectively loses the right to dissent.
The merger agreement contains substantially reciprocal
representations and warranties made by each company to the
other. The representations and warranties relate to:
•
corporate organization, good standing, qualification to do
business and subsidiaries;
•
absence of a breach of the certificate of incorporation, bylaws,
law or material agreement as a result of the merger;
•
capitalization;
•
authority to enter into the merger agreement;
•
permits required to conduct business and compliance with those
permits;
•
compliance with applicable legal requirements;
•
financial statements;
•
the absence of any undisclosed liabilities;
•
the accuracy of information supplied in this proxy
statement/prospectus;
•
the absence of certain changes or events since December 31,
2010;
•
the absence of litigation;
•
certain restrictions of business activities;
•
owned and leased real property;
•
intellectual property matters;
•
employee benefit plans and other employment matters;
•
labor relations;
•
taxes, tax returns and audits;
•
material contracts;
•
insurance;
•
environmental matters;
•
the approval of the merger and related matters by the board of
directors;
•
payments required to be made to brokers and agents in connection
with the merger;
•
transactions with related parties; and
•
fees and expenses.
Representations and warranties made solely by PHC relate to
PHC’s filings and reports with the SEC, PHC’s
requisite stockholder approval and the opinion of SRR.
Representations and warranties made solely by Acadia relates to
the representation that Acadia is not an “interested
stockholder” in PHC.
Under the terms of the merger agreement, Acadia and PHC have
agreed that until the earlier of the termination of the merger
agreement or the effective time of the merger, subject to
certain exceptions, each company will carry on its business in
the ordinary course with past practice in all material respects.
In addition, except as required by
law and subject to certain exceptions (including the
transactions associated with the MeadowWood acquisition), each
company has agreed to additional restrictions that prohibit it
from:
•
amending or proposing to amend, as the case may be, its
certificate of formation, limited liability company agreement,
articles of organization or bylaws (or other comparable
organizational documents);
•
splitting, combining, reclassifying, purchasing, repurchasing,
redeeming, otherwise acquiring, declaring, setting aside,
establishing a record date for, making or paying any dividend or
distribution (whether in cash, stock, property or otherwise) in
respect of, or entering into any contract with respect to the
voting of, any membership interests, shares of capital stock or
other equity securities of it or its subsidiaries;
•
issuing, delivering, selling, pledging, transferring, disposing
of or encumbering any shares of capital stock or other equity
securities of it or its subsidiaries, or any securities
convertible into or exchangeable for, or any options, warrants
or other rights of any kind to acquire any such shares of such
capital stock or other equity securities of it or its
subsidiaries;
•
increasing the salaries, bonuses or other compensation and
benefits payable or that could become payable by it or any of
its subsidiaries to any of their respective directors, limited
liability company managers, officers, stockholders, members,
employees or other service providers, except, solely with
respect to employees who are not officers or directors, in the
ordinary course of business consistent with past practice;
•
entering into any new or amending in any material respect, any
employment, severance, retention or change in control agreement
with any past or present director, limited liability company
manager, officer, stockholder, member, employee or other service
provider of it or its subsidiaries;
•
promoting any officers or employees, except in the ordinary
course of business consistent with past practice or as the
result of the termination or resignation of any officer or
employee;
•
acquiring by merging, consolidating with or purchasing any
equity securities, a substantial portion of the assets of, or by
any other manner any interest in, or making any loan, advance or
capital contribution to or investment in, any business,
corporation, partnership, association or other business
organization or any division thereof or any assets thereof,
other than acquisitions in the ordinary course of business not
exceeding $25,000,000 in the aggregate;
•
transferring, licensing, selling, leasing, assigning or
otherwise disposing of any material assets by merger,
consolidation, sale of stock or assets, or otherwise, including
the capital stock or other equity securities of it or its
subsidiaries;
•
granting any lien on any of the assets of it or its subsidiaries;
•
adopting, entering into or effecting a plan of complete or
partial liquidation, dissolution, restructuring,
recapitalization or other reorganization of it or its
subsidiaries;
•
redeeming, repurchasing, prepaying, defeasing, canceling,
incurring or otherwise acquiring, or modifying the terms of, any
indebtedness for borrowed money or assuming, guaranteeing or
endorsing, or otherwise become responsible for, any such
indebtedness of any business, corporation, partnership,
association or other business organization;
•
issuing or selling any debt securities or options, warrants,
calls or other rights to acquire any debt securities of it or
its subsidiaries or assuming, guaranteeing or endorsing, or
otherwise becoming responsible for, any debt securities of any
business, corporation, partnership, association or other
business organization;
•
making any capital expenditures, capital additions or capital
improvements having a cost in excess of $250,000 (by Acadia) or
$100,000 (by PHC), except for capital expenditures that are
contemplated by Acadia’s or PHC’s existing plans for
annual capital expenditures for the fiscal year ending
December 31, 2011 (for Acadia) or June 30, 2011 (for
PHC), or failing to make any capital expenditures, capital
additions or capital improvements contemplated by such existing
plans;
•
entering into or amending or modifying in any material respect,
or terminating or consenting to the termination of any material
contract;
waiving any material default under, or releasing, settling or
compromising any material claim against it or liability or
obligation owing to it under any material contract;
•
instituting, settling, releasing, waiving or compromising any
action (i) pending or threatened before any arbitrator,
court or other governmental authority involving the payment of
monetary damages by it or its subsidiaries of any amount
exceeding $250,000 (by Acadia) or $100,0000 (by PHC),
(ii) involving any current, former or purported holder or
group of holders of the capital stock or other equity securities
of it or its subsidiaries or (iii) which settlement
involves a conduct remedy or injunctive or similar relief or has
a restrictive impact on the business of it or its subsidiaries;
•
making any change in financial accounting methods, principles,
policies, procedures or practices;
•
making, changing or rescinding any tax election, filing any
amended tax return, entering into any closing agreement relating
to taxes, waiving or extending the statute of limitations in
respect of material taxes or settling or compromising any tax
liability in excess of $100,000 (by Acadia) or $50,000 (by PHC);
•
entering into any material agreement, agreement in principle,
letter of intent, memorandum of understanding or similar
contract with respect to any joint venture, strategic
partnership or alliance;
•
abandoning, encumbering, conveying title (in whole or in part),
exclusively licensing or granting any right or other licenses to
intellectual property rights owned by it or its subsidiaries;
•
failing to maintain in full force and effect the existing
insurance policies covering it and its subsidiaries and its and
their respective properties, assets and businesses;
•
effecting or permitting a “plant closing” or
“mass layoff” as those terms are defined in the Worker
Adjustment Retraining and Notification Act without complying
with the notice requirements and all other provisions of such
act;
•
entering into or modifying or amending in any material respect
or terminating any collective bargaining agreement with any
labor union; and
•
agreeing to take any of the actions described above.
Under the terms of the merger agreement, Acadia and PHC have
each agreed:
•
to promptly prepare and file this proxy statement/prospectus,
and Acadia will prepare and file the registration statement in
which the proxy statement/prospectus is to be included;
•
to cooperate with each other in the preparation and filing of
the proxy statement/prospectus;
•
to promptly notify one another of any comments from the SEC with
respect to the proxy statement/prospectus;
•
to provide to the other party or its representatives access, at
reasonable times upon prior notice, to its and its
subsidiaries’ officers, employees, agents, representatives,
properties, offices, facilities, books and records; and
•
to furnish promptly such information concerning its and its
subsidiaries’ business, properties, contracts, assets,
liabilities and personnel as the other party or its
representatives may reasonably request.
In addition, PHC has agreed:
•
to mail the proxy statement/prospectus to its stockholders at
the earliest practicable time after the registration statement
is declared effective by the SEC;
•
to promptly take all steps necessary to hold and convene its
stockholders’ meeting as soon as reasonably practicable
after this proxy statement is cleared by the SEC and this
registration statement is declared
effective, and take all reasonable lawful action to solicit from
its stockholders proxies in favor of adoption of the merger
agreement; and
•
that its board of directors will recommend (and reaffirm its
recommendation of) the adoption of the merger agreement and the
merger to its stockholders, and, except in certain
circumstances, neither the board of PHC nor any committee
thereof will withdraw, amend or modify the recommendation.
PHC will, in accordance with and subject to the laws of the
Commonwealth of Massachusetts, its restated articles of
organization, as amended, and bylaws, and the rules of NYSE Amex
Equities, cause a meeting of the PHC stockholders to be duly
called and held as soon as reasonably practicable after this
proxy statement/prospectus is cleared by the SEC and the related
registration statement on
Form S-4
is declared effective under the Securities Act for the purpose
of voting on the approval of the merger agreement.
Acadia and PHC have executed a confidentiality agreement dated
March 31, 2011, which will continue in full force in
accordance with its terms and expire on September 30, 2012.
The expiration of the confidentiality agreement will not relieve
either party from liability in respect of breaches by such party
prior to such expiration. Subject to the confidentiality
agreement and in accordance with the terms of the merger
agreement, Acadia and PHC will each grant the other’s
representatives reasonable access to its records, properties,
offices, facilities and personnel and will promptly furnish such
information regarding its business, properties, contracts,
assets, liabilities and personnel as the other party may
reasonably request.
PHC has agreed, subject to limitations described below, that it
will not nor will it permit or authorize any of its subsidiaries
or any of its or its subsidiaries’ respective officers,
directors or employees or other representatives to:
•
initiate, solicit, propose, encourage (including by providing
information) or take any action to facilitate any inquiries or
the making of any proposal or offer that constitutes, or may
reasonably be expected to lead to, an acquisition proposal;
•
engage in, continue or otherwise participate in any discussions
or negotiations regarding, or provide any information or data
concerning PHC or any of its subsidiaries to any business,
corporation, partnership, association or other business
organization relating to, any acquisition proposal;
•
provide any information or data concerning PHC or any of its
subsidiaries to any business, corporation, partnership,
association or other business organization pursuant to any
commercial arrangement, joint venture arrangement, or other
existing agreement or arrangement;
•
grant any waiver, amendment or release under any standstill or
confidentiality agreement or any takeover, anti-takeover,
moratorium, “fair price”, “control share” or
other similar law applicable to PHC, or otherwise knowingly
facilitate any effort or attempt by any business, corporation,
partnership, association or other business organization to make
an acquisition proposal; and
•
approve, endorse, recommend, or execute or enter into any letter
of intent, agreement in principle, merger agreement, acquisition
agreement or other similar agreement relating to an acquisition
proposal.
PHC further agrees that it and its subsidiaries and its
respective representatives, including non-officer employees and
other agents will immediately cease any and all existing
activities, discussions or negotiations with any third parties
with respect to any acquisition proposal with respect to
themselves, and will promptly request each person who has
entered into a confidentiality agreement in connection with
their consideration of an acquisition proposal to return all
confidential information furnished by PHC.
Promptly (and, in any event, within 24 hours) after any of
PHC’s officers, directors or representatives receives or
becomes aware of the receipt of any acquisition proposal by PHC,
or any request for nonpublic information or any discussions or
negotiations are sought to be initiated or continued with PHC,
PHC will provide Acadia with written notice of the identity of
the person or group making such proposal and the material terms
of the acquisition proposal.
“Acquisition Proposal”
means any inquiry,
proposal or offer relating to (i) the acquisition of
fifteen percent (15%) or more of the PHC common stock (by vote
or by value) by any third party, (ii) any merger,
consolidation, business combination, reorganization, share
exchange, sale of assets, recapitalization, equity investment,
joint venture, liquidation, dissolution or other transaction
which would result in any third party acquiring assets
(including capital stock of or interest in any subsidiary or
affiliate of PHC) representing, directly or indirectly, fifteen
percent (15%) or more of the net revenues, net income or assets
of PHC and its subsidiaries, taken as a whole, (iii) the
acquisition (whether by merger, consolidation, equity
investment, share exchange, joint venture or otherwise) by any
third party, directly or indirectly, of any capital stock in any
entity that holds assets representing, directly or indirectly,
fifteen percent (15%) or more of the net revenues, net income or
assets of PHC and its subsidiaries, taken as a whole,
(iv) any tender offer or exchange offer, as such terms are
defined under the Exchange Act, that, if consummated, would
result in any third party beneficially owning fifteen percent
(15%) or more of the outstanding shares of PHC common stock and
any other voting securities of PHC, or (v) any combination
of the foregoing.
Superior
Proposals
In the event that PHC receives an acquisition proposal and its
board determines in good faith, (i) after consultation with
outside legal counsel, that failure to take such action would be
inconsistent with the directors’ fiduciary duties under
applicable laws, and (ii) based on the information then
available and after consultation with its independent financial
advisor and outside legal counsel, that such acquisition
proposal either constitutes a superior proposal or is reasonably
likely to result in a superior proposal, PHC may:
•
provide information in response to an unsolicited bona fide
written acquisition proposal after the date of the merger
agreement if and only if, prior to providing such information,
PHC has received from the third party requesting such
information an executed confidentiality agreement; and
•
engage or participate in any discussions or negotiations with
any third party who has made an unsolicited bona fide written
acquisition proposal.
“Superior Proposal”
means a bona fide written
acquisition proposal (with all of the percentages included in
the definition of acquisition proposal increased to
66
2
/
3
%)
and not solicited in violation of the merger agreement which the
PHC board of directors determines in good faith, after
consultation with independent financial advisor and outside
legal counsel, and taking into consideration, among other
things, all of the terms, conditions, impact and all legal,
financial, regulatory and other aspects of such acquisition
proposal and merger agreement, including financing, regulatory
approvals, stockholder litigation, identity of the third party
making the acquisition proposal, breakup fee and expense
reimbursement provisions and other events or circumstances
beyond the control of the party invoking the condition,
(a) is reasonably likely to be consummated in accordance
with its terms and (b) would result in a transaction more
favorable to the stockholders of PHC from a financial point of
view than the transactions provided for in the merger agreement
(after taking into account the expected timing and risk and
likelihood of consummation).
Change
of Recommendation
At any time prior to obtaining PHC stockholder approval of the
merger agreement, if PHC has received a bona fide written
acquisition proposal that is not withdrawn and that the PHC
board of directors concludes in good faith
constitutes a superior proposal, the PHC board may withdraw,
amend or modify the PHC board recommendation if and only if:
•
the PHC board of directors determines in good faith, after
consultation with its independent financial advisor and outside
legal counsel, that failure to do so would be inconsistent with
its fiduciary obligations under applicable laws;
•
PHC has complied with its obligations with respect to
solicitations;
•
PHC has provided prior written notice to Acadia at least five
business days in advance, which states that PHC received a bona
fide written acquisition proposal that was not withdrawn and
that the PHC board of directors concludes in good faith
constitutes a superior proposal and, absent any revision to the
terms and conditions of the merger agreement, the PHC board of
directors has resolved to adversely change its recommendation
for the merger; and
•
prior to changing the PHC board recommendation for approval of
the merger, PHC will, and will cause its representatives to,
(i) negotiate with Acadia and its financial and legal
advisors in good faith (to the extent Acadia desires to
negotiate) to make such adjustments in the terms and conditions
of the agreement, so that such acquisition proposal would cease
to constitute a superior proposal, and (ii) permit Acadia
and its financial and legal advisors to make a presentation to
the PHC board of directors regarding the agreement and any
adjustments with respect thereto (to the extent Acadia desires
to make such presentation).
From and after the effective time of the merger, Acadia and the
surviving company will, jointly and severally, to the fullest
extent permitted under applicable law, indemnify and hold
harmless the present and former officers, directors and limited
liability company managers of PHC and its subsidiaries against
all costs and expenses (including attorneys’ fees),
judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any action (whether
arising before or after the effective time), whether civil,
criminal, administrative or investigative, arising out of or
pertaining to any action or omission in their capacity as an
officer, director, limited liability company manager, employee,
fiduciary or agent, whether occurring at or before the effective
time.
If PHC is unable to do so, Acadia shall obtain and fully pay the
premium for the extension of the directors’ and
officers’ liability coverage of PHC’s existing
directors’ and officers’ insurance policies, for a
claims reporting or discovery period of at least six years from
and after the effective time of the merger with respect to any
claim related to any period or time at or prior to the effective
time from an insurance carrier with the same or better credit
rating as PHC’s existing insurance carrier with respect to
directors’ and officers’ liability insurance and
fiduciary liability insurance with terms, conditions, retentions
and limits of liability that are at least as favorable as the
coverage provided under PHC’s existing policy with respect
to any matter claimed against a director or officer of PHC or
any of its subsidiaries by reason of him or her serving in such
capacity that existed or occurred at or prior to the effective
time of the merger.
PHC and Acadia have agreed to cooperate to conduct a review of
their respective employee benefit and compensation plans and
programs in order to (i) coordinate the provision of
benefits and compensation to the employees of PHC and Acadia and
their respective subsidiaries after the effective time,
(ii) eliminate duplicative benefits and (iii) treat
similarly situated employees of PHC, Acadia and their respective
subsidiaries on a substantially similar basis in all material
respects, taking into account all relevant factors, including
duties, geographic location, tenure, qualifications and
abilities. Notwithstanding the foregoing, PHC, Acadia or any of
their respective subsidiaries shall not be required to continue
the employment of any specific person. Furthermore, no provision
of the merger agreement shall be construed as prohibiting or
limiting the ability of PHC, Acadia or any of their respective
subsidiaries to amend, modify or terminate any plans programs,
policies, arrangements, agreements or understandings of PHC or
Acadia or any of their respective subsidiaries.
Subject to the terms and conditions of the merger agreement,
each party will use reasonable best efforts to (i) obtain
promptly all authorizations, consents, orders, approvals,
licenses, permits and waivers of all governmental authorities
and officials that may be or become necessary for its execution
and delivery of, and the performance of its obligations pursuant
to, the merger agreement, (ii) cooperate fully with the
other parties in promptly seeking to obtain all such
authorizations, consents, orders, approvals, licenses, permits
and waivers, (iii) provide such other information to any
governmental authority as such governmental authority may
reasonably request in connection therewith, (iv) obtain all
necessary consents, approvals or waivers from third parties
under such party’s respective contracts, and (v) from
and after the effective time, execute and deliver any additional
instruments necessary to consummate the transactions
contemplated by the merger agreement and to fully carry out the
purposes of the merger agreement. Each party promptly will
notify each other party thereto of any material communication it
or any of its affiliates receives from any governmental
authority relating to the matters that are the subject of the
merger agreement.
From and after the date of the merger agreement until the
effective time, each party will promptly notify the other party
thereto by written update to its disclosure schedule of
(i) the occurrence, or non-occurrence, of any event that,
individually or in the aggregate, would reasonably be expected
to cause any condition to the obligations of any party to effect
the transactions contemplated by the merger agreement not to be
satisfied, (ii) any action commenced or, to any
party’s knowledge, threatened against, such party or any of
its subsidiaries or affiliates or otherwise relating to,
involving or affecting such party or any of its subsidiaries or
affiliates, in each case in connection with, arising from or
otherwise relating to the transactions contemplated by the
merger agreement or (iii) the failure of such party to
comply with or satisfy any covenant, condition or agreement to
be complied with by it pursuant to the merger agreement which,
individually or in the aggregate, would reasonably be likely to
result in any condition to the obligations of any party to
effect the transactions contemplated by the merger agreement not
to be satisfied. PHC delivered to Acadia and Merger Sub a
supplement to the disclosure schedule after the closing of the
MeadowWood acquisition containing any additions, revisions or
modifications to such disclosure schedule that are required as a
result of PHC’s acquisition of the MeadowWood assets.
Each of Acadia and PHC will cooperate with the other and use its
reasonable best efforts to cause the shares of Acadia common
stock to be issued in connection with the merger to be listed on
NASDAQ and if not possible, NYSE Amex Stock Market, another
securities exchange, subject to official notice of issuance,
prior to the effective time.
Section 16(a) of the Exchange Act requires our directors,
officers and beneficial owners of more than 10% of our common
stock to file reports with the SEC disclosing their ownership,
and changes in their ownership, of our equity securities.
Section 16(b) of the Exchange Act requires those subject to
the reporting requirements of Section 16(a) of the Exchange
Act to disgorge to Acadia any profits realized from any
“short-swing” trading transaction (i.e., a purchase
and sale, or sale and purchase, of our equity or derivative
securities within a period of less than six months). Subject to
the satisfaction of the conditions contained therein,
Rule 16b-3
promulgated under the Exchange Act exempts certain transactions
from the short-swing profit rules of Section 16 of the
Exchange Act. Prior to the effective time, PHC and Acadia will
take all steps necessary to cause the transactions contemplated
by the merger agreement, including any acquisition of Acadia
Common Stock in connection therewith, by each individual who is
or will be subject to the reporting requirements under
Section 16(a) of the Exchange Act with respect to Acadia,
to be exempt under
Rule 16b-3.
If any “control share acquisition,” “fair
price,” “moratorium” or other anti-takeover law
becomes or is deemed to be applicable to Acadia, PHC, Merger
Sub, the merger or any other transaction contemplated by the
merger agreement, then each of Acadia, PHC, Merger Sub, and
their respective boards of directors or managers will grant all
such approvals and take all such actions as are necessary so
that the transactions contemplated by the merger agreement may
be consummated as promptly as practicable on the terms
contemplated thereby and otherwise act to render such
anti-takeover law inapplicable to the merger agreement and the
transactions contemplated thereby.
PHC will use its reasonable best efforts to cause its shares of
PHC Class A Common Stock to no longer be quoted on AMEX and
to be de-registered under the Exchange Act as soon as
practicable following the effective time.
Neither Acadia nor PHC will, nor will they permit any of their
respective subsidiaries to, take any action prior to or after
the closing that would reasonably be expected to cause the
merger to fail to qualify as a reorganization with the meaning
of Section 368(a) of the Code.
Each of Acadia and PHC will consult with each other before
issuing any press release or otherwise making any public
statements (including conference calls with investors and
analysts) with respect to the merger agreement or any of the
transactions contemplated thereby. No party to the merger
agreement will issue any such press release or make any such
public statement with respect to the merger agreement or any of
the transactions contemplated thereby prior to such
consultation, except to the extent public disclosure is required
by applicable law or the requirements of the NYSE Amex Stock
Market or NASDAQ, as applicable, in which case the issuing party
will use its reasonable best efforts to consult with the other
party before issuing any such press release or making any such
public statements.
Acadia and PHC will cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other
documents regarding any sales, transfer, stamp, stock transfer,
value added, use, real property transfer or gains and any
similar taxes that become payable in connection with the
transactions contemplated by the merger agreement. From and
after the effective time, the surviving company agrees to assume
liability for and pay any such taxes of PHC, Acadia or any of
their respective subsidiaries.
From the date of the merger agreement until the earlier to occur
of the effective time or the termination of the merger agreement
in accordance with its terms, Acadia and PHC will not, and will
not permit any of their respective subsidiaries to, take, or
agree or commit to take, any action that would reasonably be
expected to, individually or in the aggregate, prevent,
materially delay or materially impede the consummation of the
transactions contemplated by the merger agreement.
Each of PHC and Acadia will cooperate with the other and use its
reasonable best efforts to arrange the debt financing on the
terms and conditions to those described in the Debt Commitment
Letter, together with the related fee letter and that certain
engagement letter dated as of the same date by and among Acadia
and Jefferies. Each of PHC and Acadia will use its commercially
reasonable efforts to (i) negotiate definitive agreements
with respect thereto and (ii) satisfy on a timely basis all
conditions in such definitive agreements that are within its
control.
Except with respect to PHC’s 2005 Employee Stock Purchase
Plan, which shall be terminated at the conclusion of the current
participation period on August 31, 2011, PHC will take all
actions necessary (i) to suspend any and all offering or
grants during the offering periods currently in effect under the
PHC stock purchase plans effective as of the date of the merger
agreement (such that no shares of PHC capital stock can be
issued pursuant thereto) and (ii) to terminate the PHC
stock purchase plans prior to the effective time.
Acadia will keep PHC’s Peabody, Massachusetts office open
for as long as reasonably required to effect necessary
transition matters, which Acadia and PHC anticipate will take
from three to six months following the effective time.
For a period of two years following the effective time of the
merger, Acadia will file a “dba” in Delaware and such
other jurisdictions as it deems necessary to enable it to
conduct business as “Pioneer Behavioral Health,” and
Acadia will conduct business under such dba, including by using
corporate stationary bearing such name and by answering the
telephone in the corporate offices under such name. Acadia
anticipates that each of PHC’s subsidiaries will retain
their current names from and after the effective time.
The obligations of Acadia, PHC and Merger Sub to effect the
transaction are subject to the satisfaction or waiver (in
writing, by mutual agreement of Acadia and PHC where
permissible) of various conditions, which include the following:
•
the SEC will have declared the registration statement effective,
and no stop order will have been issued or proceedings initiated
or threatened by the SEC suspending the effectiveness of the
registration statement or any part thereof;
•
the PHC stockholder approval must be obtained in accordance with
Massachusetts Law;
•
no governmental authority will have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order that is in
effect and that has the effect of making the merger illegal or
otherwise prohibiting completion of the merger and there will
not be any pending or overtly threatened suit or action by any
court of competent jurisdiction or other restraint or
prohibition of any governmental authority;
•
the expiration or early termination of the waiting period
applicable to the transaction under the Hart-Scott Rodino Act,
if required, and the acquisition of all other material foreign
antitrust requirements required to consummate the transaction;
•
(i) Acadia will have obtained debt financing in the amounts
described in, and on the terms and conditions set forth in, the
Debt Commitment Letter, (ii) Acadia will have received an
opinion that its and its subsidiaries’ total consolidated
liabilities will not exceed their total consolidated assets
immediately after giving effect to the merger and the other
transactions contemplated thereby and (iii) the net
proceeds to be distributed to Acadia Holdings’ existing
members will be equal to or greater than $80,000,000 (and as a
result, the aggregate principal amount of the Deficit Note(s)
shall not exceed $10,000,000); and
•
the shares of Acadia common stock to be issued in the merger
will have been authorized for listing on a national securities
exchange or be eligible for trading on the over the counter
bulletin board.
The obligations of Acadia to consummate the merger are subject
to the satisfaction or waiver (where permissible) of the
following additional conditions:
•
the representations and warranties of PHC contained in the
merger agreement relating to organization, standing and power,
subsidiaries, capitalization, authority, absence of certain
changes, stockholder vote and PHC board approval must be true
and correct in all respects as of the date of the merger
agreement and as of the closing date as if made at and as of the
closing date;
•
other than the representations and warranties listed in the
prior paragraph and relating to SEC filings and undisclosed
liabilities, the representations and warranties of PHC contained
in the merger agreement must be true and correct as of the date
of the merger agreement and as of the closing date, except
(i) where the failure to be true and correct would not
reasonably be expected to have a material adverse effect on PHC,
or (ii) to the extent such representations and warranties
expressly relate to an earlier date, in which case such
representations must have been true and correct as of such
earlier date;
•
the representations and warranties of PHC contained in the
merger agreement relating to SEC filings and undisclosed
liabilities must be true and correct in all material respects as
of the date of the merger agreement and as of the closing date
as if made at and as of the closing date;
•
PHC must have performed or complied in all material respects
with the agreements and covenants required by the merger
agreement to be performed or complied with by it on or prior to
the closing date;
•
since the date of the merger agreement, there must not have been
or occurred any material adverse effect with respect to PHC;
•
Acadia must have received a certificate, signed by the chief
executive officer or chief financial officer of PHC, certifying
that the following requirements have been satisfied:
(i) the representations and warranties are true and correct
as of a certain date and (ii) the requisite agreements and
covenants have been complied with;
•
Acadia must have been provided with any third party consents or
approvals PHC is required to obtain in connection with the
merger;
•
the directors and officers of PHC required to resign as set
forth in the merger agreement must have resigned as directors
and officers of PHC;
•
Acadia and PHC and their respective subsidiaries must have
timely obtained from each governmental authority all approvals,
waivers and consents, if any, necessary for the consummation of
or in connection with the transactions contemplated by the
merger agreement;
•
Acadia must have received an opinion by its legal counsel with
respect to federal income tax purposes, which states that:
(i) the merger will constitute a “reorganization”
within the meaning of Section 368(a) of the Code and
(ii) Acadia and PHC will each be a party to that
reorganization within the meaning of Section 368(b) of the
Code;
•
PHC must have received an opinion of its special counsel,
substantially in the form attached to the merger agreement, that
the merger consideration to be paid to holders of PHC’s
common stock does not violate PHC’s articles of
organization or bylaws or the Massachusetts Business Corporation
Act, subject to the assumptions and exclusions contained in such
opinion;
•
PHC must have consummated its acquisition of the MeadowWood
assets; and
•
Acadia and certain of its stockholders must have entered into
the stockholders agreement, substantially in the form attached
to the merger agreement.
The obligations of Acadia to consummate the merger are subject
to the satisfaction or waiver (where permissible) of the
following additional conditions:
•
the representations and warranties of Acadia contained in the
merger agreement relating to organization, standing and power,
subsidiaries, capitalization, authority, absence of certain
changes or events and Acadia board approval must be true and
correct as of the date of the merger agreement and as of the
closing date as if made at and as of the closing date;
•
other than the representations and warranties listed in the
prior paragraph and relating to financial statements, the
representations and warranties of Acadia contained in the merger
agreement must be true and correct as of the date of the merger
agreement and as of the closing date, except (i) where the
failure to be true and correct would not reasonably be expected
to have a material adverse effect on Acadia, or (ii) to the
extent such representations and warranties expressly relate to
an earlier date, in which case such representations must have
been true and correct as of such earlier date;
•
the representations and warranties of Acadia contained in the
merger agreement relating to financial statements must be true
and correct in all material respects as of the date of the
merger agreement and as of the closing date as if made at and as
of the closing date;
•
Acadia must have performed or complied in all material respects
with the agreements and covenants required by the merger
agreement to be performed or complied with by it on or prior to
the closing date;
•
since the date of the merger agreement, there must not have been
or occurred any material adverse effect with respect to Acadia;
•
PHC must have received a certificate, signed by the chief
executive officer or chief financial officer of Acadia,
certifying that the following requirements have been satisfied:
(i) the representations and warranties are true and correct
as of a certain date and (ii) the requisite agreements and
covenants have been complied with;
•
PHC must have been provided with any third party consents or
approvals Acadia is required to obtain in connection with the
merger; and
•
PHC must have received an opinion by its legal counsel with
respect to federal income tax purposes, which states that:
(i) the merger will constitute a “reorganization”
within the meaning of Section 368(a) of the Code and
(ii) Acadia and PHC will each be a party to that
reorganization within the meaning of Section 368(b) of the
Code.
The merger agreement may be terminated by the mutual written
consent of Acadia and PHC or by either party (if, in the case of
PHC it has not breached the no solicitation provisions of the
merger agreement):
•
if the merger has not been consummated by 11:59 p.m., New
York City Time, on December 15, 2011 (the “End
Date”); provided, however, that such right to terminate the
merger agreement shall not be available to PHC if PHC has not
obtained stockholder approval;
•
if an order of any governmental authority having competent
jurisdiction is entered enjoining PHC, Acadia or Merger Sub from
consummating the merger and has become final and nonappealable;
provided, however, that such right to terminate the merger
agreement shall not be available to any party whose breach of
any provision of the merger agreement results in the imposition
of any such order or the failure of such order to be resisted,
resolved or lifted, as applicable;
•
if any law that makes consummation of the merger illegal or
otherwise prohibited (unless the consummation of the merger in
violation of such law would not have a material adverse effect
on PHC); provided, however, that such right to terminate the
merger agreement shall not be available to any party whose
breach of any
provision of the merger agreement results in the imposition of
any such order or the failure of such order to be resisted,
resolved or lifted, as applicable; or
•
if PHC has not obtained stockholder approval.
Termination
by the PHC
The merger agreement may be terminated by PHC:
•
if Acadia or Merger Sub has breached any of the covenants or
agreements contained in the merger agreement to be complied with
by Acadia or Merger Sub such that PHC’s closing condition
regarding such covenants or agreements would not be satisfied,
and such breach is incapable of being cured by the End Date or
is not cured within thirty (30) calendar days after Acadia
or Merger Sub receives written notice of such breach from PHC;
provided that PHC will not have the right to terminate the
merger agreement pursuant to this paragraph if, at the time of
the termination, Acadia or Merger Sub would be unable to satisfy
their closing condition because PHC is in breach of any of its
covenants or agreements;
•
if there exists a breach of any of the representations or
warranties of Acadia or Merger Sub contained in the merger
agreement such that PHC’s closing condition regarding such
representations or warranties would not be satisfied, and such
breach is incapable of being cured by the End Date or is not
cured within thirty (30) calendar days after Acadia or
Merger Sub receives written notice of such breach from PHC;
provided that PHC will not have the right to terminate the
merger agreement pursuant to this paragraph if, at the time of
the termination, Acadia and Merger Sub would be unable to
satisfy their closing condition because PHC is in breach of any
of its representations or warranties; or
•
if, prior to the obtaining of the PHC stockholder approval, the
PHC board of directors or any committee thereof has adversely
changed its recommendation to approve the merger.
Termination
by Acadia
The merger agreement may be terminated by Acadia:
•
if PHC has breached any of the covenants or agreements contained
in the merger agreement to be complied with by PHC such that
Acadia’s closing condition regarding such covenants or
agreements would not be satisfied, and such breach is incapable
of being cured by the End Date or is not cured within thirty
(30) calendar days after PHC receives written notice of
such breach from Acadia; provided that Acadia will not have the
right to terminate the merger agreement pursuant to this
paragraph if, at the time of the termination, PHC would be
unable to satisfy its closing condition because Acadia or Merger
Sub is in breach of any of their covenants or agreements;
•
if there exists a breach of any of the representations or
warranties of PHC contained in the merger agreement such that
Acadia’s closing condition regarding such representations
or warranties would not be satisfied, and such breach is
incapable of being cured by the End Date or is not cured within
thirty (30) calendar days after PHC receives written notice
of such breach from PHC; provided that Acadia will not have the
right to terminate the merger agreement pursuant to this
paragraph if, at the time of the termination, PHC would be
unable to satisfy its closing condition because Acadia or Merger
Sub is in breach of any of their representations or
warranties; or
•
if, prior to the obtaining of the PHC stockholder approval, the
PHC board of directors or any committee thereof has adversely
changed its recommendation to approve the merger; or
•
if after the completion of the MeadowWood asset purchase and the
additions, revisions and modifications to the supplemental
disclosures provided by PHC to Acadia, Acadia would be unable to
satisfy its closing condition because PHC representations or
warranties are no longer true and correct in all respects as of
the date of delivery of the MeadowWood disclosure schedule
supplement.
In the event the merger agreement is terminated by PHC due to
the fact that Acadia or Merger Sub has breached any of its
covenants, agreements, representations or warranties such that a
condition related to PHC’s obligation to close would not be
satisfied, then Acadia will pay all of PHC’s reasonably
documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred by PHC and its affiliates on or prior to the
termination of merger agreement in connection with the
transactions contemplated by the merger agreement, which amount
will in no event exceed $1,000,000 in the aggregate, and shall
be paid in four annual installments, with the first annual
installment due within two business days of such termination,
and the remaining payments being made on the first, second and
third anniversary of such termination date.
In the event the merger agreement is terminated by Acadia under
circumstances in which the termination fee is not then payable,
due to the fact that (i) PHC has breached any of its
covenants, agreements, representations or warranties such that a
condition related to Acadia’s obligation to close would not
be satisfied or (ii) the supplement to the disclosure
schedules delivered to Acadia in connection with PHC’s
recent acquisition of MeadowWood would cause a breach of a PHC
representation or warranty such that a condition related to
Acadia’s obligation to close would not be satisfied, then
PHC will pay all of Acadia’s reasonably documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred by Acadia and its affiliates on or prior to
the termination of the merger agreement in connection with the
transactions contemplated by the merger agreement, which amount
will in no event exceed $1,000,000 in the aggregate and shall be
paid in four annual installments, with the first annual
installment due within two business days of such termination,
and the remaining payments being made on the first, second and
third anniversary of such termination date. Notwithstanding the
foregoing, the existence of circumstances which could require
payment of the termination fee by PHC subsequent to termination
of the merger agreement will not relieve PHC of its obligations
to pay Acadia reimbursable expenses.
In the event the merger agreement is terminated by PHC or Acadia
because, prior to the obtaining of the PHC stockholder approval,
the PHC board of directors or any committee thereof has
adversely changed its recommendation to approve the merger, PHC
will promptly pay Acadia an amount equal to $3,000,000, but in
any event within two business days after the date of such
termination, by wire transfer of same day funds to one or more
accounts designated by Acadia.
In the event that (i) the merger agreement is terminated
(A) by either Acadia or PHC because the merger has not been
consummated by the End Date or PHC has not obtained stockholder
approval in accordance with the merger agreement or (B) by
Acadia because PHC would be unable to satisfy its closing
conditions regarding covenants and agreements or representations
and warranties as of the closing date and (ii) after the
date of the merger agreement and prior to the twelve month
anniversary of the termination of the merger agreement, PHC
consummates an acquisition proposal, enters into any letter of
intent, agreement in principle, acquisition agreement or other
similar agreement related to an acquisition proposal, or PHC
files a Solicitation/Recommendation Statement on
Schedule 14D-9
that includes the PHC board’s recommendation of any
acquisition proposal to PHC’s stockholders, then PHC will,
on the date an acquisition proposal is consummated, any such
letter is executed or agreement is entered into or any such
statement is filed with the SEC, pay to Acadia an amount equal
to $3,000,000 (less the amount of any reimbursable expenses
previously paid by PHC to Acadia pursuant to the merger
agreement, if any) to Acadia by wire transfer of same day funds
to one or more accounts designated by Acadia.
For purposes of the termination section of the merger agreement
only, a transaction pursuant to an acquisition proposal (as
defined above and in the merger agreement) all percentages in
the definition of acquisition proposal will be replaced with 50%.
Each of PHC and Acadia will not (and will cause each of their
respective subsidiaries not to), incur or agree to pay any
reasonably documented
out-of-pocket
fees and expenses (including reasonable legal and advisory fees
and expenses) in connection with the merger or any of the
transactions contemplated in the merger agreement, other than
certain shared fees and expenses, in excess of certain estimated
fees and expenses set forth in the merger
agreement. This prohibition does not apply to fees and expenses
related to the following activities: (i) the filing,
Edgarizing, printing, mailing and similar out of pocket fees and
expenses (but not legal or accounting fees and expenses)
relating to this proxy statement/prospectus and any other
necessary filings with respect to the merger or any related
transactions under the Securities Act, the Exchange Act and
applicable state “blue sky” laws and the rules and
regulations promulgated thereunder; and (ii) the listing
fee(s) incurred in obtaining (or attempting to obtain) the stock
exchange listing(s) or trading eligibility for Acadia.
Regardless of whether the merger is completed, Acadia and PHC
will pay 75% and 25% respectively of such fees. The prohibition
also does not apply to the incurrence by Acadia or any of its
affiliates of any costs or expenses under or pursuant to the
debt commitment letter or otherwise in connection with obtaining
the financing under such commitment letter.
The merger agreement may be amended, at any time, by the
parties, by action taken or authorized by their respective
boards of directors, before or after approval of the merger
agreement by the stockholders of PHC, provided that after any
such approval, no amendment can be made that requires further
stockholder approval without such approval having been obtained.
The merger agreement may not be amended except by execution of
an instrument in writing signed on behalf of each of Acadia and
PHC.
Subject to the foregoing, at any time prior to the effective
time, the parties may, to the extent permitted by applicable law:
•
extend the time for the performance of any of the obligations or
other acts of the other parties;
•
waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered
pursuant thereto; or
•
waive compliance with any of the agreements or conditions
contained in the merger agreement.
After any approval of the merger agreement by the PHC
stockholders, there may not be any extension or waiver of the
merger agreement which decreases the merger consideration
provided therein or which adversely affects the rights of the
PHC stockholders thereunder without the approval of such
stockholders. Any agreement on the part of a party to any such
extension or waiver will be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any
party to assert any of its rights under the merger agreement or
otherwise will not constitute a waiver of those rights.
For purposes of the merger agreement, the term material adverse
effect, when used in connection with PHC or Acadia, means any
event, change, condition or effect that, individually or in the
aggregate, is, or is reasonably likely to be, materially adverse
to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of
such entity and its subsidiaries, taken as a whole, other than
any event, change, condition or effect relating to:
•
the merger and the transactions contemplated by the merger
agreement or the announcement thereof;
•
compliance with the terms of the merger agreement or the taking
of any action consented to or requested by PHC or, in the case
of Acadia, Merger Sub;
•
any change in accounting requirements or principles required by
GAAP, or any interpretations thereof;
•
the United States economy in general; or
•
the behavioral healthcare industry in general.
Notwithstanding the foregoing, a material adverse effect will
include any change in or effect on the business of either Acadia
or PHC and their respective subsidiaries that, individually or
in the aggregate, is, or is reasonably likely to be, materially
adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations or results of
operations of such party and its subsidiaries taken as a whole,
if such change or effect is
In connection with the merger, each of PHC’s directors and
executive officers entered into a voting agreement with Acadia
pursuant to which these individuals agreed to vote their shares
of PHC common stock in favor of the merger agreement, among
other things. The following description of the voting agreement
describes the material terms of the voting agreement.
As of the record date, the directors and executive officers of
PHC who have entered into the voting agreement collectively
owned beneficially and of record shares of PHC common stock
representing less than 11% of the total outstanding shares of
PHC Class A Common Stock and 94% of the total outstanding
shares of PHC Class B Common Stock entitled to vote at the
meeting of PHC stockholders.
Bruce A. Shear, Donald E. Robar, Robert H. Boswell, Paula C.
Wurts, Howard W. Phillips, William F. Grieco, David E.
Dangerfield, and Douglas J. Smith, have each entered into the
voting agreement with Acadia dated as of March 23, 2011.
Pursuant to the terms of the voting agreement, each director and
executive officer who signed the voting agreement has agreed to
vote (i) in favor of approval of the merger agreement,
(ii) against approval of any proposal made in opposition to
or competition with consummation of the merger and the merger
agreement, including any acquisition proposal,
(iii) against any transaction of the type described in the
definition of “Acquisition Proposal” in the merger
agreement from any party other than Acadia or an affiliate of
Acadia as contemplated by the merger agreement,
(iv) against any other proposal that is intended to, or is
reasonably likely to, result in the conditions of Acadia’s
or Merger Sub’s obligations under the merger agreement not
being fulfilled, (v) against any amendment of PHC’s
certificate of incorporation or by-laws that is not requested or
expressly approved by Acadia and (vi) against any
dissolution, liquidation or winding up of PHC. The directors and
executive officers also agree that until the earlier of the
termination of the merger agreement or completion of the merger,
they will not enter into any agreement or understanding with
another person to vote or give instructions inconsistent with
the foregoing obligations.
In furtherance of the foregoing obligations and in the event of
a failure by a director or officer who is party to the voting
agreement of his or her obligations as to voting or executing a
written consent pursuant to the voting agreement, such director
or officer revokes any and all other proxies or powers of
attorney in respect of any of the shares of PHC common stock
governed by the voting agreement and agrees that during the
period commencing on the date of the voting agreement until its
expiration, each director and executive officer appointed
Acadia, Merger Sub or any individual designated by Acadia or
Merger Sub as such individual’s agent, attorney-in-fact and
proxy (with full power of substitution) to vote all shares owned
by such director or executive officer in accordance with the
voting agreement. Such proxy will be valid and irrevocable until
termination of the voting agreement.
The directors and executive officers may vote their shares of
PHC common stock on all other matters not referred to by the
voting agreement, and Acadia may not exercise its proxy with
respect to such other matters.
The directors and executive officers agreed not to, and not to
permit any entity under such director’s or executive
officer’s control to, (i) solicit proxies or become a
“participant” in a “solicitation” (as such
terms are defined in
Rule 14a-1
under the Exchange Act) with respect to an acquisition proposal,
(ii) initiate a stockholders’ vote with respect to an
acquisition proposal, (iii) become a member of a
“group” (as such term is used in Section 13(d) of
the Exchange Act) with respect to any voting securities of PHC
with respect to an acquisition proposal or (iv) solicit,
entertain, promote, negotiate, knowingly aid, accept, enter or
agree into or discuss, directly or indirectly, any proposal,
arrangement, agreement or offer regarding an acquisition
proposal.
Prior to the expiration of the voting agreement, each director
and executive officer who signed the voting agreement shall not:
(a) transfer, assign, sell, gift-over, pledge or otherwise
dispose of, or consent to any of the foregoing, any or all of
the shares governed thereunder or any right or interest of such
shares; (b) enter into any contract, option or other
agreement, arrangement or understanding with respect to any
action enumerated in (a) of
this paragraph; (c) grant any proxy,
power-of-attorney
or other authorization or consent with respect to any of the
shares governed thereunder (other than the proxy contemplated in
the voting agreement); or (d) deposit any of the shares
governed thereunder into a voting trust, or enter into a voting
agreement or arrangement with respect to any of the shares
governed thereunder; provided, however, that a stockholder (and
any permitted transferee thereof) may take an action enumerated
in (a) of this paragraph with respect to any or all of the
shares governed thereunder to such stockholder’s spouse,
descendants (whether natural or adopted) or any trust or other
entity controlled by such stockholder; provided that such
permitted transferee provides Acadia and Merger Sub with a
written agreement to be bound by the terms of the voting
agreement and to hold such shares governed thereunder subject to
all terms of the voting agreement, in each case, as if it were
the stockholder.
The voting agreement will terminate upon the earlier to occur of
the completion of the merger or the termination of the merger
agreement in accordance with its terms.
The following is a list of the persons who are anticipated to be
Acadia’s executive officers and directors following the
merger and their ages and anticipated positions following the
merger.
Name
Age
Position/Affiliation
Joey A. Jacobs
58
Chairman, Director & Chief Executive Officer
Bruce A. Shear
57
Executive Vice Chairman and Director
Brent Turner
45
Co-President
Trey Carter
45
Co-President
Ron Fincher
58
Chief Operating Officer
Jack E. Polson
45
Chief Financial Officer
Christopher L. Howard
45
Executive Vice President, General Counsel
Reeve B. Waud
47
Director
Charles E. Edwards
33
Director
Matthew A. London
29
Director
Gary A. Mecklenburg
65
Director
William F. Grieco
59
Director
Joey A. Jacobs
, age 58, joined Acadia in February
2011 and has served as the Chairman of the Acadia board of
directors and as Acadia’s Chief Executive Officer since
that time. Mr. Jacobs has extensive experience in the
behavioral health industry. He co-founded Psychiatric Solutions,
Inc. (“PSI”) and served as Chairman, President and
Chief Executive Officer of PSI from April 1997 to November 2010.
Prior to founding PSI, Mr. Jacobs served for 21 years
in various capacities with Hospital Corporation of America
(“HCA,” also formerly known as Columbia and
Columbia/HCA), most recently as President of the Tennessee
Division. Mr. Jacobs’ background at HCA also included
serving as president of HCA’s Central Group, vice president
of the Western Group, assistant vice president of the Central
Group and assistant vice president of the Salt Lake City
Division. The board of directors of Acadia believes that
Mr. Jacob’s qualifications to serve as a director
include his 35 years of experience in the health care
industry.
Bruce A. Shear
, age 57, has served as President,
Chief Executive Officer and a director of PHC since 1980 and
Treasurer of PHC from September 1993 until February 1996. Upon
consummation of the merger, it is anticipated that
Mr. Shear will be appointed as the Executive Vice Chairman
and a director of Acadia. From 1976 to 1980, he served as Vice
President, Financial Affairs, of PHC. The board of directors of
Acadia believes that Mr. Shear is qualified to serve as a
director due to, among other things, his extensive knowledge of
and experience in the healthcare industry and his knowledge of
PHC. Mr. Shear has served on the Board of Governors of the
Federation of American Health Systems for over fifteen years and
is currently a member of the Board of Directors of the National
Association of Psychiatric Health Systems. Since November 2003,
Mr. Shear has been a member of the Board of Directors of
Vaso Active Pharmaceuticals, Inc., a company marketing and
selling
over-the-counter
pharmaceutical products that incorporate Vaso’s transdermal
drug delivery technology.
Brent Turner
, age 45, joined Acadia in February 2011
and has served as a Co-President of Acadia since that time.
Previously, Mr. Turner served as the Executive Vice
President, Finance and Administration of PSI from August 2005 to
November 2010 and as the Vice President, Treasurer and Investor
Relations of PSI from February 2003 to August 2005. From late
2008 through 2010, Mr. Turner also served as a
Division President of PSI overseeing facilities in Texas,
Illinois and Minnesota. From 1996 until January 2001,
Mr. Turner was employed by Corrections Corporation of
America, a private prison operator, serving as Treasurer from
1998 to 2001.
Trey Carter
, age 45, joined Acadia in May 2007 and
has served as a Co-President of Acadia since February 2011.
Previously, Mr. Carter served as Acadia’s Chief
Executive Officer from May 2007 until February 2011. Prior to
joining Acadia, Mr. Carter served as Regional Vice
President, Behavioral Health Division for Universal Health
Services from May 2005 to April 2007 and as Chief Executive
Officer of Anchor Hospital located in Atlanta,
Georgia from January 2003 to May 2005. Prior to his tenure with
Universal Health Services, Trey Carter was Director of
Behavioral Health Services at Tanner Behavioral Health in
Carrollton, Georgia.
Ron Fincher
, age 58, joined Acadia in February 2011
and has served as Acadia’s Chief Operating Officer since
that time. Previously, Mr. Fincher served as PSI’s
Chief Operating Officer from October 2008 to November 2010. As
Chief Operating Officer of PSI, Mr. Fincher oversaw
hospital operations for 95 facilities. He had served PSI as a
Division President since April 2003. As a
Division President, Mr. Fincher was responsible for
managing the operations of multiple inpatient behavioral health
care facilities owned by the Company. Prior to joining PSI,
Mr. Fincher served as a Regional Vice President of
Universal Health Services, Inc. from 2000 until 2003.
Jack E. Polson
, age 45, joined Acadia in February
2011 and has served as Acadia’s Chief Financial Officer
since that time. Previously, Mr. Polson served as an
Executive Vice President and Chief Accounting Officer of PSI
from September 2006 to November 2010 and as PSI’s Chief
Accounting Officer from August 2002 to September 2006. Prior to
being appointed to Chief Accounting Officer, Mr. Polson had
served as Controller of PSI since June 1997. From June 1995
until joining PSI, Mr. Polson served as Controller for
Columbia Healthcare Network, a risk-bearing physician health
organization in HCA’s Tennessee Division.
Christopher L. Howard
, age 45, joined Acadia in
February 2011 and has served as Acadia’s Executive Vice
President, General Counsel and Secretary since that time. Before
joining Acadia, Mr. Howard served as PSI’s Executive
Vice President, General Counsel and Secretary from September
2005 to November 2010. Prior to joining PSI, Mr. Howard was
a partner at of Waller Lansden Dortch & Davis, LLP, a
law firm based in Nashville, Tennessee.
Reeve B. Waud
, age 47, has served as a director of
Acadia (and a manager of its predecessor Acadia Healthcare
Company, LLC) since December 2005. Mr. Waud formed
Waud Capital Partners in 1993 and has served as the Managing
Partner of Waud Capital Partners since that time. Prior to
founding Waud Capital Partners, Mr. Waud was an investment
professional at Golder, Thoma, Cressey, Rauner, Inc. (GTCR), a
private equity investment group based in Chicago, Illinois.
Before joining GTCR, Mr. Waud was in the Corporate Finance
Group of Salomon Brothers, Inc. and was a founding member of its
Venture Capital Group. The board of directors of Acadia believes
that Mr. Waud is qualified to serve as a director due to,
among other things, his extensive knowledge of and experience in
the healthcare industry and his general business and financial
acumen. Mr. Waud also serves as the controlling shareholder
and/or
chairman of the board of directors of Adreima, CarePoint
Partners, Maxum Petroleum, True Partners Consulting, and
Whitehall Products, all private companies. He also serves on the
board of directors of Northwestern Memorial Foundation, the
philanthropic arm that supports the fundraising, grant-making
and stewardship activities of Northwestern Memorial HealthCare
(“NMHC”), and is a member of the NMHC Finance
Committee. Mr. Waud currently serves as an advisor to Green
Courte Partners, a private equity, real estate investment firm.
In addition, Mr. Waud is a member of the Commonwealth Club
of Chicago and is a member of The Economic Club of Chicago. He
is a trustee of St. Paul’s School in Concord, New Hampshire
and the John G. Shedd Aquarium. In addition, he serves on the
Visiting Committee of the University of Chicago Harris School of
Public Policy.
Charles E. Edwards
, age 33, has served as a director
of Acadia (and a manager of its predecessor Acadia Healthcare
Company, LLC) since 2008. Mr. Edwards is a Principal
of Waud Capital Partners and joined the firm in 2005. Prior to
joining Waud Capital Partners, Mr. Edwards worked in the
investment baking group at A.G. Edwards & Sons from
2000 to 2003 and attended the Harvard Business School from 2003
to 2005. The board of directors of Acadia believes that
Mr. Edwards is qualified to serve as a director due to,
among other things, his extensive knowledge of and experience in
the healthcare industry and his general business and financial
acumen. Mr. Edwards also serves on the board of directors
of Maxum Petroleum, a private company.
Matthew A. London
, age 29, has served as a director
of Acadia (and a manager of its predecessor Acadia Healthcare
Company, LLC) since April 2011. Mr. London is a Vice
President of Waud Capital Partners and joined the firm in 2007.
Prior to joining Waud Capital Partners, Mr. London was an
investment banking analyst with Deutsche Bank from 2004 to 2007
and with Morgan Keegan from January 2004 to December 2004. The
board of directors of Acadia believes that Mr. London is
qualified to serve as a director due to, among other things, his
extensive knowledge of and experience in the healthcare industry
and his general business and financial acumen. Mr. London
also serves on the board of directors of Maxum Petroleum, a
private company, and previously served on the board of Regency
Hospital Company, a private company in the healthcare services
industry.
Gary A. Mecklenburg
, age 65, has served as a
director of Acadia (and a manager of its predecessor Acadia
Healthcare Company, LLC) since 2006. Mr. Mecklenburg
is an Executive Partner of Waud Capital and joined the firm in
2006. Prior to joining Waud Capital Partners,
Mr. Mecklenburg served as President and Chief Executive
Officer of Northwestern Memorial HealthCare from 1986 to 2006
and Northwestern Memorial Hospital from 1985 to 2003.
Mr. Mecklenburg’s career has included senior
management positions at the University of Wisconsin Hospitals,
Stanford University Hospital and St. Joseph’s Hospital and
Franciscan Healthcare in Milwaukee, Wisconsin. The Acadia board
of directors believes that Mr. Mecklenburg is qualified to
serve as a director due, among other things, his extensive
knowledge of and experience in the healthcare industry and his
general business and financial acumen. He currently serves as a
director of the board of White Glove Health, LHP Hospital
Partners, Adreima, CarePoint Partners and Becton Dickinson.
Previously he served as Chairman of the Board of Regency
Hospital Company (where he first joined as an outside director
in 2002) and on the boards of the Institute for Healthcare
Improvement and the National Center for Healthcare Leadership.
William F Grieco
, age 59, has served as a director
of PHC since February 1997. Since 2008, Mr. Grieco has
served as the Managing Director of Arcadia Strategies, LLC, a
legal business consulting organization servicing healthcare,
science and technology companies. From 2003 to 2008, he served
as Senior Vice President and General Counsel of American Science
and Engineering, Inc., an x-ray inspection technology company.
From 2001 to 2002, he served as Senior Vice President and
General Counsel of IDX Systems Corporation, a healthcare
information technology company. Previously, from 1995 to 1999,
he was Senior Vice President and General Counsel for Fresenius
Medical Care North America. Prior to that, Mr. Grieco was
partner at Choate, Hall & Stewart, a general service
law firm. The board of directors of Acadia concluded that based
on Mr. Grieco’s legal and healthcare expertise, senior
management, business experience and education that he should
serve as a director of Acadia.
We have applied for listing of the shares to be issued in the
merger on NASDAQ. For purposes of the Nasdaq rules, we expect to
be a “controlled company.” “Controlled
companies” under those rules are companies of which more
than 50% of the voting power is held by an individual, a group
or another company. Waud Capital Partners will control
approximately 78.3% of the voting power of our common stock upon
completion of the merger and be able to elect a majority of our
board of directors. As a result, we will be considered a
“controlled company” for the purposes of the NASDAQ
listing requirements. As a “controlled company,” we
will be permitted to, and we intend to, opt out of the NASDAQ
listing requirements that would otherwise require a majority of
the members of our board of directors to be independent and
require that we either establish a compensation committee and a
nominating and governance committee, each comprised entirely of
independent directors, or otherwise ensure that the compensation
of our executive officers and nominees for directors are
determined or recommended to our board by the independent
members of our board.
Upon the closing of the merger, the Acadia board of directors
will be divided into three classes, with each director serving a
three-year term and one class being elected at each year’s
annual meeting of stockholders. The Acadia board of directors
has determined that Mr. Grieco is “independent”
as independence is defined in the NASDAQ rules and the SEC
rules. Acadia intends to add an additional independent director
within 90 days after the completion of the merger and a
third independent director no later than the first anniversary
of the completion of the merger. Three (3) directors to be
designated by Waud Capital Partners and a director to be
designated by Bruce Shear, the President of PHC, will be in the
class of directors whose initial terms expires at the 2012
annual meeting of the stockholders; provided that
Mr. Shear’s designee shall satisfy the applicable
director independence requirements of NASDAQ or any other
securities exchange on which Acadia’s securities may be
listed (collectively, the “Director Independence
Requirements”). Mr. Bruce Shear and three
(3) directors to be designated by Waud Capital Partners
will be in the class of directors whose initial term expires at
the 2013 annual meeting of the stockholders. Mr. Joey A.
Jacobs, one director to be designated by Waud Capital Partners
and two directors designated by the other directors (the
“Other Independent Directors”) shall be in the class
of directors whose initial term expires at the 2014 annual
meeting for stockholders; provided, that the Other Independent
Directors shall satisfy the Director Independence Requirements.
Upon completion of the merger, the Acadia board of directors
will establish two standing committees: the audit committee, and
the compensation committee.
Audit Committee.
Acadia’s audit committee
will be responsible for preparing such reports, statements or
charters as may be required by NASDAQ or federal securities
laws, as well as, among other things:
•
overseeing and monitoring the integrity of its financial
statements, its compliance with legal and regulatory
requirements as they relate to financial statements or
accounting matters and its internal accounting and financial
controls;
•
preparing the report that SEC rules require be included in its
annual proxy statement;
•
overseeing and monitoring its independent registered public
accounting firm’s qualifications, independence and
performance;
•
providing the board with the results of its monitoring and
recommendations; and
•
providing to the board additional information and materials as
it deems necessary to make the board aware of significant
financial matters that require the attention of the board.
Acadia’s audit committee will consist of at least one
member that is independent upon the consummation of the merger,
a majority of members that are independent within ninety days
thereafter and all members that are independent within one year
thereafter. The board of directors nominated Reeve Waud and
Charles Edwards to serve as the initial members of Acadia’s
audit committee. The board of directors also nominated William
Grieco to serve as a member of Acadia’s audit committee,
upon consummation of the merger. After consummation of the
merger, Mr. Grieco will serve as Chairman of the audit
committee. The board of directors has determined that
Mr. Waud qualifies as an “audit committee financial
expert,” as that term is defined under the SEC rules
implementing Section 407 of the Sarbanes-Oxley Act. The
board of directors has also determined that Mr. Grieco will
be an independent director, as that term is defined under the
NASDAQ listing rules. The board of directors will nominate an
additional independent director to serve on the audit committee
within 90 days of the closing of the merger. The board will
nominate another independent director within a year of closing
of the merger.
Compensation Committee.
In reliance on the
“controlled company” exemption from the NASDAQ listing
requirements, the Acadia board of directors nominated
Mr. Waud, Mr. Edwards and Gary Mecklenburg to serve as
the initial members of the compensation committee. The Acadia
board of directors will appoint at least two independent
directors to the compensation committee within 90 days of
the closing of the merger.
The compensation committee will be responsible for, among other
things:
•
reviewing and approving for the chief executive officer and
other executive officers (a) the annual base salary,
(b) the annual incentive bonus, including the specific
goals and amount, (c) equity compensation,
(d) employment agreements, severance arrangements and
change in control arrangements, and (e) any other benefits,
compensations, compensation policies or arrangements;
•
reviewing and making recommendations to the board regarding the
compensation policy for such other officers as directed by the
board;
•
preparing a report to be included in the annual proxy statement
that describes: (a) the criteria on which compensation paid
to the chief executive officer for the last completed fiscal
year is based; (b) the relationship of such compensation to
our performance; and (c) the committee’s executive
compensation policies applicable to executive officers; and
•
acting as administrator of Acadia’s current benefit plans
and making recommendations to the Acadia board of directors with
respect to amendments to the plans, changes in the number of
shares reserved for issuance thereunder and regarding other
benefit plans proposed for adoption.
This Compensation Discussion and Analysis
(“CD&A”) describes the compensation arrangements
Acadia has with its Named Executive Officers (“NEOs”)
that are expected to serve as executive officers following the
merger and Bruce Shear, PHC’s current chief executive
officer, who is expected to serve as an executive officer and
director of Acadia following the merger. NEO’s include our
principal executive officer and our principal financial officer,
regardless of compensation level, and our three most highly
compensated executive officers during our last completed fiscal
year, other than our principal executive officer and principal
financial officer. Because Mr. Carter is the only executive
officer that was employed by Acadia during 2010 that is expected
to be an executive officer following the merger, he is the only
executive officer of Acadia for whom information is provided in
this CD&A. As further described below under
“— Intended Objectives of Acadia’s Executive
Compensation Program; Elements of Compensation — Base
Salary,” the other executive officers of Acadia joined
Acadia in February 2011. No PHC executive officers other than
Mr. Shear are expected to become executive officers or
directors of Acadia following the merger.
Intended
Objectives of Acadia’s Executive Compensation Program;
Elements of Compensation
The Acadia board of directors oversees the design and
administration of Acadia’s executive compensation program.
Acadia’s objective is to have an executive compensation
program that will attract and retain the best possible executive
talent, to tie annual and long-term cash compensation to the
achievement of measurable corporate and individual performance
goals and objectives and to align executives’ incentives
with stockholder value creation.
Compensation for Acadia’s NEOs has historically consisted
of the following elements:
Base
Salary
Mr. Carter joined Acadia in April 2007. His base salary was
negotiated with him at that time based upon his experience level
and anticipated duties and responsibilities. His base salary has
been subject to annual increase at the discretion of the Acadia
board of directors. The remaining members of Acadia’s
senior management, including Messrs. Jacobs, Fincher,
Turner, Howard and Polson, were hired in February of 2011. These
officers were formerly employed by PSI. PSI, a publicly-traded
company, was sold to UHS in November of 2010. Following the sale
of PSI to UHS, Acadia hired the former PSI management team and
Acadia Management Company, Inc. (“Acadia Management”)
entered into employment agreements with these former PSI
executive officers, effective on January 31, 2011. Acadia
Management also entered into an employment agreement with
Mr. Carter in March 2011, which sets forth his annual base
salary. The base salary is subject to increase by the Acadia
board of directors, in its sole discretion, on an annual basis.
These base salaries were the result of negotiation between Waud
Capital Partners and these members of management.
In anticipation of consummation of the merger, Acadia has also
entered into an employment agreement with Mr. Shear,
PHC’s current Chief Executive Officer. Mr. Shear’s
employment agreement sets forth his expected duties and
responsibilities, his compensation and benefits and certain
restrictions to which he will be subject after consummation of
the merger.
See “Acadia Employment Agreements” for a description
of the employment agreements with Messrs. Jacobs, Shear,
Turner, Carter, Fincher, Polson and Howard (collectively, the
“Acadia Employment Agreements”).
Cash
Bonuses
For fiscal year 2010, Acadia paid a cash bonus to
Mr. Carter based on the satisfaction of certain company and
individual performance criteria. Mr. Carter was eligible to
receive a bonus of up to 8% of his total annual base salary
based upon the achievement of the following individual
performance goals: (i) budgeted cash flow;
(ii) acquisitions consistent with Acadia’s strategic
plan; (iii) patient satisfaction and employee satisfaction
surveys; and (iv) employee evaluation standards, with each
individual performance goal weighted at up to 2% of his total
annual base salary (the “Individual Portion”). He was
also eligible to receive a bonus between 32% and 62% of his
total annual base salary tied to the company’s EBITDA
performance, as compared to base and stretch EBITDA targets (the
“EBITDA Portion”).
Mr. Carter was not eligible to receive any portion of his
targeted bonus for fiscal year 2010 unless Acadia met or
exceeded its base EBITDA for the same period. “EBITDA”
for purposes of calculating the EBITDA Portion of
Mr. Carter’s annual bonus, is defined as earnings
before interest, income taxes, interest, depreciation and
amortization, as may be adjusted in the discretion of the Acadia
board of directors for certain one-time or non-recurring items.
For fiscal year 2010, base target EBITDA was set at $7,045,000
and stretch target EBITDA was set at $9,000,000. Acadia
Holdings’ actual adjusted EBITDA for fiscal year 2010
(which excludes transaction related expenses and non-budgeted
director fees) was $9,677,000, resulting in the bonus for the
EBITDA Portion being set at 62.0% of base salary for
Mr. Carter, resulting in bonuses of $196,614 attributable
to the EBITDA Portion paid to Mr. Carter for fiscal year
2010. Mr. Carter achieved each of his individual
performance goals, resulting in a payment for the Individual
Portion of his 2010 bonus equal to 8% of his base salary, or
$25,370.
Mr. Carter’s Acadia Employment Agreement provides that
during each calendar year in the related employment period
beginning on December 31, 2011, he will be eligible to earn
a target annual bonus of up to 100% of his base salary, subject
to satisfaction of specified performance criteria established by
the Acadia board of directors or its compensation committee.
Following the merger, Mr. Shear will be eligible to earn a
target annual bonus of up to 60% of his base salary, subject to
satisfaction of certain performance criteria.
Mr. Carter also entered into a bonus agreement with Acadia
Management on January 4, 2010, pursuant to which Mr. Carter
will be entitled to receive a one-time cash bonus payment of
$40,000 subject to satisfaction of the following conditions in
the 2011 fiscal year: (i) the absence of a “change of
control” (as defined in the Acadia Holdings LLC Agreement);
(ii) continuous employment with Acadia Management from
January 4, 2010 until the date on which such bonus is paid;
and (iii) Acadia’s achievement of certain EBITDA
targets as set forth therein. Mr. Carter has not yet
received any payments under this bonus agreement and will not be
entitled to receive any such payments until 2012, subject to
satisfaction of the aforementioned conditions.
Historical
Equity Arrangements
Acadia Holdings sold shares of its Class A Common Units and
Class A Preferred Units to certain executives, including
Mr. Carter, in January 2010. Acadia Holdings also issued
Class B Common Units and Class B Preferred Units to Mr. Carter
and certain other executives that only vest upon certain
qualified changes in control. Acadia Holdings reclassified all
of its units into Class A Units and Class B Units in
April 2011 in connection with a reclassification of its equity
structure. Acadia Holdings also issued Class C Units and
Class D Units to certain executives, including
Mr. Carter, in connection with the reclassification. In
connection with the merger, Acadia Holdings, the sole
stockholder of Acadia, will distribute the shares of Acadia
common stock that it owns to its members, including
Mr. Carter, in accordance with their respective ownership
interests in Acadia Holdings.
Mr. Carter, along with Messrs. Fincher, Howard,
Jacobs, Polson and Turner, will enter into a stockholders
agreement with Waud Capital Partners and Acadia in connection
with the merger. The stockholders agreement will contain certain
transfer restrictions with respect to the Acadia common stock
received from Acadia Holdings in connection with the
distribution from Acadia Holdings. See “Stockholders
Agreement” for a description of the terms of these
restrictions.
Long-Term
Equity Incentives Following the Merger
As a private company, Acadia has not historically made annual
grants of equity. Waud Capital Partners and the Acadia board of
directors believed that management’s ownership interests in
Acadia provided sufficient incentives with respect to the
long-term growth of Acadia and aligned management’s
interests with those of Acadia’s stockholders. Prior to the
consummation of the merger, it is anticipated that the Acadia
board of directors will adopt the 2011 Incentive Plan (as
defined below), which will permit the granting of several types
of equity-based compensation awards designed to provide our
executive officers with incentives to help align those
individuals’ interests with the interests of our
stockholders. We also anticipate granting the Acadia board of
directors (or its
compensation committee) the authority to make periodic grants
under the Acadia Healthcare Company, Inc. 2011 Incentive
Compensation Plan (the “2011 Incentive Plan”) to our
executive officers based on the achievement of certain corporate
and individual performance criteria, or otherwise in accordance
with the 2011 Acadia Incentive Plan. See “— 2011
Incentive Plan.”
Acadia
Employment Agreements
Mr. Carter did not have an employment agreement in fiscal
2010. In 2011, Acadia Management entered into Acadia Employment
Agreements with each of Messrs. Jacobs, Fincher, Turner,
Howard, Polson and Carter. In anticipation of the merger, Acadia
entered into the Acadia Employment Agreements with
Messrs. Shear and Boswell. In connection with the merger,
the Acadia board of directors intends to retain a compensation
consultant to assist it with a transition to a compensation
program more consistent with that of a public company.
Pursuant to the terms of his Acadia Employment Agreement,
Mr. Carter currently receives annual base salary of
$317,474. Each of Messrs. Jacobs, Fincher, Turner, Howard
and Polson currently receives an annual base salary of $240,000.
The term of the Acadia Employment Agreements for each of
Messrs. Shear and Boswell will commence immediately
following the closing of the merger. Mr. Shear’s
Acadia Employment Agreement has a five year term, which shall
automatically be extended for successive one-year terms, subject
to non-renewal if either party gives the other
90 day’s prior written notice of termination. The
Acadia Employment Agreement for Mr. Boswell is subject to a
two-year term, subject to automatic one year extensions unless
earlier terminated. The annual base salaries for each of
Messrs. Shear and Boswell are $350,000 and $226,000,
respectively.
The base salaries under the Acadia Employment Agreements for
Messrs. Jacobs, Fincher, Turner, Howard, Polson and Carter
are subject to an annual increase in the sole discretion of the
Acadia board of directors. The Acadia Employment Agreements for
Messrs. Shear and Boswell provide that the base salary for
the applicable executive shall be increased by at least 5% of
the base salary for the prior year as of the first day of each
calendar year in the term.
In addition to base salary, the senior executives under the
Acadia Employment Agreements are entitled to participate in
their sole discretion in all of Acadia’s employee benefit
programs for which senior executive officers are generally
eligible. These benefits (for the former PSI executive officers)
are in addition to any that the related executives may receive
from PSI. The benefits to be provided to the executives under
the Acadia Employment Agreements for Messrs. Shear and
Boswell must be on terms at least as favorable as those received
by such executives from PHC immediately prior to the closing of
the merger. Furthermore, during the term of such Acadia
Employment Agreements, Acadia shall pay 100% of the monthly
premiums or other costs associated with the related executives
participation in such employee benefit programs and benefits.
Mr. Shear is also permitted, under the terms of his Acadia
Employment Agreement, to use the automobile leased by Acadia for
him until the scheduled expiration of the lease and Acadia shall
continue to make all lease payments until the expiration of the
lease.
Executives (other than Messrs. Shear and Boswell) are
eligible to receive discretionary annual bonuses of up to 100%
of such executive’s base salary and reimbursement of
reasonable expenses incurred in connection with services
performed under each executive’s respective Acadia
Employment Agreement. Each of Messrs. Shear and Boswell are
eligible to receive an annual bonus of up to 60% of his base
salary under his Acadia Employment Agreement. In each case,
achievement of the annual bonus is based upon the satisfaction
of performance criteria established by the Acadia board of
directors or compensation committee or as set forth in the
applicable Acadia Employment Agreement.
Generally, if an executive officer party to an Acadia Employment
Agreement is terminated without cause or resigns with good
reason, such executive is entitled to receive (subject to the
satisfaction of certain conditions): (i) such
executive’s base salary through the termination date;
(ii) any bonus amounts under such executive’s Acadia
Employment Agreement to which such executive is entitled
determined by reference to the calendar that ended on or prior
to the termination date; (iii) any unused and unpaid time
off and sick pay accrued through the termination date and any
incurred but unreimbursed business expenses as of the
termination date; (iv) a prorated bonus amount for the
calendar year in which the termination occurs; (v) certain
bonus amounts, prorated based on the actual
number of days elapsed in such year prior to the termination
date; (vi) an amount equal to the cost of the premiums for
continued health and dental insurance for the executive
and/or
his
or her dependents in accordance with the Consolidated Budget
Reconciliation Act of 1985 for a specified period; (vii) a
specified severance payment; and (viii) solely with respect
to Mr. Shear, the continued use of his leased automobile
until the scheduled termination of the lease and the continued
payment by Acadia of all related lease payments (collectively,
the “Termination Payments”).
“Cause”
(as defined in the Acadia Employment
Agreements) means the occurrence of one or more of the following
with respect to the applicable executive: (i) the
conviction of or plea of nolo contendere to a felony or other
crime involving moral turpitude or the conviction of any crime
involving misappropriation, embezzlement or fraud with respect
to Acadia or any of its subsidiaries or any of their customers,
suppliers or other business relations, (ii) conduct outside
the scope of such executive’s duties and responsibilities
under
his/her
Acadia Employment Agreement that causes Acadia or any of its
subsidiaries substantial public disgrace or disrepute or
economic harm, (iii) repeated failure to perform duties
consistent with this Agreement as reasonably directed by the
Acadia board of directors, (iv) any act or knowing omission
aiding or abetting a competitor, supplier or customer of Acadia
or any of its subsidiaries to the disadvantage or detriment of
Acadia and its subsidiaries, (v) breach of fiduciary duty,
gross negligence or willful misconduct with respect to Acadia or
any of its subsidiaries, (vi) an administrative or other
proceeding results in the suspension or debarment of such
executive from participation in any contracts with, or programs
of, the United States or any of the fifty states or any agency
or department thereof, or (vii) any other material breach
by such executive of
his/her
Acadia Employment Agreement or any other agreement between such
executive and Acadia or any of its subsidiaries, which is not
cured to the reasonable satisfaction of the Acadia board of
directors within thirty (30) days after written notice
thereof to such executive.
“Good Reason”
(as defined in the Acadia
Employment Agreements for executives other than Mr. Shear)
means if the applicable executive resigns
his/her
employment with Acadia (a) as a result of one or more of
the following actions (in each case taken without
executive’s written consent): (i) a reduction in such
executive’s base salary (other than as part of an
across-the-board
reduction that (A) results in a 10% or less reduction of
such executive’s base salary as in effect on the date of
any such reduction or (B) is approved by the Chief
Executive Officer of Acadia), (ii) a material diminution of
such executive’s job duties or responsibilities
inconsistent with Executive’s position; (iii) any
other material breach by Acadia (or its successors) of such
Acadia Employment Agreement; or (iv) a relocation of
Acadia’s principal executive offices and corporate
headquarters outside of a thirty (30) mile radius of
Nashville, Tennessee following relocation thereto in accordance
with Section 1; provided that, none of the events described
in clauses (i) through (iv) shall constitute Good
Reason unless such executive shall have notified Acadia in
writing describing the event which constitutes Good Reason
within ninety (90) days after the occurrence of such event
and then only if Acadia and its subsidiaries shall have failed
to cure such event within thirty (30) days after
Acadia’s receipt of such written notice and such executive
elects to terminate his employment as a result at the end of
such thirty (30) day period, or (b) for any reason
within 180 days following a Sale of the LLC (as defined in
the Acadia Holdings LLC Agreement). The merger does not
constitute a Sale of the LLC (as defined in the Acadia Holdings
LLC Agreement). For Mr. Shear, “Good Reason” (as
defined in his Acadia Employment Agreement) is defined as
(A) a reduction in his base salary (other than as part of
an
across-the-board
reduction that (1) results in a 10% or less reduction of
such executive’s base salary as in effect on the date of
any such reduction or (2) is approved by the Chief
Executive Officer of Acadia), (B) a material diminution of
his job duties or responsibilities inconsistent with his
position; (C) the failure by Acadia to nominate
Mr. Shear to serve on the Acadia board of directors; or
(D) any other material breach by Acadia (or its successors)
of Mr. Shear’s Acadia Employment Agreement; provided
that, none of the events described in clauses (A) through
(D) shall constitute Good Reason unless such executive
shall have notified Acadia in writing describing the event which
constitutes Good Reason within ninety (90) days after the
occurrence of such event and then only if Acadia and its
subsidiaries shall have failed to cure such event within thirty
(30) days after Acadia’s receipt of such written
notice and such executive elects to terminate his employment as
a result at the end of such thirty (30) day period.
If an executive officer party to an Acadia Employment Agreement
dies or becomes disabled, such executive is entitled to the
applicable Termination Payments (other than the severance
payment contemplated under clause (vii) of the definition
thereof). In the event that a senior executive becomes disabled
not due to death, such executive shall
be entitled to receive continued installment payments of such
executive’s base salary as in effect on the termination
date for a specified period of time.
If Acadia terminates an executive under an Acadia Employment
Agreement for cause or if any such executive resigns without
good reason, such executive will only be entitled to receive his
or her unpaid base salary through the termination date and any
bonus amount to which such executive is entitled by reference to
the calendar year that ended on or prior to the termination date.
During the term of the Acadia Employment Agreement for each
executive officer (other than Mr. Shear) and for one year
thereafter (or 24 months thereafter in the case of
Mr. Jacobs), each such executive is prohibited from
(i) directly or indirectly managing, controlling,
consulting, rendering services for or participating, engaging or
owning an interest in any business which derives 25% of its
gross revenue from the business of providing behavioral
healthcare
and/or
related services and (ii) directly or indirectly managing,
controlling, rendering services for or participating or
consulting with any unit, division, segment or subsidiary of any
other business that engages in or otherwise competes with (or
was organized for the purpose of engaging in or competing with)
the business of providing behavioral healthcare
and/or
related services, subject to certain exceptions. Each such
executive is prohibited from directly or indirectly soliciting
or hiring any employee or independent contractor of Acadia or
directly or indirectly soliciting any customer, supplier,
licensee, licensor or other business relation of Acadia during
the employment period and for 12 months thereafter. The
non-compete provisions to which Mr. Shear will be subject
under his Acadia Employment Agreement shall terminate on the
lesser of (i) 24 months and (ii) the number of
months remaining until the expiration of his employment term
(but in no event less than 12 months), calculated from the
date of his termination of service. In addition, the executive
officers party to an Acadia Employment Agreement are (or will
be) subject to customary confidentiality and non-disparagement
obligations both during and following their employment with
Acadia.
2011
Incentive Plan
In connection with the merger, we adopted the Acadia Healthcare
Company, Inc. 2011 Incentive Compensation Plan, or the
“2011 Incentive Plan.” The 2011 Incentive Plan
provides for grants of stock options, stock appreciation rights,
restricted stock, other stock-based awards and other cash-based.
Directors, officers and other employees of us and our
subsidiaries, as well as other persons and entities performing
consulting or advisory services for us, are eligible for grants
under the 2011 Incentive Plan. The purpose of the 2011 Incentive
Plan is to provide incentives that will attract, retain and
motivate high performing officers, directors, employees and
consultants by providing them a proprietary interest in our
long-term success or compensation based on their performance in
fulfilling their responsibilities to our company. Set forth
below is a summary of the material terms of the 2011 Incentive
Plan. For further information about the 2011 Incentive Plan, we
refer you to the complete copy of the 2011 Incentive Plan, filed
as an exhibit to the registration statement.
Administration.
The 2011 Incentive Plan is
administered by a committee designated by our board of
directors. Among the committee’s powers is to determine the
form, amount and other terms and conditions of awards; clarify,
construe or resolve any ambiguity in any provision of the 2011
Incentive Plan or any award agreement; amend the terms of
outstanding awards; and adopt such rules, forms, instruments and
guidelines for administering the 2011 Incentive Plan as it deems
necessary or proper. The committee has full authority to
administer and interpret the 2011 Incentive Plan, to grant
discretionary awards under the 2011 Incentive Plan, to determine
the persons to whom awards will be granted, to determine the
types of awards to be granted, to determine the terms and
conditions of each award, to determine the number of shares of
common stock to be covered by each award, to make all other
determinations in connection with the 2011 Incentive Plan and
the awards thereunder as the committee deems necessary or
desirable and to delegate authority under the 2011 Incentive
Plan to our executive officers.
Available Shares.
The aggregate number of
shares of common stock which may be issued or used for reference
purposes under the 2011 Incentive Plan or with respect to which
awards may be granted may not exceed 2,700,000 shares. The
number of shares available for issuance under the 2011 Incentive
Plan may be subject to adjustment in the event of a
reorganization, stock split, merger or similar change in the
corporate structure or the number of outstanding shares of our
common stock. In the event of any of these occurrences, we may
make any
adjustments we consider appropriate to, among other things, the
number and kind of shares, options or other property available
for issuance under the plan or covered by grants previously made
under the plan. The shares available for issuance under the plan
may be, in whole or in part, either authorized and unissued
shares of our common stock or shares of common stock held in or
acquired for our treasury. In general, if awards under the 2011
Incentive Plan are for any reason cancelled, or expire or
terminate unexercised, the shares covered by such awards may
again be available for the grant of awards under the 2011
Incentive Plan.
Eligibility for Participation.
Members of our
board of directors, as well as employees of, and consultants to,
us or any of our subsidiaries and affiliates are eligible to
receive awards under the 2011 Incentive Plan.
Award Agreement.
Awards granted under the 2011
Incentive Plan will be evidenced by award agreements, which need
not be identical, that provide additional terms, conditions,
restrictions or limitations covering the grant of the award,
including, without limitation, additional terms providing for
the acceleration of exercisability or vesting of awards in the
event of a change of control or conditions regarding the
participant’s employment, as determined by the committee.
Stock Options.
The committee may grant
nonqualified stock options and incentive stock options to
purchase shares of our common stock only to eligible employees.
The committee will determine the number of shares of our common
stock subject to each option, the term of each option, which may
not exceed ten years, or five years in the case of an incentive
stock option granted to a 10% or greater stockholder, the
exercise price, the vesting schedule, if any, and the other
material terms of each option. No incentive stock option or
nonqualified stock option may have an exercise price less than
the fair market value of a share of our common stock at the time
of grant or, in the case of an incentive stock option granted to
a 10% or greater stockholder, 110% of such share’s fair
market value. Options will be exercisable at such time or times
and subject to such terms and conditions as determined by the
committee at grant and the exercisability of such options may be
accelerated by the committee.
Stock Appreciation Rights.
The committee may
grant stock appreciation rights, or “SARs,” either
with a stock option, which may be exercised only at such times
and to the extent the related option is exercisable, or
“Tandem SAR,” or independent of a stock option, or
“Non-Tandem SAR.” A SAR is a right to receive a
payment in shares of our common stock or cash, as determined by
the committee, equal in value to the excess of the fair market
value of one share of our common stock on the date of exercise
over the exercise price per share established in connection with
the grant of the SAR. The term of each SAR may not exceed ten
years. The exercise price per share covered by an SAR will be
the exercise price per share of the related option in the case
of a Tandem SAR and will be the fair market value of our common
stock on the date of grant in the case of a Non-Tandem SAR. The
committee may also grant limited SARs, either as Tandem SARs or
Non-Tandem SARs, which may become exercisable only upon the
occurrence of a change in control, as defined in the 2011
Incentive Plan, or such other event as the committee may
designate at the time of grant or thereafter.
Restricted Stock.
The committee may award
shares of restricted stock. Except as otherwise provided by the
committee upon the award of restricted stock, the recipient
generally will have the rights of a stockholder with respect to
the shares, including the right to receive dividends, the right
to vote the shares of restricted stock and, conditioned upon
full vesting of shares of restricted stock, the right to tender
such shares, subject to the conditions and restrictions
generally applicable to restricted stock or specifically set
forth in the recipient’s restricted stock agreement. The
committee may determine at the time of award that the payment of
dividends, if any, will be deferred until the expiration of the
applicable restriction period. Recipients of restricted stock
will be required to enter into a restricted stock agreement with
us that states the restrictions to which the shares are subject,
which may include satisfaction of pre-established performance
goals, and the criteria or date or dates on which such
restrictions will lapse. If the grant of restricted stock or the
lapse of the relevant restrictions is based on the attainment of
performance goals, the committee will establish for each
recipient the applicable performance goals, formulae or
standards and the applicable vesting percentages with reference
to the attainment of such goals or satisfaction of such formulae
or standards while the outcome of the performance goals are
substantially uncertain. Such performance goals may incorporate
provisions for disregarding, or adjusting for, changes in
accounting methods, corporate transactions, including, without
limitation, dispositions and acquisitions, and other similar
events or circumstances. Section 162(m) of the Internal
Revenue Code requires that performance awards be based upon
objective performance measures. The performance goals for
performance-based restricted stock will be based on
one or more of the objective criteria set forth on
Exhibit A to the 2011 Incentive Plan and are discussed in
general below.
Other Stock-Based Awards.
The committee may,
subject to limitations under applicable law, make a grant of
such other stock-based awards, including, without limitation,
performance units, dividend equivalent units, stock equivalent
units, restricted stock and deferred stock units under the 2011
Incentive Plan that are payable in cash or denominated or
payable in or valued by shares of our common stock or factors
that influence the value of such shares. The committee may
determine the terms and conditions of any such other awards,
which may include the achievement of certain minimum performance
goals for purposes of compliance with Section 162(m) of the
Code and a minimum vesting period. The performance goals for
performance-based other stock-based awards will be based on one
or more of the objective criteria set forth on Exhibit A to
the 2011 Incentive Plan and discussed in general below.
Other Cash-Based Awards.
The committee may
grant awards payable in cash. Cash-based awards shall be in such
form, and dependent on such conditions, as the committee shall
determine, including, without limitation, being subject to the
satisfaction of vesting conditions or awarded purely as a bonus
and not subject to restrictions or conditions. If a cash-based
award is subject to vesting conditions, the committee may
accelerate the vesting of such award in its discretion.
Performance Awards.
The committee may grant a
performance award to a participant payable upon the attainment
of specific performance goals. The committee may grant
performance awards that are intended to qualify as
performance-based compensation under Section 162(m) of the
Code as well as performance awards that are not intended to
qualify as performance-based compensation under
Section 162(m) of the Code. If the performance award is
payable in cash, it may be paid upon the attainment of the
relevant performance goals either in cash or in shares of
restricted stock, based on the then current fair market value of
such shares, as determined by the committee. Based on service,
performance or other factors or criteria, the committee may, at
or after grant, accelerate the vesting of all or any part of any
performance award.
Performance Goals.
The committee may grant
awards of restricted stock, performance awards, and other
stock-based awards that are intended to qualify as
performance-based compensation for purposes of
Section 162(m) of the Code. These awards may be granted,
vest and be paid based on attainment of specified performance
goals established by the committee. These performance goals may
be based on the attainment of a certain target level of, or a
specified increase or decrease in, one or more of the following
measures selected by the committee: (1) earnings per share;
(2) operating income; (3) gross income; (4) net
income, before or after taxes; (5) cash flow;
(6) gross profit; (7) gross profit return on
investment; (8) gross margin return on investment;
(9) gross margin; (10) operating margin;
(11) working capital; (12) earnings before interest
and taxes; (13) earnings before interest, tax, depreciation
and amortization; (14) return on equity; (15) return
on assets; (16) return on capital; (17) return on
invested capital; (18) net revenues; (19) gross
revenues; (20) revenue growth, as to either gross or net
revenues; (21) annual recurring net or gross revenues;
(22) recurring net or gross revenues; (23) license
revenues; (24) sales or market share; (25) total
shareholder return; (26) economic value added;
(27) specified objectives with regard to limiting the level
of increase in all or a portion of our bank debt or other
long-term or short-term public or private debt or other similar
financial obligations, which may be calculated net of cash
balances and other offsets and adjustments as may be established
by the committee; (28) the fair market value of the a share
of common stock; (29) the growth in the value of an
investment in the common stock assuming the reinvestment of
dividends; (30) reduction in operating expenses or
(31) other objective criteria determined by the committee.
To the extent permitted by law, the committee may also exclude
the impact of an event or occurrence which the committee
determines should be appropriately excluded, such as
(1) restructurings, discontinued operations, extraordinary
items and other unusual or non-recurring charges; (2) an
event either not directly related to our operations or not
within the reasonable control of management; or (3) a
change in accounting standards required by generally accepted
accounting principles. Performance goals may also be based on an
individual participant’s performance goals, as determined
by the committee. In addition, all performance goals may be
based upon the attainment of specified levels of our
performance, or the performance of a subsidiary, division or
other operational unit, under one or more of the measures
described above relative to the performance of other
corporations. The
committee may designate additional business criteria on which
the performance goals may be based or adjust, modify or amend
those criteria.
Change in Control.
In connection with a change
in control, as defined in the 2011 Incentive Plan, the committee
may accelerate vesting of outstanding awards under the 2011
Incentive Plan. In addition, such awards may be, in the
discretion of the committee, (1) assumed and continued or
substituted in accordance with applicable law;
(2) purchased by us for an amount equal to the excess of
the price of a share of our common stock paid in a change in
control over the exercise price of the awards; or
(3) cancelled if the price of a share of our common stock
paid in a change in control is less than the exercise price of
the award. The committee may also provide for accelerated
vesting or lapse of restrictions of an award at any time.
Stockholder Rights.
Except as otherwise
provided in the applicable award agreement, and with respect to
an award of restricted stock, a participant will have no rights
as a stockholder with respect to shares of our common stock
covered by any award until the participant becomes the record
holder of such shares.
Amendment and Termination.
Notwithstanding any
other provision of the 2011 Incentive Plan, our board of
directors may at any time amend any or all of the provisions of
the 2011 Incentive Plan, or suspend or terminate it entirely,
retroactively or otherwise; provided, however, that, unless
otherwise required by law or specifically provided in the 2011
Incentive Plan, the rights of a participant with respect to
awards granted prior to such amendment, suspension or
termination may not be adversely affected without the consent of
such participant.
Transferability.
Awards granted under the 2011
Incentive Plan generally are nontransferable, other than by will
or the laws of descent and distribution, except that the
committee may provide for the transferability of nonqualified
stock options at the time of grant or thereafter to certain
family members or such other person or entity as specified by
the committee.
Recoupment of Awards.
The 2011 Incentive Plan
provides that awards granted under the 2011 Incentive Plan are
subject to any recoupment policy adopted regarding the clawback
of “incentive-based compensation” under the Exchange
Act or under any applicable rules and regulations promulgated by
the SEC.
Effective Date.
The 2011 Incentive Plan was
adopted by the Acadia board of directors on September 7,
2011 and will become effective upon the consummation of the
merger.
Board
of Directors Report
The full Acadia board of directors has reviewed and discussed
the Compensation Discussion and Analysis required by
Item 402(b)(1) of
Regulation S-K
with management and, based on such review and discussions, has
recommended that the Compensation Discussion and Analysis be
included in this proxy statement/prospectus.
THE ACADIA HEALTHCARE COMPANY, INC. BOARD OF DIRECTORS
Joey A. Jacobs
Reeve B. Waud
Charles E. Edwards
Matthew A. London
Gary A. Mecklenburg
The table below summarizes the total compensation earned by
Mr. Carter for the fiscal year ended December 31, 2010
as Mr. Carter was the only NEO employed by Acadia during
fiscal year 2010 that is expected to be an executive
officer of Acadia following consummation of the merger.
Change in
Pension
Value and
Non-Qualified
Non-Equity
Deferred
Base
Stock
Option
Incentive Plan
Compensation
All Other
Fiscal
Salary
Bonus
Awards
Awards
Compensation
Earnings
Compensation
Total
Name and Principal Position
Year
($)
($)(2)
($)
($)
($)
($)
($)(4)
($)
Trey Carter(1)
2010
317,119
222,232
—
(3)
—
—
—
4,579
543,930
(1)
Mr. Carter served as Acadia’s Chief Executive Officer
from May 2007 until February 2011. In February 2011, he was
appointed as a Co-President of Acadia and will serve in such
capacity following the merger.
(2)
Bonus amounts were earned in fiscal year 2010 and paid in fiscal
year 2011.
(3)
Mr. Carter received a grant of 6,500 shares of Class B Common
Units and 400 shares of Class B Preferred Units in fiscal 2010.
The grant date fair value of such rewards was determined to be
de minimis. These awards vest only upon certain change of
control events.
(4)
Acadia allows employees to cash-in up to 40 hours of
accrued vacation time payable at 75% of its accrued value.
The table below summarizes the total compensation earned by
Mr. Shear from PHC during its fiscal years ended
June 30, 2011, 2010 and 2009.
Change in
Pension
Value and
Non-Qualified
Non-Equity
Deferred
Base
Stock
Option
Incentive Plan
Compensation
All Other
Name and Principal
Fiscal
Salary
Bonus
Awards
Awards
Compensation
Earnings
Compensation
Total
Position
Year
($)
($)
($)
($)(2)
($)
($)
($)
($)
Bruce A. Shear(1)
2011
516,650
49,000
—
10,760
—
—
40,656
(3)
617,066
2010
468,369
49,000
—
17,199
—
—
22,719
(4)
557,287
2009
453,846
—
—
42,648
—
—
13,685
(5)
510,179
(1)
Mr. Shear has served (and currently serves) as the
President, Chief Executive Officer of PHC since 1980. It is
anticipated that he will serve as the Executive Vice Chairman
and a member of the Acadia board of directors after consummation
of the merger.
(2)
These amounts represent the aggregate grant date fair value of
stock option awards granted during the fiscal year.
(3)
This amount represents $11,497 contributed by PHC to PHC’s
Executive Employee Benefit Plan on behalf of Mr. Shear,
$13,154 in premiums paid by PHC with respect to life and
disability insurance for the benefit of Mr. Shear, $2,955
in personal use of a company car used by Mr. Shear and
$13,050 intrinsic value of stock options exercised by
Mr. Shear.
(4)
This amount represents $9,837 contributed by PHC to PHC’s
Executive Employee Benefit Plan on behalf of Mr. Shear,
$3,520 in premiums paid by PHC with respect to life and
disability insurance for the benefit of Mr. Shear and
$9,362 in personal use of a company car used by Mr. Shear.
(5)
This amount represents $8,894 contributed by PHC to PHC’s
Executive Employee Benefit Plan on behalf of Mr. Shear,
$3,706 in premiums paid by PHC with respect to life and
disability insurance for the benefit of Mr. Shear and
$1,085 in personal use of a company car used by Mr. Shear.
The table below summarizes grants of incentive plan awards to
each of Acadia’s NEOs for the fiscal year ended
December 31, 2010:
Estimated
Future
All Other
Payouts
Stock
Estimated Future Payouts
Under
Awards:
Grant
Under
Equity
Number of
Date Fair
Non-Equity Incentive Plan
Incentive
Shares of
Value of
Awards(1)
Plan
Stock or
Stock
Grant
Threshold
Target
Maximum
Awards
Units
Awards
Name
Date
($)
($)
($)
(#)(2)
(#)
($)(3)
Trey Carter
1/4/2010
6,500
(4)
—
0
1/4/2010
400
(4)
—
0
2/24/2011
—
126,990
203,183
—
—
—
1/4/2010
—
40,000
—
—
—
—
(1)
See “Compensation Discussion and Analysis —
Intended Objectives of Acadia’s Executive Compensation
Program; Elements of Compensation — Cash Bonuses”
for a discussion of Acadia’s annual incentive plan.
(2)
All of the equity incentive plans awards granted in the fiscal
year are performance based awards that would have vested upon
the occurrence of a “Change of Control” (as defined in
the Prior LLC Agreement) in which Waud Capital Partners achieves
a targeted internal rate of return. All of these awards were
reclassified into Class B Units in connection with Acadia
Holdings’ entry into the Acadia Holdings LLC Agreement on
April 1, 2011.
(3)
The grant date fair value of the awards reflected in this column
was determined to be de minimis. There awards were subject to
vesting only upon certain change of control events.
(4)
Represents 6,500 Class B Common Units and 400 Class B
Preferred Units of Acadia Holdings, which were reclassified into
Class B Units of Acadia Holdings on April 1, 2011.
PHC made no incentive plan awards to Mr. Shear during its
fiscal year ended June 30, 2011.
Outstanding
Equity Awards at Fiscal Year-End
The table below summarizes Acadia Holdings equity awards
outstanding for Mr. Carter as of December 31, 2010:
Equity
Incentive Plan
Awards:
Market or
Equity Incentive
Payout Value
Plan Awards:
of Unearned
Number of
Shares, Units
Unearned Shares,
or Other
Units or Other
Rights That
Grant
Rights That Have
Have Not
Name
Date
Not Vested (#)
Vested ($)
Trey Carter(1)
1/4/2010
6,500
(1)
$
1,302,000
1/4/2010
400
(1)
800,000
(1)
Represents Class B Common Units and Class B Preferred Units
of Acadia Holdings, which were reclassified into Class B
Units of Acadia Holdings on April 1, 2011.
The following table provides information about PHC options
outstanding, held by Mr. Shear as of PHC’s fiscal year
ended June 30, 2011:
Number of
Number of
Securities
Securities
Underlying
Underlying
Unexercised
Unexercised
Option
Options
Options
Exercise
Option
(#)
(#)
Price
Expiration
Name
Exercisable
Unexercisable
($)
Date
Bruce A. Shear
15,000
—
2.06
10/14/12
15,000
—
2.95
10/31/12
20,000
—
2.90
11/14/12
20,000
—
2.75
2/18/13
50,000
—
1.25
11/28/13
15,000
5,000
(1)
1.20
6/15/14
7,500
7,500
(2)
1.08
12/14/14
7,500
7,500
(2)
1.08
12/14/14
(1)
The additional 5,000 unvested options are scheduled to vest on
June 15, 2012.
(2)
The additional 15,000 unvested options are scheduled to vest
7,500 on December 14, 2011 and 7,500 on December 14,
2012.
Options
Exercised and Stock Vested
None of the units of Acadia Holdings issued to Mr. Carter
prior to April 2011 were subject to any vesting.
During PHC’s fiscal year ended June 30, 2011,
Mr. Shear exercised options for 15,000 shares, realizing a
value of $13,050 upon exercise.
Pension
Benefits
Neither Acadia nor PHC offered any pension benefits to any of
NEO for the fiscal year ended December 31, 2010 or
June 30, 2011, as applicable.
Non-qualified
Deferred Compensation
Neither Acadia nor PHC have any non-qualified deferred
compensation plans. We do not intend to adopt any non-qualified
deferred compensation after consummation of the merger.
Potential
Payments upon Termination or
Change-in-Control
The equity agreements pursuant to which Acadia Holdings issued
units of Acadia Holdings to certain members of Acadia management
provide for potential payments that could be received by the
NEOs employed by Acadia upon termination of employment or in
connection with a Sale of Acadia. Consummation of the merger
will not trigger a
change-in-control
payment under such agreements.
PHC has entered into a
change-in-control
arrangement with Mr. Shear. The arrangement calls for
Mr. Shear, in the event of a change in control, to receive
payment of his average annual salary for the past five years
times a multiplier of 2.99, as set by PHC’s compensation
committee. The proposed merger constitutes a change in control
under Mr. Shear’s
change-in-control
arrangements with PHC. Assuming a June 30, 2011 closing
date for the merger, Mr. Shear would have been entitled to
a
change-in-control
payment of $1,529,951 under his
change-in-control
arrangement.
Amounts set forth in this table for Mr. Carter assume that
the triggering event occurred as of December 31, 2010. They
do not take into account any amounts to which Mr. Carter
may be entitled under his Acadia Employment Agreement, which he
entered into on March 29, 2011.
(2)
Amounts set forth in this table for Mr. Shear assume that
the triggering occurred as of June 30, 2011. They do not
take into account any amounts to which Mr. Shear may be
entitled under his Acadia Employment Agreement which he entered
into on May 23, 2011.
(3)
In the event of disability, Mr. Shear would have been
entitled to receive a disability benefit of $990,948 paid out
over four years. In the event of his death,
Mr. Shear’s survivors would have received a $500,000
death benefit under a PHC paid life insurance policy.
Mr. Shear entered into an Acadia Employment Agreement (as
discussed above in “— Acadia Employment
Agreements”) in connection with the merger.
Director
Compensation
For fiscal 2010, Mr. Mecklenburg received a payment of
$5,000 per month for serving as a manager of Acadia
Healthcare Company, LLC. The other managers of Acadia Healthcare
Company, LLC (including Messrs. Waud, Edwards and London) did
not receive any fees for attending meetings.
The following table sets forth a summary of the compensation
paid to Mr. Mecklenburg for the fiscal year ended
December 31, 2010:
Fees
Earned or
Stock
All Other
Paid in
Awards
Compensation
Director
Cash ($)
($)
($)
Total ($)
Mr. Mecklenburg
$
60,000
—
—
$
60,000
In fiscal 2011, Mr. Grieco received the following
compensation from PHC as a director:
Fees
Earned or
Option
All Other
Paid in
Awards
Compensation
Director
Cash ($)
($)(1)
($)
Total ($)
Mr. Grieco
$
27,000
23,432
17,300(2
)
$
67,732
(1)
This amount represents the aggregate grant date fair value of
stock option awards granted during the fiscal year.
(2)
This amount represents the intrinsic value of stock options
exercised.
As of June 30, 2011, Mr. Grieco had 195,000
outstanding PHC stock options, 162,500 of which had vested.
As used in this “Acadia Business Description”
and in the “Acadia Management’s Discussion and
Analysis of Financial Condition and Results of Operation,”
“Acadia Principal Stockholders” and “Acadia
Interested Transactions” sections, unless otherwise set
forth herein, references to “we,” “us,” and
“our” refer to Acadia and its subsidiaries after
acquisition of YFCS but prior to consummation of the merger.
Overview
Founded in December 2005, Acadia is a leading provider of
behavioral health care services in the United States. Acadia
operates 19 inpatient behavioral health care facilities in
13 states. On April 1, 2011, Acadia acquired
Youth & Family Centered Services, Inc.
(“YFCS”), the largest private, for-profit provider of
behavioral health, education and long term support services
exclusively for abused and neglected children and adolescents.
YFCS’ services include residential treatment care,
community-based services, acute care, specialized education
services, therapeutic group homes, therapeutic foster care and
medical and behavioral services.
For the year ended December 31, 2010 and the quarter ended
June 30, 2011, on a pro forma basis giving effect to the
YFCS acquisition, we generated revenues of $248.7 million
and $128.6 million, respectively. As of August 1,
2011, we operated 19 facilities, including six inpatient
psychiatric facilities that provide acute care services, 13
inpatient facilities that provide resident treatment care, eight
facilities that provide community based services and one
substance abuse facility.
History
and Acquisitions
Acadia was formed in 2005 by Waud Capital Partners
(“WCP”) as a behavioral health company to acquire,
develop and operate behavioral health facilities. Acadia has
grown both organically and through acquisitions. Key
acquisitions since 2008 include:
Youth & Family Centered Services, Inc.
(2011)
— largest private, for-profit provider of
behavioral health, education and long term support services
exclusively for abused and neglected children and adolescents.
YFCS had 12 active operations in eight states, over 100 clinical
programs and served over 4,300 infants, children and adolescents
at the time of its acquisition by Acadia.
Peninsula Village
(2009) — 145-bed residential
treatment center located in Louisville, Tennessee.
Acadiana Addiction Center
(2009) — 42-bed
substance abuse facility located in Lafayette, Louisiana.
Riverwoods
(2008) — 55-bed inpatient
psychiatric facility located in Atlanta, Georgia.
Acadia was formed as a limited liability company in the State of
Delaware in 2005. Our principal executive offices are located at
830 Crescent Centre Drive, Suite 610, Franklin, Tennessee
37067. Our telephone number is
(615) 861-6000.
Our facilities and services can generally be classified into the
following categories: acute inpatient psychiatric facilities;
residential treatment centers; group home, therapeutic group
home and foster care; substance abuse centers; outpatient
community-based services; specialized educational services and
other behavioral services. The table below presents the
percentage of our total net revenue (on an a pro forma basis
giving effect to Acadia’s acquisition of YFCS) attributed
to each facility or service category for the year ended
December 31, 2010:
Percentage of Net
Revenue for the Year
Ended December 31,
Facility/Service
2010
(Unaudited)
Inpatient facilities/acute care
19.9
%
Residential treatment centers
43.0
%
Group home, therapeutic group home and foster care
3.2
%
Substance abuse facilities
1.5
%
Community-based services
27.2
%
Specialized educational services
4.7
%
Other behavioral services
0.5
%
Acute
Inpatient Psychiatric Facilities
Acute inpatient psychiatric facilities provide a high level of
care in order to stabilize patients that are either a threat to
themselves or to others. The acute setting provides
24-hour
observation, daily intervention and monitoring by psychiatrists.
Generally, due to high patient turnover and the special security
and health precautions required, acute psychiatric hospitals
have lower average occupancy.
Our facilities which offer acute care services provide
evaluation and crisis stabilization of patients with severe
psychiatric diagnoses through a medical model delivery that
incorporates structured and intensive medical and behavioral
therapies with
24-hour
monitoring by a psychiatrist, psychiatric trained nurses and
direct care staff. Lengths of stay for crisis stabilization and
acute care range in these facilities range from three to five
days and from five to twelve days, respectively.
As of August 1, 2011, we operated six facilities that
provide acute care services in addition to other services.
Residential
Treatment Centers
Residential treatment centers treat psychiatric patients in a
non-hospital setting. The facilities balance therapy activities
with social, academic and other activities. Since the setting is
less intensive, demands on staffing, security and oversight are
generally lower than inpatient psychiatric facilities. In
contrast to acute care psychiatric facilities, occupancy can be
managed more easily given a longer length of stay. Over time,
however, residential treatment centers have continued to serve
increasingly severe patients who would have been treated in
acute care facilities in earlier years.
We provide residential treatment care through a medical model
residential treatment facility, which offers intensive,
medically-driven interventions, intense
staff-to-patient
ratios and sophisticated treatment regimens designed to deal
with the high level of patient acuity and dysfunction. Children
and adolescents admitted to these facilities typically have had
multiple prior failed treatment attempts, histories of severe
physical, sexual and emotional abuse, termination of parental
custody, substance abuse, marked deficiencies in social,
interpersonal and academic skills and a wide range of multiple
psychiatric disorders. Treatment typically is provided by an
interdisciplinary team coordinating psychopharmacological,
individual, group and family therapy along with specialized
accredited educational programs in both secure and unlocked
environments.
Lengths-of-stay
range from three months to several years.
As of August 1, 2011, we operated 13 facilities that
provide residential treatment care, in addition to other
services.
Group
Home, Therapeutic Group Homes and Foster Care
Our group-home programs provide family-style living for
approximately four to 12 youths in a single house or apartment
within residential communities where supervision and support are
provided by
24-hour
staff. The goal of a group home program is to teach family
living and social skills through individual and group counseling
sessions within a real life environment. The residents are
encouraged to take on responsibility for the home and their
health as well as actively take part in community functions.
Most attend an accredited and licensed school (on our premises)
or a local public school in their area.
We also operate therapeutic group homes which provide
comprehensive treatment services for serious, emotionally
disturbed adolescents. The ultimate goal is to reunite or place
these children with their families or prepare them, when
appropriate, for permanent placement with a relative or an
adoptive family. Therapeutic foster care is considered the least
restrictive form of therapeutic placement for children and
adolescents with emotional disorders who often are part of the
child welfare or juvenile justice system. Care is delivered in
private homes with experienced foster parents who are trained to
work with children and adolescents with special needs.
As of August 1, 2011, we operated two facilities that
provide group home services and one facility that provides
therapeutic group home services.
Substance
Abuse Centers
Substance abuse centers (or SACs) provide a comprehensive
continuum of care for male and female adults with addictive
disorders and co-occurring mental disorders. Our detox,
inpatient, partial hospitalization and outpatient treatment
options are cost-effective and give patients access to the least
restrictive level of care. All programs offer individualized
treatment in a supportive and nurturing environment. As of
August 1, 2011, we operated one SAC.
Outpatient
Community-Based Services
Our community-based services can be divided into two age groups:
children and adolescents (seven to 18 years of age) and
young children (three months to six years of age).
Community-based programs are designed to provide therapeutic
treatment to children and adolescents who have a
clinically-defined emotional, psychiatric or chemical dependency
disorder while enabling the youth to remain at home and within
their community. Many patients who participate in
community-based programs have transitioned out of a residential
facility or have a disorder that does not require placement in a
facility that provides
24-hour
care.
Community-based programs developed for these age groups provide
a unique array of therapeutic services to a very high-risk
population of children. These children suffer from severe
congenital, neurobiological, speech/motor and early onset
psychiatric disorders. These services are provided in clinics
and employ a treatment model that is consistent with our multi,
interdisciplinary medical treatment approach. Depending on their
individual needs and treatment plan, children receive speech,
physical, occupational and psychiatric interventions that are
coordinated with services provided by their referring primary
care physician. The children receive treatment from
7:30 a.m. to 4:00 p.m. five days a week.
As of August 1, 2011, we operated eight facilities that
provide community-based services.
Specialized
Education Services
Our accredited grammar, middle and high schools (including
charter schools) are unique because of their focus on
integrating educational interventions into each child’s
individual treatment plan through participation in
inter-disciplinary treatment team meetings to assist in
monitoring and reporting on each child’s clinical progress.
Our education programs are accredited schools that provide a
full educational experience to children and adolescents having
special education needs. In some states, we provide educational
services on an extended school year basis. As a result of the
YFCS acquisition, we now also have charter schools that utilize
teaching methods that address therapeutic needs particular to
learning and behavioral deficits of the students.
Our education services also include vocational education and
training that may allow those residents to become employable in
entry level positions in the communities in which they reside.
GED preparation courses are
also offered for students who require assistance in developing
test-taking skills and who would benefit from tutoring services.
As of August 1, 2011, we operated 11 facilities that
provide educational services.
Other
Behavioral Services
We also offer a variety of other behavioral health services for
specialized populations who need specific treatment methods.
Programs include “at risk” infant and children
clinics, sexually maladaptive behavior (“SMB”)
programs, programs for adolescent females, programs for the
mentally retarded and developmentally disabled youth and
programs for severe and persistently mentally ill youths.
Business
Strengths
We believe the following strengths differentiate us from our
competitors and contribute to our success:
Premier
Operational Management Team with Track Record of
Success
Our management team has 135 combined years of experience in
acquiring, integrating and operating a variety of behavioral
facilities. Following the sale of PSI to UHS in November 2010,
PSI’s former executive officers joined Acadia in February
2011. The combination of the Acadia management team with the
operational expertise of the former PSI management team gives us
what we believe to be the premier leadership team in the
behavioral health care industry. The new management team will
bring its years of experience operating behavioral health
facilities, generating strong cash flow and growing a strong
business.
Favorable
industry and legislative trends
•
Health reform and the expansion of health insurance coverage may
increase the number of patients seeking behavioral health
services as payment issues are the primary reasons for people
not seeking mental health and substance abuse treatment.
•
Expanded coverage should reduce uncollectible accounts
receivable.
•
The Paul Wellstone and Pete Domenici Mental Health Parity and
Addiction Equity Act of 2008 (the “MHPAEA”) provides
for equal coverage between psychiatric or mental health services
and conventional medical health services and forbids employers
and insurers from placing stricter limits on mental health care
compared to other health conditions.
•
Expanded coverage has in turn increased awareness and acceptance
of mental health and substance abuse diseases.
•
Mental health and substance abuse treatment in the United States
is projected to grow from approximately $121 billion in
2003 to approximately $239 billion in 2014 at a compound
annual growth rate of approximately 6.4%.
•
Approximately 6% of people in the United States suffer from a
seriously debilitating mental illness and over 20% of children,
either currently or at some point during their life, have had a
seriously debilitating mental disorder.
Leading
Platform in Highly Attractive Healthcare Niche
Upon our acquisition of YFCS, we became one of the largest
providers of behavioral health care services in the United
States. Our scale positions us well, as the industry itself is
undergoing consolidation in an effort to reduce costs and better
negotiate with larger payer organizations. In addition, the
behavioral health care industry has significant barriers to
entry as it is highly specialized and regulated. Significant
capital requirements are required and market entrants are
expected to have knowledge of state and federal laws, medical
facility operations and be licensed with each agency in each
location.
After giving effect to the YFCS acquisition, we now operate 19
facilities in 13 states. The YFCS acquisition increased our
payor, patient/client and geographic diversity, which mitigates
the potential risk associated with any single facility. On a pro
forma basis giving effect to the YFCS acquisition, our largest
facility accounted for less than 15% of 2010 revenue and no
other facility accounted for more than 11% of total facility
revenue. Such increased diversity also mitigates the impact of
any financial or budgetary pressure that may arise in a
particular state in which we operate a facility, with no state
accounting for more than 20% of revenue on a pro forma basis
giving effect to the YFCS acquisition.
Business
Strategy
We are committed to providing the communities we serve with high
quality, cost-effective behavioral health services, while
growing our business, increasing profitability and creating
long-term value for our stockholders. To achieve these
objectives, we have aligned our activities around the following
growth strategies:
Increase
Margins by Enhancing Programs and Improving Underperforming
Facilities
We believe we can improve efficiencies and increase operating
margins by utilizing our management’s expertise and
experience within existing programs and their expertise in
improving performance at underperforming facilities. We believe
the efficiencies can be realized by investing in growth in
strong markets, addressing capital constrained facilities that
have underperformed and improving management systems.
Furthermore, the YFCS acquisition gives us an opportunity to
develop a national marketing strategy in many markets which
should help to increase the geographic footprint from which our
existing facilities attract patients and referrals.
Opportunistically
Pursue Acquisitions
We selectively seek opportunities to expand and diversify our
base of operations by acquiring additional facilities. The
combination of Acadia and YFCS creates a national platform to
become the leading dedicated provider of high quality behavioral
health care services in the U.S. We intend to focus our
efforts on acquiring additional acute psychiatric facilities,
which should increase the percentage of such facilities in our
portfolio. We leverage our management team’s expertise to
identify and integrate acquisitions based on a disciplined
acquisition strategy that focuses on quality of service, return
on investment, and strategic benefits.
Drive
Organic Growth of Existing Facilities
We seek to increase revenue at our facilities by providing a
broader range of services to new and existing patients and
clients. The YFCS acquisition presents us with an opportunity to
leverage YFCS’ platform in order to provide a wider array
of behavioral health services (including adult services and
acute services) to patients and clients in the markets YFCS
serviced before the acquisition without increasing the number of
our licensed beds. We also intend to increase licensed bed
counts in our existing facilities, with a focus on increasing
the number of acute psychiatric beds. Furthermore, we believe
that opportunities exist to leverage
out-of-state
referrals to increase volume and minimize payor concentration,
especially with respect to our youth and adolescent focused
services and our substance abuse services.
Facilities
We currently own or operate inpatient psychiatric facilities,
residential treatment centers, group homes, substance abuse
facilities and facilities providing outpatient community based
services, specialized education
services and various other outpatient behavioral health
services. The following table summarizes the services provided
at, and information regarding, our facilities as of
August 1, 2011.
Type of
Acadia or
Facility or
Certificate
# of
YFCS
Key
of Need
Licensed
Facility
Facility
Services(1)
City
State
State?
Beds
Owned/Leased
Vermillion
Acadia
IPF
Lafayette
LA
No
56
Leased
Abilene
Acadia
IPF
Abilene
TX
No
60
Owned
Riverwoods
Acadia
IPF
Riverdale
GA
Yes
55
Owned
Montana
Acadia
RTC
Butte
MT
Yes
68
Owned
The Village
Acadia
RTC
Louisville
TN
Yes
145
Leased
Acadiana
Acadia
SAC
Lafayette
LA
No
42
Leased
Casa Grande(2)
YFCS
RTC
Casa Grande
AZ
No
32
Owned
Parc Place
YFCS
RTC, ES
Chandler
AZ
No
87
Owned
Desert Hills
YFCS
AC, RTC, TFC, ES and CBS
Albuquerque
NM
No
100
Owned
Lakeland
YFCS
AC, RTC and ES
Springfield
MO
Yes
149
Owned
Milcreek-AR
YFCS
RTC, MR and ES
Fordyce
AR
Yes
172
Leased
Ascent
YFCS
MBS, ES and CBS
Jonesboro
AR
Yes
N/A
Owned
Milcreek-Pontotoc
YFCS
RTC, CBS and ES
Pontotoc
MS
Yes
51
Leased
Milcreek-Magee
YFCS
RTC, MR, TGH, CBS and ES
Magee
MS
Yes
205
Leased
PsychSolutions
YFCS
CBS
Miami
FL
Yes
N/A
Leased
Southwood
YFCS
AC, RTC, ES and CBS
Pittsburgh
PA
No
112
Owned
Options
YFCS
RTC, ES and GH
Indianapolis
IN
No
98
Leased
Resource
YFCS
RTC, CBS and ES
Indianapolis
IN
No
90
Leased
Resolute
YFCS
RTC, GH, ES and CBS
Indianapolis
IN
No
86
Leased
(1)
The following definitions apply to the services listed in this
column:“IPF” means inpatient psychiatric facility;
“RTC” means residential treatment care; “AC”
means acute care; “GH” means group home;
“TGH” means therapeutic group home; “CBS”
means community-based services; “ES” means specialized
educational services; “TFC” means therapeutic foster
care; “MR” means mentally retarded; “MBS”
means medical and behavioral services; and “SAC” means
substance abuse center.
(2)
Scheduled to re-open fourth quarter 2011.
Sources
of Revenue
We receive payments from the following sources, for services
rendered in our facilities: (i) state governments under
their respective Medicaid programs and otherwise;
(ii) private insurers, including managed care plans;
(iii) educational institutions; (iv) the federal
government under the Medicare Program (Medicare) administered by
the Center for Medicare and Medicaid Services (CMS); and
(v) directly from other payors including individual
patients and clients. For the fiscal year ended
December 31, 2010, on a pro forma basis giving effect to
the YFCS acquisition, approximately 63% of our revenue came from
Medicaid, approximately 12% came from state governments,
approximately 9% came from private insurers, approximately 9%
came from educational institutions, approximately 5% came from
Medicare and approximately 1% came directly from patients or
clients.
Industry
Overview
Mental
Health Industry
According to the National Institute of Mental Health, 26.2% of
Americans ages 18 or older, or slightly more than one in
four adults, suffer from a diagnosable mental disorder in a
given year and about 6% suffer from a serious mental illness.
Approximately one in five children and adolescents has a mental
disorder.
The mental health facilities and youth behavioral services
market is estimated to be approximately $22 billion with an
estimated 73 million people in the United States having
diagnosable mental illnesses. The child and adolescent
behavioral health services market is estimated to be
approximately $10.1 billion in 2010 and is expected
to grow to approximately $11 billion by 2014 according to
IBISWorld. This market is likely to expand in light of the
growing under age of 18 population, which is expected to reach
81.7 million by 2020. National expenditures on mental
health and substance abuse treatment are expected to reach
$239 billion by 2014. The mental health and substance abuse
centers industry is growing in response to an increased
awareness of mental and substance abuse diseases. In 2010, the
industry generated revenue of approximately $9.0 billion.
In 2014, the industry is expected to generate revenue of
approximately $10.2 billion according to IBISWorld. The
behavioral health industry is highly fragmented, with only a few
large national providers of significant scale. The industry is
characterized by favorable supply and demand dynamics, with
capacity reductions during the 1990s driving a sustained
increase in occupancy rates.
The capacity reduction was largely driven by third-party payors
reducing reimbursement, implementing more stringent admission
criteria and decreasing the authorized length of stay. Since
then, the supply of new beds has remained relatively stable as
the industry has high barriers to entry, including CON
restrictions, Medicare/Medicaid certification requirements and
high
start-up
costs. Reduced capacity, mental health parity legislation (as
discussed below in “— Regulation —
Mental Health Parity Legislation”) and increased demand for
behavioral healthcare services have resulted in favorable
industry fundamentals over the last several years. The industry
has been characterized by relatively stable pricing and
inpatient average length of stay combined with increased
admissions and occupancy trends, with minimal exposure to
uncompensated care and relatively low maintenance capital
expenditure requirements.
The growing acceptance of mental health and substance abuse
conditions is expected to accelerate demand for services while
healthcare reform is expected to increase access to industry
services as more people gain insurance coverage. A key aspect of
reform legislation is the extension of mental health parity
protections established into law by the MHPAEA. Further, all
health plans purchased through the new federally funded health
insurance exchange system will cover mental health and substance
abuse services on par with coverage for medical and surgical
services. Notwithstanding the foregoing, healthcare reform makes
a number of changes to Medicare and Medicaid that we believe may
have an adverse impact on us. See “Risk Factors —
Risks Affecting Acadia, PHC and the Combined Company —
We are subject to uncertainties regarding recent health care
reform, which represents a significant change to the health care
industry.”
Regulation
Overview
The healthcare industry is subject to numerous laws, regulations
and rules including, among others, those related to government
healthcare participation requirements, various licensure and
accreditations, reimbursement for patient services, health
information privacy and security rules, and Medicare and
Medicaid fraud and abuse provisions. Providers that are found to
have violated any of these laws and regulations may be excluded
from participating in government healthcare programs, subjected
to significant fines or penalties
and/or
required to repay amounts received from the government for
previously billed patient services. We believe we are in
compliance with all applicable laws and regulations and are not
aware of pending or threatened investigations involving
allegations of wrongdoing. While no such regulatory inquiries
have been made, compliance with such laws and regulations can be
subject to future government review and interpretation, as well
as significant regulatory action including fines, penalties and
exclusion from government health programs.
Licensing
and Certification
All of our facilities must comply with various federal, state
and local statutes and regulations and receive periodic
inspection by licensing agencies to assure compliance with such
laws.
Certificates
of Need
Many of the states in which we operate facilities have enacted
CON laws as a condition prior to hospital capital expenditures,
construction, expansion, modernization or initiation of major
new services. Failure to obtain CON approval of certain
activities can result in our inability to complete an
acquisition, expansion or replacement, the imposition of civil
or, in some cases, criminal sanctions, the inability to receive
Medicare or Medicaid
reimbursement or the revocation of a facility’s license,
which could harm our business. In the past, we have not
experienced any material adverse effects from those
requirements, but we cannot predict the impact of these changes
upon our operations.
Utilization
Review
Federal regulations require that admissions and utilization of
facilities by Medicare and Medicaid patients must be reviewed in
order to ensure efficient utilization of facilities and
services. The law and regulations require Quality Improvement
Organizations (“QIOs”) to review the appropriateness
of Medicare and Medicaid patient admissions and discharges, the
quality of care provided, the validity of diagnosis related
group classifications and the appropriateness of cases of length
of stay. QIOs may deny payment for services provided, assess
fines and also have the authority to recommend to the Department
of Health and Human Services that a provider that is in
substantial non-compliance with the Medicare Conditions of
Participation be excluded from participating in the Medicare
program.
Audits
Most healthcare facilities are subject to federal and state
audits to validate the accuracy of claims submitted to the
Medicare and Medicaid programs. If these audits identify
overpayments, we could be required to make substantial
repayments subject to various administrative appeal rights. Each
of Acadia and YFCS has undergone claims audits related to its
respective receipt of federal healthcare payments during the
last several years with no material overpayments identified.
However, potential liability from future federal or state audits
could ultimately exceed established reserves, and any excess
could potentially be substantial. Further, Medicare and Medicaid
regulations also provide for withholding Medicare and Medicaid
overpayments in certain circumstances, which could adversely
affect our cash flow.
Anti-Kickback
Legislation
A provision of the Social Security Act known as the
“anti-kickback statute” prohibits healthcare providers
and others from directly or indirectly soliciting, receiving,
offering or paying money or other remuneration to other
individuals and entities in return for using, referring,
ordering, recommending or arranging for such referrals or orders
of services or other items covered by a federal or state health
care program. However, recent changes to the anti-kickback
statute have reduced the intent required for violation. One is
no longer required to “have actual knowledge or specific
intent to commit a violation of” the anti-kickback statute
in order to be found guilty of violating such law.
The anti-kickback statute contains certain exceptions, and the
Office of the Inspector General of the Department of Health and
Human Services (“OIG”) has issued regulations that
provide for “safe harbors,” from the federal
anti-kickback statute for various activities. The fact that
conduct or a business arrangement does not fall within a safe
harbor or exception does not automatically render the conduct or
business arrangement illegal under the anti-kickback statute.
However, such conduct and business arrangements may lead to
increased scrutiny by government enforcement authorities.
Although we believe that our arrangements with physicians,
psychiatrists and other referral sources have been structured to
comply with current law and available interpretations, there can
be no assurance that all arrangements comply with an available
safe harbor or that regulatory authorities enforcing these laws
will determine these financial arrangements do not violate the
anti-kickback statute or other applicable laws. Violations of
the anti-kickback statute may be punished by a criminal fine.
Civil money penalties may also be imposed.
These laws and regulations are extremely complex and, in many
cases, we do not have the benefit of regulatory or judicial
interpretation. It is possible that different interpretations or
enforcement of these laws and regulations could subject our
current or past practices (or those of Acadia or YFCS) to
allegations of impropriety or illegality or could require us to
make changes in our facilities, equipment, personnel, services,
capital expenditure programs and operating expenses. A
determination that we have violated one or more of these laws,
or the public announcement that we are being investigated for
possible violations of one or more of these laws, could have a
material adverse effect on our business, financial condition or
results of operations. In addition, we cannot predict whether
other
legislation or regulations at the federal or state level will be
adopted, what form such legislation or regulations may take or
what their impact on us may be.
If we are deemed to have failed to comply with the anti-kickback
statute or other applicable laws and regulations, we could be
subjected to liabilities, including criminal penalties, civil
penalties (including the loss of our licenses to operate one or
more facilities), and exclusion of one or more facilities from
participation in the Medicare, Medicaid and other federal and
state health care programs. The imposition of such penalties
could have a material adverse effect on our business, financial
condition or results of operations.
Federal
False Claims Act and Other Fraud and Abuse
Provisions
The Social Security Act also imposes criminal and civil
penalties for submitting false claims to Medicare and Medicaid.
False claims include, but are not limited to, billing for
services not rendered, billing for services without prescribed
documentation, misrepresenting actual services rendered in order
to obtain higher reimbursement and cost report fraud. Like the
anti-kickback statute, these provisions are very broad.
Violations of the Federal False Claims Act are punishable by
fines up to three times the actual damages sustained by the
government, plus mandatory civil penalties. There are many
potential bases for liability under the False Claims Act.
Liability often arises when an entity knowingly submits a false
claim for reimbursement to the federal government. The Fraud
Enforcement and Recovery Act has expanded the number of actions
for which liability may attach under the False Claims Act,
eliminating requirements that false claims be presented to
federal officials or directly involve federal funds. The Fraud
Enforcement and Recovery Act also clarifies that a false claim
violation occurs upon the knowing retention, as well as the
receipt, of overpayments. In addition, recent changes to the
anti-kickback statute have made violations of that law
punishable under the civil False Claims Act. Further, a number
of states have adopted their own false claims provisions as well
as their own whistleblower provisions whereby a private party
may file a civil lawsuit on behalf of the state in state court.
A current trend affecting the health care industry is the
increased use of the federal False Claims Act, and, in
particular, actions being brought by individuals on the
government’s behalf under the False Claims Act’s qui
tam, or whistleblower, provisions. Whistleblower provisions
allow private individuals to bring actions on behalf of the
government by alleging that the defendant has defrauded the
Federal government.
Further, HIPAA broadened the scope of the fraud and abuse laws
by adding several criminal provisions for health care fraud
offenses that apply to all health benefit programs, whether or
not payments under such programs are paid pursuant to federal
programs. HIPAA also introduced enforcement mechanisms to
prevent fraud and abuse in Medicare. There are civil penalties
for prohibited conduct, including, but not limited to billing
for medically unnecessary products or services.
HIPAA
Administrative Simplification and Privacy
Requirements
The administrative simplification provisions of HIPAA, as
amended by the Health Information Technology for Economic and
Clinical Health Act (“HITECH”), require the use of
uniform electronic data transmission standards for health care
claims and payment transactions submitted or received
electronically. These provisions are intended to encourage
electronic commerce in the health care industry. HIPAA also
established federal rules protecting the privacy and security of
personal health information. The privacy and security
regulations address the use and disclosure of individual health
care information and the rights of patients to understand and
control how such information is used and disclosed. Violations
of HIPAA can result in both criminal and civil fines and
penalties.
The HIPAA security regulations require health care providers to
implement administrative, physical and technical safeguards to
protect the confidentiality, integrity and availability of
patient information. HITECH has since strengthened certain HIPAA
rules regarding the use and disclosure of protected health
information, extended certain HIPAA provisions to business
associates, and created new security breach notification
requirements. HITECH has also increased maximum penalties for
violations of HIPAA privacy rules. We believe that we have been
in material compliance with the HIPAA regulations and
continuously develop our policies and procedures to ensure
ongoing compliance.
The MHPAEA was signed into law in October 2008. The MHPAEA
requires health insurance plans that offer mental health and
addiction coverage to provide that coverage on par with
financial and treatment coverage offered for other illnesses. In
addition, the law applies to Medicaid managed care plans, state
Children’s Health Insurance Program (“CHIP”) and
group health plans that do not already cover mental health and
substance abuse benefits. The MHPAEA has some limitations
because health plans that do not already cover mental health
treatments will not be required to do so, and health plans are
not required to provide coverage for every mental health
condition published in the Diagnostic and Statistical Manual of
Mental Disorders by the American Psychiatric Association. The
MHPAEA also contains a cost exemption which operates to exempt a
group health plan from the MHPAEA’s requirements if
compliance with the MHPAEA becomes too costly.
The MHPAEA specifically directed the Secretaries of Labor,
Health and Human Services and the Treasury to issue regulations
to implement the legislation. Although regulations regarding how
the MHPAEA was to be implemented were issued on February 2,
2010 in the form of an interim final rule, final regulations
have not yet been published and interpretative guidance from the
regulators has been limited to date.
Patient
Protection and Affordable Care Act
The Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010
(collectively, the “Health Reform Law”), expands
coverage of uninsured individuals and provides for significant
reductions in the growth of Medicare program payments, material
decreases in Medicare and Medicaid disproportionate share
hospital payments, and the establishment of programs where
reimbursement is tied in part to quality and integration. Based
on Congressional Budget Office estimates, the Health Reform Law,
as enacted, is expected to expand health insurance coverage to
approximately 32 to 34 million additional individuals
through a combination of public program expansion and private
sector health insurance reforms. This increased coverage will
occur through a combination of public program expansion and
private sector health insurance and other reforms.
The most significant changes will expand the categories of
individuals eligible for Medicaid coverage and permit
individuals with relatively higher incomes to qualify. The
federal government reimburses the majority of a state’s
Medicaid expenses, and it conditions its payment on the state
meeting certain requirements. The federal government currently
requires that states provide coverage for only limited
categories of low-income adults under 65 years old (e.g.,
women who are pregnant, and the blind or disabled). In addition,
the income level required for individuals and families to
qualify for Medicaid varies widely from state to state.
Federal
Medical Assistance Percentages
As Medicaid is a joint federal and state program, the federal
government provides states with “matching funds” in a
defined percentage, known as the federal medical assistance
percentage (“FMAP”). Beginning in 2014, states will
receive an enhanced FMAP for the individuals enrolled in
Medicaid pursuant to the Health Reform Law. The FMAP percentage
is as follows: 100% for calendar years 2014 through 2016; 95%
for 2017; 94% in 2018; 93% in 2019; and 90% in 2020 and
thereafter. We do not expect the enhanced FMAP funds paid to
states beginning in 2014 to have a meaningful impact on our
financial condition or results of operations.
Risk
Management and Insurance
The healthcare industry is general continues to experience an
increase in the frequency and severity of litigation and claims.
As is typical in the healthcare industry, we could be subject to
claims that our services have resulted in injury to our patients
or clients or other adverse effects. In addition, resident,
visitor and employee injuries could also subject us to the risk
of litigation. While we believe that quality care is provided to
patients and clients in our facilities and that we materially
comply with all applicable regulatory requirements, an adverse
determination in a legal proceeding or government investigation
could have a material adverse effect on our financial condition.
Prior to July 1, 2009, Acadia maintained commercial
insurance coverage on an occurrence basis for workers’
compensation claims with no deductible. Effective July 1,
2009, Acadia and now Acadia-YFCS, maintains
commercial insurance coverage on an occurrence basis with a
$250,000 deductible per claim and a $1 million per claim
limit. We maintain commercial insurance coverage on a
claims-made basis for general and professional liability claims
with a $50,000 deductible and $1 million per claim limit
and an aggregate limit of $3 million with excess umbrella
coverage for an additional $7 million.
Environmental
Matters
We are subject to various federal, state and local environmental
laws that (i) regulate certain activities and operations
that may have environmental or health and safety effects, such
as the handling, storage, transportation, treatment and disposal
of medical waste products generated at our facilities; the
identification and warning of the presence of
asbestos-containing materials in buildings, as well as the
removal of such materials; the presence of other hazardous
substances in the indoor environment; and protection of the
environment and natural resources in connection with the
development or construction of our facilities; (ii) impose
liability for costs of cleaning up, and damages to natural
resources from, past spills, waste disposals on and off-site, or
other releases of hazardous materials or regulated substances,
and (iii) regulate workplace safety. Some of our facilities
generate infectious or other hazardous medical waste due to the
illness or physical condition of our patients. The management of
infectious medical waste is subject to regulation under various
federal, state and local environmental laws, which establish
management requirements for such waste. These requirements
include record-keeping, notice and reporting obligations. Each
of our facilities (other than our call centers) has an agreement
with a waste management company for the disposal of medical
waste. The use of such companies, however, does not completely
protect us from alleged violations of medical waste laws or from
related third-party claims for
clean-up
costs.
From time to time, our operations have resulted in, or may
result in, non-compliance with, or liability pursuant to,
environmental or health and safety laws or regulations. We
believe that our operations are generally in compliance with
environmental and health and safety regulatory requirements or
that any non-compliance will not result in a material liability
or cost to achieve compliance. Historically, the costs of
achieving and maintaining compliance with environmental laws and
regulations have not been material. However, we cannot assure
you that future costs and expenses required for us to comply
with any new or changes in existing environmental and health and
safety laws and regulations or new or discovered environmental
conditions will not have a material adverse effect on our
business.
We have not been notified of and are otherwise currently not
aware of any contamination at our currently or formerly operated
facilities for which we could be liable under environmental laws
or regulations for the investigation and remediation of such
contamination and we currently are not undertaking any
remediation or investigation activities in connection with any
contamination conditions. There may however be environmental
conditions currently unknown to us relating to our prior,
existing or future sites or operations or those of predecessor
companies whose liabilities we may have assumed or acquired
which could have a material adverse effect on our business.
New laws, regulations or policies or changes in existing laws,
regulations or policies or their enforcement, future spills or
accidents or the discovery of currently unknown conditions or
non-compliances may give rise to investigation and remediation
liabilities, compliance costs, fines and penalties, or liability
and claims for alleged personal injury or property damage due to
substances or materials used in our operations; any of which may
have a material adverse effect on our business, financial
condition, operating results or cash flow.
Competition
The healthcare industry is highly competitive. Our principal
competitors include other behavioral health service companies,
including UHS, Aurora and Ascend. We also compete against
hospitals and general health care facilities that provide mental
health services. An important part of our business strategy is
to continue to make targeted acquisitions of other behavioral
health facilities. However, reduced capacity, the passage of
mental health parity legislation and increased demand for mental
health services are likely to attract other potential buyers,
including diversified healthcare companies and possibly other
pure behavioral healthcare companies.
In addition to the competition we face for acquisitions, we must
also compete for patients. Patients are referred to our
behavioral health facilities through a number of different
sources, including healthcare practitioners, public
programs, other treatment facilities, managed care
organizations, unions, emergency departments, judicial
officials, social workers, police departments and word of mouth
from previously treated patients and their families, among
others. These referral sources may instead refer patients to
hospitals that are able to provide a full suite of medical
services or to other behavioral health centers.
Employees
As of August 16, 2011, we had approximately 4,857
employees, of whom approximately 4,105 were employed full-time.
Approximately 3,655 of these employees (approximately
3,271 full-time employees) are employed by the facilities
acquired by us in connection with our acquisition of YFCS in
April 2011. Typically, our inpatient facilities are staffed by a
chief executive officer, medical director, director of nursing,
chief financial officer, clinical director and director of
performance improvement. Psychiatrists and other physicians
working in our facilities are licensed medical professionals who
are generally not employed by us and work in our facilities as
independent contractors.
Seasonality
of Services
Due to the large number of children and adolescent patients
served, our inpatient behavioral health care facilities
typically experience lower patient volumes and revenue during
the summer months, the year-end holidays and other periods when
school is out of session.
Legal
Proceedings
In addition to the litigation described in “The
Merger — Litigation Relating to the Merger”,
Acadia is subject to various claims and legal actions that arise
in the ordinary course of business. Management does not believe
that Acadia currently is party to any proceedings that would
have a material adverse effect on its financial condition or
results of operations.
You should read the following discussion and analysis of our
financial condition and results of operations with
“Selected Historical Financial Information —
Acadia Historical Financial Data” and the audited
consolidated financial statements and related notes included
elsewhere in this proxy statement/prospectus. This discussion
contains forward-looking statements and involves numerous risks
and uncertainties, including but not limited to those described
in the “Risk Factors” section of this proxy
statement/prospectus. Actual results may differ materially from
those contained in any forward-looking statements. You should
read “Cautionary Statement Concerning Forward-Looking
Statements” and “Risk Factors.”
Overview
Our business strategy is to acquire and develop inpatient
behavioral health care facilities and improve our operating
results within our inpatient facilities and our other behavioral
health care operations. From 2006 through 2010 the company
acquired eight inpatient behavioral and substance abuse
facilities. During this time, the company also closed two
underperforming assets. Our goal is to improve the operating
results of our facilities by providing high quality services,
expanding referral networks and marketing initiatives while
meeting the increased demand for behavioral health care services
through expansion of our current locations as well as developing
new services within existing locations.
Income from continuing operations before income taxes increased
to $7.2 million in 2010 from $2.8 million in 2009, or
an increase of 157%. The increase in income from continuing
operations was a direct result of the increase in net revenues,
which increased 24% in 2010 over that in 2009 as inpatient and
outpatient volumes increased by 31% and 18%, respectively.
Income from continuing operations before income taxes in 2010
was negatively affected by $0.8 million of transaction fees
as a result of the YFCS merger.
Sources
of Revenue
Patient service revenue is generated by our facilities for
services provided to patients on an inpatient and outpatient
basis within the behavioral health facilities. Patient service
revenue is recorded at our established billing rates less
contractual adjustments. Contractual adjustments are recorded to
state our patient service revenue at the amount we expect to
collect for the services provided based on amounts reimbursable
by Medicare and Medicaid under provisions of cost or prospective
reimbursement formulas or amounts due from other third-party
payors at contractually determined rates. In 2010, 2009 and
2008, Medicare and Medicaid accounted for 62%, 62% and 63% of
total patient service revenue, respectively. Inpatient services
revenue comprised approximately 72%, 71% and 73% of our total
revenue for 2010, 2009 and 2008, respectively. Outpatient
service and other revenue accounted for 28%, 29% and 27% of our
total revenue for 2010, 2009 and 2008, respectively.
Acquisitions
On April 1, 2011, Acadia completed the acquisition of YFCS,
a provider of behavioral health care services, for
$178.0 million. YFCS operates 13 facilities in eight states
and offers a broad array of behavioral programs to adults,
adolescents, and children. These programs include behavioral
acute and residential care in inpatient facilities, therapeutic
group homes, therapeutic foster care services, education, and
other community based services. This transaction was financed
with a new $135 million Senior Secured Term Loan and
$10 million of borrowings on a new $30 million
revolving credit facility, as well as $52.5 million of new
equity.
On May 23, 2011, Acadia signed a definitive merger
agreement with PHC, a leading national provider of inpatient and
outpatient mental health and drug and alcohol addiction
treatment programs in Michigan, Nevada, Pennsylvania, Utah and
Virginia. Upon the completion of the merger, Acadia stockholders
will own approximately 77.5% of the combined company, and PHC
stockholders will own 22.5% of the combined company, on a fully
diluted basis (as defined in the merger agreement). The merger
will bring together Acadia’s 19 behavioral health
facilities, with approximately 1,600 beds in 13 states,
with PHC’s nine facilities with approximately 280 beds in
four states. In addition, on July 1, 2011, PHC acquired
MeadowWood, a 58 bed acute inpatient behavioral facility located
in Newcastle, Delaware.
Anticipated
Synergies, Cost Savings and Revenue Improvements
Acadia management believes that the merger presents significant
synergies through the elimination of certain corporate overhead
costs. The current PHC corporate functions would be integrated
with and moved to the existing Acadia corporate offices in
Franklin, TN. The combined company would eliminate certain
redundant positions, professional services and other expenses,
as well as achieve efficiencies by integrating corporate
functions within a larger company framework. We are targeting
annual cost savings of approximately $3.4 million per annum
beginning in fiscal 2012 as a result of this integration. In
addition to these cost savings, Acadia management believes that
there are substantial opportunities to generate organic revenue
growth by increasing bed capacity in existing facilities,
increasing utilization rates at our existing facilities,
leveraging
out-of-state
referrals to increase volume, developing a national marketing
plan and expanding services at existing facilities.
In addition to synergies relating to the merger, we currently
expect that the capitalization of a certain facility lease will
reduce lease expense by approximately $0.7 million per annum.
Acadia management has also identified several recent
improvements to our revenue base from (i) a rate increase
on one of our contracts effective in March 2011, assuming such
increased rate had been effective throughout the twelve month
period ended June 30, 2011, and (ii) the expansion of
PHC’s Wayne County call center contract in December 2010,
assuming such expansion had been effective throughout the twelve
month period ended June 30, 2011. We believe that these
improvements would have had a positive effect on operating
income (before taxes) of $2.0 million and $0.3 million
for 2010, respectively. We estimated the improvement from the
rate increase by multiplying historical plan enrollment by the
newly-contracted rate, and we estimated the improvement from the
contract expansion using an estimate of monthly incremental
operating income resulting from the expansion, applied to months
prior to December 2010. In addition, we incurred start up losses
at the Seven Hills Behavioral Center, which was opened in the
fourth quarter of 2008 and became CMS certified in July 2010.
The elimination of the start up losses incurred in 2010 but not
expected to be incurred in the future would have resulted in
additional operating income (before taxes) of approximately
$1.5 million. See “Risk Factors — Risks
Affecting Acadia, PHC and the Combined Company — We
may not achieve all of the expected benefits from synergies,
cost savings and recent improvements to our revenue base.”
Results
of Operations
The following table illustrates our consolidated results of
operations from continuing operations for the respective periods
shown (dollars in thousands):
Six Months Ended June 30,
Year Ended December 31,
2011
2010
2010
2009
2008
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Revenue
$
82,961
100.0
%
$
32,472
100.0
%
$
64,342
100.0
%
$
51,821
100.0
%
$
33,353
100.0
%
Salaries, wages and benefits
70,538
85.0
%
18,374
56.6
%
36,333
56.5
%
30,752
59.3
%
22,342
67.0
%
Professional fees
3,130
3.8
%
1,240
3.8
%
3,612
5.6
%
1,977
3.8
%
952
2.9
%
Supplies
4,282
5.2
%
1,841
5.7
%
3,709
5.8
%
2,841
5.5
%
2,076
6.2
%
Rents and leases
2,062
2.5
%
636
2.0
%
1,288
2.0
%
885
1.7
%
852
2.6
%
Other operating expenses
8,110
9.8
%
4,046
12.5
%
8,289
12.9
%
8,390
16.2
%
5,400
16.2
%
Provision for doubtful accounts
1,002
1.2
%
1,186
3.7
%
2,239
3.5
%
2,424
4.7
%
1,804
5.4
%
Depreciation and amortization
2,201
2.6
%
480
1.5
%
976
1.5
%
967
1.9
%
740
2.2
%
Interest expense
2,215
2.7
%
358
1.1
%
738
1.1
%
774
1.5
%
729
2.2
%
Sponsor management fees
590
0.7
%
—
—
—
—
—
—
—
—
Transaction-related expenses
8,362
10.1
%
—
—
—
—
—
—
—
—
102,492
123.5
%
28,161
86.9
%
57,184
88.9
%
49,010
94.6
%
34,895
104.6
%
Income (loss) from continuing operations, before income taxes
Six
months ended June 30, 2011 as compared to six months ended
June 30, 2010
Revenue.
Revenue increased $50.5 million,
or 155.5%, to $83.0 million for the six months ended
June 30, 2011 compared to $32.5 million for the six
months ended June 30, 2010. The increase relates primarily
$47.0 million of revenue generated from the YFCS
acquisition on April 1, 2011. The remainder of the increase
in revenue is attributable to same-facility growth in patient
days of 5.1% and outpatient visits of 17.4%.
Salaries, wages and benefits.
Salaries, wages
and benefits (“SWB”) expense was $70.5 million
for the six months ended June 30, 2011 compared to
$18.4 million for the six months ended June 30, 2010,
an increase of $52.1 million. SWB expense includes
$19.8 million of equity-based compensation expense for the
six months ended June 30, 2011. This equity-based
compensation was realized because the acquisition of YFCS and
the expected acquisition of PHC in 2011 have provided a means to
measure the fair market value of these awards. We do not expect
equity-based compensation to be this significant in future
periods because the acquisition of PHC will exchange this equity
for common stock of the combined company. There was no
equity-based compensation expense during the six months ended
June 30, 2010. Excluding equity-based compensation expense,
SWB expense was $50.7 million, or 61.1% of total revenue,
for the six months ended June 30, 2011, compared to 56.6%
of revenue for the six months ended June 30, 2010. The
increase in SWB expense, excluding equity-based compensation
expense, as a percent of revenue is attributable to the higher
SWB expense associated with the residential treatment facilities
acquired from YFCS on April 1, 2011. Same-facility SWB
expense, excluding equity-based compensation expense, was
$21.5 million for the six months ended June 30, 2011,
or 59.7% of revenue, compared to $18.4 million for the six
months ended June 30, 2010, or 56.6% of revenue. This
increase is primarily related to the additional corporate
support to facilitate the acquisition and integration of the
combined companies.
Professional fees.
Professional fees were
$3.1 million for the six months ended June 30, 2011,
or 3.8% of revenue, compared to $1.2 million for the six
months ended June 30, 2010, or 3.8% of revenue.
Same-facility professional fees were $1.3 million for the
six months ended June 30, 2011, or 3.7% of revenue,
compared to $1.2 million for the six months ended
June 30, 2010, or 3.8% of revenue.
Supplies.
Supplies expense was
$4.3 million for the six months ended June 30, 2011,
or 5.2% of total revenue, compared to $1.8 million for the
six months ended June 30, 2010, or 5.7% of revenue.
Same-facility supplies expense was $2.0 million for the six
months ended June 30, 2011, or 5.5% of revenue, compared to
$1.8 million for the six months ended June 30, 2010,
or 5.7% of revenue.
Rents and leases.
Rents and leases were
$2.1 million for the six months ended June 30, 2011,
or 2.5% of total revenue, compared to $0.6 million for the
six months ended June 30, 2010, or 2.0% of total revenue.
The increase in rents and leases is attributable to the YFCS
acquisition on April 1, 2011. Same-facility rents and
leases were $0.7 million for the six months ended
June 30, 2011, or 2.1% of revenue, compared to
$0.6 million for the six months ended June 30, 2010,
or 2.0% of revenue.
Other operating expenses.
Other operating
expenses consist primarily of purchased services, utilities,
insurance, travel and repairs and maintenance expenses. Other
operating expenses were $8.1 million for the six months
ended June 30, 2011, or 9.8% of revenue, compared to
$4.0 million for the six months ended June 30, 2010,
or 12.5% of revenue. The decrease in other operating expenses as
a percentage of revenue is attributable to the lower other
operating expenses associated with the residential treatment
facilities acquired from YFCS on April 1, 2011.
Same-facility other operating expenses were $3.9 million
for the six months ended June 30, 2011, or 10.9% of
revenue, compared to $4.0 million for the six months ended
June 30, 2010, or 12.5% of revenue.
Provision for doubtful accounts.
The provision
for doubtful accounts was $1.0 million for the six months
ended June 30, 2011, or 1.2% of revenue, compared to
$1.2 million for the six months ended June 30, 2010,
or 3.7% of revenue. The decrease in the provision for doubtful
accounts is attributable to the lower volumes of private pay
admissions and bad debt associated with the facilities acquired
from YFCS on April 1, 2011. The same-facility provision for
doubtful accounts was $1.0 million for the six months ended
June 30, 2011, or 2.9% of revenue, compared to
$1.2 million for the six months ended June 30, 2010,
or 3.7% of revenue.
Depreciation and amortization.
Depreciation
and amortization expense was $2.2 million for the six
months ended June 30, 2011, or 2.6% of revenue, compared to
$0.5 million for the six months ended June 30, 2010,
or 1.5% of revenue. The increase in depreciation and
amortization is attributable to the YFCS acquisition on
April 1, 2011.
Interest expense.
Interest expense was
$2.2 million for the six months ended June 30, 2011,
compared to $0.4 million for the six months ended
June 30, 2010. The increase in interest expense is a result
of the $145.0 million we borrowed under our Senior Secured
Credit Facility on April 1, 2011.
Sponsor management fees.
Sponsor management
fees were $0.6 million for the six months ended
June 30, 2011. Sponsor management fees related to the
professional services agreement we entered into with Waud
Capital Partners on April 1, 2011, and there were no
sponsor management fees incurred in the six months ended
June 30, 2010.
Transaction-related
expenses.
Transaction-related expenses were
$8.4 million for the six months ended June 30, 2011
relating to the acquisition of YFCS on April 1, 2011 and
the pending merger with PHC. There were no transaction-related
expenses incurred in the six months ended June 30, 2010,
and transaction-related expenses were included in professional
fees in all prior periods.
Year
ended December 31, 2010 as compared to year ended
December 31, 2009
Revenue.
Revenue increased $12.5 million,
or 24.2%, to $64.3 million for the year ended
December 31, 2010 compared to $51.8 million for the
year ended December 31, 2009. On a same-facility basis,
revenue increased $7.0 million or 13.5% for the year ended
December 31, 2010 compared to the year ended
December 31, 2009. Same-facility revenue growth is
attributable an increase in same-facility inpatient days of
10.3% and an increase in same-facility outpatient visits of
17.6%. Revenue increased by $5.5 million in 2010 compared
to 2009 as a result of the acquisitions of the Acadiana facility
on March 5, 2009 and The Village facility on
November 2, 2009.
Salaries, wages and benefits.
SWB expense was
$36.3 million for the year ended December 31, 2010
compared to $30.8 million for the year ended
December 31, 2009, an increase of $5.5 million, or
18.1%. SWB expense represented 56.5% of revenue for the year
ended December 31, 2010 compared to 59.3% of revenue for
the year ended December 31, 2009. Same-facility SWB expense
was $32.8 million in 2010, or 55.8% of revenue, compared to
$30.8 million in 2009, or 59.3% of revenue. This decrease
in same-facility SWB expense as a percent of revenue is
primarily the result of improved operating efficiencies on
higher volumes.
Professional fees.
Professional fees were
$3.6 million for the year ended December 31, 2010, or
5.6% of revenue, compared to $2.0 million for the year
ended December 31, 2009, or 3.8% of revenue. Professional
fees increased for the year ended December 31, 2010
compared to the year ended December 31, 2009 primarily as a
result of approximately $0.8 million of acquisition-related
expenses incurred in the year ended December 31, 2010 in
connection with the YFCS acquisition. Same-facility professional
fees, excluding acquisition-related expenses, were
$2.7 million in 2010, or 4.5% of revenue, compared to
$2.0 million in 2009, or 3.8% of revenue.
Supplies.
Supplies expense was
$3.7 million for the year ended December 31, 2010, or
5.8% of total revenue, compared to $2.8 million for the
year ended December 31, 2009, or 5.5% of total revenue.
Same-facility supplies expense was $3.2 million in 2010, or
5.4% of revenue, compared to $2.8 million in 2009, or 5.5%
of revenue.
Rentals and leases.
Rentals and leases were
$1.3 million for the year ended December 31, 2010, or
2.0% of total revenue, compared to $0.9 million for the
year ended December 31, 2009, or 1.7% of total revenue.
Same-facility rentals and leases were $1.0 million in 2010,
or 1.7% of revenue, compared to $0.9 million in 2009, or
1.7% of revenue.
Other operating expenses.
Other operating
expenses consist primarily of purchased services, utilities,
insurance, travel and repairs and maintenance expenses. Other
operating expenses were $8.3 million for the year ended
December 31, 2010, or 12.9% of revenue, compared to
$8.4 million for the year ended December 31, 2009, or
16.2% of revenue. Same-facility other operating expenses were
$7.6 million in 2010, or 12.8% of revenue, compared to
$8.4 million in 2009, or 16.2% of revenue. This decrease in
same-facility other operating expenses as a percent of revenue
is primarily attributable to reductions in insurance premiums as
well as improved operating efficiencies.
Provision for doubtful accounts.
The provision
for doubtful accounts was $2.2 million for the year ended
December 31, 2010, or 3.5% of revenue, compared to
$2.4 million for the year ended December 31, 2009, or
4.7% of revenue. This decrease as a percent of revenue was a
result of improved collection efforts at our facilities.
Depreciation and amortization.
Depreciation
and amortization expense was $1.0 million for the year
ended December 31, 2010, or 1.5% of revenue, compared to
$1.0 million for the year ended December 31, 2009, or
1.9% of revenue.
Interest expense.
Interest expense was
$0.7 million for the year ended December 31, 2010
compared to $0.8 million for the year ended
December 31, 2009.
Year
ended December 31, 2009 as compared to year ended
December 31, 2008
Revenue.
Revenue increased $18.5 million,
or 55.4%, to $51.8 million for the year ended
December 31, 2009 compared to $33.4 million for the
year ended December 31, 2008. On a same-facility basis,
revenue increased $5.3 million or 15.8% for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. Same-facility revenue growth is
attributable to an increase in same-facility inpatient days of
6.4% and an increase in same-facility outpatient visits of
21.9%. Revenue increased in 2009 compared to 2008 by
$13.2 million related to the acquisitions of RiverWoods in
September 2008, Acadiana in March 2009, and The Village in
November 2009.
Salaries, wages and benefits.
SWB expense was
$30.8 million for the year ended December 31, 2009
compared to $22.3 million for the year ended
December 31, 2008, an increase of $8.4 million, or
37.6%. SWB expense represented 59.3% of revenue for the year
ended December 31, 2009 compared to 67.0% of revenue for
the year ended December 31, 2008. Same-facility SWB expense
was $24.5 million in 2009, or 63.5% of revenue, compared to
$22.3 million in 2008, or 67.0% of revenue. This decrease
in same-facility SWB expense as a percent of revenue is
primarily the result of improved operating efficiencies on
higher volumes.
Professional fees.
Professional fees were
$2.0 million for the year ended December 31, 2009, or
3.8% of revenue, compared to $1.0 million for the year
ended December 31, 2008, or 2.9% of revenue. This
$1.0 million increase in professional fees is primarily
related to acquisition costs associated with the Acadiana
facility and The Village facility.
Supplies.
Supplies expense was
$2.8 million for the year ended December 31, 2009, or
5.5% of total revenue, compared to $2.1 million for the
year ended December 31, 2008, or 6.2% of total revenue.
Same-facility supplies expense was $2.1 million in 2009, or
5.6% of revenue, compared to $2.1 million in 2008, or 6.2%
of revenue. This decrease in same-facility supplies expense as a
percent of revenue is primarily the result of improved operating
efficiencies on higher volumes.
Rentals and leases.
Rentals and leases were
$0.9 million for the year ended December 31, 2009, or
1.7% of total revenue, compared to $0.9 million for the
year ended December 31, 2008, or 2.6% of total revenue.
Same-facility rentals and leases were $0.7 million in 2009,
or 1.9% of revenue, compared to $0.9 million in 2008, or
2.6% of revenue.
Other operating expenses.
Other operating
expenses consist primarily of purchased services, utilities,
insurance, travel and repairs and maintenance expenses. Other
operating expenses were $8.4 million for the year ended
December 31, 2009, or 16.2% of revenue, compared to
$5.4 million for the year ended December 31, 2008, or
16.2% of revenue.
Provision for doubtful accounts.
The provision
for doubtful accounts was $2.4 million for the year ended
December 31, 2009, or 4.7% of revenue, compared to
$1.8 million for the year ended December 31, 2008, or
5.4% of revenue. This decrease as a percent of revenue was a
result of improved collection efforts at our facilities.
Depreciation and amortization.
Depreciation
and amortization expense was $1.0 million for the year
ended December 31, 2009, or 1.9% of revenue, compared to
$0.7 million for the year ended December 31, 2008, or
2.2% of revenue.
Interest expense.
Interest expense was
$0.8 million for the year ended December 31, 2009
compared to $0.7 million for the year ended
December 31, 2008.
Cash provided by continuing operating activities for the six
months ended June 30, 2011 was $3.9 million compared
to $4.8 million for the six months ended June 30,
2010. Cash provided by operating activities for the fiscal year
ended December 31, 2010 was $8.2 million compared to
$6.2 for the fiscal year ended December 31, 2009. This
increase is primarily attributable to the acquisitions of the
Acadiana facility on March 5, 2009 and the Village facility
on November 2, 2009 and improved operating results. As of
June 30, 2011, we had working capital of $3.0 million,
including cash and cash equivalents of $3.5 million. Days
sales outstanding for the six months ended June 30, 2011
was 31 compared to 33 for the six months ended June 30,
2010. Days sales outstanding for the twelve months ended
December 31, 2010 was 31 compared to 40 for the twelve
months ended December 31, 2009. This improvement in days
sales outstanding is primarily attributable to improvements in
collection efforts at the facilities acquired in 2009 and
overall improved collection efforts.
Cash used in investing activities for the six months ended
June 30, 2011 was $183.8 million compared to
$0.6 million for the six months ended June 30, 2010.
Cash used in investing activities for the six months ended
June 30, 2011 consisted of cash paid for the YFCS
acquisition of $178.0 million, cash paid for capital
expenditures of $3.2 million and cash paid for a real
estate acquisition of $2.2 million. Cash used in investing
activities for the fiscal year ended December 31, 2010 was
$1.5 million compared to cash used in investing activities
of approximately $3.4 million for the fiscal year ended
December 31, 2009. The decrease in cash used in investing
activities was due to two facility acquisitions in 2009.
Cash provided by financing activities for the six months ended
June 30, 2011 was $175.2 million compared to cash used
in financing activities of $1.8 million for the six months
ended June 30, 2010. Cash provided by financing activities
for the six months ended June 30, 2011 primarily consisted
of term loan borrowings under our Senior Secured Credit Facility
of $135.0 million, net borrowings under the revolver
portion of our Senior Secured Credit Facility of
$7.0 million, contributions from Holdings of
$51.0 million and repayments of long-term debt of
$10.0 million. Cash used in financing activities for the
six months ended June 30, 2010 primarily consisted of
capital distributions of $1.7 million. Cash used in
financing activities for the fiscal year ended December 31,
2010 was $2.6 million compared to cash provided by
financing activities of $1.7 million for the fiscal year
ended December 31, 2009. Cash provided by financing
activities for the fiscal year ended December 31, 2010
primarily consisted of capital distributions of
$2.3 million and a $2.5 million capital contribution
for the fiscal year ended December 31, 2009.
To finance our acquisition of YFCS and refinance our existing
$10.0 million secured promissory note, we entered into the
Senior Secured Credit Facility on April 1, 2011. The Senior
Secured Credit Facility, administered by Bank of America, N.A.,
includes $135.0 million of term loans and a revolving
credit facility of $30.0 million. Of the $30.0 million
available under the revolving portion of the Senior Secured
Credit Facility, $10.0 million was borrowed on
April 1, 2011 and $20.0 million was available for
further borrowings. The term loans require quarterly principal
payments of $1.7 million for June 30, 2011 to
March 31, 2013, $3.4 million for June 30, 2013 to
March 31, 2014, $4.2 million for June 30, 2014 to
March 31, 2015, and $5.1 million for June 30,
2015 to December 31, 2015, with the remaining principal
balance due on the maturity date of April 1, 2016. As of
June 30, 2011, we had $23.0 million of availability
under our revolving line of credit.
Borrowings under the Senior Secured Credit Facility are
guaranteed by each of Acadia’s domestic subsidiaries and
are secured by a lien on substantially all of the assets of
Acadia and its domestic subsidiaries. Borrowings under the
Senior Secured Credit Facility bear interest at a rate tied to
Acadia’s Consolidated Leverage Ratio (defined as
Consolidated Funded Indebtedness to Consolidated EBITDA, in each
case as defined in the credit agreement governing the Senior
Secured Credit Facility). The Applicable Rate for borrowings
under the Senior Secured Credit Facility was 4.0% and 3.0% for
Eurodollar Rate Loans and Base Rate Loans, respectively, as of
June 30, 2011. Eurodollar Rate Loans bear interest at the
Applicable Rate plus the Eurodollar Rate (based upon the British
Bankers Association LIBOR Rate prior to commencement of the
interest rate period). Base Rate Loans bear interest at the
Applicable Rate plus the highest of (i) the federal funds
rate plus 1/2 of 1.0%, (ii) the prime rate and
(iii) the Eurodollar rate plus 1.0%. As of June 30,
2011, borrowings under the Senior Secured Credit Facility bore
interest at
4.2%. In addition, Acadia is required to pay a commitment fee on
undrawn amounts under the revolving line of credit. As of
June 30, 2011, undrawn amounts bore interest at a rate of
0.50%.
The Senior Secured Credit Facility requires Acadia and its
subsidiaries to comply with customary affirmative, negative and
financial covenants. Set forth below is a brief description of
such covenants, all of which are subject to customary
exceptions, materiality thresholds and qualifications:
•
the affirmative covenants include the following:
(i) delivery of financial statements and other customary
financial information; (ii) notices of events of default
and other material events; (iii) maintenance of existence,
ability to conduct business, properties, insurance and books and
records; (iv) payment of taxes; (v) lender inspection
rights; (vi) compliance with laws; (vii) use of
proceeds; (viii) interest rate hedging; (ix) further
assurances; and (x) additional collateral and guarantor
requirements.
•
the negative covenants include limitations on the following:
(i) liens; (ii) debt (including guaranties);
(iii) investments; (iv) fundamental changes (including
mergers, consolidations and liquidations);
(v) dispositions; (vi) sale leasebacks;
(vii) affiliate transactions and the payment of management
fees; (viii) burdensome agreements; (ix) restricted
payments; (x) use of proceeds; (xi) ownership of
subsidiaries; (xii) changes to line of business;
(xiii) changes to organizational documents, legal name,
form of entity and fiscal year; (xiv) capital expenditures
(not to exceed 4.0% of total revenues of Acadia and its
subsidiaries and including a 100% carry-forward of unused
amounts to the immediately succeeding fiscal year);
(xv) operations of Acadia (other than as a passive holding
company); and (xvi) amendments to certain material
agreements. Acadia is generally not permitted to issue dividends
or distributions other than with respect to the following:
(w) certain tax distributions; (x) the repurchase of
equity held by employees, officers or directors upon the
occurrence of death, disability or termination subject to cap of
$500,000 in any fiscal year and compliance with certain other
conditions; (y) in the form of capital stock; and
(z) scheduled payments of deferred purchase price, working
capital adjustments and similar payments pursuant to the merger
agreement or any permitted acquisition.
•
The financial covenants include maintenance of the following:
Maximum consolidated leverage ratio as described below:
Maximum Consolidated
Fiscal Quarter of the Parent
Leverage Ratio
June 30, 2011
4.25:1.0
September 30, 2011
4.25:1.0
December 31, 2011
4.25:1.0
March 31, 2012
4.25:1.0
June 30, 2012
4.00:1.0
September 30, 2012
4.00:1.0
December 31, 2012
3.75:1.0
March 31, 2013
3.75:1.0
June 30, 2013
3.75:1.0
September 30, 2013
3.75:1.0
December 31, 2013 and each fiscal quarter ending thereafter
3.00:1.0
Minimum fixed charge coverage ratio not to be less than
1.25:1.00 as of the end of any fiscal quarter, commencing
June 30, 2011.
As of June 30, 2011, Acadia was in compliance with such
covenants.
Following
the Merger
Second
Amendment to Senior Secured Credit Facility
In connection with the merger, we have entered into a Second
Amendment to the Senior Secured Credit Facility, dated
July 12, 2011 (the “Second Amendment”), which
will not become effective until consummation of
the merger and is conditioned upon the satisfaction of the
conditions described in the Second Amendment. The Second
Amendment permits Acadia to incur indebtedness pursuant to the
Senior Notes
and/or
the
Bridge Facility so long as conditions regarding such
indebtedness (including those set forth below) are satisfied:
•
the aggregate principal amount of indebtedness incurred under
the Bridge Facility, the Senior Notes and the Deficit Notes may
not exceed $150 million (plus any accrued interest, fees
and premiums in connection with refinancing the Bridge Facility
with the Senior Notes);
•
the Senior Notes must have a maturity 181 days beyond the
maturity of the Senior Secured Credit Facility;
•
the interest rate (including any OID) shall not exceed the
interest rate cap for the Bridge Facility and Senior Notes (plus
any default interest and up to 1.00% per annum of liquidated
damages in the form of increased interest);
•
the Bridge Facility may only be subject to mandatory redemptions
or prepayments (i) in connection with a change of control,
(ii) with proceeds of equity, asset sale dispositions or
indebtedness, in each case to the extent not required to prepay
amounts owed under the Senior Secured Credit Facility and
(iii) excess cash flow after repayment in full of all
obligations under the Senior Secured Credit Facility (and any
refinancings, renewals or restatements) and termination of any
commitment thereunder;
•
the Senior Notes may only be subject to mandatory prepayments in
connection with a change of control or as a result of an asset
sale;
•
unless approved by the administrative agent, the indebtedness
may not be subject to covenants or events of default that are
materially more restrictive than covenants and events of default
that are usual and customary for senior unsecured high yield
notes giving due regard to prevailing conditions in the
syndicated loan and financial markets and operational
requirements of Acadia and its subsidiaries (it being understood
and agreed that the covenants of the Bridge Facility will be
incurrence based covenants based on those contained in the
preliminary offering memorandum used to market customary senior
unsecured high yield notes);
•
the indebtedness may not be subject to any scheduled principal
payments (other than on the maturity date); and
•
delivery of certain financial covenant calculations.
The Second Amendment provides for a change in the interest rate
applicable to borrowings under the Senior Secured Credit
Facility based upon Acadia’s Consolidated Leverage Ratio
(defined as Consolidated Funded Indebtedness to Consolidated
EBITDA, in each case as defined in the Senior Secured Credit
Facility). Interest rates and the commitment fee on unused
commitments will be based upon the following grid:
Pricing
Consolidated
Eurodollar Rate
Base Rate
Commitment
Tier
Leverage Ratio
Loans
Loans
Fee
1
<2.75:1.0
3.50
%
2.50
%
0.45
%
2
³
2.75:1.0
but <3.25:1.0
3.75
%
2.75
%
0.50
%
3
³
3.25:1.0
but <3.75:1.0
4.00
%
3.00
%
0.50
%
4
³
3.75:1.0
but <5.00:1.0
4.25
%
3.25
%
0.55
%
5
³
5.00:1.0
4.50
%
3.50
%
0.55
%
The Second Amendment provides that the applicable rate for
Eurodollar Rate Loans and Base Rate Loans will be 4.50% and
3.50%, respectively, from the date of consummation of the merger
through the date of delivery of a compliance certificate for the
first fiscal quarter ending after consummation of the merger.
The Second Amendment will also amend the Consolidated Leverage
Ratio covenant and the Consolidated Fixed Charge Coverage
Covenant and add a Consolidated Senior Secured Leverage Ratio
covenant. Acadia’s Consolidated Leverage Ratio for fiscal
quarters beginning with the quarter ended September 30,
2011 may not be greater than 6.25:1.0 and for each quarter
beginning with the quarter ending December 31, 2011 through
September 30, 2012, Acadia’s Consolidated Leverage
Ratio may not be greater than 6.00:1.0, with the maximum ratio
declining further thereafter.
Acadia will be required to maintain a Fixed Charge Coverage
Ratio of not less than 1.25:1.0 for the fiscal quarter ending
June 30, 2011 and 1.20:1.0 for each fiscal quarter
thereafter; provided that if the interest rate on the Senior
Notes or the Bridge Facility exceeds 13.00% on the effective
date of the Second Amendment, then the Fixed Charge Coverage
Ratio may not be less than 1.10:1.00 as of the last day of two
fiscal quarters ending after the effective date of the Second
Amendment.
Acadia’s Consolidated Senior Secured Leverage Ratio
covenant requires that such ratio not be greater than 3.50:1.0
for the quarter ending September 30, 2011, 3.00:1.0 for the
quarter ending December 31, 2011 through September 30,
2012 and 2.50:1.0 for each quarter beginning December 31,
2012 and thereafter.
Effectiveness of the Second Amendment is conditioned upon
satisfaction of conditions (including the following):
•
the completion of the merger on or prior to December 15,
2011;
•
consummation of the merger substantially in accordance with the
terms of the merger agreement and other material acquisition
agreements as in effect on the date of the Second Amendment;
provided that if such material acquisition agreements have been
amended, modified or supplemented, the administrative agent
shall have consented to such amendment, modification or
supplement to the extent such amendment, modification or
supplement would be material and adverse to the lenders;
•
absence of an “Acadia Material Adverse Effect” or a
“Phoenix Material Adverse Effect” each as defined in
the merger agreement;
•
repayment of certain indebtedness, other than agreed upon
indebtedness and incurrence of the Senior Notes or Bridge
Facility;
•
receipt of agreed upon financial statements, projections and
consents necessary to consummate the transaction contemplated by
the merger agreement;
•
payment of fees and expenses required by the Second Amendment;
•
compliance with a 5.85:1.00 pro forma closing date total
leverage ratio;
•
compliance with a $53.5 million pro forma closing date
minimum EBITDA condition;
•
at least $20.0 million of availability under the revolving
line of credit under the Senior Secured Credit Facility; and
•
other customary financing conditions more fully set forth in the
Second Amendment, including without limitation the absence of a
“Default” four business days prior to the closing date
and an “Event of Default” on the date of closing (and
after giving effect to the transaction) (each as defined in the
credit agreement governing the Senior Secured Credit Facility).
Debt
Commitment Letter
Acadia has entered into the Debt Commitment Letter with
Jefferies Finance pursuant to which Jefferies Finance has
committed, subject to customary conditions as further described
below, to provide the Bridge Facility of up to $150 million
in the event that $150 million of Senior Notes are not
issued by Acadia to finance the merger. Net proceeds from the
issuance of $150 million of Senior Notes or, if the Senior
Notes are not issued, drawings under the $150 million
Bridge Facility will be used, in addition to existing cash
balances, to pay the $5 million in cash payable to holders
of PHC Class B Common Stock in connection with the merger,
pay a dividend to Acacia’s existing stockholders, refinance
certain existing indebtedness of PHC and pay fees and expenses
incurred in connection with the merger.
The Bridge Facility, if drawn, will be guaranteed by
Acadia’s domestic subsidiaries and will mature initially on
the first anniversary of the closing of the merger, at which
time the maturity of any outstanding loans thereunder will be
extended automatically to the sixth anniversary of the closing
of the merger so long as the following conditions precedent are
satisfied: (i) the absence of any payment or bankruptcy
default under the bridge facility documentation; (ii) the
absence of any failure to pay any amounts owed to Jefferies
Finance under the Bridge Facility documentation;
and (iii) failure to issue replacement securities for any
outstanding bridge loans in accordance with the terms of the
Bridge Facility documentation. The lenders may exchange the
outstanding loans after the first anniversary of the closing of
the merger for notes due on such sixth anniversary.
The Bridge Facility commitment is subject to:
•
consummation of the merger in accordance with the terms of the
merger agreement as in effect on the date of the Debt Commitment
Letter, which merger agreement, if amended, modified or
supplemented must be with the consent of Jefferies Finance to
the extent such amendment, modification or supplement would be
material and adverse to the lenders;
•
repayment of certain indebtedness, other than agreed upon
indebtedness (including the Senior Secured Credit Facility and
the Deficit Notes);
•
receipt of agreed upon financial statements, projections and
consents necessary to consummate the transactions contemplated
by the merger agreement;
•
the absence of an Acadia Material Adverse Effect or a Phoenix
Material Adverse Effect (each as defined in the merger
agreement);
•
payment of fees and expenses required by the Debt Commitment
Letter;
•
compliance by Acadia with the covenant contained in the Debt
Commitment Letter which provides that prior to and during the
syndication of the bridge facility, and subject to certain
exceptions, there being no offer or sale of any debt facility,
debt or preferred equity security by Acadia, PHC or any of
subsidiaries;
•
compliance with a 5.85:1.00 pro forma closing date total
leverage ratio;
•
compliance with a $53.5 million pro forma closing date
minimum EBITDA condition;
•
the absence of any amendment modification or supplements to the
Senior Secured Credit Facility unless approved by Jefferies
Finance (such approval not to be unreasonably withheld, delayed
or conditioned);
•
the amount of the loans funded under the Bridge Facility
(together with any Senior Notes) is at least $150.0 million;
•
a 15 business day period prior to the completion of the merger
to market the senior unsecured notes; and
•
other customary financing conditions more fully set forth in the
Debt Commitment Letter.
The commitment for the Bridge Facility will terminate on
December 15, 2011 if the closing of the Bridge Facility has
not been consummated on or before such date or if the merger
agreement has been terminated. Each of Acadia and PHC is
obligated under the merger agreement to use its reasonable best
efforts to arrange the debt financing on the terms contemplated.
The receipt of the debt financing on the terms and conditions
set forth in the Debt Commitment Letter is a condition to the
obligation of both Acadia and PHC to consummate the merger.
Interest on the Bridge Facility, if funded, will initially bear
interest at a rate per annum equal to the higher of
(i) 1.50% and (ii) the three-month LIBOR, adjusted
quarterly plus, in each case, a spread of 7.75%. The Bridge
Facility may be repaid at any time at 100% of the principal
amount thereof plus accrued interest. The Bridge Facility will
be required to be repaid at 100% of the principal amount thereof
plus accrued interest (i) with the net cash proceeds of the
issuance of debt or equity securities, (ii) the incurrence
of other indebtedness for borrowed money, subject to agreed upon
exceptions, (iii) sales of assets and (iv) 50% of
excess cash flow in fiscal year.
The following table presents a summary of contractual
obligations as of June 30, 2011 and does not give effect to
the YFCS acquisition or the merger (dollars in thousands):
Payments Due by Period
Within
During
During
After
1 Year
Years 2-3
Years 4-5
5 Years
Total
Long-term debt
$
6,750
$
22,781
$
110,782
$
—
$
140,313
Operating leases
6,395
8,463
3,140
1,531
19,509
Purchase and other obligations(a)
2,112
—
—
—
2,112
Total obligations and commitments
$
15,237
$
31,244
$
113,922
$
1,531
$
161,934
(a)
Amounts relate to future purchase obligations, including
commitments to purchase property and equipment or complete
existing capital projects in future periods.
Off
Balance Sheet Arrangements
Acadia has no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition, results of operations or liquidity.
Quantitative
and Qualitative Disclosures About Market Risk
Our interest expense is sensitive to changes in market interest
rates. With respect to our interest-bearing liabilities, all of
our long-term debt outstanding at March 31, 2011 was at
variable rates based on the prime rate plus an applicable
margin, subject to an interest rate floor of 6.5%. A
hypothetical 10% increase in interest rates would not have an
impact on our net income or cash flows due to the excess of the
interest rate floor over market interest rates in recent periods.
YFCS
Acquisition
Acadia completed the acquisition of YFCS on April 1, 2011.
The following summary table and discussion describes the
historical consolidated condensed results from continuing
operations of YFCS for the respective periods shown (dollars in
thousands):
Year Ended December 31,
Three Months Ended March 31,
2010
2009
2011
2010
$
%
$
%
$
%
$
%
Revenue
$
184,386
100.0
%
$
186,586
100.0
%
$
45,686
100.0
%
$
45,489
100.0
%
Salaries and benefits
113,931
61.8
%
113,870
61.0
%
29,502
64.6
%
27,813
61.1
%
Other operating expenses
38,146
20.7
%
37,607
20.2
%
9,907
21.7
%
8,944
19.7
%
Provision for bad debts
525
0.3
%
(309
)
(0.2
)%
208
0.5
%
56
0.1
%
Interest
7,514
4.1
%
9,572
5.1
%
1,726
3.8
%
1,954
4.3
%
Depreciation and amortization
3,456
1.9
%
7,052
3.8
%
819
1.8
%
914
2.0
%
Impairment of goodwill
23,528
12.8
%
—
0.0
%
—
0.0
%
—
0.0
%
Total expenses
187,100
101.5
%
167,792
89.9
%
42,162
92.3
%
39,681
87.2
%
Income from continuing operations, before income taxes
(2,714
)
(1.5
)%
18,794
10.1
%
3,524
7.7
%
5,808
12.8
%
Income taxes
5,032
2.7
%
7,133
3.8
%
1,404
3.1
%
2,267
5.0
%
Income from continuing operations
$
(7,746
)
(4.2
)%
$
11,661
6.2
%
$
2,120
4.6
%
$
3,541
7.8
%
Revenue.
Revenue increased $0.2 million,
or 0.4%, to $45.7 million for the three months ended
March 31, 2011 from $45.5 million for the three months
ended March 31, 2010. Revenue decreased $2.2 million,
or 1.2%, to
$184.4 million for the year ended December 31, 2010
from $186.6 million for the year ended December 31,
2009. The decrease in revenue is attributable to a decline in
inpatient volumes related to utilization pressures by referral
sources.
Salaries and benefits.
Salaries and benefits
expense was $29.5 million for the three months ended
March 31, 2011 compared to $27.8 million for the three
months ended March 31, 2010, an increase of
$1.7 million or 6.1%. Salaries and benefits expense
represented 64.6% of revenue for the three months ended
March 31, 2011 compared to 61.1% of revenue for the three
months ended March 31, 2010. The increase in salaries and
benefits expense for the three months ended March 31, 2011
relates primarily to the January 1, 2011 release of a pay
freeze and mandatory vacation requirements in place since 2009.
Salaries and benefits expense was $113.9 million for the
years ended December 31, 2010 and 2009. Salaries and
benefits expense represented 61.8% of revenue for the year ended
December 31, 2010 compared to 61.0% of revenue for the year
ended December 31, 2009.
Other operating expenses.
Other operating
expenses were $9.9 million for the three months ended
March 31, 2011, or 21.7% of revenue, compared to
$8.9 million for the three months ended March 31,
2010, or 19.7% of revenue. The increase in other operating
expenses is due to increases in purchased services, supplies,
and insurance expense related to the conversion of professional
liability insurance policies to guaranteed cost programs. Other
operating expenses were $38.1 million for the year ended
December 31, 2010, or 20.7% of revenue, compared to
$37.6 million for the year ended December 31, 2009, or
20.2% of revenue.
Provision for bad debts.
The provision for bad
debts was $0.2 million for the three months ended
March 31, 2011, or 0.5% of revenue, compared to
$0.1 million for the three months ended March 31,
2010, or 0.1% of revenue. The provision for bad debts was
$0.5 million for the year ended December 31, 2010, or
0.3% of revenue, compared to net recoveries of bad debts of
$0.3 million for the year ended December 31, 2009.
YFCS’ facilities experience minimal bad debts given their
low volumes of private pay admissions.
Interest expense.
Interest expense was
$1.7 million for the three months ended March 31, 2011
compared to $2.0 million for the three months ended
March 31, 2010. Interest expense was $7.5 million for
the year ended December 31, 2010 compared to
$9.6 million for the year ended December 31, 2009. The
decrease in interest expense is a result of principal payments
during 2010 and 2009.
Depreciation and amortization.
Depreciation
and amortization expense was $0.8 million for the three
months ended March 31, 2011, or 1.8% of revenue, compared
to $0.9 million for the three months ended March 31,
2010, or 2.0% of revenue. Depreciation and amortization expense
was $3.5 million for the year ended December 31, 2010,
or 1.9% of revenue, compared to $7.1 million for the year
ended December 31, 2009, or 3.8% of revenue. The decrease
in depreciation and amortization expense is primarily
attributable to certain intangible assets becoming fully
amortized in 2009.
Impairment of goodwill.
The loss on impairment
of goodwill of $23.5 million for the year ended
December 31, 2010 was a result of management’s
conclusion that the carrying value of goodwill exceeded the fair
value implied by the sale of the company.
Critical
Accounting Policies
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States. In preparing our financial statements, we are
required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses
included in the financial statements. Estimates are based on
historical experience and other available information, the
results of which form the basis of such estimates. While we
believe our estimation processes are reasonable, actual results
could differ from our estimates. The following accounting
policies are considered critical to our operating performance
and involve highly subjective and complex assumptions and
assessments.
Revenue
and Contractual Discounts
Net patient service revenue is derived from services rendered to
patients for inpatient psychiatric and substance abuse care,
outpatient psychiatric care and adolescent residential treatment
and includes reimbursement for the
treatment of patients covered by Medicare, Medicaid, commercial
insurance (in network and out of network), and other programs,
as well as uninsured patients. Revenue is recorded in the period
in which services are provided.
The Medicare and Medicaid regulations are complex and various
managed care contracts may include multiple reimbursement
mechanisms for different types of services provided in our
inpatient facilities and cost settlement provisions requiring
complex calculations and assumptions subject to interpretation.
We estimate the allowance for contractual discounts on a
payor-specific basis by comparing our established billing rates
with the amount we determine to be reimbursable given our
interpretation of the applicable regulations or contract terms.
Most payments are determined based on negotiated per-diem rates.
The services authorized and provided and related reimbursement
are often subject to interpretation that could result in
payments that differ from our estimates. Additionally, updated
regulations and contract renegotiations occur frequently
necessitating continual review and assessment of the estimation
process by our management. We periodically compare the
contractual rates on our patient accounting systems with the
Medicare and Medicaid reimbursement rates or the third-party
payor contract for accuracy. We also monitor the adequacy of our
contractual adjustments using financial measures such as
comparing cash receipts to net patient revenue adjusted for bad
debt expense.
All revenues are shown net of estimated contractual adjustments
and charity care provided. When payment is made, if the
contractual adjustment is found to have been understated or
overstate, appropriate adjustments are made in the period the
payment is received in accordance with the American Institute of
Certified Public Accountants (“AICPA”) “Audit and
Accounting Guide for Health Care Organizations.” Net
contractual adjustments recorded in the six months ended
June 30, 2011 for revenue booked in prior years resulted in
an increase in revenue of approximately $297,000. Net
contractual adjustments recorded in the twelve months ended
December 31, 2010 for revenue booked in prior years
resulted in a decrease/increase in revenue of approximately
$20,000.
Our cost report receivables and other unsettled amounts due from
third parties at June 30, 2011 were $562,000. We believe
that these receivables are properly stated and are not likely to
be settled for a significantly different amount. If the actual
settlements differed by 1% from our estimated settlement value
at June 30, 2011, net income for the six months ended
June 30, 2011 and net accounts receivable as of
June 30, 2011 would have changed by approximately $6,000.
The following table presents patient service revenue by payor
type and as a percent of total patient service revenue for the
year ended December 31, 2010 and the interim six month
period ending June 30, 2011 (in thousands):
Six Months Ended
Year Ended
June 30, 2011*
December 31, 2010
Amount
%
Amount
%
Private Pay
2,481
1.9%
1,969
3.1%
Commercial
13,106
10.2%
22,024
34.2%
Medicare
7,197
5.6%
13,061
20.3%
Medicaid
105,863
82.3%
27,288
42.4%
Total
128,647
64,342
*
Revenues for the six months ended June 30, 2011 are
combined with pre-acquisition YFCS revenues on a pro-forma basis
to illustrate current expected payor mix.
The following tables present a summary of our aging of accounts
receivable as of December 31, 2010 and June 30, 2011:
Accounts Receivable Aging as of December 31, 2010 (in
thousands)
Current
30-60
60-90
90-120
120-150
>150
Total
Private Pay
$
90
$
72
$
73
$
76
$
1
$
54
$
366
Commercial
918
496
142
126
46
15
1,744
Medicare
867
67
55
11
9
23
1,033
Medicaid
1,608
503
111
40
17
48
2,327
Total
$
3,484
$
1,138
$
381
$
252
$
74
$
140
$
5,469
Accounts Receivable Aging as of June 30, 2011 (in
thousands)
Current
30-60
60-90
90-120
120-150
>150
Total
Private Pay
$
65
$
81
$
17
$
39
$
21
$
3
$
228
Commercial
1,875
375
309
100
30
70
2,758
Medicare
1,350
70
33
25
16
18
1,513
Medicaid
14,754
1,332
1,024
485
285
180
18,062
Total
$
18,044
$
1,859
$
1,384
$
650
$
352
$
271
$
22,560
Medicaid accounts receivable as of June 30, 2011 include
approximately $150,000 of accounts pending Medicaid approval.
These accounts are aged less than 60 days and are
classified as Medicaid because we have experienced between 80%
and 90% approval by Medicaid for this class of receivables.
Allowance
for Doubtful Accounts
Our ability to collect outstanding patient receivables from
third-party payors is critical to our operating performance and
cash flows. The primary collection risk with regard to patient
receivables lies with uninsured patient accounts or patient
accounts for which primary insurance has paid, but the portion
owed by the patient remains outstanding. We estimate the
allowance for doubtful accounts based on a number of factors,
including the age of the accounts, historical collection
experience, current economic conditions and other relevant
factors. We continually monitor our accounts receivable balances
and utilize retrorespective reviews and cash collection data to
support our estimates of the provision for doubtful accounts.
Our retrospective reviews have not resulted in significant
changes to our allowance for doubtful accounts. Significant
changes in payor mix or business office operations could have a
significant impact on our results of operations and cash flows.
Long-Lived
Assets and Goodwill
Long-lived assets, including property and equipment and
finite-lived intangible assets, comprise a significant portion
of our total assets. We evaluate the carrying value of
long-lived assets whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable. When management believes impairment indicators may
exist, projections of the undiscounted future cash flows
associated with the use and eventual disposition of long-lived
assets are prepared. If the projections indicate that the
carrying values of the long-lived assets are not recoverable, we
reduce the carrying values to fair value. We test for impairment
of long-lived assets at the lowest level for which cash flows
are measurable.
Goodwill also represents a significant portion of our total
assets. We review goodwill for impairment annually or more
frequently if events indicate that goodwill may be impaired. We
review goodwill at the reporting level unit, which is one level
below an operating segment. We compare the carrying value of the
net assets of a reporting unit to the fair value of the
reporting unit. If the carrying value exceeds the fair value, an
impairment indicator exists and an estimate of the impairment
loss is calculated. The fair value calculation includes multiple
assumptions and estimates and changes in these assumptions and
estimates could result in goodwill impairment that could
materially adversely impact our financial position or results of
operations.
Acadia Healthcare Company, LLC was formed as a limited liability
company (LLC). Some of Acadia’s subsidiaries are organized
as LLCs and others as C-corporations. Acadia elected, where
applicable, that all such entities be taxed as flow-through
entities and as such, the results of operations of the Company
related to the flow-through entities are included in the income
tax returns of its members. Accordingly, taxable income is the
direct obligation of the members.
Some of Acadia’s subsidiaries are taxed as C-corporations
for U.S. federal and state income tax purposes and are therefore
directly liable for taxes on their respective separate income. A
tax provision has been provided for income taxes that are the
responsibility of Acadia or its subsidiaries in the consolidated
financial statements relating to the entities that are taxed as
C-corporations and for any taxing jurisdictions that do not
recognize an LLC as a flow-through entity.
Effective April 1, 2011, Acadia Healthcare Company, LLC
elected to be treated as a corporation for U.S. federal income
tax purposes and, on May 13, 2011, converted to a
corporation (Acadia Healthcare Company, Inc.) in accordance with
Delaware law.
Insurance
We are subject to medical malpractice and other lawsuits due to
the nature of the services we provide. We maintain commercial
insurance coverage on a claims-made basis for general and
professional liability claims with a $50,000 deductible and
$1 million per claim limit and an aggregate limit of
$3 million with excess umbrella coverage for an additional
$7 million. The accrued insurance liabilities included in
the consolidated balance sheets include estimates of the
ultimate costs for both reported claims and claims incurred but
not reported. The recorded liabilities for professional and
general liability risks are estimated based on historical
claims, demographic factors, industry trends, severity factors,
and other actuarial assumptions calculated by an independent
third-party actuary. The estimated liability for professional
and general liability claims could be significantly affected
should current and future occurrences differ from historical
claim trends and expectations.
As of August 18, 2011, all of the outstanding common stock
of Acadia was held by Acadia Holdings, a holding company. Acadia
Holdings will be dissolved shortly before or after the merger
and the common stock of Acadia will be distributed to the
members of Acadia Holdings in accordance with their respective
ownership interests. The following table sets forth certain
information regarding the number of shares of Acadia’s
common stock that would have been beneficially owned assuming
that Acadia Holdings had been dissolved as of August 18,
2011. Based on the foregoing assumption, the table sets forth
the number of shares that would have been held by each person
who would have owned more than 5% of Acadia common stock, each
director of Acadia, each of the named executive officers of
Acadia and all directors and named executive officers of Acadia
as a group.
Unless otherwise indicated below, to the knowledge of Acadia,
all persons listed below would have had sole voting and
investment power with respect to their shares of common stock,
except to the extent authority is shared by spouses under
applicable law. In preparing the following table, Acadia has
relied on the information furnished by the persons listed below.
Beneficial
Owners 5% (Common Stock)
Amount and Nature
of Beneficial
Percent of
Name and Address of Beneficial Owner
Ownership
Class(1)
Waud Capital Partners
300 North LaSalle Street, Suite 4900
Chicago, IL 60654(2)
8,035,310
80.4
%
Joey A. Jacobs(3)
756,037
7.6
%
Beneficial
Ownership of Named Executive Officers and Directors
Amount and Nature
of Beneficial
Name of Beneficial Owner
Ownership
Percent of Class(1)
Joey A. Jacobs(3)
756,037
7.6
%
Trey Carter(4)
178,224
1.8
%
Reeve B. Waud(2)
8,035,310
80.4
%
Charles E. Edwards(2)
—
0
%
Matthew A. London(2)
—
0
%
Gary A. Mecklenburg(2)
3,361
*
All Directors and Named Executive Officers as a Group
8,972,932
89.8
%
*
Represents negligible amount
(1)
Based on 10,000,000 shares of Acadia common stock
outstanding as of August 18, 2011.
(2)
The reported shares of Acadia common stock are owned of record
as follows: (i) 1,499,237 shares by Waud Capital
Partners II, L.P. (“WCP II”),
(ii) 2,740,843 shares by Waud Capital Partners QP II,
L.P. (“Waud QP II”), (iii) 477,039 shares by
the Reeve B. Waud 2011 Family Trust,
(iv) 53,004 shares by Waud Family Partners, L.P.
(“WFP LP”), (v) 418,301 shares by WCP FIF II
(Acadia), L.P. (“WCP FIF II”),
(vi) 428,412 shares by Waud Capital Affiliates II,
L.L.C. (“Waud Affiliates II”),
(vii) 219,861 shares by Waud Capital Affiliates III,
L.L.C. (“Waud Affiliates III”),
(viii) 597,204 shares by WCP FIF III (Acadia), L.P.
(“WCP FIF III”), (ix) 1,360,771 shares by
Waud Capital Partners QP III, L.P. (“Waud QP III”) and
(x) 240,638 shares by Waud Capital Partners III, L.P.
(“WCP III”). Waud Capital Partners Management II, L.P.
(“WCPM II”), as the general partner of WCP II, Waud QP
II, WCP FIF II and the Manager of Waud Affiliates II and Waud
Capital Partners II, L.L.C. (“Waud II LLC”), as
the general partner of WCPM II, may be deemed to share
beneficial ownership of the shares held of record by such
entities. Waud Capital Partners Management III, L.P. (“WCPM
III”), as the general partner of WCP FIF III, Waud QP III
and WCP III and the Manager of Waud Affiliates III, and Waud
Capital Partners III, L.L.C. (“Waud III LLC”), as
the general partner of WCPM III, may be deemed to share
beneficial ownership of the shares held of record by such
entities. Reeve Waud may be deemed to
beneficially own the units held by each of the above entities by
virtue of his (A) making decisions for the Limited Partner
Committee of each of WCPM II and WCPM III, (B) being the
manager of Waud II LLC and Waud III LLC and WFP LP and
(iii) being the investment advisor of the Reeve B. Waud
2011 Family Trust. The address for Messrs. Edwards, London and
Mecklenburg is c/o Waud Capital Partners, LLC, 300 North LaSalle
Street, Suite 4900, Chicago, IL 60654.
(3)
The reported shares of Acadia common stock are owned of record
by the Joey A. Jacobs 2011 Grantor Retained Annuity Trust
(Acadia). The address for Mr. Jacobs is c/o Acadia
Healthcare Company, Inc., 830 Crescent Centre Drive,
Suite 610, Franklin, TN 37067.
(4)
The address for Mr. Carter is c/o Acadia Healthcare
Company, Inc., 830 Crescent Centre Drive, Suite 610,
Franklin, TN 37067.
Acadia and Waud Capital Partners are parties to a professional
services agreement dated April 1, 2011, pursuant to which
Waud Capital Partners renders general advisory and management
services with respect to financial and operating matters,
including advice on corporate strategy, budgeting of future
corporate investment, acquisition and divestiture strategy and
debt and equity financing. The parties entered into the
professional services agreement in connection with entering into
the second amended and restated limited liability company
agreement of Acadia Holdings on April 1, 2011 (the
“Acadia Holdings LLC Agreement”), which amended and
restated Acadia Holdings’ prior limited liability company
agreement dated August 31, 2009 (the “Prior LLC
Agreement”).
Pursuant to the professional services agreement, Acadia is
obligated to pay the following fees to Waud Capital Partners:
(i) upon consummation of any credit facility (including any
amendments to existing credit faculties which have the effect of
increasing the committed amount under such facility, but
excluding any credit facility entered into after April 1,
2011 with any affiliate of Waud Capital Partners if such
affiliate is receiving a closing or similar fee in connection
with such facility), financing fees in cash in an aggregate
amount to equal 1.5% of the aggregate principal amount of all
such loans (or 1.0% of the aggregate amount of all public bond
issuances); (ii) advisory fees in connection with the
negotiation and consummation of any acquisitions
and/or
dispositions by Acadia or any of its subsidiaries in an
aggregate amount equal to 2.0% of the gross purchase price of
any such acquisition or disposition (including any debt or other
liabilities assumed or otherwise included in the
transaction(s)), as compensation for the negotiation, arranging
and structuring services Waud Capital Partners has agreed to
provide Acadia with respect thereto; and (iii) upon
consummation of Sale of Acadia (as defined below), a sale fee in
cash in an amount equal to 1.5% of the enterprise value assigned
to Acadia Holdings and its subsidiaries in connection with or
implied by such Sale of Acadia, as compensation for the
negotiation, structuring and other services Waud Capital
Partners has agreed to provide Acadia with respect to Sale of
Acadia.
Waud Capital Partners currently charges Acadia a management fee
for ongoing advisory and management services of
$2.0 million per year. The fee for the period from and
including April 1, 2011 to and including June 30, 2011
was paid on April 1, 2011. Thereafter, the advisory fee is
payable on July 1st and January 1st of each
year in advance. Effective January 1, 2012 and each
January 1st thereafter, such advisory fee shall be
increased to an amount equal to the greater of (i) 5.0% of
Acadia’s EBITDA (as defined below) for the immediately
preceding year (as determined by the Acadia board of directors
in good faith) and (ii) 110% of the prior year’s
advisory fee. For purposes of the professional services
agreement, “EBITDA” means, for any period, the result
of (i) the consolidated net income (or loss) of Acadia
Holdings and its subsidiaries for such period, plus (ii) to
the extent deducted in any such period in determining such net
income or loss: (A) all federal, state and local taxes,
(B) interest expense, (C) amortization and
depreciation expense, and (D) extraordinary losses, minus
(iii) to the extent included in any such period in
determining net income or loss, extraordinary gains, in each
case determined in accordance with GAAP.
The professional services agreement also provides that Waud
Capital Partners will be reimbursed for their reasonable travel
expenses, legal fees and other
out-of-pocket
fees and expenses in connection with activities undertaken
pursuant to such agreement. Additionally, Waud Capital Partners
and its affiliates (other than Acadia and its subsidiaries)
shall be indemnified for liabilities incurred in connection with
their role under the professional
services agreement, other than for liabilities resulting from
their gross negligence or willful misconduct, as determined by a
court of competent jurisdiction in a final non-appealable order.
In connection with entry into the professional services
agreement, the amendment and restatement of the Prior LLC
Agreement and the consummation of Acadia’s acquisition of
YFCS, Waud Capital Partners received $6.15 million in fees
from Acadia on April 1, 2011, which consisted of a
$3.6 million transaction fee, a $450,000 commitment fee and
a $2.1 million financing fee.
Waud Capital Partners and Acadia will terminate the professional
services agreement in connection with consummation of the merger
and upon payment of $20,559,000 in aggregate transaction fees to
Waud Capital Partners pursuant to the terms of the related
termination agreement. Under the merger agreement, $15,559,000
of such transaction fees will be subtracted from the
$90.0 million dividend to be made by Acadia to holders of
Acadia capital stock immediately prior to consummation of the
merger.
Prior to entry into the professional services agreement, Waud
Capital Partners was entitled to receive the following fees from
Acadia Holdings pursuant to the Prior LLC Agreement: (i) an
annual advisory fee, payable on a semi-annual basis, as
compensation for the financial and management consulting
services Waud Capital Partners had agreed to provide Acadia
Holdings and its subsidiaries with respect to their business and
financial management generally and its financial affairs; and
(ii) upon consummation of any credit facility (including
amendments to existing credit facilities which have the effect
of increasing the amount to be drawn under such facility by
Acadia Holdings or its subsidiaries, but excluding any credit
facility entered into after December 30, 2005 with any
affiliate of Waud Capital Partners if such affiliate is
receiving a closing or similar fee in connection with such
facility) entered into by Acadia Holdings or its subsidiaries
after December 30, 2005, financing fees in an aggregate
amount to equal 2.0% of the aggregate principal amount of all
such loans (or 1.0% of the aggregate amount of all public bond
issuances), as compensation for the negotiation, arranging and
structuring services Waud Capital Partners had agreed to provide
to Acadia Holdings or its subsidiaries. Waud Capital Partners
was also entitled to receive an annual advisory fee, payable
semi-annually, under the Prior LLC Agreement (and its
predecessor). Such fee was initially set at $350,000 per annum,
subject to annual increases of $50,000, up to $600,000,
effective January 1st of each year beginning
January 1, 2007. Waud Capital Partners deferred the payment
of all such management fees in accordance with the terms of the
Prior LLC Agreement.
On April 1, 2011 in connection with entry into the Acadia
Holdings LLC Agreement, Waud Capital Partners received
approximately $7.9 million of Acadia Holdings equity in
exchange for fees it had previously deferred in accordance with
the Prior LLC Agreement.
True
Partners Engagement Agreement
Acadia and True Partners Consulting LLC (“True
Partners”), an affiliate of Waud Capital Partners, are
parties to an engagement agreement dated January 7, 2011,
pursuant to which True Partners renders tax consulting and
compliance services to Acadia and its affiliated entities. As of
July 1, 2011, Waud Capital Partners and its affiliates
indirectly own a majority of the True Partners membership
interests. The engagement agreement will automatically terminate
upon the completion of the services to be rendered by True
Partners thereunder. Either party may terminate the engagement
agreement upon at least 30 days’ prior written notice
to the other party. Upon such termination, True Partners shall
be entitled to receive payment for services performed and
expenses incurred through the date of termination. Pursuant to
the engagement agreement, Acadia pays certain fixed fees to True
Partners for various tax consulting and compliance services,
which are billed monthly as incurred. Acadia paid $73,200,
$116,365 and $62,065 to True Partners for such services in 2008,
2009 and 2010, respectively. In the event of a large transaction
or other activity not otherwise covered under the engagement
agreement for which True Partners provide services to Acadia,
True Partners will provide consulting services to Acadia at its
standard hourly rates, plus reimbursement of
out-of-pocket
expenses.
Acadia
Holdings LLC Agreement
The Acadia Holdings LLC Agreement grants certain rights to the
affiliates of Waud Capital Partners that are designated as the
“WCP Investors” in the Acadia Holdings LLC Agreement
(the “WCP Holdings Investors”). For so long as any WCP
Holdings Investor holds any Class A Units of Acadia
Holdings, the WCP Holdings Investors holding a majority of the
Class A Units then held by all WCP Investors constitute the
“Majority WCP Holdings
Investors” under the Acadia Holdings LLC Agreement. If no
WCP Holdings Investor holds any Class A Units of Acadia
Holdings, the “Majority WCP Holdings Investors” (for
purpose of the Acadia Holdings LLC Agreement) shall be the WCP
Holdings Investors holding a majority of the Class B,
Class C and Class D Units of Acadia Holdings held by
all WCP Holdings Investors.
The board of managers of Acadia Holdings currently consists of
five (5) managers, four of which are designated by the
Majority WCP Holdings Investors (the “WCP Managers”).
Except as provided in the Acadia Holdings LLC Agreement and for
cases in which the approval of the Acadia Holdings members is
expressly provided by the Acadia Holdings LLC Agreement or by
non-waivable provisions of applicable law, the powers of Acadia
Holders are exercised by or under the authority of, and the
business and affairs of Acadia Holdings are managed, under the
direction of its board of managers. Under the terms of the
Acadia Holdings LLC Agreement, each of WCP FIF III, Waud QP II,
Waud QP III and WCP III is able to designate one WCP Manager;
provided, that Reeve Waud is entitled to serve as one of the WCP
Managers at all times. Unless otherwise specified in the Acadia
Holdings LLC Agreement or required by applicable law, any
determination or action required to be taken by the board of
managers shall be taken by a majority of the voting power of the
managers then in office; provided that each WCP Manager is
entitled to a number of votes on all matters coming before the
board of managers in an amount equal to the quotient obtained by
dividing (i) the number of WCP Managers which the WCP
Holdings Investors are entitled to appoint under the Acadia
Holdings LLC Agreement by (ii) the number of WCP Managers
then serving on the board of managers.
The Acadia Holdings LLC Agreement grants certain drag along
rights to the WCP Holdings Investors in connection with any of
the following transactions (each a “Sale of Acadia”):
(i) the sale, lease, transfer, conveyance or other
disposition, in one transaction or a series of related
transactions, of all or substantially all of the assets of
Acadia; or (ii) a transaction (including by way of merger,
consolidation, recapitalization, reorganization or sale of
stock) the result of which the unitholders of Acadia Holdings
immediately prior to such transaction are, after giving effect
to such transaction, no longer in the aggregate “beneficial
owners” (as such term is defined in
Rules 13d-3
and
13d-5
promulgated under the Exchange Act), directly or indirectly
through one or more intermediaries, of more than 50% of the
voting power of the outstanding voting securities of Acadia
Holdings. If the Majority WCP Holdings Investors approve a Sale
of Acadia (an “Approved Sale”), each unitholder of
Acadia Holdings and each person that retains voting control over
any transferred units is obligated to, subject to the
satisfaction of certain conditions, vote for, consent to and
raise no objections against such Approved Sale. If the Approved
Sale is structured as (A) a merger or consolidation, each
unitholder is obligated to waive any dissenters’ rights,
appraisal rights or similar rights in connection with such
merger or consolidation or (B) a sale of units, each holder
is obligated to take all necessary or desirable actions in
connection with the consummation of the Approved Sale as
requested by Acadia Holdings’ board of managers (with the
approval of the Majority WCP Holdings Investors) or the Majority
WCP Holdings Investors. Furthermore, each Acadia Holdings
unitholder shall take all necessary or desirable actions in
connection with the consummation of the Approved Sale as
requested Acadia Holdings’ board of managers (with the
approval of the Majority WCP Holdings Investors) or the Majority
WCP Holdings Investors. The Acadia Holdings LLC Agreement also
provides that each unitholder is obligated to vote for, consent
to (to the extent it has any voting or consent right) and raise
no objections against an initial public offering of Acadia
Holdings or any of its subsidiaries approved by Acadia
Holdings’ board of managers.
The Acadia Holdings LLC Agreement requires that each
“Management Investor” named therein bring, and cause
each of its affiliates to bring, all investment or business
opportunities to Acadia Holdings of which any of them become
aware and which are within the scope and investment objectives
of Acadia Holdings or its subsidiaries. Notwithstanding the
foregoing, the Acadia Holdings LLC Agreement excludes holders of
Class A Units and Class B Units held by the WCP
Holdings Investors and their affiliates from all such
restrictions, subject only to confidentiality restrictions
contained in such agreement.
Except as provided in the Acadia Holdings LLC Agreement
(including with respect to matters that must be approved by a
majority of the Management Investors), such agreement may be
amended, modified, or waived in any respect with the written
consent of the Majority WCP Holdings Investors. Acadia Holdings
will be dissolved shortly before or after the merger.
Acadia Holdings entered into an amended and restated
registration rights agreement with the holders of substantially
all of its equity securities pursuant to which such holders have
the right to demand the registration of all or a portion of
their securities and have certain piggy back registration
rights, subject to certain limitations. Waud Capital Partners
and the other members of Acadia Holdings intend to cause the
dissolution of Acadia Holdings prior to the consummation of the
merger and to distribute the Acadia common stock held by Acadia
Holdings to its members. In connection with such dissolution and
distribution, Acadia will assume Acadia Holdings’ rights
and obligations under the amended and restated registration
rights agreement. The right to sell shares of common stock
pursuant to the amended and restated registration rights
agreement will be made subject to a
lock-up
agreement between those stockholders with registration rights
and Acadia’s underwriters in connection with Acadia’s
initial public offering which, unless waived, will prevent such
holders from exercising this right until 180 days after the
date of the prospectus associated with such initial public
offering.
Affiliate
Transactions
In August 2009, January 2010 and January 2011, Acadia Holdings
entered into management agreements, manager unit agreements,
executive purchase agreements
and/or
executive unit agreements with certain executives and managers
pursuant to which such executives or managers purchased or
otherwise were issued units of Acadia Holdings. See “Acadia
Management After the Merger — Compensation Discussion
and Analysis — Intended Objectives of Acadia’s
Executive Compensation Program; Elements of
Compensation — Historical Equity Arrangements”
for a more detailed description of these agreements.
In connection with the purchase of Class A Common Units and
Class A Preferred Units of Acadia Holdings by
Messrs. Carpenter, Carter, Dodd and Swinson and
Ms. Karen Prince in January 2010, each named executive
issued a promissory note to Acadia Holdings to satisfy its
obligations to make a capital contribution to Acadia Holdings in
accordance with the terms of the related management agreement.
Each of Messrs. Carpenter, Carter, Dodd and Swinson and
Ms. Prince issued a promissory note to Acadia Holdings on
January 4, 2010 in the aggregate principal amount of
$65,000, $120,000, $42,000, $42,000 and $96,000, respectively.
Interest on each promissory note accrues at the lesser of 8.00%
per annum and the highest rate permitted by applicable law.
Default interest on each promissory note accrues at a rate per
annum equal to the base rate (determined in accordance with the
prior sentence) plus 3.00%. Amounts due under each promissory
note are secured by certain Acadia Holdings units owned by the
related executive as set forth in such promissory note and the
related pledge agreement.
Each executive is obligated to pay all accrued and unpaid
interest on
his/her
promissory note on the last day of each March, June, September
and December. Each executive is required to repay amounts
borrowed under
his/her
promissory note in three equal installments on each
April 30th. The first two scheduled principal payments
under each promissory note were made on April 30, 2010 and
April 30, 2011, respectively. Each of
Messrs. Carpenter, Carter, Dodd and Swinson and
Ms. Prince repaid his or her promissory note in full on
July 7, 2011 and the related pledge agreement was
terminated effective as of such date.
Procedure
for Approval of Transactions with Related Parties
Acadia does not have a formal written related-party approval
policy for transactions to be disclosed pursuant to
Item 404(a) of
Regulation S-K.
We expect that the Acadia board of directors will adopt such a
policy prior to the completion of the merger.
PHC is a national healthcare company, which, through
wholly-owned subsidiaries, provides psychiatric services to
individuals who have behavioral health disorders including
alcohol and drug dependency and to individuals in the gaming and
transportation industries. PHC’s subsidiaries operate
substance abuse treatment facilities in Michigan, Utah and
Virginia, four outpatient psychiatric facilities in Michigan,
three outpatient psychiatric facilities in Nevada, one
outpatient psychiatric facility in Pennsylvania and three
psychiatric hospitals, one in Delaware acquired July 1,
2011, one in Michigan and one in Nevada and a residential
treatment facility in Michigan. PHC provides management,
administrative and help line services through contracts with
major railroads and a call center contract with Wayne County,
Michigan. PHC also operates a website, Wellplace.com, which
provides education and training for the behavioral health
professional and internet support services to all of PHC’s
subsidiaries.
PHC provides behavioral health services through inpatient and
outpatient facilities. PHC’s substance abuse facilities
provide specialized treatment services to patients who typically
have poor recovery prognoses and who are prone to relapse. These
services are offered in small specialty care facilities, which
permit PHC to provide its clients with efficient and customized
treatment without the significant costs associated with the
management and operation of general acute care hospitals. PHC
tailors these programs and services to
“safety-sensitive” industries and concentrate its
marketing efforts on the transportation, oil and gas
exploration, heavy equipment, manufacturing, law enforcement,
gaming and health services industries. PHC’s psychiatric
facilities provide inpatient psychiatric care, intensive
outpatient treatment and partial hospitalization programs to
children, adolescents and adults. PHC’s outpatient mental
health clinics provide services to employees of major employers,
as well as to managed care companies and Medicare and Medicaid
clients. The psychiatric services are offered in a larger, more
traditional setting than PHC’s substance abuse facilities,
enabling PHC to take advantage of economies of scale to provide
cost-effective treatment alternatives.
PHC treats employees who have been referred for treatment as a
result of compliance with Subchapter D of the Anti-Drug Abuse
Act of 1988 (commonly known as the Drug Free Workplace Act),
which requires employers who are Federal contractors or Federal
grant recipients to establish drug-free awareness programs
which, among other things, inform employees about available drug
counseling, rehabilitation and employee assistance programs. PHC
also provides treatment under the Department of Transportation
implemented regulations, which broaden the coverage and scope of
alcohol and drug testing for employees in
“safety-sensitive” positions in the transportation
industry.
PHC was incorporated in 1976 and is a Massachusetts corporation.
PHC’s corporate offices are located at 200 Lake Street,
Suite 102, Peabody, MA 01960 and PHC’s telephone
number is
(978) 536-2777.
On July 1, 2011, PHC completed the acquisition of
MeadowWood, a behavioral health facility located in New Castle,
Delaware, from UHS pursuant to the terms of an Asset Purchase
Agreement, dated as of March 15, 2011, between PHC and UHS.
In accordance with the Asset Purchase Agreement, PHC MeadowWood,
Inc., a Delaware corporation and subsidiary of PHC (“PHC
MeadowWood”), acquired substantially all of the operating
assets (other than cash) and assumed certain liabilities
associated with MeadowWood. The purchase price was $21,500,000
and is subject to a working capital adjustment. At closing, PHC
MeadowWood hired the employees currently employed at MeadowWood
and assumed certain obligations with respect to those
transferred employees. Also at closing, PHC MeadowWood and UHS
entered into a transition services agreement to facilitate the
transition of the business.
The demand for substance abuse treatment services has increased
rapidly over the last decade. PHC believes that the increased
demand is related to clinical advances in the treatment of
substance abuse, greater societal willingness to acknowledge the
underlying problems as treatable illnesses, improved health
insurance coverage for addictive disorders and chemical
dependencies and governmental regulation which requires certain
employers to provide information to employees about drug
counseling and employee assistance programs.
To contain costs associated with behavioral health issues in the
1980s, many private payors instituted managed care programs for
reimbursement, which included pre-admission certification, case
management or utilization review and limits on financial
coverage or length of stay. These cost containment measures have
encouraged outpatient care for behavioral problems, resulting in
a shortening of the length of stay and revenue per day in
inpatient chemical abuse facilities. PHC believes that it has
addressed these cost containment measures by specializing in
treating relapse-prone patients with poor prognoses who have
failed in other treatment settings. These patients require
longer lengths of stay and come from a wide geographic area. PHC
continues to develop alternatives to inpatient care including
residential programs, partial day and evening programs in
addition to onsite and offsite outpatient programs.
PHC believes that because of the apparent unmet need for certain
clinical and medical services, and its continued expansion into
various modalities of care for the chemically dependant, that
its strategy has been successful despite national trends towards
shorter inpatient stays and rigorous scrutiny by managed care
organizations.
PHC
Operations
PHC has been able to secure insurance reimbursement for
longer-term inpatient treatment as a result of its success with
poor prognosis patients. PHC’s two adult substance abuse
facilities work together to refer patients to the center that
best meets the patient’s clinical and medical needs. Each
facility caters to a slightly different patient population
including high-risk, relapse-prone chronic alcoholics, drug
addicts and dual diagnosis patients (those suffering from both
substance abuse and psychiatric disorders). The programs are
sensitive to the special behavioral health problems of children,
women and Native Americans. PHC concentrates on providing
services to insurers, managed care networks and health
maintenance organizations for both adults and adolescents.
PHC’s clinicians often work directly with managers of
employee assistance programs to select the best treatment
facility possible for their clients.
Each of PHC’s facilities operates a case management program
for each patient including a clinical and financial evaluation
of a patient’s circumstances to determine the most
cost-effective modality of care from among detoxification,
inpatient, residential, day care, specialized relapse treatment,
outpatient treatment, and others. In addition to any care
provided at one of PHC’s facilities, the case management
program for each patient includes aftercare. Aftercare may be
provided through the outpatient services provided by a facility.
Alternatively, PHC may arrange for outpatient aftercare, as well
as family and mental health services, through its numerous
affiliations with clinicians located across the country once the
patient is discharged.
In general, PHC does not accept patients who do not have either
insurance coverage or adequate financial resources to pay for
treatment. Each of PHC’s substance abuse facilities does,
however, provide treatment free of charge to a small number of
patients each year who are unable to pay for treatment but who
meet certain clinical criteria and who are believed by PHC to
have the requisite degree of motivation for treatment to be
successful. In addition, PHC provides
follow-up
treatment free of charge to relapse patients who satisfy certain
criteria. The number of patient days attributable to all
patients who receive treatment free of charge in any given
fiscal year is less than 5% of the total patient days.
PHC believes that it has benefited from an increased awareness
of the need to make substance abuse treatment services
accessible to the nation’s workforce. For example, The Drug
Free Workplace Act of 1988 requires employers who are Federal
contractors or Federal grant recipients to establish drug free
awareness programs to inform employees about available drug
counseling, rehabilitation and employee assistance programs and
the consequences of drug abuse violations. In response to the
Drug Free Workplace Act, many companies, including many major
national corporations and transportation companies, have adopted
policies that provide for treatment options as an alternative to
termination of employment.
Although PHC does not directly provide federally approved
mandated drug testing, PHC treats employees who have been
referred to PHC as a result of compliance with the Drug Free
Workplace Act, particularly from companies that are part of the
gaming industry as well as “safety-sensitive”
industries such as railroads, airlines, trucking firms, oil and
gas exploration companies, heavy equipment companies,
manufacturing companies and health services.
HIGHLAND RIDGE
— Highland Ridge is a 41-bed,
freestanding alcohol and drug treatment hospital, which PHC has
been operating since 1984. The hospital increased its bed
capacity to 41 from 32 in November 2003 and expanded medical
staff to include psychiatric care in its treatment plans. Its
focus remains substance abuse and it is the oldest facility
dedicated to substance abuse in Utah. Highland Ridge is
accredited by The Joint Commission on Accreditation of
Healthcare Organizations (“The Joint Commission”) and
is licensed by the Utah Department of Health.
Although Highland Ridge does provide services to individuals
from all of the States through contracts with the railroads and
other major employers, most patients at this facility are from
Utah and surrounding states. Individuals typically access
Highland Ridge’s services through professional referrals,
family members, employers, employee assistance programs or
contracts between PHC and health maintenance organizations
located in Utah.
Highland Ridge was the first private for-profit hospital to
address specifically the special needs of chemically dependent
women in Salt Lake County. In addition, Highland Ridge has
contracted with Salt Lake County to provide medical
detoxification services targeted to women. The hospital also
operates a specialized continuing care support group to address
the unique needs of women and minorities.
A pre-admission evaluation, which involves an evaluation of
psychological, cognitive and situational factors, is completed
for each prospective patient. In addition, each prospective
patient is given a physical examination upon admission.
Diagnostic tools, including those developed by the American
Psychological Association, the American Society of Addiction
Medicine and the Substance Abuse Subtle Screening Inventory are
used to develop an individualized treatment plan for each
client. The treatment regimen involves an interdisciplinary team
which integrates the twelve-step principles of self-help
organizations, medical detoxification, individual and group
counseling, family therapy, psychological assessment,
psychiatric support, stress management, dietary planning,
vocational counseling and pastoral support. Highland Ridge also
offers extensive aftercare assistance at programs strategically
located in areas of client concentration throughout the United
States. Highland Ridge maintains a comprehensive array of
professional affiliations to meet the needs of discharged
patients and other individuals not admitted to the hospital for
treatment.
Highland Ridge periodically conducts or participates in research
projects. Highland Ridge was the site of a research project
conducted by the University of Utah Medical School. The research
explored the relationship between individual motivation and
treatment outcomes. The research was regulated and reviewed by
the Human Subjects Review Board of the University of Utah and
was subject to federal standards that delineated the nature and
scope of research involving human subjects. Highland Ridge
benefited from this research by expanding its professional
relationships within the medical school community and by
applying the findings of the research to improve the quality of
services PHC delivers.
During fiscal 2011, Highland Ridge expanded its services to
include the operation and management of a 26 bed psychiatric
unit at Pioneer Valley Hospital located in West Valley City,
Utah. The contract calls for reimbursement to Highland Ridge of
all costs incurred in the management of the unit and a share in
the profitability of the unit. Highland Ridge also provides
assessment and referral services to other local hospitals on a
fee for service basis.
MOUNT REGIS
— Mount Regis is a 25-bed,
freestanding alcohol and drug treatment center located in Salem,
Virginia, near Roanoke. PHC acquired the center in 1987. It is
the oldest of its kind in the Roanoke Valley. Mount Regis is
accredited by The Joint Commission and licensed by the Virginia
Department of Behavioral Health and Developmental Services.
Mount Regis also operates Right Track, which is a residential
program designed to provide individuals with the tools they need
to make a smooth transition from inpatient treatment back into
their everyday routine. In addition, Mount Regis operates
Changes, an outpatient clinic, at its Salem, Virginia location.
The Changes clinic provides structured intensive outpatient
treatment for patients who have been discharged from Mount Regis
and for patients who do not need the formal structure of a
residential treatment program. The program is licensed by the
Commonwealth of Virginia and approved for reimbursement by major
insurance carriers.
Similar to Highland Ridge, the programs at Mount Regis Center
are sensitive to the needs of women and minorities. The majority
of Mount Regis clients are from Virginia and surrounding states.
In addition, because of its relatively close proximity and
accessibility to New York, Mount Regis has been able to attract
an increasing number of referrals from New York-based labor
unions. Mount Regis has also been able to attract a growing
number of clients through the Internet. Mount Regis has
established programs that allow PHC to better treat dual
diagnosis patients (those suffering from both substance abuse
and psychiatric disorders), cocaine addiction and relapse-prone
patients. The multi-disciplinary case management, aftercare and
family programs are key factors to the prevention of relapse.
RENAISSANCE RECOVERY
— Renaissance Recovery is
a 24-bed alcohol and drug treatment facility located in Detroit,
Michigan which opened in April 2011. Renaissance Recovery treats
boys and girls between the ages of 12 and 17, in need of
behavioral health treatment due to chemical impairment.
The program incorporates a co-occurring based assessment model
to identify and treat both substance abuse and mental health
disorders, combining substance abuse therapy, educational
services, medication therapy, group therapy and peer support and
family counseling (parent(s), guardians and extended family and
care givers). Techniques to recognize and manage internal
emotional “triggers” that lead to substance or
psychiatric relapse are taught as a feature of the therapy each
child receives, individually and within a group.
Multi-disciplinary teams of licensed, certified and boarded
professional staff utilize an eclectic therapy approach which
includes cognitive behavioral therapy.
The residential program is case dependent, and length of stay
may be from a period of minimally 5 — 7 days or
up to a full program of thirty days or more as warranted. Step
down from this program is continued through other Pioneer
facilities for in-patient or out-patient treatment as
appropriate to the “treatment plan’’ developed
upon discharging.
The program accepts most insurance plans and is licensed by the
State of Michigan as a Substance Abuse provider and as a Child
Caring Institution and accredited by the Council on
Accreditation.
General
Psychiatric Facilities
PHC believes that its proven ability to provide high quality,
cost-effective care in the treatment of substance abuse has
enabled it to grow in the related behavioral health field of
psychiatric treatment. PHC’s main advantage is its ability
to provide an integrated delivery system of inpatient and
outpatient care. As a result of integration, PHC is better able
to manage and track patients.
PHC offers inpatient and partial hospitalization and psychiatric
services. PHC provides inpatient psychiatric services through
Harbor Oaks Hospital located in New Baltimore, Michigan, Seven
Hills Hospital located in Las Vegas, Nevada and MeadowWood
located in New Castle, Delaware and residential treatment to
adjudicated juveniles through Detroit Behavioral Institute,
Inc., doing business as Capstone Academy, located in Detroit
Michigan. In addition, PHC currently operates seven outpatient
psychiatric facilities.
PHC’s philosophy at these facilities is to provide the most
appropriate and efficacious care with the least restrictive
modality of care possible. An attending physician, a case
manager and a clinical team work together to manage the care
plan. The integrated delivery system allows for better patient
tracking and
follow-up
and fewer
repeat procedures and therapeutic or diagnostic errors.
Qualified, dedicated staff members take a full history on each
new patient, and through test and evaluation procedures, they
provide a thorough diagnostic
write-up
of
the patient’s condition. In addition, a physician does a
complete physical examination for each new patient. This
information allows the caregivers to determine which treatment
alternative is best suited for the patient and to design an
individualized recovery program for the patient.
Managed health care organizations, state agencies, physicians
and patients themselves refer patients to PHC’s facilities.
These facilities have a patient population ranging from children
as young as five years of age to senior citizens. Compared to
the substance abuse facilities, the psychiatric facilities treat
a larger percentage of female patients.
HARBOR OAKS
— PHC acquired Harbor Oaks
Hospital, a 71-bed psychiatric hospital located in New
Baltimore, Michigan, approximately 20 miles northeast of
Detroit, in September 1994. Harbor Oaks Hospital is licensed by
the Michigan Department of Community Health, Medicare certified
and accredited by The Joint Commission. Harbor Oaks provides
inpatient psychiatric care, partial hospitalization and
outpatient treatment to children, adolescents and adults. Harbor
Oaks Hospital has treated clients from Macomb, Oakland and St.
Clair counties and has expanded its coverage area to include
Wayne, Sanilac and Livingston counties.
Harbor Oaks has become a primary provider for Medicaid patients
from Wayne, Macomb and St. Clair counties. Utilization of a
short-term crisis management model in conjunction with strong
case management has allowed Harbor Oaks to successfully enter
this segment of the market. Reimbursement for these services is
comparable to traditional managed care payors. Given the current
climate of public sector treatment availability, Harbor Oaks
anticipates continued growth in this sector of the business.
In September 2009, Harbor Oaks Hospital replaced its residential
unit with a much needed specialty unit for the treatment of
chemical dependency. Harbor Oaks also operates an outpatient
site near New Baltimore, Michigan. Its close proximity to the
hospital allows for a continuum of care for patients after
discharge.
DETROIT BEHAVIORAL INSTITUTE
— Detroit
Behavioral Institute operates a 66-bed residential treatment
facility licensed as Capstone Academy. It is located in midtown
Detroit and serves adjudicated adolescents diagnosed as
seriously emotionally disturbed. These adolescents are placed in
Capstone Academy by court order.
Prior to January of 2009, this program was operated in a setting
on the campus of the Detroit Medical Center, and was licensed
for fifty residents (30 boys/20 girls). In early 2009, all
residents were moved to the current Capstone Academy location.
Pursuant to licensing guidelines and the review and approval of
sound and therapeutic programming, the State of Michigan
Department of Human Services allowed PHC to increase the number
of beds by 16. This became effective in June 2009.
In its present configuration, the facility includes twelve
designated beds for a special program for girls requiring a more
intensive and comprehensive treatment model, while the remaining
fifty-four beds, which can be allocated for either boys or girls
as referrals dictate, offer a more traditional treatment model.
In all programs, however, intensive treatment models address and
treat residents as appropriate to their needs with individual,
group and family counseling.
The residents in the programs range from 12 to 17 years of
age, with a minimum IQ of 70. Each program provides individual,
group and family therapy sessions for medication orientation,
anger management, impulse control, grief and loss, family
interactions, coping skills, stress management, substance abuse,
discharge and aftercare planning (home visits and community
reintegration), recreation therapy and sexual/physical abuse
counseling as required.
As a part of the treatment model, each resident learns life
skills (didactics) and receives education, in accordance with
Michigan’s required educational curriculum, from state
certified teachers, who are members of PHC’s staff.
Typically, a resident is placed for treatment for an initial
period of 30 days to six months, case dependent.
Periodic case review and psychiatric evaluations are conducted
to evaluate progress or areas requiring improvement in
accordance with goals and planning for discharge and eventual
transition back to the community.
The treatment teams that provide therapy and review each
resident for progress include licensed counselors, nursing
staff, certified teachers, psychiatrists, youth specialists and
other program personnel.
PHC is approved by the local school district, in accordance with
state law to operate as a school under its auspices, for the
education of program residents. Consequently, when residents
transition back to the community they do so without losing
school credits. Transcripts, testing scores and related items
are readily accepted by the new education environment. PHC has
successfully fulfilled this obligation for five years, with
improved success. This allows PHC’s programs to integrate
the residents’ education with their individual treatment
model and provide the best education possible without
transporting the individuals to another site.
SEVEN HILLS HOSPITAL
— Seven Hills Hospital, a
58-bed psychiatric hospital located in Las Vegas, Nevada, is
licensed by the State of Nevada, accredited by The Joint
Commission and received Medicare certification in July 2010.
Seven Hills Hospital provides services to clients covered under
the capitated contracts of PHC’s other subsidiary, Harmony
Healthcare. Seven Hills Hospital has provided inpatient
psychiatric care to adults since its opening in 2008 and began
providing psychiatric care to adolescents in the third quarter
of fiscal 2010. Its treatment programs were expanded in fiscal
2009 to include detoxification and residential treatment of
chemical dependency. PHC, through its subsidiary Seven Hills
Hospital, Inc., leases Seven Hills Hospital from Seven Hills
Psych Center, LLC, which constructed the hospital to PHC’s
specifications. PHC owns a 15.24% interest in Seven Hills Psych
Center, LLC.
HARMONY HEALTHCARE
— Harmony Healthcare, which
consists of three psychiatric clinics in Nevada, provides
outpatient psychiatric care to children, adolescents and adults
in the local area. Harmony also operates employee assistance
programs for railroads, health care companies and several large
gaming companies including Boyd Gaming Corporation, the MGM
Grand and the Venetian with a rapid response program to provide
immediate assistance 24 hours a day and seven days a week.
Harmony also provides outpatient psychiatric care and inpatient
psychiatric case management through capitated rate behavioral
health carve-outs with Behavioral Health Options and PacifiCare
Insurance. The agreement with Behavioral Health Options is a
significant contract which began in January 2007 and caused a
major expansion of Harmony to better serve the contract
population.
NORTH POINT-PIONEER, INC.
— North Point
consists of three outpatient clinical offices strategically and
geographically located to serve a large and populous region in
Michigan. The clinics provide outpatient psychiatric and
substance abuse treatment to children, adolescents and adults
operating under the name Pioneer Counseling Center. The three
clinics are located in close proximity to the Harbor Oaks
facility, which allows for more efficient integration of
inpatient and outpatient services and provides for a larger
coverage area and the ability to share personnel which results
in cost savings. Since 2005, North Point has provided services
under a contract with Macomb County Office of Substance Abuse to
provide behavioral health outpatient and intensive outpatient
services for indigent and Medicaid clients residing in Macomb
County. The contract is renewable annually with an estimated
annual value of $55,000.
MEADOWWOOD BEHAVIORAL HEALTH.
— MeadowWood,
located in New Castle, Delaware, was acquired by PHC on
July 1, 2011. The facility is an acute care psychiatric
hospital with 58 beds providing services to adults suffering
with mental illness and substance abuse. MeadowWood is licensed
by the Delaware Department of Health and Social Services,
Medicare certified and accredited by The Joint Commission.
MeadowWood has both inpatient and partial hospitalization
services focused on geriatric, co-occurring and acute mental
disorders. MeadowWood anticipates seeking approval for
additional beds to expand the facility during the next
12 months. The acquisition was made in connection with the
divestiture requirements imposed on Universal Health Services
following its acquisition of PSI.
WELLPLACE
— PHC operates an outpatient
psychiatric facility in Monroeville, Pennsylvania to support the
needs of its railroad clients.
Call
Center Operations
WELLPLACE
— In 1994, PHC began to operate a
crisis hotline service under contract with a major
transportation client. The hotline, Wellplace, shown as contract
support services on the accompanying Consolidated
Statements of Operations, is a national,
24-hour
telephone service, which supplements the services provided by
the client’s Employee Assistance Programs. The services
provided include information, crisis intervention, critical
incidents coordination, employee counselor support, client
monitoring, case management and health promotion. The hotline is
staffed by counselors who refer callers to the appropriate
professional resources for assistance with personal problems.
Three major transportation companies subscribed to these
services as of June 30, 2011. This operation is physically
located in Highland Ridge hospital, but a staff dedicated to
Wellplace provides the services from a separate designated area
of the Hospital. Wellplace also contracts with Wayne County
Michigan to operate its call center. This call center is located
in mid-town Detroit on the campus of the Detroit Medical Center
and provides
24-hour
crisis, eligibility and enrollment services for the
Detroit-Wayne County Community Mental Health Agency which
oversees 56,000 lives or consumers for mental health services in
Wayne County Michigan. Wellplace’s primary focus is now on
growing its operations to take advantage of current
opportunities and capitalize on the economies of scale in
providing similar services to other companies and government
units.
Internet
Operations
PHC maintains a web site, Wellplace.com. PHC’s web site
provides behavioral health professionals with the educational
tools required to keep them abreast of behavioral health
breakthroughs and keep individuals informed of current issues in
behavioral health.
Operating
Statistics
The following table reflects selected financial and statistical
information for all services.
Year Ended June 30,
2011
2010
2009
2008
2007
Inpatient
Net patient service revenues
$
36,693,784
$
29,743,377
$
23,634,602
$
22,327,159
$
21,508,417
Net revenues per patient day(1)
$
542
$
477
$
438
$
387
$
395
Average occupancy rate(2)
78.7
%
75.7
%
71.2
%
85.6
%
81.0
%
Total number of licensed beds at the end of the period
285
260
260
244
180
Source of Revenues:
Private(3)
59.0
%
56.2
%
54.9
%
48.2
%
50.2
%
Government(4)
41.0
%
43.8
%
45.1
%
51.8
%
49.8
%
Partial Hospitalization and Outpatient
Net Revenues:
Individual
$
8,792,896
$
7,325,916
$
5,800,090
$
6,603,002
$
6,518,115
Contract
$
12,009,055
$
12,578,102
$
13,165,271
$
11,925,916
$
7,995,997
Sources of revenues:
Private
98.6
%
98.9
%
99.1
%
99.1
%
98.6
%
Government
1.4
%
1.1
%
0.9
%
0.9
%
1.4
%
Other Services:
Contract Services (Wellplace)(5)
$
4,512,144
$
3,429,831
$
3,811,056
$
4,541,260
$
4,540,634
(1)
Net revenues per patient day equals net patient service revenues
divided by
total patient days excluding bed days provided
by the Seven Hills subsidiary under the Harmony capitated
contract.
(2)
Average occupancy rates were obtained by dividing the total
number of patient days in each period including capitated
contract bed days by the number of beds available in such period.
Private pay percentage is the percentage of total patient
revenue derived from all payors other than Medicare and Medicaid
and county programs.
(4)
Government pay percentage is the percentage of total patient
revenue derived from the Medicare and Medicaid and county
programs.
(5)
Wellplace provides contract support services including clinical
support, referrals management and professional services for a
number of PHC’s national contracts and operates the Wayne
County Michigan call center.
Marketing
and Customers
PHC markets its substance abuse, inpatient and outpatient
psychiatric health services both locally and nationally,
primarily to “safety-sensitive” industries, including
transportation, manufacturing and healthcare services.
Additionally, PHC markets its services in the gaming industry
both in Nevada and nationally and its help line services
nationally.
PHC employs three individuals dedicated to marketing PHC s
facilities. Each facility performs marketing activities in its
local region. The Senior Vice President of PHC coordinates
PHC’s national marketing efforts. In addition, employees at
certain facilities perform local marketing activities
independent of the Senior Vice President. PHC, with the support
of its owned integrated outpatient systems and management
services, continues to pursue more at-risk contracts and
outpatient, managed health care
fee-for-service
contracts. “At-risk” contracts require that PHC
provides all the clinically necessary behavioral health services
for a group of people for a set fee per person per month. PHC
currently has two at-risk contracts with large insurance
carriers, which require PHC to provide behavioral health
services to a large number of its insured for a fixed fee. These
at-risk contracts represent less than 15% of PHC’s total
gross revenues. In addition to providing excellent services and
treatment outcomes, PHC will continue to negotiate pricing
policies to attract patients for long-term intensive treatment
which meet length of stay and clinical requirements established
by insurers, managed health care organizations and PHC’s
internal professional standards.
PHC’s integrated systems of comprehensive outpatient mental
health programs complement PHC’s inpatient facilities.
These outpatient programs are strategically located in Nevada,
Virginia, Michigan, and Utah. They make it possible for PHC to
offer wholly integrated, comprehensive, mental health services
for corporations and managed care organizations on an at-risk or
exclusive
fee-for-service
basis. Additionally, PHC operates Wellplace located in the
Highland Ridge facility in Salt Lake City, Utah and in Detroit,
Michigan. Wellplace provides clinical support, referrals,
management and professional services for a number of PHC’s
national contracts. It gives PHC the capacity to provide a
complete range of fully integrated mental health services.
PHC provides services to employees of a variety of corporations
including: Boyd Gaming Corporation, CSX Corporation, MGM Mirage,
Union Pacific Railroad, Union Pacific Railroad Hospital
Association and others.
In addition to its direct patient care services, PHC maintains
its web site, Wellplace.com, which provides articles and
information of interest to the general public as well as the
behavioral health professional. PHC’s internet company also
provides the added benefit of web availability of information
for various Employee Assistance Program contracts held and
serviced by those subsidiaries providing direct treatment
services.
Competition
PHC’s substance abuse programs compete nationally with
other health care providers, including general and chronic care
hospitals, both non-profit and for-profit, other substance abuse
facilities and short-term detoxification centers. Some
competitors have substantially greater financial resources than
PHC. PHC believes, however, that it can compete successfully
with such institutions because of its success in treating poor
prognosis patients. PHC will compete through its focus on such
patients, its willingness to negotiate appropriate rates and its
capacity to build and service corporate relationships.
PHC’s psychiatric facilities and programs compete primarily
within the respective geographic area serviced by them. PHC
competes with private doctors, hospital-based clinics,
hospital-based outpatient services and other
comparable facilities. The main reasons that PHC competes well
are its integrated delivery and dual diagnosis programming.
Integrated delivery provides for more efficient
follow-up
procedures and reductions in length of stay. Dual diagnosis
programming provides a niche service for clients with a primary
mental health and a secondary substance abuse diagnosis. PHC
developed its dual diagnosis service in response to demand from
insurers, employers and treatment facilities. PHC’s
internet subsidiary provides the competitive edge for service
information and delivery for PHC’s direct patient care
programs.
Revenue
Sources and Contracts
PHC has entered into relationships with numerous employers,
labor unions and third-party payors to provide services to their
employees and members for the treatment of substance abuse and
psychiatric disorders. In addition, PHC admits patients who seek
treatment directly without the intervention of third parties and
whose insurance does not cover these conditions in circumstances
where the patient either has adequate financial resources to pay
for treatment directly or is eligible to receive free care at
one of PHC’s facilities. PHC’s psychiatric patients
either have insurance or pay at least a portion of treatment
costs based on their ability to pay. Most of PHC’s patients
are covered by insurance. Free treatment provided each year
amounts to less than 5% of PHC’s total patient days.
Each contract is negotiated separately, taking into account the
insurance coverage provided to employees and members, and,
depending on such coverage, may provide for differing amounts of
compensation to PHC for different subsets of employees and
members. The charges may be capitated, or fixed with a maximum
charge per patient day, and, in the case of larger clients,
frequently result in a negotiated discount from PHC’s
published charges. PHC believes that such discounts are
appropriate as they are effective in producing a larger volume
of patient admissions. PHC treats non-contract patients and
bills them on the basis of PHC’s standard per diem rates
and for any additional ancillary services provided to them by
PHC.
With Meditech, the billing software in use by the company, the
charges are contractually adjusted at the time of billing using
adjustment factors based on agreements or contracts with the
insurance carriers and the specific plans held by the
individuals as outlined above. This method may still require
additional adjustment based on ancillary services provided and
deductibles and copays due from the individuals, which are
estimated at the time of admission based on information received
from the individual. Adjustments to these estimates are
recognized as adjustments to revenue in the period they are
identified, usually when payment is received, and are not
material to the financial statements.
PHC’s policy is to collect estimated co-payments and
deductibles at the time of admission in the form of an admission
deposit. Payments are made by way of cash, check or credit card.
For inpatient services, if the patient does not have sufficient
resources to pay the estimated co-payment in advance, PHC’s
policy is to allow payment to be made in three installments, one
third due upon admission, one third due upon discharge and the
balance due 30 days after discharge. At times, the patient
is not physically or mentally stable enough to comprehend or
agree to any financial arrangement. In this case, PHC will make
arrangements with the patient once his or her condition is
stabilized. At times, this situation will require PHC to extend
payment arrangements beyond the three payment method previously
outlined. Whenever extended payment arrangements are made, the
patient, or the individual who is financially responsible for
the patient, is required to sign a promissory note to PHC, which
includes interest on the balance due. For outpatient services,
PHC’s policy is to charge a $5.00 billing/statement fee for
any accounts still outstanding at month end.
PHC’s days sales outstanding (“DSO”) are
significantly different for each type of service and each
facility based on the payors for each service. Overall, the DSO
for the combined operations of PHC was 71 days at
June 30, 2011 and 64 days at June 30, 2010. This
increase in the DSO is due primarily to increased revenue in
PHC’s start up operations with slower payment and a delay
in some contract payments. Contract services DSO’s
fluctuate dramatically by the delay in payment of a few days for
any of our large contracts. There was such a delay in payments
for the Michigan call center at the end of fiscal 2011,
artificially inflating the DSO’s for the period.
DSO’s for each year for each business segment are as
follows:
Treatment
Contract
Twelve Months Ended
Services
Services
06/30/2011
61
69
06/30/2010
61
53
Amounts pending approval from Medicare or Medicaid, as with all
other third party payors, are maintained as receivables based on
the discharge date of the patient, while appeals are made for
payment. If accounts remain unpaid, when all levels of appeal
have been exhausted, accounts are written off. Where possible,
PHC will turn to the patient or the responsible party to seek
reimbursement and send the account to collections before writing
the account off.
Insurance companies and managed care organizations are entering
into sole source contracts with healthcare providers, which
could limit PHC’s ability to obtain patients. Private
insurers, managed care organizations and, to a lesser extent,
Medicaid and Medicare, are beginning to carve-out specific
services, including mental health and substance abuse services,
and establish small, specialized networks of providers for such
services at fixed reimbursement rates. PHC is not aware of any
lost business as a result of sole source contracts to date, as
PHC has not been advised by any payor that PHC has been
eliminated as a provider from their system based on an
exclusivity contract with another provider. Continued growth in
the use of carve-out systems could materially adversely affect
PHC’s business to the extent it is not selected to
participate in such smaller specialized networks or if the
reimbursement rate is not adequate to cover the cost of
providing the service.
Quality
Assurance and Utilization Review
PHC has established comprehensive quality assurance programs at
all of its facilities. These programs are designed to ensure
that each facility maintains standards that meet or exceed
requirements imposed upon PHC with the objective of providing
high-quality specialized treatment services to its patients. To
this end, the Joint Commission surveys and accredits PHC’s
inpatient facilities, except Detroit Behavioral Institute and
Renaissance Recovery which are accredited through the Council on
Accreditation (“COA”). PHC’s outpatient
facilities comply with the standards of National Commission on
Quality Assurance (“NCQA”) although the facilities are
not NCQA certified and are not required to be NCQA certified.
PHC’s outpatient facilities in Michigan are certified by
the American Osteopathic Association (“AOA”), which is
a nationally accepted accrediting body, recognized by payors as
the measure of quality in outpatient treatment and the only
accrediting body whose standards are recognized by CMS.
PHC’s professional staff, including physicians, social
workers, psychologists, nurses, dietitians, therapists and
counselors, must meet the minimum requirements of licensure
related to their specific discipline, in addition to each
facility’s own internal quality assurance criteria as
adopted by the facility for operational purposes and approved by
the Executive Committee. PHC participates in the federally
mandated National Practitioners Data Bank, which monitors
professional accreditation nationally. In each facility,
continuing quality improvement (“CQI”) activity is
reviewed quarterly by PHC’s corporate compliance unit and
quality assurance activities are approved by the executive
committee.
In response to the increasing reliance of insurers and managed
care organizations upon utilization review methodologies, PHC
has adopted a comprehensive documentation policy to satisfy
relevant reimbursement criteria. Additionally, PHC has developed
an internal case management system, which provides assurance
that services rendered to individual patients are medically
appropriate and reimbursable. Implementation of these internal
policies has been integral to the success of PHC’s strategy
of providing services to relapse-prone, higher acuity patients.
Government
Regulation
PHC’s business and the development and operation of
PHC’s facilities are subject to extensive federal, state
and local government regulation. In recent years, an increasing
number of legislative proposals have been introduced at both the
national and state levels that would affect major reforms of the
health care system if
adopted. Among the proposals under consideration are reforms to
increase the availability of group health insurance, to increase
reliance upon managed care, to bolster competition and to
require that all businesses offer health insurance coverage to
their employees. Some states have already instituted laws that
mandate employers offer health insurance plans to their
employees. PHC cannot predict whether additional legislative
proposals will be adopted and, if adopted, what effect, if any,
such proposals would have on PHC’s business.
In addition, both the Medicare and Medicaid programs are subject
to statutory and regulatory changes, administrative rulings and
interpretations of policy, intermediary determinations and
governmental funding restrictions, all of which may materially
increase or decrease the rate of program payments to health care
facilities. Since 1983, Congress has consistently attempted to
limit the growth of federal spending under the Medicare and
Medicaid programs and will likely continue to do so.
Additionally, congressional spending reductions for the Medicaid
program involving the issuance of block grants to states is
likely to hasten the reliance upon managed care as a potential
savings mechanism of the Medicaid program. As a result of this
reform activity, PHC can give no assurance that payments under
such programs will in the future remain at a level comparable to
the present level or be sufficient to cover the costs allocable
to such patients.
Control of the healthcare industry exercised by federal, state
and local regulatory agencies can increase costs, establish
maximum reimbursement levels and limit expansion. PHC and the
health care industry are subject to rapid regulatory change with
respect to licensure and conduct of operations at existing
facilities, construction of new facilities, acquisition of
existing facilities, the addition of new services, compliance
with physical plant safety and land use requirements,
implementation of certain capital expenditures, reimbursement
for services rendered and periodic government inspections.
Governmental budgetary restrictions have resulted in limited
reimbursement rates in the healthcare industry including PHC. As
a result of these restrictions, PHC cannot be certain that
payments under government programs will remain at a level
comparable to the present level or be sufficient to cover the
costs allocable to such patients. In addition, many states,
including the State of Michigan, where the majority of
PHC’s Medicaid revenue is generated, are considering
reductions in state Medicaid budgets.
Health
Planning Requirements
Most of the states in which PHC operates have health planning
statutes which require that prior to the addition or
construction of new beds, the addition of new services, the
acquisition of certain medical equipment or certain capital
expenditures in excess of defined levels, a state health
planning agency must determine that a need exists for such new
or additional beds, new services, equipment or capital
expenditures. These state determinations of need or certificate
of need (“DoN”) programs are designed to enable states
to participate in certain federal and state health related
programs and to avoid duplication of health services. DoN’s
typically are issued for a specified maximum expenditure, must
be implemented within a specified time frame and often include
elaborate compliance procedures for amendment or modification,
if needed.
Licensure
and Certification
All of PHC’s facilities must be licensed by state
regulatory authorities. PHC’s Harbor Oaks facility is
certified for participation as a provider in the Medicare and
Medicaid programs and, as of July 8, 2010, PHC’s Seven
Hills Hospital in Las Vegas is also certified for participation
in these programs.
PHC’s initial and continued licensure of its facilities,
and certification to participate in the Medicare and Medicaid
programs, depends upon many factors, including accommodations,
equipment, services, patient care, safety, personnel, physical
environment, the existence of adequate policies, procedures and
controls and the regulatory process regarding the
facility’s initial licensure. Federal, state and local
agencies survey facilities on a regular basis to determine
whether such facilities are in compliance with governmental
operating and health standards and conditions for participating
in government programs. Such surveys include review of patient
utilization and inspection of standards of patient care. PHC has
procedures in place to ensure that its facilities are operated
in compliance with all such standards and conditions. To the
extent these standards are not met, however, the license of a
facility could be restricted, suspended or revoked, or a
facility could be decertified from the Medicare or Medicaid
programs.
PHC is subject to various federal, state and local environmental
laws that (i) regulate certain activities and operations
that may have environmental or health and safety effects, such
as the handling, storage, transportation, treatment and disposal
of medical waste products generated at its facilities; the
identification and warning of the presence of
asbestos-containing materials in buildings, as well as the
removal of such materials; the presence of other hazardous
substances in the indoor environment; and protection of the
environment and natural resources in connection with the
development or construction of our facilities; (ii) impose
liability for costs of cleaning up, and damages to natural
resources from, past spills, waste disposals on and off-site, or
other releases of hazardous materials or regulated substances,
and (iii) regulate workplace safety. Some of PHC’s
facilities generate infectious or other hazardous medical waste
due to the illness or physical condition of our patients. The
management of infectious medical waste is subject to regulation
under various federal, state and local environmental laws, which
establish management requirements for such waste. These
requirements include record-keeping, notice and reporting
obligations. Each of PHC’s in-patient facilities has an
agreement with a waste management company for the disposal of
medical waste. The use of such companies, however, does not
completely protect us from alleged violations of medical waste
laws or from related third-party claims for
clean-up
costs.
From time to time, PHC’s operations have resulted in, or
may result in, non-compliance with, or liability pursuant to,
environmental or health and safety laws or regulations. We
believe that PHC’s operations are generally in compliance
with environmental and health and safety regulatory requirements
or that any non-compliance will not result in a material
liability or cost to achieve compliance. Historically, the costs
of achieving and maintaining compliance with environmental laws
and regulations have not been material. However, no assurance
can be made that future costs and expenses required for PHC to
comply with any new or changes in existing environmental and
health and safety laws and regulations or new or discovered
environmental conditions will not have a material adverse effect
on its business.
PHC has not been notified of and is otherwise currently not
aware of any contamination at its currently or formerly operated
facilities for which it could be liable under environmental laws
or regulations for the investigation and remediation of such
contamination and PHC currently is not undertaking any
remediation or investigation activities in connection with any
contamination conditions. There may however be environmental
conditions currently unknown to us relating to PHC’s prior,
existing or future sites or operations or those of predecessor
companies whose liabilities PHC may have assumed or acquired
which could have a material adverse effect on its business.
New laws, regulations or policies or changes in existing laws,
regulations or policies or their enforcement, future spills or
accidents or the discovery of currently unknown conditions or
non-compliances may give rise to investigation and remediation
liabilities, compliance costs, fines and penalties, or liability
and claims for alleged personal injury or property damage due to
substances or materials used in PHC’s operations; any of
which may have a material adverse effect on PHC’s business,
financial condition, operating results or cash flow.
Medicare
Reimbursement
PHC received Medicare reimbursement in fiscal 2011 from Harbor
Oaks Hospital and Seven Hills Hospital. For the fiscal year
ended June 30, 2011, 27.4% of revenues for these facilities
were derived from Medicare programs. Total revenue from Harbor
Oaks and Seven Hills accounted for 39.3% of PHC’s total net
patient care revenues for fiscal 2011.
Medicare reimbursement rates are based 100% on the prospective
payment rates. Although the rates are prospective, PHC will
continue to file cost reports annually as required by Medicare
to determine ongoing rates. These cost reports are routinely
audited on an annual basis. Activity and cost report expense
differences are reviewed on an interim basis and adjustments are
made to the net expected collectable revenue accordingly. PHC
believes that adequate provision has been made in the financial
statements for any adjustments that might result from the
outcome of Medicare audits. Approximately 27% of PHC’s
total revenue is derived from Medicare and Medicaid payors for
both of the years ended June 30, 2011 and 2010,
respectively. Differences between the amounts
provided and subsequent settlements are recorded in operations
in the year of the settlement. To date, settlement adjustments
have not been material.
In order to receive Medicare reimbursement, each participating
facility must meet the applicable conditions of participation
set forth by the federal government relating to the type of
facility, its equipment, its personnel and its standards of
medical care, as well as compliance with all state and local
laws and regulations. In addition, Medicare regulations
generally require that entry into such facilities be through
physician referral. PHC must offer services to Medicare
recipients on a non-discriminatory basis and may not
preferentially accept private pay or commercially insured
patients. PHC currently meets all of these conditions and
requirements and has systems in place to assure compliance in
the future.
Medicaid
Reimbursement
Currently, the only facilities of PHC that receive reimbursement
under any state Medicaid program are Harbor Oaks, Seven Hills
and Detroit Behavioral Institute. A portion of Medicaid costs is
paid by states under the Medicaid program and the federal
matching payments are not made unless the state’s portion
is made. Accordingly, the timely receipt of Medicaid payments by
a facility may be affected by the financial condition of the
relevant state. For the year ended June 30, 2011, 16% of
total net patient revenues of PHC were derived from Medicaid
programs.
Harbor Oaks and Detroit Behavioral Institute are both
participants in the Medicaid programs administered by the State
of Michigan. Seven Hills participates in the Medicaid program
administered by the State of Nevada. PHC receives reimbursement
on a per diem basis, inclusive of ancillary costs. The state
determines the rate and adjusts it annually based on cost
reports filed by PHC.
Fraud and
Abuse Laws
Various federal and state laws regulate the business
relationships and payment arrangements between providers and
suppliers of health care services, including employment or
service contracts, and investment relationships. These laws
include the fraud and abuse provisions of the Medicare and
Medicaid statutes as well as similar state statutes
(collectively, the “Fraud and Abuse Laws”), which
prohibit the payment, receipt, solicitation or offering of any
direct or indirect remuneration intended to induce the referral
of patients, and the ordering, arranging, or providing of
covered services, items or equipment. Violations of these
provisions may result in civil and criminal penalties
and/or
exclusion from participation in the Medicare, Medicaid and other
government-sponsored programs. The federal government has issued
regulations that set forth certain “safe harbors,”
representing business relationships and payment arrangements
that can safely be undertaken without violation of the federal
Fraud and Abuse Laws. Failure to fall within a safe harbor does
not constitute a per se violation of the federal Fraud and Abuse
Laws. PHC believes that its business relationships and payment
arrangements either fall within the safe harbors or otherwise
comply with the Fraud and Abuse Laws.
PHC has an active compliance program in place with a corporate
compliance officer and compliance liaisons at each facility and
a toll free compliance hotline. Compliance in-services and
trainings are conducted on a regular basis. Information on
PHC’s compliance program and its hot line number is
available to its employees on PHC’s intranet and to the
public on PHC’s website at www.phc-inc.com.
Employees
As of August 1, 2011, PHC had 962 employees of which
six were dedicated to marketing, 224 (47 part time and 5
seasonal) to finance and administration and 732 (233 part time
and 97 contingent) to patient care. These numbers include
employees of MeadowWood, which was acquired July 1, 2011,
as follows: 187 employees of which three were dedicated to
marketing, 36 (11 part time) to finance and administration and
148 (13 part time and 54 contingent) to patient care.
PHC believes that it has been successful in attracting skilled
and experienced personnel. Competition for such employees is
intense, however, and there can be no assurance that PHC will be
able to attract and retain necessary
qualified employees in the future. On July 31, 2003,
PHC’s largest facility, Harbor Oaks Hospital, with
approximately 125 union eligible nursing and administrative
employees, voted for union (UAW) representation. PHC and the UAW
reached their first collective bargaining agreement in December
2004. The current agreement was negotiated in 2010 and will
expire in December 2014. As of July 31, 2011, approximately
82% of the total number of employees of that subsidiary were
covered by the collective bargaining agreement. In addition, in
January, 2007, PHC’s largest out-patient facility, Harmony
Healthcare, with approximately 43 union eligible employees,
voted for union (Teamsters) representation. In April, 2007, PHC
and Teamsters reached a collective bargaining Agreement, which
was signed by Teamsters on April 26, 2007 and PHC on
April 30, 2007 to be effective January 1, 2007 and
expiring on January 1, 2010. This agreement was extended
while the new contract was being negotiated. PHC and Teamsters
reached a new agreement which was ratified on July 11,
2010, and expires on January 1, 2013. As of July 31,
2011, approximately 30% of the total number of employees of that
subsidiary were covered by the collective bargaining agreement.
The limited number of healthcare professionals in the areas in
which PHC operates may create staffing shortages. PHC’s
success depends, in large part, on its ability to attract and
retain highly qualified personnel, particularly skilled health
care personnel, which are in short supply. PHC faces competition
for such personnel from governmental agencies, health care
providers and other companies and is constantly increasing its
employee benefit programs, and related costs, to maintain
required levels of skilled professionals. As a result of
staffing shortages, PHC uses professional placement services to
supply it with a pool of professionals from which to choose.
These individuals generally are higher skilled, seasoned
individuals who require higher salaries, richer benefit plans,
and in some instances, require relocation. PHC has also entered
into contracts with agencies to provide short-term interim
staffing in addition to placement services. These additional
costs impact PHC’s profitability.
Insurance
Each of PHC’s subsidiaries maintains professional liability
insurance policies with coverage of $1,000,000 per claim and
$3,000,000 in the aggregate. In addition to this coverage, all
of the subsidiaries collectively maintain a $20,000,000 umbrella
policy shared by all facilities. In addition, each of these
entities maintains general liability insurance coverage, which
includes business owner’s liability insurance coverage, in
similar amounts, as well as property insurance coverage.
PHC maintains $1,000,000 of directors’ and officers’
liability insurance coverage. PHC believes, based on its
experience, that its insurance coverage is adequate for its
business and, although cost has escalated in recent years, that
it will continue to be able to obtain adequate coverage.
Legal
Proceedings
In addition to the litigation described in “The
Merger — Litigation Relating to the Merger”, PHC
is subject to various claims and legal action that arise in the
ordinary course of business. In the opinion of management, PHC
is not currently a party to any proceeding that would have a
material adverse effect on its financial condition or results of
operations.
The following is a discussion and analysis of the financial
condition and results of operations of PHC for the years ended
June 30, 2011 and 2010. You should read the following
discussion of PHC’s financial condition and results of
operations in conjunction with PHC’s consolidated financial
statements and the related notes included elsewhere in this
proxy statement/prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties.
As a result of many factors, including those set forth under the
section entitled “Risk Factors — Risks Affecting
Acadia, PHC and the Combined Company” and elsewhere in this
proxy statement/prospectus. PHC’s actual results may differ
materially from those anticipated in these forward-looking
statements.
Overview
PHC presently provides behavioral health care services through
three substance abuse treatment centers, three psychiatric
hospitals, a residential treatment facility and eight outpatient
psychiatric centers (collectively called “treatment
facilities”). PHC’s revenue for providing behavioral
health services through these facilities is derived from
contracts with managed care companies, Medicare, Medicaid, state
agencies, railroads, gaming industry corporations and individual
clients. The profitability of PHC is largely dependent on the
level of patient census and the payer mix at these treatment
facilities. Patient census is measured by the number of days a
client remains overnight at an inpatient facility or the number
of visits or encounters with clients at outpatient clinics.
Payor mix is determined by the source of payment to be received
for each client being provided billable services. PHC’s
administrative expenses do not vary greatly as a percentage of
total revenue but the percentage tends to decrease slightly as
revenue increases. Also included in administrative expenses is
PHC’s internet operation, Behavioral Health Online, Inc.,
which continues to provide internet technology support for the
subsidiaries and their contracts. During the third quarter of
fiscal 2009, PHC returned to profitability, which has continued
through fiscal 2011, with the exception of the fourth quarter in
which transaction costs detailed below resulted in a loss.
The healthcare industry is subject to extensive federal, state
and local regulation governing, among other things, licensure
and certification, conduct of operations, audit and retroactive
adjustment of prior government billings and reimbursement. In
addition, there are on-going debates and initiatives regarding
the restructuring of the health care system in its entirety. The
extent of any regulatory changes and their impact on PHC’s
business is unknown. The previous administration put forth
proposals to mandate equality in the benefits available to those
individuals suffering from mental illness (the
“MHPAEA”). The MHPAEA is now law and its full
implementation started January 1, 2011. This legislation
has improved access to PHC’s programs but its total effect
on behavioral health providers cannot be fully assessed at this
stage. Managed care has had a profound impact on PHC’s
operations, in the form of shorter lengths of stay, extensive
certification of benefits requirements and, in some cases,
reduced payment for services. The current economic conditions
continue to challenge PHC’s profitability through increased
uninsured patients in our fee for service business and increased
utilization in our capitated business.
Critical
Accounting Policies
The preparation of our financial statements in accordance with
GAAP requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures. On an ongoing basis, PHC
evaluates their estimates and assumptions, including but not
limited to those related to revenue recognition, accounts
receivable reserves, income tax valuation allowances, and the
impairment of goodwill and other intangible assets. PHC bases
their estimates on historical experience and various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.
Revenue
recognition and accounts receivable:
Patient care revenues and accounts receivable are recorded at
established billing rates or at the amount realizable under
agreements with third-party payors, including Medicaid and
Medicare. Revenues under third-party payor agreements are
subject to examination and contractual adjustment, and amounts
realizable may change due to
periodic changes in the regulatory environment. Provisions for
estimated third party payor settlements are provided in the
period the related services are rendered. Differences between
the amounts provided and subsequent settlements are recorded in
operations in the period of settlement. Amounts due as a result
of cost report settlements are recorded and listed separately on
the consolidated balance sheets as “Other
receivables”. The provision for contractual allowances is
deducted directly from revenue and the net revenue amount is
recorded as accounts receivable. The allowance for doubtful
accounts does not include the contractual allowances.
PHC currently has two “at-risk” contracts. The
contracts call for PHC to provide for all of the inpatient and
outpatient behavioral health needs of the insurance
carrier’s enrollees in a specified area for a fixed monthly
fee per member per month. Revenues are recorded monthly based on
this formula and the expenses related to providing the services
under these contracts are recorded as incurred. PHC provides as
much of the care directly and, through utilization review,
monitors closely, all inpatient and outpatient services not
provided directly. The contracts are considered
“at-risk” because the cost of providing the services,
including payments to third-party providers for services
rendered, could equal or exceed the total amount of the revenue
recorded.
All revenues reported by PHC are shown net of estimated
contractual adjustment and charity care provided. When payment
is made, if the contractual adjustment is found to have been
understated or overstated, appropriate adjustments are made in
the period the payment is received in accordance with the
American Institute of Certified Public Accountants
(“AICPA”) “Audit and Accounting Guide for Health
Care Organizations.” Net contractual adjustments recorded
in fiscal 2011 for revenue booked in prior years resulted in a
decrease in net revenue of approximately $233,800. Net
contractual adjustments recorded in fiscal 2010 for revenue
booked in prior years resulted in a decrease in net revenue of
approximately $75,200. These adjustments primarily relate to
commercial payors as Medicare and Medicaid are adjusted through
cost reporting and not included here.
For the fiscal year ended June 30, 2010, all cost reports
through fiscal 2009 were finalized and a net payment of $92,267
was recorded in final settlement for all years through fiscal
2009. During fiscal 2011, $65,143 was received as tentative
settlement for the fiscal 2010 Medicare cost report.
Below is revenue by payor and the accounts receivable aging
information as of June 30, 2011 and June 30, 2010 for
PHC’s treatment services segment.
Net Revenue by Payor
For the Twelve Months Ended June 30
2011
2010
$
%
$
%
(In thousands)
Private Pay
$
4,881
8
$
3,495
7
Commercial
37,288
65
32,915
66
Medicare*
6,188
11
3,237
7
Medicaid
9,139
16
10,000
20
Net Revenue
$
57,496
$
49,647
*
Includes Medicare settlement revenue as noted above.
Accounts
Receivable Aging (Net of allowance for bad debts)
Contract support service revenue is a result of fixed fee
contracts to provide telephone support. Revenue for these
services is recognized ratably over the service period. Revenues
and receivables from our contract services division are based on
a prorated monthly allocation of the total contract amount and
usually paid within 30 days of the end of the month.
Allowance
for doubtful accounts:
The provision for bad debts is calculated based on a percentage
of each aged accounts receivable category beginning at 0-5% on
current accounts and increasing incrementally for each
additional 30 days the account remains outstanding until
the account is over 300 days outstanding, at which time the
provision is 100% of the outstanding balance. These percentages
vary by facility based on each facility’s experience in and
expectations for collecting older receivables, which is reviewed
at least quarterly and adjusted if required. PHC compares this
required reserve amount to the current “Allowance for
doubtful accounts” to determine the required bad debt
expense for the period. This method of determining the required
“Allowance for doubtful accounts” has historically
resulted in an allowance for doubtful accounts of 20% or greater
of the total outstanding receivables balance.
Income
Taxes:
PHC follows the liability method of accounting for income taxes,
as set forth in ASC 740. ASC 740 prescribes an asset
and liability approach, which requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax basis of the assets and liabilities.
PHC’s policy is to record a valuation allowance against
deferred tax assets unless it is more likely than not that such
assets will be realized in future periods. In June 2010, PHC
recorded a valuation allowance of $150,103 against its deferred
tax asset. This amount relates to Arizona State tax credits
accumulated by the research operations which were sold in fiscal
2009. Since PHC no longer does business in Arizona, it is not
likely that these tax credits will be used. During fiscal year
2010, PHC recorded a tax expense of $1,106,100. PHC recorded
estimated tax expense of $1,407,936 for the year ended
June 30, 2011.
In accordance with ASC 740, PHC may establish reserves for
tax uncertainties that reflect the use of the comprehensive
model for the recognition and measurement of uncertain tax
positions. PHC has not established any such reserves at
June 30, 2011 or 2010. Tax authorities periodically
challenge certain transactions and deductions reported on our
income tax returns. PHC does not expect the outcome of these
examinations, either individually or in the aggregate, to have a
material adverse effect on our financial position, results of
operations, or cash flows.
Valuation
of Goodwill and Other Intangible Assets:
Goodwill and other intangible assets are initially created as a
result of business combinations or acquisitions. PHC makes
significant estimates and assumptions, which are derived from
information obtained from the management of the acquired
businesses and PHC’s business plans for the acquired
businesses in determining the value ascribed to the assets
acquired. Critical estimates and assumptions used in the initial
valuation of goodwill and other intangible assets include, but
are not limited to: (i) future expected cash flows from
services to be provided, (ii) customer contracts and
relationships, and (iii) the acquired market position.
These estimates and assumptions may be incomplete or inaccurate
because unanticipated events and circumstances may occur. If
estimates and assumptions used to initially value goodwill and
intangible assets prove to be inaccurate, ongoing reviews of the
carrying values of such goodwill and intangible assets may
indicate impairment which will require PHC to record an
impairment charge in the period in which PHC identifies the
impairment.
Included in other assets as of June 30, 2011 and 2010 is
PHC’s investment in Seven Hills Psych Center, LLC of
$302,244 and $325,384, respectively. This LLC holds the assets
of the Seven Hills Hospital completed in May, 2008, being leased
and operated by PHC’s subsidiary Seven Hills Hospital, Inc.
Also included, as of June 30, 2011 and 2010, is PHC’s
investment in Behavioral Health Partners, LLC of $687,972 and
$711,947, respectively. This LLC constructed an out-patient
clinic which was completed in the fourth fiscal quarter of 2009
and occupied as a fourth site to PHC’s Harmony subsidiary
on July 1, 2009 to replace its Longford site which was
closed in fiscal 2010. This site has additional land available
for construction of another hospital to be operated by PHC. Both
investments are accounted for based on the equity method of
accounting. Accordingly, the Company records its share of the
investor companies’ income/loss as an increase/decrease to
the carrying value of these investments.
Results
of Operations
During the fiscal year ended June 30, 2010, PHC experienced
continued increases in census and patient treatment revenue
while contract services revenue decreased with changes in
contracts.
The following table illustrates PHC’s consolidated results
of operations for the years ended June 30, 2011 and 2010
(in thousands):
2011
2010
Amount
%
Amount
%
($ in thousands)
Statements of Operations Data:
Revenues
$
62,008
100.0
$
53,077
100.0
Cost and Expenses:
Patient care expenses
30,235
48.8
26,307
49.5
Contract expenses
3,618
5.8
2,965
5.6
Provision for doubtful accounts
3,406
5.5
2,131
4.0
Administrative expenses
22,206
35.8
19,111
36.0
Legal settlement
446
0.7
—
—
Interest expense
311
0.5
326
0.6
Other income including interest income, net
(202
)
(0.3
)
(289
)
(0.5
)
Total expenses
60,020
96.8
50,551
95.2
Income before income taxes
1,988
3.2
2,526
4.8
Provision for income taxes
1,408
2.3
1,106
2.1
Net income applicable to common shareholders
$
580
0.9
$
1,420
2.7
Year
ended June 30, 2011 as compared to year ended June 30,
2010
PHC experienced continued profit from operations during fiscal
2011 with increases in census and revenue at Seven Hills and the
Harbor Oaks chemical dependency and rehabilitation unit and a
significant increase in one of PHC’s call center contracts.
These increases were off-set by several one-time charges to
income from operations including a litigation settlement of
$446,320 and a 401 (k) compliance testing failure of
approximately $185,000 in the third quarter and approximately
$1,600,000 in merger and acquisition costs related to the
MeadowWood acquisition completed on July 1, 2011 and the
pending merger with Acadia. PHC’s income from operations
decreased to income of $2,096,323 for the fiscal year ended
June 30, 2011 from $2,563,747 for the fiscal year ended
June 30, 2010. Net income decreased to $580,005 for the
fiscal year ended June 30, 2011 compared to $1,419,662 for
the fiscal year ended June 30, 2010. Income from operations
before taxes decreased to $1,987,941 for the fiscal year ended
June 30, 2011 from $2,525,762 for the fiscal year ended
June 30, 2010. This decrease in profit is the result of
approximately $708,000 in losses stemming from the start up of
Renaissance Recovery and the one-time charges outlined above.
Without these charges income from operations would have
increased by approximately $2,900,000 or greater than 94%.
Total revenues increased 16.8% to $62,007,879 for the year ended
June 30, 2011 from $53,077,226 for the year ended
June 30, 2010.
Total net patient care revenue from all facilities increased
15.8% to $57,495,735 for the year ended June 30, 2011 as
compared to $49,647,395 for the year ended June 30, 2010.
Patient days increased 4,336 days for the fiscal year
ending June 30, 2011 over the fiscal year ended
June 30, 2010, the majority of the increase in bed days was
at Seven Hills Hospital, partially as a result of CMS licensure,
and Harbor Oaks Hospital’s chemical dependency unit off-set
by a decrease in census at Capstone Academy as a result of a
slow-down of admissions in the Michigan Medicaid patients
overall.
Net inpatient care revenue from inpatient psychiatric services
increased 23.4% to $36,693,784 for the fiscal year ended
June 30, 2011 from $29,743,377 for the fiscal year ended
June 30, 2010. This increase is due to a change in payor
mix to payors with more favorable approved rates and increases
in census noted above. Net partial hospitalization and
outpatient care revenue increased 4.5% to $20,801,951 for the
fiscal year ended June 30, 2011 from $19,904,018 for the
year ended June 30, 2010. This increase is primarily due to
a more favorable payor mix and the increased utilization of
these step down programs by managed care as a treatment
alternative to inpatient care. Wellplace revenues increased
31.6% to $4,512,144 for the fiscal year ended June 30, 2011
from $3,429,831 for the year ended June 30, 2010 due to a
significant increase in the services provided under the Wayne
County call center contract in Michigan. All revenues reported
in the accompanying consolidated statements of operations are
shown net of estimated contractual adjustments and charity care
provided. When payment is made, if the contractual adjustment is
found to have been understated or overstated, appropriate
adjustments are made in the period the payment is received in
accordance with the AICPA Audit and Accounting Guide for Health
Care Organizations.
Patient care expenses increased by $3,928,001, or 14.9%, to
$30,234,829 for the year ended June 30, 2011 from
$26,306,828 for the year ended June 30, 2010 due to the
increase in census at Seven Hills and Harbor Oaks and the start
up of Renaissance Recovery in the last quarter of this fiscal
year and increased utilization under PHC’s capitated
contracts. Inpatient census increased by 4,336 patient
days, 6.3%, for the year ended June 30, 2011 compared to
the year ended June 30, 2010. Contract expense, which
includes the cost of outside service providers for PHC’s
capitated contracts, increased 2.2% to $5,418,010 for the year
ended June 30, 2011 from $5,300,747 for the year ended
June 30, 2010 due to higher utilization under the capitated
contracts. Payroll and service related consulting expenses,
including agency nursing, increased 16.0% to $24,968,560 for the
year ended June 30, 2011 from $21,533,585 for the year
ended June 30, 2010. These staffing increases relate to
increased census and the higher staffing costs related to the
start up of Renaissance Recovery. Food and dietary expense
increased 4.7% to $1,160,903 for the year ended June 30,
2011 from $1,108,691 for the year ended June 30, 2010,
which is in line with the increased census. Lab fees increased
28.6% to $383,318 for the year ended June 30, 2011 from
$298,068 for the year ended June 30, 2010. All of these
increases were a result of increased patient census and the
start-up
of
the Renaissance Recovery program. PHC continues to closely
monitor the ordering of all hospital supplies, food and
pharmaceutical supplies, but these expenses all relate directly
to the number of days of inpatient services PHC provides and are
expected to increase with higher patient census and outpatient
visits.
Cost of contract support services related to Wellplace increased
22.0% to $3,617,509 for the year ended June 30, 2011 from
$2,964,621 for the year ended June 30, 2010. Payroll
expense increased 58.6% to $1,714,510 for the year ended
June 30, 2011 from $1,081,109 for the year ended
June 30, 2010 and related payroll tax expense increased
54.9% to $222,704 for the year ended June 30, 2011 from
$143,767 for the year ended June 30, 2010. Other employee
benefits increased 73.7% to $23,052 for the year ended
June 30, 2011 from $13,274 for the year ended June 30,
2010. These increases in employee related expenses directly
relate to the increased services required under the Wayne County
contract expansion. Office expense increased 21.5% to $47,480
for the year ended June 30, 2011 from $39,091 for the year
ended June 30, 2010. Postage increased 86.7% to $36,116 for
the year ended June 30, 2011 from $19,340 for the year
ended June 30, 2010. And printing expense increased to
$20,385 for the year ended June 30, 2011 from $1,423 for
the year ended June 30, 2010. These increases in expense
are all related to the increased contract requirements under the
expansion of the Michigan call center Wayne County contract.
Provision for doubtful accounts increased 59.8% to $3,406,443
for the fiscal year ended June 30, 2011 from $2,131,392 for
the fiscal year ended June 30, 2010. This increase is a
result of increases in accounts receivable
stemming from increases in revenue and the increase in aged
accounts as the economic situation makes co-payments more
difficult to collect timely. The policy of PHC is to provide an
allowance for doubtful accounts based on the age of receivables
resulting in higher bad debt expense as receivables age. The
goal of PHC, given this policy, is to keep any changes in the
provision for doubtful accounts at a rate lower than changes in
aged accounts receivable.
The environment in which PHC operates today makes collection of
receivables, particularly older receivables, more difficult than
in previous years. Accordingly, PHC has increased staff,
standardized some procedures for collecting receivables and
instituted a more aggressive collection policy, which has for
the most part resulted in an overall decrease in the age of its
accounts receivable. PHC’s gross receivables from direct
patient care increased 37.0% to $16,155,900 for the year ended
June 30, 2011 from $11,796,154 for the year ended
June 30, 2010. PHC strives to keep bad debt expense under
5% and believes its reserve of approximately 30% of accounts
receivable is sufficient based on the age of the receivables.
PHC continues to reserve for bad debt based on managed care
denials and past difficulty in collections. The growth of
managed care has negatively impacted reimbursement for
behavioral health services with higher contractual adjustments
and a higher rate of denials creating slower payment requiring
higher reserves and write offs.
Total administrative expenses increased 16.3% to $22,206,445 for
the year ended June 30, 2011 from $19,110,638 for the year
ended June 30, 2010. This increase includes previously
mentioned costs related to acquisition and merger of $1,600,000
and a one-time charge of $185,000 related to the 401
(k) compliance testing failure. Payroll expense increased
7.0% to $8,159,091 for the year ended June 30, 2011 from
$7,623,957 for the year ended June 30, 2010. Employee
benefits increased 23.0% to $1,362,092 for the year ended
June 30, 2011 from $1,107,740 for the year ended
June 30, 2010. All of these increases in payroll and
employee related expenses are a result of an increase in staff
to facilitate increased operations. Maintenance expense
increased 22.3% to $824,224 for the year ended June 30,
2011 from $674,129 for the year ended June 30 2010 as PHC added
maintenance expenses to ready Renaissance Recovery for operation
and costs to maintain file servers and other equipment was
higher than usual.
Legal Settlement expense of $446,320 resulted when an ongoing
employee wrongful termination suit against PHC was settled in
favor of the employee in April 2011. This litigation was
initially settled through binding arbitration. When calculating
the settlement awarded the employee, PHC believes the arbitrator
erroneously took into consideration an employment agreement that
was not in question and not terminated by PHC. Based on this
miscalculation, PHC’s attorney recommended an appeal, which
PHC initiated. Since PHC believed this judgment would be
reversed on appeal, PHC did not make a provision for this
settlement at the time of the appeal. In April 2011, the
Michigan Supreme Court found in favor of the terminated employee
requiring PHC to pay $446,320, which included accrued interest,
to the terminated employee to satisfy this judgment. This amount
is shown as a legal settlement expense in operations for the
year ended June 30, 2011. Recording this transaction also
eliminated the amount shown as restricted cash on the
June 30, 2010 balance sheet.
Interest expense decreased 4.9% to $310,673 for the year ended
June 30, 2011 from $326,582 for the year ended
June 30, 2010. This decrease is due to a decrease in long
term debt.
PHC recorded income tax expense of $1,407,936 for the year ended
June 30, 2011 based on an estimated combined tax rate of
approximately 71% for both Federal and State taxes. This higher
combined tax rate is the result of merger and acquisition costs
included in administrative expenses that are not tax deductible.
PHC recorded a tax expense of $1,106,100 for the fiscal year
ended June 30, 2010. Without large non-deductible charges,
PHC expects the combined effective income tax rate to be
approximately 50% as its highest revenue producing facilities
are located in states with higher tax rates.
Liquidity
and Capital Resources
As of June 30, 2011, PHC had working capital of $9,896,344,
including cash and cash equivalents of $3,668,521, compared to
working capital of $8,197,236, including cash and cash
equivalents of $4,540,278 at June 30, 2010.
PHC’s net cash provided by operating activities was
$1,739,120 for the year ended June 30, 2011, compared to
$2,193,930 for the year ended June 30, 2010. Cash flow
provided by operations in fiscal 2011 consists of net income of
$580,005, increased by non-cash activity including depreciation
and amortization of $1,105,249, non-cash interest expense of
$146,531, change in deferred tax asset of $73,708, non-cash
share based charges of $164,916, warrant valuation of $11,626,
provision for doubtful accounts of $3,406,443, offset by a
non-cash gain on investments in unconsolidated subsidiaries of
$25,864. Further offset by an increase in accounts receivable of
$6,256,335 and an increase in prepaid expenses of $70,382,
offset by an increase in income taxes payable of $105,169, an
increase in accounts payable of $670,548, an increase in accrued
expenses and other liabilities of $1,408,237 and a decrease in
other assets of $524,438.
Cash used in investing activities in fiscal 2011 of $1,900,545
consisted of $1,081,810 used for capital expenditures for the
acquisition of property and equipment, $52,466 used in the
purchase of software licenses, $1,001,934 used in the acquire
notes receivable, offset by payments of $162,685 on the note
receivable and $72,980 in distributions from the equity
investments in unconsolidated subsidiaries.
Cash used in financing activities in fiscal 2011 of $710,332
consisted of $317,800 in net borrowings under PHC’s debt
facilities, $295,052 in deferred financing costs and $215,327
used in the repurchase of 173,495 shares of PHC’s
Class A common stock, offset by $117,847 in proceeds from
the issuance of stock as a result of the exercise of options and
the issue of shares under the employee stock purchase plan. On
July 1, 2011, in connection with PHC’s purchase of
MeadowWood Behavioral Health (See Note P), PHC entered into
a term loan and revolving credit agreement in the amount of
$23.5 million and $3 million, respectively.
A significant factor in the liquidity and cash flow of PHC is
the timely collection of its accounts receivable. As of
June 30, 2011, accounts receivable from patient care, net
of allowance for doubtful accounts, increased approximately
26.3% to $11,106,008 from $8,793,831 on June 30, 2010. This
increase is a result of increased revenue and slower payments
from insurance payers. PHC monitors increases in accounts
receivable closely and, based on the aging of the accounts
receivables outstanding, is confident that the increase is not
indicative of a payor problem. Better accounts receivable
management due to increased staff, standardization of some
procedures for collecting receivables and a more aggressive
collection policy has made this possible in behavioral health,
which is typically a difficult collection environment. The
increased staff has allowed PHC to concentrate on current
accounts receivable and resolve any problem issues before they
become uncollectible. PHC’s collection policy calls for
earlier contact with insurance carriers with regard to payment,
use of fax and registered mail to
follow-up
or
resubmit claims and earlier employment of collection agencies to
assist in the collection process. PHC’s collectors will
also seek assistance through every legal means, including the
State Insurance Commissioner’s office, when appropriate, to
collect claims. In light of the current economy, PHC has
redoubled its efforts to collect accounts early. PHC will
continue to closely monitor reserves for bad debt based on
potential insurance denials and past difficulty in collections.
Contractual
Obligations
PHC’s future minimum payments under contractual obligations
related to capital leases, operating leases and term notes as of
June 30, 2011 are as follows (in thousands):
Total does not include the amount due under the revolving credit
note of $1,814,877. This amount represents amounts advanced on
the accounts receivable funding described below and is shown as
a current note payable in the accompanying financial statements.
In October 2004, PHC entered into a revolving credit, term loan
and security agreement with CapitalSource Finance, LLC to
replace PHC’s primary lender and provide additional
liquidity. Each of PHC’s material subsidiaries is a
co-borrower under the agreement. This agreement was amended on
June 13, 2007 to increase the amount available under the
term loan, extend the term, decrease the interest rates and
modify the covenants based on PHC’s current financial
position. The agreement now includes a term loan in the amount
of $3,000,000, with a balance of $297,500 at June 30, 2011,
and an accounts receivable funding revolving credit agreement
with a maximum loan amount of $3,500,000 and a current balance
of $1,814,877. In conjunction with this refinancing, PHC paid
$32,500 in commitment fees and approximately $53,000 in legal
fees and issued a warrant to purchase 250,000 shares of
Class A Common Stock at $3.09 per share valued at $456,880.
The relative fair value of the warrants was recorded as deferred
financing costs and is being amortized over the period of the
loan as additional interest.
The term loan note carried interest at prime plus .75%, but not
less than 6.25%, with twelve monthly reductions in available
credit of $50,000 beginning July 1, 2007 and increasing to
$62,500 on July 1, 2009 until the expiration of the loan.
As of June 30, 2011, PHC had no funds available under the
term loan.
The revolving credit note carried interest at prime (3.25% at
June 30, 2011) plus 0.25%, but not less than 4.75%
paid through lockbox payments of third party accounts
receivable. The revolving credit term was three years, renewable
for two additional one-year terms. The balance on the revolving
credit agreement as of June 30, 2011 was $1,814,877. The
balance outstanding as of June 30, 2011 for the revolving
credit note is not included in the above table. The average
interest rate paid on the revolving credit loan, which includes
the amortization of deferred financing costs related to the
financing of the debt, was 7.56%.
This agreement was amended on June 13, 2007 to modify the
terms of the agreement. Advances were available based on a
percentage of accounts receivable and the payment of principal
is payable upon receipt of proceeds of the accounts receivable.
The amended term of the agreement was for two years,
automatically renewable for two additional one year terms. Upon
expiration, all remaining principal and interest was due. The
revolving credit note was collateralized by substantially all of
the assets of PHC’s subsidiaries and guaranteed by PHC.
Availability under this agreement was based on eligible accounts
receivable and fluctuated with the accounts receivable balance
and aging.
Subsequent to year-end, in order to facilitate the acquisition
of MeadowWood Behavioral Health, the CaptialSource term loan and
revolving credit debt were replaced by a term loan and revolving
credit agreement with Jefferies Finance, LLC.
The terms of the Credit Agreement provide for (i) a
$23,500,000 senior secured term loan facility (the “Term
Loan Facility”) and (ii) up to $3,000,000 senior
secured revolving credit facility (the “Revolving Credit
Facility”), both of which were fully borrowed on the
Closing Date in order to finance the MeadowWood purchase, to pay
off PHC’s existing loan facility with CapitalSource Finance
LLC, for miscellaneous costs, fees and expenses related to the
Credit Agreement and the MeadowWood purchase, and for general
working capital purposes. The Term Loan Facility and Revolving
Credit Facility mature on July 1, 2014, and 0.25% of the
principal amount of the Term Loan Facility will be required to
be repaid each quarter during the term. PHC’s current and
future subsidiaries are required to jointly and severally
guarantee PHC’s obligations under the Credit Agreement, and
PHC and its subsidiaries’ obligations under the Credit
Agreement are secured by substantially all of their assets.
The Term Loan Facility and the Revolving Credit Facility bear
interest, at the option of PHC, at (a) the Adjusted LIBOR
Rate (will in no event be less than 1.75%) plus the Applicable
Margin (as defined below) or (b) the highest of
(x) the U.S. prime rate, (y) the Federal Funds
Effective Rate plus 0.50% and (z) the Adjusted LIBOR Rate
plus 1% per annum (the “Alternate Base Rate”), plus
the Applicable Margin. The “Applicable Margin” shall
mean 5.5% per annum, in the case of Eurodollar loans, and 4.5%
per annum, in the case of Alternate Base Rate loans.
The Credit Agreement permits optional prepayments of the Term
Loan Facility and the Revolving Credit Facility at any time
without premium or penalty. PHC is required to make mandatory
prepayments of amounts
outstanding under the Credit Agreement with: (i) 100% of
the net proceeds received from certain sales or other
dispositions of all or any part of PHC’s and its
subsidiaries’ assets, (ii) 100% of the net proceeds
received by PHC or any of its subsidiaries from the issuance of
certain debt or preferred stock, (iii) 100% of the net
proceeds of the sale of certain equity, (iv) 100% of
extraordinary receipts, (v) 100% of certain casualty and
condemnation proceeds received by PHC or any of its
subsidiaries, and (vi) 75% of PHC’s consolidated
excess cash flow.
The Credit Agreement contains affirmative and negative covenants
reasonably customary for similar credit facilities, including a
capital expenditures limitation of $3,800,000 for each fiscal
year during the term and a requirement for PHC to maintain a
minimum consolidated EBITDA, which increases during the term. In
addition, PHC must maintain (i) a maximum total leverage
ratio, which decreases during the term from 4.00 to 1.0 for the
period ended September 30, 2011 to 1.50 to 1.0 for the
period ended September 30, 2014 and (ii) a minimum
consolidated fixed cover charge ratio, which increases during
the term from 1.25 to 1.0 for the period ended
September 30, 2011 to 2.25 to 1.0 for the period ended
June 30, 2014 and 2.00 to 1.0 for the period ended
September 30, 2014. In addition, no later than the 180th
day after the Closing Date, PHC must enter into, and for a
minimum of 18 months thereafter maintain, hedging
agreements that result in at least 50% of the aggregate
principal amount of the Term Loan Facility being effectively
subject to a fixed or maximum interest rate acceptable to the
administrative agent.
The Credit Agreement contains customary events of default,
including payment defaults, making of a materially false or
misleading representation or warranty, covenant defaults, cross
defaults to certain material indebtedness, certain events of
bankruptcy and insolvency, certain material events under ERISA,
material judgments, loss of Lenders’ lien priority,
exclusion from a medical reimbursement program and a change of
control. Upon an event of default, the administrative agent, at
the request of the Lenders, is entitled to take various actions,
including terminate the commitments to make the Term Loan
Facility and Revolving Credit Facility available to PHC,
accelerate the amounts due under the Credit Agreement and the
other loan documents, and pursue any other rights or remedies
available under applicable law.
The applicable interest rates will be subject to increase in
certain circumstances. PHC paid certain fees in connection with
the closing and will be required to pay certain additional fees
in connection with the maintenance and administration of the
loans, including a $100,000 per year administration fee, a
duration fee that increases the longer the Term Loan Facility
and the Revolving Credit Facility remain outstanding, and all
reasonable costs and expenses incurred by the arranger,
administrative agent, collateral agent, issuing bank and
swingline lender with respect to the Term Loan Facility and the
Revolving Credit Facility.
Off
Balance Sheet Arrangements
PHC has no off-balance-sheet arrangements that have or are
reasonably likely to have a current or future effect on
PHC’s financial condition, changes in financial condition,
revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to PHC.
The following table sets forth certain information regarding the
ownership of shares of PHC’s Class A Common Stock and
Class B Common Stock (the only classes of common stock of
PHC currently outstanding) as of August 19, 2011 by each
person known by PHC to beneficially own more than 5% of any
class of PHC’s voting securities, each director of PHC,
each of the named executive officers of PHC and all directors
and officers of PHC. Shares of common stock subject to stock
options vesting on or before October 18, 2011 (within
60 days of August 19, 2011) are deemed to be
outstanding and beneficially owned for purposes of computing the
percentage ownership of such person but are not treated as
outstanding for purposes of computing the percentage ownership
of others.
Unless otherwise indicated below, to the knowledge of PHC, all
persons listed below have sole voting and investment power with
respect to their shares of common stock, except to the extent
authority is shared by spouses
under applicable law. In preparing the following table, PHC has
relied on the information furnished by the persons listed below:
Beneficial
Owners 5% (Class A Common Stock)
Amount and Nature
of Beneficial
Name and Address of Beneficial Owner
Ownership(14)
Percent of Class
Marathon Capital Mgmt, LLC
2,022,700
(1)
10.4
%
4 North Park Drive, Suite 106
Hunt Valley, MD 21030
Camden Partners Capital Management LLC
1,365,428
(2)
6.9
%
500 East Pratt Street, Suite 1200
Baltimore, MD 21202
RENN Capital Group
1,483,900
(3)
7.6
%
8080 N. Central Expy, Suite 210 LB 59
Dallas, TX 75206
Beneficial
Ownership of Named Executive Officers and Directors
Amount and Nature
of Beneficial
Name of Beneficial Owner
Ownership(14)
Percent of Class
Class A Common Stock
Bruce A. Shear
764,755
(4)
4.0
%
Robert H. Boswell
276,682
(5)
1.5
%
Paula C. Wurts
225,816
(6)
1.2
%
Howard W. Phillips
243,750
(7)
1.3
%
Donald E. Robar
229,167
(8)
1.2
%
William F. Grieco
324,500
(9)
1.7
%
David E. Dangerfield
144,940
(10)
*
Douglas J. Smith
5,000
(11)
*
All Directors and Officers as a Group (8 persons)
2,214,610
(12)
11.3
%
Class B Common Stock (13)
Bruce A. Shear
721,259
93.2
%
All Directors and Officers as a Group (8 persons)
721,259
93.2
%
(1)
The holder has sole dispositive power for 2,022,700 shares
of Class A Common Stock and sole voting power for
71,700 shares of Class A Common Stock.
(2)
The holder is the general partner of Camden Partners Limited
Partnership and Camden Partners II Limited Partnership, and
David L. Warnock, Richard M. Johnston, Richard M. Berkeley,
Donald W. Hughes, Shane H. Kim and F. Mackey Hughes are
officers, directors, members, managing members and/or general
partners of the holder, Camden Partners Limited Partnership
and/or Camden Partners II Limited Partnership. The holder
and these additional persons are deemed to share dispositive and
voting power.
(3)
The holder is deemed to share dispositive and voting power with
RENN Universal Growth Investment Trust, PLC and Russell
Cleveland.
(4)
Includes 150,000 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options, having
an exercise price range of $1.08 to $2.95 per share.
(5)
Includes 70,000 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options at an
exercise price range of $1.08 to $2.95 per share.
(6)
Includes 70,000 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options, having
an exercise price range of $1.08 to $2.95 per share.
Includes 90,000 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options having
an exercise price range of $1.08 to $3.18 per share.
(8)
Includes 125,000 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options having
an exercise price range of $1.08 to $3.18 per share.
(9)
Includes 162,500 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options, having
an exercise price range of $.55 to $3.18 per share.
(10)
Includes 115,000 shares of Class A Common Stock
issuable pursuant to currently exercisable stock options, having
an exercise price range of $1.08 to $3.18 per share.
(11)
Includes 5,000 shares of Class A Common Stock issuable
pursuant to currently exercisable stock options, having an
exercise price of $1.65 per share.
(12)
Includes an aggregate of 787,500 shares of Class A
Common Stock issuable pursuant to currently exercisable stock
options. Of those options, 80,000 have an exercise price of
$3.18 per share, 30,000 have an exercise price of $2.95 per
share, 40,000 have an exercise price of $2.90 per share, 80,000
have an exercise price of $2.84 per share, 30,000 have an
exercise price of $2.83 per share, 40,000 have an exercise price
of $2.75 per share, 60,000 have an exercise price of $2.11 per
share, 30,000 have an exercise price of $2.06 per share, 25,000
have an exercise price of $1.65 per share, 60,000 have an
exercise price of $1.50 per share, 30,000 have an exercise price
of $1.48 per share, 20,000 have an exercise price of $1.33 per
share, 80,000 have an exercise price of $1.25 per share, 60,000
have an exercise price of $1.20 per share, 85,000 have an
exercise price of $1.08 per share, 10,000 have an exercise price
of $.75 per share, 10,000 have an exercise price of $0.74 per
share and 17,500 have an exercise price of $0.55 per share.
(13)
Each share of Class B Common Stock is convertible into one
share of Class A Common Stock automatically upon any sale
or transfer or at any time at the option of the holder.
(14)
“Amount and Nature of Beneficial Ownership”. Each
share of Class A Common Stock is entitled to one vote per
share and each share of Class B Common Stock is entitled to
five votes per share on all matters on which stockholders may
vote (except that the holders of the Class A Common Stock
are entitled to elect two members of the PHC board of directors
and holders of the Class B Common Stock are entitled to
elect all the remaining members of the PHC board of directors).
By virtue of the fact that Mr. Shear owns 93% of the
Class B shares and the Class B shareholders have the
right to elect all of the directors except the two directors
elected by the Class A shareholders, Mr. Shear has the
right to elect the majority of the members of the PHC board of
directors and may be deemed to be in control of PHC.
Based on the number of shares listed under the column headed
“Amount and Nature of Beneficial Ownership,” the
following persons or groups held the following percentages of
voting rights for all shares of common stock combined as of
August 19, 2011:
During the quarter ended March 31, 2009, the PHC board of
directors voted by unanimous written consent to allow short-term
borrowing from related parties up to a maximum of $500,000, with
an annual interest rate of 12% and a 2% origination fee. PHC
utilized this funding during the March 31, 2009 quarter to
provide for short-term borrowing needs of PHC for a total of
$275,000 as follows:
Related Party
Amount
Eric E. Shear
$
200,000
Stephen J. Shear
75,000
Both individuals are brothers of Bruce A. Shear, PHC’s
Chief Executive Officer and President of the PHC board of
directors. This amount was paid in full in March 2009.
In addition, during fiscal year ended June 30, 2009, PHC
repurchased shares from beneficial owners of PHC as shown below:
Related Party
Number of Shares
Amount
Camden Partners Limited Partnership, Camden Partners II
Limited Partnership and Camden Partners Capital Management, LLC
146,024
$
235,099
First Quadrant Mercury, L.P.
53,976
86,901
Total
200,000
$
322,000
There were no related party transactions in PHC’s fiscal
years ended June 30, 2010 or June 30, 2011.
Before entering into any contract or agreement involving a
related party the PHC board of directors reviews and approves
the transaction. In the event one of the related parties is a
member of the PHC board of directors, that member of the board
recuses himself from participation in the discussion or approval
of the transaction.
As of the closing of the merger, the amended and restated
certificate of incorporation of Acadia will authorize
90,000,000 shares of common stock, $0.01 par value,
and 10,000,000 shares of preferred stock, $0.01 par
value. The following description of Acadia’s capital stock
is subject to and qualified by Acadia’s amended and
restated certificate of incorporation and amended and restated
bylaws, which are included as exhibits to the registration
statement of which this proxy statement/prospectus forms a part,
and by the applicable provisions of Delaware law.
Common
Stock
Voting
Rights
Each share of common stock entitles the holder to one vote with
respect to each matter presented to Acadia’s stockholders
on which the holders of common stock are entitled to vote.
Acadia’s common stock will vote as a single class on all
matters relating to the election and removal of directors on the
Acadia board of directors and as provided by law. Holders of
Acadia’s common stock will not have cumulative voting
rights. Except in respect of matters relating to the election of
directors, or as otherwise provided in Acadia’s amended and
restated certificate of incorporation or required by law, all
matters to be voted on by Acadia’s stockholders must be
approved by a majority of the shares present in person or by
proxy at the meeting at which a quorum is present and entitled
to vote on the subject matter. The holders of a majority of the
outstanding voting power of all shares of capital stock entitled
to vote, present in person or represented by proxy, will
constitute a quorum at all meetings of the Acadia stockholders.
In the case of the election of directors, all matters to be
voted on by Acadia’s stockholders must be approved by a
plurality of the shares present in person or by proxy at the
meeting and entitled to vote on the election of directors.
Dividend
Rights
The holders of Acadia’s outstanding shares of common stock
are entitled to receive dividends, if any, as may be declared
from time to time by the Acadia board of directors out of
legally available funds. Acadia’s ability to pay dividends
on its common stock will be limited by restrictions on the
ability of its subsidiaries to pay dividends or make
distributions to it, including restrictions under the terms of
the agreements governing Acadia’s indebtedness. See
“The Merger — Acadia’s Financing for the
Merger.”
Liquidation
Rights
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of Acadia’s affairs, holders of
Acadia’s common stock would be entitled to share ratably in
Acadia’s assets that are legally available for distribution
to stockholders after payment of Acadia’s debts and other
liabilities. If Acadia has any preferred stock outstanding at
such time, holders of the preferred stock may be entitled to
distribution
and/or
liquidation
preferences. In either such case, Acadia must pay the applicable
distribution to the holders of its preferred stock, if any,
before Acadia may pay distributions to the holders of its common
stock.
Other
Rights
Acadia’s stockholders will have no preemptive, conversion
or other rights to subscribe for additional shares. All
outstanding shares are, and all shares offered by this proxy
statement/prospectus will be, when sold, validly issued fully
paid and nonassessable. The rights, preferences and privileges
of the holders of Acadia’s common stock are subject to, and
may be adversely affected by, the rights of the holders of
shares of any series of Acadia’s preferred stock that the
Acadia board of directors may designate and issue in the future.
Listing
Acadia has applied to have its common stock approved for listing
on NASDAQ under the symbol “ACHC”.
Transfer
Agent and Registrar
The transfer agent and registrar for Acadia’s common stock
will be Broadridge Corporate Issuer Solutions, Inc.
Preferred
Stock
Acadia’s amended and restated certificate of incorporation
will authorize the Acadia board of directors to provide for the
issuance of shares of preferred stock in one or more series and
to fix the preferences, powers and relative, participating,
optional or other special rights, and qualifications,
limitations or restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption rights and
liquidation preference, and to fix the number of shares to be
included in any such series without any further vote or action
by Acadia’s stockholders. Any preferred stock so issued may
rank senior to Acadia’s common stock with respect to the
payment of dividends or amounts upon liquidation, dissolution or
winding up, or both. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in
control of Acadia without further action by its stockholders and
may adversely affect the voting and other rights of the holders
of its common stock. The issuance of preferred stock with voting
and conversion rights may adversely affect the voting power of
the holders of Acadia common stock, including the loss of voting
control to others. At present, Acadia has no plans to issue any
preferred stock.
Stock
Options
In accordance with the terms of the merger agreement, as of the
effective time of the merger, each then outstanding option to
purchase shares of PHC common stock, whether vested or unvested,
issued pursuant to PHC’s 1995 Non-Employee Director Stock
Option Plan (as amended December 2002), PHC’s 1995 Employee
Stock Purchase Plan (as amended December 2002), PHC’s 1993
Stock Purchase and Option Plan (as amended December 2002),
PHC’s 2004 Non-Employee Director Stock Option Plan,
PHC’s 2005 Employee Stock Purchase Plan or PHC’s 2003
Stock Purchase and Option Plan (as amended December
2007) will be assumed by Acadia and will, by virtue of the
merger and without any action on the part of the holder thereof,
be converted into an option to purchase one-quarter
(
1
/
4
)
of one share of Acadia common stock for each share of PHC common
stock subject to such stock option and the per share exercise
price for Acadia common stock issuable upon the exercise of such
assumed stock option will be equal to (i) the exercise
price per share of PHC common stock at which such PHC stock
option was exercisable immediately prior to the effective time
of the merger
multiplied by
(ii) four (4) (rounded
up to the nearest whole cent and as adjusted so as to comply
with the regulations under Section 409A of the Code).
Except with respect to options held by the PHC directors (other
than Mr. Shear), the assumed stock options will be subject
to the same terms and conditions (including expiration date and
exercise provisions as contemplated by the related PHC stock
option plans) as were applicable to such PHC stock options
immediately prior to the effective time of the merger. See
“The Merger — Assumption of Stock Options.”
As of June 30, 2011, vested and unvested stock options
exercisable for 1,287,250 shares of PHC’s Class A
Common Stock remained outstanding.
In accordance with the terms of the merger agreement, as of the
effective time of the merger, each outstanding warrant to
purchase shares of PHC common stock will be assumed by Acadia
and will, by virtue of the merger and without any action on the
part of the holder thereof, be converted into a warrant to
purchase one-quarter of one share of Acadia common stock for
each share of PHC common stock subject to such PHC warrant and
the per share exercise price for Acadia common stock issuable
upon the exercise of such assumed warrant will be equal to
(i) the exercise price per share of PHC common stock at
which such PHC warrant was exercisable immediately prior to the
effective time of the merger
multiplied by
(ii) four
(4) (rounded up to the nearest whole cent and as adjusted so as
to comply with the regulations under Section 409A of the
Code). Except as otherwise provided herein, the assumed warrants
will be subject to the same terms and conditions (including
expiration date and exercise provisions as contemplated by the
applicable award agreement) as were applicable to the
corresponding PHC warrant immediately prior to the effective
time of the merger.
As of June 30, 2011, warrants exercisable for
363,000 shares of PHC’s Class A Common Stock were
issued and outstanding. These warrants consist of one warrant to
purchase 250,000 shares of PHC’s Class A Common
Stock at a price of $3.09 per share which expires in June 2017.
The remaining warrants have an exercise price of $3.50 and
expiration dates ranging from September 2012 to February 2014.
Board of
Directors Composition
The stockholders agreement to be entered into among Acadia and
the Stockholders named therein in connection with the closing of
the merger will provide that so long as the WCP Investors (as
defined therein) retain voting control over at least 50% of the
outstanding voting securities of Acadia, the WCP Investors will
have the right to designate seven (7) representatives to
the Acadia board of directors, four (4) of which will be
designated as Class I directors and three (3) of which
will be designated as Class II directors. From and after
the date on which the WCP Investors cease to have voting control
over at least 50% of the outstanding voting securities of Acadia
and for so long as the WCP Investors hold at least 17.5% of the
outstanding voting securities of Acadia, the WCP Investors will
have the right to designate at least such number of directors to
the Acadia board of directors that, when compared to the
authorized number of directors on the Acadia board of directors,
is not less than proportional (which, for the avoidance of
doubt, will mean that the number of representatives will be
rounded up to the next whole number in all cases) to the total
number of shares of Acadia common stock and other equity
securities of Acadia and its subsidiaries over which the WCP
Investors retain voting control relative to the total number of
shares of Acadia common stock and other equity securities of
Acadia and its subsidiaries then issued and outstanding. From
and after such time as the WCP Investors cease to hold at least
17.5% of the outstanding voting securities of Acadia, the WCP
Investors will have no right to designate any representative to
the Acadia board of directors. Notwithstanding the foregoing,
the stockholders agreement will provide that no reduction in the
number of shares of Acadia common stock and other equity
securities of Acadia and its subsidiaries over which the WCP
Investors retain voting control will shorten the term of any
incumbent director on the Acadia board of directors.
For so long as the WCP Investors have the right to designate a
majority of the Acadia board of directors, the directors
designated by affiliates of Waud Capital Partners are expected
to constitute a majority of each committee of the Acadia board
of directors (other than the Audit Committee) and the chairman
of each of the committees (other than the Audit Committee) is
expected to be a director serving on such committee who is
selected by affiliates of Waud Capital Partners, provided that,
at such time as Acadia is not a “controlled company”
under NASDAQ corporate governance standards, Acadia’s
committee membership will comply with all applicable
requirements of those standards and a majority of its board of
directors will be “independent directors,” as defined
under the rules of NASDAQ. See “Acadia Management After the
Merger — Controlled Company.”
Corporate
Opportunity
Acadia’s amended and restated certificate of incorporation
will provide that the doctrine of “corporate
opportunity” will not apply against Waud Capital Partners,
its affiliates, any investment fund managed by Waud Capital
Partners or any of their respective portfolio companies or their
respective partners, members, directors, employees,
stockholders, agents or successors, in a manner that would
prohibit them from investing in competing
businesses or doing business with Acadia’s clients or
customers. See “Risk Factors — Risks Affecting
Acadia, PHC and the Combined Company — If the
ownership of Acadia common stock following the completion of the
merger continues to be highly concentrated, it may prevent you
and other stockholders from influencing significant corporate
decisions and may result in conflicts of interest that could
cause Acadia’s stock price to decline.”
Antitakeover
Effects of Delaware Law and Acadia’s Amended and Restated
Certificate of Incorporation and Amended and Restated
Bylaws
The amended and restated certificate of incorporation and
amended and restated bylaws for Acadia will also contain
provisions that may delay, defer or discourage another party
from acquiring control of Acadia. Acadia expects that these
provisions, which are summarized below, will discourage coercive
takeover practices or inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire
control of Acadia to first negotiate with the Acadia board of
directors, which Acadia believes may result in an improvement of
the terms of any such acquisition in favor of its stockholders.
However, they also give the Acadia board of directors the power
to discourage acquisitions that some stockholders may favor.
Undesignated
Preferred Stock
The ability to authorize undesignated preferred stock will make
it possible for the Acadia board of directors to issue preferred
stock with super voting, special approval, dividend or other
rights or preferences on a discriminatory basis that could
impede the success of any attempt to acquire it. These and other
provisions may have the effect of deferring, delaying or
discouraging hostile takeovers, or changes in control or
management of Acadia.
Classified
Board of Directors
Acadia’s amended and restated certificate of incorporation
will provide that its board of directors will be divided into
three classes, with each class serving three-year staggered
terms. In addition, under the DGCL, directors serving on a
classified board of directors may only be removed from the board
of directors with cause and by an affirmative vote of the
majority of Acadia’s common stock. These provisions may
have the effect of deferring, delaying or discouraging hostile
takeovers, or changes in control or management of Acadia.
Requirements
for Advance Notification of Stockholder Meetings
Acadia’s amended and restated certificate of incorporation
will provide that special meetings of the stockholders may be
called only upon a resolution approved by a majority of the
Acadia board of directors then in office.
Requirements
for Nominations and Proposals at Stockholder
Meetings
Acadia’s amended and restated bylaws will prohibit the
conduct of any business at a special meeting other than as
brought by or at the direction of the Acadia board of directors.
Acadia’s amended and restated bylaws will also provide that
nominations of persons for election to its board of directors
may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the notice of meeting
(1) by or at the direction of the Acadia board of directors
or (2) provided that the Acadia board of directors has
determined that directors will be elected at such special
meeting, by any Acadia stockholder who (i) is a stockholder
of record both at the time the notice is delivered and on the
record date for the determination of stockholders entitled to
vote at such meeting, (ii) is entitled to vote at the
meeting and upon such election, and (iii) complies with the
notice procedures set forth in Acadia’s amended and
restated bylaws. These provisions may have the effect of
deferring, delaying or discouraging hostile takeovers, or
changes in control or management of Acadia.
Stockholder
Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to
be taken at any annual or special meeting of the Acadia
stockholders may be taken without a meeting, without prior
notice and without a vote if a consent or consents in writing,
setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action
at a meeting at which all shares of Acadia stock entitled to
vote thereon were present and voted, unless the related
certificate of incorporation
provides otherwise. Acadia’s amended and restated
certificate of incorporation will provide that until such time
as the WCP Investors no longer beneficially own at least a
majority of the outstanding Acadia common stock, the Acadia
stockholders may take any action by written consent in lieu of a
meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken and
bearing the dates of signature of the stockholders who signed
the consent or consents, will be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were
present and voted. From and after such time as the WCP Investors
no longer beneficially own at least a majority of the
outstanding Acadia common stock, Acadia’s amended and
restated certificate of incorporation will provide that any
action required or permitted to be taken by its stockholders may
be effected at a duly called annual or special meeting of its
stockholders and may not be effected by consent in writing by
such stockholders.
Business
Combinations with Interested Stockholders
Acadia will elect in its amended and restated certificate of
incorporation not to be subject to Section 203 of the DGCL,
an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a business
combination, such as a merger, with a person or group owning 15%
or more of the corporation’s voting stock for a period of
three years following the date the person became an interested
stockholder, unless (with certain exceptions) the business
combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner.
Accordingly, Acadia will not be subject to any anti-takeover
effects of Section 203 of the DGCL. However, Acadia’s
amended and restated certificate of incorporation will contain
provisions that have the same effect as Section 203, except
that they will provide that both Waud Capital Partners, any
investment fund managed by Waud Capital Partners and any of
their respective Affiliates and Associates (each as defined in
the amended and restated certificate of incorporation) with whom
any of the foregoing are acting as a group or in concert for the
purpose of acquiring, holding, voting or disposing shares of
Acadia stock and any persons to whom Waud Capital Partners sells
at least five percent (5%) of outstanding voting stock of Acadia
will be deemed to have been approved by the Acadia board of
directors, and thereby not subject to the restrictions set forth
in Acadia’s amended and restated certificate of
incorporation that have the same effect as Section 203 of
the DGCL.
Poison
Pill Restrictions
Acadia’s amended and restated certificate of incorporation
will provide that on or prior to the effective date of the
merger, neither Acadia nor any of its direct or indirect
subsidiaries will adopt or otherwise implement any “poison
pill” stockholder rights plan, or issue, sell or otherwise
distribute any rights or securities to any person pursuant to
such a plan, without first obtaining the approval of the holders
of a majority of the voting power of the capital stock of Acadia
then outstanding.
Requirements
for Amendments to Acadia’s Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws
The DGCL provides that in order to amend the certificate of
incorporation, the board of directors must adopt a resolution
that then must be approved by the affirmative vote of a majority
of the voting power of the outstanding stock entitled to vote
thereon, unless a greater vote is specified in the certificate
of incorporation, and subject to any additional vote required by
any series of preferred stock.
Acadia’s amended and restated certificate of incorporation
will provide that the articles relating to the following topics
may only be amended, altered, changed or repealed by the
affirmative vote of the holders of at least a majority of the
voting power of all of Acadia’s outstanding shares of
capital stock entitled to vote generally in the election of
directors, other than shares of any “Interested
Stockholder” (as defined in Acadia’s amended and
restated certificate of incorporation: Board of Directors
(Article Six); Limitation of Director Liability
(Article Seven); Limitations on Written Consent/Special
Meetings (Article Eight); Business Combinations
(Article Ten); Poison Pill (Article Eleven);
Amendments (Article Twelve); Forum Selection
(Article Thirteen); and Severability
(Article Fourteen). Acadia’s amended and restated
certificate of incorporation will also provide that
Article Nine, which deals with corporate opportunity, may
only be amended, altered or repealed by a vote of 80% of the
voting power of all of Acadia’s shares of common stock then
outstanding, voting together as a single class. See
“— Corporate Opportunity.”
The following table sets forth the expected beneficial ownership
of Acadia common stock following the merger by:
•
each person or group who is expected to own beneficially more
than 5% of Acadia’s outstanding common stock (after giving
effect to the merger);
•
each person who is expected to be an executive officer following
the merger;
•
each person who is expected to be a director following the
merger; and
•
all of our executive officers and directors as a group following
the merger.
The percentages below are based upon an estimated 22,560,560
shares of Acadia common stock expected to be outstanding
following the merger and each of the forgoing persons’
ownership interest in Acadia Holdings or PHC, as applicable, as
of August 18, 2011.
As of August 18, 2011, all of the outstanding common stock
of Acadia was held by Acadia Holdings. Acadia Holdings will be
dissolved shortly before or after the merger and the common
stock of Acadia will be distributed to the members of Acadia
Holdings in accordance with their respective ownership
interests. The information in the table sets forth the number of
shares of Acadia common stock that would have been held by each
holder of Acadia Holdings’ equity assuming that Acadia
Holdings had been dissolved as of August 18, 2011.
The only executive officers and directors who will hold options
as of the closing of the merger are Mr. Shear and
Mr. Grieco. Mr. Grieco’s options will vest upon
the closing of the merger and the shares of Acadia common stock
that will be issuable upon exercise of such options are assumed
to be outstanding for purposes of computing the percentage
ownership of Mr. Grieco below. Mr. Shear’s
ownership includes any options exercisable within 60 days
of August 18, 2011. These options are treated as
beneficially owned by Mr. Shear for purposes of computing
his beneficial ownership below. Mr. Grieco and
Mr. Shear’s options are not treated as outstanding for
purposes of computing the percentage ownership of any other
person.
Unless otherwise indicated below, to the knowledge of Acadia,
all persons listed below would have had sole voting and
investment power with respect to their shares of common stock,
except to the extent authority is shared by spouses under
applicable law. In preparing the following table, Acadia has
relied on the information furnished by the persons listed below.
Percentage of
Shares
Shares
Beneficially
Beneficially
Owned after
Name
Owned
the Merger
5% Stockholders:
Waud Capital Partners(1)
17,676,101
78.3%
300 North LaSalle Street, Suite 4900 Chicago,
IL 60654(1)
Joey A. Jacobs(2)
1,395,406
(2)
6.2%
Executive Officers and Directors:
Joey A. Jacobs(2)
1,395,406
(2)
6.2%
Bruce A. Shear(3)(5)
371,528
(3)
1.7%
Brent Turner(6)
355,170
1.6%
Trey Carter(7)
315,030
1.4%
Ron Fincher(7)
300,494
1.3%
Jack E. Polson(7)
295,868
1.3%
Chris Howard(7)
295,868
1.3%
Reeve B. Waud(1)
17,676,101
78.3%
Charles E. Edwards(1)
—
0%
Matthew A. London(1)
—
0%
Gary A. Mecklenburg(1)
5,941
*
William F. Grieco(4)(5)
81,125
*
All executive officers and directors as a group
(12 persons)
18,128,754
80.4%
*
Represents beneficial ownership of less than 1% of our
outstanding common stock.
14,203,294 of the reported shares of Acadia common stock are
owned of record as follows: (i) 2,650,066 shares by WCP II,
(ii) 4,844,741 shares by Waud QP II, (iii)
843,220 shares by the Reeve B. Waud 2011 Family Trust,
(iv) 93,691 shares by WFP LP, (v) 739,392 shares
by WCP FIF II, (vi) 757,265 shares by Waud Affiliates II,
(vii) 388,629 shares by Waud Affiliates III (viii)
1,055,623 shares by WCP FIF III, (ix) 2,405,313 shares
by Waud QP III and (x) 425,354 shares by WCP III. WCPM
II as the general partner of WCP II, Waud QP II, WCP FIF II and
the Manager of Waud Affiliates II and Waud II LLC, as the
general partner of WCPM II, may be deemed to share beneficial
ownership of the shares held of record by such entities. WCPM
III, as the general partner of WCP FIF III, Waud QP III and WCP
III and the Manager of Waud Affiliates III, and Waud III
LLC, as the general partner of WCPM III, may be deemed to share
beneficial ownership of the shares held of record by such
entities. Reeve Waud may be deemed to beneficially own the
shares of common stock held by each of the above entities by
virtue of his (A) making decisions for the Limited Partner
Committee of each of WCPM II and WCPM III, (B) being the
manager of Waud II LLC and Waud III LLC and WFP LP and
(iii) being the investment advisor of the Reeve B. Waud
2011 Family Trust. The address for Messrs. Edwards, London and
Mecklenburg is c/o Waud Capital Partners, LLC, 300 North LaSalle
Street, Suite 4900, Chicago, IL 60654. As described under
“Stockholders Agreement”, in connection with the
merger, Waud Capital Partners and certain of its affiliates will
enter into a stockholders agreement with Acadia’s and
certain members of Acadia’s management. The members of
Acadia’s management party to the Stockholders Agreement
will grant WCP II a proxy to vote their shares in connection
with the election and removal of directors and certain other
matters in the manner directed by the holders of a majority of
the stock held by Waud Capital Partners. As a result of the
foregoing, WCP II, WCPM II, Waud II LLC and Mr. Waud may be
deemed to share beneficial ownership of the
3,472,807 shares held by the members of Acadia’s
management that have granted Waud Capital Partners a proxy
pursuant to the Stockholders Agreement.
(2)
The reported shares of Acadia common stock are owned of record
by the Joey A. Jacobs 2011 Grantor Retained Annuity Trust
(Acadia). Includes 1,336,378 shares of Acadia common stock that
would have been held by Mr. Jacobs as of August 18,
2011 assuming the dissolution of Acadia Holdings. The remaining
59,028 shares represent shares of Acadia common stock
issuable to the Joey A. Jacobs 2011 Grantor Retained
Annuity Trust (Acadia) (the “Jacobs Trust”) in
connection with the merger in exchange for 236,115 shares
of PHC Class A Common Stock held by the Jacobs Trust as of
August 18, 2011. The address for Mr. Jacobs is c/o
Acadia Healthcare Company, Inc., 830 Crescent Centre Drive,
Suite 610, Franklin, TN 37067.
(3)
Represents 614,755 shares of PHC Class A Common Stock
and 721,357 of PHC Class B Common Stock held by
Mr. Shear as of August 18, 2011, which will be
exchangeable into shares of Acadia common stock in connection
with the merger. This amount also includes 150,000 shares
of PHC Class A Common Stock issuable pursuant to currently
exercisable stock options, having an exercise price range of
$1.08 to $2.95 per share.
(4)
Represents 162,000 shares of PHC Class A Common Stock held
by Mr. Grieco as of August 18, 2011, which will be
exchangeable into shares of Acadia common stock in connection
with the merger. This amount also includes 162,500 shares of
Class A Common Stock issuable pursuant to currently
exercisable stock options, having an exercise price range of
$0.55 to $3.18 per share.
(5)
The address for Messrs. Shear and Grieco is c/o PHC, Inc., 200
Lake Street, Suite 102, Peabody, MA 01960.
(6)
The reported shares of Acadia common stock are owned of record
by the William Brent Turner 2011 Grantor Retained Annuity Trust.
The address for Mr. Turner is
c/o Acadia
Healthcare Company, Inc., 830 Crescent Centre Drive,
Suite 610, Franklin, TN 37067.
(7)
The address for Messrs. Carter, Fincher, Polson and Howard
is
c/o Acadia
Healthcare Company, Inc., 830 Crescent Centre Drive,
Suite 610, Franklin, TN 37067.
In connection with consummation of the merger, Acadia, certain
members of Acadia management (the “Management
Investors”) and Waud Capital Partners and certain of its
affiliates will enter into a stockholders agreement. The
following summary of the stockholders agreement does not purport
to be complete and is qualified in its entirety by reference to
the provisions of the stockholders agreement which is filed as
an exhibit to the registration statement of which this proxy
statement/prospectus is a part.
Management Rights.
As discussed above in
“Description of Acadia’s Capital Stock —
Board of Directors Composition,” for so long as the WCP
Investors retain voting control over at least 50% of the
outstanding voting securities of Acadia, the WCP Investors will
have the right to designate seven (7) representatives to
the Acadia board of directors, four (4) of which will be
designated as Class I directors and three (3) of which
will be designated as Class II directors. From and after
the date on which the WCP Investors cease to have voting control
over at least 50% of the outstanding voting securities of Acadia
and for so long as the WCP Investors hold at least 17.5% of the
outstanding voting securities of Acadia, the WCP Investors will
have the right to designate at least such number of directors to
the Acadia board of directors that, when compared to the
authorized number of directors on the Acadia board of directors,
is not less than proportional to the total number of Stockholder
Shares (as defined below) over which the WCP Investors retain
voting control relative to the total number of Stockholder
Shares then issued and outstanding (with the number of
representatives rounded up to the next whole number in all
cases). From and after such time as the WCP Investors cease to
hold at least 17.5% of the outstanding voting securities of
Acadia, the WCP Investors will have no right to designate any
representative to the Acadia board of directors. Notwithstanding
the foregoing, the stockholders agreement will provide that no
reduction in the number of shares of Acadia common stock and
other equity securities of Acadia and its subsidiaries over
which the WCP Investors retain voting control will shorten the
term of any incumbent director on the Acadia board of directors.
The stockholders agreement provides that the Acadia board of
directors will appoint Messrs. Jacobs and Shear to the
Acadia board of directors, as Class III directors.
Mr. Jacob’s appointment shall last as long as he
continues to serve as the chief executive officer of Acadia or
any of its subsidiaries. Mr. Shear’s appointment will
terminate after the expiration of the three-year term following
his initial term.
“Stockholder Shares”
is defined as (i) any
shares of Acadia common stock or other equity securities of
Acadia or its subsidiaries from time to time purchased or
otherwise acquired or held by any party to the stockholders
agreement, (ii) any Acadia common stock or other equity
securities of Acadia or its subsidiaries from time to time
issued or issuable directly or indirectly upon the conversion,
exercise or exchange of any securities purchased or otherwise
acquired by any party to the stockholders agreement (excluding
options to purchase Acadia common stock granted by Acadia unless
and until such options are exercised), and (iii) any other
capital stock or other equity securities of Acadia or its
subsidiaries from time to time issued or issuable directly or
indirectly with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend
or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
Voting Agreement.
Under the stockholders’
agreement, in the event the approval of Acadia’s
stockholders is required in connection with any election or
removal of directors, merger, consolidation, business
combination, recapitalization, conversion, sale, lease or
exchange of all or substantially all of its property or assets,
authorization or issuance of capital stock or other securities
(including the adoption of any equity incentive plan), executive
compensation, stockholder proposal, amendment to or restatement
of the Acadia certificate of incorporation or bylaws or pursuant
to any contractual agreement to which a Management Investor is a
party or is bound, each Management Investor will vote all of his
or her Stockholder Shares and any other voting securities over
which such Management Investor has voting control, and will take
all other necessary or desirable actions within his, her or its
control so that all such Stockholder Shares and other Acadia
voting securities are voted as directed by the WCP Investors
holding a majority of the outstanding shares of Acadia common
stock held by all WCP Investors as of such date (the
“Majority WCP Investors”). In furtherance of the
foregoing, each Management Investor will appoint Waud Capital
Partners II, L.P. as such Management Investor’s true and
lawful proxy and attorney-in fact, with full power and authority
to vote such Management Investor’s Stockholder Shares and
any other voting securities of Acadia over which such Management
Investor has voting control for the election
and/or
removal of directors (in accordance with the provisions
described above in “— Management Rights”)
and all such matters as described in this
“— Voting Agreement” section. The
stockholders agreement will provide that the voting agreements
and proxy described in this paragraph will terminate from and
after such time as the WCP Investors cease to hold 17.5% of
Acadia’s outstanding voting securities.
Transfer Restrictions.
The stockholders
agreement will provide that no Management Investor may transfer
any interest in any Stockholder Shares, except as described in
the following sentence, without first obtaining the consent of
the Majority WCP Investors; provided, that the Management
Investors may transfer Stockholder Shares to their
“Permitted Transferees” (as defined in the
stockholders agreement) as long as the transferring Management
Investor retains voting control over the transferred Stockholder
Shares. The aforementioned restrictions on transfer do not apply
to the following Stockholder Shares: (i) Stockholder Shares
received as consideration in the merger; (ii) Stockholder
Shares purchased or otherwise acquired by any Management
Investor after the effective time of the merger (excluding, for
the avoidance of doubt, Stockholder Shares received in the
dissolution of Acadia Holdings to be consummated prior to the
merger); and (iii) a percentage of Stockholder Shares held
by each Management Investor and designated as “Unrestricted
Shares” in accordance with the terms of the stockholders
agreement. The stockholders agreement defines “Unrestricted
Shares”, with respect to any Management Investor, as the
number of such Management Investor’s Subject Shares
determined by multiplying (x) the total number of Subject
Shares held by such Management Investor as of the date of the
stockholder agreement (as appropriately adjusted for stock
splits, stock dividends, stock combinations, recapitalizations
and the like), by (y) the result of 100% minus the WCP
Liquidity Percentage; provided, that (i) from and after the
third anniversary of the date of the stockholders agreement, no
fewer than 33% of the Subject Shares held by such Management
Investor as of the date of the stockholders agreement shall be
Unrestricted Shares, (ii) from and after the fourth
anniversary of the stockholders agreement, no fewer than 67% of
the Subject Shares held by such Management Investor as of the
date of the stockholders agreement shall be Unrestricted Shares,
and (iii) from and after the fifth anniversary of the date
of the stockholders agreement, 100% of such Management
Investor’s Subject Shares shall be Unrestricted Shares. The
stockholders agreement also defines “Subject Shares”,
with respect to any Management Investor”, as all
Stockholder Shares purchased or otherwise acquired or held by
such Management Investor other than (A) any Stockholder
Shares received by such Management Investor as consideration in
the merger, and (B) any Stockholder Shares purchased or
otherwise acquired by such Management Investor after the
effective time of the merger (which, for purposes of clarity,
shall not include any Stockholder Shares received by such
Management Investor in connection with the dissolution of Acadia
Holdings or otherwise in connection with the liquidation and
dissolution of Acadia Holdings) and “WCP Liquidity
Percentage” as the percentage obtained by dividing
(i) the total number of Stockholder Shares constituting WCP
Equity as of the date of determination, by (ii) the total
number of Stockholder Shares constituting WCP Equity as of the
date of the stockholders agreement (as appropriately adjusted
for stock splits, stock dividends, stock combinations,
recapitalizations and the like). The stockholders agreement
defines “WCP Equity” as (i) the Acadia common
stock held by the WCP Investors on the date of the stockholders
agreement and any other Stockholder Shares from time to time
issued to or otherwise acquired by the WCP Investors (other than
pursuant to purchases made on the open market and not in
connection with any private placement by Acadia), and
(ii) any securities issued with respect to the securities
referred to in clause (i) by way of a stock split, stock
dividend, or other division of securities, or in connection with
a combination of securities, recapitalization, merger,
consolidation, or other reorganization. As to any particular
securities constituting WCP Equity, such securities shall cease
to be WCP Equity when they have been (A) effectively
registered under the Securities Act and disposed of for cash in
accordance with the registration statement covering them,
(B) purchased or otherwise acquired for cash by any person
other than a WCP Investor, or (C) redeemed or repurchased
for cash by Acadia or any of its subsidiaries or any designee
thereof. The Stockholder Shares not described in clauses (i),
(ii) and (iii) of the prior sentence are referred to
in the stockholders agreement as “Restricted Shares.”
Lock-Ups.
The
stockholders agreement will provide that no Management Investor
or other holder of Restricted Shares will take any of the
following actions from the date Acadia gives notice to the
Management Investors that a preliminary or final prospectus has
been circulated for a public offering and during the
90 days following the date of the final prospectus for such
public offering: (i) offer, sell, contract to sell, pledge
or otherwise dispose of, directly or indirectly, any equity
securities of Acadia or any of its subsidiaries or any
securities convertible into or exchangeable or exercisable for
such securities; (ii) enter into any transaction which
would have the same effect as described in clause (i);
(iii) enter into any swap, hedge or other arrangement that
transfers, in whole or part, any of the economic consequences or
ownership of any of the securities described in clause (i); or
(iv) publicly disclose the intention to enter into any
transaction described in clauses (i), (ii) or (iii). The
foregoing restrictions do not apply to transactions made in the
subject public offering and those to which the underwriters
managing such public offering agree in writing. As used in this
“Stockholders Agreement” section, “public
offering” refers to any offering by Acadia of its capital
stock or other equity securities of Acadia or any of its
subsidiaries to the public pursuant to an effective registration
statement under the Securities Act or any comparable statement
under any similar federal statute then in force.
Certain Covenants.
Under the stockholders
agreement, Acadia will be obligated, for so long as the WCP
Investors continue to hold 17.5% of the outstanding voting
securities of Acadia, to deliver to the WCP Investors certain
audited and unaudited financial statements, annual budgets and
operating plans and other information and financial data
concerning Acadia and its subsidiaries as reasonably requested
by the WCP Investors. Acadia will also be obligated during such
period to permit any representative designated by any WCP
Investor, upon reasonable
notice and execution of a customary confidentiality agreement,
to visit and inspect any of the Acadia properties, to examine
the corporate, financial and other records of Acadia and its
subsidiaries and to consult with the directors, officers,
managers, key employees and independent accountants of Acadia
and its subsidiaries.
For so long as the WCP Investors continue to hold 17.5% of the
outstanding voting securities of Acadia, Acadia will not be
permitted to take (or permitted to cause its subsidiaries to
take) any of the following actions, subject to certain limited
exceptions, without the prior written consent of the Majority
WCP Investors: (i) pay dividends, redeem stock or make
other distributions; (ii) authorize, issue or enter into
any agreement providing for the issuance of any debt or equity
securities; (iii) make loans, advances, guarantees or
“Investments” (as defined in the stockholders
agreement); (iv) engage in mergers or consolidations;
(v) make or fail to make certain capital expenditures;
(vi) sell, lease, license or dispose of any assets;
(vii) liquidate, dissolve or wind up or effect a
recapitalization, reclassification or reorganization;
(viii) acquire any interest in any company or business;
(ix) materially change its business activities;
(x) enter into, amend, modify or supplement or waive any
provisions of any agreement, transaction, commitment or
arrangement with any affiliate; (xi) incur additional
indebtedness exceeding $10.0 million in aggregate principal
amount outstanding at any time on a consolidated basis; or
(xii) make an assignment for the benefit of creditors or
admit in writing its inability to pay its debts generally as
they become due. Furthermore, so long as the WCP Investors
continue to hold 17.5% of the outstanding voting securities of
Acadia will (and will cause each of its subsidiaries to) take
the following actions (subject to certain limited exceptions),
unless it has received the prior written consent of the Majority
WCP Investors: (A) maintain and keep its tangible assets in
good repair, working order and condition; (B) maintain all
material intellectual property rights necessary to the conduct
of its business and maintain agreements providing for the
confidentiality and protection of its intellectual property
rights; (C) comply in all material respects with all
applicable laws, rules and regulations of all governmental
entities; (D) cause to be done all things reasonably
necessary to maintain, preserve and renew all licenses, permits
and other approvals necessary for the conduct of the Acadia
business and the consummation of the transactions contemplated
by the merger agreement; (E) pay and discharge when payable
all material taxes, assessments and governmental charges imposed
upon its properties or the income or profits therefrom;
(F) use commercially reasonable efforts to continue in
force adequate insurance; (G) maintain proper books of
record and account which present fairly in all material respects
its financial conditions and results of operations and make
provisions on its financial statements for all proper reserves,
each in accordance with GAAP.
Company Name.
For a period of two years
following the effective time of the merger, Acadia will file a
“dba” in Delaware and such other jurisdictions as it
deems necessary to enable it to conduct business as
“Pioneer Behavioral Health” and will conduct business
under such name.
PHC is incorporated in Massachusetts and Acadia is incorporated
in Delaware. The rights of a PHC stockholder are governed by the
MBCA, the PHC articles of organization and the PHC bylaws. Upon
completion of the merger, PHC stockholders will receive shares
of Acadia common stock in exchange for their shares of PHC
common stock, and as Acadia stockholders their rights will be
governed by the DGCL, Acadia’s amended and restated
certificate of incorporation and Acadia’s amended and
restated bylaws.
The following is a summary of the material differences between
the rights of PHC stockholders and the rights of Acadia
stockholders, but does not purport to be a complete description
of those differences. These differences may be determined in
full by reference to the Massachusetts Business Corporation Act,
which we refer to as the MBCA, the DGCL, the PHC articles of
organization, Acadia’s amended and restated certificate of
incorporation, the PHC bylaws and Acadia’s amended and
restated bylaws. The PHC articles of organization, Acadia’s
amended and restated certificate of incorporation, the PHC
bylaws and Acadia’s amended and restated bylaws are subject
to amendment in accordance with their terms. Copies of the
governing corporate instruments are available, without charge,
to any person, including any beneficial owner to whom this
document is delivered, by following the instructions listed
under “Where You Can Find More Information” on
page 204.
Acadia is authorized to issue 90,000,000 shares of common
stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.01 per.
PHC is authorized to issue 20,000,000 shares of Class A
Common Stock, par value $0.01 per share, 2,000,000 shares
of Class B Common Stock, par value $0.01 per share,
200,000 shares of Class C Common Stock, par value $0.01 per
share and 1,000,000 shares of preferred stock, par value
$0.01 per share.
Board Authority to Issue Capital Stock
The board of directors is authorized, without stockholder
approval, to issue shares of common stock. The board of
directors is also authorized, without stockholder approval, to
create and issue preferred stock in one or more new series and
to determine the preferences, voting powers, qualifications, and
special or relative rights or privileges of any such series.
The board of directors is authorized, without stockholder
approval, to issue shares of its authorized common or preferred
stock for such purposes, in such amounts, to such persons, for
such consideration, and in the case of preferred stock, in one
or more series or classes, all as the board of directors in its
discretion may determine.
Dividends
Dividends may be declared by the board of directors upon shares
of capital stock of Acadia in accordance with applicable law and
subject to the right of any preferred stock then outstanding.
Such dividends may be payable in cash, in property or in shares
of capital stock of Acadia. Before payment of any dividend,
there may be set aside out of any funds of Acadia available for
dividends such sum or sums as the board of directors from time
to time, in its absolute discretion, think proper as a reserve
or reserves to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of Acadia or for
such other purpose as the board of directors may think conducive
to the interests of Acadia. The board of directors may modify or
abolish any such reserves in the manner in which they were
created.
Under PHC’s articles of organization, when, as, and if
dividends are declared by the board of directors on the Common
Stock, whether payable in cash, in property, or in securities of
the corporation, the holders of Common Stock shall be entitled
to share equally in and to receive, in accordance with the
number of shares of Common Stock held by each such holder, all
such dividends, except that if dividends are declared that are
payable in Common Stock, such stock dividends shall be payable
at the same rate on each class of Common Stock and shall be
payable only in shares of Class A Common Stock to holders of
Class A Common Stock and only in shares of Class B Common Stock
to holders of Class B Common Stock.
Liquidation
The DGCL provides that upon the dissolution or liquidation of
Acadia, whether voluntary or involuntary, holders of common
stock will be entitled to share ratably, and receive equal and
substantially identical distributions of, all assets of the
Acadia available for distribution to its stockholders, subject
to any preferential or other rights of any then outstanding
preferred stock.
Under PHC’s articles of organization, if the corporation is
liquidated, dissolved or wound up, whether voluntarily or
involuntarily, after there shall have been paid or set aside for
the holders of all shares of the preferred stock then
outstanding the full preferential amounts to which they may be
entitled, if any, under the resolutions authorizing the issuance
of such preferred stock, the net assets of the corporation
remaining thereafter shall be distributed equally to each share
of Class A Common Stock and Class B Common Stock.
Acadia’s certificate of incorporation and bylaws provide
that, except as otherwise provided by the DGCL, the certificate
of incorporation and bylaws, and the certificate of designation
relating to any outstanding class or series of preferred stock,
every stockholder shall at every meeting of the stockholders of
Acadia be entitled to one vote in person or by proxy for each
share of capital stock held by such stockholder. When holders of
a majority of the voting power of all outstanding shares of
capital stock of Acadia entitled to vote is present in person or
represented by proxy, the affirmative vote of the majority of
voting power of capital stock of Acadia present in person or
represented by proxy at the meeting and entitled to vote on the
subject matter shall be the act of its stockholders, unless by
express provisions of an applicable law, the rules of any stock
exchange upon which the Acadia’s securities are listed, or
other voting thresholds for certain actions as specifically set
forth in the certificate of incorporation, in which case such
express provision shall govern and control the decision of such
question.
PHC’s articles of organization provide that the corporation
shall have a board of directors with not less than five members,
of which two shall be elected by the holders of Class A Common
Stock voting as a class and the remainder shall be elected by
the holders of Class B Common Stock voting as a class.
On
all other matters, except as required by the MBCA, the holders
of the Class A Common Stock and the Class B Common Stock vote
together as a single class, with each Class A share entitled to
one vote per share and each Class B share entitled to five votes
per share.
The stockholders agreement to be entered into among Acadia and
the stockholders named therein in connection with the closing of
the merger will provide that so long as the WCP Investors (as
defined therein) retain voting control over at least 50% of the
outstanding voting securities of Acadia, the WCP Investors will
have the right to designate seven representatives to the board
of directors, four of which will be designated as Class I
directors and three of which will be designated as Class II
directors. From and after the date on which the WCP Investors
cease to have voting control over at least 50% of the
outstanding voting securities of Acadia and for so long as the
WCP Investors hold at least 17.5% of the outstanding voting
securities of Acadia, the WCP Investors will have the right to
designate at least such number of directors to the board of
directors that, when compared to the authorized number of
directors on the board of directors, is not less than
proportional to the total number of shares of common stock and
other equity securities of Acadia and its subsidiaries over
which the WCP Investors retain voting control relative to the
total number of shares of common stock and other equity
securities of Acadia and its subsidiaries then issued and
outstanding.
From and after such time as the WCP Investors cease to hold at
least 17.5% of the outstanding voting securities of Acadia, the
WCP Investors will
have no right to designate any representative to the board of
directors. Notwithstanding the foregoing, the stockholders
agreement will provide that no reduction in the number of shares
of common stock and other equity securities of Acadia and its
subsidiaries over which the WCP Investors retain voting control
will shorten the term of any incumbent director on the board of
directors.
Voting Rights in Extraordinary Transactions
The DGCL requires approval of a consolidation, merger,
dissolution or sale, lease or exchange of all or substantially
all of the assets of Acadia by the affirmative vote of a
majority of all votes entitled to be cast on the matter.
Approval by a surviving corporation’s stockholders of a
plan of merger is not required if: (1) the agreement of
merger does not amend in any respect the certificate of
incorporation; (2) each share of stock of such constituent
corporation outstanding immediately prior to the effective date
of the merger is to be an identical outstanding or treasury
share of the surviving corporation after the effective date of
the merger; and (3) the number of shares of common stock to
be issued in connection with the merger does not exceed 20% of
the shares of common stock of the corporation outstanding prior
to the merger.
Pursuant to the MBCA, a plan of merger or share exchange
requires adoption by the board of directors and the affirmative
vote of two-thirds of all the shares entitled to vote generally
on the matter. Additionally, in certain cases, the plan of
merger or share exchange may require the affirmative vote of
two-thirds of all of the shares of a class or series of shares
voting as a separate voting group. Approval by a
corporation’s stockholders of a plan of merger or share
exchange is not required if: (1) the corporation will survive
the merger or is the acquiring corporation in a share exchange;
(2) its articles of organization will not be changed except for
amendments by the board of directors that do not require
stockholder approval; (3) each stockholder of the corporation
whose shares were outstanding immediately before the effective
date of the merger or share exchange will hold the same number
of shares, with identical preferences, limitations, and relative
rights, immediately after the effective date of the merger or
share exchange; (4) the number of shares to be issued in
connection with the merger does not exceed 20% of the shares of
the corporation of the same class or series outstanding prior to
the merger; and (5) a domestic parent corporation that owns at
least 90% of the voting power of the outstanding shares entitled
to vote on the matter of a subsidiary merges with such
subsidiary.
Amendment to Charter
The DGCL provides that in order to amend the certificate of
incorporation, the board of directors must adopt a resolution
that then must be approved by the affirmative vote of a majority
of the voting power of the outstanding stock entitled to vote
thereon, unless a greater vote is specified in the certificate
of incorporation, and subject to any additional vote required by
any series of preferred stock. Acadia’s amended and
restated certificate of incorporation will provide that the
articles relating to the following topics may only be amended,
altered, changed or repealed by the affirmative vote of the
holders of at least a
Under the MBCA, most amendments to a corporation’s articles
of organization require approval of the board of directors and
the affirmative vote of two-thirds of all the shares entitled to
vote generally. Additionally, in certain cases, an amendment to
the corporation’s articles of organization may require the
affirmative vote of two-thirds of all of the shares of a class
or series of shares voting as a separate voting group.
Amendments to a corporation’s articles of organization may
be made with the approval of a majority of the
corporation’s outstanding shares in connection with (1) an
increase or reduction in the
majority of the voting power of all of Acadia’s
outstanding shares of capital stock entitled to vote generally
in the election of directors, other than shares of any
“Interested Stockholder” (as defined in Acadia’s
amended and restated certificate of incorporation: Board of
Directors (Article Six); Limitation of Director Liability
(Article Seven); Limitations on Written Consent/Special
Meetings (Article Eight); Business Combinations
(Article Ten); Poison Pill (Article Eleven);
Amendments (Article Twelve); Forum Selection
(Article Thirteen); and Severability
(Article Fourteen). Acadia’s amended and restated
certificate of incorporation will also provide that
Article Nine, which deals with corporate opportunity, may
only be amended, altered or repealed by a vote of 80% of the
voting power of all of Acadia’s shares of common stock then
outstanding, voting together as a single class. See
“Description of Acadia Capital
Stock — Corporate Opportunity.”
corporation’s capital stock of any class or series then
authorized, (2) a change in the corporation’s authorized
shares into a different number of shares or the exchange thereof
pro rata for a different number of shares of the same class or
series or (3) a change of the corporation’s name.
Amendment to Bylaws
Under the DGCL, holders of a majority of the voting power of a
corporation and, when provided in the certificate of
incorporation, the directors of the corporation, have the power
to adopt, amend and repeal the bylaws of a corporation.
Acadia’s certificate of incorporation authorizes the board
of directors to amend Acadia’s bylaws.
Pursuant to the MBCA, the power to make, amend or repeal bylaws
shall be vested in the stockholders, unless the board of
directors is otherwise authorized to do so pursuant to the
articles of organization. PHC’s articles of organization
and bylaws provide that the bylaws may be altered, amended or
repealed by the board of directors, except with respect to any
provision which by law, by the articles of organization or by
the bylaws themselves requires action by the stockholders.
Special Meeting of Stockholders
Delaware law permits special meetings of stockholders to be
called by the board of directors and any other persons specified
by the certificate of incorporation or bylaws. Delaware law
permits but does not require that stockholders be given the
right to call special meetings. The Acadia bylaws provide that
special meetings of stockholders may only be called in the
manner provided in Acadia’s certificate of incorporation as
then in effect. Pursuant to Acadia’s certificate of
incorporation, special meetings of stockholders of Acadia may be
called only by a resolution adopted by the board of directors,
by at least the affirmative vote of the majority of the
directors then in office. Business transacted at any special
meeting of stockholders shall be limited to business brought by
or at the direction of the board of directors. The board of
directors may postpone or reschedule any previously scheduled
special meeting.
The MBCA provides that a corporation shall hold a special
meeting of its stockholders if called by the board of directors
or person authorized to do so by the articles of organization or
bylaws of the corporation or, unless otherwise provided in the
articles of organization or bylaws, if the holders of at least
40% of all the votes entitled to be cast on any issue to be
considered at the proposed special meeting sign, date and
deliver to the corporation’s secretary one or more written
demands. PHC’s bylaws provide that a special meeting can be
called by the President or by the board of directors and shall
be called by the secretary, or in the case of the death,
absence, incapacity or refusal of the secretary, by any other
officer, if one or more stockholders who hold at least one-tenth
part in interest of the capital stock entitled to vote on any
issue to be considered at the proposed
Acadia’s certificate of incorporation and bylaws contain no
restrictions on nominations for directors by stockholders and do
not require any advance notice for nominations or other business
to be properly brought by a stockholder before a stockholders
meeting.
To be timely under PHC’s bylaws, advance written notice of
a stockholder proposals, including a stockholder’s
nomination of a person to serve as a director of PHC, must be
delivered to the secretary of PHC at its principal executive
offices not less than 120 days prior to the date of the
corporation’s proxy statement released to stockholders in
connection with the previous year’s annual meeting of
stockholders.
Appraisal/Dissenters Rights
Under the DGCL, a stockholder of a Delaware corporation who has
not voted in favor of, nor consented in writing to, a merger or
consolidation in which the corporation is participating
generally has the right to an appraisal of the fair value of the
stockholder’s shares of stock, subject to specified
procedural requirements. The DGCL does not confer appraisal
rights, however, if the corporation’s stock is either
(1) listed on a national securities exchange or
(2) held of record by more than 2,000 holders.
Even
if a corporation’s stock meets the foregoing requirements,
however, the DGCL provides that appraisal rights generally will
be permitted if stockholders of the corporation are required to
accept for their stock in any merger or consolidation anything
other than(1) shares of the corporation surviving or
resulting from the transaction, or depository receipts
representing shares of the surviving or resulting corporation,
or those shares or depository receipts plus cash in lieu of
fractional interests;(2) shares of any other corporation,
or depository receipts representing shares of the other
corporation, or those shares or depository receipts plus cash in
lieu of fractional interests, which shares or depository
receipts are listed on a national securities exchange or held of
record by more than 2,000 holders; or(3) any combination of
the foregoing.
The MBCA provides that dissenters’ right of appraisal are
only available in connection with (1) mergers if stockholder
approval is required or if the corporation is a subsidiary that
is merged with its parent, unless stockholders are receiving
only cash or marketable securities as consideration, so long as
no director, officer or controlling stockholder has a direct or
indirect financial interest in the merger other than in their
capacities as such; (2) share exchanges to which the corporation
is a party as the corporation whose shares will be acquired and
the shares being received are not marketable securities, so long
as no director, officer or controlling stockholder has a direct
or indirect financial interest in the merger other than in their
capacities as such; (3) sales of substantially all of the assets
(other than certain redemptions, dissolutions, liquidations and
court-ordered sales); (4) certain amendments to the articles of
organization that materially and adversely affect rights in
respect of a dissenter’s shares; and (5) certain corporate
conversions.
BOARD OF DIRECTORS
Duties of Directors
Under the DGCL, the standards of conduct for directors are
governed by court case law.
Generally, directors of Delaware corporations are subject to a
duty of loyalty and a duty of care. The
Under the MBCA, a Massachusetts director is required to
discharge his or her duties: (1) in good faith; (2) with the
care that a person in a like position would reasonably believe
appropriate
duty of loyalty requires directors to refrain from self-dealing
and the duty of care requires directors in managing the
corporate affairs to use that level of care which ordinarily
careful and prudent persons would use in similar circumstances.
When directors act consistently with their duties of loyalty and
care, their decisions generally are presumed to be valid under
the business judgment rule.
under similar circumstances; and (3) in a manner the director
reasonably believes to be in the best interests of the
corporation.
In
determining what the director reasonably believes to be in the
best interests of the corporation, directors are permitted to
consider:
• the interests of the
corporation’s employees, suppliers, creditors and
customers;
• the economy of the state, region and
nation;
• the community and societal
considerations; and
• the long-term and short-term interests
of the corporation and its stockholders, including the
possibility that these interests may be best served by the
continued independence of the corporation.
Number of Directors
Delaware law provides that the board of directors of a Delaware
corporation shall consist of one or more directors as fixed by
the corporation’s certificate of incorporation or bylaws.
Acadia’s certificate of incorporation and bylaws provide
that the number of directors shall be determined by a resolution
of the majority of the directors or stockholders at the annual
meeting of stockholders. Acadia currently has five directors.
The MBCA provides that the board of directors of a Massachusetts
corporation shall consist of one or more directors as specified
or fixed by the corporation’s articles of organization or
bylaws. PHC’s articles of organization provide that the
number of directors will be not less than five, two of which
shall be elected by the holders of Class A Common Stock voting
as a class, and the remainder shall be elected by the holders of
Class B Common Stock voting as a class. PHC currently has six
directors.
Classification
Delaware law permits, but does not require, a Delaware
corporation to provide in its certificate of incorporation or in
a stockholder adopted bylaw or initial bylaw for a classified
board of directors, dividing the board of directors into up to
three classes of directors with staggered terms of office.
Acadia’s certificate of incorporation provides that the
directors of Acadia are divided into three classes
(Class I, Class II and Class III) as nearly
equal in size as practicable. The term of office of
Class I, Class II and Class III directors will
expire at Acadia’s annual meetings in 2012, 2013 and 2014,
respectively. At each annual election of directors, the
directors chosen to succeed those whose terms have then expired
are identified as being of the same class as the directors they
succeed and are elected for a term expiring at the third
succeeding annual election of directors.
Massachusetts law permits, but does not require, a Massachusetts
corporation to have a classified board of directors. Neither
PHC’s articles of organization or bylaws provide for a
classified board of directors.
Acadia’s certificate of incorporation provides that,
subject to the rights of the holders of any series of preferred
stock then outstanding, to the fullest extent permitted by law,
(1) until such date as the WCP Investors (as defined
therein) no longer beneficially own at least 17.5% of the
outstanding common stock of the Acadia, a director may be
removed at any time, either for or without cause, only upon
either (a) the affirmative vote of the holders of eighty
percent (80%) of the voting power of the capital stock of Acadia
outstanding and entitled to vote thereon or (b) if such
director is being removed at the request of the person(s)
entitled to designate such director in accordance with the
stockholders agreement, by the affirmative vote of the holders
of a majority of the voting power of the stock outstanding and
entitled to vote thereon; and (ii) from and after the date
that WCP Investors no longer beneficially own at least 17.5% of
the outstanding common stock of the Acadia, a director may be
removed from office only for cause and only by the affirmative
vote of the holders of at least a majority of the voting power
of the capital stock of Acadia outstanding and entitled to vote
thereon.
PHC’s bylaws provide that PHC directors may be removed with
or without cause by the vote of a majority of the class of
shares issued, outstanding and entitled to vote in the election
of said director.
Vacancies
Acadia’s certificate of incorporation and bylaws provide
that vacancies among directors, however occurring, are to be
filled by the vote of the majority of the remaining directors
then in office. The directors so chosen will hold office until
the next succeeding annual meeting and until their successors
are elected or qualified.
The MBCA and PHC’s bylaws provide that in the event of
vacancies in the board, such vacancy may be filled by the
affirmative vote of a majority of the remaining directors (even
though less than a quorum) or by a majority of the class of
stockholders which elected the director whose office has been
vacated. Directors so chosen will hold office until the next
annual meeting and their successors are elected or qualified.
Special Meetings of the Board
Special meetings of the board of directors may be held at any
time and place, within or outside the State of Delaware,
designated by the President on his own behalf or at the request
of two or more directors or one director in the event that there
is only one director in office.
PHC’s bylaws provide that special meetings of the board of
directors may be called at any time by the President, Secretary
or by any director.
Under Delaware law, a certificate of incorporation may contain a
provision limiting or eliminating a director’s personal
liability to the corporation or its stockholders for monetary
damages for a director’s breach of fiduciary duty subject
to certain limitations.
As permitted under the MBCA, PHC’s articles of organization
provide that directors shall not be personally liable to PHC or
its stockholders for monetary damages for breach of fiduciary
duty except for liability:
Acadia’s certificate of incorporation provides that no
director shall be personally liable to Acadia or its
stockholders for monetary damages for breach of fiduciary duty
by such director as a director, except with respect to
liability:
• for any breach of the director’s
duty of loyalty to Acadia or its stockholders;
• for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law;
• under Section 174 of the DGCL;
or
• for any transaction from which the
director derived an improper personal benefit.
Pursuant to DGCL, a corporation may indemnify any person who was
or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation) by reason
of the fact that such person is or was a director, officer,
employee or agent of such corporation, or serving at the request
of such corporation in such capacity for another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding, if such person
acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
The
DGCL also permits indemnification by a corporation under similar
circumstances for expenses (including attorneys’ fees)
actually and reasonably incurred by such persons in connection
with the defense or settlement of an action or suit by or in the
right of the corporation to procure a judgment in its favor,
except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been
adjudged to be liable to such corporation unless the Delaware
Court of Chancery or the court
(i) for any breach of the director’s duty of loyalty
to the corporation or its stockholders;
(ii)
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii)
for improper distributions under the MBCA; or
(iv)
for any transaction in which the director derived an
improper benefit.
Under
the MBCA, a corporation may indemnify directors and officers
if:
• the individual conducted him or
herself in good faith;
• the individual reasonably believed that
his or her conduct was in the best interests of the corporation
or that his or her conduct was at least not opposed to the best
interests of the corporation; and
• with respect to any criminal proceeding,
to the extent the individual had no reasonable cause to believe
that his or her conduct was unlawful.
Under the MBCA, a corporation is required to indemnify a
director or officer who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he or she
was a party because he or she was a director of the corporation
against reasonable expenses incurred by him or her in connection
with the proceeding.
in which such action or suit was brought shall determine upon
application that such person is fairly and reasonably entitled
to indemnity for such expenses which such court shall deem
proper.
To the extent a present or former director or officer is
successful in the defense of such an action, suit or proceeding,
the corporation is required by the DGCL to indemnify such person
for actual and reasonable expenses incurred thereby.
Expenses (including attorneys’ fees) incurred by an officer
or director of the corporation in defending any civil, criminal,
administrative or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay
such amount if it is ultimately determined that such person is
not entitled to be so indemnified. Such expenses (including
attorneys’ fees) incurred by former directors and officers
or other employees and agents of the corporation or by persons
serving at the request of the corporation as directors,
officers, employees or agents of another corporation,
partnership, joint venture, trust or other enterprise may be so
paid upon such terms and conditions, if any, as the corporation
deems appropriate.
The DGCL provides that the indemnification described above shall
not be deemed exclusive of other indemnification that may be
granted by a corporation pursuant to its by-laws, disinterested
directors’ vote, shareholders’ vote, and agreement or
otherwise.
The DGCL also provides corporations with the power to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation in a similar
capacity for another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted
against him or her and incurred by such person in any such
capacity, or arising out of his or her status as such, whether
or not the corporation would have the power to indemnify him or
her against such liability as described above.
Acadia’s certificate of incorporation authorizes Acadia to
indemnify directors and officers through bylaw provisions or
agreements with directors and officers. Acadia’s bylaws
provides for the indemnification of directors and officers to
the fullest extent authorized under Delaware law. Acadia’s
bylaws also provide for advancement of
The MBCA also permits a corporation to advance to a director or
officer reasonable expenses incurred in connection with any
proceeding arising because he or she is a director or officer of
the corporation, subject to the receipt of a written undertaking
by the director or officer to repay any funds advanced if he or
she is not entitled to
expenses to its directors and officers upon receipt of an
undertaking by the director or officer to repay the amount
advanced if it is ultimately determined that he or she is not
entitled to indemnification.
mandatory indemnification and if it is ultimately determined
that he or she did not meet the relevant standard of conduct.
PHC’s articles of organization provide that PHC shall
indemnify each director and officer against judgments, fines and
expenses incurred in connection with any claim made by reason of
his or her having been a director or officer of PHC. PHC’s
articles of organization also provide that no indemnification
will be provided if a final adjudication determines that the
indemnified person is not entitled to indemnification.
As
permitted by the MBCA, PHC’s articles of organization
provide for payment of expenses incurred by a director or
officer in defending an action in advance of the final
disposition of the proceeding, but only if the director or
officer undertakes to repay the amount if it is ultimately
determined that indemnification of such expenses is not
authorized by PHC’s articles of organization.
The DGCL permits a Delaware corporation to renounce, in its
certificate of incorporation or by action of its board of
directors, any interest or expectancy of the corporation in, or
in being offered an opportunity to participate in, specified
business opportunities or specified classes or categories of
business opportunities that are presented to the corporation or
one of its officers, directors or stockholders. Acadia’s
amended and restated certificate of incorporation will provide
that, among other things, (i) Acadia and its Subsidiaries
shall have no interest or expectancy in any corporate
opportunity of Waud Capital Partners or certain of its
affiliates or related
The MBCA contains no comparable
“corporate opportunity” provision.
persons and no expectation that such corporate opportunity be
offered to Acadia or its Subsidiaries; (ii) Waud Capital
Partners and certain of its affiliates and related persons shall
have the right to, and shall have no duty (contractual or
otherwise) not to, directly or indirectly: (A) engage in
the same, similar or competing business activities or lines of
business as Acadia or its Subsidiaries, (B) do business
with any client or customer of Acadia or its Subsidiaries,
(C) make investments in competing businesses of Acadia or
its Subsidiaries, and such acts shall not be deemed wrongful or
improper; (iii) Waud Capital Partners and certain of its
affiliates and related persons shall not be liable to Acadia,
its stockholders or its Subsidiaries for breach of any duty
(contractual or otherwise), including without limitation
fiduciary duties, by reason of any such activities or of such
Person’s participation therein; and (iv) in the event
that Waud Capital Partners or certain of its affiliates or
related persons acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for Acadia or its
Subsidiaries, on the one hand, and Waud Capital Partners or
certain of its affiliates or related persons, on the other hand,
or any other Person, Waud Capital Partners and such affiliates
and related persons shall not have any duty (contractual or
otherwise), including without limitation fiduciary duties, to
communicate, present or offer such corporate opportunity to
Acadia or its Subsidiaries and shall not be liable to Acadia,
its stockholders or its Subsidiaries for breach of any duty
(contractual or otherwise), including without limitation
fiduciary duties, by reason of the fact that Waud Capital
Partners or certain of its affiliates or related persons
directly or indirectly pursues or acquires such opportunity for
itself, directs, sells, assigns or transfers such opportunity to
another Person, or does not present or communicate such
opportunity to Acadia or its Subsidiaries, even though such
corporate opportunity may be of a character that, if presented
to Acadia or its Subsidiaries, could be taken by Acadia or its
Subsidiaries.
Acadia is subject to Section 203 of the DGCL, which
prohibits a corporation from engaging in a “business
combination” with an “interested stockholder,”
defined as a stockholder who, together with his associates and
affiliates, owns, or if the person is an affiliate of the
corporation and did own within the last three years, 15% or more
of the outstanding voting stock of the corporation, within three
years after the person or entity becomes an interested
stockholder, unless:
• prior to the time the stockholder
became an interested stockholder, the board of directors of the
corporation approved the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder;
• upon completion of the transaction that
resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction
commenced, subject to specified adjustments; or
• on or after the date of the business
combination, the board of directors and the holders of at least
66
2
/
3
%
of the outstanding voting stock not owned by the interested
stockholder approve the business combination.
Section 203 of the DGCL defines a “business
combination” to include:
Massachusetts has adopted a “Business Combination”
statute. In general, a Massachusetts corporation is prohibited
from engaging in certain business combinations (defined by the
statute to include certain mergers and consolidations,
dispositions of assets and issuances of securities as well as
certain other transactions) with an interested stockholder
(defined by the statute to include holders of 5% or more of the
outstanding stock of the corporation and holders of 15% or more
of the outstanding stock of the corporation for such persons
eligible to file Schedule 13G with the SEC) for a period of
three years following the date that such stockholder became an
interested stockholder, except under certain circumstances,
which include:
• prior approval by the board of
directors of the business combination or the transaction which
resulted in the stockholder becoming an interested
stockholder;
• subsequent approval of the business
combination by the board of directors and by a vote of at least
two-thirds of the outstanding voting stock which is not owned by
the interested stockholder; or
• upon consummation of the transaction
which resulted in the stockholder becoming an interested
stockholder, the stockholder owned at least 90% of the voting
stock of the corporation (excluding stock held by certain
affiliates of the corporation and shares owned by employee stock
plans).
PHC
has not opted out of the business combination statute.
• a merger or consolidation with the
interested stockholder or with any other corporation or other
entity if the merger or consolidation is caused by the
interested stockholder;
• a sale or other disposition to or with
the interested stockholder of assets with an aggregate market
value equal to 10% or more of either the aggregate market value
of all assets of the corporation or the aggregate market value
of all of the outstanding stock of the corporation;
• with some exceptions, any transaction
resulting in the issuance or transfer by the corporation or any
majority-owned subsidiary of any stock of the corporation or
subsidiary to the interested stockholder;
• any transaction involving the
corporation or a majority- owned subsidiary that has the effect
of increasing the proportionate share of the stock of
the corporation or subsidiary owned by the interested
stockholder; or
• any receipt by the interested
stockholder of the benefit of any loans or other financial
benefits provided by the corporation or any majority-owned
subsidiary.
Control Share Acquisitions
The DGCL does not contain a control share acquisition statute.
Massachusetts has adopted a “Control Share
Acquisition” statute. In general, any person who makes an
offer to acquire, or acquires, shares of stock of a
Massachusetts corporation that, when combined with shares
already owned, would increase such person’s ownership to at
least 20%,
33
1
/
3
%
or a majority of the voting stock of such corporation, must
obtain the approval of a majority of shares held by all
stockholders, excluding shares held by such person and the
inside directors and officers of the corporation, in order to
vote the shares acquired within 90 days before or after the
acquisition.
PHC has not opted out of the control share acquisition statute.
The validity of the shares of Acadia common stock offered hereby
and certain tax matters will be passed upon for Acadia by
Kirkland & Ellis LLP, Chicago, Illinois (a limited
liability partnership which includes professional corporations).
Certain partners of Kirkland & Ellis LLP are partners in a
partnership that is an investor in one or more investment funds
affiliated with Waud Capital Partners. Certain tax matters will
be passed upon for PHC by Arent Fox LLP, Washington, D.C.
The consolidated financial statements of Acadia Healthcare
Company, Inc. at December 31, 2010 and 2009, and for each
of the three years in the period ended December 31, 2010,
appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Youth and Family
Centered Services, Inc. at December 31, 2010 and 2009, and
for each of the three years in the period ended
December 31, 2010, appearing in this Prospectus and
Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of PHC, Inc. and
subsidiaries as of June 30, 2011 and 2010, and for the
years then ended, included in this proxy statement/prospectus
and in the Registration Statement have been so included in
reliance on the report of BDO USA, LLP, an independent
registered public accounting firm, appearing elsewhere herein
and in the Registration Statement, given on the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of HHC Delaware, Inc. and
Subsidiary at December 31, 2010 and 2009 (Predecessor), and
for the period from November 16, 2010 to December 31,
2010, for the period from January 1, 2010 to
November 15, 2010, and for the year ended December 31,
2009 (Predecessor periods), appearing in this Prospectus and
Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are
included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
PHC has entered into a change in control arrangement with
Mr. Shear, Mr. Boswell and Ms. Wurts. The
arrangement calls for these officers, in the event of a change
in control, to receive payment of their average annual salary
for the past five years times a multiplier, as set by PHC’s
compensation committee. The proposed merger constitutes a change
in control under this change in control arrangement. Assuming a
June 30, 2011 closing date for the merger, the following
officers would be entitled to the following change in control
payments under the change in control arrangement. These amounts
are payable as soon as practicable, but in no event later than
30 days, following the date of the closing of the merger.
Name
Element
Amount
Bruce A. Shear
Salary
$
1,530,000
Bonus
—
Benefits
—
Stock Options
—
Totals
$
1,530,000
Robert A. Boswell
Salary
$
465,000
Bonus
—
Benefits
—
Stock Options
—
Totals
$
465,000
Paula C. Wurts
Salary
$
408,000
Bonus
—
Benefits
—
Stock Options
—
Totals
$
408,000
PHC is requesting the PHC stockholders’ approval, on a
non-binding advisory basis, of the compensation payable to the
PHC executive officers in connection with the merger and
therefore is asking stockholders to adopt the following
resolution:
“RESOLVED, that the compensation that may be paid or become
payable to the PHC named executive officers in connection with
the merger, as disclosed pursuant to Item 402(t) of
Regulation S-K
and the agreements or understandings pursuant to which such
compensation may be paid or become payable, are hereby
APPROVED.”
The vote on this Proposal 2 is a vote separate and apart
from the vote on Proposal 1 to approve the merger
agreement. Accordingly, you may vote to approve Proposal 1
on the merger agreement and vote not to approve Proposal 2
on executive compensation and vice versa. Because the vote is
advisory in nature only, it will not be binding on either PHC or
Acadia regardless of whether the merger agreement is approved.
Accordingly, as the compensation to be paid in connection with
the merger is contractual with the executives, regardless of the
outcome of this advisory vote, such compensation will be
payable, subject only to the conditions applicable thereto, if
the merger agreement is approved.
Vote
Required for Approval
The advisory vote on the compensation to be received by the PHC
executive officers in connection with the merger will be
approved if the holders of a majority of the outstanding shares
of PHC Class A Common Stock and the outstanding shares of
PHC Class B Common Stock (voting together, with the shares
of Class B Common Stock casting five votes for each share
held) casting votes at the special meeting, vote “For”
such proposal.
Recommendation
of the PHC Board of Directors
THE PHC BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
“FOR” PROPOSAL 2 AS TO THE APPROVAL, ON AN
ADVISORY BASIS, OF THE COMPENSATION TO BE RECEIVED BY THE PHC
EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER.
The special meeting may be adjourned to another time or place,
if necessary or appropriate, to solicit additional proxies if
there are not sufficient votes at the time of the special
meeting to approve the merger agreement. The special meeting may
be adjourned from time to time to a date that is not more than
120 days after the original record date for the special
meeting.
If, at the special meeting, the number of shares of common stock
present or represented and voting in favor of the approval of
the merger agreement is not sufficient to approve that proposal,
PHC intends to move to adjourn the special meeting in order to
enable the PHC board of directors to solicit additional proxies
for the approval of the merger agreement. In that event, PHC
will ask its stockholders to vote only upon the adjournment
proposal, and not the merger proposal or the compensation
proposal.
In this proposal, PHC is asking its stockholders to authorize
the holder of any proxy solicited by the PHC board of directors
to vote in favor of granting discretionary authority to the
proxy holders, and each of them individually, to adjourn the
special meeting to another time and place for the purpose of
soliciting additional proxies. If the stockholders approve the
adjournment proposal, PHC could adjourn the special meeting and
any adjourned session of the special meeting and use the
additional time to solicit additional proxies, including the
solicitation of proxies from stockholders who have previously
voted.
Vote
Required for Approval
If the proposal to adjourn the special meeting for the purpose
of soliciting additional proxies is submitted to the
stockholders for approval, such proposal will be approved if the
holders of a majority of the outstanding PHC Class A common
shares and the outstanding shares of Class B Common Stock
(voting together, with the holders of shares of Class B
Common Stock casting five votes for each share held) casting
votes at the special meeting, vote “For” such
proposal, regardless of whether there is a quorum.
Recommendation
of the PHC Board of Directors
THE PHC BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
“FOR” PROPOSAL 3 AS TO THE ADJOURNMENT OF THE
MEETING IF NECESSARY OR APPROPRIATE TO SOLICIT ADDITIONAL
PROXIES IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT.
The proxy rules of the SEC permit stockholders, after timely
notice to issuers, to present proposals for stockholder action
in issuer proxy statements where such proposals are consistent
with applicable law, pertain to matters appropriate for
stockholder action and are not properly omitted by issuer action
in accordance with the proxy rules. In the event the merger is
not consummated prior to the time of PHC’s 2011 Annual
Meeting of Stockholders, PHC stockholders may submit proposals
and nominations of directors to be considered for inclusion in
PHC’s 2011 proxy materials. In order to be timely, such PHC
stockholder proposals and nominations were required to be
received by PHC at its principal office, 200 Lake Street,
Suite 102, Peabody, Massachusetts 01960, Attention: Paula
C. Wurts, Clerk, not later than June 30, 2011 for inclusion
in the proxy statement for that meeting. PHC stockholders are
also advised to review PHC’s Bylaws, which contain
additional requirements about advance notice of stockholder
proposals and director nominations.
In accordance with the provisions in Acadia’s amended and
restated bylaws, Acadia will indemnify each person who was or is
made a party or is threatened to be made a party to or is
otherwise involved in any actual or threatened action, suit or
proceeding by reason of the fact that he or she is or was a
director or officer of Acadia or, while a director or officer of
Acadia, is or was serving at the request of Acadia as an
employee or agent of Acadia or as a director, officer, partner,
member, trustee, administrator, employee or agent of another
corporation or of a partnership, joint venture, limited
liability company, trust or other enterprise, to the full extent
permitted by law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in
the Exchange Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling
person of us in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
PHC has filed reports, proxy statements and other information
with the SEC. Copies of PHC’s reports, proxy statements and
other information may be inspected and copied in the public
reference facilities maintained by the SEC at SEC Headquarters,
Public Reference Section, 100 F Street, N.W.,
Washington, D.C. 20549. The public may obtain information
on the operation of the SEC’s and other public reference
facilities by calling the SEC at
1-800-SEC-0330.
Copies of these materials can also be obtained by mail at
prescribed rates from the Public Reference Section of the SEC at
SEC Headquarters or by calling the SEC at
1-800-SEC-0330.
The SEC maintains a website that contains reports, proxy
statements and other information regarding PHC. The address of
the SEC website is
http://www.sec.gov.
You should rely only on the information contained in this proxy
statement/prospectus or on information to which PHC has referred
you. Acadia and PHC have not authorized anyone else to provide
you with any information. Acadia provided the information
regarding Acadia. PHC provided the information regarding PHC.
Acadia has filed a registration statement and made certain
filings under the Securities Act with the SEC with respect to
Acadia common stock to be issued to PHC stockholders in the
merger and the merger. This proxy statement/prospectus
constitutes the prospectus of Acadia filed as part of the
registration statement. This proxy statement/prospectus does not
contain all of the information set forth in the registration
statement because certain parts of the registration statement
are omitted as provided by the rules and regulations of the SEC.
You may inspect and copy the registration statement at any of
the addresses listed above.
Acadia Healthcare Company, Inc. (hereinafter referred to as
Acadia or the Company) was formed in October 2005 as a limited
liability company under the provisions of the Delaware Limited
Liability Act (the Act). On May 13, 2011, the Company was
converted to a C-corporation registered as Acadia Healthcare
Company, Inc. The Company is a wholly-owned subsidiary of Acadia
Healthcare Holdings, LLC (hereafter referred to as Holdings or
the Member). The Company’s principal business is to develop
and operate inpatient psychiatric facilities, residential
treatment centers, group homes, substance abuse facilities and
facilities providing outpatient behavioral health services to
better serve the behavioral health and recovery needs of
communities throughout the United States.
2.
Basis of
Presentation
The business of the Company is conducted through limited
liability companies and C corporations, each of which is a
wholly owned subsidiary of the Company. The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts
have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with
U.S. generally accepted accounting principles
(“GAAP”) for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by GAAP for audited financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation
of our financial position and results of operations have been
included. The Company’s fiscal year ends on December 31 and
interim results are not necessarily indicative of results for a
full year or any other interim period. The condensed
consolidated balance sheet at December 31, 2010 has been
derived from the audited financial statements as of that date.
The information contained in these condensed consolidated
financial statements should be read in conjunction with the
Company’s consolidated financial statements and notes
thereto for the fiscal year ended December 31, 2010.
Unaudited
Pro Forma Financial Information
The unaudited pro forma balance sheet gives effect to the
anticipated $74.4 million dividend that we expect to pay to
our stockholders using the proceeds of a debt issuance.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results
could differ from those estimates.
3.
Acquisitions
On April 1, 2011, the Company acquired 100 percent of
the equity interests of Youth and Family Centered Services, Inc.
(YFCS). YFCS operates 13 behavioral health facilities across the
United States. The preliminary value of the total consideration
transferred is approximately $178.0 million, which
represents the cash consideration paid at closing of
$178.1 million less a working capital settlement of
$0.1 million. The qualitative factors comprising goodwill
include efficiencies derived through synergies expected by the
elimination of certain redundant corporate functions and
expenses, the ability to leverage call center referrals to a
broader provider base, coordination of services provided across
the combined network of facilities, achievement of operating
efficiencies by benchmarking performance and applying best
practices throughout the combined company.
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
Approximately $26.5 million of the goodwill associated with
the YFCS acquisition is deductible for federal income tax
purposes.
The preliminary fair values of assets acquired and liabilities
assumed at the acquisition date, which are subject to revision
as more detailed analysis is completed and additional
information related to the fair value of property and equipment
and other assets acquired and liabilities assumed becomes
available, are as follows (in thousands):
Cash
$
33
Accounts receivable
17,606
Prepaid expenses and other current assets
2,327
Deferred tax asset — current
1,935
Property and equipment
31,911
Goodwill
137,654
Intangible assets
19,421
Other long-term assets
2,219
Total assets acquired
213,106
Accounts payable
3,028
Accrued salaries and benefits
8,878
Other accrued expenses
2,952
Deferred tax liability — long-term
18,691
Other long-term liabilities
1,510
Total liabilities assumed
35,059
Net assets acquired
$
178,047
Acquisition-related expenses for YFCS and other acquisitions
were $8.4 million for the six months ended June 30,
2011, including $1.4 million related to severance costs for
YFCS employees not retained by the Company. Additionally, the
Company assumed an obligation of YFCS to make certain
change-of-control
payments of $2.2 million to certain executives of YFCS
pursuant to pre-existing employment agreements. The total
severance liability decreased to $2.5 million as of
June 30, 2011 due to $1.1 million of payments made
during the quarter.
Pro
Forma Information
The consolidated statement of operations for the six months
ended June 30, 2011 includes revenue of $47.0 million
and income from continuing operations before income taxes of
$3.8 million for YFCS relating to the period from
April 1, 2011 to June 30, 2011. The following table
provides certain pro forma financial information for the Company
as if the YFCS acquisition occurred as of January 1, 2010
(in thousands):
Six Months Ended June 30,
2011
2010
Revenue
$
128,647
$
124,898
Income (loss) from continuing operations, before income taxes
$
(16,008
)
$
16,198
PHC
Merger
On May 23, 2011, the Company entered into a definitive
merger agreement with PHC, Inc., d/b/a Pioneer Behavioral Health
(PHC), a publicly-held behavioral health services company based
in Massachusetts. Upon completion of the merger, the
Company’s stockholders will own approximately 77.5% of the
combined company and PHC’s stockholders will own
approximately 22.5% of the combined company. The PHC merger is
expected to be completed in the fall of 2011.
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
4.
Goodwill
and Other Intangible Assets
The following table provides a rollforward of goodwill for the
six months ended June 30, 2011 (in thousands):
Balance at December 31, 2010
$
9,157
YFCS acquisition
137,654
Balance at June 30, 2011
$
146,811
Other identifiable intangible assets and related accumulated
amortization consist of the following as of June 30, 2011
and December 31, 2010 (in thousands):
Gross Carrying Amount
Accumulated Amortization
June 30,
December 31,
June 30,
December 31,
2011
2010
2011
2010
Intangible assets subject to amortization:
Trademarks
$
85
$
85
$
(71
)
$
(64
)
Patient-related intangible assets
1,200
—
(1,200
)
—
Non-compete agreements
588
266
(319
)
(207
)
1,873
351
(1,590
)
(271
)
Intangible assets not subject to amortization:
Licenses and accreditations
8,329
129
—
—
Certificates of need
10,224
335
—
—
18,553
464
—
—
Intangible assets, net
$
20,426
$
815
$
(1,590
)
$
(271
)
In connection with the YFCS acquisition, the Company acquired
$19.4 million of intangible assets consisting of
patient-related intangible assets of $1.2 million,
non-compete agreements of $0.3 million, licenses and
accreditations of $8.2 million and certificates of need of
$9.7 million. The intangible assets acquired from YFCS have
been recorded at preliminary estimates of fair value that are
subject to change upon completion of the Company’s
valuation analyses. The patient-related intangible assets, which
represent the value associated with the patients admitted to the
YFCS facilities as of the acquisition date, have been amortized
over the estimated three-month average term in which the
existing patients will be discharged. The YFCS non-compete
agreements are being amortized on a straight-line basis over the
one-year term of the related agreements.
Amortization expense for intangible assets during the six months
ended June 30, 2011 and 2010 was approximately
$1.3 million and $0.1 million, respectively.
Amortization is computed using the straight-line method over the
estimated useful life of the respective asset. The
Company’s licenses and accreditations and certificates of
need have indefinite lives and are therefore not subject to
amortization.
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
5.
Property
and Equipment
Property and equipment consists of the following as of
June 30, 2011 and December 31, 2010 (in thousands):
June 30,
December 31,
2011
2010
Land
$
11,070
$
3,254
Building and improvements
37,692
15,606
Equipment
5,166
2,626
Construction in progress
5,590
589
59,518
22,075
Accumulated depreciation and amortization
(4,205
)
(3,323
)
$
55,313
$
18,752
6.
Discontinued
Operations
GAAP requires that all components of an entity that have been
disposed of (by sale, by abandonment or in a distribution to
owners) or are held for sale and whose cash flows can be clearly
distinguished from the rest of the entity be presented as
discontinued operations. In 2010, the Company ceased operations
of our facility located in Hilo, Hawaii. Additionally, on
April 1, 2011, we acquired from YFCS the operations of a
facility located in Tampa Bay, Florida that was discontinued
during 2010. The results of operations of these facilities have
been reported as discontinued operations in the accompanying
condensed consolidated financial statements.
A summary of results from discontinued operations is as follows
(in thousands):
Six Months Ended June 30,
2011
2010
Revenue
$
50
$
1,387
Net income from discontinued operations
$
(58
)
$
96
7.
Long-Term
Debt
Long-term debt consists of the following (in thousands):
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
Senior
Secured Credit Facility
On April 1, 2011, we entered into a Senior Secured Credit
Facility administered by Bank of America, N.A. and providing
$135.0 million of term loans and a revolving credit
facility of $30.0 million. The term loans require quarterly
principal payments of $1.7 million for June 30, 2011
to March 31, 2013, $3.4 million for June 30, 2013
to March 31, 2014, $4.2 million for June 30, 2014
to March 31, 2015, and $5.1 million for June 30,
2015 to December 31, 2015, with the remaining principal
balance due on the maturity date of April 1, 2016. As of
June 30, 2011, we had $23.0 million of availability
under our revolving line of credit.
Borrowings under the Senior Secured Credit Facility are
guaranteed by each of the Company’s domestic subsidiaries
and are secured by a lien on substantially all of the assets of
the Company and its domestic subsidiaries. Borrowings under the
Senior Secured Credit Facility bear interest at a rate tied to
the Company’s Consolidated Leverage Ratio (defined as
Consolidated Funded Indebtedness to Consolidated EBITDA, in each
case as defined in the credit agreement governing the Senior
Secured Credit Facility). The Applicable Rate for borrowings
under the Senior Secured Credit Facility was 4.0% and 3.0% for
Eurodollar Rate Loans and Base Rate Loans, respectively, as of
June 30, 2011. Eurodollar Rate Loans bear interest at the
Applicable Rate plus the Eurodollar Rate (based upon the British
Bankers Association LIBOR Rate prior to commencement of the
interest rate period). Base Rate Loans bear interest at the
Applicable Rate plus the highest of (i) the federal funds
rate plus
1
/
2
of 1.0%, (ii) the prime rate and (iii) the Eurodollar
rate plus 1.0%. As of June 30, 2011, borrowings under the
Senior Secured Credit Facility bore interest at 4.2%. In
addition, the Company is required to pay a commitment fee on
undrawn amounts under the revolving line of credit. As of
June 30, 2011, undrawn amounts bore interest at a rate of
0.50%.
The Company is subject to customary affirmative and negative
covenants under the Senior Secured Credit Facility, including
restrictions on liens, investments, indebtedness and dividends,
and Acadia is subject to specified financial covenants,
including a maximum Consolidated Leverage Ratio covenant and a
minimum Consolidated Fixed Charge Coverage Ratio (as defined in
the credit agreement). As of June 30, 2011, the Company was
in compliance with such covenants.
We capitalized approximately $5.8 million of debt issuance
costs during the three months ended June 30, 2011
associated with the Senior Secured Credit Facility.
Secured
Promissory Notes
The Secured Promissory Notes were repaid on April 1, 2011.
8.
Equity
Arrangements
The Company is a wholly-owned subsidiary of Holdings and was
structured as a single-member limited liability corporation
until its conversion to a C-corporation on May 13, 2011. On
May 20, 2011, the new
C-corporation
underwent a stock split by means of a stock dividend of
100,000 shares of common stock for each share of common
stock outstanding on May 20, 2011 such that
10,000,000 shares of common stock were issued and
outstanding on such date.
On April 1, 2011, Holdings amended its limited liability
company agreement and its Class A Preferred Units,
Class A Common Units, Class B Common Units, and
Class B Preferred Units were exchanged for equivalent fair
values of Class A Units and Class B Units as of such
date. Additionally, on April 1, 2011, Holdings issued
Class A Units and Class B Units to investors
consisting of Waud Capital Partners or its affiliates and
certain members of management for cash proceeds of
$52.5 million.
Each holder of Class A Units is entitled to one vote per
unit and no other classes of equity are accorded voting rights.
Members holding Class A Units also hold certain preferences
in the event of liquidation and are entitled to an annual return
of 10% on the Class A Units’ unreturned capital
balances plus any unpaid returns from previous periods.
Cumulative accrued returns were approximately $3.5 million
as of June 30, 2011.
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
9.
Equity-Based
Compensation
On January 4, 2010, certain members of senior management
purchased 3,650 Class A Preferred Units and 3,650
Class A Common Units. The Company loaned the members of
management the funds necessary to purchase these units pursuant
to a three year recourse secured note bearing interest at 8%
annually. Since these units contained certain repurchase
provisions, they were accounted for as liability awards. The
Company also issued 1,000 Class B Preferred Units and
19,000 Class B Common Units to senior management which only
vest upon the occurrence of a certain qualified change in
control. Accordingly, at December 31, 2010 none of the
Class B Preferred Units and none of the Class B Common
Units held by management were vested. The fair value of
management’s Class A Preferred Units and Class A
Common Units at December 31, 2010 was approximately
$0.6 million. The fair value of management’s
Class B Preferred Units and Class B Common Units at
December 31, 2010 was approximately $5.9 million.
There were no cancellations and no forfeitures on: (1) the
Class A Preferred Units; (2) the Class A Common
Units; (3) the Class B Preferred Units; and
(4) the Class B Common Units. On April 1, 2011,
in connection with the merger with YFCS, the vesting of the
Class B Preferred Units and Class B Common Units was
accelerated. The Class A Preferred Units, Class A
Common Units, Class B Preferred Units, and Class B
Common Units were exchanged for 5,650 new Class A units,
5,650 new Class B units, and $0.9 million in cash. As
a result of the modification of the awards to accelerate the
vesting, the Company recognized approximately $6.1 million
of equity-based compensation expense on April 1, 2011. The
fair value of the units and the recognized compensation expense
were determined based on approximately $36.0 million of
contemporaneous cash investments from Waud Capital Partners or
its affiliates and approximately $16.5 million of
contemporaneous cash investments from new members of
Acadia’s management on April 1, 2011.
On April 1, 2011, Holdings issued Class C Units and
Class D Units (the “Management Incentive Units”)
to certain members of management. Under the terms of the limited
liability company agreement, the Management Incentive Units do
not have value until certain performance targets are met. The
Class C Units vest evenly over a five-year period on each
of the first five anniversaries from the date of issuance and
the Class D Units were immediately vested at the date of
issuance. The Management Incentive Units contain certain
repurchase provisions requiring such to be accounted for as
liability awards. The estimated fair value of the Management
Incentive Units of $13.7 million as of June 30, 2011
was based on various factors, including the value implied by the
anticipated PHC merger and analyses of relevant EBITDA multiples
as supported by guideline companies, and resulted in
$13.7 million of equity-based compensation expense relating
to the Management Incentive Units as of June 30, 2011. Such
equity-based compensation expense is subject to adjustment in
future periods based on the fair value of common stock
distributed to the unitholders in exchange for the Management
Incentive Units upon closing of the PHC merger.
10.
Earnings
Per Share
Basic and diluted earnings per unit are calculated in accordance
with Accounting Standards Codification (“ASC”) Topic
260,
Earnings Per Share
, using the 10,000,000 shares
of common stock as the weighted-average shares outstanding. The
100,000-for-one stock split that was effected by means of a
stock dividend on May 20, 2011 has been retroactively
applied to all periods presented.
11.
Income
Taxes
Acadia was formed as a limited liability company (LLC) that
is taxed as a partnership for federal and state income tax
purposes. Some of Acadia’s subsidiaries are organized as
LLCs and others as corporations. Prior to April 1, 2011,
the Company and its subsidiary LLCs were taxed as flow-through
entities and as such, the results of operations of the Company
related to the flow-through entities were included in the income
tax returns of its members. On April 1, 2011, the Company
and its wholly-owned LLC subsidiaries elected to be taxed as a
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
corporation for federal and state income tax purposes, and,
therefore, henceforth income taxes are the obligation of the
Company.
Management is not aware of any course of action or series of
events that have occurred that might adversely affect the
Company’s flow-through tax status for periods prior to
April 1, 2011.
The Company has made tax payments of $43 and $700 for the six
months ended June 30, 2011 and year ended December 31,
2010, respectively.
The Company’s provision for income taxes for continuing
operations of $2,517, consists of (a) current and deferred
tax expense on the respective periods’ operating results
and (b), the recognition of deferred tax expense attributable to
the change in federal and state tax status of the Company and
its wholly-owned LLC subsidiaries, in accordance with
ASC 740 on April 1, 2011.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes.
Deferred tax assets and liabilities of the Company at
June 30, 2011 and December 31, 2010 are as follows:
June 30,
December 31,
2011
2010
Net operating losses and tax credit carryforwards —
federal and state
$
996
$
691
Intangibles
—
44
Fixed asset basis difference
1,655
—
Prepaid items
57
57
Bad debt allowance
664
6
Accrued compensation and severance
1,587
74
Accrued expenses
485
376
Insurance reserves
306
315
Other assets
17
21
Valuation allowance
(656
)
(447
)
Total deferred tax assets
5,111
1,137
Fixed asset basis difference
—
(947
)
Prepaid items
(84
)
—
Intangibles
(21,866
)
—
Total deferred tax liabilities
(21,950
)
(947
)
Net deferred tax asset (liability)
$
(16,839
)
$
190
Unaudited
Pro Forma Taxes
The Company has prepared and provided pro forma disclosures in
the consolidated statements of operations as if the
Company’s flow through entities were taxable as
C-corporations for federal and state income tax purposes. The
additional income tax benefit (on a pro forma basis) was $133
for the six months ended June 30, 2011.
12.
Fair
Value Measurements
The carrying amounts reported for cash and cash equivalents,
accounts receivable, other current assets, accounts payable,
other current liabilities and current debt approximate fair
value because of the short-term maturity of these instruments.
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
The following table summarizes the financial instruments as of
June 30, 2011 and December 31, 2010, which are valued
at fair value (in thousands):
Balance at
June 30,
Level 1
Level 2
Level 3
2011
Cash and cash equivalents
$
3,456
$
—
$
—
$
3,456
Balance at
December 31,
Level 1
Level 2
Level 3
2010
Cash and cash equivalents
$
8,614
$
—
$
—
$
8,614
13.
Commitments
and Contingencies
We are, from time to time, subject to various claims and legal
actions that arise in the ordinary course of our business,
including claims for damages for personal injuries, medical
malpractice, breach of contract, business tort and employment
related claims. In these actions, plaintiffs request a variety
of damages, including, in some instances, punitive and other
types of damages that may not be covered by insurance. In the
opinion of management, we are not currently a party to any
proceeding that would individually or in the aggregate have a
material adverse effect on our business, financial condition or
results of operations.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened
investigations involving allegations or wrongdoing. While no
such regulatory inquiries have been made, compliance with such
laws and regulations can be subject to future government review
and interpretation, as well as significant regulatory action
including fines, penalties and exclusion from the Medicare
program.
Settlements under cost reimbursement agreements with third-party
payors are estimated and recorded in the period in which the
related services are rendered and are adjusted in future periods
as final settlements are determined. Final determination of
amounts earned under the Medicare and Medicaid programs often
occurs in subsequent years because of audits by such programs,
rights of appeal and the application of numerous technical
provisions. In the opinion of management, adequate provision has
been made for any adjustments and final settlements. However,
there can be no assurance that any such adjustments and final
settlements will not have a material effect on the
Company’s financial position or results of operations.
14.
Recently
Issued Accounting Standards
In December 2010, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”)
2010-28,
“Intangible — Goodwill and Other (Topic 350):
When to perform Step 2 of the goodwill impairment test for
reporting units with zero or negative carrying amounts.”
This update requires an entity to perform all steps in the
test for a reporting unit whose carrying value is zero or
negative if it is more likely than not (more than 50%) that a
goodwill impairment exists based on qualitative factors,
resulting in the elimination of an entity’s ability to
assert that such a reporting unit’s goodwill is not
impaired and additional testing is not necessary despite the
existence of qualitative factors that indicate otherwise. These
changes became effective for the Company beginning
January 1, 2011. The adoption of ASU
2010-28
did
not have a material impact on the Company’s consolidated
financial statements.
In December 2010, the FASB issued ASU
2010-29,
“Business Combinations (Topic 805): Disclosure of
supplementary pro forma information for business
combinations.”
This update changes the disclosure of
pro forma information for business combinations. These changes
clarify that if a public entity presents comparative financial
Notes to
Unaudited Condensed Consolidated Financial Statements
June 30,
2011 — (Continued)
statements, the entity should disclose revenue and earnings of
the combined entity as though the business combination that
occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only.
Also, the existing supplemental pro forma disclosure
requirements were expanded to include a description of the
nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. These
changes became effective for the Company beginning
January 1, 2011 and have been reflected in the notes to the
consolidated financial statements.
In July 2011, the FASB issued ASU
2011-7,
“
Health Care Entities (Topic 954): Presentation and
Disclosure of Patient Service Revenue, Provision for Bad Debts,
and the Allowance for Doubtful Accounts for Certain Health Care
Entities.”
In accordance with ASU
2011-7,
the
Company will be required to present its provision for doubtful
accounts as a deduction from revenue, similar to contractual
discounts. Accordingly, the Company’s revenue will be
required to be reported net of both contractual discounts and
its provision for doubtful accounts. Additionally,
ASU 2011-7
will require the Company to make certain additional disclosures
designed to help users understand how contractual discounts and
bad debts affect recorded revenue in both interim and annual
financial statements. ASU
2011-7
is
required to be applied retrospectively and is effective for
public companies for fiscal years beginning after
December 15, 2011, and interim periods within those fiscal
years. Early adoption is permitted. The adoption of ASU
2011-7
is
not expected to impact the Company’s financial position,
results of operations or cash flows although it will impact the
presentation of the statement of operations and require
additional disclosures.
In August 2010, the FASB issued ASU
2010-24,
“Health Care Entities (Topic 954): Presentation of
Insurance Claims and Recoveries,”
which provides
clarification to companies in the healthcare industry on the
accounting for professional liability insurance. ASU
2010-24 states
that insurance liabilities should not be presented net of
insurance recoveries and that an insurance receivable should be
recognized on the same basis as the liabilities, subject to the
need for a valuation allowance for uncollectible accounts. ASU
2010-24
is
effective for fiscal years beginning after December 15,
2010 and was adopted by us on January 1, 2011. The adoption
of this standard increased other current assets by
$1.0 million, other assets by $1.8 million, other
current liabilities by $1.0 and other long-term liabilities by
$1.8 million in the condensed consolidated balance sheet as
of June 30, 2011.
We have audited the accompanying consolidated balance sheets of
Acadia Healthcare Company, LLC and subsidiaries (the Company) as
of December 31, 2010 and 2009, and the related consolidated
statements of operations, member’s equity, and cash flows
for each of the three years in the period ended
December 31, 2010. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Acadia Healthcare Company, LLC and
subsidiaries at December 31, 2010 and 2009, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
Acadia Healthcare Company, LLC (hereinafter referred to as
Acadia or the Company) was formed on October 24, 2005 as a
limited liability company under the provisions of the Delaware
Limited Liability Act (the Act). The Company is a wholly-owned
subsidiary of Acadia Healthcare Holdings, LLC (hereafter
referred to as Holdings or the Member). The Company’s
principal business is to develop and operate acute psychiatric
hospitals (IPF), residential treatment centers (RTC) and
substance abuse facilities to better serve the behavioral health
and recovery needs of the communities throughout the United
States.
2.
Summary
of Significant Accounting Policies
Basis
of Presentation
The business of the Company is conducted through limited
liability companies and C corporations, each of which is a
wholly owned subsidiary of the Company. The consolidated
financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts
have been eliminated in consolidation.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting standards requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, including estimates
for uncollectible patient receivables, estimates of amounts
receivable and payable to third-party payors, and estimated
insurance liabilities. There is a reasonable possibility that
actual results could differ from those estimates.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents. At times, cash and cash equivalent balances may
exceed federally insured limits. The Company believes that it
mitigates any risks by depositing cash and investing in cash
equivalents with major financial institutions.
Property
and Equipment
Property and equipment are stated at cost. Depreciation is
calculated on the straight-line basis over the estimated useful
lives of the assets, which are generally three to thirty years,
or the term of the related lease if less than the useful life.
When assets are sold or retired, the corresponding cost and
accumulated depreciation are removed from the related accounts
and any gain or loss is credited or charged to operations.
Repair and maintenance costs are charged to expense as incurred.
Depreciation expense for the years ended December 31, 2010,
2009 and 2008, was approximately $868,000, $865,000 and
$708,000, respectively.
Inventory
Inventory consists of medical and other supplies and is valued
at the lower of cost or market. Cost is determined using the
first-in,
first-out method.
Net
Patient Service Revenue
Net patient service revenue is derived from services rendered to
patients for inpatient psychiatric and substance abuse care,
outpatient psychiatric care and adolescent residential treatment
and includes revenue payable by the Medicare Program (Medicare)
administered by the Center for Medicare and Medicaid Services
(CMS), Medicaid Programs, commercial insurance (in network and
out of network), and other payors including individual patients.
Notes to
Consolidated Financial
Statements — (Continued)
Revenue is recorded at the time services are provided. Charity
care is recorded as deduction to revenues for self-pay patients
that the Company does not expect to be able to pay for care.
Charity care deductions from revenue were $1.8 million, $1.8
million and $1.1 million for the years ended December 31,
2010, 2009 and 2008, respectively.
Patient service revenue is recorded at established billing rates
less contractual adjustments. Contractual adjustments are
recorded to state patient service revenue at the amount expected
to be collected for the service provided based on amounts
reimbursable by Medicare or Medicaid under provisions of cost or
prospective reimbursement formulas or amounts due from other
third-party payors at contractually determined rates.
The Company receives payments for services rendered from federal
and state agencies (under the Medicare and Medicaid Programs),
commercial insurance companies (in network and out of network),
and other payors including individual patients. The majority of
its reimbursement is from Medicare and Medicaid.
The following table presents patient service revenue by payor
type as a percentage of total patient service revenue for the
years ended December 31, 2010, 2009 and 2008:
2010
2009
2008
Medicare
23
%
22
%
22
%
Medicaid
39
40
41
Commercial
30
33
34
Self-pay and other
8
5
3
Total
100
%
100
%
100
%
Settlements under cost reimbursement agreements with third-party
payors are estimated and recorded in the period in which the
related services are rendered and are adjusted in future periods
as final settlements are determined. Final determination of
amounts earned under the Medicare and Medicaid programs often
occurs in subsequent years because of audits by such programs,
rights of appeal and the application of numerous technical
provisions. In the opinion of management, adequate provision has
been made for any adjustments and final settlements. However,
there can be no assurance that any such adjustments and final
settlements will not have a material effect on the
Company’s financial position or results of operations.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened
investigations involving allegations or wrongdoing. While no
such regulatory inquiries have been made, compliance with such
laws and regulations can be subject to future government review
and interpretation, as well as significant regulatory action
including fines, penalties and exclusion from the Medicare
program.
Accounts
Receivable and Allowance for Doubtful Accounts
The Company receives payments for services rendered from federal
and state agencies (under the Medicare and Medicaid programs),
commercial insurance companies (in network and out of network),
and other payors including individual patients. The Company
extends credit to its patients and does not require collateral.
The Company does not charge interest on accounts receivable.
The Company does not believe that there are any significant
concentrations of revenues from any particular payor that would
subject it to any significant credit risks in the collection of
its accounts receivable. Estimated provisions for doubtful
accounts are recorded to the extent it is probable that a
portion or all of a particular account will not be collected. In
evaluating the collectibility of accounts receivable, the
Company considers a number of factors, including the age of the
accounts, historical collection experience, current economic
conditions, and other relevant factors.
Notes to
Consolidated Financial
Statements — (Continued)
Income
Taxes
Acadia was formed as a limited liability company (LLC). Some of
Acadia’s subsidiaries are organized as LLCs and others as
C-corporations. The Company has elected, where applicable, that
all such entities be taxed as flow-through entities and as such,
the results of operations of the Company related to the
flow-through entities are included in the income tax returns of
its members. Accordingly, taxable income of the Company is the
direct obligation of the Member. Management is not aware of any
course of action or series of events that have occurred that
might adversely affect the Company’s flow-through tax
status.
Some of the Company’s subsidiaries are taxed as a
C-corporation for federal and state income taxes as the
respective subsidiary is directly liable for taxes on its
separate income. A tax provision has been provided for income
taxes that are the responsibility of the Company or its
subsidiaries in the accompanying consolidated financial
statements relating to the entities that are taxed as
C-corporations and for any taxing jurisdictions that do not
recognize an LLC as a flow-through entity.
Unaudited
Pro Forma Income Taxes
The Company has prepared and provided pro forma disclosures in
the consolidated statements of operations as if the
Company’s flow through entities were taxable as
C-corporations for federal and state income tax purposes. The
pro forma income tax expense was $2,448,357 for the year ended
December 31, 2010 and is based on statutory income tax
rates.
Advertising
Costs
Advertising costs are expensed as incurred and approximated
$210,000, $208,000 and $92,000 for the years ended
December 31, 2010, 2009 and 2008.
Professional
Liabilities Insurance
Loss provisions for professional liability claims are based upon
independent actuarial estimates of future amounts that will be
paid to claimants. These estimates include consideration of
historical Company specific and general psychiatric industry
claims experience, as well as future estimated claims payment
patterns.
Goodwill
and Other Intangible Assets
The Company has recorded assets acquired and liabilities assumed
at their respective fair values. The Company recognizes
specifically identifiable intangibles when a specific right or
contract is acquired. Finite-lived intangible assets are
amortized on a straight-line basis over the lessor of the
underlying contractual or estimated useful lives.
The Company’s goodwill and other indefinite-lived
intangible assets are evaluated for impairment annually in its
fiscal fourth quarter or more frequently if events indicate that
the asset may be impaired. Such evaluation includes comparing
the fair value of the asset with its carrying value. If the fair
value of the goodwill and other indefinite-lived intangible
asset is less than its carrying value, an impairment loss is
recognized in an amount equal to the differences. During the
years ended December 31, 2010 and 2009, the Company
performed its annual impairment tests in the fourth quarter of
2010 and 2009, and did not incur an impairment charge.
Long-Lived
Assets and Finite-Lived Intangible Assets
The carrying values of long-lived and finite lived intangible
assets are reviewed whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. If this review indicates that the asset will not be
recoverable, as determined based upon the undiscounted cash
flows of the operating asset over the remaining amortization
period, the carrying value of the asset will be reduced to its
fair value.
Notes to
Consolidated Financial
Statements — (Continued)
Fair
Values of Financial Instruments
In September 2006, FASB issued No. 157, Fair Value
Measurements, or SFAS No. 157, which has been codified
into Accounting Standards Codification 825 (“ASC
825”), Financial Instruments. This guidance, among other
things, established a framework for measuring fair value and
required supplemental disclosures about fair value measurements.
The changes resulting from the application of this new
accounting pronouncement primarily relate to the definition of
fair value and the methods used to measure fair value. This
guidance was effective for fiscal years beginning after
November 15, 2007. However, the FASB subsequently deferred
this guidance for one year insofar as it relates to certain
non-financial assets and liabilities.
The Company adopted this guidance on January 1, 2008,
except for the provisions relating to non-financial assets and
liabilities that are not required or permitted to be recognized
or disclosed at fair value on a recurring basis. The adoption of
this guidance for financial assets and liabilities that are
carried at fair value on a recurring basis did not have a
material impact on our financial position or results of
operations. Non-financial assets and liabilities include:
(i) those items measured at fair value in goodwill
impairment testing; (ii) tangible and intangible long-lived
assets measured at fair value for impairment testing; and
(iii) those items initially measured at fair value in a
business combination. The portion of this guidance that defers
the effective date for one year for certain non-financial assets
and non-financial liabilities measured at fair value, except
those that are recognized or disclosed at fair value in the
financial statements on a recurring basis, was implemented
January 1, 2009. The adoption of this guidance did not have
a material impact on our financial position or results of
operations.
In July 2011, the FASB issued Accounting Standards Update
(“ASU”) 2011-7,
“Health Care Entities”
(Topic 954):
Presentation and Disclosure of Patient Service Revenue,
Provision for Bad Debts, and the Allowance for Doubtful Accounts
for Certain Health Care Entities
.
ASU 2011-7
requires healthcare organizations to present their provision for
doubtful accounts related to patient service revenue as a
deduction from revenue, similar to contractual discounts. In
addition, all healthcare organizations will be required to
provide certain disclosures designed to help users understand
how contractual discounts and bad debts affect recorded revenue
in both interim and annual financial statements.
ASU 2011-7
is required to be applied retrospectively and is effective for
public companies for fiscal years, and interim periods within
those years, beginning December 15, 2011, with early
adoption permitted.
ASU 2011-7
is effective for the Company’s fiscal year beginning
October 1, 2012, and is not expected to significantly
impact the Company’s financial position, results of
operations or cash flows, although it will change the
presentation of the Company’s revenues on its statements of
operations, as well as requiring additional disclosures.
Financial
Instruments
Accounting Standards Codification 825 (“ASC 825”),
Financial Instruments
(formerly Statement of Financial
Accounting Standards No. 107), requires certain disclosures
regarding the estimated fair values of financial instruments.
The carrying value of cash and cash equivalents, net accounts
receivable, accounts payable and accrued liabilities reflected
in the consolidated financial statements approximate their
estimated fair values due to their short-term nature.
Earnings
Per Unit
Basic and diluted earnings per unit are calculated in accordance
with ASC Topic 260,
Earnings Per Share
(formerly
SFAS No. 128,
Earnings Per Share
) using the
weighted-average units outstanding in each period, which
represents the 100 units held by Holdings for all periods
presented, adjusted to retroactively reflect the
100,000-for-one
stock split that was effected by means of a stock dividend on
May 20, 2011.
Recent
Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board, or FASB,
issued Statement of Financial Accounting Standards No. 168,
The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted
Notes to
Consolidated Financial
Statements — (Continued)
Accounting Principle
, which has been codified into
Accounting Standards Codification 105,
Generally Accepted
Accounting Principles
. This guidance establishes the FASB
Accounting Standards Codification (the Codification) as the
single source of authoritative, nongovernmental U.S. GAAP.
The Codification did not change U.S. GAAP. All existing
accounting standard documents were superseded and all other
accounting literature not included in the Codification is
considered non-authoritative. This guidance is effective for
interim and annual periods ending after September 15, 2009.
Accordingly, the Company has adopted this guidance for the year
ended December 31, 2009. The adoption did not have a
significant impact on its results of operations, cash flows or
financial position.
Fair
Value Option for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued Statement of Financial
Accounting Standard No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities — Including
an amendment of FASB Statement No. 115
, which has been
codified into Accounting Standards Codification 820 (“ASC
820”),
Financial Instruments
. This guidance is
effective for fiscal years beginning after November 15,
2007 and permits entities to choose to measure many financial
instruments and certain other items at fair value. This guidance
also establishes presentation and disclosure requirements
designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and
liabilities. Unrealized gains and losses on items for which the
fair value option is elected would be reported in earnings. The
Company has adopted this guidance and has elected not to measure
any additional financial instruments and other items at fair
value.
Acquisition
Method of Accounting for Acquisitions
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (Revised 2007),
Business
Combinations
, which has been codified into Accounting
Standards Codification 805 (“ASC 805”). This guidance
requires a number of changes, including changes in the way
assets and liabilities are recognized in acquisition accounting
as well as requiring the expensing of acquisition-related costs
as incurred. Additionally, it provides guidance for recognizing
and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial
effects of the business combination. Furthermore, this guidance
requires any adjustments to acquired deferred tax assets and
liabilities occurring after the related measurement period to be
made through earnings for both acquisitions occurring prior and
subsequent to its effective date. The Company adopted
ASC 805 on January 1, 2009. Earlier adoption was
prohibited. The adoption of this guidance, prospectively, may
have a material effect on the Company’s results of
operations and financial position, to the extent that it has
material acquisitions, as costs that have historically been
capitalized will now be expensed, such as accounting, legal and
other professional fees. Acquisition related costs are expensed
as incurred and approximated $849,000 and $204,000 for the years
ended December 31, 2010 and 2009, respectively.
Non-controlling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160,
Noncontrolling Interests
in Consolidated Financial Statements — An Amendment of
ARB No. 51
, which has been codified into Accounting
Standards Codification 810 (“ASC 810”),
Consolidation
. This guidance establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary and
clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.
Additionally, this guidance changes the way the consolidated
income statement is presented by requiring consolidated net
income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest
and requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the
interests of the parent’s owners and the interests of the
noncontrolling owners of a subsidiary, including a
reconciliation of the beginning and ending balances of the
equity attributable to the parent and the noncontrolling owners
and a
Notes to
Consolidated Financial
Statements — (Continued)
schedule showing the effects of changes in a parent’s
ownership interest in a subsidiary on the equity attributable to
the parent.
This guidance does not change the provisions of Accounting
Research Bulletin No. 51,
Consolidated Financial
Statements,
which has also been codified into ASC 810,
Consolidation
, related to consolidation purposes or
consolidation policy, or the requirement that a parent
consolidate all entities in which it has a controlling financial
interest. This guidance does, however, amend certain of
consolidation procedures to make them consistent with the
requirements of ASC Topic 805 as well as to provide definitions
for certain terms and to clarify some terminology. This guidance
was effective on January 1, 2009 for the Company. Earlier
adoption was prohibited. This guidance must be applied
prospectively as of the beginning of the fiscal year in which it
is initially applied, except for the presentation and disclosure
requirements, which must be applied retrospectively for all
periods presented. The adoption of this guidance did not have a
material impact on the Company’s results of operations,
cash flows or financial position.
Determination
of Useful Life of Intangible Assets
In April 2008, the FASB issued FASB Staff Position, or FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets
,
which has been codified into Accounting Standards Codification
350 (“ASC 350”),
Intangibles — Goodwill
and Other
. This guidance is intended to improve the
consistency between the useful life of a recognized intangible
asset under SFAS No. 142,
Goodwill and Other
Intangible Assets
, as codified into ASC 350, and the
period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141(R), as codified into
ASC 805,
Business Combination
, when the underlying
arrangement includes renewal or extension of terms that would
require substantial costs or result in a material modification
to the asset upon renewal or extension. Companies estimating the
useful life of a recognized intangible asset must now consider
their historical experience in renewing or extending similar
arrangements or, in the absence of historical experience, must
consider assumptions that market participants would use about
renewal or extension as adjusted for ASC 350’s
entity-specific factors. This guidance is effective for the
Company beginning January 1, 2009. The adoption of this
guidance did not have a material impact on the consolidated
financial statements of the Company.
Convertible
Debt Instruments
In May 2008, the FASB issued FSP, No. APB
14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement)
, which has been codified into Accounting
Standards Codification 470 (“ASC 470”),
Debt
.
This guidance specifies that issuers of certain convertible debt
instruments must separately account for the liability and equity
components thereof and reflect interest expense at the
entity’s market rate of borrowing for non-convertible debt
instruments. This guidance is effective for financial statements
issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption
was not permitted. This guidance requires retrospective
application to all periods presented in the annual financial
statements for the period of adoption and where applicable
instruments were outstanding during an earlier period. The
cumulative effect of the change in accounting principle on
periods prior to those presented shall be recognized as of the
beginning of the first period presented. An offsetting
adjustment shall be made to the opening balance of retained
earnings for that period, presented separately. The adoption of
this guidance did not have a material impact on the
Company’s results of operations, cash flows or financial
position.
Fair
Value Measurements
In April 2009, the FASB issued FSP
No. FAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly
, which has
been codified into ASC 820,
Fair Value Measurements and
Disclosures
. This guidance provides additional direction for
estimating fair value when the volume and level of activity for
the asset or liability have significantly decreased. This
guidance also includes direction on identifying circumstances
that indicate a
Notes to
Consolidated Financial
Statements — (Continued)
transaction is not orderly. This guidance emphasizes that even
if there has been a significant decrease in the volume and level
of activity for the asset or liability and regardless of the
valuation technique(s) used, the objective of a fair value
measurement remains the same. Fair value is the price that would
be received to sell an asset or paid to transfer a liability in
an orderly transaction, not a forced liquidation or distressed
sale, between market participants at the measurement date under
current market conditions. This guidance is effective for
interim and annual reporting periods ending after June 15,
2009, and is applied prospectively. The adoption of this
guidance did not have a material impact on the Company’s
consolidated financial statements.
Subsequent
Events
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events
, which has been codified into
Accounting Standards Codification 855 (“ASC 855”).
This guidance establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date
but before financial statements are issued. The Company adopted
this guidance for the year ended December 31, 2009.
Recent
Accounting Guidance Not Yet Adopted
In January 2010, the FASB issued guidance to amend the
disclosure requirements related to recurring and nonrecurring
fair value measurements. The guidance requires new disclosures
on the transfers of assets and liabilities between Level 1
(quoted prices in active market for identical assets or
liabilities) and Level 2 (significant other observable
inputs) of the fair value measurement hierarchy, including the
reasons and the timing of the transfers. Additionally, the
guidance requires a roll forward of activities on purchases,
sales, issuance, and settlements of the assets and liabilities
measured using significant unobservable inputs (Level 3
fair value measurements). The guidance became effective for the
Company with the reporting period beginning January 1,
2010, except for the disclosure on the roll forward activities
for Level 3 fair value measurements, which became effective
with the reporting period beginning January 1, 2011. This
new guidance will not have a material impact on the consolidated
financial statements.
In October 2009, the FASB issued guidance on revenue recognition
that became effective for the Company beginning January 1,
2011, with earlier adoption permitted. Under the new guidance on
arrangements that include software elements, tangible products
that have software components that are essential to the
functionality of the tangible product will no longer be within
the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant
revenue recognition guidance. Additionally, the FASB issued
guidance on revenue arrangements with multiple deliverables that
are outside the scope of the software revenue recognition
guidance. Under the new guidance, when vendor specific objective
evidence or third party evidence for deliverables in an
arrangement cannot be determined, a best estimate of the selling
price is required to separate deliverables and allocate
arrangement consideration using the relative selling price
method. The new guidance includes new disclosure requirements on
how the application of the relative selling price method affects
the timing and amount of revenue recognition. The adoption of
this new guidance will not have a material impact on the
consolidated financial statements.
In June 2009, the FASB issued guidance on the consolidation of
variable interest entities, which is effective for the Company
beginning January 1, 2011. The new guidance requires
revised evaluations of whether entities represent variable
interest entities, ongoing assessments of control over such
entities, and additional disclosures for variable interests. The
adoption of this new guidance will not have a material impact on
the consolidated financial statements.
The Company has reviewed other recently issued accounting
pronouncements and believes none will have any material impact
on the consolidated financial statements.
Notes to
Consolidated Financial
Statements — (Continued)
3.
Acquisitions
2008
Acquisition
On September 15, 2008, the Company acquired certain assets
of RiverWoods Psychiatric Center, a 65-bed psychiatric hospital
in Atlanta, Georgia (Atlanta). The gross purchase price was
approximately $8,700,000 plus transaction costs of approximately
$419,000. Assets acquired included real property, personal
property and intangible assets such as noncompete agreements,
Medicare licenses and a certificate of need.
The total purchase price of the 2008 acquisition has been
allocated to the assets acquired with the advice of an
independent valuation firm. The purchase price allocation was as
follows:
2008
Atlanta
Fair value of assets acquired, excluding cash:
Land
$
820,000
Land improvements
110,000
Property, plant, and equipment
7,211,000
Furniture
111,700
Identifiable intangible assets
200,000
Goodwill
666,745
Total assets acquired
$
9,119,445
2009
Acquisitions
On March 5, 2009, the Company acquired certain assets of
Acadiana Addiction Center, LLC, a substance abuse treatment
center in Lafayette, Louisiana (Acadiana). The gross purchase
price was approximately $2,600,000 and cash received was
approximately $400,000 for a net purchase price of approximately
$2,200,000. In addition the Company may have to pay an
additional $949,000 (earn-out payments) if certain earnings
levels are achieved during the first three years. The estimated
the fair value of earn-out payments at the date of the
acquisition was approximately $713,000 based upon expected
earnings of Acadiana. The Company incurred transaction costs of
approximately $63,000, which were expensed as incurred. Assets
acquired included personal property and intangible assets such
as noncompete agreements and a trade name.
The estimated fair value of the earn-out payments and intangible
assets acquired were determined by management with the advice of
an independent valuation firm. The fair values of assets
acquired at the acquisition date were as follows:
2009
Acadiana
Fair value of assets acquired, excluding cash:
Vehicles
$
39,815
Goodwill
2,746,982
Identifiable intangible assets
175,000
Total assets acquired
$
2,961,797
On November 2, 2009, the Company acquired certain assets
from Parkwest Medical Center related to its residential mental
health treatment program in Louisville, Tennessee (The Village).
The purchase price was
Notes to
Consolidated Financial
Statements — (Continued)
approximately $10. The Company incurred transaction costs of
approximately $41,000, which were expensed as incurred. Assets
acquired included personal property. The fair values of assets
acquired at the acquisition date were as follows:
2009
The Village
Fair value of assets acquired, excluding cash:
Vehicles
$
40,980
Property, plant and equipment
59,005
Total assets acquired
$
99,985
As the fair value of the consideration transferred was less than
the fair value of the net assets acquired, in accordance with
Accounting Standards Codification 805 (ASC 805),
Business
Combinations
, the Company has accounted for the acquisition
of The Village as a “Bargain Purchase” and has
recorded a gain of approximately $99,985 for the year ended
December 31, 2009 which is reflected in other gains in the
consolidated statements of operations.
2011
Acquisition
On April 1, 2011, the Company acquired 100 percent of
the equity interests of Youth and Family Centered Services, Inc.
(YFCS). YFCS operates 13 behavioral health facilities across the
United States. The preliminary value of the total consideration
transferred is approximately $178.0 million, which
represents the cash consideration paid at closing of
$178.1 million less a working capital settlement of
$0.1 million. The qualitative factors comprising goodwill
include efficiencies derived through synergies expected by the
elimination of certain redundant corporate functions and
expenses, the ability to leverage call center referrals to a
broader provider base, coordination of services provided across
the combined network of facilities, achievement of operating
efficiencies by benchmarking performance and applying best
practices throughout the combined company.
Approximately $26.5 million of the goodwill associated with
the YFCS acquisition is deductible for federal income tax
purposes.
The preliminary fair values of assets acquired and liabilities
assumed at the acquisition date, which are subject to revision
as more detailed analysis is completed and additional
information related to the fair value of property and equipment
and other assets acquired and liabilities assumed becomes
available, are as follows (in thousands):
Notes to
Consolidated Financial
Statements — (Continued)
To assist in financing the acquisition of YFCS, the Company
entered into a new credit facility consisting of a term loan of
$135,000,000 and a revolving credit facility of $30,000,000. On
April 1, 2011, $10,000,000 was drawn on the revolving
credit facility as part of the funding of the YFCS acquisition.
Also in connection with the YFCS acquisition, the Company
received approximately $52,544,000 as equity investment from
Holdings.
Pro
Forma Information
The consolidated statements of operations include the following
net patient service revenue and income from continuing
operations, before income taxes, for Atlanta, Acadiana and The
Village for the periods denoted below:
Income (Loss)
from Continuing
Operations,
Net Patient
before Income
Service Revenue
Taxes
Atlanta actual from September 15, 2008 to December 31,
2008
$
2,311,255
$
(4,929
)
Acadiana actual from March 5, 2009 to December 31, 2009
$
2,646,957
$
471,788
The Village actual from November 2, 2009 to
December 31, 2009
$
999,724
$
(146,125
)
The following table provides certain pro forma financial
information for the Company as if the Atlanta, Acadiana and The
Village acquisitions described above occurred as of
January 1, 2008 and as if the YFCS acquisition described
above occurred as of January 1, 2010:
Year Ended December 31,
2010
2009
2008
Net patient service revenue
$
248,728,426
$
56,546,150
$
47,249,190
Income (loss) from continuing operations, before income taxes
$
4,443,644
$
1,057,711
$
(2,272,996
)
4.
Discontinued
Operations
On November 10, 2007, the Company terminated its lease of
the real property related to Longview with the landlord in
exchange for a cash settlement payment of approximately $220,000
and assignment of and transfer of all fixed assets on the
premises which had a net book value of approximately $474,000.
The results of operations of Acadia Hospital Longview, LLC have
been reported as discontinued operations in the accompanying
consolidated statements of operations. In connection with the
disposal of Acadia Hospital Longview, LLC, the Company incurred
a loss on the disposal of approximately $2,019,000, which
included the write-off of approximately $1,717,000 in goodwill
in 2007. A loss of approximately $30,000 was recorded for the
year ended December 31, 2008 in connection with the closure
of this location.
On October 21, 2010 the Company ceased operations at the
facility located in Hilo, Hawaii. The facility operating lease
was terminated effective January 8, 2011. All remaining
assets were disposed of with the exception of a vehicle, which
was transferred to an affiliate. The results of operations of
Kids Behavioral Health of Hawaii, LLC have been reported as
discontinued operations in the accompanying consolidated
statements of operations.
A summary of discontinued operations for the years ended
December 31, 2010, 2009 and 2008, is as follows:
Notes to
Consolidated Financial
Statements — (Continued)
5.
Formation
and Member’s Equity
The equity balances and activity of Holdings are as follows for
the years ended December 31, 2010, 2009 and 2008:
Class A Preferred
Units
Class B Preferred Units
Class A Common Units
Class B Common Units
Accumulated
Units
Amounts
Units
Amount
Units
Amount
Units
Amount
Deficit
Total
Balance at December 31, 2007
202,950
$
26,304,546
—
$
—
200,500
$
200,500
—
$
—
$
(19,370,080
)
$
7,134,966
Capital contributions
—
10,395,104
—
—
—
—
—
—
—
10,395,104
Accrued preferred unit return
—
3,112,542
—
—
—
—
—
—
(3,112,542
)
—
Other
—
—
—
—
4,500
4,500
—
—
—
4,500
Net loss
—
—
—
—
—
—
—
—
(1,717,858
)
(1,717,858
)
Balance at December 31, 2008
202,950
39,812,192
—
—
205,000
205,000
—
—
(24,200,480
)
15,816,712
Capital contributions
—
2,500,000
—
—
—
—
—
—
—
2,500,000
Accrued preferred unit return
—
4,346,800
—
—
—
—
—
—
(4,346,800
)
—
Other
247,005
(111,106
)
—
—
249,500
(2,000
)
—
—
113,106
—
Net income
—
—
—
—
—
—
—
—
2,876,619
2,876,619
Balance at December 31, 2009
449,955
46,547,886
—
—
454,500
203,000
—
—
(25,557,555
)
21,193,331
Distributions
(1,980
)
(2,296,637
)
—
—
(2,000
)
—
—
—
—
(2,296,637
)
Accrued preferred unit return
—
4,851,643
—
—
—
—
—
—
(4,851,643
)
—
Net income
—
—
—
—
—
—
—
—
6,209,977
6,209,977
Balance at December 31, 2010
447,975
$
49,102,892
—
$
—
452,500
$
203,000
—
$
—
$
(24,199,221
)
$
25,106,671
The terms of the formation of Holdings were specified by its
limited liability company agreement (the Agreement). The
Agreement provided for the issuance of membership units
comprised of Preferred Units, Class A Units, Class B
Units, and Class C Units. In August 2009, the Agreement was
amended and revised (the Amended Agreement). Under the Amended
Agreement: Preferred Units were reauthorized as Class A
Preferred Units; Class A Units were reauthorized as
Class A Common Units; Class B Units were reauthorized
as Class B Common Units; Class B Preferred Units were
authorized and Class C Units were no longer authorized.
Each holder of Class A Common Units is entitled to one vote
per unit. Class A Preferred, Class B Preferred and
Class B Common Units are not accorded voting rights. Except
as otherwise specifically provided in the Agreement, the
liability of the members is generally limited to their initial
capital contributions. Holdings and the Company will continue
indefinitely unless dissolved by a vote of the Board of
Managers, a liquidation, dissolution, or winding up of Holdings
or the Company, or judicial dissolution in accordance with the
Act. The death, retirement, expulsion, withdrawal, bankruptcy,
or dissolution of any member will not cause the dissolution of
Holdings or the Company.
The affairs and the business of Holdings and the Company are
managed by a Board of Managers, except in instances where the
approval of the members is expressly required by law. The Board
of Managers is comprised of six managers.
Three managers, including the Chairman of the Board of Managers,
are designated by the Majority Holder of the Preferred
Class A Units and the Class A Common Units (Majority
Holder).
Acadia’s Chief Executive Officer (CEO) also serves as a
manager and the remaining two managers are outside managers with
significant industry experience designated by the Majority
Holder with the approval of the CEO.
Members holding Preferred Class A Units hold certain
preferences in the event the Company is liquidated and are
entitled to an annual return of 10% on the Preferred
Class A capital balance plus any unpaid preferred returns
from previous periods. Cumulative accrued returns approximated
$14,511,000, $9,679,000 and $5,312,000 at December 31,
2010,a 2009 and 2008, respectively.
Approximately 1,000 Class B Preferred Units, 3,650
Class A Common Units and 25,000 Class B Common Units
have been reserved for issuance to certain employees of Holdings
as of December 31, 2010. The Class B
Notes to
Consolidated Financial
Statements — (Continued)
Preferred Units and Class B Common Units vest upon a
qualified change in control (as defined in the Amended
Agreement) of the Holdings.
On August 31, 2009, the Company issued 247,005 and 249,500
Class A Preferred Units and Class A Common Units,
respectively, to the Majority Holders in exchange for an
aggregate commitment to contribute capital of $24,950,000.
On January 4, 2010, certain members of senior management of
the Company purchased 3,650 Class A Preferred Units and
3,650 Class A Common Units. The Company loaned the members
of management the funds necessary to purchase these units
pursuant to a three year recourse secured note bearing interest
at 8% annually. Since these units contain certain repurchase
provisions, they are accounted for as liability awards. The
Company also issued 1,000 Class B Preferred Units and
19,000 Class B Common Units to senior management which only
vest upon the occurrence of a certain qualified change in
control. Accordingly, at December 31, 2010 none of the
Class B Preferred Units and none of the Class B Common
Units held by management were vested. The fair value of
management’s Class A Preferred Units and Class A
Common Units at December 31, 2010 was approximately
$607,000. The fair value of management’s
Class B Preferred Units and Class B Common Units at
December 31, 2010 was approximately $5,907,000. There were
no cancellations and no forfeitures on: (1) the
Class A Preferred Units; (2) the Class A Common
Units; (3) the Class B Preferred Units; and
(4) the Class B Common Units. On April 1, 2011,
in connection with the merger with YFCS, the vesting of the
Class B Preferred Units and Class B Common Units was
accelerated. The Class A Preferred Units, Class A
Common Units, Class B Preferred Units, and Class B
Common Units were exchanged for 5,650 new Class A units,
5,650 new Class B units, and $861,758 in cash. As a result,
the Company recognized approximately $6,146,000 of share based
compensation on April 1, 2011.
Members of Holdings made contributions of $2,500,000 and
$10,395,000 during the years ended December 31, 2009 and
2008, respectively. No contributions were made by members during
the year ended December 31, 2010.
6.
Concentrations
of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of patient
accounts receivable. Should government agencies suspend or
significantly reduce contributions to the Centers for Medicare
and Medicaid Services (CMS) program, the Company’s ability
to collect on its receivables would be adversely affected. The
Company’s exposure to credit risk with respect to its
remaining receivables is limited due to the large number of
payors and their geographic dispersion.
The Company maintains its cash in bank deposit accounts, which,
at times, may exceed federally insured limits. Acadia has not
experienced any losses in such accounts. The Company believes it
is not exposed to any significant credit risk on cash and cash
equivalents.
Notes to
Consolidated Financial
Statements — (Continued)
7.
Property
and Equipment
Property and equipment consists of the following at
December 31, 2010 and 2009:
2010
2009
Land
$
3,254,130
$
3,253,180
Building and improvements
14,914,201
14,742,343
Leasehold improvements
691,900
508,299
Equipment
1,783,458
1,502,800
Furniture and fixtures
842,865
684,268
21,486,554
20,690,890
Accumulated depreciation and amortization
(3,323,315
)
(2,359,636
)
Construction in progress
588,324
72,176
$
18,751,563
$
18,403,429
8.
Goodwill
and Other Intangible Assets
The following is a rollforward of the Company’s goodwill as
of December 31, 2010 and 2009.
2010
2009
Beginning balance
$
9,156,984
$
6,395,002
Additions through acquisitions
—
2,761,982
Ending balance
$
9,156,984
$
9,156,984
The Company has no accumulated impairment related to its
goodwill as of December 31, 2010, 2009 and 2008.
Other identifiable intangible assets and related accumulated
amortization consists of the following as of December 31,
2010 and 2009.
2010
2009
Intangible assets subject to amortization:
Cost:
Trademarks
$
85,000
$
85,000
Noncompete
266,000
285,000
351,000
370,000
Less accumulated amortization
(270,800
)
(175,406
)
80,200
194,594
Intangible assets not subject to amortization:
Medicare licenses
128,922
134,000
Certificate of Need
335,297
150,000
464,219
284,000
Intangible assets, net
$
544,419
$
478,594
Amortization is computed using the straight-line method over the
estimated useful life of the respective asset. The
Company’s Medicare licenses and their Certificate of Need
have indefinite lives and are therefore also not subject to
amortization.
Notes to
Consolidated Financial
Statements — (Continued)
The weighted average amortization period for intangible assets
subject to amortization are as followings (in years):
Trademarks
5.0
Noncompete
3.4
Total weighted average
3.8
Amortization of intangible assets totaled $108,534, $101,867,
and $31,867 for the years ended December 31, 2010, 2009 and
2008, respectively.
The Company expects future amortization expense resulting from
other intangible assets at December 31, 2010, as follows:
2011
$
50,617
2012
23,333
2013
5,000
2014
1,250
$
80,200
9.
Debt
At December 31, 2010 and 2009, notes payable consist of the
following:
2010
2009
Secured Promissory note (secured by the physical assets of
Acadia) with interest payments due monthly for the first
12 months and interest and principal payments thereafter
with the total outstanding amount due on December 31, 2010
(see below), bearing interest at a variable rate.
$
6,515,443
$
6,790,498
Secured Promissory note (secured by the assets of Acadia) with
interest payments due on a monthly basis and principal and all
remaining interest due December 31, 2010 (see below),
bearing interest at a variable rate.
3,468,156
3,468,156
Unsecured Promissory notes from the Majority Holder with all
principal and interest payments due on April 6, 2009,
bearing interest at a fixed rate of 12%.
—
—
9,983,599
10,258,654
Less current portion
9,983,599
10,258,654
$
—
$
—
The estimated fair value of debt approximates the carrying
amount of $9,983,599 and $10,258,654 at December 31, 2010
and 2009 respectively, due to the short term nature of the debt.
The Secured Promissory notes that matured on December 31,
2010 were extended for an additional term on January 27,
2011 and were repaid on April 1, 2011.
10.
Commitments
and Contingencies
Leases
The Company is obligated under certain operating leases to rent
space for its IPF and RTC facilities and other office space. The
terms of the leases range from five to ten years, with optional
renewal periods. The Company’s
Notes to
Consolidated Financial
Statements — (Continued)
building lease for Lafayette contains a fair market value
purchase option exercisable under certain conditions during the
lease terms.
Aggregate minimum lease payments under noncancelable operating
leases with original or remaining lease terms in excess of one
year are as follows:
Year ended December 31,
2011
$
1,027,274
2012
1,062,025
2013
1,040,907
2014
965,827
2015 Thereafter
925,505
Thereafter
1,758,118
Total minimum rental obligations
$
6,779,656
For the years ended December 31, 2010, 2009 and 2008, the
Company incurred rental expense, in the aggregate, under all of
its operating leases of approximately $1,287,668, $884,936 and
$851,723, respectively.
Insurance
Prior to July 1, 2009, the Company maintained commercial
insurance coverage on an occurrence basis for workers’
compensation claims with no deductible. Effective July 1,
2009, the Company maintains commercial insurance coverage on an
occurrence basis with a $250,000 deductible per claim and
$1 million per claim limit. The Company maintains
commercial insurance coverage on a claims-made basis for general
and professional liability claims with a $50,000 deductible and
$1 million per claim limit and an aggregate limit of
$3 million with excess umbrella coverage for an additional
$7 million.
The accrued insurance liabilities included in the accompanying
consolidated balance sheets include estimates of the ultimate
costs for both reported claims and claims incurred but not
reported through December 31, 2010. In the opinion of
management, adequate provision has been made for losses that may
occur from the asserted and unasserted claims.
The healthcare industry in general continues to experience an
increase in the frequency and severity of litigation and claims.
As is typical in the healthcare industry, the Company could be
subject to claims that its services have resulted in patient
injury or other adverse effects. In addition, resident, visitor
and employee injuries could also subject the Company to the risk
of litigation. While the Company believes that quality care is
provided to patients in its facilities and that it materially
complies with all applicable regulatory requirements, an adverse
determination in a legal proceeding or government investigation
could have a material adverse effect on the Company’s
financial condition.
11.
Employee
Benefit Plan
The Company maintains a qualified defined contribution 401(k)
plan covering substantially all of its employees. The Company
may, at its discretion, make contributions to the plan. For the
years ended December 31, 2010, 2009 and 2008, the Company
contributed approximately $102,000, 89,000 and 105,000,
respectively, to the 401(k) plan.
12.
Related-Party
Transactions
Under the terms of the Agreement, the Majority Holder is
entitled to receive advisory, financing, and transaction fees
for services rendered to the Company.
Notes to
Consolidated Financial
Statements — (Continued)
Advisory fees represent management consulting services rendered
to the Company and totaled $550,000, $500,000, and $450,000, for
the years ended December 31, 2010, 2009 and 2008,
respectively.
Financing fees represent services rendered in assisting the
Company with negotiating, arranging and structuring certain
financing transactions. The Majority Holder was entitled to
Financing Fees of $0, $0 and $10,000 for the years ended
December 31, 2010, 2009 and 2008, respectively. The
Majority Holder was also entitled to a transaction fee of
approximately $1 million upon the date of its initial
contribution to the Company and an additional $1 million
payment upon the date of the amended and restated LLC Agreement.
The Majority Holder was entitled to a restructuring fee of
$480,000 upon the date of the amended and restated LLC
Agreement. The Majority Holder has irrevocably waived payment of
any advisory, financing, transaction and restructuring fees from
inception of the Company through December 31, 2010 (the
Waived Fees). These Waived Fees are subject to a 10% return
until paid. Aggregate cumulative Waived Fees approximated
$6,590,000 and $5,433,000 as of December 31, 2010 and 2009,
respectively.
Through December 31, 2009, Acadia contracted for certain
services (the Purchased Services) from Regency Hospital Company,
LLC (Regency), a company in which the Majority Holder previously
held a majority of the membership units. Fees incurred for the
Purchased Services provided by Regency were based upon time and
materials incurred for providing the service. For the years
ended December 31, 2009 and 2008, Purchased Services fees
approximated $19,000 and $189,000.
13.
Income
Taxes
Acadia was formed as a limited liability company
(LLC) which is taxed as a partnership for Federal income
tax purposes. Some of Acadia’s subsidiaries are organized
as LLC’s and others as corporations. The Company and its
subsidiary LLCs will be taxed as flow-through entities and as
such, the results of operations of the Company related to the
flow-through entities are included in the income tax returns of
its members.
Accordingly, taxable income of the Company is the direct
obligation of the members. Management is not aware of any course
of action or series of events that have occurred that might
adversely affect the Company’s flow-through tax status.
Some of the Company’s subsidiaries are taxed as
C-corporations and the respective subsidiaries are directly
liable for taxes on their separate income. A tax provision has
been provided for income taxes that are the responsibility of
the Company or its subsidiaries in the accompanying consolidated
financial statements relating to the entities that are taxed as
C-corporations and for any taxing jurisdictions that do not
recognize an LLC as a flow-through entity.
The Company made income tax payments of $700,000 and $30,000 for
the years ended December 31, 2010 and 2009, respectively,
and no payments for 2008.
Year Ended December 31
2010
2009
2008
Current expense
$
621,541
$
53,390
$
20,000
Deferred benefit
(144,995
)
—
—
Provision for income taxes
$
476,546
$
53,390
$
20,000
The Company’s current tax expense of $621,541 for the year
ended December 31, 2010 consists of federal tax expense as
well as a gross receipts tax assessed by a certain state that is
accounted for as income taxes in accordance with Accounting
Standards Codification 740 (“ASC 740”).
Notes to
Consolidated Financial
Statements — (Continued)
The Company’s effective tax rate differs from the statutory
United States federal income tax rate for the years ended
December 31 as follows:
Year Ended December 31
2010
2009
2008
Federal statutory rate
34.0
%
34.0
%
34.0
%
State taxes, net of federal benefit
1.2
(1.0
)
(1.0
)
Non-Deductible items
0.1
(1.0
)
—
Change in Valuation Allowance
(2.7
)
—
—
Other
(26.3
)
(34.0
)
(34.0
)
Effective tax rate
6.3
%
(2.0
)%
(1.0
)%
The other line item shown above represents the flow-through of
taxable income to the members of the Company.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes.
Deferred tax assets and liabilities of the Company are as
follows:
December 31
2010
2009
Net operating losses and tax credit carry forwards —
federal and state
$
690,928
$
1,279,918
Intangibles
43,861
27,502
Prepaid items
57,135
56,746
Bad debt allowance
5,785
10,069
Accrued compensation
73,776
75,284
Accrued expenses
376,301
397,344
Insurance reserves
314,637
420,297
Other assets
20,713
19,683
Valuation allowance
(446,973
)
(1,367,430
)
Total deferred tax assets
1,136,163
919,413
Fixed asset basis difference
(946,746
)
(874,991
)
Total deferred tax liabilities
(946,746
)
(874,991
)
Net deferred taxes
$
189,417
$
44,422
Based on the weight of available evidence, a valuation allowance
was provided to offset the entire net deferred tax asset as of
December 31, 2009. As of December 31, 2010, the
valuation allowance against certain subsidiaries was released,
which resulted in the recognition of a deferred tax asset of
$144,495. All other net deferred tax assets remain fully
reserved as of December 31, 2010.
The Company’s net operating loss carry forwards as of
December 31, 2010 and 2009 are approximately
$2.1 million and $3.8 million, respectively. Of these
amounts approximately $1.3 million as of December 31,
2010 and 2009 is attributed to a certain acquisition. The
operating losses will expire between 2022 and 2028. Due to
changes in ownership control, net operating losses acquired are
limited to offset future income pursuant to Internal Revenue
Code Section 382.
Notes to
Consolidated Financial
Statements — (Continued)
Acadia adopted the provisions of ASC Topic
740-10
formerly known as FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes
(FIN 48), on
January 1, 2009. The Company’s policy is to recognize
interest and penalties accrued on any unrecognized tax benefits
as a component of income tax expense.
As a result of the implementation of this guidance, the Company
recognized no cumulative effect adjustment. The Company had
$1,050,220 and $116,897 of unrecognized income tax benefits as
of December 31, 2010 and 2009, respectively, of which
$1,005,798 was used to reduce available net operating losses.
None of the uncertain tax positions would affect the
Company’s effective income tax rate if recognized. The
Company has unused U.S. federal and state NOLs for years
2002 through 2007. As such, these years remain subject to
examination by the relevant tax authorities.
14.
Fair
Value of Financial Instruments
Effective January 1, 2008, the Company
SFAS No. 157, which has been codified into
ASC 820,
Fair Value Measurements and Disclosures
,
which defines fair value, establishes a framework for measuring
fair value, establishes a fair value hierarchy based on the
quality of inputs used to measure fair value and enhances
disclosure requirements for fair value measurements. The
implementation of this guidance did not change the method of
calculating the fair value of assets or liabilities. The primary
impact from adoption was additional disclosures. The portion of
this guidance that defers the effective date for one year for
certain non-financial assets and non-financial liabilities
measured at fair value, except those that are recognized or
disclosed at fair value in the financial statements on a
recurring basis, was implemented January 1, 2009, and did
not have an impact on the consolidated financial position, cash
flows or results of operations.
In October 2008, the FASB issued
FSP 157-3
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active,
which has also been
codified into ASC 820. This guidance provides an
illustrative example to demonstrate how the fair value of a
financial asset is determined when the market for that financial
asset is inactive. This guidance was effective upon issuance.
The Company does not currently have any investments requiring
fair market valuations in inactive markets; therefore, the
adoption of this guidance did not have an impact on the
consolidated financial position, cash flows or results of
operations.
The fair value hierarchy categorizes assets and liabilities at
fair value into one of three different levels depending on the
observability of the inputs employed in the measurement, as
follows:
•
Level 1
— inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
•
Level 2
— inputs to the valuation
methodology include quoted prices for similar assets and
liabilities in active markets, and inputs are observable for the
asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
•
Level 3
— inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
The following table summarizes the financial instruments as of
December 31, 2010 and 2009, which are valued at fair value:
Notes to
Consolidated Financial
Statements — (Continued)
Balance as of
December 31,
Level 1
Level 2
Level 3
2009
Cash and cash equivalents
$
4,489,292
$
—
$
—
$
4,489,292
15.
Other
Information
A summary of activity in the Company’s allowance for
doubtful accounts is as follows:
Additions
Accounts
Balances at
Charged to
Written off,
Beginning of
Costs and
Net of
Balances at
Period
Expenses
Recoveries
End of Period
Allowance for doubtful accounts:
Year ended December 31, 2008
$
1,239,232
1,803,930
1,934,076
$
1,109,086
Year ended December 31, 2009
$
1,109,086
2,424,283
2,159,782
$
1,373,587
Year ended December 31, 2010
$
1,373,587
2,238,452
2,468,495
$
1,143,544
16.
Subsequent
Events
On May 13, 2011, the Company was converted to a
C-corporation registered as Acadia Healthcare Company, Inc. As a
result of the conversion to a C-corporation, all of the
Company’s 100 outstanding membership units were converted
to 100 shares of common stock of Acadia Healthcare Company,
Inc.
On May 20, 2011, the new C-corporation underwent a stock
split by means of a stock dividend of 100,000 shares of
common stock for each share of common stock outstanding on
May 20, 2011 such that 10,000,000 shares of common
stock were issued and outstanding on such date. The accompanying
consolidated statements of operations disclose earnings per
share for the years ended December 31, 2010, 2009 and 2008
giving effect to the stock split.
On May 23, 2011, the Company entered into a definitive
merger agreement with PHC, Inc., d/b/a Pioneer Behavioral Health
(PHC), a publicly-held behavioral health services company based
in Massachusetts. Upon completion of the merger, the
Company’s stockholders will own approximately 77.5% of the
combined company and PHC’s stockholders will own
approximately 22.5% of the combined company.
Patient accounts receivable, net of allowances for doubtful
accounts of $964 and $1,215, respectively.
17,736
16,693
Deferred tax assets
1,514
1,499
Prepaid expenses and other current assets
1,899
2,093
Total Current Assets
25,158
25,592
Property and equipment, net
26,379
26,457
Goodwill
133,974
133,974
Other intangibles, net of accumulated amortization of $6,538 and
$6,909, respectively.
28,752
29,081
Debt issuance costs, net of accumulated amortization of $3,593
and $3,423, respectively.
1,330
1,500
Other noncurrent assets
1,016
926
Total Assets
$
216,609
$
217,530
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$
3,028
$
3,666
Accrued salaries and wages
5,248
6,417
Other accrued expenses
5,405
4,439
Current maturities of long-term debt
1,248
1,247
Total Current Liabilities
14,929
15,769
Senior secured notes
52,281
54,071
Senior subordinated notes
30,775
30,755
Deferred tax liability
12,546
12,261
Other noncurrent liabilities
1,896
2,548
Total Liabilities
112,427
115,404
Stockholders’ Equity
Series A Convertible Preferred Stock, $.0001 par
value, 90,000,000 shares authorized, 83,609,009, issued and
outstanding at March 31, 2011 and December 31, 2010,
respectively.
8
8
Series B Convertible Preferred Stock, $.0001 par
value, 90,000,000 shares authorized, none issued and
outstanding at March 31, 2011 and December 31, 2010,
respectively.
—
—
Redeemable Preferred Stock, $.0001 par value,
90,000,000 shares authorized, none issued and outstanding
at March 31, 2011 and December 31, 2010,
respectively.
—
—
Common stock, $.0001 par value, 105,000,000 shares
authorized, 85,398 issued and outstanding at March 31, 2011
and December 31, 2010, respectively.
The Company has prepared the accompanying consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America (“GAAP”). The
accompanying consolidated financial statements and notes thereto
are unaudited. In the opinion of the Company’s management,
these statements include all adjustments, which are of a normal
recurring nature, necessary to fairly present our financial
position at March 31, 2011 and December 31, 2010, and
the results of our operations and cash flows for the three month
periods ended March 31, 2011 and March 31, 2010. The
Company’s fiscal year ends on December 31 and interim
results are not necessarily indicative of results for a full
year or any other interim period. The information contained in
these consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company’s Annual Report for the
fiscal year ended December 31, 2010.
The Company was sold on April 1, 2011(See Note 8).
New
Accounting Pronouncements:
In August 2010, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”)
2010-24,
which provides clarification to companies in the healthcare
industry on the accounting for malpractice claims or similar
contingent liabilities. This ASU states that an entity that is
indemnified for these liabilities shall recognize an insurance
receivable at the same time that it recognizes the liability,
measured on the same basis as the liability, subject to the need
for a valuation allowance for uncollectible amounts. This ASU
also discusses the accounting for insurance claims costs,
including estimates of costs relating to
incurred-but-not-reported claims and the accounting for loss
contingencies. Receivables related to insurance recoveries
should not be netted against the related claim liability and
such claim liabilities should be determined without considering
insurance recoveries. This ASU is effective for fiscal years
beginning after December 15, 2010 and was adopted by the
Company in the first quarter of 2011. The adoption of this ASU
did not have a significant impact on the Company’s
consolidated financial statements.
Note 2 —
Acquisitions
and Dispositions
Closed
Operations:
In a previous year, the Company determined that a psychiatric
hospital in New Mexico and a residential treatment center in
Ohio no longer provided a benefit to the Company and terminated
the operations. The continuing operating expenses for these
facilities were not significant and did not have a material
impact on the Company’s consolidated financial statements,
for the periods ended March 31, 2010 and 2011.
In June 2009, the Company temporarily suspended the operations
at one of its Arizona facilities in response to the economic
crisis and related funding issues within the state, as well as,
certain environmental problems at the facility. The Company has
eliminated the environmental problem and believes the state will
take appropriate action to resolve its financial issues. With
the new directions the Company has identified in areas of
outpatient treatment care services and targeting programs that
will meet community needs and the state’s push for new care
alternatives, our intent is to re-open the facility, within the
next six to twelve months, at a time when the state’s
economic situation has improved and a strong referral base could
once again be established. The continuing operating expenses for
this facility are not significant and will not have a material
impact on the Company’s consolidated financial statements.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Discontinued
Operations:
There were no discontinued operations for the years ended
December 31, 2008 and 2009.
In October 2010, the Company was notified by the Agency for
Health Care Administration that it was discontinuing the
Statewide Inpatient Psychiatric Program (SIPP) contract at its
Tampa Bay facility. Subsequent appeals with the Florida Medicaid
Bureau were, eventually, denied. The notice of termination which
was to be effective, on December 15, 2010, was subsequently
withdrawn as the Company voluntarily terminated the contract.
The loss of this contract generated a severe financial impact on
the facility to the extent the Company decided to terminate
operations effective December 31, 2010.
In connection with closing the facility, we recorded a charge
for impaired assets, which were, principally, two group homes,
leasehold improvements and furniture and equipment, in the
amount of, approximately, $1,100,000 and exit costs of,
approximately, $2,500,000 for the year ended December 31,
2010.
Note 3 —
Property
and Equipment
The components of property and equipment are as follows
(amounts in thousands)
:
March 31,
December 31,
2011
2010
(Unaudited)
Land and improvements
$
5,423
$
5,423
Buildings and improvements
28,693
28,521
Furniture, fixtures and equipment
9,197
8,990
Total property and equipment
43,313
42,934
Less: accumulated depreciation
(16,934
)
(16,477
)
Property and equipment, net
$
26,379
$
26,457
Note 4 —
Intangible
Assets
Other intangible assets are comprised of the following:
(amounts in thousands)
March 31, 2011
December 31, 2010
Gross
Accumulated
Gross
Accumulated
Amount
Amortization
Amount
Amortization
(Unaudited)
Amortizable intangible assets:
Customer Relationships
$
11,900
$
6,470
$
11,900
$
6,142
Covenants not to compete
70
68
770
767
Unamortizable intangible assets:
Trade names
13,620
—
13,620
—
Certificates of need
9,700
—
9,700
—
Total
$
35,290
$
6,538
$
35,990
$
6,909
Note 5 —
Senior
and Subordinated Debt
The Company has a credit agreement with a syndication of lenders
who provided the Company with up to $170.0 million. The
Credit Agreement provided for a term loan for up to
$120.0 million, expiring in July 2013 and a revolving
credit facility for up to $25.0 million, expiring in July
2012.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Term Loan and the Revolving Loan are guaranteed by the
Company’s subsidiaries and the Company has granted a first
priority security interest in the capital stock and related
assets of those subsidiaries.
Our Senior Secured Credit Agreement requires the Company to make
additional principal payments, subject to step-down based on
total leverage levels, of the Company’s defined excess cash
flow. The Company made excess cash flow payments in the amount
of approximately $1.8 million in 2011, and $13 million
in 2010, in order to remain in compliance with its debt
covenants.
The agreement provides that the Company, at its option, may
elect that all or part of the term loan and the revolving loan
bear interest at a rate per annum equal to the banks applicable
Alternate Base Rate or LIBOR Rate, as these terms are defined in
the credit agreement. The applicable Alternate Base Rate or
LIBOR Rate will be increased by an applicable margin related to
each type of loan.
The interest rates applicable to the Senior Term Loan ranged,
primarily, from 4.01% to 4.02% and 3.99% to 5.75% for the
periods ended March 31, 2011 and 2010, respectively.
Additionally, the Company pays a commitment fee, at the rate of
0.50% per year, on the unused portion of the revolving credit
facility and, at March 31, 2011 and December 31, 2010,
had no borrowings outstanding.
Senior
Unsecured Subordinated Notes:
The Company has outstanding Senior Subordinated Notes in the
amount of $31.0 million bearing interest at the rate of
12.0% per year, payable quarterly, with the principal balance
due and payable on January 19, 2014. Additionally, the
Company issued warrants to purchase 4,041,689 shares of the
Company’s common stock at an exercise price of $0.01 per
share having an estimated value of approximately $768,000 based
upon the fair value of the underlying common shares. The amount
allocated to the warrants has been recorded in the accompanying
consolidated financial statements as a discount on the Senior
Subordinated Notes and the amortization is included in interest
expense. The warrants shall be exercisable at any time, in whole
or part, into Common Stock of the Company prior to May 28,
2014 (the “Warrant Expiration Date”). The Senior
Subordinated Notes are held by funds indirectly managed by
principal shareholders of the Company.
The Senior Secured Credit Agreement and Senior Unsecured
Subordinated Notes contain certain restrictive covenants. These
covenants include restrictions on additional borrowings,
investments, sale of assets, capital expenditures, dividends,
sale and leaseback transactions, contingent obligations,
transactions with affiliates and fundamental changes in business
activities. The covenants also require the maintenance of
certain financial ratios regarding senior indebtedness, senior
interest and capital expenditures. At March 31, 2011 and
December 31, 2010, the Company was in compliance with all
required covenants.
On April 1, 2011, in connection with the sale of the
Company, all outstanding loans were paid in full (See
Note 8).
Other
Financial Assets and Liabilities
Other financial assets and liabilities with carrying amounts
approximating fair value include cash and cash equivalents,
accounts receivable, other current assets, current debt,
accounts payable and other current liabilities.
Note 6 —
Commitments
and Contingencies
Professional
Liability:
The Company’s business entails an inherent risk of claims
relating to professional liability. The Company maintains
professional liability insurance, on a “claims made
basis”, with an option to extend the claims reporting
period and general liability insurance, on an “occurrence
basis”. The Company also maintains additional coverage for
claims in excess of the coverage provided by the professional
and general liability policies. The Company
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
accrues for unknown incidents based upon the anticipated future
costs related to those potential obligations. The Company
believes that its insurance coverage is sufficient based upon
claims experience and the nature and risks of its business.
There can be no assurance that a pending or future claim or
claims will not be successful against the Company, and, if
successful, will not exceed the limits of available insurance
coverage or that such coverage will continue to be available at
acceptable costs and on favorable terms. In February 2011, the
Company entered into an agreement with its professional
liability carrier to convert the professional liability policies
for the 2005, 2006, 2007 and 2008 policy years from Loss
Sensitive/Retrospectively Rated premium policies to Guaranteed
Cost policies. This conversion effectively “buys out”
the retro programs and eliminates future premium adjustments,
regardless of loss development or claims experience. The premium
for this conversion was, approximately, $2,500,000.
Legal
Proceedings:
In the ordinary course of business the Company is exposed to
various legal proceedings, claims and incidents that may lead to
claims. In management’s current opinion, the outcome with
respect to these actions will not have a material adverse effect
on the Company’s consolidated financial position, results
of operations and cash flows. However, there can be no
assurances that, over time, certain of these proceedings will
not develop into a material event and that charges related to
these matters could be significant to our results or cash flows
in any one accounting period.
Reimbursement
and Regulatory Matters:
Laws and regulations governing the various Medicaid and state
reimbursement programs are complex and subject to
interpretation. The Company believes it is in substantial
compliance with all applicable laws and regulations. However,
the Company has ongoing regulatory matters, including those
described below. Currently, management does not believe the
outcome of the compliance matters or regulatory investigations
will have a significant impact on the financial position or
operating results of the Company.
In April 2006, the Company and one of its facilities were the
recipients of a federal subpoena. The Company fully cooperated
with the U.S. Attorney’s Office’s investigation
and the parties worked on components of a model residential
treatment program as a resolution of the investigation. In
December 2008, the Assistant U.S. Attorney contacted the
Company’s outside counsel, and informed him that the
investigation was the product of a qui tam action filed under
the Federal False Claims Act. Such cases are filed “under
seal” and the defendants are not notified until the
government officially intervenes in the case. In this instance,
the Court directed the government to either settle this matter
promptly, or intervene or decline to intervene, in which case
the plaintiff could still proceed on
his/her
own;
and the Court partially unsealed the case, so as to let the
Company know it was the subject of a lawsuit. A settlement
agreement with the U.S. Attorney’s Office was reached
on April 22, 2009, which includes facets of a model
residential treatment program; a partial re-payment of funding
in three installments of $50,000 each, with the final
installment paid in April of 2011; and various corporate
integrity provisions commonly required by the
U.S. Department of Health and Human Services Office of the
Inspector General. As part of the integrity provisions, an
independent review organization shall monitor the Company for
three years. The Company was notified by the
U.S. Attorney’s Office on March 9, 2010 and by
the independent review organization on March 10, 2010 that
they had received complaints alleging compliance concerns which
they intended to investigate. The matters were fully
investigated internally and externally and resolved with no
material financial effects. As of January 31, 2011, the
independent review organization reported no issues of
non-compliance. In late February of 2011, outside counsel for
the Company contacted the U.S. Attorney’s Office to
verbally inform the government of the impending sale of the
Company. During the call, the Assistant U.S. Attorney
mentioned that he would be sending a letter or other
communication on various matters, but he declined to indicate
the anticipated substance of the correspondence or if there were
specific concerns. The correspondence has not been received at
this time.
On August 20, 2010, the Florida Agency for Health Care
Administration (AHCA) issued an Emergency Immediate Moratorium
on Admissions to halt all residential treatment admissions due
to regulatory deficiencies.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Subsequently over a period of four months, AHCA issued a
moratorium on admissions for two of the group homes; filed five
administrative complaints seeking fines totaling $134,500 and
revocation of licenses; and sent a notice of termination of the
Medicaid Statewide Inpatient Psychiatric Program (SIPP) contract
with Tampa Bay Academy, effective December 15, 2010, which
was subsequently withdrawn to allow the Company to voluntarily
terminate that contract. This facility was closed on
December 31, 2010, and the case was settled for
approximately $30,000 in June 2011.
Note 7 —
Shareholders’
Equity
Preferred
and Common Stock:
The authorized capital stock of the Company consists of
375,000,000 shares of capital stock designated as follows:
(i) 270,000,000 shares of preferred stock, par value
$.0001, of which 90,000,000 shares have been designated as
Series “A” Convertible Preferred Stock,
90,000,000 shares have been designated as Series
“B” Convertible Preferred Stock and
90,000,000 shares have been designated as Redeemable
Preferred Stock, and (ii) 105,000,000 shares of common
stock, par value $.0001.
83,609,009 shares of Series “A” Convertible
Preferred Stock and 85,398 shares of Common Stock were
issued and outstanding for the periods ended March 31, 2011
and December 31, 2010, respectively.
All of the Company’s outstanding shares of Preferred and
Common stock are held by Company sponsors and certain of its
current and former employees.
Note 8 —
Income
Taxes
The Company’s anticipated annual effective income tax rate
is, approximately, 39.0%. The provision for income taxes differs
from the statutory rate primarily due to state taxes, permanent
differences and the effect of the valuation allowance.
Note 9 —
Subsequent
Events
Material
Definitive Agreements:
On April 1, 2011, prior to the consummation of sale
referred to below, the Company declared a dividend of and
distributed 100% of the outstanding shares of the capital stock
of Oak Ridge to the holders of Series A Preferred Stock of
the Company. Upon consummation of the dividend, the Company
wrote off approximately $1.4 million relating to an Oak
Ridge accrued regulatory matter.
On February 17, 2011, Youth and Family Centered Services,
Inc., entered into an Agreement and Plan of Merger (the
“Merger Agreement”), with Acadia Healthcare Company,
LLC, a Delaware corporation (the “Parent”), and
Acadia — YFCS Acquisition Company, Inc., a Georgia
corporation (the “Merger Co”).
The Companies closed the transaction on April 1, 2011.
On April 1, 2011, upon consummation of the sale,
approximately, $84.3 million of our Senior and Subordinated
Debt was paid off and the Company expensed all remaining
deferred charges, including, deferred financing costs,
subordinated debt warrants, rating agency and lender
administrative fees in the amount of, approximately, $1,593,000.
Furthermore, on April 1, 2011, upon consummation of the
sale, the Company wrote off dividends accrued on preferred
shares in the amount of, approximately, $15,300,000 and returned
invested capital to both preferred and common shareholders in
the amount of, approximately, $4,000,000.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Executive
Employment Agreements:
In 2004, the Company entered into employments agreement with our
Chief Executive Officer (the “CEO”) and Chief
Financial Officer (the “CFO”). Such employment
agreements have been amended in connection with the Merger (the
“Amendments”), with the Amendments becoming effective
upon the consummation thereof.
In accordance with the appropriate guidance which establishes
general standard of accounting for and disclosure of events that
occur after the balance sheet date but before the financial
statements are issued or available to be issued, the
Company evaluated subsequent events through July 7, 2011,
the date the financial statements were available to be issued.
There were no other material subsequent events that required
recognition or additional disclosure in these financial
statements.
Youth and Family Centered Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Youth and Family Centered Services, Inc. and Subsidiaries as of
December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended
December 31, 2010. These financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit
of the Company’s internal control over financial reporting.
Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Youth and Family Centered Services, Inc.
and Subsidiaries at December 31, 2010 and 2009, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally
accepted accounting principles.
Patient accounts receivable, net of allowances for doubtful
accounts of $735 and $1,215, respectively.
15,365
16,693
Deferred tax assets
461
1,499
Prepaid expenses and other current assets
2,839
2,093
Total Current Assets
33,959
25,592
Property and equipment, net
28,333
26,457
Goodwill
157,502
133,974
Other intangibles, net of accumulated amortization of $5,475 and
$6,909, respectively.
30,515
29,081
Debt issuance costs, net of accumulated amortization of $2,744
and $3,423, respectively.
2,179
1,500
Other noncurrent assets
2,132
926
Total Assets
$
254,620
$
217,530
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$
1,548
$
3,666
Accrued salaries and wages
6,066
6,417
Other accrued expenses
4,349
4,439
Current maturities of long-term debt
13,273
1,247
Total Current Liabilities
25,236
15,769
Senior secured notes
68,178
54,071
Senior subordinated notes
30,676
30,755
Deferred tax liability
13,893
12,261
Other noncurrent liabilities
2,716
2,548
Total Liabilities
140,699
115,404
Stockholders’ Equity
Series A Convertible Preferred Stock, $.0001 par
value, 90,000,000 shares authorized, 83,609,009, issued and
outstanding at December 31, 2009 and 2010.
8
8
Series B Convertible Preferred Stock, $.0001 par
value, 90,000,000 shares authorized, none issued and
outstanding at December 31, 2009 and 2010.
—
—
Redeemable Preferred Stock, $.0001 par value,
90,000,000 shares authorized, none issued and outstanding
at December 31, 2009 and 2010.
—
—
Common stock, $.0001 par value, 105,000,000 shares
authorized, 85,398 issued and outstanding at December 31,
2009 and 2010, respectively.
Youth and Family Centered Services, Inc. (the
“Company”) was incorporated in 1997 and is
headquartered in Austin, Texas. The Company is a leading
provider of behavioral healthcare, education, and long-term
support needs for abused and neglected children and adolescents.
The Company operates thirteen facilities in eight states and its
services include inpatient acute care programs, residential
treatment programs, programs for the developmentally disabled,
foster care, group homes, home and community based services,
outpatient and accredited private schools.
Principles
of Consolidation:
The consolidated financial statements include the accounts of
Youth and Family Centered Services, Inc. and its subsidiaries in
accordance with accounting principles generally accepted in the
United States. All significant intercompany accounts and
transactions have been eliminated.
Cash
and Cash Equivalents:
The Company classifies as cash and cash equivalents all highly
liquid investments with a maturity date of three months or less
from the date of purchase. The carrying values of cash and cash
equivalents approximated fair value due to the short-term nature
of these instruments.
Revenues
and Allowance for Contractual Discounts:
Revenues consist primarily of net patient service revenues that
are recorded based upon established billing rates less
allowances for contractual adjustments. Revenues are recorded
during the period the health care services are provided, based
upon the estimated amounts due from the patients and third-party
payors. Third party payors include Medicaid, various state
agencies, managed care health plans and commercial insurance
companies.
The following table presents patient service revenue by payor
type and as a percent of total patient service revenue for the
years ended December 31, 2009 and 2010
(amounts in
thousands):
December 31,
2009
2010
Amount
%
Amount
%
Private Pay
1,324
0.7%
1,001
0.6%
Commercial
4,937
2.7%
4,656
2.5%
Medicaid
180,325
96.6%
178,729
96.9%
Total
186,586
184,386
The following tables present the aging of accounts receivable,
net of allowance for doubtful accounts, by payor type as of
December 31, 2009 and 2010
(amounts in thousands):
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Accounts Receivable Aging as of December 31, 2010
Current
30-60
60-90
90-120
120-150
>150
Total
Private Pay
$
139
$
14
$
6
$
6
$
3
$
—
$
168
Commercial
591
179
88
26
7
50
941
Medicaid
10,749
2,681
633
1,215
204
102
15,584
Total
$
11,479
$
2,874
$
727
$
1,247
$
214
$
152
$
16,693
Accounts
Receivable and Allowance for Doubtful Accounts:
The Company records accounts receivable in the period in which
the services were rendered and represent claims against
third-party payors such as Medicaid, state agencies, managed
care health plans, commercial insurance companies
and/or
patients, that will be settled in cash. The carrying value of
the Company’s accounts receivable, net of allowance for
doubtful accounts, represents their estimated net realizable
value. If events or circumstances indicate specific receivable
balances may be impaired, further consideration is given to the
Company’s ability to collect those balances and the
allowance is adjusted accordingly. The Company continually
monitors its accounts receivable balances and utilizes cash
collection data to support its estimates of allowance for
doubtful accounts. Past-due receivable balances are cancelled
when internal collection efforts have been exhausted.
Concentration
of Credit Risk:
Medicaid revenues, for healthcare services in two states,
represented approximately 36.7%, 38.3% and 39.5%, of the
Company’s net patient net revenues during each of 2008,
2009, and 2010. Accounts receivable are unsecured and due,
primarily, from Medicaid, state agencies and educational
programs. The Company maintains an allowance for estimated
losses resulting from the non-collection of customer
receivables. The Company’s management recognizes that
revenues and receivables from government agencies are
significant to its operations, but does not believe that there
are significant credit risks associated with these government
programs. Because of the large number of payors, types of payors
and the diversity of the geographic locations, in which the
Company operates, management does not believe there are any
other significant concentrations of revenues from any particular
payor that would subject the Company to any significant credit
risks in the collection of its accounts receivable.
As a result of the current economic environment, many states
have significant budget deficits. State Medicaid programs are
experiencing increased demand, and with lower revenues than
projected, they have fewer resources to support their Medicaid
programs. Federal health reform legislation was enacted to
significantly expand state Medicaid programs. In certain states
the Company has experienced rate and utilization decreases
resulting from these budget constraints. The Company cannot
predict the amount, if any, of future rate and utilization
decreases or their effect on the Company.
The 2009 Federal economic stimulus legislation enacted to
counter the impact of the economic crisis on state budgets will
expire on June 30, 2011. This legislation provided
additional federal matching funds to help states maintain their
Medicaid programs through June 30, 2011. There are
currently no legislative initiatives proposing to extend this
program. It is difficult to predict what impact this will have
on the Company.
Property
and Equipment:
Property and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful lives of the
depreciable assets, generally seven to twenty years for
equipment and ten to forty years for buildings. Betterments,
renewals and repairs that extend the useful life of the asset
are capitalized; other repairs and maintenance charges are
expensed as incurred.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Valuation
of Long-Lived and Definite-Lived Intangible
Assets:
The Company accounts for the impairment of long-lived tangible
and definite-lived intangible assets in accordance with the
relevant guidance and reviews the carrying value of long-lived
assets, property and equipment, including amortizable intangible
assets whenever events or changes in circumstances indicate that
the related carrying values may not be recoverable. Impairment
is generally determined by comparing projected undiscounted cash
flows to be generated by the asset, or appropriate group of
assets, to its carrying value. If impairment is identified, a
loss is recorded equal to the excess of the asset’s net
book value over its fair value, and the cost basis is adjusted.
Determining the extent of impairment, if any, typically requires
various estimates and assumptions including using
management’s judgment, cash flows directly attributable to
the asset, the useful life of the asset and residual value, if
any. When necessary, the Company uses appraisals, as
appropriate, to determine fair value. Any required impairment is
recorded as a reduction in the carrying value of the related
asset and a charge to operating results. In connection with the
closing of its Tampa, Florida facility, in December 2010, the
Company recorded an impairment charge of, approximately,
$1,100,000 (See Note 2).
Goodwill
and Intangible Assets:
The Company accounts for goodwill and other intangible assets in
accordance with the relevant guidance. Goodwill represents the
excess cost over the fair value of net assets acquired. Goodwill
is not amortized. The Company’s business comprises a single
operating reporting unit for impairment test purposes. For the
purpose of these analyses, the Company’s estimates of fair
value are based on its future discounted cash flows. Key
assumptions used in the discounted cash flow analysis include
estimated future revenue growth, gross margins and a risk free
interest rate. If the carrying value of the Company’s
goodwill
and/or
indefinite-lived intangible assets exceeds their fair value, we
compare the implied fair value of these assets with their
carrying amount to measure the potential impairment loss.
Goodwill is required to be evaluated for impairment at the same
time each year and when an event occurs or circumstances change,
such that, it is reasonably possible that an impairment may
exist. The Company has selected September 30th as its annual
testing date. There was no resulting impairment in 2009. In
connection with the execution of a Sale Agreement and Plan of
Merger, the Company recorded an impairment charge in the amount
of, approximately, $24,000,000 for the year ended
December 31, 2010 (See Note 11).
The following table presents the changes in the carrying amount
of Goodwill for the year ended December 31, 2009 and 2010
(amounts in thousands):
Balance at December 31, 2009
$
157,502
Impairment losses
(23,528
)
Balance at December 31, 2010
$
133,974
Intangible assets consist of customer relationships, covenants
not to compete, trade names and certificates of need. Customer
relationships are amortized on an expected cash flow method from
five to ten years and covenants not to compete are amortized on
a straight-line basis from three to five years. Trademarks,
trade names and certificates of need are not amortized because
they have indefinite useful lives.
Deferred
Costs:
Deferred costs consist principally of deferred financing costs
and are being amortized on a straight-line basis to interest
expense over the term of the related debt.
Income
Taxes:
The Company accounts for income taxes in accordance with the
asset and liability method set forth in the relevant guidance,
whereby deferred tax asset and liability account balances are
determined based on differences between financial reporting and
the tax bases of assets and liabilities and are measured using
the enacted tax laws
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and related rates that will be in effect when the differences
are expected to reverse. These differences result in deferred
tax assets and liabilities, which are included in the
Company’s Consolidated Balance Sheet. The Company then
assesses the likelihood that the deferred tax assets will be
recovered from future taxable income. A valuation allowance is
established against deferred tax assets to the extent the
Company believes that recovery is not likely based on the level
of historical taxable income and projections for future taxable
income over the periods in which the temporary differences are
deductible. Uncertain tax positions must meet a
more-likely-than-not threshold to be recognized in the financial
statements and the tax benefits recognized are measured based on
the largest benefit that has a greater than 50% likelihood of
being realized upon final settlement (See Note 9).
Stock-Based
Compensation:
Stock-based compensation awards are granted under the Youth and
Family Centered Services, Inc. 2004 Stock Option and Grant Plan.
The Company accounts for stock-based employee compensation under
the fair value recognition and measurement provisions, as
required by the applicable guidance, that requires companies to
measure and recognize the cost of employee services received in
exchange for an award of equity instruments based on the fair
value at the date of the grant.
The fair value of the stock options issued in 2008, 2009 and
2010 was estimated using the Black Scholes Merton option pricing
model. Use of this model requires management to make estimates
and assumptions regarding expected option life (estimated at
five years), volatility (estimated upon the volatility of
comparable public entities within the Company’s industry),
risk free interest rate (estimated upon United States Treasury
rates at the date of the grant), and dividend yields (estimated
at zero). Option forfeitures are based upon actual forfeitures
for the period. We recognized expense on all share-based awards
on a straight-line basis over the vesting period of the award.
The following table summarizes the weighted average grant-date
value of options and the assumptions used to develop their fair
value for the years ended December 31, 2008, 2009 and 2010,
respectively.
December 31,
2008
2009
2010
Weighted average grant-date fair value of options
$
0.08
$
0.08
$
0.09
Risk-free interest rate
3.8
%
2.7
%
3.7
%
Expected Volatility
42.2
%
41.0
%
45.0
%
Expected life in years
5.0
5.0
5.0
Dividend yield
—
—
—
Our estimate of expected annual implied volatility for stock
options granted in 2008, 2009 and 2010 is based upon an analysis
of the historical stock price volatility of publicly-traded
comparable companies.
The fair value of the underlying common stock was determined by
management based, in part, on a third party valuation report
obtained in 2004. The value of the common stock subsequent to
2004 was materially consistent with such fair value determined
in 2004 and the indications of enterprise value from its efforts
to sell the Company, including the ultimate sale of the Company
described Note 11.
Derivative
Instruments:
The Company previously entered into an interest rate cap, which
expired in August 2009, to convert a portion of its floating
debt to a fixed rate, thus reducing the impact of rising
interest rates on interest payments. The Company had not
designated its derivative instrument as a hedge and therefore
the cost of this agreement was being amortized to interest
expense in current earnings. The agreement capped the base
interest rate in relation to $48.0 million of variable
long-term debt at 6.40%. At December 31, 2008, 2009 and
2010, the Company’s base rate was approximately 3.12%,
0.29% and 0.27%, respectively. At December 31, 2009 and
2010 the Company was not a party to any interest rate protection
agreements.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Fair
Value of the Financial Instruments:
The fair value of the Company’s financial instruments has
been estimated using available market information and commonly
accepted valuation methodologies, in accordance with the
appropriate guidance.
Fair value financial instruments are recorded at fair value in
accordance with the fair value hierarchy that prioritized
observable and unobservable inputs used to measure fair value in
their broad levels. These levels from highest to lowest priority
are as follows:
•
Level 1:
Quoted prices (unadjusted) in
active markets that are accessible at the measurement date for
identical assets or liabilities;
•
Level 2:
Quoted prices in active markets
for similar assets or liabilities or observable prices that are
based on inputs not quoted on active markets, but corroborated
by market data; and
•
Level 3:
Unobservable inputs or valuation
techniques that are used when little or no market data is
available.
The Company’s financial instruments include cash, accounts
receivable, accounts payable and debt obligations, and the
Company typically values these financial assets and liabilities
at their carrying values, which approximates fair value due to
their generally short-term duration.
The aggregate carrying value of the Company’s senior
long-term debt is considered to be representative of the fair
value principally due to the variable interest rate attached to
the debt instrument and based on the current market rates for
debt with similar risks, terms and maturities, we estimate the
value of the Company’s senior subordinated debt
approximates fair value at December 31, 2010.
The determination of fair value and the assessment of a
measurement’s placement within the hierarchy require
judgment.
Use of
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In New
Accounting Pronouncements:
In August 2010, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”)
2010-24,
which provides clarification to companies in the healthcare
industry on the accounting for malpractice claims or similar
contingent liabilities. This ASU states that an entity that is
indemnified for these liabilities shall recognize an insurance
receivable at the same time that it recognizes the liability,
measured on the same basis as the liability, subject to the need
for a valuation allowance for uncollectible amounts. This ASU
also discusses the accounting for insurance claims costs,
including estimates of costs relating to
incurred-but-not-reported claims and the accounting for loss
contingencies. Receivables related to insurance recoveries
should not be netted against the related claim liability and
such claim liabilities should be determined without considering
insurance recoveries. This ASU is effective for fiscal years
beginning after December 15, 2010 and will be adopted by
the Company in the first quarter of 2011. The adoption of this
ASU will not have an impact on the Company’s consolidated
financial statements.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
2.
ACQUISITIONS/DISPOSITIONS
Closed
Operations:
In a previous year, the Company determined that a psychiatric
hospital in New Mexico and a residential treatment center in
Ohio no longer provided a benefit to the Company and terminated
the operations. The continuing operating expenses for these
facilities were not significant and did not have a material
impact on the Company’s consolidated financial statements,
for the years ended December 31, 2008, 2009 and 2010.
In June 2009, the Company temporarily suspended the operations
at one of its Arizona facilities in response to the economic
crisis and related funding issues within the state, as well as,
certain environmental problems at the facility. The Company has
eliminated the environmental problem and believes the state will
take appropriate action to resolve its financial issues. With
the new directions the Company has identified in areas of
outpatient treatment care services and targeting programs that
will meet community needs and the state’s push for new care
alternatives, our intent is to re-open the facility, within the
next six to twelve months, at a time when the state’s
economic situation has improved and a strong referral base could
once again be established. The continuing operating expenses for
this facility are not significant and will not have a material
impact on the Company’s consolidated financial statements.
Discontinued
Operations:
There were no discontinued operations for the years ended
December 31, 2008 and 2009.
In October 2010, the Company was notified by the Agency for
Health Care Administration that it was discontinuing the
Statewide Inpatient Psychiatric Program (SIPP) contract at its
Tampa Bay facility. Subsequent appeals with the Florida Medicaid
Bureau were, eventually, denied. The notice of termination which
was to be effective, on December 15, 2010, was subsequently
withdrawn as the Company voluntarily terminated the contract.
The loss of this contract generated a severe financial impact on
the facility to the extent the Company decided to terminate
operations effective December 31, 2010.
In connection with closing the facility, we recorded a charge
for impaired assets, which were, principally, two group homes,
leasehold improvements and furniture and equipment, in the
amount of, approximately, $1,100,000 and exit costs of,
approximately, $2,500,000 for the year ended December 31,
2010.
3.
PROPERTY
AND EQUIPMENT
The components of property and equipment are as follows
(amounts in thousands)
:
December 31,
2009
2010
Land and improvements
$
5,392
$
5,423
Buildings and improvements
30,247
28,521
Furniture, fixtures and equipment
8,290
8,990
Total property and equipment
43,929
42,934
Less: accumulated depreciation
(15,596
)
(16,477
)
Property and equipment, net
$
28,333
$
26,457
Depreciation expense was approximately $3,301,000, $3,236,000
and $2,105,000 for the years ended December 31, 2008, 2009
and 2010, respectively. Depreciation expense also includes the
amortization of assets recorded under a capital lease.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
4.
INTANGIBLE
ASSETS
Other intangible assets are comprised of the following:
(amounts in thousands)
December 31,
2009
2010
Gross
Accumulated
Gross
Accumulated
Amount
Amortization
Amount
Amortization
Amortizable intangible assets:
Customer Relationships
$
11,900
$
4,720
$
11,900
$
6,142
Covenants not to compete
770
755
770
767
Unamortizable intangible assets:
Trade names
13,620
—
13,620
—
Certificates of need
9,700
—
9,700
—
Total
$
35,990
$
5,475
$
35,990
$
6,909
Amortization expense related to identifiable intangible assets
was approximately $6,287,000, $3,907,000 and $1,434,000 for the
years ended December 31, 2008, 2009 and 2010, respectively.
The estimated future amortization expenses for other intangible
assets are:
(amounts in thousands)
Future
Year
Amortization
2011
$
1,312
2012
1,175
2013
1,051
2014
942
2015
844
Thereafter
437
Total
$
5,761
5.
LONG TERM
DEBT
Long term debt as of years ended December 31, 2009 and 2010
consist of the following (
amounts in thousands):
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has a credit agreement (the “Credit
Agreement”) with a syndication of lenders who provided the
Company with up to $170.0 million. The Credit Agreement
provided for a term loan (the “Term Loan”) for up to
$120.0 million, expiring in July 2013 and a revolving
credit facility (the “Revolving Loan”) for up to
$25.0 million, expiring in July 2012.
The Term Loan and the Revolving Loan are guaranteed by the
Company’s subsidiaries and the Company has granted a first
priority security interest in the capital stock and related
assets of those subsidiaries.
The Term Loan is to be repaid in scheduled consecutive quarterly
installments with aggregate annual principal payments as follows
(amounts in thousands):
Year
Term Loan
2011
$
1,200
2012
1,200
2013
52,800
Total
$
55,200
Our Senior Secured Credit Agreement requires the Company to make
additional principal payments, subject to step-down based on
total leverage levels, of the Company’s defined excess cash
flow. The Company was required to make an excess cash flow
payment in the amount of approximately $10,500,000 for the year
ended December 31, 2008 and no payment was due for the
years ended December 31, 2009 and 2010, respectively;
however, the Company did make a $13 million payment in 2010
and expects to make a payment of $1.8 million in 2011 in
order to remain in compliance with its debt covenants.
The agreement provides that the Company, at its option, may
elect that all or part of the term loan and the revolving loan
bear interest at a rate per annum equal to the banks applicable
Alternate Base Rate or LIBOR Rate, as these terms are defined in
the credit agreement. The applicable Alternate Base Rate or
LIBOR Rate will be increased by an applicable margin related to
each type of loan.
The interest rates applicable to the Senior Term Loan ranged,
primarily, from 6.45% to 8.08%, 6.87% to 4.01% and 3.99% to
6.00% for the years ended December 31, 2008, 2009 and 2010,
respectively.
Additionally, the Company pays a commitment fee, at the rate of
0.50% per year, on the unused portion of the revolving credit
facility and, at December 31, 2010, had no borrowings
outstanding.
Senior
Unsecured Subordinated Notes:
The Company has outstanding Senior Subordinated Notes in the
amount of $31.0 million bearing interest at the rate of
12.0% per year, payable quarterly, with the principal balance
due and payable on January 19, 2014. Additionally, the
Company issued warrants to purchase 4,041,689 shares of the
Company’s common stock at an exercise price of $0.01 per
share having an estimated value of approximately $768,000 based
upon the fair value of the underlying common shares. The amount
allocated to the warrants has been recorded in the accompanying
consolidated financial statements as a discount on the Senior
Subordinated Notes and the amortization is included in interest
expense. The warrants shall be exercisable at any time, in whole
or part, into Common Stock of the Company prior to May 28,
2014 (the “Warrant Expiration Date”). The Senior
Subordinated Notes are held by funds indirectly managed by
principal shareholders of the Company.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2010, the maturity of long-term debt
obligations were as follows
(amounts in thousands)
:
Year
Amount
2011
$
1,247
2012
1,230
2013
52,825
2014
30,765
2015
5
Total
$
86,072
Interest paid on outstanding debt was approximately $11,931,000,
$9,505,000 and $7,274,000 for the years ended December 31,
2008, 2009 and 2010, respectively.
The Senior Secured Credit Agreement and Senior Unsecured
Subordinated Notes contain certain restrictive covenants. These
covenants include restrictions on additional borrowings,
investments, sale of assets, capital expenditures, dividends,
sale and leaseback transactions, contingent obligations,
transactions with affiliates and fundamental changes in business
activities. The covenants also require the maintenance of
certain financial ratios regarding senior indebtedness, senior
interest and capital expenditures. At December 31, 2010,
the Company was in compliance with all required covenants.
6.
STOCK —
BASED COMPENSATION
In May 2004, the Company’s Board of Directors authorized
the 2004 Stock Option and Grant Plan for Youth and Family
Centered Services, Inc. (the “Plan”) which provides
that options may be granted to certain key people to purchase up
to approximately 9,739,000 shares of common stock of the
Company at a price not less than the fair market value of the
shares on the date of grant. The stock options generally become
exercisable on a pro rata basis over a five year period from the
date of the grant and must be exercised within ten years from
the date of the grant.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
For the year ended December 31, 2010, pertinent information
regarding the stock option plan is as follows
(amounts in
thousands, except price per share):
Weighted
Option
Weighted
Average
Price
Average
Remaining
Number of
per
Exercise
Contractual
Shares
Share
Price
Term (in Years)
Outstanding at December 31, 2007
9,044
$
0.20
$
0.20
7.14
Granted
150
$
0.20
$
0.20
n/a
Exercised
(54
)
$
0.20
$
0.20
n/a
Forfeited
(139
)
$
0.20
$
0.20
n/a
Outstanding at December 31, 2008
9,001
$
0.20
$
0.20
6.16
Granted
242
$
0.20
$
0.20
n/a
Exercised
—
$
0.20
$
0.20
n/a
Forfeited
(1,578
)
$
0.20
$
0.20
n/a
Outstanding at December 31, 2009
7,665
$
0.20
$
0.20
5.27
Granted
287
$
0.20
$
0.20
n/a
Exercised
—
$
0.20
$
0.20
n/a
Forfeited
(295
)
$
0.20
$
0.20
n/a
Outstanding at December 31, 2010
7,657
$
0.20
$
0.20
4.50
A summary of options outstanding at December 31, 2010
including related price and remaining contractual term
information follows.
Options Outstanding
Options Exercisable
Weighted
Weighted
Average
Weighted
Average
Remaining
Average
Number of
Exercise
Contractual
Exercise
Exercise Price
Shares
Price
Term (in Years)
Exercisable
Price
$0.20
7,657
$0.20
4.5
7,133
$0.20
Certain senior management employees held options to purchase a
total of 1,807,156 shares of Series “A”
Convertible Preferred Stock at an exercise price of $0.17 per
share. In May 2009, the employees exercised all the Series
“A” Preferred Stock Options.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
7.
COMMITMENTS
AND CONTINGENCIES
Lease
Commitments:
The Company was obligated under a capital lease agreement for a
building having an original term of 15 years that expired
in January 2010. The new lease was renewed under terms and
conditions that qualified it as an operating lease.
Included in buildings and improvements in the accompanying
Consolidated Balance Sheets at December 31, 2009 and 2010
are the following assets held under capital lease
(amounts in
thousands):
Building and Land
$
1,885
Less: accumulated depreciation
(1,885
)
Total assets held under capital leases
$
—
The Company leases other certain property and equipment under
non-cancelable long-term operating leases that expire at various
dates. Certain of the leases require additional payments for
taxes, insurance, common area maintenance, and in most cases
provide for renewal options. Generally, the terms are from one
to ten years.
Future minimum lease commitments for all non-cancelable leases
as of December 31, 2010 are as follows
(amounts in
thousands):
Operating
Year
Leases
2011
$
5,341
2012
4,230
2013
2,136
2014
1,049
2015
214
Thereafter
6
Total minimum lease payments
$
12,976
Rent expense under operating leases, including
month-to-month
contracts, was approximately $5,606,000, $5,728,000 and
$7,362,000 for the years ended December 31, 2008, 2009 and
2010, respectively
Legal
Proceedings:
In the ordinary course of business the Company is exposed to
various legal proceedings, claims and incidents that may lead to
claims. In management’s current opinion, the outcome with
respect to these actions will not have a material adverse effect
on the Company’s consolidated financial position, results
of operations and cash flows. However, there can be no
assurances that, over time, certain of these proceedings will
not develop into a material event.
Professional
Liability:
The Company’s business entails an inherent risk of claims
relating to professional liability. The Company maintains
professional liability insurance, on a “claims made
basis”, with an option to extend the claims reporting
period and general liability insurance, on an “occurrence
basis”. The Company also maintains additional coverage for
claims in excess of the coverage provided by the professional
and general liability policies. The Company accrues for unknown
incidents based upon the anticipated future costs related to
those potential obligations. The Company believes that its
insurance coverage is sufficient based upon claims experience
and the nature and risks of its business. There can be no
assurance that a pending or future claim or claims will not be
successful against the
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Company, and, if successful, will not exceed the limits of
available insurance coverage or that such coverage will continue
to be available at acceptable costs and on favorable terms.
Reimbursement
and Regulatory Matters:
Laws and regulations governing the various Medicaid and state
reimbursement programs are complex and subject to
interpretation. The Company believes it is in substantial
compliance with all applicable laws and regulations. However,
the Company has ongoing regulatory matters, including those
described below. Currently, management does not believe the
outcome of the compliance matters or regulatory investigations
will have a significant impact on the financial position or
operating results of the Company.
During the year ended December 31, 2004, a local county
referral agency conducted a routine audit which revealed
possible billing problems. The Company conducted a detailed
internal compliance review that confirmed certain billing
problems existed. The Company immediately changed its procedures
and increased the in-house training of its personnel. The
Company offered to reimburse the Ohio Department of Job and
Family Services (the “State Medicaid agency”), for all
questionable billings and subsequent to the offer, the State
Medicaid agency conducted its audit covering the period August
2003 through January 2005. The result of this audit was a
request for the payback of approximately $1.4 million from
the facility, which has been accrued by the Company. An
administrative hearing was conducted in September 2007; and in
January 2008, the State Medicaid agency submitted the hearing
officer’s report and recommendations to the Company.
Subsequent to this, an Adjudication Order was issued. The
Company appealed the administrative order to the Court of Common
Pleas; the State Medicaid agency prevailed; and the Company
filed a notice of appeal to the Court of Appeals. The
Court’s mediator extended an invitation to the parties to
mediate, which the Company accepted; however, the State Medicaid
agency declined, and at that point, the Company withdrew the
appeal. The State Medicaid agency then sent an invoice for the
amount assessed in the audit, including interest. In December of
2009, the Company received a demand letter from Special Counsel
retained by the Ohio Attorney General for principal plus
penalties and interest. Outside counsel for the Company
responded by contacting the Special Counsel’s office to
convey that the facility had been closed for years and did not
have any assets. The Special Counsel’s Office replied that
they would have to review their file and get back to the
Company’s outside counsel. In May of 2010, Oak Ridge’s
counsel followed up with the Special Counsel’s Office,
which informed Oak Ridge’s counsel that the claim had been
returned to the Attorney General’s Office. The Attorney
General’s Office has the option to pursue litigation to
reduce the claim to a judgment; however, there are no assets of
the subsidiary to satisfy any judgment that may be rendered.
In April 2006, the Company and one of its facilities were the
recipients of a federal subpoena. The Company fully cooperated
with the U.S. Attorney’s Office’s investigation
and the parties worked on components of a model residential
treatment program as a resolution of the investigation. In
December 2008, the Assistant U.S. Attorney contacted the
Company’s outside counsel, and informed him that the
investigation was the product of a
qui tam
action filed
under the Federal False Claims Act. Such cases are filed
“under seal” and the defendants are not notified until
the government officially intervenes in the case. In this
instance, the Court directed the government to either settle
this matter promptly, or intervene or decline to intervene, in
which case the plaintiff could still proceed on
his/her
own;
and the Court partially unsealed the case, so as to let the
Company know it was the subject of a lawsuit. A settlement
agreement with the U.S. Attorney’s Office was reached
on April 22, 2009, which includes facets of a model
residential treatment program; a partial re-payment of funding
in three installments of $50,000 each, with the final
installment to be paid in April of 2011; and various corporate
integrity provisions commonly required by the
U.S. Department of Health and Human Services Office of the
Inspector General. As part of the integrity provisions, an
independent review organization shall monitor the Company for
three years. The Company was notified by the
U.S. Attorney’s Office on March 9, 2010 and by
the independent review organization on March 10, 2010 that
they had received complaints alleging compliance concerns which
they intended to investigate. The matters were fully
investigated internally and externally and resolved with no
material financial effects. As of January 31, 2011, the
independent review organization reported no issues of
non-compliance. In late February of 2011, outside counsel for
the Company contacted the U.S. Attorney’s Office to
verbally inform the government of the impending sale of
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the Company. During the call, the Assistant U.S. Attorney
mentioned that he would be sending a letter or other
communication on various matters, but he declined to indicate
the anticipated substance of the correspondence or if there were
specific concerns. The correspondence has not been received at
this time.
On August 20, 2010, the Florida Agency for Health Care
Administration (AHCA) issued an Emergency Immediate Moratorium
on Admissions to halt all residential treatment admissions due
to regulatory deficiencies. Subsequently over a period of four
months, AHCA issued a moratorium on admissions for two of the
group homes; filed five administrative complaints seeking fines
totaling $134,500 and revocation of licenses; and sent a notice
of termination of the Medicaid Statewide Inpatient Psychiatric
Program (SIPP) contract with Tampa Bay Academy, effective
December 15, 2010, which was subsequently withdrawn to
allow the Company to voluntarily terminate that contract.
Outside counsel for Tampa Bay is in discussions with AHCA
counsel on a potential settlement pertaining to the pending
fines and license revocation actions. This facility has been
closed (See Note 2).
8.
EMPLOYEE
BENEFIT PLAN
The Company has a qualified contributory savings plan (the
“Plan”) as allowed under Section 401(k) of the
Internal Revenue Code. The Plan is available to all full-time
and part-time employees meeting certain eligibility requirements
and participants may defer up to 20% of their annual
compensation, subject to limits, by contributing amounts to the
Plan. At its election, the Company may make additional
discretionary contributions to the plan on the employee’s
behalf. The Company elected to make an additional discretionary
contribution into the Plan in the amount of approximately
$100,000 for the year ended December 31, 2008. For the
years ended December 31, 2009 and 2010 the Company elected
to suspend its employer contribution.
9.
INCOME
TAXES
The provision for federal and state income taxes from continuing
operations consist of the following
(amounts in
thousands):
2008
2009
2010
Current:
Federal
$
3,487
$
5,286
$
6,018
State
494
677
713
Deferred:
Federal
(700
)
1,003
(1,518
)
State
(149
)
167
(181
)
Provision for income taxes from continuing operations
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company’s deferred tax assets and liabilities as of
December 31, 2009 and 2010 are as follows
(amounts in
thousands):
December 31,
2009
2010
Deferred Tax Assets:
Accrued Vacation
288
452
Accrued Bonus
170
158
Health Claims Reserve
—
720
Bad Debt Allowance
291
447
Depreciation
1,060
897
Noncompete Agreement
250
228
Professional Liability Reserve
661
587
Capital Lease Adjustment
557
—
Post Acq State NOLs
338
339
Other
69
50
Total Gross Deferred Tax Assets
3,684
3,878
Deferred Tax Liabilities:
Prepaid Expense
(299
)
(292
)
Goodwill
(7,791
)
(6,269
)
Purchase Accounting: Capital Lease
(557
)
—
Acquired Intangibles
(7,692
)
(7,485
)
Transaction Costs
(516
)
(331
)
Other
(20
)
(15
)
Total Gross Deferred Tax Liabilities
(16,875
)
(14,392
)
Valuation Allowance
(241
)
(248
)
Net Deferred Tax Liability
(13,432
)
(10,762
)
A valuation allowance has been provided against the deferred tax
assets due to uncertainties regarding the future realization of
state net operating loss carryforwards.
Approximately $46,000 of the valuation allowance relates to tax
benefits for stock option deductions included in the net
operating loss carryforwards. The valuation allowance increased
by approximately $7,000 for the year ended December 31,
2010.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company’s provision (benefit) for income taxes
attributable to continuing operations differs from the expected
tax expense (benefit) amount computed by applying the statutory
federal income tax rate of 34% to income from continuing
operations before income taxes in 2008, 2009 and 2010, primarily
as a result of the following:
December 31,
2008
2009
2010
Federal statutory rate
34.0
%
34.0
%
34.0
%
State taxes, net of federal benefit
4.4
4.6
(21.2
)
Goodwill impairment
—
—
(196.0
)
Other permanent items
(0.10
)
(0.7
)
(2.2
)
38.3
%
37.9
%
(185.4
)%
The Company adopted current guidance which prescribes the
accounting for uncertainty in income taxes recognized in the
Company’s financial statements and proposes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. The guidance also provides
direction on derecognizing and measurement of a tax position
taken or expected to be taken in a tax return.
The Company and its subsidiaries file income tax returns in the
United States federal and various state jurisdictions. The
Company is subject to U.S. federal income tax examinations
for the tax years 2007 and later by the Internal Revenue
Service, and is subject to various state income tax
examinations, with the exception of one state, for the tax years
2006 and later. The state income tax returns for the tax years
2007 and later remain subject to examination in the one state
where audits have occurred.
The Company did not have unrecognized tax benefits as of
December 31, 2010 and does not expect this to change over
the next twelve (12) months. In connection with the
adoption of the guidance the Company will recognize interest and
penalties accrued on any unrecognized tax benefits as a
component of income tax expense. As of December 31, 2010,
the Company has not accrued interest or penalties related to
uncertain tax positions.
10.
CAPITAL
STOCK
Preferred
and Common Stock:
The authorized capital stock of the Company consists of
375,000,000 shares of capital stock designated as follows:
(i) 270,000,000 shares of preferred stock, par value
$.0001, of which 90,000,000 shares have been designated as
Series “A” Convertible Preferred Stock,
90,000,000 shares have been designated as Series
“B” Convertible Preferred Stock and
90,000,000 shares have been designated as Redeemable
Preferred Stock, and (ii) 105,000,000 shares of common
stock, par value $.0001.
At December 31, 2008 81,801,853 shares of
Series A Convertible Preferred Stock and 85,398 shares
of Common Stock were issued and outstanding.
83,609,009 shares of Series “A” Convertible
Preferred Stock and 85,398 shares of Common Stock were
issued and outstanding for the years ended December 31,
2009 and 2010, respectively.
Series
“A” Convertible Preferred Stock:
The holders of Series “A” Convertible Preferred Stock
are entitled to receive cumulative dividends, compounded
quarterly, at the rate of 2.5% of the original issue price of
such stock. The Company recorded undeclared dividends, within
equity, in the amount of approximately $2,264,000, $2,315,000
and $2,447,000 for the years ended December 31, 2008,
2009 and 2010, respectively and at December 31,
2010, accrued undeclared dividends amounted to approximately
$14,699,000.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Upon the election of the holders of two-thirds of the Series
“A” Convertible Preferred Stock, each share of Series
“A” Convertible Preferred Stock is convertible into
one (1) share of Series “B” Convertible Preferred
Stock and one (1) share of Redeemable Preferred Stock. Such
conversion amounts are adjustable upon certain dilutive
issuances. In addition, upon the completion of a qualified
public offering by the Company, each share of Series
“A” Convertible Preferred Stock is automatically
converted as described above and all shares of outstanding
Redeemable Preferred Stock are redeemed for cash. Upon any
liquidation, dissolution or winding up of the Company, each
holder of Series “A” Convertible Preferred Stock has a
liquidation preference that is pari passu with the other
preferred stock of the Company and senior to the Common Stock.
Each holder of Series “A” Convertible Preferred Stock
is entitled to a number of votes equal to the number of shares
of Common Stock each holder would receive on an “as if
converted basis.”
Series
“B” Convertible Preferred Stock:
Subject to the payment in full of all preferential dividends to
the holders of Series “A” Convertible Preferred Stock
and Redeemable Preferred Stock, the holders of Series
“B” Convertible Preferred Stock are entitled to
receive (on an as-converted and equal basis with the holders of
Series “A” Convertible Preferred Stock and Common
Stock) dividends in such amounts and at such times as the Board
of Directors of the Company may determine in its sole
discretion. Such dividends are not cumulative. Upon the election
of the holders of two-thirds of the Series “B”
Convertible Preferred Stock, each share of Series “B”
Convertible Preferred Stock is convertible into one
(1) share of Common Stock of the Company. Such conversion
amount is adjustable upon certain dilutive issuances.
Upon the completion of a qualified public offering by the
Company, all shares of outstanding Redeemable Preferred Stock
(including shares issued upon the automatic conversion of Series
“A” Convertible Preferred Stock as described above)
are redeemed for cash. Upon any liquidation, dissolution or
winding up of the Company, each holder of Series “B”
Convertible Preferred Stock has a liquidation preference that is
pari passu with the other preferred stock of the Company and
senior to the Common Stock. Each holder of Series “B”
Convertible Preferred Stock is entitled to a number of votes
equal to the number of shares of Common Stock each holder would
receive on an “as if converted basis.”
Redeemable
Preferred Stock:
The holders of Redeemable Preferred Stock are entitled to
receive cumulative dividends, compounded quarterly, at the per
share rate of 5% of the Redeemable Preferred Stock liquidation
preference amount from the date of original issuance of such
shares. The Redeemable Preferred Stock does not have a
conversion feature. Upon the occurrence of certain change of
control transactions (each, an “Extraordinary
Transaction”), the holders of two-thirds of the Redeemable
Preferred Stock may elect to have all of the shares of
Redeemable Preferred Stock redeemed by the Company or to
otherwise participate in such Extraordinary Transaction. Upon
any liquidation, dissolution or winding up of the Company, each
holder of Redeemable Preferred Stock has a liquidation
preference that is pari passu with the other preferred stock of
the Company and senior to the Common Stock. The holders of each
outstanding share of Redeemable Preferred Stock, voting as a
separate class, are entitled to vote and elect one Director and
to remove such Director, with or without cause. The holders of
Redeemable Preferred Stock are not entitled to vote on any other
matters except as required by law.
No dividends may be declared or paid, and no shares of preferred
stock may be redeemed until the Senior Secured and Senior
Unsecured obligations of the Company have been paid in full.
YOUTH AND
FAMILY CENTERED SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
11.
SUBSEQUENT
EVENTS
Material
Definitive Agreement:
On February 17, 2011, Youth and Family Centered Services,
Inc., entered into an Agreement and Plan of Merger (the
“Merger Agreement”), with Acadia Healthcare Company,
LLC, a Delaware corporation (the “Parent”), and
Acadia — YFCS Acquisition Company, Inc., a Georgia
corporation (the “Merger Co”).
At the effective time of the Merger, each outstanding share of
preferred and common stock outstanding shall be cancelled and
converted to the right to receive certain consideration as set
forth in the Merger Agreement. At the effective time, each
option
and/or
warrant to purchase shares of common stock of the Company,
whether vested or unvested, that is outstanding and unexercised
as of immediately prior to the effective time, shall become
fully vested and exercisable and shall be cancelled and
converted into the right to receive certain merger consideration
as set forth in the Merger Agreement.
The Company has made certain representations, warranties and
covenants in the Merger agreement, which generally expire on
June 1, 2012, with certain fundamental representations
surviving until thirty (30) days after the expiration of
the statute of limitations applicable to such representations.
The Parent and Merger Co have obtained equity and debt financing
commitments for the transaction contemplated by the Merger
Agreement, which proceeds will be sufficient to pay the
aggregate merger consideration and all related fees and
expenses. Additionally, upon consummation of the sale,
approximately, $86.1 million of our Senior and Subordinated
Debt is required to be paid off. Subsequent to year-end the
Company made a principal payment of $1.8 million against
its Term Loan. The receipt of financing on substantially the
terms and subject to the conditions set forth in such
commitments is a condition to the consummation of the Merger.
The companies expect to close the transaction at the end of the
first quarter or early in the second quarter of 2011.
Executive
Employment Agreements:
In 2004, the Company entered into employments agreement with our
Chief Executive Officer (the “CEO”) and Chief
Financial Officer (the “CFO”). Such employment
agreements have been amended in connection with the Merger (the
“Amendments”), with the Amendments becoming effective
upon the consummation thereof.
In accordance with the appropriate guidance which establishes
general standard of accounting for and disclosure of events that
occur after the balance sheet date but before the financial
statements are issued or available to be issued, the Company
evaluated subsequent events through March 31, 2011, the
date the financial statements were available to be issued. There
were no other material subsequent events that required
recognition or additional disclosure in these financial
statements.
We have audited the accompanying consolidated balance sheets of
PHC, Inc. and subsidiaries as of June 30, 2011 and 2010 and
the related consolidated statements of income, changes in
stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of PHC, Inc. and subsidiaries at June 30, 2011 and
2010 and the results of their operations and their cash flows
for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
Class A Common Stock, $.01 par value;
30,000,000 shares authorized, 19,978,211 and
19,867,826 shares issued at June 30, 2011 and 2010,
respectively
199,782
198,679
Class B Common Stock, $.01 par value;
2,000,000 shares authorized, 773,717 and 775,021 issued and
outstanding at June 30, 2011 and 2010, respectively, each
convertible into one share of Class A Common Stock
7,737
7,750
Additional paid-in capital
28,220,835
27,927,536
Treasury stock, 1,214,093 and 1,040,598 Class A common
shares at cost at
June 30, 2011 and 2010, respectively
(1,808,734
)
(1,593,407
)
Accumulated deficit
(8,704,559
)
(9,284,564
)
Total stockholders’ equity
17,915,061
17,255,994
Total liabilities and stockholders’ equity
$
28,281,990
$
25,649,970
See accompanying notes to consolidated financial statements.
THE
COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
and business segments:
PHC, Inc. and subsidiaries, (“PHC” or the
“Company”) is incorporated in the Commonwealth of
Massachusetts. The Company is a national healthcare company
which operates subsidiaries specializing in behavioral health
services including the treatment of substance abuse, which
includes alcohol and drug dependency and related disorders and
the provision of psychiatric services. The Company also operates
help lines for employee assistance programs, call centers for
state and local programs and provides management, administrative
and online behavioral health services. The Company primarily
operates under three business segments:
(1)
Behavioral health treatment services,
including
two substance abuse treatment facilities: Highland Ridge
Hospital, located in Salt Lake City, Utah, which also treats
psychiatric patients, Mount Regis Center, located in Salem,
Virginia and Renaissance Recovery and eleven psychiatric
treatment locations which include Harbor Oaks Hospital, a 71-bed
psychiatric hospital located in New Baltimore, Michigan, Detroit
Behavioral Institute, a 66-bed residential facility in Detroit,
Michigan, a 55-bed psychiatric hospital in Las Vegas, Nevada and
eight outpatient behavioral health locations (one in New
Baltimore, Michigan operating in conjunction with Harbor Oaks
Hospital, three in Las Vegas, Nevada as Harmony Healthcare,
three locations operating as Pioneer Counseling Center in the
Detroit, Michigan metropolitan area) and one location in
Pennsylvania operating as Wellplace;
(2)
Call center and help line services (contract
services)
, including two call centers, one operating in
Midvale, Utah and one in Detroit, Michigan. The Company provides
help line services through contracts with major railroads and a
call center contract with Wayne County, Michigan. The call
centers both operate under the brand name Wellplace; and
(3)
Behavioral health administrative services
,
including delivery of management and administrative and online
services. The parent company provides management and
administrative services for all of its subsidiaries and online
services for its behavioral health treatment subsidiaries and
its call center subsidiaries. It also provides behavioral health
information through its website, Wellplace.com.
Principles
of consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation. In January 2007, the Company purchased a 15.24%
membership interest in the Seven Hills Psych Center, LLC, the
entity that is the landlord of the Seven Hills Hospital
subsidiary. In March 2008, the Company, through its subsidiary
PHC of Nevada, Inc., purchased a 25% membership interest in
Behavioral Health Partners, LLC, the entity that is the landlord
of a new outpatient location for Harmony Healthcare. These
investments are accounted for under the equity method of
accounting and are included in other assets on the accompanying
consolidated balance sheets. (Note F)
Revenues
and accounts receivable:
Patient care revenues and accounts receivable are recorded at
established billing rates or at the amount realizable under
agreements with third-party payors, including Medicaid and
Medicare. Revenues under third-party payor agreements are
subject to examination and contractual adjustment, and amounts
realizable may change due to periodic changes in the regulatory
environment. Provisions for estimated third party payor
settlements are provided in the period the related services are
rendered. Differences between the amounts provided and
subsequent settlements are recorded in operations in the period
of settlement. Amounts due as a result of cost report
settlements are recorded and listed separately on the
consolidated balance sheets as “Other receivables”.
The provision for contractual allowances is deducted directly
from revenue and the net revenue amount is recorded as accounts
receivable. The allowance for doubtful accounts does not include
the contractual allowances.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
Medicare reimbursements are based on established rates depending
on the level of care provided and are adjusted prospectively.
Effective for fiscal years beginning after January 1, 2005,
the prospective payment system (“PPS”) was brought
into effect for all psychiatric services paid through the
Medicare program. The new system changed the TEFRA-based (Tax
Equity and Fiscal Responsibility Act of 1982) system to the
new variable per diem-based system. The new rates are based on a
statistical model that relates per diem resource use for
beneficiaries to patient and facility characteristics available
from “Center for Medicare and Medicaid Services”
(“CMS’s”), administrative data base (cost reports
and claims data). Patient-specific characteristics include, but
are not limited to, principal diagnoses, comorbid conditions,
and age. Facility specific variables include an area wage index,
rural setting, and the extent of teaching activity. This change
was phased in over three fiscal years with a percentage of
payments being made at the old rates and a percentage at the new
rates. The Company has been operating fully under PPS since
fiscal 2009.
Although Medicare reimbursement rates are based 100% on PPS, the
Company will continue to file cost reports annually as required
by Medicare to determine ongoing rates and recoup any
adjustments for Medicare bad debt. These cost reports are
routinely audited on an annual basis. The Company believes that
adequate provision has been made in the financial statements for
any adjustments that might result from the outcome of Medicare
audits. Approximately 27% of the Company’s total revenue is
derived from Medicare and Medicaid payors for each of the years
ended June 30, 2011 and 2010. Differences between the
amounts provided and subsequent settlements are recorded in
operations in the year of the settlement. To date, settlement
adjustments have not been material.
Patient care revenue is recognized as services are rendered,
provided there exists persuasive evidence of an arrangement, the
fee is fixed or determinable and collectability of the related
receivable is reasonably assured. Pre — admission
screening of financial responsibility of the patient, insurance
carrier or other contractually obligated payor, provides the
Company the net expected collectable patient revenue to be
recorded based on contractual arrangements with the payor or
pre-admission agreements with the patient. Revenue is not
recognized for emergency provision of services for indigent
patients until authorization for the services can be obtained.
Contract support service revenue is a result of fixed fee
contracts to provide telephone support. Revenue for these
services is recognized ratably over the service period.
Long-term assets include non-current accounts receivable, other
receivables and other assets (see below for description of other
assets). Non-current accounts receivable consist of amounts due
from former patients for service. This amount represents
estimated amounts collectable under supplemental payment
agreements, arranged by the Company or its collection agencies,
entered into because of the patients’ inability to pay
under normal payment terms. All of these receivables have been
extended beyond their original due date. Reserves are provided
for accounts of former patients that do not comply with these
supplemental payment agreements and accounts are written off
when deemed unrecoverable. Other receivables included as
long-term assets include the non-current portion of loans
provided to employees and amounts due on a contractual agreement.
Charity care amounted to approximately $231,000 and $305,000 for
the years ended June 30, 2011 and 2010, respectively.
Patient care revenue is presented net of charity care in the
accompanying consolidated statements of income.
The Company had accounts receivable from Medicaid and Medicare
of approximately $3,447,240 at June 30, 2011 and $2,333,300
at June 30, 2010. Included in accounts receivable is
approximately $1,212,460 and $1,255,000 in unbilled receivables
at June 30, 2011 and 2010, respectively.
Allowance
for doubtful accounts:
The Company records an allowance for uncollectible accounts
which reduces the stated value of receivables on the balance
sheet. This allowance is calculated based on a percentage of
each aged accounts receivable category beginning at 0-5% on
current accounts and increasing incrementally for each
additional 30 days the account remains outstanding until
the account is over 300 days outstanding, at which time the
provision is 100% of the
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
outstanding balance. These percentages vary by facility based on
each facility’s experience in and expectations for
collecting older receivables. The Company compares this required
reserve amount to the current “Allowance for doubtful
accounts” to determine the required bad debt expense for
the period. This method of determining the required
“Allowance for doubtful accounts” has historically
resulted in an allowance for doubtful accounts of 20% or greater
of the total outstanding receivables balance, which the Company
believes to be a reasonable valuation of its accounts receivable.
Estimates
and assumptions:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could
differ from those estimates. Such estimates include patient care
billing rates, realizability of receivables from third-party
payors, rates for Medicare and Medicaid, the realization of
deferred tax benefits and the valuation of goodwill, which
represents a significant portion of the estimates made by
management.
Reliance
on key clients:
The Company relies on contracts with more than ten clients to
maintain patient census at its inpatient facilities and patients
for our outpatient operations and our employee assistance
programs. The loss of any of such contracts would impact the
Company’s ability to meet its fixed costs. The Company has
entered into relationships with large employers, health care
institutions, insurance companies and labor unions to provide
treatment for psychiatric disorders, chemical dependency and
substance abuse in conjunction with employer sponsored employee
assistance programs. The employees of such institutions may be
referred to the Company for treatment, the cost of which is
reimbursed on a per diem or per capita basis. Approximately 20%
of the Company’s total revenue is derived from these
clients for all periods presented. No one of these large
employers, health care institutions or labor unions individually
accounts for 10% or more of the Company’s consolidated
revenues, but the loss of any of these clients would require the
Company to expend considerable effort to replace patient
referrals and would result in revenue and attendant losses.
Cash
equivalents:
Cash equivalents include short-term highly liquid investments
with original maturities of less than three months.
Property
and equipment:
Property and equipment are stated at cost. Depreciation is
provided over the estimated useful lives of the assets using the
straight-line method. The estimated useful lives are as follows:
Assets
Estimated Useful Life
Buildings
39 years
Furniture and equipment
3 through 10 years
Motor vehicles
5 years
Leasehold improvements
Lesser of useful life or term of lease (2 to 10 years)
Other
assets:
Other assets consists of deposits, deferred expenses advances,
investment in Seven Hills LLC, investment in Behavioral Health
Partners, LLC, software license fees, and acquired software
which is being amortized over three to seven years based on its
estimated useful life.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
Long-lived
assets:
The Company reviews the carrying values of its long-lived
assets, other than goodwill, for possible impairment whenever
events or changes in circumstances indicate that the carrying
amounts of the assets may not be recoverable. Any long-lived
assets held for disposal are reported at the lower of their
carrying amounts or fair value less costs to sell. The Company
believes that the carrying value of its long-lived assets is
fully realizable at June 30, 2011.
Fair
Value Measurements:
Accounting Standards Codification (“ASC”)
820-10-65,
“Fair Value Measurements and Disclosures”, defines
fair value, provides guidance for measuring fair value and
requires certain disclosures. This statement applies under other
accounting pronouncements that require or permit fair value
measurements. The statement indicates, among other things, that
a fair value measurement assumes that a transaction to sell an
asset or transfer a liability occurs in the principal market for
the asset or liability or, in the absence of a principal market,
the most advantageous market for the asset or liability.
ASC 820-10-65
defines fair value based upon an exit price model.
ASC 820-10-65
discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value
of future income or cash flow), and the cost approach (cost to
replace the service capacity of an asset or replacement cost).
The statement utilizes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value
into three broad levels. The following is a brief description of
those three levels:
•
Level 1:
Observable inputs such as quoted prices (unadjusted) in active
markets for identical assets or liabilities.
•
Level 2:
Inputs, other than quoted prices, that are observable for the
asset or liability, either directly or indirectly. These include
quoted prices for similar assets or liabilities in active
markets and quoted prices for identical or similar assets or
liabilities in markets that are not active.
•
Level 3:
Unobservable inputs that reflect the reporting entity’s own
assumptions.
The Company had money market funds stated at fair market value,
of $516,573 and $2,504,047 at June 30, 2011 and 2010,
respectively, that were measured using Level 1 inputs.
Basic
and diluted income per share:
Income per share is computed by dividing the income applicable
to common shareholders by the weighted average number of shares
of both classes of common stock outstanding for each fiscal
year. Class B Common Stock has additional voting rights.
All dilutive common stock equivalents have been included in the
calculation of diluted earnings per share for the fiscal years
ended June 30, 2011 and 2010 using the treasury stock
method.
The weighted average number of common shares outstanding used in
the computation of earnings per share is summarized as follows:
Years Ended June 30,
2011
2010
Weighted average shares outstanding — basic
19,504,943
19,813,783
Employee stock options and warrants
282,518
101,171
Weighted average shares outstanding — fully diluted
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
The following table summarizes securities outstanding as of
June 30, 2011 and 2010, but not included in the calculation
of diluted net earnings per share because such shares are
antidilutive:
Years Ended June 30,
2011
2010
Employee stock options
502,250
921,500
Warrants
363,000
343,000
Total
865,250
1,264,500
The Company repurchased 173,495 and 414,057 shares of its
Class A Common Stock during fiscal 2011 and 2010,
respectively.
Income
taxes:
ASC 740, “Income Taxes”, prescribes an asset and
liability approach, which requires the recognition of deferred
tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of the assets and liabilities. In
accordance with ASC 740, the Company may establish reserves
for tax uncertainties that reflect the use of the comprehensive
model for the recognition and measurement of uncertain tax
positions. Tax authorities periodically challenge certain
transactions and deductions reported on our income tax returns.
The Company does not expect the outcome of these examinations,
either individually or in the aggregate, to have a material
adverse effect on our financial position, results of operations,
or cash flows.
Comprehensive
income:
The Company’s comprehensive income is equal to its net
income for all periods presented.
Stock-based
compensation:
The Company issues stock options to its employees and directors
and provides employees the right to purchase stock pursuant to
stockholder approved stock option and stock purchase plans. The
Company follows the provisions of ASC 718,
“Compensation — Stock Compensation”.
Under the provisions of ASC 718, the Company recognizes the
fair value of stock compensation in net income (loss), over the
requisite service period of the individual grantees, which
generally equals the vesting period. All of the Company’s
stock based awards are accounted for as equity instruments.
Under the provisions of ASC 718, the Company recorded
$164,916 and $221,404 of stock-based compensation in its
consolidated statements of income for the years ended
June 30, 2011 and 2010, respectively, which is included in
administrative expenses as follows:
Year Ended
Year Ended
June 30,
June 30,
2011
2010
Directors fees
$
75,845
$
63,870
Employee compensation
89,071
157,534
Total
$
164,916
$
221,404
The Company utilizes the Black-Scholes valuation model for
estimating the fair value of the stock-based compensation. The
weighted-average grant date fair values of the options granted
under the stock option plans of
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
$1.15 and $0.63 for the years ended June 30, 2011 and 2010,
respectively, were calculated using the following
weighted-average assumptions:
Year Ended June 30,
2011
2010
Risk free interest rate
2.50%
2.30% - 3.48%
Expected dividend yield
—
—
Expected lives
5 - 10 years
5 - 10 years
Expected volatility
61.61% - 72.06%
60.66% - 61.63%
The dividend yield of zero is based on the fact that the Company
has never paid cash dividends and has no present intention to
pay cash dividends. Expected volatility is based on the
historical volatility of the Company’s common stock over
the period commensurate with the expected life of the options.
The risk-free interest rate is the U.S. Treasury rate on
the date of grant. The expected life was calculated using the
Company’s historical experience for the expected term of
the option.
Based on the Company’s historical voluntary turnover rates
for individuals in the positions who received options, there was
no forfeiture rate assessed. It is assumed these options will
remain outstanding for the full term of issue. Under the
true-up
provisions of ASC 718, a recovery of prior expense will be
recorded if the actual forfeiture rate is higher than estimated
or additional expense if the forfeiture rate is lower than
estimated. To date, any required
true-ups
have not been material.
In August 2010, 7,679 shares of common stock were issued
under the employee stock purchase plan. The Company recorded
stock-based compensation expense of $1,304. In March 2011,
6,402 shares of common stock were issued under the employee
stock purchase plan. The Company recorded stock-based
compensation expense of $1,216.
As of June 30, 2011, there was $168,117 in unrecognized
compensation cost related to nonvested stock-based compensation
arrangements granted under existing stock option plans. This
cost is expected to be recognized over the next three years.
Advertising
Expenses:
Advertising costs are expensed when incurred. Advertising
expenses for the years ended June 30, 2011 and 2010 were
$167,549 and $136,183, respectively.
Subsequent
Events:
The Company has evaluated material subsequent events through the
date of issuance of this report and we have included all such
disclosures in the accompanying footnotes. (See Note P).
Reclassifications:
Certain June 30, 2010 balance sheet amounts have been
reclassified to be consistent with the June 30, 2011
presentation, which affect certain balance sheet classifications
only.
Recent
accounting pronouncements:
Recently
Adopted Standards
In April 2010, the FASB issued ASU
No. 2010-13,
Compensation — Stock Compensation
(Topic 718):
Effect of Denominating the Exercise Price of a Share-Based
Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades, or ASU
2010-13.
ASU
2010-13
clarifies that a share-based payment award with an exercise
price denominated in the currency of a market in which a
substantial portion of the entity’s equity
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
securities trades should not be considered to contain a
condition that is not a market, performance, or service
condition. Therefore, such an award should not be classified as
a liability if it otherwise qualifies as equity. ASU
2010-13
is
effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010, with
early adoption permitted. The adoption of this standard did not
have any impact on the Company’s consolidated financial
statements.
In April 2010, the FASB issued ASU
No. 2010-17,
Revenue Recognition — Milestone Method
(Topic
605): Milestone Method of Revenue Recognition, or ASU
2010-17.
ASU
2010-17
allows the milestone method as an acceptable revenue recognition
methodology when an arrangement includes substantive milestones.
ASU
2010-17
provides a definition of substantive milestone, and should be
applied regardless of whether the arrangement includes single or
multiple deliverables or units of accounting. ASU
2010-17
is
limited to transactions involving milestones relating to
research and development deliverables. ASU
2010-17
also
includes enhanced disclosure requirements about each
arrangement, individual milestones and related contingent
consideration, information about substantive milestones, and
factors considered in the determination. ASU
2010-17
is
effective on a prospective basis for milestones achieved in
fiscal years, and interim periods within those years, beginning
on or after June 15, 2010, with early adoption permitted.
The adoption of this standard did not have any impact on the
Company’s consolidated financial statements.
In March 2010, the FASB issued ASU
No. 2010-11,
Derivatives and Hedging
(ASC Topic 815): Scope Exception
Related to Credit Derivatives, or ASU
2010-11.
ASU
2010-11
clarifies that embedded credit-derivative features related only
to the transfer of credit risk in the form of subordination of
one financial instrument to another are not subject to potential
bifurcation and separate accounting. ASU
2010-11
also
provides guidance on whether embedded credit-derivative features
in financial instruments issued by structures such as
collateralized debt obligations are subject to bifurcations and
separate accounting. ASU
2010-11
is
effective at the beginning of a company’s first fiscal
quarter beginning after June 15, 2010, with early adoption
permitted. The adoption of this guidance did not have any impact
on the Company’s consolidated financial statements.
Recently
Issued Accounting Standards
In June 2011, the Financial Accounting Standards Board
(“FASB”) issued ASU
No. 2011-05,
Comprehensive Income
(Topic 220): Presentation of
Comprehensive Income, or ASU
2011-05.
The
amendments in this ASU require an entity to present the total of
comprehensive income, the components of net income, and the
components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate
but consecutive statements. ASU
2011-05
eliminates the option to present the components of other
comprehensive income as part of the statement of equity. ASU
2011-05
is
effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2011, with
early adoption permitted. The Company does not expect the
adoption of ASU
2011-05
to
have a material impact on its consolidated financial statements.
In December 2010, the FASB issued ASU
2010-29,
Business Combinations
(Topic 805): Disclosure of
Supplementary Pro Forma Information for Business Combinations.
This ASU reflects the decision reached in EITF Issue
No. 10-G.
The amendments in this ASU affect any public entity, as defined
by Topic 805 Business Combinations, that enters into business
combinations that are material on an individual or aggregate
basis. The amendments in this ASU specify that if a public
entity presents comparative financial statements, the entity
should disclose revenue and earnings of the combined entity as
though the business combination(s) that occurred during the
current year had occurred as of the beginning of the comparable
prior annual reporting period only. The amendments also expand
the supplemental pro forma disclosures to include a description
of the nature and amount of material, nonrecurring pro forma
adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. The
amendments are effective prospectively for business combinations
for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after
December 15, 2010. The Company does not expect the adoption
of this ASU will have a material effect on its consolidated
financial statements.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
In December 2010, the FASB issued ASU
No. 2010-28,
Intangibles — Goodwill and Other
(Topic 350):
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts. This ASU
reflects the decision reached in EITF Issue
No. 10-A.
The amendments in this ASU modify Step 1 of the goodwill
impairment test for reporting units with zero or negative
carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if it
is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill
impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating that an impairment
may exist. The qualitative factors are consistent with the
existing guidance and examples, which require that goodwill of a
reporting unit be tested for impairment between annual tests if
an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its
carrying amount. The amendments in this ASU are effective for
fiscal years, and interim periods within those years, beginning
after December 15, 2010. The Company does not expect the
adoption of this ASU will have a material effect on its
consolidated financial statements.
In July 2011, the FASB issued ASU
2011-07,
Healthcare Entities (Topic 954),
which requires
healthcare organizations that perform services for patients for
which the ultimate collection of all or a portion of the amounts
billed or billable cannot be determined at the time services are
rendered to present all bad debt expense associated with patient
service revenue as an offset to the patient service revenue line
item in the statement of operations. The ASU also requires
qualitative disclosures about the Company’s policy for
recognizing revenue and bad debt expense for patient service
transactions and quantitative information about the effects of
changes in the assessment of collectibility of patient service
revenue. This ASU is effective for fiscal years beginning after
December 15, 2011, and will be adopted by the Company in
the first quarter of 2013. The Company is currently assessing
the potential impact the adoption of this ASU will have on its
consolidated results of operations and consolidated financial
position.
NOTE B —
NOTE
RECEIVABLE
On November 13, 2010, the Company, through its subsidiary,
Detroit Behavioral Institute, Inc., d/b/a Capstone Academy, a
wholly owned subsidiary of the Company (“Capstone
Academy”), purchased the rights under certain identified
notes (the “Notes”) held by Bank of America and
secured by the property leased by Capstone Academy for
$1,250,000. The Notes were in default at the time of the
purchase and the Company has initiated foreclosure proceedings
in the courts. The Notes were purchased using cash flow from
operations. The Company has recorded the value of the Notes in
other receivables, current of $1,124,240, in the accompanying
consolidated financial statements. The Company believes the
value of the Notes are fully recoverable based on the current
value of the property securing the Notes.
NOTE C —
OTHER
EXPENSE
During the current fiscal year, the Company identified a failure
with respect to prior year Average Deferral Percentage
(“ADP”) and Actual Contribution Percentage
(“ACP”) testing in the 401(k) plan. The Company does
not consider this to be a material operational failure and is
correcting by filing under the IRS’ Employee Plans
Compliance Resolution Program (Rev Proc
2008-50),
with the assistance of counsel. During the fiscal year 2011, the
Company determined that approximately $185,000 will be the
non-voluntary contribution to the 401(k) plan required by the
IRS in connection with this compliance failure and recorded this
expense as other expense in the accompanying consolidated
statements of income.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
NOTE D —
PROPERTY
AND EQUIPMENT
Property and equipment is composed of the following:
As of June 30,
2011
2010
Land
$
69,259
$
69,259
Buildings
1,136,963
1,136,963
Furniture and equipment
4,285,785
3,913,670
Motor vehicles
173,492
152,964
Leasehold improvements
5,020,183
4,332,770
10,685,682
9,605,626
Less accumulated depreciation and amortization
5,972,550
5,078,250
Property and equipment, net
$
4,713,132
$
4,527,376
Total depreciation and amortization expenses related to property
and equipment were $895,650 and $907,746 for the fiscal years
ended June 30, 2011 and 2010, respectively.
NOTE E —
GOODWILL
AND OTHER INTANGIBLE ASSETS:
Goodwill and other intangible assets are initially created as a
result of business combinations or acquisitions. Critical
estimates and assumptions used in the initial valuation of
goodwill and other intangible assets include, but are not
limited to: (i) future expected cash flows from services to
be provided, customer contracts and relationships, and
(ii) the acquired market position. These estimates and
assumptions may be incomplete or inaccurate because
unanticipated events and circumstances may occur. If estimates
and assumptions used to initially value goodwill and intangible
assets prove to be inaccurate, ongoing reviews of the carrying
values of such goodwill and intangible assets may indicate
impairment which will require the Company to record an
impairment charge in the period in which the Company identifies
the impairment.
ASC 350, “Goodwill and Other Intangible Assets”
requires, among other things, that companies not amortize
goodwill, but instead test goodwill for impairment at least
annually. In addition, ASC 350 requires that the Company
identify reporting units for the purpose of assessing potential
future impairments of goodwill, reassess the useful lives of
other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life.
The Company’s goodwill of $969,098 relating to the
treatment services reporting unit of the Company was evaluated
under ASC 350 as of June 30, 2011. As a result of the
evaluation, the Company determined that no impairment exists
related to the goodwill associated with the treatment services
reporting unit. The Company will continue to test goodwill for
impairment, at least annually, in accordance with the guidelines
of ASC 350. There were no changes to the goodwill balance
during fiscal 2011 or 2010.
NOTE F —
OTHER
ASSETS
Included in other assets are investments in unconsolidated
subsidiaries. As of June 30, 2011, this includes the
Company’s investment in Seven Hills Psych Center, LLC of
$302,244 (this LLC holds the assets of the Seven Hills Hospital
which is being leased by a subsidiary of the Company) and the
Company’s investment in Behavioral Health Partners, LLC, of
$687,972 (this LLC holds the assets of an out-patient clinic
which is being leased by PHC of Nevada, Inc, the Company’s
outpatient operations in Las Vegas, Nevada).
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
The following table lists amounts included in other assets, net
of any accumulated amortization:
As of June 30,
Description
2011
2010
Software development & license fees
$
790,225
$
947,358
Investment in unconsolidated subsidiary
990,216
1,037,331
Deposits and other assets
188,221
200,060
Total
$
1,968,662
$
2,184,749
Total accumulated amortization of software license fees was
$1,016,291 and $806,962 as of June 30, 2011 and 2010,
respectively. Total amortization expense related to software
license fees was $209,599 and $248,823 for the fiscal years
ended June 30, 2011 and 2010, respectively.
The following is a summary of expected amortization expense of
software licensure fees for the succeeding fiscal years and
thereafter as of June 30, 2011:
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
NOTE G —
NOTES PAYABLE
AND LONG-TERM DEBT
Notes payable and long-term debt is summarized as follows:
As of June 30,
2011
2010
Term mortgage note payable with monthly principal installments
of $50,000 beginning July 1, 2007 increasing to
$62,500 July 1, 2009 until the loan terminates. The
note bears interest at prime (3.25% at June 30,
2011) plus 0.75% but not less than 6.25% and is
collateralized by all of the assets of the Company and its
material subsidiaries
$
297,500
$
935,000
Mortgage note due in monthly installments of $4,850 including
interest at 9% through July 1, 2012, when the remaining
principal balance is payable, collateralized by a first mortgage
on the PHC of Virginia, Inc, Mount Regis Center facility
107,283
153,526
Total
404,783
1,088,526
Less current maturities
348,081
796,244
Long-term portion
$
56,702
$
292,282
Maturities of notes payable and long-term debt are as follows as
of June 30, 2011:
Year Ending June 30,
Amount
2012
$
348,081
2013
56,702
$
404,783
The Company’s amended revolving credit note allows the
Company to borrow a maximum of $3,500,000. The outstanding
balance on this note was $1,814,877 and $1,336,025 at
June 30, 2011 and 2010, respectively. This agreement was
amended on June 13, 2007 to modify the terms of the
agreement. Advances are available based on a percentage of
accounts receivable and the payment of principal is payable upon
receipt of proceeds of the accounts receivable. Interest is
payable monthly at prime (3.25% at June 30, 2011) plus
0.25%, but not less than 4.75%. The average interest rate paid
during the fiscal year ended June 30, 2011 was 7.56%, which
includes the amortization of deferred financing costs related to
the initial financing. The amended term of the agreement is for
two years, renewable for two additional one year terms. The
Agreement was automatically renewed June 13, 2010 to effect
the term through June 13, 2011. This agreement was not
renewed. On July 1, 2011, in connection with the
Company’s purchase of MeadowWood Behavioral Health (See
Note P), all of the Company’s outstanding long-term
debt and revolving credit facility were repaid. The revolving
credit note is collateralized by substantially all of the assets
of the Company’s subsidiaries and guaranteed by PHC.
As of June 30, 2011, the Company was in compliance with all
of its financial covenants under the revolving line of credit
note. These covenants include only a debt coverage ratio and a
minimum EBITDA.
NOTE H —
CAPITAL
LEASE OBLIGATION
At June 30, 2011, the Company was obligated under various
capital leases for equipment providing for aggregate monthly
payments of approximately $7,157 and terms expiring through June
2014.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
These amounts are shown on the accompanying consolidated balance
sheets as follows:
Years Ended June 30,
2011
2010
Net deferred tax asset:
Current portion
$
1,919,435
$
1,145,742
Long-term portion
647,743
1,495,144
$
2,567,178
$
2,640,886
As of June 30, 2011, the Company believes that all deferred
tax assets are more likely than not to be realized.
The components of the income tax provision (benefit) for the
years ended June 30, 2011 and 2010 are as follows:
2011
2010
Current
Federal
$
772,611
$
313,232
State
561,617
607,775
1,334,228
921,007
Deferred
Federal
(62,768
)
330,222
State
136,476
(145,129
)
73,708
185,093
Income tax provision
$
1,407,936
$
1,106,100
A reconciliation of the federal statutory rate to the
Company’s effective tax rate for the years ended
June 30, 2011 and 2010 is as follows:
2011
2010
Income tax provision at federal statutory rate
34.0
%
34.0
%
Increase (decrease) in tax resulting from:
State tax provision, net of federal benefit
23.16
11.77
Non-deductible expenses
1.93
3.65
Transaction costs
18.77
0.00
Change in valuation allowance
(7.55
)
0.35
Prior year refunds
(0.62
)
(8.49
)
Other, net
1.11
2.49
Effective income tax rate
70.80
%
43.77
%
During fiscal 2011, the Company incurred approximately
$1,607,700 of transaction costs associated with the MeadowWood
acquisition and the Acadia merger (See Note P). The Company
has disallowed these costs for tax purposes.
The Company adopted certain provisions of ASC 740
“Income Taxes” on July 1, 2007 as it relates to
uncertain tax positions. As a result of the implementation of
ASC 740, the Company recognized no material adjustment in
the liability for unrecognized tax benefits.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
The Company recognizes interest and penalties related to
uncertain tax positions in general and administrative expense.
As of June 30, 2011, the Company has not recorded any
provisions for uncertain tax positions or for accrued interest
and penalties related to uncertain tax positions.
Tax years
2006-2010
remain open to examination by the major taxing authorities to
which the Company is subject.
NOTE K —
COMMITMENTS
AND CONTINGENT LIABILITIES
Operating
leases:
The Company leases office and treatment facilities, furniture
and equipment under operating leases expiring on various dates
through June 2019. Rent expense for the years ended
June 30, 2011 and 2010 was $3,449,016 and $3,650,278,
respectively. Rent expense includes certain short-term rentals.
Minimum future rental payments under non-cancelable operating
leases, having remaining terms in excess of one year as of
June 30, 2011 are as follows:
Year Ending June 30,
Amount
2012
$
3,480,838
2013
3,066,926
2014
2,831,549
2015
2,533,014
2016
2,379,368
Thereafter
5,279,168
$
19,570,863
Litigation:
During the current fiscal year, the Michigan Court of Appeals
upheld an appeal involving the company and a terminated employee
requiring the Company to pay $446,320, which included accrued
interest, to the terminated employee to satisfy this judgment.
This amount is shown as a legal settlement expense in the
accompanying statements of income for the year ended
June 30, 2011.
On June 2, 2011, a putative stockholder class action
lawsuit was filed in Massachusetts state court, MAZ Partners
LP v. Bruce A. Shear, et al., C.A.
No. 11-1041,
against the Company, the members of the Company’s board of
directors, and Acadia Healthcare Company, Inc. The MAZ Partners
complaint asserts that the members of the Company’s board
of directors breached their fiduciary duties by causing the
Company to enter into the merger agreement and further asserts
that Acadia aided and abetted those alleged breaches of
fiduciary duty. Specifically, the MAZ Partners complaint alleged
that the process by which the merger agreement was entered into
was unfair and that the agreement itself is unfair in that,
according to the plaintiff, the compensation to be paid to the
Company’s Class A shareholders is inadequate,
particularly in light of the proposed cash payment to be paid to
Class B shareholders and the anticipated pre-closing
payment of a dividend to Arcadia shareholders and the
anticipated level of debt to be held by the merged entity. The
complaint sought, among other relief, an order enjoining the
consummation of the merger and rescinding the merger agreement.
On June 13, 2011, a second lawsuit was filed in federal
district court in Massachusetts, Blakeslee v. PHC, Inc., et
al.,
No. 11-cv-11049,
making essentially the same allegations against the same
defendants. On June 21, 2011, the Company removed the MAZ
Partners case to federal court (11-cv-11099). On July 7,
2011, the parties to the MAZ Partners case moved to consolidate
that action with the Blakeslee case and asked the court to
approve a schedule for discovery and a potential hearing on
plaintiff’s motion for a preliminary injunction.
On August 11, 2011, the plaintiffs in the MAZ Partners case
filed an amended class action complaint. Like the original
complaint, the amended complaint asserts claims of breach of
fiduciary duty against the Company,
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
members of the Company’s board of directors, and claims of
aiding and abetting those alleged breaches of fiduciary duty
against Acadia. The amended complaint alleges that both the
merger process and the provisions of the merger are unfair, that
the directors and executive officers of the Company have
conflicts of interests with regard to the merger, that the
dividend to be paid to Acadia shareholders is inappropriate,
that a special committee or independent director should have
been appointed to represent the interest of the Class A
shareholders, that the merger consideration is grossly
inadequate and the exchange ratio is unfair, and that the
preliminary proxy filed by the Company contains material
misstatements and omissions. The amended complaint also seeks,
among other things, an order enjoining the consummation of the
merger and rescinding the merger agreement.
PHC and Acadia believe the claims are without merit and intend
to defend against them vigorously. PHC and Acadia have recently
filed motions to dismiss in each case. Regardless of the
disposition of the motions to dismiss, PHC and Acadia do not
anticipate the outcome to have a material impact on the progress
of the merger.
Additionally, the Company is subject to various claims and legal
action that arise in the ordinary course of business. In the
opinion of management, the Company is not currently a party to
any proceeding that would have a material adverse effect on its
financial condition or results of operations.
NOTE L —
STOCKHOLDERS’
EQUITY AND STOCK PLANS
Preferred
Stock
The Board of Directors is authorized, without further action of
the shareholders, to issue up to 1,000,000 shares in one or
more classes or series and to determine, with respect to any
series so established, the preferences, voting powers,
qualifications and special or relative rights of the established
class or series, which rights may be in preference to the rights
of common stock. No shares of the Company’s preferred stock
are currently issued.
Common
Stock
The Company has authorized two classes of common stock, the
Class A Common Stock and the Class B Common Stock.
Subject to preferential rights in favor of the holders of the
Preferred Stock, the holders of the common stock are entitled to
dividends when, as and if declared by the Company’s Board
of Directors. Holders of the Class A Common Stock and the
Class B Common Stock are entitled to share equally in such
dividends, except that stock dividends (which shall be at the
same rate) shall be payable only in Class A Common Stock to
holders of Class A Common Stock and only in Class B
Common Stock to holders of Class B Common Stock.
Class A
Common Stock
The Class A Common Stock is entitled to one vote per share
with respect to all matters on which shareholders are entitled
to vote, except as otherwise required by law and except that the
holders of the Class A Common Stock are entitled to elect
two members to the Company’s Board of Directors.
The Class A Common Stock is non-redeemable and
non-convertible and has no pre-emptive rights.
All of the outstanding shares of Class A Common Stock are
fully paid and nonassessable.
Class B
Common Stock
The Class B Common Stock is entitled to five votes per
share with respect to all matters on which shareholders are
entitled to vote, except as otherwise required by law and except
that the holders of the Class A Common Stock are entitled
to elect two members to the Company’s Board of Directors.
The holders of the Class B Common Stock are entitled to
elect all of the remaining members of the Board of Directors.
The Class B Common Stock is non-redeemable and has no
pre-emptive rights.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
Each share of Class B Common Stock is convertible, at the
option of its holder, into a share of Class A Common Stock.
In addition, each share of Class B Common Stock is
automatically convertible into one fully-paid and non-assessable
share of Class A Common Stock (i) upon its sale, gift
or transfer to a person who is not an affiliate of the initial
holder thereof or (ii) if transferred to such an affiliate,
upon its subsequent sale, gift or other transfer to a person who
is not an affiliate of the initial holder. Shares of
Class B Common Stock that are converted into Class A
Common Stock will be retired and cancelled and shall not be
reissued.
All of the outstanding shares of Class B Common Stock are
fully paid and nonassessable.
Stock
Plans
The Company has three active stock plans: a stock option plan,
an employee stock purchase plan and a non-employee
directors’ stock option plan, and three expired plans, the
1993 Employee and Directors Stock Option plan, the 1995
Non-employee Directors’ stock option plan and the 1995
Employee Stock Purchase Plan.
The stock option plan, dated December 2003 and expiring in
December 2013, as amended in October 2007, provides for the
issuance of a maximum of 1,900,000 shares of Class A
Common Stock of the Company pursuant to the grant of incentive
stock options to employees or nonqualified stock options to
employees, directors, consultants and others whose efforts are
important to the success of the Company. Subject to the
provisions of this plan, the compensation committee of the Board
of Directors has the authority to select the optionees and
determine the terms of the options including: (i) the
number of shares, (ii) option exercise terms,
(iii) the exercise or purchase price (which in the case of
an incentive stock option will not be less than the market price
of the Class A Common Stock as of the date of grant),
(iv) type and duration of transfer or other restrictions
and (v) the time and form of payment for restricted stock
upon exercise of options. As of June 30, 2011, 1,714,500
options were granted under this plan, of which 754,563 expired
leaving 940,063 options available for grant under this plan.
On October 18, 1995, the Board of Directors voted to
provide employees who work in excess of 20 hours per week
and more than five months per year rights to elect to
participate in an Employee Stock Purchase Plan (the
“Plan”), which became effective February 1, 1996.
The price per share shall be the lesser of 85% of the average of
the bid and ask price on the first day of the plan period or the
last day of the plan period to encourage stock ownership by all
eligible employees. The plan was amended on December 19,
2001 and December 19, 2002 to allow for a total of
500,000 shares of Class A Common Stock to be issued
under the plan. Before its expiration on October 18, 2005,
157,034 shares were issued under the plan. On
January 31, 2006 the stockholders approved a replacement
Employee Stock Purchase Plan to replace the 1995 plan. A maximum
of 500,000 shares may be issued under the January 2006 plan
(the “2006 Plan”). The new plan is identical to the
old plan and expires on January 31, 2016. As of
June 30, 2011, 71,936 shares have been issued under
this plan. During fiscal 2008, the Board of Directors authorized
a new offering for a six month contribution term instead of the
former one year term. At June 30, 2011, there were
428,064 shares available for issue under the 2006 Plan.
The non-employee directors’ stock option plan provides for
the grant of non-statutory stock options automatically at the
time of each annual meeting of the Board. Under this plan, a
maximum of 950,000 shares may be issued. Each outside
director is granted an option to purchase 20,000 shares of
Class A Common Stock annually at fair market value on the
date of grant, vesting 25% immediately and 25% on each of the
first three anniversaries of the grant and expiring ten years
from the grant date. As of June 30, 2011, a total of
420,000 options were issued under the plan and there were
530,000 options available for grant under this plan.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
The Company had the following warrant activity during fiscal
2011 and 2010:
Outstanding balance — June 30, 2009
343,000
Warrants issued
—
Exercised
—
Expired
—
Outstanding balance — June 30, 2010
343,000
Warrants issued
20,000
Exercised
—
Expired
—
Outstanding balance — June 30, 2011
363,000
During fiscal 2011, the Company issued warrants to purchase
20,000 shares of Class A common stock as part of a
consulting agreement for marketing services. The fair value of
these warrants of $11,626 was recorded as professional fees when
each warrant was issued as reflected in the table above. No
warrants were issued in fiscal 2010.
During the fiscal year ended June 30, 2011, the Company
acquired 173,495 shares of Class A common stock for
$215,327 under Board approved plans.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
Behavioral
Health
Treatment
Contract
Administrative
Services
Services
Services
Eliminations
Total
For the year ended June 30, 2010
Revenues — external customers
$
49,647,395
$
3,429,831
$
—
$
—
$
53,077,226
Revenues — intersegment
4,002,558
—
4,999,992
(9,002,550
)
—
Segment net income (loss)
6,607,215
465,297
(5,652,850
)
—
1,419,662
Total assets
16,214,982
630,558
8,804,430
—
25,649,970
Capital expenditures
630,867
19,128
101,848
—
751,843
Depreciation & amortization
827,811
79,835
248,923
—
1,156,569
Goodwill
969,098
—
—
—
969,098
Interest expense
161,065
—
165,517
—
326,582
Net income (loss) from equity method investments
4,484
—
13,078
—
17,562
Equity from equity method investments
33,528
—
—
—
33,528
Income tax expense
—
—
1,106,100
—
1,106,100
All revenues from contract services provided for the treatment
services segment and treatment services provided to other
facilities included in the treatment services segment are
eliminated in the consolidation and shown on the table above
under the heading “Revenues intersegment”.
NOTE N —
QUARTERLY
INFORMATION (Unaudited)
The following presents selected quarterly financial data for
each of the quarters in the years ended June 30, 2011 and
2010.
2011
1
st
Quarter
2
nd
Quarter
3
rd
Quarter
4
th
Quarter
Revenue
$
15,071,420
$
14,631,938
$
15,455,635
$
16,848,886
Income (loss) from operations
1,236,392
728,522
529,882
(398,473
)
Provision for income taxes
557,027
251,270
299,266
300,373
Net income (loss) available to common shareholders
678,615
502,986
64,525
(666,121
)*
Basic net income per common share
$
0.03
$
0.03
—
$
(0.03
)
Basic weighted average number of shares outstanding
19,532,095
19,462,818
19,500,873
19,524,104
Fully diluted net income per common share
$
0.03
$
0.03
—
$
(0.03
)
Fully diluted weighted average number of shares outstanding
19,603,138
19,593,689
19,872,067
19,524,104
*
During the quarter ended June 30, 2011, the Company
incurred approximately $1,607,700 of transaction costs
associated with the MeadowWood acquisition and Acadia merger
(See Note P).
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
2010
1
st
Quarter
2
nd
Quarter
3
rd
Quarter
4
th
Quarter
Revenue
$
12,647,428
$
12,864,563
$
13,532,174
$
14,033,061
Income from operations
355,898
513,705
781,440
921,704
Provision for income taxes
133,431
248,619
289,031
435,019
Net income available to common shareholders
223,604
288,239
469,172
438,647
Basic net income per common share
0.01
0.01
0.02
0.02
Basic weighted average number of shares outstanding
19,997,549
19,800,509
19,762,241
19,692,391
Fully diluted net income per common share
0.01
0.01
0.02
0.02
Fully diluted weighted average number of shares outstanding
20,141,989
19,855,419
19,861,449
19,766,855
NOTE O —
EMPLOYEE
RETIREMENT PLAN
The PHC 401 (k) RETIREMENT SAVINGS PLAN (the “401(k)
Plan”) is a qualified defined contribution plan in
accordance with Section 401(k) of the Internal Revenue Code
(the “code”). All eligible employees over the age of
21 may begin contributing on the first day of the month
following their completion of two full months of employment or
any time thereafter. Eligible employees can make pretax
contributions up to the maximum allowable by Code
Section 401(k). The Company may make matching contributions
equal to a discretionary percentage of the employee’s
salary reductions, to be determined by the Company. During the
years ended June 30, 2011 and 2010 the Company made no
matching contributions.
NOTE P —
SUBSEQUENT
EVENTS
MeadowWood Acquisition
On July 1, 2011, the Company completed the acquisition of
MeadowWood Behavioral Health, a behavioral health facility
located in New Castle, Delaware (“MeadowWood”) from
Universal Health Services, Inc. (the “Seller”)
pursuant to the terms of an Asset Purchase Agreement, dated as
of March 15, 2011, between the Company and the Seller (the
“Purchase Agreement”). In accordance with the Purchase
Agreement, PHC MeadowWood, Inc., a Delaware corporation and
subsidiary of the Company (“PHC MeadowWood”) acquired
substantially all of the operating assets (other than cash) and
assumed certain liabilities associated with MeadowWood. The
purchase price was $21,500,000, and is subject to a working
capital adjustment. At closing, PHC MeadowWood hired
Seller’s employees currently employed at MeadowWood and
assumed certain obligations with respect to those transferred
employees. Also at closing, PHC MeadowWood and the Seller
entered into a transition services agreement to facilitate the
transition of the business.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
The assets acquired and liabilities assumed will be recorded
based on their relative fair values as of the closing date of
the MeadowWood acquisition. The estimated purchase price and
fair values of assets acquired and liabilities assumed are as
follows:
Calculation of purchase price:
Cash purchase price (subject to adjustment)
$
21,500,000
Accounts Receivables (net)
$
1,796,781
Prepaid expenses and other current assets
97,134
Land
1,420,000
Building and Improvements
7,700,300
Furniture and Equipment
553,763
Licenses
700,000
Goodwill
9,541,046
Accounts Payable
(157,484
)
Accrued expenses and other current liabilities
(151,540
)
$
21,500,000
The fair values of assets acquired and liabilities assumed are
based on management’s best preliminary estimates. The
actual fair values of assets acquired and liabilities assumed
may differ from those reflected.
The following presents the pro forma net income and net income
per common share for the years ended June 30, 2011 and 2010
of the Company’s acquisition of MeadowWood assuming the
acquisition occurred as of July 1, 2009.
Year Ended June 30,
(unaudited)
2011
2010
Revenues
$
76,621,243
$
66,820,062
Net income
$
1,019,112
$
2,104,228
Net income per common share
$
0.05
$
0.11
Fully diluted weighted average shares outstanding
19,787,461
19,914,954
This unaudited pro forma condensed combined financial
information is not necessarily indicative of the results of
operations that would have been achieved had the acquisition
actually taken place at the dates indicated and do not purport
to be indicative of future position or operating results.
Also on July 1, 2011 (the “Closing Date”), and
concurrently with the closing under the Purchase Agreement, the
Company and its subsidiaries entered into a Credit Agreement
with the lenders party thereto (the “Lenders”),
Jefferies Finance LLC, as administrative agent, arranger, book
manager, collateral agent, and documentation agent for the
Lenders, and as syndication agent and swingline lender, and
Jefferies Group, Inc., as issuing bank (the “Credit
Agreement”). The terms of the Credit Agreement provide for
(i) a $23,500,000 senior secured term loan facility (the
“Term Loan Facility”) and (ii) up to $3,000,000
senior secured revolving credit facility (the “Revolving
Credit Facility”), both of which were fully borrowed on the
Closing Date in order to finance the MeadowWood purchase, to pay
off the Company’s existing loan facility with CapitalSource
Finance LLC, for miscellaneous costs, fees and expenses related
to the Credit Agreement and the MeadowWood purchase, and for
general working capital purposes.
Notes to
Consolidated Financial Statements June 30, 2011 —
(Continued)
The Term Loan Facility and Revolving Credit Facility mature on
July 1, 2014, and 0.25% of the principal amount of the Term
Loan Facility will be required to be repaid each quarter during
the term. The Company’s current and future subsidiaries are
required to jointly and severally guarantee the Company’s
obligations under the Credit Agreement, and the Company and its
subsidiaries’ obligations under the Credit Agreement are
secured by substantially all of their assets.
Acadia Merger
In addition, on May 23, 2011, the Company entered into an
Agreement and Plan of Merger (the “Merger Agreement”)
with Acadia Healthcare Company, Inc., a Delaware corporation
(“Acadia”), and Acadia Merger Sub, LLC, a Delaware
limited liability company and wholly-owned subsidiary of Acadia
(“Merger Sub”), pursuant to which, subject to the
satisfaction or waiver of the conditions therein, the Company
will merge with and into Merger Sub, with Merger Sub continuing
as the surviving company (the “Merger”). Upon the
completion of the Merger, Acadia stockholders will own
approximately 77.5% of the combined company and PHC’s
stockholders will own approximately 22.5% of the combined
company. The Merger is intended to qualify for federal income
tax purposes as a reorganization under the provisions of
Section 368 of the Internal Revenue Code of 1986, as
amended. Acadia operates a network of 19 behavioral health
facilities with more than 1,700 beds in 13 states. (For
additional information regarding this transaction, please see
our report on
Form 8-K,
filed with the Securities and Exchange Commission on
May 25, 2011 and our preliminary proxy statement filed with
the Securities and Exchange Commission on July 13, 2011).
Subsequent to year end, in connection with the proposed
transaction, Acadia filed with the SEC a registration statement
that containing the proxy statement concurrently filed by PHC
which will constitute an Acadia prospectus.
We have audited the accompanying consolidated balance sheets of
HHC Delaware, Inc. and Subsidiary (the Company) as of
December 31, 2010 and December 31, 2009 (Predecessor),
and the related consolidated statements of operations, invested
equity (deficit), and cash flows for the period from
November 16, 2010 to December 31, 2010 and for the
period from January 1, 2010 to November 15, 2010 and
the year ended December 31, 2009 (Predecessor periods).
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing
standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of HHC Delaware, Inc. and Subsidiary at
December 31, 2010 and December 31, 2009 (Predecessor),
and the consolidated results of operations and cash flows for
the period from November 16, 2010 to December 31, 2010
and for the period from January 1, 2010 to
November 15, 2010 and the year ended December 31, 2009
(Predecessor periods) in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst &
Young LLP
Nashville, Tennessee
June 24, 2011, except for Note 8 as to which the date
is August 18, 2011
HHC Delaware, Inc. (“MeadowWood”) is a wholly owned
subsidiary of Universal Health Services, Inc. (“UHS”)
and operates a behavioral health care facility known as
MeadowWood Behavioral Health System located at 575 South DuPont
Highway, New Castle, Delaware. HHC Delaware, Inc. is the sole
member of Delaware Investment Associates, LLC (“MeadowWood
Real Estate”), which owns the real estate located at 575
South DuPont Highway, New Castle, Delaware. Collectively,
MeadowWood and MeadowWood Real Estate are hereinafter referred
to as the Company. On November 15, 2010, UHS completed the
acquisition of Psychiatric Solutions, Inc. (“PSI”),
the previous owner of the Company. References herein to the
Parent refer to PSI for periods prior to the acquisition by UHS
and refer to UHS for all post-acquisition periods.
Basis
of Presentation
The accompanying consolidated financial statements have been
prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”). The preparation of
financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates. All significant intercompany balances and
transactions have been eliminated in the consolidation of the
Company.
Patient
Service Revenue
Patient service revenue is recorded on the accrual basis in the
period in which services are provided, at established billing
rates less contractual adjustments. Contractual adjustments are
recorded to state patient service revenue at the amount expected
to be collected for the services provided based on amounts
reimbursable by Medicare or Medicaid under provisions of cost or
prospective reimbursement formulas or amounts due from other
third-party payors at contractually determined rates.
Approximately 30%, 27% and 19% of revenue for the period
November 16, 2010 through December 31, 2010, and the
predecessor periods of January 1, 2010 through
November 15, 2010 and the year ended December 31,
2009, respectively, was obtained from providing services to
patients participating in the Medicaid program. Approximately
41%, 40% and 44% of revenue for the period November 16,
2010 through December 31, 2010, and the predecessor periods
of January 1, 2010 through November 15, 2010 and the
year ended December 31, 2009, respectively, was obtained
from providing services to patients participating in the
Medicare program.
Settlements under cost reimbursement agreements with third-party
payors are estimated and recorded in the period in which the
related services are rendered and are adjusted in future periods
as final settlements are determined. Final determination of
amounts earned under the Medicare and Medicaid programs often
occur in subsequent years because of audits by such programs,
rights of appeal and the application of numerous technical
provisions.
The Company provides care without charge to patients who are
financially unable to pay for the health care services they
receive. Because the Company does not pursue collection of
amounts determined to qualify as charity care, these amounts are
not reported as revenue. Charity care totaled $55,415, $194,121,
and $177,570 for the period ended November 16, 2010 through
December 31, 2010 and the predecessor periods
January 1, 2010 through November 15, 2010 and the year
ended December 31, 2009, respectively.
Cash
and Cash Equivalents
The Parent established, for the Company, zero balancing
depository, payables and payroll bank accounts which are swept
or funded by the Parent. The Hospital’s consolidated
financial statement balance for these bank accounts generally
represents deposits not yet swept to the Parent. See Note 2.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Accounts
Receivable
Accounts receivable is comprised of patient service revenue and
is recorded net of allowances for contractual discounts and
estimated doubtful accounts. Such amounts are owed by various
governmental agencies, insurance companies and private patients.
Medicare comprised approximately 20% and 19% of accounts
receivable at December 31, 2010 and 2009 (Predecessor),
respectively. Medicaid comprised approximately 19% and 18% of
accounts receivable at December 31, 2010 and 2009
(Predecessor), respectively. Concentration of credit risk from
other payors is reduced by the large number of patients and
payors.
Allowance
for Doubtful Accounts
The ability to collect outstanding patient receivables from
third party payors is critical to operating performance and cash
flows. The primary collection risk with regard to patient
receivables relates to uninsured patient accounts or patient
accounts for which primary insurance has paid, but the portion
owed by the patient remains outstanding. The Company estimates
the allowance for doubtful accounts primarily based upon the age
of the accounts since the patient discharge date. The Company
continually monitors our accounts receivable balances and
utilizes cash collection data to support our estimates of the
provision for doubtful accounts. Significant changes in payor
mix or business office operations could have a significant
impact on our results of operations and cash flows.
Allowances
for Contractual Discounts
The Medicare and Medicaid regulations are complex and various
managed care contracts may include multiple reimbursement
mechanisms for different types of services provided and cost
settlement provisions requiring complex calculations and
assumptions subject to interpretation. The Company estimates the
allowance for contractual discounts on a payor-specific basis
given our interpretation of the applicable regulations or
contract terms. The services authorized and provided and related
reimbursement are often subject to interpretation that could
result in payments that differ from the Company’s
estimates. Additionally, updated regulations and contract
renegotiations occur frequently necessitating continual review
and assessment of the estimation process by the Company’s
management.
Income
Taxes
The Company is included in the consolidated return of UHS and,
through an agreement with the Parent, account for their share of
the consolidated tax obligations using an “as if separate
return” methodology. In that regard, the Company accounts
for income taxes under the asset and liability method in
accordance with FASB authoritative guidance regarding accounting
for income taxes and its related uncertainty. This approach
requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of
assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply when the
temporary differences are expected to reverse. The Company
assesses the likelihood that deferred tax assets will be
recovered from future taxable income to determine whether a
valuation allowance should be established.
Property
and Equipment
Property and equipment are stated at cost and depreciated using
the straight-line method over the useful lives of the assets,
which range from 25 to 40 years for buildings and
improvements and 2 to 7 years for equipment. Leasehold
improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful lives of the
assets. Depreciation expense was $39,849, $268,232 and $292,689
for the period November 16, 2010 through December 31,
2010, the predecessor periods January 1, 2010 through
November 15, 2010 and the year ended December 31,
2009, respectively. Depreciation expense includes the
amortization of assets recorded under capital leases.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Other
Assets
Other assets represent cash placed in escrow for the payment of
property taxes as such amounts become due.
Costs
in Excess of Net Assets Acquired (Goodwill)
The Company accounts for goodwill in accordance with Accounting
Standards Codification (“ASC”) 805,
Business
Combinations
, and ASC 350,
Goodwill and Other
Intangible Assets
. Goodwill is reviewed at least annually
for impairment. Potential impairment exists if the
Company’s carrying value exceeds its fair value. If the
Company identifies a potential impairment of goodwill, the
implied fair value of goodwill is determined. If the carrying
value of goodwill exceeds its implied fair value, an impairment
loss is recorded. The Company noted no goodwill impairment for
any periods presented in the accompanying consolidated financial
statements.
During 2010, goodwill increased by approximately
$7.4 million as a result of the acquisition of PSI
(including the Company) by UHS effective November 15, 2010.
2.
Due to
Parent
Cash
Management
Due to Parent balances represent the initial capitalization of
the Company as well as the excess of funds transferred to or
paid on behalf of the Company over funds transferred to the
centralized cash management account of the Parent. Generally,
this balance is increased by automatic transfers from the
account to reimburse the Company’s bank accounts for
operating expenses and to pay the Company’s debt, completed
construction project additions, fees and services provided by
the Parent, including information systems services and other
operating expenses such as payroll, insurance, and income taxes.
Generally, this balance is decreased through daily cash deposits
by the Company to the centralized cash management account of the
Parent. The following paragraphs more fully describe the
methodology of allocating costs to the Company.
Management
Fees
The Parent allocates its corporate office expenses (excluding
interest, depreciation, taxes, and amortization) to its owned
and leased facilities (including the Company) as management
fees. These management fees are allocated based upon the
proportion of an individual facility’s total expenses to
the total expenses of all owned and leased facilities in the
aggregate. Management fees allocated to the Company for the
period from November 16, 2010 to December 31, 2010,
the predecessor periods from January 1, 2010 to
November 15, 2010, and for the year ended December 31,
2009, were $47,556, $382,427, and $464,429, respectively.
Although management considers the allocation method to be
reasonable, due to the relationship between the Company and its
Parent, the terms of the allocation may not necessarily be
indicative of that which would have resulted had the Company
been an unrelated entity.
Information
Technology Costs
Costs of information technology related to certain standard
Parent sponsored information technology platforms are included
in the management fee allocation.
General
and Professional Liability Risks
The costs of general and professional liability coverage are
allocated by the Parent’s wholly-owned captive insurance
subsidiary to the Company based on a percentage of revenue
adjusted by a factor which considers the type of entity as well
as historical loss experience. The general and professional
liability expense allocated to the Company was $20,380,
$136,587, and $146,614 for the period November 16, 2010
through December 31, 2010,
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and the predecessor periods January 1, 2010 through
November 15, 2010 and the year ended December 31,
2009, respectively.
Workers’
Compensation Risks
The Parent, on behalf of its affiliates, carries workers’
compensation insurance from an unrelated commercial insurance
carrier. The Parent’s workers’ compensation program is
fully insured with a $500,000 deductible per accident. The cost
of this program is allocated to all covered affiliates based on
a percentage of anticipated payroll costs as adjusted for the
state in which the affiliate is located. Such costs allocated to
the Company totaled $15,378, $108,308 and $105,557 for the
period November 16, 2010 through December 31, 2010,
and the predecessor periods January 1, 2010 through
November 15, 2010 and the year ended December 31,
2009, respectively.
3.
Commitments
and Contingencies
The Company is subject to various claims and legal actions which
arise in the ordinary course of business. The Parent assumes the
responsibility for all general and professional liability claims
incurred and maintains the related liabilities; accordingly, no
liability for general and professional claims is recorded on the
accompanying consolidated balance sheet. The Company believes
that the ultimate resolution of such matters will be adequately
covered by insurance and will not have a material adverse effect
on their financial position or results of operations.
The Parent’s interest in the Company has been pledged as
collateral for the Parent’s borrowings under various credit
agreements.
Current
Operations
Final determination of amounts earned under prospective payment
and cost-reimbursement arrangements is subject to review by
appropriate governmental authorities or their agents. The
Company believes adequate provision has been made for any
adjustments that may result from such reviews.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in substantial compliance with all
applicable laws and regulations and is not aware of any material
pending or threatened investigations involving allegations of
potential wrongdoing. While no material regulatory inquiries
have been made, compliance with such laws and regulations can be
subject to future government review and interpretation as well
as significant regulatory action including fines, penalties, and
exclusion from the Medicare and Medicaid programs.
4.
Long-Term
Debt
Long-term debt consists of the following:
Predecessor
December 31,
December 31,
June 30,
2010
2009
2011
(Unaudited)
Mortgage loan on facility, maturing in 2036 bearing a fixed
interest rate of 6.99%
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Mortgage
Loans
At December 31, 2010, the Company had $6,662,010 debt
outstanding under a mortgage loan agreement insured by the
U.S. Department of Housing and Urban Development
(“HUD”). The mortgage loan insured by HUD was secured
by real estate located at 575 South DuPont Highway, New Castle,
Delaware. Interest accrues on the HUD loan at 6.99% and
principal and interest were payable in 420 monthly
installments through October 2036. The carrying amount of assets
held as collateral approximated $6,101,753 at December 31,
2010.
The HUD mortgage loan was repaid by UHS in June 2011.
Other
The aggregate maturities of long-term debt, including capital
lease obligations, were as follows as of December 31, 2010:
2011
$
140,153
2012
144,624
2013
145,021
2014
120,407
2015
125,774
Thereafter
6,112,302
Total
$
6,788,281
5.
Operating
Leases
The Company has assumed or executed various non-cancelable
operating leases. At December 31, 2010, future minimum
lease payments under operating leases having an initial or
remaining non-cancelable lease term in excess of one year are as
follows:
2011
$
14,461
2012
14,461
2013
14,461
2014
14,461
2015
14,461
Total
$
72,305
6.
Income
Taxes
The provision for income taxes attributable to income from
operations consists of the following:
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Predecessor
Predecessor
November 16, 2010
January 1, 2010
Six Months
Six Months
through
through
Year Ended
Ended
Ended
December 31, 2010
November 15, 2010
December 31, 2009
June 30, 2011
June 30, 2010
(Unaudited)
Current:
Federal
$
115,116
$
33,502
$
45,357
$
225,940
$
87,967
State
—
—
—
—
—
115,116
33,502
45,357
225,940
87,967
Deferred:
Federal
(128,119
)
322,359
317,827
(74,526
)
132,688
State
(3,545
)
96,886
98,874
41,225
60,075
(131,664
)
419,245
416,701
(33,301
)
192,763
Provision (benefit) for income taxes
$
(16,548
)
$
452,747
$
462,058
$
192,639
$
280,730
The reconciliation of income tax computed by applying the
U.S. federal statutory rate to the actual income tax
expense attributable to income from operations is as follows:
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The tax effects of significant
items comprising temporary differences are as follows:
Predecessor
December 31, 2010
December 31, 2009
June 30, 2011
(Unaudited)
Deferred Tax Assets:
Net operating loss carryforwards
$
83,446
$
111,300
$
46,885
Allowance for doubtful accounts
444,814
564,854
563,547
Accrued liabilities
108,044
85,344
109,305
Other
9,144
5,247
10,118
Total deferred tax assets
645,448
766,745
729,825
Deferred tax liabilities:
Intangible assets
(322,174
)
(232,236
)
(367,083
)
Property and equipment
(667,465
)
(586,278
)
(673,661
)
Other
—
(4,841
)
—
Total deferred tax liabilities
(989,639
)
(823,355
)
(1,040,744
)
Total net deferred tax liability
$
(344,191
)
$
(56,610
)
$
(310,889
)
The Company has state net operating loss carryforwards as of
December 31, 2010 that total approximately
$1.5 million which will expire in years 2026 through 2028.
The Company had state net operating loss carryforwards as of
June 30, 2011 that total approximately $0.8 million
which will expire in years 2026 through 2028.
7.
Employee
Benefit Plan
The Company participates in a Parent-sponsored tax-qualified
profit sharing plan with a cash or deferred arrangement whereby
employees who have completed three months of service and are
age 21 or older are eligible to participate. The Plan
allows eligible employees to make contributions of 1% to 85% of
their annual compensation, subject to annual limitations. The
Plan enables the Parent to make discretionary contributions into
each participant’s account that fully vest over a four year
period based upon years of service. No contributions were made
by the Parent to the Plan during the period November 16,
2010 through December 31, 2010, the predecessor periods
January 1, 2010 through November 15, 2010, and for the
year ended December 31, 2009, or the six months ended
June 30, 2011 (unaudited).
8.
Subsequent
Events
In March, 2011, UHS entered into an agreement to sell the
Company to a third party for approximately $21.5 million.
The transaction closed on July 1, 2011.
The Company has evaluated subsequent events through
August 18, 2011, the date these financial statements were
available to be issued, and determined that: (1) no
subsequent events have occurred that would require recognition
in the accompanying consolidated financial statements; and
(2) no other subsequent events have occurred that would
require disclosure in the notes thereto.
This AGREEMENT AND PLAN OF MERGER (this
“
Agreement
”) is made and entered into as of
May 23, 2011, by and among PHC, Inc., a Massachusetts
corporation (“
Pioneer
”), Acadia Healthcare
Company, Inc., a Delaware corporation
(“
Acadia
”), and Acadia Merger Sub, LLC, a
Delaware limited liability company (“
Merger
Sub
”).
RECITALS
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the Delaware Limited Liability
Act, as amended (the “
Delaware Act
” and,
collectively with the laws of the State of Delaware,
“
Delaware Law
”) and the Massachusetts Business
Corporation Act (the “
MBCA
”), Pioneer, Acadia
and Merger Sub have agreed to enter into a business combination
transaction pursuant to which Pioneer will merge with and into
Merger Sub, with Merger Sub continuing as the surviving company
(the “
Merger
”);
WHEREAS, the board of directors of Acadia (the “
Acadia
Board
”) has (i) determined that the Merger and the
other transactions contemplated by this Agreement, including
without limitation all the matters described in
Section 6.02(a)
(collectively, the
“
Transactions
”) are fair to and in the best
interests of Acadia and the stockholders of Acadia (the
“
Acadia Stockholders
”), and (ii) approved
this Agreement;
WHEREAS, (i) Acadia is the sole member of Merger Sub,
(ii) the Acadia Board has approved this Agreement and
(iii) immediately following the execution of this
Agreement, Acadia, as the sole member of Merger Sub, shall adopt
this Agreement;
WHEREAS, the board of directors of Pioneer (the “
Pioneer
Board
”) has (i) determined that the Transactions
are fair to and in the best interests of Pioneer and the
shareholders of Pioneer (the “
Pioneer
Shareholders
”), (ii) adopted this Agreement,
(iii) directed that this Agreement be submitted to the
Pioneer Shareholders for their approval and (iv) resolved
to recommend that the Pioneer Shareholders approve this
Agreement and the Merger;
WHEREAS, this Agreement is intended to constitute a “plan
of reorganization” with respect to the Merger for United
States federal income tax purposes pursuant to which the Merger
is to be treated as a “reorganization” under
Section 368(a) of the Internal Revenue Code of 1986 (the
‘‘
Code
”);
WHEREAS, concurrently with the execution of this Agreement, and
as a condition to the willingness of Acadia to enter into this
Agreement, each of the persons identified on
Schedule A
attached hereto have entered into voting
agreements with Pioneer and Acadia (the “
Pioneer Voting
Agreement
”), dated as of the date of this Agreement,
which agreements are in substantially the form of
Exhibit A
attached hereto, pursuant to which each
such Person has agreed, among other things, to vote all shares
of Pioneer Stock held by such Person in favor of the Merger and
the other Transactions.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be
legally bound hereby, Pioneer, Merger Sub and Acadia hereby
agree as follows:
ARTICLE I
THE MERGER
Section
1.01
The
Merger
.
Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with
Delaware Law and the MBCA, at the Effective Time, Pioneer shall
be merged with and into Merger Sub. At the Effective Time, the
separate corporate existence of Pioneer shall cease, and Merger
Sub shall continue as the surviving company of the Merger (the
‘‘
Surviving Company
”), and shall be a
wholly owned, direct subsidiary of Acadia. The Surviving Company
will be governed by Delaware Law.
Section
1.02
Closing
.
The
closing of the Merger (the “
Closing
”) will take
place at 9:00 a.m., Central time, on the second Business
Day following the satisfaction or, if permissible, waiver of the
conditions to the Merger set forth in Article VII
(excluding conditions that, by their nature, cannot be satisfied
until the Closing), at the offices of Kirkland & Ellis
LLP, 300 North LaSalle Street, Chicago, Illinois 60654, unless
another time, date
and/or
place
is agreed to in writing by Acadia and Pioneer (the
“
Closing Date
”).
Section
1.03
Effective
Time
.
At the Closing, the parties hereto
shall cause the Merger to be consummated by filing with the
Secretary of State of the State of Delaware a certificate of
merger (the “
Certificate of Merger
”) in such
form as is required by, and executed and completed in accordance
with, the relevant provisions of Delaware Law and by filing with
the Secretary of State of the Commonwealth of Massachusetts
articles of merger (“Articles of Merger”), together
with any required related certificates, in such form as is
required by, and executed and completed in accordance with, the
relevant provisions of the MBCA. The Merger shall become
effective at such date and time as the Certificate of Merger is
duly filed with the Secretary of State of the State of Delaware
and the Articles of Merger is duly filed with the Secretary of
State of the Commonwealth of Massachusetts or at such subsequent
date and time as Acadia and Pioneer shall mutually agree and
specify in the Certificate of Merger. The date and time at which
the Merger becomes effective is referred to in this Agreement as
the “
Effective Time
.”
Section
1.04
Effect
of the Merger
.
At the Effective Time, the
effect of the Merger shall be as provided in this Agreement and
in the applicable provisions of Delaware Law and the MBCA.
Section
1.05
Governing
Documents of the Surviving Company
.
At the
Effective Time:
(a) The certificate of formation of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the
certificate of formation of the Surviving Company until
thereafter amended in accordance with the provisions thereof and
as provided by applicable law.
(b) The Limited Liability Company Agreement of Merger Sub,
as in effect immediately prior to the Effective Time, shall be
the limited liability company agreement of the Surviving Company
until thereafter amended as provided by applicable law and such
limited liability company agreement.
Section
1.06
Governing
Documents of Acadia
.
Prior to the Effective
Time:
(a) The Certificate of Incorporation of Acadia shall be
amended and restated as set forth in
Exhibit B
.
(b) The By-laws of Acadia shall be amended and restated as
set forth in
Exhibit C
.
Section
1.07
Managers
and Officers
.
(a) The managers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the managers of the
Surviving Company until their successors shall have been duly
elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the certificate of
formation and the limited liability company agreement of the
Surviving Company.
(b) The officers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the officers of the
Surviving Company until their successors shall have been duly
elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the certificate of
formation and the limited liability company agreement of the
Surviving Company.
ARTICLE II
EFFECT OF
THE MERGER ON SECURITIES
Section
2.01
Conversion
of Securities
.
At the Effective Time, by
virtue of the Merger and without any action on the part of
Acadia, Merger Sub, Pioneer or the holders of Pioneer
Class A Common Stock or Pioneer Class B Common Stock,
the following shall occur:
(a)
Conversion of Pioneer
Shares
.
Each share of Pioneer Class A
Common Stock issued and outstanding immediately prior to the
Effective Time (other than (i) any shares of Pioneer
Class A Common Stock to be cancelled pursuant to
Section 2.01(b)
, (ii) any shares of Pioneer
Class A Common Stock owned by any Pioneer Subsidiary and
(iii) any Dissenting Shares pursuant to
Section 2.03
) shall be converted into and become
exchangeable for one-quarter
(
1
/
4
)
of one fully paid and nonassessable share of common stock, par
value $0.01 per share, of Acadia (“
Acadia Common
Stock
”) (the “
Class A Merger
Consideration
”). Each share of Pioneer Class B
Common Stock issued and outstanding immediately prior to the
Effective Time (other than (i) any shares of Pioneer
Class B Common Stock to be cancelled pursuant to
Section 2.01(b)
, (ii) any share of Pioneer
Class B Common Stock owned by any Pioneer Subsidiary and
(iii) any Dissenting Shares pursuant to
Section 2.03
) shall be converted into and become
exchangeable for (x) one-quarter
(
1
/
4
)
of one fully paid and nonassessable share of Acadia Common Stock
and (y) the Pioneer Per Share Class B Cash
Consideration (the “
Class B Merger
Consideration
,” and together with the
“
Class A Merger Consideration,
” the
“
Merger Consideration
”). At the Effective Time,
all shares of Pioneer Common Stock shall cease to be outstanding
and shall automatically be cancelled and retired and shall cease
to exist, and shall thereafter represent only the right to
receive the Merger Consideration therefor.
(b)
Cancellation of Certain
Shares
.
Each share of Pioneer Common Stock
held in the treasury of Pioneer immediately prior to the
Effective Time shall be automatically cancelled and extinguished
without any conversion thereof and no payment shall be made with
respect thereto.
(c)
Merger Sub Units
.
The
membership interests in Merger Sub issued and outstanding
immediately prior to the Effective Time shall remain the issued
and outstanding membership interests in the Surviving Company
after the Effective Time.
Section
2.02
Exchange
of Certificates
.
(a)
Exchange Agent and Exchange
Fund
.
Prior to the Effective Time, Acadia
shall appoint an agent (the “
Exchange Agent
”)
reasonably acceptable to Pioneer for the purpose of exchanging
for Merger Consideration (i) certificates
(“
Certificates
”) representing shares of Pioneer
Common Stock (“
Certificated Shares
”) and
(ii) uncertificated shares of Pioneer Common Stock
(“
Uncertificated Shares
”). At or prior to the
Effective Time, Acadia shall deposit with or otherwise make
available to the Exchange Agent, in trust for the benefit of
holders of shares of Pioneer Common Stock, (i) certificates
representing shares of Acadia Common Stock sufficient to deliver
the aggregate Merger Consideration in accordance with
Section 2.01(a)
and
Section 2.02(e)(i)
and (ii) $5,000,000 cash for payment of the Pioneer
Class B Cash Consideration (such certificates for shares of
Acadia Common Stock and cash are collectively referred to as the
“
Exchange Fund
”). Acadia agrees to make
available to the Exchange Agent, from time to time after the
Closing as needed, any dividends or distributions to which such
holder is entitled pursuant to
Section 2.02(h)
of
this Agreement, it being understood no holder of shares of
Acadia Common Stock received as Merger Consideration shall be
entitled to participate in any dividend or distribution
contemplated by
Section 2.06
with respect to such
stock.
(b)
Exchange Procedures
.
Promptly
after the Effective Time (but in no event later than five
(5) Business Days following the Effective Time), Acadia
shall send, or shall cause the Exchange Agent to send, to each
holder of record of shares of Pioneer Common Stock at the
Effective Time a letter of transmittal and instructions
reasonably acceptable to Pioneer (which shall specify that the
delivery shall be effected, and risk of loss and title shall
pass, only upon proper surrender of the Certificates to the
Exchange Agent and which shall otherwise be in customary form
and shall include customary provisions with respect to delivery
of an “agent’s message” regarding the transfer of
Pioneer Common Stock in book) for use in such exchange. Each
holder of Pioneer Common Stock whose Pioneer Common Stock have
been converted into the right to receive the Merger
Consideration pursuant to
Section 2.01(a)
shall be
entitled to receive, upon (i) surrender to the Exchange
Agent of one or more Certificates, together with a properly
completed letter of transmittal, or (ii) receipt of an
“agent’s message” by the Exchange Agent (or such
other evidence, if any, of transfer as the Exchange Agent may
reasonably request) in the case of a book-entry transfer of
Uncertificated Shares, (w) whole shares of Acadia Common
Stock to which such holder of Pioneer Common Stock shall have
become entitled pursuant to the provisions of Article II
(after taking into account all shares of Pioneer Common Stock
then held by such holder), (x) a check representing the
amount, if any, of the Pioneer Class B Cash Consideration
such holder of Pioneer Common Stock shall have become entitled
pursuant to the provisions of Article II, and (y) a
check representing the amount of any cash in lieu of fractional
shares which such holder has the right to receive pursuant to
Section 2.02(e)
in respect of the Certificate(s) or
Uncertificated Shares surrendered or transferred pursuant to the
provisions of this
Section 2.02
, and (z) a
check representing the amount of any dividends or distributions
then payable pursuant to
Section 2.02(h)
, and the
Certificate or Certificates so surrendered or transferred shall
forthwith be cancelled. The shares of Acadia Common Stock
constituting part of such Merger Consideration, at Acadia’s
option, shall be in uncertificated book-entry form, unless a
physical certificate is requested by a holder of Pioneer Common
Stock or is otherwise required under Applicable Law. No interest
will be paid or accrued on any cash in lieu of fractional shares
or on any unpaid dividends and distributions payable to holders
of Certificates or Uncertificated Shares. Until so surrendered
or transferred, as the case may be,
each such Certificate or Uncertificated Share shall represent
after the Effective Time for all purposes only the right to
receive such Merger Consideration and the right to receive any
dividends or other distributions pursuant to
Section 2.02(h)
.
(c)
Issuance or Payment to Persons Other Than the
Registered Holder
.
If any portion of the
Merger Consideration is to be paid to a Person other than the
Person in whose name the surrendered Certificate or the
transferred Uncertificated Share is registered, it shall be a
condition to such payment that (i) either such Certificate
shall be properly endorsed or shall otherwise be in proper form
for transfer or such Uncertificated Share shall be properly
transferred and (ii) the Person requesting such payment
shall pay to the Exchange Agent any transfer or other taxes
required as a result of such payment to a Person other than the
registered holder of such Certificate or Uncertificated Share or
establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not payable.
(d)
No Further Rights in Pioneer Common
Stock
.
All Merger Consideration paid in
accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such
shares of Pioneer Common Stock. From and after the Effective
Time, the holders of Certificates and Uncertificated Shares
shall cease to have any rights with respect to such shares of
Pioneer Common Stock except as otherwise provided herein.
(e)
Fractional Shares
.
(i) Notwithstanding anything to the contrary contained in
this Agreement, no fractional shares of Acadia Common Stock
shall be issued upon the surrender of Certificates or transfer
of Uncertificated Shares for exchange, no dividend or
distribution with respect to Acadia Common Stock shall be
payable on or with respect to any fractional share, and such
fractional share interests shall not entitle the owner thereof
to vote or to any other rights of a stockholder of Acadia.
(ii) As promptly as practicable following the Effective
Time, Acadia shall determine the excess of (x) the number
of full shares of Acadia Common Stock to be issued by Acadia
pursuant to
Section 2.01(a)
over (y) the
aggregate number of full shares of Acadia to be delivered
pursuant to
Section 2.02(a)
(such excess being
herein called the “
Closing Excess Shares
”). As
soon after the Effective Time as practicable, Acadia, as agent
for the holders of Pioneer Capital Stock, shall sell the Closing
Excess Shares at then prevailing prices on the exchange or
electronic market on which such Closing Excess Shares are
traded, all in the manner provided in
Section 2.02(e)(iii)
below.
(iii) The sale of the Closing Excess Shares by Acadia shall
be executed on the exchange or electronic market on which such
shares are traded through one or more member firms and shall be
executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the
holders of Pioneer Capital Stock, Acadia will hold such proceeds
in trust for the holders of Pioneer Capital Stock (the
“
Common Stock Trust
”). Acadia shall determine
the portion of the Common Stock Trust to which each holder of
Pioneer Capital Stock shall be entitled, if any, by multiplying
the amount of the aggregate net proceeds comprising the Common
Stock Trust by a fraction the numerator of which is the amount
of the fractional share interest to which such holder of Pioneer
Capital Stock is entitled and the denominator of which is the
aggregate amount of fractional share interests to which all
holders of Pioneer Capital Stock are entitled.
(f)
Termination of Exchange
Fund
.
Any portion of the Exchange Fund
deposited with or otherwise made available to the Exchange Agent
pursuant to
Section 2.02(a)
that remains unclaimed
by the holders of Pioneer Common Stock nine (9) months
after the Effective Time shall be returned to Acadia, upon
demand, and any such holder who has not exchanged its shares of
Acadia Common Stock for the Merger Consideration in accordance
with this
Section 2.02
prior to that time shall
thereafter look only to Acadia for, and Acadia shall remain
liable for, payment of the Merger Consideration, and any
dividends and distributions with respect thereto pursuant to
Section 2.02(h)
, in respect of such shares without
any interest thereon. Notwithstanding the foregoing, Acadia
shall not be liable to any holder of Pioneer Common Stock for
any amounts properly paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. Any
amounts remaining unclaimed by holders of Pioneer Common Stock
five (5) years after the Effective Time (or such earlier
date, immediately prior to such time when the amounts would
otherwise escheat to or become property of any Governmental
Entity) shall become, to the extent
permitted by applicable Law, the property of Acadia, free and
clear of any claims or interest of any Person previously
entitled thereto.
(g)
Lost Certificates
.
If any
Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by
Acadia, the posting by such Person of a bond, in such reasonable
and customary amount as Acadia may direct, as indemnity against
any claim that may be made against it with respect to such lost,
stolen or destroyed Certificate, the Exchange Agent will cause
to be paid, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration and any dividends or
distributions with respect thereto pursuant to
Section 2.02(h), in accordance with this Article II.
(h)
Dividends and
Distributions
.
No dividends or other
distributions with respect to securities of Acadia constituting
part of the Merger Consideration shall be paid to the holder of
any Certificates not surrendered or of any Uncertificated Shares
not transferred until such Certificates or Uncertificated Shares
are surrendered or transferred, as the case may be, as provided
in Section 2.02(b). Following such surrender or transfer,
there shall be paid, without interest, to the Person in whose
name the securities of Acadia have been registered, the amount
of dividends or other distributions with a record date after the
Effective Time theretofore paid, without any interest thereon,
with respect to the whole shares of Acadia Common Stock
represented by such Certificate or Uncertificated Share, and
(ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date
subsequent to surrender, with respect to shares of Acadia Common
Stock represented by such Certificate or Uncertificated Share.
(i)
Withholding
.
Notwithstanding
any provision contained herein to the contrary, each of the
Exchange Agent, the Surviving Company and Acadia shall be
entitled to deduct or withhold from the consideration otherwise
payable to any Person pursuant to this Article II such
amounts as it is required to deduct or withhold with respect to
the making of such payment under any provision of federal,
state, local or foreign tax law. Pioneer shall, and shall cause
its Affiliates to, assist Acadia in making such deductions and
withholding as reasonably requested by Acadia. If the Exchange
Agent, the Surviving Company or Acadia, as the case may be, so
withholds amounts, such amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of
the shares of Pioneer Common Stock in respect of which the
Exchange Agent, the Surviving Company or Acadia, as the case may
be, made such deduction and withholding.
Section
2.03
Dissenters’
Rights
.
Notwithstanding anything in this
Agreement to the contrary, shares of Pioneer Class A Common
Stock and Pioneer Class B Common Stock that are issued and
outstanding immediately prior to the Effective Time and which
are held by holders of shares of Pioneer Class A Common
Stock or Pioneer Class B Common Stock who have not voted in
favor of or consented thereto in writing and who have properly
demanded and perfected their rights to be paid the fair value of
such shares in accordance with Section 13.02 of the MBCA
(such shares, the ‘‘
Dissenting Shares
”),
shall not be converted into or exchangeable for the right to
receive the Merger Consideration (except as provided in this
Section 2.03
) and shall entitle such shareholder (a
“
Dissenting Shareholder
”) only to payment of
the fair value of such Dissenting Shares, in accordance with
Section 13.02 of the MBCA, unless and until such Dissenting
Shareholder withdraws (in accordance with Part 13 of the
MBCA) or effectively loses the right to dissent. Pioneer shall
not, except with the prior written consent of Acadia or as
otherwise required by applicable Law, voluntarily make (or cause
or permit to be made on its behalf) any payment with respect to,
or settle or offer to settle, any such demand for payment of
fair value of Dissenting Shares prior to the Effective Time.
Pioneer shall give Acadia prompt notice of any such demands
prior to the Effective Time and Acadia shall have the right to
participate in and control all negotiations and proceedings with
respect to any such demands. If any Dissenting Shareholder shall
have effectively withdrawn (in accordance with Part 13 of
the MBCA) or lost the right to dissent, then as of the later of
the Effective Time or the occurrence of such event, the
Dissenting Shares held by such Dissenting Shareholder shall be
cancelled and converted into and represent the right to receive
the Merger Consideration pursuant to Section 2.01(a).
Section
2.04
Stock
Transfer Books
.
At the Effective Time, the
stock transfer books of Pioneer shall be closed (after giving
effect to the items contemplated by this
Article III) and thereafter, there shall be no further
registration of transfers of shares of Pioneer Common Stock
theretofore outstanding on the records of Pioneer. From
and after the Effective Time, the holders of Certificates shall
cease to have any rights with respect to such shares of Pioneer
Common Stock except as otherwise provided herein or by Law.
Section
2.05
Pioneer
Options and Stock-Based Awards
.
(a)
Equity Award Waivers
.
Prior to
the Effective Time, Pioneer shall use its reasonable best
efforts to obtain all necessary waivers, consents or releases,
in form and substance reasonably satisfactory to Acadia, from
holders of Pioneer Options and other equity awards under the
Pioneer Equity Plans and take all such other action, without
incurring any liabilities in connection therewith, as Acadia may
deem to be necessary to give effect to the transactions
contemplated by this
Section 2.05
. As promptly as
practicable following the date of this Agreement, the Pioneer
Board (or, if appropriate, any committee thereof administering
the Pioneer Equity Plans) shall adopt such resolutions or take
such other actions as are required to give effect to the
transactions contemplated by this
Section 2.05
.
(b)
Pioneer Options
.
Effective as
of the Effective Time, each then outstanding option to purchase
shares of Pioneer Common Stock, whether vested or unvested,
(each a “
Pioneer Stock Option
”), pursuant to
the Pioneer Stock Plans and the award agreements evidencing the
grants thereunder, granted to any current or former employee or
director of, consultant or other service provider to, Pioneer or
any of its Subsidiaries shall be assumed by Acadia and shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into an option to purchase
one-quarter
(
1
/
4
)
of one share of Acadia Common Stock (an “
Assumed Stock
Option
”) for each share of Pioneer Common Stock subject
to such Pioneer Stock Option and the per share exercise price
for Acadia Common Stock issuable upon the exercise of such
Assumed Stock Option shall be equal to (i) the exercise
price per share of Pioneer Common Stock at which such Pioneer
Stock Option was exercisable immediately prior to the Effective
Time multiplied by (ii) four (4) (rounded up to the nearest
whole cent), provided, however, that such conversion and
assumption of the Assumed Stock Options shall comply with the
regulations and other binding guidance under Section 409A
of the Code. Except as otherwise provided herein or as set forth
on Schedule 2.05(b) (the Assumed Stock Option Schedule),
the Assumed Stock Options shall be subject to the same terms and
conditions (including expiration date and exercise provisions as
contemplated by Pioneer Stock Plans) as were applicable to the
corresponding Pioneer Stock Options immediately prior to the
Effective Time.
(c)
Pioneer Warrants
.
Effective as
of the Effective Time, each outstanding warrant to purchase
shares of Pioneer Common Stock (each a “
Pioneer
Warrant
”), pursuant to the award agreements evidencing
the grant thereunder, shall be assumed by Acadia and shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into a warrant to purchase
one-quarter
(
1
/
4
)
of one share of Acadia Common Stock (an “
Assumed
Warrant
”) for each share of Pioneer Common Stock
subject to such Pioneer Warrant and the per share exercise price
for Acadia Common Stock issuable upon the exercise of such
Assumed Warrant shall be equal to (i) the exercise price
per share of Pioneer Common Stock at which such Pioneer Warrant
was exercisable immediately prior to the Effective Time
multiplied by (ii) four (4) (rounded up to the nearest
whole cent), provided, however, that such conversion and
assumption of the Assumed Warrant shall comply with the
regulations and other binding guidance under Section 409A
of the Code. Except as otherwise provided herein, the Assumed
Warrants shall be subject to the same terms and conditions
(including expiration date and exercise provisions as
contemplated by the applicable award agreement) as were
applicable to the corresponding Pioneer Warrant immediately
prior to the Effective Time.
(d)
Miscellaneous
.
All amounts
payable under this
Section 2.05
shall be reduced by
amounts as are required to be withheld or deducted under the
Code or any provision of U.S. state, local or foreign Tax
Law with respect to the making of such payment. To the extent
that amounts are so withheld or deducted, such withheld or
deducted amounts shall be treated for all purposes of this
Agreement as having been paid to the Person in respect of whom
such withholding or deduction was made.
Section
2.06
Acadia
Common Stock and Related Matter
.
(a)
Existing Acadia Shares
.
Prior
to the Effective Time, Acadia shall consummate a stock split,
reverse stock split or issuance of Acadia Common Stock such that
the shares of Acadia Common Stock issued and outstanding
immediately prior to the Effective Time (“Pre-Merger Acadia
Stock”) will, immediately following the Effective Time,
equal 77.5% of the Fully Diluted Shares.
(b)
Deficit Note(s)
.
At the
Effective Time, if the Net Proceeds Condition is not met, Acadia
shall issue to the holders of Acadia Common Stock immediately
prior to the Effective Time the Deficit Note(s).
(c)
Net Proceeds
.
Immediately
prior to the Effective Time Acadia shall have the right to
declare and, if so declared, at the Effective Time Acadia shall
pay a cash dividend to the holders of shares Acadia Common Stock
issued and outstanding immediately prior to the Effective Time
in an aggregate amount equal to the Net Proceeds
minus
the PSA Termination Amount. While under no obligation to make a
dividend, it is Acadia’s intention to declare such dividend.
(d)
Professional Services
Agreement
.
At the Effective Time, in
connection with the Merger, the financing and the termination of
the Professional Services Agreement, Acadia shall have the right
to pay the PSA Amount to Waud Capital Partners, LLC pursuant to
the terms of a termination agreement.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF ACADIA AND MERGER SUB
Except as set forth in the disclosure schedule delivered by
Acadia and Merger Sub to Pioneer concurrently with the execution
and delivery of this Agreement (the “
Acadia Disclosure
Schedule
”), Acadia and Merger Sub hereby represent and
warrant to Pioneer as follows:
Section
3.01
Organization,
Standing and Power; Subsidiaries
.
(a) Each of Acadia and its Subsidiaries is a limited
liability company or corporation, duly organized, validly
existing and in good standing under the laws of its jurisdiction
of formation or incorporation. Each of Acadia and its
Subsidiaries has the requisite power and authority to own, lease
and operate its properties and to carry on its business as it is
now being conducted and as currently proposed to be conducted,
and is duly qualified to do business and is in good standing, in
each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes
such qualification, licensing or good standing necessary, except
where the failure to be so qualified and in good standing would
not, individually or in the aggregate, have an Acadia Material
Adverse Effect.
(b)
Section 3.01(b)
of the Acadia Disclosure
Schedule contains a true and complete list of all the
Subsidiaries of Acadia, together with the jurisdiction of
organization of each such Subsidiary, the percentage of the
outstanding capital stock or other equity interests of each such
Subsidiary owned by Acadia and each other Subsidiary of Acadia
and the ownership interest of any other Person or Persons in
each Subsidiary of Acadia. None of Acadia or any of its
Subsidiaries directly or indirectly owns any equity or similar
interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business
association or entity (other than the Subsidiaries of Acadia).
Section
3.02
Acadia
Organizational Documents
.
Acadia has made
available to Pioneer a true and correct copy of the limited
liability company agreement, certificate of incorporation,
bylaws and other governing documents, as applicable, of Acadia
and each of its Subsidiaries, each as amended to date
(collectively, the “
Acadia Organizational
Documents
”). The Acadia Organizational Documents are in
full force and effect. Neither Acadia nor any of its
Subsidiaries is in violation of any of the provisions of its
Acadia Organizational Documents, except, in the case of any
Subsidiary of Acadia, for violations that would not have an
Acadia Material Adverse Effect.
Section
3.03
Capitalization
.
(a) The authorized capital stock of Acadia consists of
(i) 100,000,000 shares of Common Stock (collectively,
the “
Acadia Stock
”).
(b) As of the date hereof, (i) 17,676,101 shares
of Acadia Stock are issued and outstanding, all of which are
validly issued, fully paid and nonassessable, (ii) no
shares of Acadia Stock are held in the treasury of Acadia, and
(iii) no shares of Acadia Stock are held by the
Subsidiaries of Acadia.
(c) There are no options, warrants or other rights,
agreements, arrangements or commitments of any character
relating to the issued or unissued Acadia Stock or capital stock
of any Subsidiary of Acadia or obligating Acadia or any of its
Subsidiaries to issue or sell any Acadia Stock, shares of
capital stock of, or other equity interests in, Acadia or any of
its Subsidiaries. All Acadia Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified
in the instruments pursuant to which they are issuable, will be
duly authorized, validly issued, fully paid and nonassessable.
There are no material outstanding contractual obligations of
Acadia or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any Acadia Stock or shares of capital stock of
any Subsidiary of Acadia, or options, warrants or other rights
to acquire Acadia Stock or shares of capital stock of any
Subsidiary of Acadia, or to provide funds to or make any
investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other Person. There are
no bonds, debentures, notes or other indebtedness of Acadia or
any of its Subsidiaries having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote)
on any matters on which holders of Acadia Stock may vote
(“
Voting Acadia Debt
”). Except for any
obligations pursuant to this Agreement, the Acadia Equity
Compensation Plans, or as otherwise set forth above, there are
no options, warrants, rights, convertible or exchangeable
securities, stock-based performance units, Contracts or
undertakings of any kind to which Acadia or any of its
Subsidiaries is a party or by which any of them is bound
(i) obligating Acadia or any such Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional Acadia Stock, shares of capital stock or other equity
interests in, or any security convertible or exchangeable for
any Acadia Stock, capital stock of or other equity interest in,
Acadia or any of its Subsidiaries or any Voting Acadia Debt,
(ii) obligating Acadia or any such Subsidiary to issue,
grant or enter into any such option, warrant, right, security,
unit, Contract or undertaking, or (iii) that give any
Person the right to receive any economic interest of a nature
accruing to the holders of any Acadia Stock. None of Acadia or
any of its Subsidiaries is a party to any shareholders’
agreement, voting trust agreement or registration rights
agreement relating to the Acadia Stock or any equity securities
of the Subsidiaries of Acadia or any other Contract relating to
disposition, voting, distributions or dividends with respect to
any Acadia Stock or equity securities of any of Acadia’s
Subsidiaries.
(d) Section 3.03(d) of the Acadia Disclosure Schedule
sets forth a true and complete list, as of the date of this
Agreement, of any agreement, instrument or other obligation
pursuant to which any indebtedness for borrowed money of Acadia
or any of its Subsidiaries in an aggregate principal amount in
excess of $250,000 is outstanding or may be incurred,
(ii) the respective principal amounts outstanding
thereunder as of the date of this Agreement, and (iii) a
list of any agreements that relate to guarantees by the Acadia
or any of its Subsidiaries of indebtedness of any other Person
in excess of $250,000.
(e) Section 3.03(e) of the Acadia Disclosure Schedule
sets forth, as of the date hereof, a true and complete list of
each Acadia Member and the number and classes of Acadia Stock
beneficially owned by such Person. As of the date hereof, no
other Person not disclosed in Section 3.03(e) of the Acadia
Disclosure Schedule has a beneficial interest in or a right to
acquire any Acadia Stock. The Acadia Stock disclosed in
Section 3.03(e) of the Acadia Disclosure Schedule are, and
at the Effective Time shall be, free of any Liens, other than
Permitted Liens.
(f) Each outstanding limited liability company interest,
share of capital stock, and any other equity interest in each
Subsidiary of Acadia is duly authorized, validly issued, fully
paid and nonassessable and was issued free of preemptive (or
similar) rights, and each such share or interest is owned by
Acadia or another Subsidiary of Acadia free and clear of all
options, rights of first refusal, agreements, limitations on
Acadia’s or any of its Subsidiaries’ voting, dividend
or transfer rights, charges and other encumbrances or Liens of
any nature whatsoever.
Section
3.04
Authority
Relative to This Agreement
.
Acadia and Merger
Sub have all necessary corporate and limited liability company
power and authority to execute and deliver this Agreement and to
perform their obligations hereunder and to consummate the
Transactions. The execution, delivery and performance of this
Agreement by Acadia and Merger Sub and the consummation by
Acadia and Merger Sub of the Transactions have been duly and
validly authorized by all necessary corporate and limited
liability company action, and no other proceedings on the part
of Acadia or Merger Sub are necessary to authorize this
Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate
merger documents as required by Delaware Law and the MBCA). This
Agreement has been duly and validly executed and delivered by
Acadia and Merger Sub and, assuming the due authorization,
execution and delivery by Pioneer, constitutes a legal, valid
and binding obligation of Acadia and Merger Sub, enforceable
against Acadia and Merger Sub in accordance
with its terms, subject to the effect of any applicable
bankruptcy, insolvency (including all laws relating to
fraudulent transfers), reorganization, moratorium or similar
laws affecting creditors’ rights generally and subject to
the effect of general principles of equity (regardless of
whether considered in a proceeding at law or in equity).
Section
3.05
No
Conflict; Required Filings and Consents
.
(a) The execution and delivery of this Agreement by Acadia
and Merger Sub does not, and the performance of this Agreement
by Acadia and Merger Sub and the consummation by Acadia and
Merger Sub of the Transactions will not, (i) conflict with
or violate the Acadia Organizational Documents,
(ii) assuming that all consents, approvals and other
authorizations described in
Section 3.05(b)
have
been obtained, that all filings and notifications and other
actions described in
Section 3.05(b)
have been made
or taken, conflict with or violate any law, applicable to Acadia
or any of its Subsidiaries or by which any property or asset of
Acadia or any such Subsidiary is bound or affected, or
(iii) require any consent or approval under, result in any
breach or violation of or constitute a default (or an event
which, with notice or lapse of time or both, would become a
default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the
creation of a Lien on any property or asset of Acadia or any
such Subsidiary pursuant to, any Acadia Material Contract,
except, with respect to clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other
occurrences which would not have an Acadia Material Adverse
Effect or prevent, or materially alter or delay, the
consummation of the Transactions.
(b) The execution and delivery of this Agreement by Acadia
does not, and the performance of this Agreement by Acadia and
the consummation by Acadia of the Transactions will not, require
any consent, approval, authorization or permit of, or filing
with or notification to, any federal, state, local or foreign
government, regulatory or administrative authority,
accreditation agency, or any court, tribunal, or judicial or
arbitral body (a “
Governmental Authority
”),
except for (i) applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the
‘‘
Exchange Act
”), (ii) the filing
with the Securities and Exchange Commission (the
‘‘
SEC
”) of the proxy statement/prospectus,
or any amendment or supplement thereto, to be sent to the
Pioneer Shareholders in connection with the Transactions (the
“
Proxy Statement/ Prospectus
”) and of a
registration statement on
Form S-4
pursuant to which the shares of Acadia Common Stock to be issued
in the Merger will be registered under the Securities Act of
1933, as amended (the “
Securities Act
”)
(together with any amendments or supplements thereto, the
‘‘
Form S-4
”),
and declaration of effectiveness of the
Form S-4,
and obtaining from the SEC such orders as may be required in
connection therewith, (iii) any filings required by the
rules of the AMEX, (iv) the filing and recordation of
appropriate merger documents as required by Delaware Law, the
MBCA and appropriate documents with the relevant authorities of
other states in which Acadia or any Subsidiary of Acadia is
qualified to do business, (v) the premerger notification
and waiting period requirements of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the “
HSR
Act
”), (vi) applicable requirements, if any, of
Health Care Laws; and (vii) applicable requirements, if
any, of Medicare, Medicaid, Tricare or any other similar state
or federal health care program (each, a
‘‘
Government Program
”) in which Acadia,
any Subsidiary of Acadia or any Acadia Health Care Facility
participates; and (viii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the
aggregate, reasonably be expected to have an Acadia Material
Adverse Effect and would not prevent, or materially alter or
delay, the consummation of any of the Transactions.
Section
3.06
Permits;
Compliance
.
Acadia, each Subsidiary of Acadia
and each of the Acadia Health Care Facilities is in possession
of all licenses, interim licenses, qualifications, exemptions,
registrations, permits, approvals, accreditations, certificates
of occupancy and other certificates, franchises and other
authorizations of any Governmental Authority necessary for each
such entity to own, lease and operate its properties or to carry
on its business as it is now being conducted (the
“
Acadia Permits
”), except where the failure to
have, or the suspension or cancellation of, any of the Acadia
Permits would not, individually or in the aggregate, reasonably
be expected to have an Acadia Material Adverse Effect. As of the
date of this Agreement, no suspension or cancellation of any of
the Acadia Permits is pending or, to the knowledge of Acadia,
threatened in writing, except where the failure to have, or the
suspension or cancellation of, any of the Acadia Permits would
not, individually or in the aggregate, reasonably be expected to
have an Acadia Material Adverse Effect. Since January 1,
2008, neither Acadia, any Subsidiary of Acadia or any of the
Acadia Health Care Facilities is or has been in conflict with,
or in default, breach or violation of, (i) any Healthcare
Law or other law applicable to such entity or by which any
property or asset of such entity is bound or affected, or
(ii) any contract or Acadia Permit to which such entity is
a party or by which such
entity or any property or asset of such entity is bound, except,
with respect to clauses (i) and (ii), for any such
conflicts, defaults, breaches or violations that would not,
individually or in the aggregate, reasonably be expected to have
an Acadia Material Adverse Effect. Without limiting the
generality of the foregoing, (x) Acadia, each Subsidiary of
Acadia and each of the Acadia Health Care Facilities is in
compliance with the requirements of and conditions for
participating in the Government Programs such entity
participates in as of the date of this Agreement and
(y) all claims for payment or cost reports filed or
required to be filed by Acadia and each Acadia Healthcare
Facility under any Government Program or any private payor
program have been prepared and filed in accordance with all
applicable laws, except, in the case of clauses (x) and
(y), for any such noncompliance that would not, individually or
in the aggregate, reasonably be expected to have an Acadia
Material Adverse Effect.
(a) Acadia has delivered to Pioneer its (i) audited
consolidated financial statements (including balance sheet,
statement of operations and statement of cash flows) as at and
for the twelve-month periods ended December 31, 2008, 2009
and 2010, and (ii) unaudited consolidated financial
statements for the three-month period ending March 31, 2011
(such audited and unaudited financial statements, collectively,
the “
Acadia Financials
”).
(b) Acadia has delivered to Pioneer (i) audited
consolidated financial statements (including balance sheet,
statement of operations and statement of cash flows) as at and
for the twelve-month periods ended December 31, 2008, 2009
and 2010, and (ii) unaudited consolidated financial
statements for the three-month period ending March 31,
2011, in each case of Youth & Family Centered
Services, Inc. (such audited and unaudited financial statements,
collectively, the ‘‘
YFCS Financials
”).
(c) Each of the financial statements (including, in each
case, any notes thereto) comprising the Acadia Financials and
the YFCS Financials was prepared in accordance with United
States generally accepted accounting principles
(“
GAAP
”) applied on a consistent basis
throughout the periods indicated (except as may be indicated in
the notes thereto or, in the case of unaudited statements,
subject to the absence of notes and normal and recurring
year-end adjustments), and each fairly presents, in all material
respects, the consolidated financial position, results of
operations and cash flows of Acadia and its consolidated
Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise noted
therein (subject, in the case of unaudited statements, to the
absence of notes and normal and recurring year-end adjustments).
(d) The records, systems, controls, data and information of
Acadia and its Subsidiaries are recorded, stored, maintained and
operated under means (including any electronic, mechanical or
photographic process, whether computerized or not) that are
under the exclusive ownership and direct control of Acadia or
its Subsidiaries or their accountants (including all means of
access thereto and therefrom), except for any non-exclusive
ownership and non-direct control that would not have a material
adverse effect on Acadia’s system of internal accounting
controls.
(e) Neither Acadia nor any Subsidiary of Acadia has any
material liability or obligation of a nature required to be
reflected on the face of a balance sheet prepared in accordance
with GAAP (and not including any notes thereto), except for
liabilities and obligations (i) reflected or reserved
against on the audited consolidated balance sheet of Acadia or
its Subsidiaries as of December 31, 2010 or on the
consolidated balance sheet of Acadia or its Subsidiaries as of
March 31, 2011, (ii) reflected or reserved
against on the audited consolidated balance sheet included in
the YFCS Financial Statements as of December 31, 2010 or on
the consolidated balance sheet included in the YFCS Financial
Statements as of March 31, 2011, (iii) incurred in
connection with the Transactions, or (iv) incurred in the
ordinary course of business since December 31, 2010 that
would not have an Acadia Material Adverse Effect.
(f) Acadia’s Net Debt does not exceed $163,000,000. No
items set forth on the Acadia Disclosure Schedule shall qualify
this
Section 3.07(f)
.
Section
3.08
Information
Supplied
.
The information supplied by Acadia
for inclusion or incorporation by reference in the
Form S-4
shall not at the time the
Form S-4
is declared effective by the SEC (or, with respect to any
post-effective amendment or supplement, at the time such
post-effective amendment or supplement becomes effective)
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
information supplied by Acadia for inclusion in the Proxy
Statement/ Prospectus shall
not, on the date the Proxy Statement/ Prospectus is first mailed
to the Pioneer Shareholders, at the time of the Pioneer
Shareholder Approval, contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this
Section 3.08
will not apply to statements or
omissions included or incorporated by reference in the Proxy
Statement/ Prospectus based upon information furnished by
Pioneer or any of its Representatives.
Section
3.09
Absence
of Certain Changes or Events
.
Since the
Acadia Balance Sheet Date, except in connection with the
execution and delivery of this Agreement and the consummation of
the Transactions, the business of Acadia and its Subsidiaries
has been conducted in the ordinary course of business consistent
with past practices and there has not been or occurred:
(a) any Acadia Material Adverse Effect; or
(b) any event, condition, action or effect that, if taken
during the period from the date of this Agreement through the
Effective Time, would constitute a breach of the covenants set
forth in
Section 5.01
.
Section
3.10
Absence
of Litigation; Restrictions of Business
Activities
.
(a) There is no material
litigation, suit, claim, investigation, arbitration, mediation,
inquiry, action or proceeding of any nature before any
Governmental Authority (an “
Action
”) pending
or, to the knowledge of Acadia, threatened against Acadia or any
of its Subsidiaries, or any of their respective officers,
directors or limited liability company managers, or any property
or asset of Acadia or any of its Subsidiaries and (b) none
of Acadia or any Subsidiary of Acadia is subject or bound by any
material outstanding order, judgment, writ, stipulation,
settlement, award, injunction, decree, arbitration award or
finding of any Governmental Authority (an
‘‘
Order
”).
Section
3.11
Title
to Property
.
Acadia and its Subsidiaries have
good, valid and marketable title to all of their respective
properties, interests in properties and assets, real and
personal, reflected in the audited consolidated balance sheet of
Acadia and its consolidated Subsidiaries at the Acadia Balance
Sheet Date (the “
Acadia Balance Sheet
”) or
acquired after the Acadia Balance Sheet Date (except properties,
interests in properties and assets sold or otherwise disposed of
since the Acadia Balance Sheet Date in the ordinary course of
business), or with respect to leased properties and assets,
valid leasehold interests in, free and clear of all Liens, other
than Permitted Liens. The plants, property and equipment of
Acadia and its Subsidiaries that are used in the operations of
their businesses are in all material respects in good operating
condition and repair, subject to normal wear and tear. All
material properties used in the operations of Acadia and its
Subsidiaries are reflected in the Acadia Balance Sheet or the
audited consolidated balance sheet included in the YFCS
Financial Statements as of December 31, 2010, to the extent
required by GAAP. Section 3.11 of the Acadia Disclosure
Schedule identifies the address of each parcel of real property
owned or leased by Acadia or any of its Subsidiaries.
Section
3.12
Intellectual
Property
.
(a) Acadia and its Subsidiaries own, license or otherwise
legally possess enforceable rights to use all Intellectual
Property Rights that are used in the business of Acadia and its
Subsidiaries as currently conducted, except as would not,
individually or in the aggregate, reasonably be expected to have
an Acadia Material Adverse Effect. Acadia and its Subsidiaries
have not (i) licensed any of the Software owned by Acadia
or any of its Subsidiaries in source code form to any party or
(ii) entered into any exclusive agreements relating to the
Intellectual Property Rights owned by Acadia or any of its
Subsidiaries with any party.
(b) Section 3.12(b) of the Acadia Disclosure Schedule
lists (i) all Intellectual Property Rights owned by Acadia
or any of its Subsidiaries that is patented, registered or
subject to applications for patent or registration, including
the jurisdictions in which each such Intellectual Property
Rights have been issued or registered or in which any
application for such issuance and registration has been filed,
and (ii) all Acadia Third Party Intellectual Property
Rights.
(c) To the knowledge of Acadia, there has been no
unauthorized use, disclosure, infringement or misappropriation
of any Intellectual Property Rights owned by Acadia or any of
its Subsidiaries by any third party, including any employee or
former employee of Acadia or any of its Subsidiaries. To the
knowledge of Acadia, no claim by any
Person contesting the validity, enforceability, use or ownership
of any Intellectual Property Rights owned by Acadia or any of
its Subsidiaries has been made or is currently outstanding.
(d) Subject to
Section 6.07
hereof, Acadia is
not, nor will it be as a result of the execution and delivery of
this Agreement or the performance of its obligations under this
Agreement, in material breach of any license, sublicense or
other agreement relating to the Intellectual Property Rights or
Acadia Third Party Intellectual Property Rights.
(e) Acadia has taken commercially reasonable steps to
maintain the Intellectual Property Rights that Acadia or any of
its Subsidiaries owns. Neither Acadia nor any Subsidiary of
Acadia has been sued in any suit, action or proceeding which
involves a claim of infringement or misappropriation of any
Intellectual Property Rights of any third party. To the
knowledge of Acadia, neither Acadia nor any Subsidiary of Acadia
has infringed or misappropriated any Intellectual Property
Rights of any third party. Neither Acadia nor any Subsidiary of
Acadia has received any written threats or notices regarding any
of the foregoing (including any demands or offers to license any
Intellectual Property Rights from any Person). Neither Acadia
nor any Subsidiary of Acadia has brought any action, suit or
proceeding for infringement or misappropriation of Intellectual
Property Rights or breach of any license or agreement involving
Intellectual Property Rights against any third party.
(f) Acadia and all of its Subsidiaries, in connection with
businesses of Acadia and such Subsidiaries, have taken
commercially reasonable steps to safeguard the internal and
external integrity of their respective IT Assets. With respect
to such IT Assets, (a) there have been no material
unauthorized intrusions or breaches of security within the past
thirty-six (36) months, (b) there has not been any
material malfunction that has not been remedied or replaced in
all material respects, (c) within the past thirty-six
(36) months, there has been no material unplanned downtime
or material service interruption.
Section
3.13
Employee
Benefit Plans
.
(a) Section 3.13(a) of the Acadia Disclosure Schedule
lists all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (“
ERISA
”)), other deferred
compensation, retiree medical or life insurance, supplemental
retirement, severance, change in control or retention plans,
equity and equity-based compensation plans, and other material
benefit plans, programs, policies or arrangements which are
currently maintained, contributed to or sponsored by Acadia or
any Subsidiary of Acadia for the benefit of any current or
former employee, consultant, officer or director of Acadia or
any Subsidiary of Acadia (collectively, the “
Acadia
Plans
”).
(b) With respect to each Acadia Plan, Acadia has made
available to Pioneer copies, as applicable, of (A) such
Acadia Plan, including any material amendment thereto,
(B) the most recent audited financial statements and
actuarial or other valuation reports prepared with respect
thereto and (C) the two most recent annual reports on
Form 5500 required to be filed with respect thereto.
(c) Each Acadia Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable
determination letter or is in the form of a prototype document
that is the subject of a favorable opinion letter from the
Internal Revenue Service of the United States (the
‘‘
IRS
”), or an application for such a
letter is currently being processed by the IRS, and, to the
knowledge of Acadia, no circumstance exists that would
reasonably be expected to adversely affect the qualified status
of such Acadia Plan.
(d) Each Acadia Plan has been established, funded and
administered in accordance in all material respect with its
terms, and in compliance in all material respects with the
applicable provisions of ERISA, the Code and other applicable
laws. No Acadia Plan provides retiree or post-employment welfare
benefits, and neither Acadia nor any Subsidiary of Acadia has
any obligation to provide any retiree or post-employment welfare
benefits other than as required by Section 4980B of the
Code and for which the covered individual pays the full cost of
coverage.
(e) With respect to any Acadia Plan (i) no Actions
(other than routine claims for benefits in the ordinary course)
are pending or, to the knowledge of Acadia, threatened that
would reasonably be expected to result in material liability to
Acadia or any Subsidiary of Acadia, (ii) no administrative
investigation, audit or other administrative proceeding by the
Department of Labor, the IRS or other Governmental Authority is
pending, in progress or, to the knowledge of Acadia, threatened
that would reasonably be expected to result in material
liability to Acadia or any Subsidiary of Acadia,
(iii) there have been no non-exempt “prohibited
transactions” (as defined in
Section 406 of ERISA or Section 4975 of the Code) that
would reasonably be expected to result in material liability to
Acadia or any Subsidiary of Acadia, and (iv) no
“fiduciary” (as defined in Section 3(21) of
ERISA) has any liability for breach of fiduciary duty that would
reasonably be expected to result in material liability to Acadia
or any Subsidiary of Acadia.
(f) Neither Acadia nor any Subsidiary of Acadia sponsors,
maintains or contributes to any plan subject to, or has any
liability (including on account of any Person that would be
treated as a single employer with Acadia or any Subsidiary of
Acadia under Section 414(b) or (c) of the Code) under,
Section 302 or Title IV of ERISA or Sections 412,
430, 431 or 432 of the Code, including without limitation any
“defined benefit plan” or “multiemployer
plan” (as defined in Sections 3(35) and 3(37) of
ERISA, respectively).
(g) None of the execution and delivery of this Agreement,
the performance by any party of its obligations hereunder or the
consummation of the Transactions (alone or in conjunction with
any termination of employment on or following the Effective
Time) will (i) entitle any employee to any material
compensation or benefit or (ii) accelerate the time of
payment or vesting, or trigger any payment or funding, of any
material compensation or benefit or trigger any other material
obligation under any Acadia Plan.
(h) No amount or other entitlement that could be received
as a result of the Transactions (alone or in conjunction with
any other event) by any “disqualified individual” (as
defined in Section 280G(c) of the Code) with respect to
Acadia will constitute an “excess parachute payment”
(as defined in Section 280G(b)(1) of the Code). No
director, officer, employee or independent contractor of Acadia
or any of its Subsidiaries is entitled to receive any
gross-up
or
additional payment by reason of the Tax required by
Sections 409A or 4999 of the Code being imposed on such
Person.
Section
3.14
Labor
and Employment Matters
.
(a) Neither Acadia nor any Subsidiary is a party or
otherwise subject to any collective bargaining agreement or
other labor union Contract applicable to persons employed by
Acadia or any of its Subsidiaries, nor, to the knowledge of
Acadia, are there any activities or proceedings of any labor
union to organize any such employees. As of the date of this
Agreement, there are no unfair labor practice complaints pending
against Acadia or any of its Subsidiaries before the National
Labor Relations Board or any other Governmental Authority or any
current union representation questions involving employees of
Acadia or any of its Subsidiaries. As of the date of this
Agreement, there is no strike, work stoppage or lockout pending
or, to the knowledge of Acadia, threatened by or with respect to
any employees of Acadia or any of its Subsidiaries.
(b) True and complete information as to the name, current
job title and compensation for each of the last three years of
all current directors and executive officers of Acadia and its
Subsidiaries has been provided to Pioneer. Since January 1,
2009, no executive officer’s or key employee’s
employment with Acadia or of its Subsidiaries has been
terminated for any reason. As of the date of this Agreement, no
executive officer has notified Acadia or any of its Subsidiaries
of his or her intention to resign or retire.
(c) Acadia and its Subsidiaries are and have been in
material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment, including but not limited to wages and hours and the
classification of employees and independent contractors, and
have not been and are not engaged in any unfair labor practice
as defined in the National Labor Relations Act or equivalent
law. Neither Acadia nor its Subsidiaries have incurred, and to
the knowledge of Acadia no circumstances exist under which
Acadia or its Subsidiaries would reasonably be expected to
incur, any material liability arising from the misclassification
of employees as consultants or independent contractors,
and/or
from
the misclassification of employees as exempt from the
requirements of the Fair Labor Standards Act or state law
equivalents.
(d) Neither Acadia nor its Subsidiaries have, during the
four-year period prior to the date hereof, taken any action that
would constitute a “Mass Layoff” or “Plant
Closing” within the meaning of the Worker Adjustment
Retraining and Notification Act (the “
WARN
Act
”) or would otherwise trigger notice requirements or
liability under any plant closing notice law without complying
in all material respects with the applicable requirements under
the WARN Act or such other applicable plant closing notice law.
No arbitration, court decision, order by any Governmental
Authority, Acadia Material Contract or collective bargaining
agreement to which Acadia or its
Subsidiaries is a party or is subject in any way limits or
restricts Acadia or its Subsidiaries from relocating or closing
any of the operations of Acadia or its Subsidiaries.
Section
3.15
Taxes
.
(a) Acadia and its Subsidiaries have timely filed or caused
to be filed or will timely file or cause to be timely filed
(taking into account any extension of time to file granted or
obtained) all material Tax Returns required to be filed by them
and all such material Tax Returns are complete and accurate in
all material respects. Acadia and its Subsidiaries have timely
paid or will timely pay all Taxes due and payable except to the
extent that such Taxes are being contested in good faith and for
which Acadia or the appropriate Subsidiary has set aside
adequate reserves in accordance with GAAP.
(b) Acadia and its Subsidiaries have deducted, withheld and
timely paid to the appropriate Governmental Authority all Taxes
required to be deducted, withheld or paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, member, owner or other third party, and Acadia and its
Subsidiaries have complied with all reporting and recordkeeping
requirements.
(c) Acadia has made available to Pioneer copies of all Tax
Returns filed, and any associated examination reports and
statements of deficiencies assessed against or agreed to with
respect to such Tax Returns, by Acadia or any of its
Subsidiaries for all taxable years beginning on or after
January 1, 2007. There are no audits, examinations,
investigations or other proceedings in respect of any material
Tax of Acadia or any of its Subsidiaries in progress, pending,
or, to the knowledge of Acadia, threatened. No deficiency for
any material amount of Tax has been asserted or assessed by any
taxing authority in writing against Acadia or any of its
Subsidiaries, which deficiency has not been satisfied by
payment, settled or been withdrawn or contested in good faith.
(d) Neither Acadia nor any Subsidiary of Acadia has waived
any statute of limitations in respect of any material Tax or
agreed to any extension of time with respect to a Tax assessment
or deficiency (other than pursuant to extensions of time to file
Tax Returns obtained in the ordinary course of business).
(e) With respect to any period ending on or before the date
hereof for which Tax Returns have not yet been filed, or for
which Taxes are not yet due and owing, Acadia and each
Subsidiary of Acadia has made such accruals as required by GAAP
for such Taxes in the books and records of Acadia or its
Subsidiaries (as appropriate).
(f) No claim has been made at any time during the past
three (3) years by a taxing authority in a jurisdiction
where Acadia or any of its Subsidiaries does not file a Tax
Return that Acadia or such Subsidiary is or may be subject to
Tax by such jurisdiction.
(g) Neither Acadia nor any Subsidiary of Acadia will be
required to include any item of income in, or exclude any item
of deduction from, taxable income for a taxable period beginning
after the Closing as a result of any (1) adjustment
pursuant to Section 481 of the Code, the regulations
thereunder or any similar provision under state or local law,
for a taxable period ending on or before the Closing,
(2) “closing agreement” as described in
Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax Law) executed on
or prior to the Closing, (3) intercompany transaction
(within the meaning of
Section 1.1502-13
of the Treasury Regulations or any corresponding or similar
provision of state, local or foreign income Tax law) or excess
loss account (within the meaning of
Section 1.1502-19
of the Treasury Regulations or any corresponding or similar
provision of state, local or foreign income Tax law),
(4) installment sale or open transaction disposition made
on or prior to the Closing, or (5) cancellation of debt
income deferred under Section 108(i) of the Code.
(h) Neither Acadia nor any Subsidiary of Acadia (A) is
a party to or is bound by any material Tax sharing,
indemnification or allocation agreement with persons other than
wholly owned Subsidiaries of Acadia or (B) has any
liability for Taxes of any Person pursuant to Treasury
Regulation Section 1.1502-6
(or any similar provision of law), as a transferee or successor,
by Contract or otherwise (other than agreements among Acadia and
its Subsidiaries and other than customary Tax indemnifications
contained in credit or other commercial agreements the primary
purposes of which agreements do not relate to Taxes).
(i) Neither Acadia nor any Subsidiary of Acadia has
participated in any “listed transactions” within the
meaning of Treasury
Regulation Section 1.6011-4(b)(2).
(j) Neither Acadia nor Youth & Family Centered
Services, Inc. has been either a “distributing
corporation” or a “controlled corporation” within
the meaning of Section 355(a)(1)(A) of the Code in a
distribution qualifying (or intended to qualify) under
Section 355 of the Code (or so much of Section 356 as
relates to Section 355).
(k) Merger Sub is a disregarded entity as defined in
Treasury Regulations
section 1.368-2(b)(1)(i)(A)
and is disregarded as an entity separate from Acadia for federal
income Tax purposes.
Section
3.16
Acadia
Material Contracts
.
(a) Section 3.16(a) of the Acadia Disclosure Schedule
sets forth a complete and correct list of all Acadia Material
Contracts. For purposes of this Agreement, the term
“
Acadia Material Contract
” means any of the
following Contracts (together with all exhibits and schedules
thereto) to which Acadia or any Subsidiary of Acadia is a party
or by which Acadia or any Subsidiary of Acadia or any of their
respective properties or assets are bound or affected as of the
date hereof:
(i) any limited liability company agreement, partnership,
joint venture or other similar agreement or arrangement with a
Person other than a Subsidiary relating to the formation,
creation, operation, management or control of any partnership or
joint venture;
(ii) any Contract (other than among consolidated
Subsidiaries) relating to: (A) indebtedness for borrowed
money or other indebtedness or obligations secured by mortgages
or other Liens; and (B) a guarantee of any item described
in (A).
(iii) any Contract that purports to limit in any material
respect the right of Acadia or its Subsidiaries (A) to
engage or compete in any line of business or market, or to sell,
supply or distribute any service or product or (B) to
compete with any Person or operate in any location;
(iv) any Contract for the acquisition or disposition,
directly or indirectly (by merger or otherwise), of assets or
capital stock or other equity interests of another Person, other
than Contracts relating to leasehold improvements, supplies,
construction costs and reimbursable expenses, in each case
entered into in the ordinary course of business;
(v) any lease or license for real property that provides
for payments by Acadia or its Subsidiaries of more than
$100,000, in the aggregate, per year;
(vi) any license, royalty or other Contract concerning
Intellectual Property Rights which is material to Acadia and the
Subsidiaries taken as a whole;
(vii) any Contract that contains a standstill or similar
agreement pursuant to which one party has agreed not to acquire
assets or securities of the other party or any of its Affiliates;
(viii) any Contract for the employment of any Person on a
full-time or consulting basis that provides for
(A) payments by Acadia
and/or
the
Subsidiaries of more than $200,000, in the aggregate, per year
or (B) payments by Acadia
and/or
its
Subsidiaries for severance, change of control or other payments
to any Person of more than $200,000, in the aggregate;
(ix) except as disclosed in the Acadia Disclosure Schedule
in response to any other subsection of this
Section 3.16
, any Contract with any Acadia Related
Party; and
(x) except as disclosed in the Acadia Disclosure Schedule
in response to any other subsection of this
Section 3.16
, any Contract that provides for
payments by or payments to Acadia and its Subsidiaries of more
than $250,000, in the aggregate, per year.
(b) Except as would not have an Acadia Material Adverse
Effect, (i) each Acadia Material Contract is a legal, valid
and binding agreement in full force and effect and enforceable
against Acadia or such Subsidiary of Acadia in accordance with
its terms, (ii) none of Acadia or any Subsidiary of Acadia
has received any written claim of material default under or
cancellation of any Acadia Material Contract, and none of Acadia
or any Subsidiary of Acadia is in material breach or material
violation of, or material default under, any Acadia Material
Contract, (iii) to Acadia’s knowledge, no other party
is in material breach or material violation of, or material
default under, any Acadia Material Contract, (iv) to
Acadia’s knowledge, no event has occurred which would
result in a breach or violation of
or a default under, any Acadia Material Contract and
(v) Acadia has not received any notice from any other party
to any Acadia Material Contract, and otherwise has no knowledge
that such third party intends to terminate, or not renew any
Acadia Material Contract, or is seeking the renegotiation
thereof in any material respect or substitute performance
thereunder in any material respect. Acadia has made available to
Pioneer a true and complete copy of each Acadia Material
Contract.
Section
3.17
Insurance
.
Section 3.17
of the Acadia Disclosure Schedule sets forth a complete and
correct list of all material insurance policies owned or held by
Acadia and each of its Subsidiaries, true and complete copies of
which have been made available Pioneer. With respect to each
such insurance policy: (i) each policy with respect to
Acadia and its Subsidiaries is legal, valid, binding and
enforceable in accordance with its terms and, except for
policies that have expired under their terms in the ordinary
course, is in full force and effect; (ii) neither Acadia
nor any Subsidiary of Acadia is in material breach or default
(including any such breach or default with respect to the
payment of premiums or the giving of notice), and, to
Acadia’s knowledge, no event has occurred which, with
notice or the lapse of time, would constitute such a breach or
default, or permit termination or modification, under any such
policy; and (iii) no notice of cancellation or termination
has been received.
Section
3.18
Environmental
Matters
.
(a) Acadia and its Subsidiaries are and have been in
compliance in all material respects with all applicable laws
relating to the protection of human health and the environment
or to occupational health and safety (“
Environmental
Laws
”).
(b) Acadia and its Subsidiaries possess all material
permits and approvals issued pursuant to any Environmental Law
that are required to conduct the business of Acadia and its
Subsidiaries as it is currently conducted, and are and have been
in compliance in all material respects with all such permits and
approvals.
(c) To the knowledge of Acadia, no releases of (i) any
petroleum products or byproducts, radioactive materials, friable
asbestos or polychlorinated biphenyls or (ii) any waste,
material or substance defined as a “hazardous
substance,” “hazardous material,” “hazardous
waste,” “pollutant” or any analogous terminology
under any applicable Environmental Law have occurred at, on,
from or under any real property currently or formerly owned,
operated or occupied by Acadia or any of its Subsidiaries, for
which releases Acadia or any such Subsidiary may have incurred
liability under any Environmental Law.
(d) Neither Acadia nor any Subsidiary of Acadia has
received any written claim or notice from any Governmental
Authority alleging that Acadia or any such Subsidiary is or may
be in violation of, or has any liability under, any
Environmental Law.
(e) Neither Acadia nor any Subsidiary of Acadia has entered
into any agreement or is subject to any legal requirement that
may require it to pay for, guarantee, defend or indemnify or
hold harmless any Person from or against any liabilities arising
under Environmental Laws.
(f) All environmental reports, assessments, audits, and
other similar documents in the possession or control of Acadia
or any of its Subsidiaries, containing information that could
reasonably be expected to be material to Acadia or any of its
Subsidiaries, have been made available to Pioneer.
Section
3.19
Acadia
Board Approval; No Vote Required
.
(a) The Acadia Board, by resolutions duly adopted has as of
the date of this Agreement duly approved this Agreement and the
Transactions. To the knowledge of Acadia, no state takeover
statute applies to this Agreement or the Merger.
(b) No vote of the Acadia Stockholders is necessary to
adopt this Agreement.
Section
3.20
Brokers
.
No
broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in
connection with the Transactions based upon arrangements made by
or on behalf of Acadia.
Section
3.21
Acadia
Related Party Transactions
.
(a) No
Acadia Related Party has, and no Acadia Related Party has had,
any interest in any material asset used or otherwise relating to
the business of Acadia or its Subsidiaries, (b) no Acadia
Related Party is or has been indebted to Acadia or any of its
Subsidiaries (other than for
ordinary travel advances) and none of Acadia and its
Subsidiaries is or has been indebted to any Acadia Related
Party, (c) no Acadia Related Party has entered into, or has
any financial interest in, any material Contract, transaction or
business dealing with or involving Acadia or any of its
Subsidiaries, other than transactions or business dealings
conducted in the ordinary course of business at prevailing
market prices and on prevailing market terms, and (d) no
Acadia Member is engaged in any business that competes with
Acadia or any of its Subsidiaries.
Section
3.22
Estimated
Acadia Fees and Expenses
.
Section 3.22
of the Acadia Disclosure Schedule sets forth Acadia’s
estimate of the total amount of Acadia’s fees and expenses
that will be incurred by Acadia and its Affiliates in connection
with the Transactions contemplated by this Agreement (including
the Financing), including a list of the recipients of such
estimated fees and expenses and the expected amount of such
payments to each such recipient (the ‘‘
Estimated
Acadia Expenses
”).
Section
3.23
Interested
Stockholder
.
Acadia is not an
“interested stockholder” in Pioneer, as such term is
defined in Massachusetts General Laws Chapter 110F.
Section
3.24
Representations
Complete
.
None of the representations or
warranties made by Acadia herein or in any Schedule hereto,
including the Acadia Disclosure Schedule, or certificate
furnished by Acadia pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material
fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances
under which made, not misleading.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PIONEER
Except as set forth in the disclosure schedule delivered by
Pioneer to Acadia concurrently with the execution and delivery
of this Agreement (the “
Pioneer Disclosure
Schedule
”), Pioneer hereby represents and warrants to
Acadia and Merger Sub as follows:
Section
4.01
Organization,
Standing and Power; Subsidiaries
.
(a) Each of Pioneer and its Subsidiaries is a corporation
or limited liability company, duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation, formation or organization. Each of Pioneer and
its Subsidiaries has the requisite power and authority to own,
lease and operate its properties and to carry on its business as
it is now being conducted and as currently proposed to be
conducted, and is duly qualified to do business and is in good
standing, in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its
business makes such qualification, licensing or good standing
necessary, except where the failure to be so qualified and in
good standing would not, individually or in the aggregate, have
a Pioneer Material Adverse Effect.
(b)
Section 4.01(b)
of the Pioneer Disclosure
Schedule contains a true and complete list of all the
Subsidiaries of Pioneer, together with the jurisdiction of
organization of each such Subsidiary, the percentage of the
outstanding capital stock or other equity interests of each such
Subsidiary owned by Pioneer and each other Subsidiary of Pioneer
and the ownership interest of any other Person or Persons in
each Subsidiary of Pioneer. None of Pioneer or any of its
Subsidiaries directly or indirectly owns any equity or similar
interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business
association or entity (other than the Subsidiaries of Pioneer).
Section
4.02
Pioneer
Organizational Documents
.
Pioneer has made
available to Acadia a true and correct copy of the restated
articles of organization, bylaws, limited liability company
agreement, and other governing documents, as applicable, of
Pioneer and each of its Subsidiaries, each as amended to date
(collectively, the “
Pioneer Organizational
Documents
”). The Pioneer Organizational Documents are
in full force and effect. Neither Pioneer nor any of its
Subsidiaries is in violation of any of the provisions of its
Pioneer Organizational Documents, except, in the case of any
Subsidiary of Pioneer, for violations that would not have a
Pioneer Material Adverse Effect.
(a) The authorized capital stock of Pioneer consists of
(i) 30,000,000 shares of Pioneer Class A Common
Stock, par value $0.01 per share (“
Pioneer Class A
Common Stock
”), (ii) 2,000,000 shares of
Pioneer Class B Common Stock, par value $0.01 per share
(“
Pioneer Class B Common Stock
”),
(iii) 200,000 shares of Class C Common Stock, par
value $0.01 per share (“
Pioneer Class C Common
Stock
”), and (iv) 1,000,000 shares of
preferred stock, par value $0.01 per share (“
Pioneer
Preferred Stock
” and, collectively with the Pioneer
Class A Common Stock, Pioneer Class B Common Stock and
Pioneer Class C Common Stock, “
Pioneer
Stock
”).
(b) As of the date hereof, (i) 18,764,118 shares
of Pioneer Class A Common Stock are issued and outstanding,
all of which are validly issued, fully paid and nonassessable
and were issued free of preemptive (or similar) rights, fully
paid and nonassessable, (ii) 773,717 shares of Pioneer
Class B Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable and were
issued free of preemptive (or similar) rights, fully paid and
nonassessable, (iii) 1,214,093 shares of Pioneer
Class A Common Stock and no shares of Pioneer Class B
Common Stock are held in the treasury of Pioneer, (iv) no
shares of Pioneer Class A Common Stock or Pioneer
Class B Common Stock are held by Subsidiaries of Pioneer,
(v) 3,350,000 shares of Pioneer Class A Common
Stock are reserved for future issuance in connection with the
Pioneer Stock Plans (including 1,287,250 shares of Pioneer
Class A Common Stock reserved pursuant to outstanding
Pioneer Stock Options), (vi) 363,000 shares of Pioneer
Class A Common Stock are reserved for future issuance in
connection with the outstanding Warrants, and (vii) no
shares of Pioneer Class C Common Stock or Pioneer Preferred
Stock are issued or outstanding.
(c) There are no options, warrants or other rights,
agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Pioneer or
any Subsidiary of Pioneer or obligating Pioneer or any of its
Subsidiaries to issue or sell any shares of capital stock of, or
other equity interests in, Pioneer or any of its Subsidiaries.
All shares of Pioneer Common Stock subject to issuance in
connection with the Transactions, upon issuance on the terms and
conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully
paid and nonassessable and free of preemptive (or similar)
rights. There are no material outstanding contractual
obligations of Pioneer or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock or
options, warrants or other rights to acquire shares of capital
stock of Pioneer or of any Subsidiary of Pioneer, or to provide
funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other
Person. There are no bonds, debentures, notes or other
indebtedness of Pioneer or any of its Subsidiaries having the
right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
holders of Pioneer Stock may vote (“
Voting Pioneer
Debt
”). Except for any obligations pursuant to this
Agreement, the Pioneer Stock Plans, or as otherwise set forth
above, there are no options, warrants, rights, convertible or
exchangeable securities, stock-based performance units,
Contracts or undertakings of any kind to which Pioneer or any of
its Subsidiaries is a party or by which any of them is bound
(1) obligating Pioneer or any such Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other equity interests in,
or any security convertible or exchangeable for any capital
stock of or other equity interest in, Pioneer or any of its
Subsidiaries or any Voting Pioneer Debt, (2) obligating
Pioneer or any such Subsidiary to issue, grant or enter into any
such option, warrant, right, security, unit, Contract or
undertaking or (3) that give any Person the right to
receive any economic interest of a nature accruing to the
holders of any Pioneer Stock. Except for the Pioneer Voting
Agreements, none of Pioneer or any of its Subsidiaries is a
party to any shareholders’ agreement, voting trust
agreement or registration rights agreement relating to any
equity securities of Pioneer or any of its Subsidiaries or any
other Contract relating to disposition, voting or dividends with
respect to any equity securities of Pioneer or of any of its
Subsidiaries.
(d) Section 4.03(d) of the Pioneer Disclosure Schedule
sets forth a true and complete list, as of the date of this
Agreement, of any agreement, instrument or other obligation
pursuant to which any indebtedness for borrowed money of Pioneer
or any of its Subsidiaries in an aggregate principal amount in
excess of $100,000 is outstanding or may be incurred,
(ii) the respective principal amounts outstanding
thereunder as of the date of this Agreement, and (iii) a
list of any agreements that relate to guarantees by Pioneer or
any of its Subsidiaries of indebtedness of any other Person in
excess of $100,000.
(e)
Section 4.03(e)
of the Pioneer Disclosure
Schedule sets forth, as of the date of this Agreement, a true
and complete list of all outstanding Pioneer Stock Options, the
recipient of each such Pioneer Stock Option, the number
of unpurchased shares subject to each such Pioneer Stock Option
and the grant date, exercise price, and expiration date of each
such Pioneer Stock Option.
(f) Each outstanding share of capital stock, each limited
liability company membership interest and each partnership
interest of each Subsidiary of Pioneer is duly authorized,
validly issued, fully paid and nonassessable and was issued free
of preemptive (or similar) rights, and each such share or
interest is owned by Pioneer or another Subsidiary of Pioneer
free and clear of all options, rights of first refusal,
agreements, limitations on Pioneer’s or any of its
Subsidiaries’ voting, dividend or transfer rights, charges
and other encumbrances or Liens of any nature whatsoever.
Section
4.04
Authority
Relative to This Agreement
.
Pioneer has all
necessary corporate power and authority to execute and deliver
this Agreement, and, subject to the receipt of the Pioneer
Shareholder Approval, to perform its obligations hereunder and
to consummate the Transactions. The execution, delivery and
performance of this Agreement by Pioneer and the consummation by
Pioneer of the Transactions have been duly and validly
authorized by all necessary corporate action, and no other
corporate proceedings on the part of Pioneer are necessary to
authorize this Agreement or to consummate the Transactions
(other than the receipt of the Pioneer Shareholder Approval and
the filing and recordation of appropriate merger documents as
required by the MBCA and Delaware law). This Agreement has been
duly and validly executed and delivered by Pioneer and, assuming
the due authorization, execution and delivery by Acadia and
Merger Sub, constitutes a legal, valid and binding obligation of
Pioneer, enforceable against Pioneer in accordance with its
terms, subject to the effect of any applicable bankruptcy,
insolvency (including all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
creditors’ rights generally and subject to the effect of
general principles of equity (regardless of whether considered
in a proceeding at law or in equity).
Section
4.05
No
Conflict; Required Filings and Consents
.
(a) The execution and delivery of this Agreement by Pioneer
does not, and the performance of this Agreement by Pioneer and
the consummation by Pioneer of the Transactions will not,
(i) assuming Pioneer Shareholder Approval is obtained,
conflict with or violate the Pioneer Organizational Documents,
(ii) assuming that all consents, approvals and other
authorizations described in
Section 4.05(b)
have
been obtained, that all filings and notifications and other
actions described in
Section 4.05(b)
have been made
or taken, and the Pioneer Shareholder Approval has been
obtained, conflict with or violate any law, applicable to
Pioneer or any of its Subsidiaries or by which any property or
asset of Pioneer or any such Subsidiary is bound or affected, or
(iii) require any consent or approval under, result in any
breach or violation of or constitute a default (or an event
which, with notice or lapse of time or both, would become a
default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the
creation of a Lien on any property or asset of Pioneer or any
such Subsidiary pursuant to, any Pioneer Material Contract,
except, with respect to clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other
occurrences which would not have a Pioneer Material Adverse
Effect or prevent, or materially alter or delay, the
consummation of any of the Transactions.
(b) The execution and delivery of this Agreement by Pioneer
does not, and the performance of this Agreement by Pioneer and
the consummation by Pioneer of the Transactions will not,
require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Authority,
except for (i) applicable requirements, if any, of the
Exchange Act, (ii) the filing with the SEC of the Proxy
Statement/ Prospectus and the
Form S-4,
(iii) any filings required by the rules of the AMEX,
(iv) the filing and recordation of appropriate merger
documents as required by Delaware law and the MBCA and
appropriate documents with the relevant authorities of other
states in which Pioneer or any Subsidiary of Pioneer is
qualified to do business, (v) the premerger notification
and waiting period requirements of HSR Act, (vi) applicable
requirements, if any, of Health Care Laws; and
(vii) applicable requirements, if any, of Government
Programs in which Pioneer or any Pioneer Subsidiary
participates; and (viii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the
aggregate, reasonably be expected to have a Pioneer Material
Adverse Effect and would not prevent, or materially alter or
delay, the consummation of any of the Transactions.
Section
4.06
Permits;
Compliance
.
Pioneer, each Subsidiary of
Pioneer and each of the Pioneer Health Care Facilities is in
possession of all licenses, interim licenses, qualifications,
exemptions, registrations, permits,
approvals, accreditations, certificates of occupancy and other
certificates, franchises and other authorizations of any
Governmental Authority necessary for each such entity to own,
lease and operate its properties or to carry on its business as
it is now being conducted (the “
Pioneer
Permits
”), except where the failure to have, or the
suspension or cancellation of, any of the Pioneer Permits would
not, individually or in the aggregate, reasonably be expected to
have a Pioneer Material Adverse Effect. As of the date of this
Agreement, no suspension or cancellation of any of the Pioneer
Permits is pending or, to the knowledge of Pioneer, threatened
in writing, except where the failure to have, or the suspension
or cancellation of, any of the Pioneer Permits would not,
individually or in the aggregate, reasonably be expected to have
a Pioneer Material Adverse Effect. Since January 1, 2008,
neither Pioneer, any Subsidiary of Pioneer or any of the Pioneer
Health Care Facilities is or has been in conflict with, or in
default, breach or violation of, (i) any Healthcare Law or
other law applicable to such entity or by which any property or
asset of such entity is bound or affected, or (ii) any
contract or Pioneer Permit to which such entity is a party or by
which such entity or any property or asset of such entity is
bound, except, with respect to clauses (i) and (ii), for
any such conflicts, defaults, breaches or violations that would
not, individually or in the aggregate, reasonably be expected to
have a Pioneer Material Adverse Effect. Without limiting the
generality of the foregoing, (x) Pioneer, each Subsidiary
of Pioneer and each of the Pioneer Health Care Facilities is in
compliance with the requirements of and conditions for
participating in the Government Programs such facility
participates in as of the date of this Agreement and
(y) all claims for payment or cost reports filed or
required to be filed by Pioneer and each Pioneer Healthcare
Facility under any Government Program or any private payor
program have been prepared and filed in accordance with all
applicable laws, except, in the case of clauses (x) and
(y), for any such noncompliance that would not, individually or
in the aggregate, reasonably be expected to have a Pioneer
Material Adverse Effect.
(a) Pioneer has filed all forms, reports, statements,
schedules and other documents required to be filed by it with
the SEC since July 1, 2008 (collectively, the “
SEC
Reports
”). The SEC Reports (i) were prepared, in
all material respects, in accordance with the applicable
requirements of the Securities Act, the Exchange Act, and, in
each case, the rules and regulations promulgated thereunder, and
(ii) did not, at the time they were filed, or, if amended,
as of the date of such amendment, 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
made therein, in the light of the circumstances under which they
were made, not misleading. Pioneer has delivered to Acadia
unaudited consolidated financial statements (including balance
sheet, statement of operations and statement of cash flows) of
Pioneer and its consolidated Subsidiaries as at and for the
nine-month period ending on March 31, 2011 (the
“
Interim Pioneer Financials
”). The consolidated
financial statements contained in the SEC Reports and the
Interim Pioneer Financials are collectively herein referred to
as the “
Pioneer Financials
.”
(b) Each of the financial statements (including, in each
case, any notes thereto) comprising the Pioneer Financials was
prepared in accordance with GAAP applied on a consistent basis
throughout the periods indicated (except as may be indicated in
the notes thereto or, in the case of unaudited statements, as
permitted by
Form 10-Q
of the SEC) and each fairly presents, in all material respects,
the consolidated financial position, results of operations and
cash flows of Pioneer and its consolidated Subsidiaries as at
the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject,
in the case of unaudited statements, to the absence of notes and
normal and recurring year end adjustments).
(c) Except as would not, individually or in the aggregate,
reasonably be expected to have a Pioneer Material Adverse
Effect, the management of Pioneer (i) has implemented and
maintains adequate disclosure controls and procedures (as
defined in
Rule 13a-15(e)
of the Exchange Act) to ensure that material information
relating to Pioneer, including its consolidated Subsidiaries, is
in all material respects made known to the principal executive
officer and the principal financial and accounting officer of
Pioneer by others within those entities, and (ii) has
disclosed, based on its most recent evaluation prior to the date
of this Agreement, to Pioneer’s outside auditors and the
audit committee of the Pioneer Board (x) any significant
deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting (as defined in
Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely
affect Pioneer’s ability to record, process, summarize and
report financial information, and (y) any material fraud,
within the knowledge of Pioneer, that involves management or
other employees who have a significant role in Pioneer’s
internal controls over financial reporting.
(d) The records, systems, controls, data and information of
Pioneer and its Subsidiaries are recorded, stored, maintained
and operated under means (including any electronic, mechanical
or photographic process, whether computerized or not) that are
under the exclusive ownership and direct control of Pioneer and
its Subsidiaries or their accountants (including all means of
access thereto and therefrom), except for any non-exclusive
ownership and non-direct control that would not have a material
adverse effect on Pioneer’s system of internal accounting
controls.
(e) Neither Pioneer nor any Subsidiary of Pioneer has any
material liability or obligation of a nature required to be
reflected on a balance sheet prepared in accordance with GAAP,
except for liabilities and obligations (i) reflected or
reserved against on the consolidated balance sheet of Pioneer
and the consolidated Subsidiaries as at June 30, 2010
(including the notes thereto) included in Pioneer’s Annual
Report on
Form 10-K
for the fiscal year ended June 30, 2010 filed with the SEC
prior to the date hereof, or in a balance sheet for a later date
contained in a Quarterly Report on
Form 10-Q
filed with the SEC prior to the date hereof, (ii) incurred
in connection with the Transactions, or (iii) incurred in
the ordinary course of business since June 30, 2010 that
would not have a Pioneer Material Adverse Effect.
(f) Pioneer’s Net Debt does not exceed $30,899,468. No
items set forth on the Pioneer Disclosure Schedule shall qualify
this
Section 4.07(f)
.
Section
4.08
Information
Supplied
.
The information supplied by Pioneer
for inclusion or incorporation by reference in the
Form S-4
shall not at the time the
Form S-4
is declared effective by the SEC (or, with respect to any
post-effective amendment or supplement, at the time such
post-effective amendment or supplement becomes effective)
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
information supplied by Pioneer for inclusion in the Proxy
Statement/ Prospectus shall not, on the date the Proxy
Statement/ Prospectus is first mailed to the Pioneer
Shareholders, at the time of the Pioneer Shareholder Approval,
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
representations and warranties contained in this
Section 4.08
will not apply to statements or
omissions included or incorporated by reference in the Proxy
Statement/ Prospectus based upon information furnished by Acadia
or any of its Representatives.
Section
4.09
Absence
of Certain Changes or Events
.
Since the
Pioneer Balance Sheet Date, except in connection with the
execution and delivery of this Agreement and the consummation of
the Transactions, the business of Pioneer and its Subsidiaries
has been conducted in the ordinary course of business consistent
with past practices and there has not been or occurred:
(a) any Pioneer Material Adverse Effect; or
(b) any event, condition, action or effect that, if taken
during the period from the date of this Agreement through the
Effective Time, would constitute a breach of the covenants set
forth in
Section 5.02
.
Section
4.10
Absence
of Litigation; Restrictions of Business
Activities
.
(a) There is no material
Action before any Governmental Authority pending or, to the
knowledge of Pioneer, threatened against Pioneer or any of its
Subsidiaries, or any of their respective officers, directors or
limited liability company managers, or any property or asset of
Pioneer or any of its Subsidiaries and (b) none of Pioneer
or any Subsidiary of Pioneer is subject or bound by any material
outstanding Order.
Section
4.11
Title
to Property
.
Pioneer and its Subsidiaries
have good and marketable title to all of their respective
properties, interests in properties and assets, real and
personal, reflected in the unaudited consolidated balance sheet
of Pioneer and its consolidated Subsidiaries at the Pioneer
Balance Sheet Date (the “
Pioneer Balance
Sheet
”) or acquired after the Pioneer Balance Sheet
Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Pioneer Balance Sheet Date in
the ordinary course of business), or with respect to leased
properties and assets, valid leasehold interests in, free and
clear of all Liens, other than Permitted Liens. The plants,
property and equipment of Pioneer and its Subsidiaries that are
used in the operations of their businesses are in all material
respects in good operating condition and repair, subject to
normal wear and tear. All material properties used in the
operations of Pioneer and its Subsidiaries are reflected in the
Pioneer Balance Sheet to the
extent required by GAAP. Section 4.11 of the Pioneer
Disclosure Schedule identifies the address of each parcel of
real property owned or leased by Pioneer or any of its
Subsidiaries.
Section
4.12
Intellectual
Property
.
(a) Pioneer and its Subsidiaries own, license or otherwise
legally possess enforceable rights to use all Intellectual
Property Rights that are used in the business of Pioneer and its
Subsidiaries as currently conducted, except as would not,
individually or in the aggregate, reasonably be expected to have
a Pioneer Material Adverse Effect. Pioneer and its Subsidiaries
have not (i) licensed any of the Software owned by Pioneer
or any of its Subsidiaries in source code form to any party or
(ii) entered into any exclusive agreements relating to the
Intellectual Property Rights owned by Pioneer or any of its
Subsidiaries with any party.
(b) Section 4.12(b) of the Pioneer Disclosure Schedule
lists (i) all Intellectual Property Rights owned by Pioneer
or any of its Subsidiaries that are patented, registered or
subject to applications for patent or registration, including
the jurisdictions in which each such Intellectual Property
Rights have been issued or registered or in which any
application for such issuance and registration has been filed,
and (ii) all Pioneer Third Party Intellectual Property
Rights.
(c) To the knowledge of Pioneer, there has been no
unauthorized use, disclosure, infringement or misappropriation
of any Intellectual Property Rights owned by Pioneer or any of
its Subsidiaries by any third party, including any employee or
former employee of Pioneer or any of its Subsidiaries. To the
knowledge of Pioneer, no claim by any Person contesting the
validity, enforceability use or ownership if any Intellectual
Property Rights owned by Pioneer or any of its Subsidiaries has
been made or is currently outstanding.
(d) Subject to
Section 6.07
, Pioneer is not,
nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this
Agreement, in material breach of any license, sublicense or
other agreement relating to the Intellectual Property Rights or
Pioneer Third Party Intellectual Property Rights.
(e) Pioneer has taken commercially reasonable steps to
maintain the Intellectual Property Rights that Pioneer or any of
its Subsidiaries owns. Neither Pioneer nor any Subsidiary of
Pioneer has been sued in any Action which involves a claim of
infringement or misappropriation of any Intellectual Property
Rights of any third party. To the knowledge of Pioneer, neither
Pioneer nor any Subsidiary of Pioneer has infringed or
misappropriated any Intellectual Property Rights of any third
party. Neither Pioneer nor any Subsidiary of Pioneer has
received any written threats or notices regarding any of the
foregoing (including any demands or offer to license any
Intellectual Property Rights from any Person). Neither Pioneer
nor any Subsidiary of Pioneer has brought any Action for
infringement or misappropriation of Intellectual Property Rights
or breach of any license or agreement involving Intellectual
Property Rights against any third party.
(f) Pioneer and all of its Subsidiaries, in connection with
businesses of Pioneer and all of its Subsidiaries, have taken
commercially reasonable steps to safeguard the internal and
external integrity of their IT Assets. With respect to such IT
Assets, (a) there have been no material unauthorized
intrusions or breaches of security within the past thirty-six
(36) months, (b) there has not been any material
malfunction that has not been remedied or replaced in all
material respects, (c) within the past thirty-six
(36) months, there has been no material unplanned downtime
or material service interruption.
Section
4.13
Employee
Benefit Plans
.
(a) Section 4.13(a) of the Pioneer Disclosure Schedule
lists all employee benefit plans (as defined in
Section 3(3) of the ERISA), other deferred compensation,
retiree medical or life insurance, supplemental retirement,
severance, change in control, retention, plans, equity and
equity-based compensation plans, and other material benefit
plans, programs, policies or arrangements which are currently
maintained, contributed to or sponsored by Pioneer or any
Subsidiary of Pioneer for the benefit of any current or former
employee, consultant, officer or director of Pioneer or any
Subsidiary of Pioneer (collectively, the “
Pioneer
Plans
”).
(b) With respect to each Pioneer Plan, Pioneer has made
available to Acadia, as applicable, of (A) such Pioneer
Plan, including any material amendment thereto, (B) the
most recent audited financial statements and actuarial or other
valuation reports prepared with respect thereto and (C) the
two most recent annual reports on Form 5500 required to be
filed with respect thereto.
(c) Each Pioneer Plan that is intended to be qualified
under Section 401(a) of the Code has received a favorable
determination letter or is in the form of a prototype document
that is the subject of a favorable opinion letter from the IRS,
or an application for such a letter is currently being processed
by the IRS, and, to the knowledge of Pioneer, no circumstance
exists that would reasonably be expected to adversely affect the
qualified status of such Pioneer Plan.
(d) Each Pioneer Plan has been established, funded and
administered in accordance in all material respect with its
terms, and in compliance in all material respects with the
applicable provisions of ERISA, the Code and other applicable
laws. No Pioneer Plan provides retiree or post-employment
welfare benefits, and neither Pioneer nor any Subsidiary of
Pioneer has any obligation to provide any retiree or
post-employment welfare benefits other than as required by
Section 4980B of the Code and for which the covered
individual pays the full cost of coverage.
(e) With respect to any Pioneer Plan (i) no Actions
(other than routine claims for benefits in the ordinary course)
are pending or, to the knowledge of Pioneer, threatened that
would reasonably be expected to result in material liability to
Pioneer or any Subsidiary of Pioneer, (ii) no
administrative investigation, audit or other administrative
proceeding by the Department of Labor, the IRS or other
Governmental Authority is pending, in progress or, to the
knowledge of Pioneer, threatened that would reasonably be
expected to result in material liability to Pioneer or any
Subsidiary of Pioneer, (iii) there have been no non-exempt
“prohibited transactions” (as defined in
Section 406 of ERISA or Section 4975 of the Code) that
would reasonably be expected to result in material liability to
Pioneer or any Subsidiary of Pioneer, and (iv) no
“fiduciary” (as defined in Section 3(21) of
ERISA) has any liability for breach of fiduciary duty that would
reasonably be expected to result in material liability to
Pioneer or any Subsidiary of Pioneer.
(f) Neither Pioneer nor any Subsidiary of Pioneer sponsors,
maintains or contributes to any plan subject to, or has any
liability (including on account of any Person that would be
treated as a single employer with Pioneer or any Subsidiary of
Pioneer under Section 414(b) or (c) of the Code)
under, Section 302 or Title IV of ERISA or
Sections 412, 430, 431 or 432 of the Code, including
without limitation any “defined benefit plan” or
“multiemployer plan” (as defined in
Sections 3(35) and 3(37) of ERISA, respectively).
(g) None of the execution and delivery of this Agreement,
the performance by any party of its obligations hereunder or the
consummation of the Transactions (alone or in conjunction with
any termination of employment on or following the Effective
Time) will (i) entitle any employee to any material
compensation or benefit or (ii) accelerate the time of
payment or vesting, or trigger any payment or funding, of any
material compensation or benefit or trigger any other material
obligation under any Pioneer Plan.
(h) No amount or other entitlement that could be received
as a result of the Transactions (alone or in conjunction with
any other event) by any “disqualified individual” (as
defined in Section 280G(c) of the Code) with respect to
Pioneer will constitute an “excess parachute payment”
(as defined in Section 280G(b)(1) of the Code). No
director, officer, employee or independent contractor of Pioneer
or any of its Subsidiaries is entitled to receive any
gross-up
or
additional payment by reason of the Tax required by
Sections 409A or 4999 of the Code being imposed on such
Person.
Section
4.14
Labor
and Employment Matters
.
(a) Neither Pioneer nor any Subsidiary is a party or
otherwise subject to any collective bargaining agreement or
other labor union Contract applicable to persons employed by
Pioneer or any of its Subsidiaries, nor, to the knowledge of
Pioneer, are there any activities or proceedings of any labor
union to organize any such employees. To the knowledge of
Pioneer, as of the date of this Agreement, there are no unfair
labor practice complaints pending against Pioneer or any of its
Subsidiaries before the National Labor Relations Board or any
other Governmental Authority or any current union representation
questions involving employees of Pioneer or any of its
Subsidiaries. As of the date of this Agreement, there is no
strike, work stoppage or lockout pending, or, to the knowledge
of Pioneer, threatened by or with respect to any employees of
Pioneer or any of its Subsidiaries.
(b) True and complete information as to the name, current
job title and compensation for each of the last three years of
all current directors and executive officers of Pioneer and its
Subsidiaries has been provided to Pioneer. Since January 1,
2009, no executive officer’s or key employee’s
employment with Pioneer or of its Subsidiaries has
been terminated for any reason. As of the date of this
Agreement, no executive officer has notified Pioneer or any of
its Subsidiaries of his or her intention to resign or retire.
(c) Pioneer and its Subsidiaries are and have been in
material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of
employment, including but not limited to wages and hours and the
classification of employees and independent contractors, and
have not been and are not engaged in any unfair labor practice
as defined in the National Labor Relations Act or equivalent
law. Neither Pioneer nor its Subsidiaries have incurred, and to
the knowledge of Pioneer no circumstances exist under which
Pioneer or its Subsidiaries would reasonably be expected to
incur, any material liability arising from the misclassification
of employees as consultants or independent contractors,
and/or
from
the misclassification of employees as exempt from the
requirements of the Fair Labor Standards Act or state law
equivalents.
(d) Neither Pioneer nor its Subsidiaries have, during the
four-year period prior to the date hereof, taken any action that
would constitute a “Mass Layoff” or “Plant
Closing” within the meaning of the WARN Act or would
otherwise trigger notice requirements or liability under any
plant closing notice law without complying in all material
respects with the applicable requirements under the WARN Act or
such other applicable plant closing notice law. No arbitration,
court decision, order by any Governmental Authority, Pioneer
Material Contract or collective bargaining agreement to which
Pioneer or its Subsidiaries is a party or is subject in any way
limits or restricts Pioneer or its Subsidiaries from relocating
or closing any of the operations of Pioneer or its Subsidiaries.
Section
4.15
Taxes
.
(a) Pioneer and its Subsidiaries have timely filed or
caused to be filed or will timely file or cause to be timely
filed (taking into account any extension of time to file granted
or obtained) all material Tax Returns required to be filed by
them and all such material Tax Returns are complete and accurate
in all material respects. Pioneer and its Subsidiaries have
timely paid or will timely pay all amounts of Taxes due and
payable except to the extent that such Taxes are being contested
in good faith and for which Pioneer or the appropriate
Subsidiary has set aside adequate reserves in accordance with
GAAP.
(b) Pioneer and its Subsidiaries have deducted, withheld
and timely paid to the appropriate Governmental Authority all
Taxes required to be deducted, withheld or paid in connection
with amounts paid or owing to any employee, independent
contractor, creditor, member, owner or other third party, and
Pioneer and its Subsidiaries have complied with all reporting
and recordkeeping requirements.
(c) Pioneer has made available to Pioneer copies of all Tax
Returns filed, and any associated examination reports and
statements of deficiencies assessed against or agreed to with
respect to such Tax Returns, by Pioneer or any of its
Subsidiaries for all taxable years beginning on or after
January 1, 2007. There are no audits, examinations,
investigations or other proceedings in respect of any material
Tax of Pioneer or any of its Subsidiaries in progress, pending,
or, to the knowledge of Pioneer, threatened. No deficiency for
any material amount of Tax has been asserted or assessed by any
taxing authority in writing against Pioneer or any of its
Subsidiaries, which deficiency has not been satisfied by
payment, settled or been withdrawn or contested in good faith.
(d) Neither Pioneer nor any Subsidiary of Pioneer has
waived any statute of limitations in respect of any material Tax
or agreed to any extension of time with respect to a Tax
assessment or deficiency (other than pursuant to extensions of
time to file Tax Returns obtained in the ordinary course of
business).
(e) With respect to any period ending on or before the date
hereof for which Tax Returns have not yet been filed, or for
which Taxes are not yet due and owing, Pioneer and each
Subsidiary of Pioneer has made such accruals as required by GAAP
for such Taxes in the books and records of Pioneer or its
Subsidiaries (as appropriate).
(f) No claim has been made at any time during the past
three (3) years by a taxing authority in a jurisdiction
where Pioneer or any of its Subsidiaries does not file a Tax
Return that Pioneer or such Subsidiary is or may be subject to
Tax by such jurisdiction.
(g) Neither Pioneer nor any Subsidiary of Pioneer will be
required to include any item of income in, or exclude any item
of deduction from, taxable income for a taxable period beginning
after the Closing as a result of any (1) adjustment
pursuant to Section 481 of the Code, the regulations
thereunder or any similar provision under state or local law,
for a taxable period ending on or before the Closing,
(2) “closing agreement” as described in
Section 7121 of the Code (or any corresponding or similar
provision of state, local or foreign income Tax Law) executed on
or prior to the Closing, (3) intercompany transaction
(within the meaning of
Section 1.1502-13
of the Treasury Regulations or any corresponding or similar
provision of state, local or foreign income Tax law) or excess
loss account (within the meaning of
Section 1.1502-19
of the Treasury Regulations or any corresponding or similar
provision of state, local or foreign income Tax law),
(4) installment sale or open transaction disposition made
on or prior to the Closing, or (5) cancellation of debt
income deferred under Section 108(i) of the Code.
(h) Neither Pioneer nor any Subsidiary of Pioneer
(A) is a party to or is bound by any material Tax sharing,
indemnification or allocation agreement with persons other than
wholly owned Subsidiaries of Pioneer or (B) has any
liability for Taxes of any Person pursuant to Treasury
Regulation Section 1.1502-6
(or any similar provision of law), as a transferee or successor,
by Contract or otherwise (other than agreements among Pioneer
and its Subsidiaries and other than customary Tax
indemnifications contained in credit or other commercial
agreements the primary purposes of which agreements do not
relate to Taxes).
(i) Neither Pioneer nor any Subsidiary of Pioneer has
participated in any “listed transactions” within the
meaning of Treasury
Regulation Section 1.6011-4(b)(2).
(j) Pioneer has not been either a “distributing
corporation” or a “controlled corporation” within
the meaning of Section 355(a)(1)(A) of the Code in a
distribution qualifying (or intended to qualify) under
Section 355 of the Code (or so much of Section 356 as
relates to Section 355).
Section
4.16
Pioneer
Material Contracts
.
(a) Section 4.16 of the Pioneer Disclosure Schedule
sets forth a complete and correct list of all Pioneer Material
Contracts. For purposes of this Agreement, the term
“
Pioneer Material Contract
” means any of the
following Contracts (together with all exhibits and schedules
thereto) to which Pioneer or any Subsidiary of Pioneer is a
party or by which Pioneer or any Subsidiary of Pioneer or any of
their respective properties or assets are bound or affected as
of the date hereof:
(i) any limited liability company agreement, partnership,
joint venture or other similar agreement or arrangement with a
Person, other than a Subsidiary, relating to the formation,
creation, operation, management or control of any partnership or
joint venture;
(ii) any Contract (other than among consolidated
Subsidiaries) relating to: (A) indebtedness for borrowed
money or other indebtedness or obligations secured by mortgages
or other Liens and (B) a guarantee of any item described in
(A);
(iii) any Contract that purports to limit in any material
respect the right of Pioneer or its Subsidiaries (A) to
engage or compete in any line of business or market, or to sell,
supply or distribute any service or product or (B) to
compete with any Person or operate in any location;
(iv) any Contract for the acquisition or disposition,
directly or indirectly (by merger or otherwise), of assets or
capital stock or other equity interests of another Person, other
than Contracts relating to leasehold improvements, supplies,
construction costs and reimbursable expenses, in each case
entered into in the ordinary course of business;
(v) any lease or license for real property that provides
for payments by Pioneer or its Subsidiaries of more than
$100,000, in the aggregate, per year;
(vi) any license, royalty or other Contract concerning
Intellectual Property Rights which is material to Pioneer and
the Subsidiaries taken as a whole;
(vii) any Contract that contains a standstill or similar
agreement pursuant to which one party has agreed not to acquire
assets or securities of the other party or any of its Affiliates;
(viii) any Contract for the employment of any Person on a
full-time or consulting basis that provides for
(A) payments by Pioneer
and/or
the
Subsidiaries of more than $100,000, in the aggregate, per year
or (B) payments by Pioneer
and/or
its
Subsidiaries for severance, change of control or other payments
to any Person of more than $100,000, in the aggregate;
(ix) except as disclosed in the Pioneer Disclosure Schedule
in response to any other subsection of this
Section 4.16
, any Contract with any Pioneer Related
Party; and
(x) except as disclosed in the Pioneer Disclosure Schedule
in response to any other subsection of this
Section 4.16
, any Contract that provides for
payments by or payments to Pioneer and its Subsidiaries of more
than $100,000, in the aggregate, per year.
(b) Except as would not have a Pioneer Material Adverse
Effect, (i) each Pioneer Material Contract is a legal,
valid and binding agreement in full force and effect and
enforceable against Pioneer or such Subsidiary of Pioneer in
accordance with its terms, (ii) none of Pioneer or any
Subsidiary of Pioneer has received any written claim of material
default under or cancellation of any Pioneer Material Contract,
and none of Pioneer or any Subsidiary of Pioneer is in material
breach or material violation of, or material default under, any
Pioneer Material Contract, (iii) to Pioneer’s
knowledge, no other party is in material breach or material
violation of, or material default under, any Pioneer Material
Contract, (iv) to Pioneer’s knowledge, no event has
occurred which would result in a breach or violation of or a
default under, any Pioneer Material Contract and
(v) Pioneer has not received any notice from any other
party to any Pioneer Material Contract, and otherwise has no
knowledge that such third party intends to terminate, or not
renew any Pioneer Material Contract, or is seeking the
renegotiation thereof in any material respect or substitute
performance thereunder in any material respect. Pioneer has made
available to Pioneer a true and complete copy of each Pioneer
Material Contract.
Section
4.17
Insurance
. Section 4.17
of the Pioneer Disclosure Schedule sets forth a complete and
correct list of all material insurance policies owned or held by
Pioneer and each of its Subsidiaries, true and complete copies
of which have been made available Pioneer. With respect to each
such insurance policy: (i) each policy with respect to
Pioneer and its Subsidiaries is legal, valid, binding and
enforceable in accordance with its terms and, except for
policies that have expired under their terms in the ordinary
course, is in full force and effect; (ii) neither Pioneer
nor any Subsidiary of Pioneer is in material breach or default
(including any such breach or default with respect to the
payment of premiums or the giving of notice), and, to
Pioneer’s knowledge, no event has occurred which, with
notice or the lapse of time, would constitute such a breach or
default, or permit termination or modification, under any such
policy; and (iii) no notice of cancellation or termination
has been received.
Section
4.18
Environmental
Matters
.
(a) Pioneer and its Subsidiaries are and have been in
compliance in all material respects with all Environmental Laws.
(b) Pioneer and its Subsidiaries possess all material
permits and approvals issued pursuant to any Environmental Law
that are required to conduct the business of Pioneer and its
Subsidiaries as it is currently conducted, and are and have been
in compliance in all material respects with all such permits and
approvals.
(c) To the knowledge of Pioneer, no releases of
(i) any petroleum products or byproducts, radioactive
materials, friable asbestos or polychlorinated biphenyls or
(ii) any waste, material or substance defined as a
“hazardous substance,” “hazardous material,”
“hazardous waste,” “pollutant” or any
analogous terminology under any applicable Environmental Law
have occurred at, on, from or under any real property currently
or formerly owned, operated or occupied by Pioneer or any of its
Subsidiaries, for which releases Pioneer or any such Subsidiary
may have incurred liability under any Environmental Law.
(d) Neither Pioneer nor any Subsidiary of Pioneer has
received any written claim or notice from any Governmental
Authority alleging that Pioneer or any such Subsidiary is or may
be in violation of, or has any liability under, any
Environmental Law.
(e) Neither Pioneer nor any Subsidiary of Pioneer has
entered into any agreement or is subject to any legal
requirement that may require it to pay for, guarantee, defend or
indemnify or hold harmless any Person from or against any
liabilities arising under Environmental Laws.
(f) All environmental reports, assessments, audits, and
other similar documents in the possession or control of Pioneer
or any of its Subsidiaries, containing information that could
reasonably be expected to be material to Pioneer or any of its
Subsidiaries, have been made available to Acadia.
(a) The Pioneer Board, by resolutions duly adopted at a
meeting duly called and held, has as of the date of this
Agreement duly (i) determined that this Agreement and the
Transactions are fair to and in the best interests of the
Pioneer Shareholders, (ii) adopted this Agreement, and
(iii) recommended that the Pioneer Shareholders approve this
Agreement and directed that this Agreement be submitted for
consideration by the Pioneer Shareholders at the Pioneer
Shareholders’ Meeting (collectively, the “
Pioneer
Board Recommendation
”). The provisions of Massachusetts
General Laws Chapter 110D do not apply to Pioneer, the
Merger, this Agreement or any of the other Transactions.
Pioneer’s Board of Directors has taken all actions
necessary such that the restrictions contained in Massachusetts
General Laws Chapter 110C and 110F do not apply to the
Merger, this Agreement or any of the other Transactions;
provided
, that, for purposes hereof, Pioneer specifically
relies upon Acadia’s representation that it is not an
“interested stockholder” in Pioneer, as such term is
defined in Massachusetts General Laws Chapter 110F. To the
knowledge of Pioneer, there is no other “control share
acquisition,” “fair price,” “business
combination”, “control share acquisition” statute
or other similar statute or regulation that applies to the
Merger, this Agreement or any of the other Transactions.
(b) The only votes of the holders of any class of capital
stock of Pioneer necessary to approve this Agreement is the
affirmative vote of holders of at least (i) two-thirds of
the outstanding Pioneer Class A Common Stock and Pioneer
Class B Common Stock entitled to vote, voting together as a
single class, with the holders of Pioneer Class A Common
Stock having one vote per share and the holders of the Pioneer
Class B Common Stock having five votes per share,
(ii) two-thirds of the outstanding Pioneer Class A
Common Stock entitled to vote, voting as a single class and
(iii) two-thirds of the outstanding Pioneer Class B
Common Stock entitled to vote, voting as a single class.
Section
4.20
Opinion
of Financial Advisor
.
Prior to the execution
of this Agreement, the Pioneer Board has received the opinion of
Stout Risius Ross, financial advisor to Pioneer, as of the date
of such opinion and based on the assumptions, qualifications and
limitations contained therein, that (i) the Merger
Consideration to be received by the Pioneer Shareholders in the
Merger (in the aggregate) is fair, from a financial point of
view, to such Pioneer Shareholders, and (ii) the
Class A Merger Consideration to be received by the holders
of Pioneer Class A Common Stock in the Merger (in the
aggregate) is fair, from a financial point of view, to such
holders.
Section
4.21
Brokers
.
No
broker, finder or investment banker (other than
Jefferies & Company, Inc., the ‘‘
Pioneer
Financial Advisor
”) is entitled to any brokerage,
finder’s or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of
Pioneer. Pioneer has provided to Acadia a true and complete copy
of all agreements between Pioneer and the Pioneer Financial
Advisor.
Section
4.22
Pioneer
Related Party Transactions
.
(a) No
Pioneer Related Party has, and no Pioneer Related Party has had,
any interest in any material asset used or otherwise relating to
the business of Pioneer or its Subsidiaries, (b) no Pioneer
Related Party is or has been indebted to Pioneer or any of its
Subsidiaries (other than for ordinary travel advances) and none
of Pioneer and its Subsidiaries is or has been indebted to any
Pioneer Related Party, (c) no Pioneer Related Party has
entered into, or has any financial interest in, any material
Contract, transaction or business dealing with or involving
Pioneer or any of its Subsidiaries, other than transactions or
business dealings conducted in the ordinary course of business
at prevailing market prices and on prevailing market terms, and
(d) no Pioneer Member is engaged in any business that
competes with Pioneer or any of its Subsidiaries.
Section
4.23
Estimated
Pioneer Fees and Expenses
.
Section 4.23
of the Pioneer Disclosure Schedule sets forth Pioneer’s
estimate of the total amount of Pioneer’s fees and expenses
that will be incurred by Pioneer and its Affiliates in
connection with the Transactions contemplated by this Agreement
(including the Financing), including a list of the recipients of
such estimated fees and expenses and the expected amount of such
payments to each such recipient (the “
Estimated Pioneer
Expenses
”).
Section
4.24
Representations
Complete
.
None of the representations or
warranties made by Pioneer herein or in any Schedule hereto,
including the Pioneer Disclosure Schedule, or certificate
furnished by Pioneer pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material
fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances
under which made, not misleading.
Section
5.01
Conduct
of Business by Acadia Pending the
Merger
.
Acadia agrees that, between the date
of this Agreement and the Effective Time, except as contemplated
by this Agreement or as set forth in Section 5.01 of the
Acadia Disclosure Schedule, the businesses of Acadia and its
Subsidiaries shall be conducted in the ordinary course of
business consistent with past practice in all material respects,
and Acadia shall, and shall cause its Subsidiaries to, use its
reasonable best efforts to preserve substantially intact the
business organization of Acadia and its Subsidiaries, to keep
available the services of Acadia’s and its
Subsidiaries’ current officers and employees, to preserve
Acadia’s and its Subsidiaries’ present relationships
with customers, suppliers, distributors, licensors, licensees
and other Persons having business relationships with Acadia or
its Subsidiaries. Except as contemplated by this Agreement or as
set forth in Section 5.01 of the Acadia Disclosure
Schedule, Acadia shall not (and shall cause each of its
Subsidiaries not to), between the date of this Agreement and the
Effective Time, directly or indirectly, take any of the
following actions without the prior written consent of Pioneer,
which consent shall not be unreasonably withheld or delayed:
(a) amend or propose to amend its certificate of formation
or limited liability company agreement (or other comparable
organizational documents);
(b) (i) split, combine or reclassify any membership
interests, shares of capital stock or other equity securities of
Acadia or any of its Subsidiaries, (ii) purchase,
repurchase, redeem or otherwise acquire any membership
interests, shares of capital stock or other equity securities of
Acadia or any of its Subsidiaries, (iii) declare, set
aside, establish a record date for, make or pay any dividend or
distribution (whether in cash, stock, property or otherwise) in
respect of, or enter into any Contract with respect to the
voting of, any membership interests, shares of capital stock or
other equity securities of Acadia or any of its Subsidiaries
(other than Tax distributions or dividends or distributions from
a direct or indirect wholly-owned Subsidiary of Acadia to Acadia
or to another direct or indirect wholly-owned Subsidiary of
Acadia);
(c) issue, deliver, sell, pledge, transfer, dispose of or
encumber any shares of capital stock or other equity securities
of Acadia or any of its Subsidiaries, or any securities
convertible into or exchangeable for, or any options, warrants
or other rights of any kind to acquire any such shares of such
capital stock or other equity securities of Acadia or any of its
Subsidiaries (other than pursuant to the exercise of options or
equity-based awards outstanding on the date of this Agreement
and in accordance with their terms as in effect on the date of
this Agreement);
(d) except to the extent required by applicable law or by a
Contract that is in effect as of the date of this Agreement and
has been previously disclosed to or made available to Pioneer,
(i) increase the salaries, bonuses or other compensation
and benefits payable or that could become payable by Acadia or
any of its Subsidiaries to any of their respective directors,
limited liability company managers, officers, shareholders,
members, employees or other service providers, except, solely
with respect to employees who are not officers or directors, in
the ordinary course of business consistent with past practice,
(ii) enter into any new or amend in any material respect,
any employment, severance, retention or change in control
agreement with any past or present director, limited liability
company manager, officer, shareholder, member, employee or other
service provider of Acadia or any of its Subsidiaries,
(iii) promote any officers or employees, except in the
ordinary course of business consistent with past practice or as
the result of the termination or resignation of any officer or
employee, or (iv) establish, adopt, enter into, amend,
terminate, exercise any discretion under, or take any action to
accelerate rights under any Acadia Plan or any plan, agreement,
program, policy, trust, fund or other arrangement that would be
an Acadia Plan if it were in existence as of the date of this
Agreement, or make any contribution to any Acadia Plan, other
than contributions required by applicable law or the terms of
such Acadia Plan as in effect on the date hereof;
(e) acquire (whether by merging or consolidating with, by
purchasing any equity securities or a substantial portion of the
assets of, or by any other manner) any interest in, or make any
loan, advance or capital contribution to or investment in, any
Person or any division thereof or any assets thereof, other than
acquisitions in the ordinary course of business not exceeding
$25,000,000 in the aggregate;
(f) (i) transfer, license, sell, lease, assign or
otherwise dispose of any material assets (whether by way of
merger, consolidation, sale of stock or assets, or otherwise),
including the capital stock or other equity securities of any
Subsidiary of Acadia, provided that the foregoing shall not
prohibit Acadia and its Subsidiaries from transferring,
licensing, selling, leasing or disposing of obsolete equipment
or assets being replaced, in each case in the ordinary course of
business consistent with past practice, (ii) grant any Lien
on any of the assets of Acadia or any of its Subsidiaries (other
than Permitted Liens granted in the ordinary course of business
consistent with past practice), or (iii) adopt, enter into
or effect a plan of complete or partial liquidation,
dissolution, restructuring, recapitalization or other
reorganization of Acadia or any of its Subsidiaries;
(g) redeem, repurchase, prepay, defease, cancel, incur or
otherwise acquire, or modify the terms of, any indebtedness for
borrowed money or assume, guarantee or endorse, or otherwise
become responsible for, any such indebtedness of another Person,
issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of Acadia or any of
its Subsidiaries or assume, guarantee or endorse, or otherwise
become responsible for, any debt securities of another Person;
(h) make any capital expenditures, capital additions or
capital improvements having a cost in excess of $250,000, except
for capital expenditures that are contemplated by Acadia’s
existing plan for annual capital expenditures for the fiscal
year ending December 31, 2011, a copy of which has been
previously made available to Pioneer or fail to make any capital
expenditures, capital additions or capital improvements
contemplated by such existing plan;
(i) (A) enter into or amend or modify in any material
respect, or terminate or consent to the termination of (other
than at its stated expiry date), any Acadia Material Contract or
any other Contract that if in effect as of the date of this
Agreement would constitute an Acadia Material Contract, or
(B) waive any material default under, or release, settle or
compromise any material claim against Acadia or liability or
obligation owing to Acadia under any Acadia Material Contract;
(j) institute, settle, release, waive or compromise any
(i) Action pending or threatened before any arbitrator,
court or other Governmental Authority involving the payment of
monetary damages by Acadia or any of its Subsidiaries of any
amount exceeding $250,000, (ii) Action involving any
current, former or purported holder or group of holders of the
capital stock or other equity securities of Acadia or any of its
Subsidiaries, or (iii) Action which settlement involves a
conduct remedy or injunctive or similar relief or has a
restrictive impact on the business of Acadia or its Subsidiaries;
(k) except as required by GAAP or as a result of a change
in applicable law, make any change in financial accounting
methods, principles, policies, procedures or practices;
(l) make, change or rescind any Tax election, file any
amended Tax Return, enter into any closing agreement relating to
Taxes, waive or extend the statute of limitations in respect of
material Taxes (other than pursuant to extensions of time to
file Tax Returns obtained in the ordinary course of business) or
settle or compromise any Tax liability in excess of $100,000;
(m) enter into any material agreement, agreement in
principle, letter of intent, memorandum of understanding or
similar Contract with respect to any joint venture, strategic
partnership or alliance;
(n) abandon, encumber, convey title (in whole or in part),
exclusively license or grant any right or other licenses to
Intellectual Property Rights owned by Acadia or any of its
Subsidiaries, other than, in each case, in the ordinary course
of business consistent with past practice;
(o) fail to maintain in full force and effect the existing
insurance policies (or alternative policies with comparable
terms and conditions providing no less favorable coverage)
covering Acadia and its Subsidiaries and its and their
respective properties, assets and businesses;
(p) (i) effect or permit a “plant closing”
or “mass layoff” as those terms are defined in the
WARN Act without complying with the notice requirements and all
other provisions of such act or (ii) enter into or modify
or amend in any material respect or terminate any collective
bargaining agreement with any labor union other than pursuant to
customary negotiations in the ordinary course of
business; or
(q) authorize, propose, announce an intention, offer, enter
into any formal or informal agreement or otherwise make any
commitment, to take any of the foregoing actions.
Notwithstanding anything to the contrary contained herein or any
other agreement, document or instrument executed in connection
with herewith (collectively, the “
Purchase
Documents
”), (a) neither Acadia, any of its
Affiliates nor any other Person shall be (a) restricted (or
encumbered) from (i) making any Restricted Payment (as
defined in the Existing Acadia Credit Agreement) to any Loan
Party (as defined in the Existing Acadia Credit Agreement),
(ii) paying any Indebtedness (as defined in the Existing
Acadia Credit Agreement) or other obligation owed to any Loan
Party (as defined in the Existing Acadia Credit Agreement),
(iii) making loans or advances to any Loan Party (as
defined in the Existing Acadia Credit Agreement),
(iv) transfering any of its property to any Loan Party (as
defined in the Existing Acadia Credit Agreement),
(v) pledging its property pursuant to the Loan Documents
(as defined in the Existing Acadia Credit Agreement) or any
renewals, refinancings, exchanges, refundings or extension
thereof or (vi) acting as a Loan Party (as defined in the
Existing Acadia Credit Agreement) pursuant to the Loan Documents
(as defined in the Existing Acadia Credit Agreement) or any
renewals, refinancings, exchanges, refundings or extension
thereof and (b) the Purchase Documents shall not require
the grant of any security for any obligation if such property is
given as security for the Obligations (as defined in the
Existing Acadia Credit Agreement).
Section
5.02
Conduct
of Business by Pioneer Pending the
Merger
.
Pioneer agrees that, between the date
of this Agreement and the Effective Time, except as contemplated
by this Agreement or as set forth in Section 5.02 of the
Pioneer Disclosure Schedule, the businesses of Pioneer and its
Subsidiaries shall be conducted in the ordinary course of
business consistent with past practice in all material respects,
and Pioneer shall, and shall cause its Subsidiaries to, use its
reasonable best efforts to preserve substantially intact the
business organization of Pioneer and its Subsidiaries, to keep
available the services of Pioneer’s and its
Subsidiaries’ current officers and employees, to preserve
Pioneer’s and its Subsidiaries’ present relationships
with customers, suppliers, distributors, licensors, licensees
and other Persons having business relationships with Pioneer or
its Subsidiaries. Except as contemplated by this Agreement or as
set forth in Section 5.02 of the Pioneer Disclosure
Schedule, Pioneer shall not (and shall cause each of its
Subsidiaries not to), between the date of this Agreement and the
Effective Time, directly or indirectly, take any of the
following actions without the prior written consent of Acadia,
which consent shall not be unreasonably withheld or delayed:
(a) amend or propose to amend its articles of organization
or bylaws (or other comparable organizational documents);
(b) (i) split, combine or reclassify any shares of
capital stock or other equity securities of Pioneer or any of
its Subsidiaries, (ii) purchase, repurchase, redeem or
otherwise acquire any shares of capital stock or other equity
securities of Pioneer or any of its Subsidiaries,
(iii) declare, set aside, establish a record date for, make
or pay any dividend or distribution (whether in cash, stock,
property or otherwise) in respect of, or enter into any Contract
with respect to the voting of, any shares of capital stock or
other equity securities of Pioneer or any of its Subsidiaries
(other than dividends or distributions from a direct or indirect
wholly-owned Subsidiary of Pioneer to Pioneer or to another
direct or indirect wholly-owned Subsidiary of Pioneer);
(c) issue, deliver, sell, pledge, transfer, dispose of or
encumber any shares of capital stock or other equity securities
of Pioneer or any of its Subsidiaries, or any securities
convertible into or exchangeable for, or any options, warrants
or other rights of any kind to acquire any such shares of such
capital stock or other equity securities of Pioneer or any of
its Subsidiaries (other than pursuant to the exercise of options
or equity-based awards outstanding on the date of this Agreement
and in accordance with their terms as in effect on the date of
this Agreement);
(d) except to the extent required by applicable law or by a
Contract that is in effect as of the date of this Agreement and
has been previously disclosed to or made available to Acadia,
(i) increase the salaries, bonuses or other compensation
and benefits payable or that could become payable by Pioneer or
any of its Subsidiaries to any of their respective directors,
limited liability company managers, officers, shareholders,
members, employees or other service providers, except, solely
with respect to employees who are not officers or directors, in
the ordinary course of business consistent with past practice,
(ii) enter into any new or amend in any material respect,
any employment, severance, retention or change in control
agreement with any past or
present director, limited liability company manager, officer,
shareholder, member, employee or other service provider of
Pioneer or any of its Subsidiaries, (iii) promote any
officers or employees, except in the ordinary course of business
consistent with past practice or as the result of the
termination or resignation of any officer or employee, or
(iv) establish, adopt, enter into, amend, terminate,
exercise any discretion under, or take any action to accelerate
rights under any Pioneer Plan or any plan, agreement, program,
policy, trust, fund or other arrangement that would be a Pioneer
Plan if it were in existence as of the date of this Agreement,
or make any contribution to any Pioneer Plan, other than
contributions required by applicable law or the terms of such
Pioneer Plan as in effect on the date hereof;
(e) acquire (whether by merging or consolidating with, by
purchasing any equity securities or a substantial portion of the
assets of, or by any other manner) any interest in, or make any
loan, advance or capital contribution to or investment in, any
Person or any division thereof or any assets thereof;
(f) (i) transfer, license, sell, lease, assign or
otherwise dispose of any material assets (whether by way of
merger, consolidation, sale of stock or assets, or otherwise),
including the capital stock or other equity securities of any
Subsidiary of Pioneer, provided that the foregoing shall not
prohibit Pioneer and its Subsidiaries from transferring,
licensing, selling, leasing or disposing of obsolete equipment
or assets being replaced, in each case in the ordinary course of
business consistent with past practice, (ii) grant any Lien
on any of the assets of Pioneer or any of its Subsidiaries
(other than Permitted Liens granted in the ordinary course of
business consistent with past practice or Liens granted in
connection with indebtedness incurred pursuant to and in
accordance with
Section 6.17
), or (iii) adopt,
enter into or effect a plan of complete or partial liquidation,
dissolution, restructuring, recapitalization or other
reorganization;
(g) redeem, repurchase, prepay, defease, cancel, incur or
otherwise acquire, or modify the terms of, any indebtedness for
borrowed money or assume, guarantee or endorse, or otherwise
become responsible for, any such indebtedness of another Person,
issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of Pioneer or any of
its Subsidiaries or assume, guarantee or endorse, or otherwise
become responsible for, any debt securities of another Person,
except for indebtedness incurred pursuant to and in accordance
with
Section 6.17
;
(h) make any capital expenditures, capital additions or
capital improvements having a cost in excess of $100,000, except
for capital expenditures that are contemplated by Pioneer’s
existing plan for annual capital expenditures for the fiscal
year ending June 30, 2011, a copy of which has been
previously made available to Acadia or fail in any material
respect to make any capital expenditures, capital additions or
capital improvements contemplated by such existing plan;
(i) (A) enter into or amend or modify in any material
respect, or terminate or consent to the termination of (other
than at its stated expiry date), any Pioneer Material Contract
or any other Contract that if in effect as of the date of this
Agreement would constitute a Pioneer Material Contract, or
(B) waive any material default under, or release, settle or
compromise any material claim against Pioneer or liability or
obligation owing to Pioneer under any Pioneer Material Contract;
(j) institute, settle, release, waive or compromise any
(i) Action pending or threatened before any arbitrator,
court or other Governmental Authority involving the payment of
monetary damages by Pioneer or any of its Subsidiaries of any
amount exceeding $100,000, (ii) any Action involving any
current, former or purported holder or group of holders of the
capital stock or other equity securities of Pioneer or any of
its Subsidiaries, or (iii) any Action which settlement
involves a conduct remedy or injunctive or similar relief or has
a restrictive impact on the business of Pioneer or its
Subsidiaries;
(k) except as required by GAAP or as a result of a change
in applicable law, make any change in financial accounting
methods, principles, policies, procedures or practices;
(l) make, change or rescind any Tax election, file any
amended Tax Return, enter into any closing agreement relating to
Taxes, waive or extend the statute of limitations in respect of
material Taxes (other than pursuant to extensions of time to
file Tax Returns obtained in the ordinary course of business) or
settle or compromise any Tax liability in excess of $50,000;
(m) enter into any material agreement, agreement in
principle, letter of intent, memorandum of understanding or
similar Contract with respect to any joint venture, strategic
partnership or alliance;
(n) abandon, encumber, convey title (in whole or in part),
exclusively license or grant any right or other licenses to
Intellectual Property owned by Pioneer or any of its
Subsidiaries, other than, in each case, in the ordinary course
of business consistent with past practice;
(o) fail to maintain in full force and effect the existing
insurance policies (or alternative policies with comparable
terms and conditions providing no less favorable coverage)
covering Pioneer and its Subsidiaries and its and their
respective properties, assets and businesses;
(p) (i) effect or permit a “plant closing”
or “mass layoff” as those terms are defined in the
WARN Act without complying with the notice requirements and all
other provisions of such act or (ii) enter into or modify
or amend in any material respect or terminate any collective
bargaining agreement with any labor union other than pursuant to
customary negotiations in the ordinary course of
business; or
(q) authorize, propose, announce an intention, offer, enter
into any formal or informal agreement or otherwise make any
commitment, to take any of the foregoing actions.
Section
5.03
Pioneer’s
Pending Acquisition
.
Pioneer will not agree
to or enter into any amendment to, grant any waiver under or
otherwise waive any rights under the MeadowWood Asset Purchase
Agreement that would (i) increase the consideration paid by
Pioneer pursuant thereto or (ii) be adverse to Pioneer in
any respect that is not d
e minimus
, in either case,
without the prior written consent of Acadia, which will not be
unreasonably withheld or delayed.
(a) Pioneer and Acadia shall cooperate to promptly prepare
the Proxy Statement/ Prospectus and Acadia (with the
Pioneer’s reasonable cooperation) shall promptly prepare
the
Form S-4,
in which the Proxy Statement/ Prospectus will be included as a
prospectus. Pioneer shall as promptly as practicable file the
Proxy Statement with the SEC and Acadia shall as promptly as
practicable file the
Form S-4
with the SEC. Each of Acadia and the Pioneer shall use its
reasonable best efforts to have the
Form S-4
declared effective under the Securities Act as promptly as
practicable after such filing and to keep the
Form S-4
effective as long as is necessary to consummate the Merger and
have the Proxy Statement cleared by the SEC as promptly as
practicable after such filing. Each of Acadia and the Pioneer
shall, upon request, furnish to the other all information
concerning itself, its Subsidiaries, directors, officers and
shareholders or stockholders, as applicable, and such other
matters as may be reasonably necessary or advisable in
connection with the Proxy Statement, the
Form S-4
or applicable law related thereto. Without limiting the
generality of the foregoing, each of Acadia and Pioneer agrees
to use its reasonable best efforts to obtain the auditors’
consents with respect to the inclusion of its consolidated
financial statements, and to the extent required by the
Securities Act or the Exchange Act the consolidated financial
statements of its Subsidiaries and any entity the acquisition of
which is probable, in the
Form S-4
and the Proxy Statement. Without limiting the generality of the
foregoing, Pioneer agrees (i) to use its reasonable best
efforts to provide to Acadia as promptly as possible and in no
event later than two (2) Business Days following the
closing pursuant to the MeadowWood Asset Purchase Agreement all
audited and unaudited financial statements of MeadowWood
Behavioral Health System required to be included in the
Form S-4
and the Proxy Statement and (ii) to use its reasonable best
efforts to provide Acadia as promptly as possible and in no
event later than September 15, 2011, the audited financial
statements of Pioneer for the fiscal year ending June 30,
2011.
(b) Subject to
Section 6.04(b)
, the Proxy
Statement/ Prospectus shall include the Pioneer Board
Recommendation. The Proxy Statement/Prospectus shall also
include all material disclosure relating to the Pioneer
Financial Advisor (including the amount of fees and other
consideration the Pioneer Financial Advisor will be paid upon
consummation of the Merger and the conditions precedent to the
payment of such fees and other consideration), the opinion
referred to in
Section 4.20
and the basis for
rendering such opinion. Pioneer and Acadia shall
make all necessary filings with respect to the Transactions
under the Securities Act, the Exchange Act and applicable state
“blue sky” laws and the rules and regulations
promulgated thereunder.
(c) Pioneer and Acadia shall use their respective
reasonable best efforts to respond as promptly as practicable to
any comments made by the SEC with respect to the Proxy Statement
and the
Form S-4.
Pioneer and Acadia shall provide the other party and its
respective counsel with (i) any comments or other
communications, whether written or oral, that Pioneer or its
counsel or Acadia or its counsel may receive from time to time
from the SEC or its staff with respect to the Proxy Statement or
the
Form S-4,
as applicable, promptly after receipt of those comments or other
communications and (ii) Acadia and Pioneer shall cooperate
with each other in preparing a response to those comments.
(d) Each of Pioneer and Acadia agrees, as to it and its
Affiliates, directors, officers, employees, agents or
Representatives, that none of the information supplied or to be
supplied by Pioneer or Acadia, as applicable, expressly for
inclusion or incorporation by reference in the Proxy Statement,
the
Form S-4
or any other documents filed or to be filed with the SEC in
connection with the Transactions, will, as of the time such
documents (or any amendment thereof or supplement thereto) are
mailed to the Pioneer Shareholders and at the time of the
Pioneer Shareholders’ Meeting, contain any untrue statement
of a material fact, or omit to state any material fact required
to be stated therein in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Each of Pioneer and Acadia further agrees that all
documents that it is responsible for filing with the SEC in
connection with the Merger will comply as to form and substance
in all material respects with the applicable requirements of the
Securities Act, the Exchange Act and any other applicable laws
and will not contain any untrue statement of a material fact, or
omit to state any material fact required to be stated therein in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
provided that the foregoing shall not apply to statements or
omissions based upon information furnished by the other party or
its Representatives.
(e) No amendment or supplement to the Proxy Statement will
be made by Pioneer without the approval of Acadia, which
approval shall not be unreasonably withheld or delayed. No
amendment or supplement to the
Form S-4
will be made by Acadia without the approval of Pioneer, which
approval shall not be unreasonably withheld or delayed. Pioneer
will advise Acadia promptly after the Proxy Statement has been
cleared by the SEC (or the time period for the SEC to review the
same as lapsed) or any supplement or amendment has been filed.
Acadia will advise Pioneer promptly after it receives notice of
the time when the
Form S-4
has become effective or any supplement or amendment has been
filed, the issuance of any stop order, the suspension of the
qualification of Acadia Common Stock issuable in connection with
the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the
Form S-4.
If, at any time prior to the Effective Time, Pioneer or Acadia
discovers any information relating to any party or any of its
Affiliates, officers or directors that should be set forth in an
amendment or supplement to the Proxy Statement or the
Form S-4,
so that none of those documents would include any misstatement
of a material fact or omit to state any material fact necessary
to make the statements in any such document, in light of the
circumstances under which they were made, not misleading, the
party that discovers that information shall promptly notify the
other parties and an appropriate amendment or supplement
describing that information promptly shall be filed with the SEC
and, to the extent required by applicable law, disseminated to
the Pioneer Shareholders.
(f) Acadia and Pioneer shall bear 75% and 25%,
respectively, of the aggregate filing, Edgarizing, printing,
mailing and similar out of pocket fees and expenses (but not
legal or accounting fees and expenses) relating to the Proxy
Statement, the
Form S-4
and any other necessary filings with respect to the Transactions
under the Securities Act, the Exchange Act and applicable state
“blue sky” laws and the rules and regulations
promulgated thereunder.
Section
6.02
Pioneer
Shareholders’ Meeting
.
(a) Pioneer shall, in accordance with and subject to the
Laws of the Commonwealth of Massachusetts
(“
Massachusetts Law
”), its restated articles of
organization, as amended, and bylaws, and the rules of the AMEX,
cause a meeting of the Pioneer Shareholders (the
“
Pioneer Shareholders’ Meeting
”) to be
duly called and held as soon as reasonably practicable after the
Proxy Statement is cleared by the SEC and the
Form S-4
is declared effective under the Securities Act for the purpose
of voting on the approval of this Agreement. Without the prior
written consent of Acadia, (i) the Pioneer
Shareholders’ Meeting shall not be held later than thirty
(30) days after the
date on which the Proxy Statement is mailed to the Pioneer
Shareholders, and (ii) Pioneer may not adjourn or postpone
the Pioneer Shareholders’ Meeting;
provided
that
notwithstanding the foregoing, Acadia may require Pioneer to
adjourn or postpone the Pioneer Shareholders’ Meeting one
(1) time. Pioneer shall, upon the reasonable request of
Acadia, advise Acadia at least on a daily basis on each of the
last ten (10) Business Days prior to the date of the
Pioneer Shareholders’ Meeting, as to the aggregate tally of
the proxies received by Pioneer with respect to the Pioneer
Shareholder Approval. Without the prior written consent of
Acadia, (i) the approval of this Agreement and (ii) an
advisory vote on the Pioneer
change-in-control
agreements shall be the only matters (other than procedure
matters) which Pioneer shall propose to be acted on by the
Pioneer Shareholders at the Pioneer Shareholders’ Meeting.
(b) In connection with the Pioneer Shareholders’
Meeting, Pioneer shall (i) mail the Proxy Statement/
Prospectus and all other proxy materials for such meeting to the
Pioneer Shareholders as promptly as practicable after the Proxy
Statement is cleared by the SEC and the
Form S-4
is declared effective under the Securities Act, (ii) use
its reasonable best efforts to obtain the Pioneer Shareholder
Approval, and (iii) otherwise comply with all legal
requirements applicable to such meeting. Without limiting the
generality of the foregoing, as promptly as practicable after
the Proxy Statement is cleared by the SEC and the
Form S-4
is declared effective under the Securities Act,, Pioneer shall
establish a record date for purposes of determining shareholders
entitled to notice of and vote at the Pioneer Shareholders’
Meeting (the “
Record Date
”). Once Pioneer has
established the Record Date, Pioneer shall not change such
Record Date or establish a different record date for the Pioneer
Shareholders’ Meeting without the prior written consent of
Acadia, unless required to do so by applicable law. In the event
that the date of the Pioneer Shareholders’ Meeting as
originally called is for any reason adjourned or postponed or
otherwise delayed, Pioneer agrees that unless Acadia shall have
otherwise approved in writing, it shall implement such
adjournment or postponement or other delay in such a way that
Pioneer does not establish a new Record Date for the Pioneer
Shareholders’ Meeting, as so adjourned, postponed or
delayed, except as required by applicable law.
(c) Subject to
Section 6.04(b)
, at the Pioneer
Shareholders’ Meeting, Pioneer shall, through the Pioneer
Board, make the Pioneer Board Recommendation and, unless there
has been a Pioneer Board Adverse Recommendation Change, Pioneer
shall (x) take all reasonable lawful action to solicit the
Pioneer Shareholder Approval, and (y) publicly reaffirm the
Pioneer Board Recommendation within two (2) Business Days
after any written request by Acadia. Without limiting the
generality of the foregoing, this Agreement shall be submitted
to the Pioneer Shareholders at the Pioneer Shareholders’
Meeting for the purpose of obtaining the Pioneer Shareholder
Approval whether or not any Acquisition Proposal shall have been
publicly proposed or announced or otherwise submitted to Pioneer
or any of its advisors, unless this Agreement has been
terminated pursuant to
Section 8.01
.
Section
6.03
Access
to Information; Confidentiality
.
(a) Except as required pursuant to applicable law or the
regulations or requirements of any stock exchange or other
regulatory organization with whose rules the parties are
required to comply, as would be reasonably expected to violate
any attorney-client privilege or as would be reasonably expected
to violate any applicable confidentiality agreement (in each
case, so long as, upon request by the other party, a party has
taken all reasonable steps to permit access or disclosure on a
basis that does not compromise attorney-client privilege with
respect thereto), from the date of this Agreement to the
Effective Time, Acadia and Pioneer shall, and shall cause their
respective Subsidiaries to, (i) provide to the other party
(and the other party’s Representatives) access, at
reasonable times upon prior notice, to its and its
Subsidiaries’ officers, employees, agents, Representatives,
properties, offices, facilities, books and records and
(ii) furnish promptly such information concerning its and
its Subsidiaries’ business, properties, Contracts, assets,
liabilities and personnel as the other party or its
Representatives may reasonably request.
(b) All information obtained by Acadia, Pioneer, Merger Sub
or its or their Representatives pursuant to this
Section 6.03
shall be kept confidential in
accordance with the confidentiality agreement, dated
March 31, 2011 (the “
Confidentiality
Agreement
”), between Acadia Holdings, LLC and Pioneer.
The Confidentiality Agreement shall continue in full force and
effect in accordance with its terms until the earlier of the
Effective Time or the expiration of the Confidentiality
Agreement according to its terms.
(a) Except as expressly permitted by this
Section 6.04
, Pioneer and its officers and directors
shall, and Pioneer shall instruct and cause its Representatives,
its Subsidiaries and their Representatives to:
(i) immediately cease all discussions and negotiations with
any Persons that may be ongoing with respect to an Acquisition
Proposal, and deliver a written notice to each such Person to
the effect that Pioneer is ending all discussions and
negotiations with such Person with respect to any Acquisition
Proposal, effective on and from the date hereof, and the notice
shall also request such Person to promptly return all
confidential information concerning Pioneer and its
Subsidiaries; and
(ii) from the date hereof until the Effective Time or, if
earlier, the termination of this Agreement in accordance with
Article VIII, not:
(A) initiate, solicit, propose, encourage (including by
providing information) or take any action to facilitate any
inquiries or the making of any proposal or offer that
constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal;
(B) engage in, continue or otherwise participate in any
discussions or negotiations regarding, or provide any
information or data concerning Pioneer or any of its
Subsidiaries to any Person relating to, any Acquisition Proposal
or any proposal or offer that could reasonably be expected to
lead to an Acquisition Proposal, or provide any information or
data concerning Pioneer or any of its Subsidiaries to any Person
pursuant to any commercial arrangement, joint venture
arrangement, or other existing agreement or arrangement if it is
reasonably likely that the Person receiving the confidential
information would use such information for purposes of
evaluating or developing an Acquisition Proposal;
(C) grant any waiver, amendment or release under any
standstill or confidentiality agreement or Takeover Statutes, or
otherwise knowingly facilitate any effort or attempt by any
Person to make an Acquisition Proposal (including providing
consent or authorization to make an Acquisition Proposal to any
officer or employee of Pioneer or to the Pioneer Board (or any
member thereof) pursuant to any existing confidentiality
agreement);
(D) approve, endorse, recommend, or execute or enter into
any letter of intent, agreement in principle, merger agreement,
acquisition agreement or other similar agreement relating to an
Acquisition Proposal or any proposal or offer that would
reasonably be expected to lead to an Acquisition Proposal, or
that contradicts this Agreement or requires Pioneer to abandon
this Agreement; or
(E) resolve, propose or agree to do any of the foregoing.
(b) Notwithstanding anything to the contrary contained in
Section 6.04(a)
but subject to the last sentence of
this
Section 6.04(b)
, at any time following the date
hereof and prior to, but not after, the receipt of the Pioneer
Stockholder Approval, Pioneer may, subject to compliance with
this
Section 6.04
:
(i) provide information in response to a request therefor
to a Person who has made an unsolicited
bona fide
written
Acquisition Proposal after the date of this Agreement if and
only if, prior to providing such information, Pioneer has
received from the Person so requesting such information an
executed Acceptable Confidentiality Agreement,
provided
that Pioneer shall promptly make available to Acadia any
material information concerning Pioneer and its Subsidiaries
that is provided to any Person making such Acquisition Proposal
that is given such access and that was not previously made
available to Acadia or its Representatives; and
(ii) engage or participate in any discussions or
negotiations with any Person who has made such an unsolicited
bona fide
written Acquisition Proposal;
provided
, that prior to taking any action described in
Section 6.04(b)(i)
or
Section 6.04(b)(ii)
above, (x) the Pioneer
Board shall have determined in good faith, after consultation
with outside legal counsel, that failure to take such action
would be inconsistent with the directors’ fiduciary duties
under applicable laws, and (y) the Pioneer Board shall have
determined in good faith, based on the information then
available and after consultation with its independent financial
advisor and outside legal counsel, that such Acquisition
Proposal either constitutes a Superior
Proposal or is reasonably likely to result in a Superior
Proposal. Notwithstanding the foregoing, Pioneer shall not
provide any commercially sensitive non-public information to any
competitor in connection with the actions permitted by
clause (i) of this
Section 6.04(b)
, except in a
manner consistent with Pioneer’s past practice in dealing
with the disclosure of such information in the context of
considering Acquisition Proposals prior to the date of this
Agreement.
(c) Except as expressly provided by
Section 6.04(d)
, at any time after the date hereof,
neither the Pioneer Board nor any committee thereof shall:
(i) (A) withhold, withdraw (or not continue to make),
qualify or modify (or publicly propose or resolve to withhold,
withdraw (or not continue to make), qualify or modify), in a
manner adverse to Acadia, the Pioneer Board Recommendation with
respect to the Merger, (B) adopt, approve or recommend or
propose to adopt, approve or recommend (publicly or otherwise)
an Acquisition Proposal, (C) (x) fail to publicly recommend
against any Acquisition Proposal or (y) fail to publicly
reaffirm the Pioneer Board Recommendation, in each case of
(x) and (y) within two (2) Business Days after
Acadia so requests in writing, (D) fail to recommend
against any Acquisition Proposal subject to Regulation 14D
under the Exchange Act in a Solicitation/Recommendation
Statement on
Schedule 14D-9
within ten (10) Business Days after the commencement of
such Acquisition Proposal, (E) fail to include the Pioneer
Board Recommendation in the Proxy Statement/ Prospectus,
(F) enter into any letter of intent, memorandum of
understanding or similar document or Contract relating to any
Acquisition Proposal (other than any Acceptable Confidentiality
Agreement entered into in accordance with
Section 6.04(b)
or (G) take any other action or
make any other public statement that is inconsistent with the
Pioneer Board Recommendation (any action described in
clauses (A) through (G), a “
Pioneer Board Adverse
Recommendation Change
”); or
(ii) cause or permit Pioneer or any of its Subsidiaries to
enter into any acquisition agreement, merger agreement or
similar definitive agreement (other than any Acceptable
Confidentiality Agreement entered into in accordance with
Section 6.04(b)
) (an “
Alternative
Acquisition Agreement
”) relating to any Acquisition
Proposal.
(d) Notwithstanding anything to the contrary set forth in
this Agreement, at any time prior to obtaining the Pioneer
Stockholder Approval, if Pioneer has received a
bona fide
written Acquisition Proposal from any Person that is not
withdrawn and that the Pioneer Board concludes in good faith
constitutes a Superior Proposal, the Pioneer Board may effect a
Pioneer Board Adverse Recommendation Change with respect to such
Superior Proposal if and only if:
(i) the Pioneer Board determines in good faith, after
consultation with independent financial advisor and outside
legal counsel, that failure to do so would be inconsistent with
its fiduciary obligations under applicable laws;
(ii) Pioneer shall have complied with its obligations under
this
Section 6.04
;
(iii) Pioneer shall have provided prior written notice to
Acadia at least five (5) Business Days in advance (the
“Notice Period
”), to the effect that the
Pioneer Board has received a
bona fide
written
Acquisition Proposal that is not withdrawn and that the Pioneer
Board concludes in good faith constitutes a Superior Proposal
and, absent any revision to the terms and conditions of this
Agreement, the Pioneer Board has resolved to effect a Pioneer
Adverse Recommendation Change pursuant to this
Section 6.04(d)
, which notice shall specify the
basis for such Pioneer Adverse Recommendation Change, including
the identity of the party making the Superior Proposal, the
material terms thereof and copies of all relevant documents
relating to such Superior Proposal; and
(iv) prior to effecting such Pioneer Board Adverse
Recommendation Change, Pioneer shall, and shall cause their
Representatives to, during the Notice Period, (1) negotiate
with Acadia and its financial and legal advisors in good faith
(to the extent Acadia desires to negotiate) to make such
adjustments in the terms and conditions of this Agreement, so
that such Acquisition Proposal would cease to constitute a
Superior Proposal, and (2) permit Acadia and its financial
and legal advisors to make a presentation to the Pioneer Board
regarding this Agreement and any adjustments with respect
thereto (to the extent Acadia desires to make such
presentation);
provided
, that in the event of any
material revisions to the Acquisition Proposal that the Pioneer
Board has determined to be a Superior Proposal, Pioneer shall be
required to deliver a new written notice to Acadia and to comply
with the requirements of this
Section 6.04
including
6.04(d)
) with respect to such new written notice.
None of Pioneer, the Pioneer Board or any committee of the
Pioneer Board shall enter into any binding agreement with any
Person to limit or not to give prior notice to Acadia of its
intention to effect a Pioneer Board Adverse Recommendation
Change.
(e) Nothing contained in this
Section 6.04
shall be deemed to prohibit Pioneer or the Pioneer Board from
(i) complying with its disclosure obligations under
U.S. federal or state law with regard to an Acquisition
Proposal, including taking and disclosing to its stockholders a
position contemplated by
Rule 14d-9
or
Rule 14e-2(a)
under the Exchange Act (or any similar communication to
stockholders), provided that any such disclosure (other than a
“stop, look and listen” communication or similar
communication of the type contemplated by
Rule 14d-9(f)
under the Exchange Act) shall be deemed to be a Pioneer Board
Adverse Recommendation Change unless the Pioneer Board expressly
publicly reaffirms the Pioneer Recommendation within two
(2) Business Days following any request by Acadia, or
(ii) making any “stop-look-and-listen”
communication or similar communication of the type contemplated
by
Rule 14d-9(f)
under the Exchange Act.
(f) From and after the date hereof, Pioneer agrees that it
will promptly (and, in any event, within 24 hours) notify
Acadia if any proposals or offers with respect to an Acquisition
Proposal are received by, any non-public information is
requested from, or any discussions or negotiations are sought to
be initiated or continued with, Pioneer or any of its
Representatives, indicating, in connection with such notice, the
identity of the Person or group of Persons making such offer or
proposal, the material terms and conditions of any proposals or
offers (including, if applicable, copies of any written
requests, proposals or offers, including proposed agreements)
and thereafter shall keep Acadia reasonably informed, on a
prompt basis, of the status and terms of any such proposals or
offers (including any amendments thereto) and the status of any
such discussions or negotiations, including any change in
Pioneer’s intentions as previously notified.
(g) No Pioneer Board Adverse Recommendation Change shall
change the approval of the Pioneer Board for purposes of causing
any Takeover Statute to be inapplicable to the transactions
contemplated by this Agreement. Pioneer shall promptly notify
Acadia of any breach of any (including the standstill provisions
thereof) by the counterparty thereto, or any request by the
counterparty to any Existing Confidentiality Agreement that
Pioneer or the Pioneer board waive the standstill provision
thereof or authorize or give permission to such counterparty to
take actions that would otherwise be prohibited by the
standstill provisions thereof. To the extent Acadia
and/or
Pioneer believes that there has been a breach of any Existing
Confidentiality Agreement by the counterparty thereto, Pioneer
shall take all necessary actions to enforce such Existing
Confidentiality Agreement.
(h) Pioneer agrees that in the event any of its
Representatives takes any action which, if taken by Pioneer,
would constitute a breach of this
Section 6.04
, then
Pioneer shall be deemed to be in breach of this
Section 6.04
.
Section
6.05
Directors’
and Officers’ Indemnification and
Insurance
.
(a) From and after the Effective Time, Acadia and the
Surviving Company shall, jointly and severally, to the fullest
extent permitted under applicable law, indemnify and hold
harmless the present and former officers, directors and limited
liability company managers of Pioneer and its Subsidiaries (each
an “
Indemnified Party
”) against all costs and
expenses (including attorneys’ fees), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid
in connection with any Action (whether arising before or after
the Effective Time), whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, limited
liability company manager, employee, fiduciary or agent, whether
occurring at or before the Effective Time. In the event of any
such Action, (i) Acadia and the Surviving Company shall pay
the reasonable fees and expenses of counsel selected by the
Indemnified Parties promptly after statements therefor are
received, (ii) neither Acadia nor the Surviving Company
shall settle, compromise or consent to the entry of any judgment
in any pending or threatened Action to which an Indemnified
Party is a party (and in respect of which indemnification could
be sought by such Indemnified Party hereunder), unless such
settlement, compromise or consent includes an unconditional
release of such Indemnified Party from all liability arising out
of such Action or such Indemnified Party otherwise consents, and
(iii) Acadia and the Surviving Company shall cooperate in
the defense of any such
matter;
provided
that, neither Acadia nor the Surviving
Company shall be liable for any settlement effected without such
Person’s written consent (which consent shall not be
unreasonably withheld or delayed); and,
provided further
,
that all rights to indemnification in respect of such claim
shall continue until the final and nonappealable disposition of
such claim. The rights of each Indemnified Person under this
Section 6.05(a)
shall be in addition to any rights
such Person may have under the governing documents of Acadia and
the Surviving Company or any of their respective Subsidiaries,
or under any law or under any agreement of any Indemnified
Person with Acadia, the Surviving Company or any of their
respective Subsidiaries.
(b) Prior to the Effective Time, Pioneer shall and, if
Pioneer is unable to, the Surviving Company shall, as of the
Effective Time to, obtain and fully pay the premium for the
extension of the directors’ and officers’ liability
coverage of Pioneer’s existing directors’ and
officers’ insurance policies, for a claims reporting or
discovery period of at least six (6) years from and after
the Effective Time with respect to any claim related to any
period or time at or prior to the Effective Time from an
insurance carrier with the same or better credit rating as
Pioneer’s current insurance carrier with respect to
directors’ and officers’ liability insurance and
fiduciary liability insurance (the “
D&O
Insurance
”) with terms, conditions, retentions and
limits of liability that are at least as favorable as the
coverage provided under Pioneer’s existing policy with
respect to any matter claimed against a director or officer of
Pioneer or any of its Subsidiaries by reason of him or her
serving in such capacity that existed or occurred at or prior to
the Effective Time (including in connection with this Agreement
or the transactions or actions contemplated hereby).
(c) In the event Acadia, the Surviving Company or any of
their respective successors or assigns (i) consolidates
with or merges into any other Person and shall not be the
continuing or surviving company or entity of such consolidation
or merger, or (ii) transfers all or substantially all of
its properties and assets to any Person, then, and in each such
case, proper provision shall be made so that the successors and
assigns of Acadia or the Surviving Company, as the case may be,
shall succeed to the obligations set forth in this
Section 6.05
.
(d) The provisions of this
Section 6.05
are
intended to be for the benefit of, and shall be enforceable by,
each of the Indemnified Parties and their heirs and legal
representatives.
Section
6.06
Employee
Benefits Matters
.
(a) Prior to the Effective Time, Pioneer and Acadia shall
cooperate to conduct a review of Acadia’s and
Pioneer’s respective employee benefit and compensation
plans and programs in order to (i) coordinate the provision
of benefits and compensation to the employees of Pioneer and
Acadia and their respective Subsidiaries after the Effective
Time, (ii) eliminate duplicative benefits, and
(iii) in all material respects, treat similarly situated
employees of Pioneer, Acadia and their respective Subsidiaries
on a substantially similar basis, taking into account all
relevant factors, including duties, geographic location, tenure,
qualifications and abilities.
(b) Nothing contained herein shall be construed as
requiring Pioneer, Acadia or any of their respective
Subsidiaries to continue the employment of any specific Person.
Furthermore, no provision of this Agreement shall be construed
as prohibiting or limiting the ability of Pioneer, Acadia or any
of their respective Subsidiaries to amend, modify or terminate
any plans, programs, policies, arrangements, agreements or
understandings of Pioneer or Acadia or any of their respective
Subsidiaries (including all Pioneer Plans and all Acadia Plans)
in accordance with their terms. Nothing in this
Section 6.06
shall confer any rights or remedies of
any kind upon any employee or any other Person other than the
parties hereto and their respective successors and assigns.
Section
6.07
Further
Action
.
(a) Subject to the terms and conditions of this Agreement,
including
Section 6.04
, each party shall use
reasonable best efforts to (i) obtain promptly all
authorizations, consents, orders, approvals, licenses, permits
and waivers of all Governmental Authorities and officials that
may be or become necessary for its execution and delivery of,
and the performance of its obligations pursuant to, this
Agreement, (ii) cooperate fully with the other parties in
promptly seeking to obtain all such authorizations, consents,
orders, approvals, licenses, permits and waivers,
(iii) provide such other information to any Governmental
Authority as such Governmental Authority may reasonably request
in connection herewith, (iv) obtain all necessary consents,
approvals or waivers from third parties under such party’s
respective Contracts, and (v) from and after the Effective
Time, execute and deliver any additional instruments necessary
to consummate the Transactions and to fully carry out the
purposes of this
Agreement. For the avoidance of doubt, (i) Pioneer shall
use reasonable best efforts to obtain as promptly as practicable
after the date of this Agreement any consent, approval or waiver
required in connection with the Transactions under a Pioneer
Material Contract, and (ii) Acadia shall use reasonable
best efforts to obtain as promptly as practicable after the date
of this Agreement any consent, approval or waiver required in
connection with the Transactions under an Acadia Material
Contract. Each party hereto agrees that if at any time after the
date of this Agreement a filing pursuant to the HSR Act is
necessary with respect to the Transactions to cooperate with the
other party to make such filing as soon as practicable and to
use commercially reasonable efforts to supply to the appropriate
Governmental Authorities as promptly as possible any additional
information and documentary material that may be requested
pursuant to the HSR Act.
(b) Each party promptly shall notify each other party
hereto of any material communication it or any of its Affiliates
receives from any Governmental Authority relating to the matters
that are the subject of this Agreement. Subject to any
applicable preexisting confidentiality agreement (so long as
such party has taken all reasonable steps to permit access or
disclosure) and applicable attorney-client privilege, each party
shall be entitled to review in advance any proposed substantive
communication by any other party to any Governmental Authority
in connection with the Transactions, and each party shall make
any revisions thereto reasonably requested by the other party.
None of the parties to this Agreement shall agree to participate
in any meeting with any Governmental Authority in respect of any
filings, investigation (including any settlement of the
investigation), litigation or other inquiry relating to the
matters that are the subject of this Agreement unless it
consults with the other party in advance and, to the extent not
prohibited by such Governmental Authority, gives the other party
the opportunity to attend and participate at such meeting. The
parties to this Agreement will coordinate and cooperate fully
with each other in exchanging such information and providing
such assistance as each other party may reasonably request in
connection with the foregoing, subject to any applicable
preexisting confidentiality agreements (so long as such party
has taken all reasonable steps to permit access or disclosure)
and applicable attorney-client privilege. The parties to this
Agreement will provide each other with copies of all material
correspondence, filings or communications between them or any of
their Representatives, on the one hand, and any Governmental
Authority or members of its staff, on the other hand, with
respect to this Agreement and the Transactions;
provided
that, each party may redact materials as necessary to
address required confidentially (so long as such party has taken
all reasonable steps to permit access or disclosure) or
reasonable attorney-client privilege concerns. In furtherance of
the foregoing, all information exchanged between or among the
parties under this
Section 6.07
shall be kept
confidential in accordance with the Confidentiality Agreement.
(c) In the event that any administrative or judicial Action
is instituted (or threatened to be instituted) by a Governmental
Authority or private party challenging the Merger or any other
transaction contemplated by this Agreement, or any other
agreement contemplated hereby, each of Acadia, Pioneer and
Merger Sub shall cooperate in all respects and shall use its
commercially reasonable efforts to contest and resist any such
Action and to have vacated, lifted, reversed or overturned any
order, whether temporary, preliminary or permanent, that is in
effect and that prohibits, prevents or restricts consummation of
the Transactions.
(d) Notwithstanding anything to the contrary set forth in
this Agreement, none of Pioneer, Acadia nor any of their
respective Subsidiaries shall be required to, and Pioneer,
Merger Sub and Acadia may not, without the prior written consent
of the other party, become subject to, consent to, or offer or
agree to, or otherwise take any action with respect to, any
requirement, condition, limitation, understanding, agreement or
order to (i) sell, license, assign, transfer, divest, hold
separate or otherwise dispose of any assets, business or portion
of business of Pioneer, Acadia, Merger Sub, the Surviving
Company or any of their respective Subsidiaries,
(ii) conduct, restrict, operate, invest or otherwise change
the assets, business or portion of business of Pioneer, Acadia,
Merger Sub, the Surviving Company or any of their respective
Subsidiaries in any manner, or (iii) impose any
restriction, requirement or limitation on the operation of the
business or portion of the business of Pioneer, Acadia, Merger
Sub, the Surviving Company or any of their respective
Subsidiaries.
(e) With respect to any shareholder litigation against
Pioneer
and/or
its
directors relating to the Transactions, Pioneer shall
(i) promptly notify Acadia of the initiation of any such
litigation, (ii) promptly notify Acadia of any material
communication or development with respect to such litigation and
(iii) consult in good faith with Acadia with respect to any
material decisions and Pioneer’s general strategy regarding
such litigation and otherwise give Acadia the opportunity to
participate in the defense, settlement
and/or
prosecution of any such litigation;
provided
,
that neither Pioneer nor any of its Subsidiaries or
Representatives shall compromise, settle, come to an arrangement
regarding or agree to compromise, settle or come to an
arrangement regarding any such litigation or consent to the same
unless Acadia shall have consented in writing;
provided
,
further
, that after receipt of the Pioneer Shareholder
Approval, Pioneer shall cooperate with Acadia and, if requested
by Acadia, use its reasonable best efforts to settle any
unresolved shareholder litigation against Pioneer
and/or
its
directors relating to the Transactions in accordance with
Acadia’s direction.
Section
6.08
Update
Disclosure; Breaches
.
(a) From and after the date of this Agreement until the
Effective Time, each party hereto promptly shall notify the
other party hereto by written update to its Disclosure Schedule
of (i) the occurrence, or non-occurrence, of any event
that, individually or in the aggregate, would reasonably be
expected to cause any condition to the obligations of any party
to effect the Transactions not to be satisfied, (ii) any
Action commenced or, to any party’s knowledge, threatened
against, such party or any of its Subsidiaries or Affiliates or
otherwise relating to, involving or affecting such party or any
of its Subsidiaries or Affiliates, in each case in connection
with, arising from or otherwise relating to the Transactions, or
(iii) the failure of such party to comply with or satisfy
any covenant, condition or agreement to be complied with by it
pursuant to this Agreement which, individually or in the
aggregate, would reasonably be likely to result in any condition
to the obligations of any party to effect the Transactions not
to be satisfied;
provided
,
however
, that the
delivery of any notice pursuant to this
Section 6.08
shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this
Agreement or otherwise limit or affect the remedies available
hereunder to the party receiving such notice. The failure to
deliver any such notice shall not affect any of the conditions
set forth in Article VII.
(b) Promptly following the closing pursuant to the
MeadowWood Asset Purchase Agreement, but no later than ten
(10) Business Days prior to the Closing Date, Pioneer shall
deliver to Acadia and Merger Sub a supplement to the Pioneer
Disclosure Schedule (the “
MeadowWood
Schedule Supplement
”) containing any additions,
revisions or modifications to the Pioneer Disclosure Schedule
that are required as a result of Pioneer’s acquisition of
the assets of MeadowWood Behavioral Health System pursuant to
the MeadowWood Asset Purchase Agreement (it being understood and
agreed that the MeadowWood Schedule Supplement will include
all matters which would have been included on the Pioneer
Disclosure Schedules if the closing pursuant to the MeadowWood
Asset Purchase Agreement had been consummated prior to the date
hereof). The MeadowWood Schedule Supplement shall
automatically be deemed incorporated into the Pioneer Disclosure
Schedule effective as of the date of the closing pursuant to the
MeadowWood Asset Purchase Agreement, and any reference herein to
the “Pioneer Disclosure Schedule” shall be thereafter
be deemed to refer to the Pioneer Disclosure Schedule as amended
and revised by the MeadowWood Schedule Supplement, unless
the additions, revisions and modifications set forth on the
MeadowWood Schedule Supplement disclose events or
circumstances that, together with any other events,
circumstances
and/or
other
matters would cause the condition in
Section 7.02(a)
to not be satisfied as of the date of delivery of the MeadowWood
Schedule Supplement, in which case Acadia shall have ten
(10) Business Days after Pioneer’s delivery of the
MeadowWood Schedule Supplement to terminate this Agreement
by delivery of written notice to Pioneer.
Section
6.09
Stock
Exchange Listing
.
Each of Acadia and Pioneer
shall cooperate with the other and use its reasonable best
efforts to cause the shares of Acadia Common Stock to be issued
in connection with the Merger to be listed on Nasdaq, subject to
official notice of issuance, prior to the Effective Time. If
such listing on Nasdaq is not possible, each of Acadia and
Pioneer shall cooperate with the other and use its reasonable
best efforts to cause the shares of Acadia Common Stock to be
issued in connection with the Merger to be listed on to be
listed on AMEX or another national securities exchange, subject
to official notice of issuance, prior to the Effective Time. If
such listing is not possible, each of Acadia and Pioneer shall
cooperate with the other and use its reasonable best efforts to
cause the shares of Acadia Common Stock to become eligible for
trading on the over the counter bulletin board (OTCBB) prior to
the Effective Time; provided that, in such case, Acadia shall
use its reasonable best efforts after the Effective Time to
cause the shares of Acadia Common Stock to listed on Nasdaq or
another national securities exchange. Acadia and Pioneer shall
bear 75% and 25%, respectively, of the listing fee incurred in
obtaining (or attempting to obtain) such listing(s)
and/or
trading eligibility.
Section
6.10
Section 16
Matters
.
Prior to the Effective Time, Pioneer
and Acadia shall take all steps necessary to cause the
Transactions, including any acquisition of Acadia Common Stock
in connection with this Agreement, by each individual who is or
will be subject to the reporting requirements under
Section 16(a) of the Exchange Act with respect to Acadia,
to be exempt under
Rule 16b-3
promulgated under the Exchange Act.
Section
6.11
Takeover
Statutes
.
If any “control share
acquisition,” “fair price,”
“moratorium” or other anti-takeover law becomes or is
deemed to be applicable to Acadia, Pioneer, Merger Sub, the
Merger or any other transaction contemplated by this Agreement,
then each of Acadia, Pioneer, Merger Sub, and their respective
boards of directors or managers shall grant all such approvals
and take all such actions as are necessary so that the
Transactions may be consummated as promptly as practicable on
the terms contemplated hereby and otherwise act to render such
anti-takeover law inapplicable to this Agreement and the
Transactions.
Section
6.12
Deregistration
.
Pioneer
shall use its reasonable best efforts to cause its shares of
Pioneer Class A Common Stock to no longer be quoted on the
AMEX and to be de-registered under the Exchange Act as soon as
practicable following the Effective Time.
Section
6.13
Tax
Free Reorganization Treatment
.
(a) Acadia, Merger Sub, and Pioneer intend that the Merger
be treated for federal income tax purposes as a
“reorganization” under Section 368(a) of the Code
(to which each of Acadia and Pioneer are to be parties under
Section 368(b) of the Code) in which Pioneer is to be
treated as merging directly with and into Acadia, with the
Pioneer Class A Common Stock and Pioneer Class B
Common Stock converted in such merger into the right to receive
the consideration provided for hereunder, and each shall file
all Tax Returns consistent with, and take no position
inconsistent with, such treatment. The parties to this Agreement
agree to make such reasonable representations as requested by
counsel for the purpose of rendering the opinions described in
Section 7.02(h) and Section 7.03(f), including
representations in the Pioneer Tax Certificate (in the case of
Pioneer) and in the Acadia Tax Certificate (in the case of
Acadia).
(b) Acadia, Merger Sub, and Pioneer hereby adopt this
Agreement as a plan of reorganization within the meaning of
Sections 1.368-2(g)
and 1.368-3(a) of the Regulations.
(c) None of Acadia, Merger Sub, or Pioneer shall, nor shall
they permit their Subsidiaries (including the Surviving Company
after the Effective Time) to, take any action before or after
the Effective Time that would prevent the Merger from qualifying
as a “reorganization” within the meaning of
Section 368(a) of the Code. For avoidance of doubt, Acadia
(on its behalf and on behalf of its Subsidiaries), Merger Sub
and Pioneer shall elect, pursuant to Notice
2010-25
to
apply Proposed Treasury Regulation
section 1.368-1(e)(2),
the text of which was set forth in Treasury Regulation
section 1.368-1T(e)(2).
(d) Prior to Closing, (i) neither Acadia nor Merger
Sub shall take, or cause its Subsidiaries to take, any action
that would adversely impact the ability of counsel to provide
the opinions pursuant to Section 7.02(h) and
Section 7.03(f) or the ability of Acadia to deliver the
Acadia Tax Certificate, and (ii) Pioneer shall not take,
and shall cause its Subsidiaries not to take, any action that
would adversely impact the ability of counsel to provide the
opinions pursuant to Section 7.02(h) and
Section 7.03(f) or the ability of Pioneer to deliver the
Pioneer Tax Certificate. For avoidance of doubt, neither Acadia
nor Merger Sub shall make or permit to be taken any action that
would cause Merger Sub to, at any time from the date of this
Agreement to and through the end of the day which includes the
Effective Time, be other than a disregarded entity as defined in
Treasury Regulation
section 1.368-2(b)(1)(i)(A)
and other than disregarded as an entity separate
form Acadia for federal income Tax purposes.
Section
6.14
Public
Announcements
.
(a) The initial press release relating to this Agreement
shall be a joint press release the text of which has been agreed
to by each of Acadia and Pioneer. Thereafter, each of Acadia and
Pioneer shall consult with each other before issuing any press
release or otherwise making any public statements (including
conference calls with investors and analysts) with respect to
this Agreement or any of the Transactions. No party shall issue
any such press release or make any such public statement with
respect to this Agreement or any of the Transactions prior to
such consultation, except to the extent public disclosure is
required by applicable law or the requirements of the AMEX or
Nasdaq, as
applicable, in which case the issuing party shall use its
reasonable best efforts to consult with the other party before
issuing any such press release or making any such public
statements.
(b) Upon Acadia’s request, (i) Pioneer and Acadia
shall promptly prepare a mutually acceptable joint written
presentation to RiskMetrics Group recommending this Agreement
and the Transactions, including the Merger and (ii) Pioneer
shall request a meeting with RiskMetrics Group for purposes of
obtaining its recommendation of the adoption of this Agreement
by the Pioneer Shareholders.
(c) Before any Merger Communication of Pioneer or any of
its “participants” (as defined in Item 4 of
Schedule 14A of the Exchange Act) is (i) disseminated
to any investor, analyst, member of the media, employee, client,
customer or other third party or otherwise made accessible on
the website of Pioneer or such participant (whether in written,
video or oral form via webcast, hyperlink or otherwise), or
(ii) utilized by any executive officer, key employee or
advisor of Pioneer or any such participant, as a script in
discussions or meetings with any such third parties, Pioneer
shall (or shall cause any such participant to) cooperate in good
faith with respect to any such Merger Communication for purposes
of, among other things, determining whether the foregoing is
required to be filed under the Exchange Act or Securities Act.
Pioneer shall (or shall cause any such participant to) give
reasonable and good faith consideration to any comments made by
Acadia and its counsel on any such Merger Communication.
Section
6.15
Transfer
Taxes
.
Acadia and Pioneer shall cooperate in
the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any
sales, transfer, stamp, stock transfer, value added, use, real
property transfer or gains and any similar Taxes that become
payable in connection with the Transactions. Notwithstanding
anything to the contrary herein, from and after the Effective
Time, the Surviving Company agrees to assume liability for and
pay any sales, transfer, stamp, stock transfer, value added,
use, real property transfer or gains and any similar Taxes of
Pioneer, Acadia or any of their respective Subsidiaries, as well
as any transfer, recording, registration and other fees that may
be imposed upon, payable by or incurred by Pioneer, Acadia or
any of their respective Subsidiaries in connection with this
Agreement and the Transactions.
Section
6.16
Other
Actions
.
From the date of this Agreement
until the earlier to occur of the Effective Time or the
termination of this Agreement in accordance with the terms set
forth in Article VIII, Acadia and Pioneer shall not, and
shall not permit any of their respective Subsidiaries to, take,
or agree or commit to take, any action that would reasonably be
expected to, individually or in the aggregate, prevent,
materially delay or materially impede the consummation of the
Transactions.
Section
6.17
Financing
.
(a) Each of Pioneer and Acadia shall cooperate with the
other and use its reasonable best efforts to arrange the debt
financing on the terms and conditions to those described in the
commitment letter dated as of the date hereof among Acadia and
Jefferies Finance LLC, together with the related fee letter and
that certain engagement letter dated as of the date hereof by
and among Acadia and Jefferies & Company, Inc.
(together, the “
Debt Commitment Letters
”),
including using its commercially reasonable efforts to
(i) negotiate definitive agreements with respect thereto
and (ii) satisfy on a timely basis all conditions in such
definitive agreements that are within its control; provided that
nothing contained in this Agreement shall require Acadia to pay
any fees in excess of those contemplated by the Debt Commitment
Letters (whether to secure waiver of any conditions contained
therein or otherwise).
(b) Each of Pioneer and Acadia agrees to provide, and shall
cause its Subsidiaries and its and their Representatives and
advisors, including legal and accounting advisors, to provide,
all reasonable assistance and cooperation (including with
respect to timeliness) in connection with the arrangement of the
Financing as may be reasonably requested by the other party,
including (i) participation in meetings, presentations
(including management presentations), drafting sessions and due
diligence sessions, (ii) furnishing financial and other
pertinent information as may be reasonably requested by the
other party, including projections, pro forma statements,
financial statements and other financial data and other
pertinent information of the type required by
Regulation S-X
and
Regulation S-K
under the Securities Act, (iii) assisting in the
preparation of (A) an offering document and other customary
marketing materials for any part of the Financing and
(B) materials for rating agency presentations,
(iv) reasonably cooperating with the consummation of the
Financing and the syndication and marketing efforts for any part
of the Financing, including obtaining any rating agency
confirmations or approvals for the Financing,
(v) providing and executing documents as may be reasonably
requested by the other party, including a certificate of the
chief financial officer with respect to solvency matters, and
documents required in connection with obtaining consents of
accountants for use of their reports in any materials relating
to the Financing, (vi) reasonably facilitating any
necessary pledging of collateral, (vii) using commercially
reasonable efforts to obtain accountants’ comfort letters,
accountants’ consents, legal opinions, surveys and title
insurance, as reasonably requested by the other party, and
(viii) taking all actions reasonably necessary for the
Surviving Company to become a borrower or guarantor under the
Financing simultaneously with the Closing. Pioneer hereby
consents to the use of its and its Subsidiaries’ logos in
connection with the Financing.
Section
6.18
Pioneer
Stock Purchase Plans
.
Except as set forth on
Section 6.18 of the Pioneer Disclosure Schedule, Pioneer
shall take all actions necessary to (i) suspend any and all
offering or grants during the offering periods currently in
effect under the Pioneer Stock Purchase Plans effective as of
the date of this Agreement (such that no shares of Pioneer
capital stock can be issued pursuant thereto) and (ii) take
all actions necessary to terminate the Pioneer Stock Purchase
Plans prior to the Effective Time.
Section
6.19
Obligations
of Acadia and Merger Sub
.
Acadia shall take
all action necessary to cause Merger Sub to perform its
obligations under this Agreement and to consummate the
Transactions on the terms and subject to the conditions set
forth in this Agreement.
Section
6.20
Fees
and Expenses
.
Each of Pioneer and Acadia will
not (and will cause each of their respective Subsidiaries not
to), incur or agree to pay (i) Pioneer Expenses in an
aggregate amount in excess of the Estimated Pioneer Expenses or
(ii) Acadia Expenses in an aggregate amount in excess of
the Estimated Acadia Expenses, respectively, without the prior
written consent of the other party.
Section
6.21
Peabody
Office
.
Acadia will keep Pioneer’s
Peabody, Massachusetts office open for as long as reasonably
required to effect necessary transition matters, which the
parties anticipate will take from three (3) to six
(6) months following the Effective Time.
Section
6.22
Company
Name
.
For a period of two (2) years
following the effective time of the Merger, Acadia will file a
“dba” in Delaware and such other jurisdictions as it
deems necessary to enable it to conduct business as
“Pioneer Behavioral Health,” and Acadia shall conduct
business under such dba, including by using corporate stationary
bearing such name and by answering the telephone in the
corporate offices under such name. Acadia anticipates that each
of Pioneer’s Subsidiaries will retain their current names
from and after the Effective Time.
ARTICLE VII
CONDITIONS
TO THE MERGER
Section
7.01
Conditions
to the Obligations of Each Party
.
The
obligations of Acadia, Pioneer and Merger Sub to consummate the
Merger are subject to the satisfaction or waiver (where
permissible) of the following conditions:
(a)
Effectiveness of the
Form S-4
.
The
Form S-4
shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of
the
Form S-4
shall have been issued by the SEC and no proceedings for that
purpose shall be pending before the SEC.
(b)
Pioneer Shareholder
Approval
.
The Pioneer Shareholder Approval
shall have been obtained in accordance with Massachusetts Law.
(c)
No Order or Restraint
.
No
Order (whether temporary, preliminary or permanent in nature)
issued by any court of competent jurisdiction or other restraint
or prohibition of any Governmental Authority shall be in effect,
and no Law shall have been enacted, entered, promulgated,
enforced or deemed applicable by any Governmental Authority
that, in any case, prohibits or makes illegal the consummation
of the Merger.
(d)
U.S. Antitrust Approvals and Waiting
Periods
.
Any waiting period (and any
extension thereof) applicable to the consummation of the Merger
under the
Hart-Scott-Rodino
Antitrust Improvements Act of
1976, as amended, and any other antitrust, competition, or trade
regulation law, as applicable, shall have expired or been
terminated.
(e)
Financing/Solvency
.
(i) Acadia
shall have obtained debt financing in the amounts described in,
and on the terms and conditions set forth in, the Debt
Commitment Letters, (ii) Acadia shall have received an
opinion that Acadia’s and its Subsidiaries’ total
consolidated liabilities will not exceed their total
consolidated assets immediately after giving effect to the
Merger and the other Transactions, including the dividend
pursuant to
Section 2.06(c)
, (iii) the Net
Proceeds shall be equal to or greater than $80,000,000 (and as a
result, the Deficit Note(s) shall not exceed $10,000,000).
(f)
Listing
.
The Acadia Common
Stock (i) held by the Acadia Stockholders and
(ii) issuable to the Pioneer Shareholders pursuant to the
Merger shall be listed or approved for listing upon issuance
upon a national securities exchange or eligible for trading on
the over the counter bulletin board (OTCBB).
(g)
Professional Services
Agreement
.
The Professional Services
Agreement shall have been terminated pursuant to the terms of a
termination agreement and the PSA Amount shall have been paid to
Waud Capital Partners, LLC in connection therewith.
Section
7.02
Conditions
to the Obligations of Acadia
.
The obligations
of Acadia to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following
additional conditions:
(a) (i) the representations and warranties of Pioneer
and set forth in
Section 4.01
(Organization,
Standing and Power; Subsidiaries),
Section 4.03
(Capitalization),
Section 4.04
(Authority Relative
to This Agreement),
Section 4.09(a)
(Absence of
Certain Changes or Events) and
Section 4.19
(Pioneer
Board Approval; Vote Required) shall be true and correct in all
respects as of the date of this Agreement and as of the Closing
Date as if made at and as of the Closing Date (except to the
extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier date),
(ii) other than the representations and warranties in
Section 4.01
(Organization, Standing and Power;
Subsidiaries),
Section 4.03
(Capitalization),
Section 4.04
(Authority Relative to This Agreement),
Section 4.07(f)
(SEC Filings; Undisclosed
Liabilities),
Section 4.09
(a) (Absence of Certain
Changes or Events) and
Section 4.19
(Pioneer Board
Approval; Vote Required), the representations and warranties of
Pioneer set forth in this Agreement shall be true and correct
(disregarding all qualifications or limitations as to
“materiality” and “Pioneer Material Adverse
Effect” set forth therein) as of the date of this Agreement
and as of the Closing Date as if made at and as of the Closing
Date (except to the extent that any such representation and
warranty expressly speaks as of an earlier date, in which case
such representation and warranty shall be true and correct as of
such earlier date), except for such failures to be true and
correct which, individually or in the aggregate, have not and
would not have a Pioneer Material Adverse Effect, and
(iii) the representations and warranties of Pioneer set
forth in
Section 4.07(f)
(SEC Filings; Undisclosed
Liabilities) shall be true and correct in all material respects
as of the date of this Agreement and as of the Closing Date as
if made at and as of the Closing Date.
(b)
Agreements and
Covenants
.
Pioneer shall have performed or
complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied
with by them on or prior to the Closing.
(c)
Pioneer Material Adverse
Effect
.
Since the date of this Agreement,
there shall not have been or occurred any Pioneer Material
Adverse Effect.
(d)
Officers Certificate
.
Acadia
will have received a certificate, signed by the chief executive
officer or chief financial officer of Pioneer, certifying as to
the matters set forth in
Section 7.02(a)
,
Section 7.02(b)
and
Section 7.02(c)
hereof.
(e)
Third Party Consents
.
Acadia
shall have been furnished with evidence satisfactory to it of
the consent or approval of those persons whose consent or
approval shall be required in connection with the Merger under
the Pioneer Material Contracts set forth in
Section 4.16
of the Pioneer Disclosure Schedule .
(f)
Resignation of Directors and
Officers
.
The directors and officers of
Pioneer set forth in
Schedule 7.02(f)
shall have
resigned as directors and officers, as applicable, of Pioneer
effective as of the Effective Time.
(g)
Governmental Approvals
.
Acadia
and Pioneer and their respective Subsidiaries shall have timely
obtained from each Governmental Authority all approvals, waivers
and consents, if any, necessary for the consummation of or in
connection with the Transactions, free of any condition that
reasonably would be expected to have a Pioneer Material Adverse
Effect, an Acadia Material Adverse Effect, or a material adverse
effect on the parties’ ability to consummate the
Transactions.
(h)
Tax Opinion
.
Acadia shall have
received the opinion of Kirkland & Ellis LLP, counsel
to Acadia, in form and substance reasonably satisfactory to
Acadia, dated the Closing Date, substantially to the effect that
on the basis of facts, representations and assumptions set forth
in such opinion which are consistent with the state of facts
existing as of the Effective Time, for federal income tax
purposes: (i) the Merger will constitute a
“reorganization” within the meaning of
Section 368(a) of the Code and (ii) Acadia and Pioneer
will each be a party to that reorganization within the meaning
of Section 368(b) of the Code. In rendering such opinion,
Kirkland & Ellis LLP may rely upon representations
contained herein and may receive and rely upon representations
from Acadia, Pioneer and others, including representations from
Acadia in the Acadia Tax Certificate and representations from
Pioneer in the Pioneer Tax Certificate.
(i)
Opinion of Special
Counsel
.
Pioneer shall have received the
opinion of Pepper Hamilton LLP, special counsel to Pioneer,
substantially in the form attached hereto as
Exhibit D
.
(j)
Acquisition
.
Pioneer shall
have consummated its acquisition of the assets of MeadowWood
Behavioral Health System pursuant to the MeadowWood Asset
Purchase Agreement.
(k)
Stockholders Agreement
.
Acadia
and certain of its stockholders shall have entered into the
Stockholders Agreement, substantially in the form attached
hereto as
Exhibit E
.
Section
7.03
Conditions
to the Obligations of Pioneer
.
The
obligations of Pioneer to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following
additional conditions:
(a)
Representations and
Warranties
(i) The representations and
warranties of Acadia set forth in
Section 3.01
(Organization, Standing and Power; Subsidiaries),
Section 3.03
(Capitalization),
Section 3.04
(Authority Relative to This Agreement),
Section 3.09
(a) (Absence of Certain Changes or
Events) and
Section 3.19
(Acadia Board Approval;
Vote Required) shall be true and correct in all respects as of
the date of this Agreement and as of the Closing Date as if made
at and as of the Closing Date (except to the extent that any
such representation and warranty expressly speaks as of an
earlier date, in which case such representation and warranty
shall be true and correct as of such earlier date),
(ii) other than the representations and warranties in
Section 3.01
(Organization, Standing and Power;
Subsidiaries),
Section 3.03
(Capitalization), in
Section 3.04
(Authority Relative to This Agreement),
Section 3.07(f)
(Financial Statements),
Section 3.09
(a) (Absence of Certain Changes or
Events) and
Section 3.19
(Acadia Board Approval;
Vote Required), the representations and warranties of Acadia set
forth in this Agreement shall be true and correct (disregarding
all qualifications or limitations as to “materiality”
and “Acadia Material Adverse Effect” set forth
therein) as of the date of this Agreement and as of the Closing
Date as if made at and as of the Closing Date (except to the
extent that any such representation and warranty expressly
speaks as of an earlier date, in which case such representation
and warranty shall be true and correct as of such earlier date),
except for such failures to be true and correct which,
individually or in the aggregate, have not and would not have a
Acadia Material Adverse Effect, and (iii) the
representations and warranties of Acadia set forth in
Section 4.07(f)
(Financial Statements) shall be true
and correct in all material respects as of the date of this
Agreement and as of the Closing Date as if made at and as of the
Closing Date.
(b)
Agreements and
Covenants
.
Acadia shall have performed or
complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied
with by Acadia on or prior to the Closing.
(c)
Acadia Material Adverse
Effect
.
Since the date of this Agreement,
there shall not have been or occurred any Acadia Material
Adverse Effect.
(d)
Officers Certificate
.
Pioneer
will have received a certificate, signed by the chief executive
officer or chief financial officer of Acadia, certifying as to
the matters set forth in
Section 7.03(a)
,
Section 7.03(b)
and
Section 7.03(c)
hereof.
(e)
Third Party Consents
.
Pioneer
shall have been furnished with evidence satisfactory to it of
the consent or approval of those persons whose consent or
approval shall be required in connection with the Merger under
the Acadia Material Contracts set forth in
Section 3.16
of the Acadia Disclosure Schedule.
(f)
Tax Opinion
.
Pioneer shall
have received an opinion of Arent Fox LLP, in form and substance
reasonably satisfactory to Pioneer, dated the Closing Date,
substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which
are consistent with the state of facts existing as of the
Effective Time, for federal income tax purposes: (i) the
Merger will constitute a “reorganization” within the
meaning of Section 368(a) of the Code and (ii) Acadia
and Pioneer will each be a party to that reorganization within
the meaning of Section 368(b) of the Code. In rendering
such opinion, Arent Fox LLP may rely upon representations
contained herein and may receive and rely upon representations
from Acadia, Pioneer and others, including representations from
Acadia in the Acadia Tax Certificate and representations from
Pioneer in the Pioneer Tax Certificate.
Section
7.04
Reliance
on Article VII
.
None of Acadia, Pioneer
or Merger Sub may rely on the failure of any condition set forth
in Article VII to be satisfied if such failure was caused
by such Party’s failure to act in good faith to comply with
this Agreement and consummate the transactions provided for
herein.
ARTICLE VIII
TERMINATION,
AMENDMENT AND WAIVER
Section
8.01
Termination
.
This
Agreement may be terminated, and the Merger contemplated hereby
may be abandoned, at any time prior to the Effective Time, by
action taken or authorized by the Board of Directors of the
terminating party or parties as set forth below.
(a)
Termination by Mutual
Consent
.
This Agreement may be terminated by
the mutual written consent of Acadia and Pioneer;
(b)
Termination by Acadia or
Pioneer
.
This Agreement may be terminated by
either Acadia or Pioneer (if, in the case of Pioneer, it has not
breached
Section 6.04
):
(i) if the Merger shall not have been consummated by
11:59 p.m., New York City Time, on December 15, 2011
(the “
End Date
”); provided, however, that the
right to terminate this Agreement under this
Section 8.01(b)(i)
shall not be available to Pioneer
if, at the time of any such intended termination by Pioneer,
either Pioneer or Acadia shall be entitled to terminate this
Agreement pursuant to
Section 8.01(b)(iii)
;
provided
further
, that any purported termination
this Agreement pursuant to this
Section 8.01(b)(i)
shall be deemed a termination under
Section
8.01(c)
(i) or
Section 8.01(d)(i)
, as
applicable, if, at the time of any such intended termination,
Acadia or Pioneer is entitled to terminate this Agreement
pursuant to
Section 8.01(c)
(i) or
Section 8.01(d)(i)
, as applicable;
provided
further
, that that any purported termination of this
Agreement pursuant to this
Section 8.01(b)(i)
shall
be deemed a termination under
Section 8.01(b)(iii)
if, at the time of any such intended termination, Acadia is
entitled to terminate this Agreement pursuant to
Section 8.01(b)(iii)
;
(ii) if (x) an Order of any Governmental Authority
having competent jurisdiction is entered enjoining Pioneer,
Acadia or Merger Sub from consummating the Merger and such Order
has become final and nonappealable, or (y) there shall be
any law that makes consummation of the Merger illegal or
otherwise prohibited (unless the consummation of the Merger in
violation of such law would not have a Pioneer Material Adverse
Effect); provided, however, that the right to terminate this
Agreement pursuant to this Section 8.01(b)(ii) shall not be
available to any party whose breach of any provision of this
Agreement
results in the imposition of any such Order or the failure of
such Order to be resisted, resolved or lifted, as
applicable; or
(iii) if the Pioneer Stockholder Approval is not obtained
at the Pioneer Shareholders’ Meeting or any adjournment
thereof at which this Agreement has been voted upon;
(c)
Termination by Pioneer
.
This
Agreement may be terminated by Pioneer:
(i) if (x) Acadia or Merger Sub shall have breached
any of the covenants or agreements contained in this Agreement
to be complied with by Acadia or Merger Sub such that the
closing condition set forth in
Section 7.03(b)
would
not be satisfied or (y) there exists a breach of any
representation or warranty of Acadia or Merger Sub contained in
this Agreement such that the closing condition set forth in
Section 7.03(a)
would not be satisfied, and, in the
case of either (x) or (y), such breach is incapable of
being cured by the End Date or is not cured within thirty
(30) calendar days after Acadia receives written notice of
such breach from Pioneer; provided that Pioneer shall not have
the right to terminate this Agreement pursuant to this
Section 8.01(c)
(i) if, at the time of such
termination, there exists a breach of any representation,
warranty, covenant or agreement of Pioneer or Merger Sub
contained in this Agreement that would result in the closing
conditions set forth in
Section 7.02(a)
or
Section 7.02(b)
, as applicable, not being
satisfied; or
(ii) if, prior to the obtaining of the Pioneer Stockholder
Approval, the Pioneer Board or any committee thereof shall have
effected a Pioneer Board Adverse Recommendation Change.
(d)
Termination by Acadia
.
This
Agreement may be terminated by Acadia:
(i) if (x) Pioneer shall have breached any of the
covenants or agreements contained in this Agreement to be
complied with by Pioneer such that the closing condition set
forth in
Section 7.02(b)
would not be satisfied or
(y) there exists a breach of any representation or warranty
of Pioneer contained in this Agreement such that the closing
condition set forth in
Section 7.02(a)
) would not be
satisfied, and, in the case of either (x) or (y), such
breach is incapable of being cured by the End Date or is not
cured by Pioneer within thirty (30) calendar days after
Pioneer receives written notice of such breach from Acadia;
provided
that Acadia shall not have the right to
terminate this Agreement pursuant to this
Section 8.01(d)(i)
if, at the time of such
termination, there exists a breach of any representation,
warranty, covenant or agreement of Acadia contained in this
Agreement that would result in the closing conditions set forth
in
Section 7.03(a)
or
Section 7.03(b)
,
as applicable, not being satisfied;
(ii) if, prior to the obtaining of the Pioneer Stockholder
Approval, the Pioneer Board or any committee thereof shall have
effected a Pioneer Board Adverse Recommendation Change; or
(iii) pursuant to
Section 6.08
.
(e)
Notice of Termination
.
The
party desiring to terminate this Agreement pursuant to this
Section 8.01
shall give written notice of such
termination to the other parties specifying the provision or
provisions of this
Section 8.01
pursuant to which
such termination is purportedly effected.
Section
8.02
Effect
of Termination; Termination Fee and Expense
Reimbursement
.
(a)
Effect of Termination
Generally
.
Except as otherwise set forth in
this
Section 8.02
, in the event of a termination of
this Agreement by either Pioneer or Acadia as provided in
Section 8.01
, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part
of Acadia, Pioneer or Merger Sub or their respective officers or
directors; provided, however, that the provisions of this
Section 8.02
,
Article IX
and the
Confidentiality Agreement shall remain in full force and effect
and survive any termination of this Agreement; provided,
further, that no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any
provision of this Agreement (including the failure by any party
to pay any amounts due pursuant to this
Section 8.02
)), which the parties acknowledge and
agree shall not be limited to reimbursement of expenses or
out-of-pocket
costs, and may include to the extent proved the benefit of the
bargain lost by a party’s stockholders (taking into
consideration relevant matters), which shall be deemed in such
event to be damages of such party. Notwithstanding anything to
the contrary in this Agreement, in no event shall any party be
liable for (i) punitive damages (unless awarded to a third
party) or (ii) any amount in excess of the Termination Fee
in the event such fee is
actually paid by such party. The Lenders and each Indemnified
Party (as defined in the Debt Commitment Letters) are express
third-party beneficiaries of clause (i) of the preceding
sentence with respect to punitive damages.
(b)
Termination Fee
.
(i) In the event this Agreement is terminated (x) by
Pioneer pursuant to
Section 8.01(c)(ii)
or (y) by
Acadia pursuant to
Section 8.01(d)(ii)
, Pioneer
shall pay the Termination Fee to Acadia promptly, but in any
event within two (2) Business Days after the date of such
termination, by wire transfer of same day funds to one or more
accounts designated by Acadia.
(ii) In the event that (x) this Agreement is
terminated (A) by either Acadia or Pioneer pursuant to
Section 8.01(b)(i)
or
Section 8.01(b)(iii)
or (B) by Acadia pursuant
to
Section 8.01(d)(i)
or
Section 8.01(d)(iii)
and (y) after the date of
this Agreement and prior to the twelve (12) month
anniversary of the termination of this Agreement, Pioneer
consummates an Acquisition Proposal, enters into any letter of
intent, agreement in principle, acquisition agreement or other
similar agreement related to an Acquisition Proposal, or Pioneer
files a Solicitation/ Recommendation Statement on
Schedule 14D-9
that includes the Pioneer Board’s recommendation of any
Acquisition Proposal to Pioneer’s stockholders, then
Pioneer shall, on the date an Acquisition Proposal is
consummated, any such letter is executed or agreement is entered
into or any such statement is filed with the SEC, pay the
Termination Fee (less the amount of any Acadia Reimbursed
Expenses previously paid to Acadia pursuant to
Section 8.02(c)
, if any) to Acadia by wire transfer
of same day funds to one or more accounts designated by Acadia;
provided
, that for purposes of this
Section 8.02(b)(ii)
, all percentages in the
definition of Acquisition Proposal shall be replaced with 50%.
(iii) For the avoidance of doubt, in no event shall either
Pioneer or Acadia be obligated to pay, or cause to be paid, the
Termination Fee on more than one occasion.
(c)
Expense Reimbursement
.
(i) In the event this Agreement is terminated by Pioneer
pursuant to
Section 8.01(c)(i)
, then Acadia shall,
following receipt of an invoice therefor, pay all of
Pioneer’s reasonably documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred by Pioneer and its Affiliates on or prior to
the termination of this Agreement in connection with the
transactions contemplated by this Agreement (including the
Financing), which amount shall in no event exceed $1,000,000 in
the aggregate, in four annual installments (with the first such
payment made within two (2) Business Days of such
termination, and the remaining payments being made on the first,
second and third anniversary of such termination date).
(ii) In the event this Agreement is terminated by Acadia
pursuant to
Section 8.01(d)(i)
or
Section 8.01(d)(iii)
, under circumstances in which
the Termination Fee is not then payable pursuant to
Section 8.02(b)
, then Pioneer shall, following
receipt of an invoice therefor, pay all of Acadia’s
reasonably documented
out-of-pocket
fees and expenses (including reasonable legal fees and expenses)
actually incurred by Acadia and its Affiliates on or prior to
the termination of this Agreement in connection with the
transactions contemplated by this Agreement (including the
Financing) (the “
Acadia Reimbursed Expenses
”),
which amount shall in no event exceed $1,000,000 in the
aggregate, in four annual installments (with the first such
payment made within two (2) Business Days of such
termination, and the remaining payments being made on the first,
second and third anniversary of such termination date), to one
or more accounts designated by Acadia;
provided
, that
(x) the existence of circumstances which could require the
Termination Fee to become subsequently payable by Pioneer
pursuant to
Section 8.02(b)
shall not relieve Pioneer of
its obligations to pay the Acadia Reimbursed Expenses pursuant
to this
Section 8.02(c)
; (y) that the payment
by Pioneer of the Acadia Reimbursed Expenses pursuant to this
Section 8.02(c)
; shall not relieve Pioneer of any
subsequent obligation to pay the Termination Fee pursuant to
Section 8.02(b)
except to the extent indicated in
Section 8.02(b)
, and (z) that any unpaid
expense reimbursement payments shall be due on the same date as
any subsequent obligation to pay the Termination Fee pursuant to
Section 8.02(b)
.
(d)
Acknowledgement
.
Each of
Pioneer and Acadia acknowledges that (i) the agreements
contained in this
Section 8.02
are an integral part
of the transactions contemplated in this Agreement,
(ii) the damages resulting from termination of this
Agreement under circumstances where a Termination Fee is payable
are uncertain and incapable of accurate calculation and
therefore, the amounts payable pursuant to
Section 8.02(b)
are not a penalty but rather
constitute liquidated damages in a reasonable amount that will
compensate Acadia or Pioneer, as applicable, for the
efforts and resources expended and opportunities foregone while
negotiating this Agreement and in reliance on this Agreement and
on the expectation of the consummation of the transactions
contemplated hereby, and (iii) without the agreements
contained in this
Section 8.02
, neither Pioneer nor
Acadia would have entered into this Agreement. Accordingly, if
either Pioneer or Acadia (as applicable, the “
Non-Paying
Party
”) fails to promptly pay any amount due pursuant
to
Section 8.02(b)
and, in order to obtain such
payment, the party seeking such payment commences a suit that
results in a judgment against the Non-Paying Party for the
applicable amount set forth in
Section 8.02(b)
or
Section 8.02(c)
or any portion thereof, the
Non-Paying Party shall pay to the party seeking such payment all
costs and expenses (including attorneys’ fees) incurred by
such party and its Affiliates in connection with such suit,
together with interest on the amount of such amount or portion
thereof at the prime rate of Citibank N.A. in effect on the date
such payment was required to be made through the date of payment.
Section
8.03
Extension;
Waiver
.
At any time prior to the Effective
Time, the parties may, to the extent permitted by applicable law
and
,
subject to
Section 8.04
, (i) extend
the time for the performance of any of the obligations or other
acts of the other parties, (ii) waive any inaccuracies in
the representations and warranties contained herein or in any
document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained
herein;
provided
,
however
, that after any approval
of this Agreement by the Pioneer’s stockholders, there may
not be any extension or waiver of this Agreement which decreases
the Merger Consideration or which adversely affects the rights
of Pioneer’s stockholders hereunder without the approval of
such stockholders. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure
of any party to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
Section
8.04
Amendment
.
This
Agreement may be amended by the parties by action taken by or on
behalf of their respective Boards of Directors at any time prior
to the Effective Time; and
provided
, that after approval
of the Agreement by the stockholders of Pioneer, no amendment
that, by law or in accordance with the rules of any relevant
stock exchange, requires further approval by such stockholders
may be made without further stockholder approval. This Agreement
may not be amended except by an instrument in writing signed by
Acadia and Pioneer.
ARTICLE IX
GENERAL
PROVISIONS
Section
9.01
Certain
Definitions
.
For purposes of this Agreement:
“
Acadia Balance Sheet Date
”
means
December 31, 2010.
“
Acadia Expenses
”
means all of
Acadia’s reasonably documented
out-of-pocket
fees and expenses (including reasonable legal and advisory fees
and expenses) actually incurred by Acadia and its Affiliates in
connection with the Transactions contemplated by this Agreement,
which shall not include the Financing Expenses or Acadia’s
portion of the Shared Expenses.
“
Acadia Health Care Facility
”
means any
hospital, residential treatment center, pharmacy, laboratory,
facility or ancillary department that is leased or owned, and
operated, by or for the benefit of Acadia or any of its
Subsidiaries.
“
Acadia Material Adverse Effect
”
means
any event, change, condition or effect that, individually or in
the aggregate, is, or is reasonably likely to be, materially
adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations or results of
operations of Acadia and its Subsidiaries, taken as a whole,
other than any event, change, condition or effect relating to
(i) the Transactions or the announcement thereof,
(ii) compliance with the terms of this Agreement or the
taking of any action consented to or requested by Pioneer or
Merger Sub, (iii) any change in accounting requirements or
principles required by GAAP, or any interpretations thereof,
(iv) the United States economy in general, or (v) the
behavioral healthcare industry in general;
provided
that,
an Acadia Material Adverse Effect shall include any change in or
effect on the business of Acadia and its Subsidiaries that,
individually or in the aggregate, is, or is reasonably likely to
be, materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business,
operations or results of operations of Acadia and its
Subsidiaries taken as a whole, if such change or effect is
significantly more adverse to Acadia and its Subsidiaries, taken
as a whole, than to the behavioral healthcare industry in
general.
“
Acadia Related Party
”
means
(i) each individual who is, or who has at any time since
the inception of Acadia been, an equityholder, director, limited
liability company manager, officer, employee or independent
contractor of Acadia or any of its Subsidiaries, (ii) each
immediate family member of the individuals described in
clause (i) above, and (iii) each Person (other than
Acadia and its Subsidiaries) in which any Person described in
clause (i) or clause (ii) above holds, beneficially or
otherwise, a material voting, proprietary or financial interest.
“
Acadia Tax Certificate
”
shall mean a
certificate substantially to the effect of the form of the
Acadia Tax Certificate attached hereto as
Exhibit F
.
“
Acadia Third Party Intellectual Property
Rights
”
means all material licenses, sublicenses
and other agreements as to which Acadia or any Subsidiary of
Acadia is a party and is authorized to use any Intellectual
Property Rights of any third parties (except for click-through,
shrink-wrap and other
off-the-shelf
licenses for commercially available software that are either
licensed for a one-time fee less than $5,000 or licensed for
annual license fees in the aggregate equal to $25,000 or less).
“
Acceptable Confidentiality Agreement
”
means a confidentiality agreement on terms that are identical in
all material respects to the confidentiality agreement executed
by Acadia.
“
Acquisition Proposal
”
shall mean any
inquiry, proposal or offer relating to (i) the acquisition
of fifteen (15) percent or more of the Pioneer Common Stock
(by vote or by value) by any Third Party, (ii) any merger,
consolidation, business combination, reorganization, share
exchange, sale of assets, recapitalization, equity investment,
joint venture, liquidation, dissolution or other transaction
which would result in any Third Party acquiring assets
(including capital stock of or interest in any Subsidiary or
Affiliate of Pioneer) representing, directly or indirectly,
fifteen (15) percent or more of the net revenues, net
income or assets of Pioneer and its Subsidiaries, taken as a
whole, (iii) the acquisition (whether by merger,
consolidation, equity investment, share exchange, joint venture
or otherwise) by any Third Party, directly or indirectly, of any
Capital Stock in any entity that holds assets representing,
directly or indirectly, fifteen (15) percent or more of the
net revenues, net income or assets of Pioneer and its
Subsidiaries, taken as a whole, (iv) any tender offer or
exchange offer, as such terms are defined under the Exchange
Act, that, if consummated, would result in any Third Party
beneficially owning fifteen (15) percent or more of the
outstanding shares of Pioneer Common Stock and any other voting
securities of Pioneer, or (v) any combination of the
foregoing.
“
Affiliate
”
means, with respect to any
Person, any other Person who, directly or indirectly, controls,
is controlled by, or is under common control with, such
specified person.
“
Business Day
”
means any day on which
the principal offices of the SEC in Washington, D.C. are
open to accept filings, or, in the case of determining a date
when any payment is due, any day on which commercial banks in
New York, New York are not required by applicable law or
authorized to close.
“
Cash on Hand
”
means with respect to any
Person at any date, the sum of all unrestricted cash, marketable
securities and short term investments of such person and its
Subsidiaries, as recorded in the books and records of such
Person and its Subsidiaries in accordance with GAAP.
“
Contract
”
means any contract,
agreement, lease, license, sales order, purchase order,
instrument or other commitment that is binding on any person or
any part of its property under applicable law.
“
Deficit Note
”
means one or more
Promissory Notes with an aggregate principal face amount equal
to the Net Proceeds Deficit, substantially in form attached
hereto as
Exhibit G
or such other form required by
Acadia’s lenders.
“
Existing Acadia Credit Agreement
”
shall
mean that certain Credit Agreement, dated as of April 1,
2011 among Acadia Healthcare Company, LLC, a Delaware limited
liability company, the Guarantors (as defined therein), the
Lenders (as defined therein) and BANK OF AMERICA, N.A., as
Administrative Agent, Swing
Line Lender and L/C Issuer, as amended, amended and restated,
supplemented, modified, renewed or extended from time to time.
“
Expenses
”
means all reasonable
out-of-pocket
expenses (including all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a
party hereto and its Affiliates) incurred by a party or on its
behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this
Agreement and the Transactions.
“
Financing Expenses
”
means the aggregate
amount of any costs and expenses incurred by Acadia and its
Affiliates under or pursuant to the Debt Commitment or otherwise
in connection with obtaining the financing under the Debt
Commitment Letters, including without limitation any original
issue discount.
“
Fully Diluted Shares
”
means the sum of
(i) the Pre-Merger Acadia Stock,
plus
(ii) the
aggregate number of shares of Acadia Common Stock into which
shares of Pioneer Common Stock are converted into (including any
fractional shares) pursuant to
Section 2.01(a)
,
plus
(iii) the number of shares of Acadia Common
Stock (after giving effect to
Section 2.05(b)
and
Section 2.05(c)
and including any fractional shares)
issuable pursuant to Pioneer Stock Options and Pioneer Warrants
which had an exercise price (prior to giving effect to
Section 2.05(b)
and
Section 2.05(c)
)
equal to or less than the average per share closing prices of
Pioneer Class A Common Stock as reported on AMEX (as
reported in the Midwest Edition of The Wall Street Journal or,
if not reported thereby, another authoritative source) for ten
full trading days ending one (1) Business Days prior to the
date of this Agreement.
“
Health Care Laws
”
means all relevant
state and federal civil or criminal health care laws applicable
to any Company Health Care Business, including Medicaid,
Medicare, the federal Anti-kickback Statute (42 U.S.C.
§ 1320a-7b(b)),
the Stark Law (42 U.S.C. § 1395nn), the civil
False Claims Act (31 U.S.C. § 3729 et seq.), the
administrative False Claims Law (42 U.S.C.
§ 1320a-7b(a)),
the Civil Money Penalties Law (42 U.S.C.
§ 1320a-7a;
42 U.S.C.
§ 1320c-8(a)),
the Health Insurance Portability and Accountability Act of 1996
(42 U.S.C. § 1320d et seq.), the exclusion Laws
(42 U.S.C.
§ 1320a-7),
any law with respect to licensing a Company Health Care
Business, or the regulations promulgated pursuant to such laws,
and comparable state laws, and all statutes and regulations
related to the education of, housing of, or care for youth.
“
Indebtedness
”
means with respect to any
Person at any date, without duplication, (i) all
obligations of such Person for borrowed money or in respect of
loans or advances, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar
instruments or debt securities, (iii) all obligations in
respect of letters of credit and bankers’ acceptances
issued for the account of such Person, (iv) all obligations
arising from cash/book overdrafts, (v) all obligations
arising from deferred compensation arrangements and all
obligations under severance plans or arrangements, bonus plans,
transaction bonuses, change of control bonuses or similar
arrangements payable as a result of the consummation of the
Transactions contemplated hereby, (vi) all obligations of
such Person secured by a Lien, (vii) all guaranties of such
Person in connection with any of the foregoing, (viii) all
indebtedness for the deferred purchase price of property or
services with respect to which a Person is liable, contingently
or otherwise, as obligor or otherwise (other than trade payables
incurred in the ordinary course of business which are not more
than 90 days past due), (ix) all other liabilities
required to be classified as non-current liabilities in
accordance with GAAP as of the date of determination of such
Indebtedness, and (x) all accrued interest, prepayment
premiums or the like or penalties related to any of the
foregoing.
“
Intellectual Property Rights
”
means any
and all of the following: (i) patents, patent applications
and patent disclosures; (ii) trademarks, trade names,
service marks, corporate names, together with all goodwill
associated with any of the foregoing; (iii) copyrights,
maskworks and copyrightable works; (iv) proprietary lists,
schematics, technology, know-how, trade secrets, inventions,
algorithms, processes; (v) Software; (vi) Internet
domain names; and (vii) other proprietary, intellectual
property and industrial rights recognized under applicable law
in any jurisdiction.
“
IT Assets
”
means all of the following:
all computers, computer systems, severs, hardware, Software,
firmware, middleware, servers, workstations, routers, hubs,
switches, data communication equipment and lines,
telecommunications equipment and line“124s, co-location
facilities and equipment and all other
information technology equipment, including any outsourced
systems and processes (
e.g.
hosting locations)
and all associated documentation.
“
knowledge of Acadia
”
or
“
Acadia’s knowledge
”
means the
actual knowledge (after reasonable inquiry) of Acadia’s
executive officers.
“
knowledge of Pioneer
”
or
“
Pioneer’s knowledge
”
means the
actual knowledge (after reasonable inquiry) of Pioneer’s
executive officers.
“
Lenders
”
shall mean the Lenders (as
defined in the Debt Commit Letter) and the Arranger (as defined
in the Debt Commit Letter).
“
Lien
”
means with respect to any asset,
any mortgage, pledge, lien, charge, security interest or
encumbrance of any kind in respect of such asset. For avoidance
of doubt, the term “Lien” shall not include licenses
of Intellectual Property Rights.
“
MeadowWood Asset Purchase Agreement
”
means the Asset Purchase Agreement dated as of March 15,
2011, between Universal Health Services, Inc., a Delaware
corporation, and Pioneer.
“
Medicaid
”
means the medical assistance
program established by Title XIX of the Social Security Act
(42 U.S.C. Sections 1396 et seq., as amended) and any
statute succeeding thereto.
“
Medicare
”
means the health insurance
program for the aged and disabled established by
Title XVIII of the Social Security Act (42 U.S.C.
Sections 1395 et seq., as amended) and any statute
succeeding thereto.
“
Merger Communication
”
shall mean, with
respect to Pioneer, any document or other written communication
prepared by or on behalf of Pioneer or any of its Subsidiaries,
or any document or other material or information posted or made
accessible on the website of Pioneer (whether in written, video
or oral form via webcast, hyperlink or otherwise), that is
related to any of the transactions contemplated by this
Agreement and, if reviewed by a stockholder of Pioneer, could
reasonably be deemed to constitute a “solicitation” of
“proxies” (in each case, as defined in
Rule 14a-1
of the Exchange Act) with respect to the Merger.
“
Net Debt
”
means with respect to any
Person at any date, such Person’s aggregate Indebtedness
minus
such Person’s Cash on Hand.
“
Net Proceeds
”
means the lesser of
(i) $90,000,000 and (ii) the sum of (A) the gross
cash proceeds received by Acadia and its Subsidiaries (including
Pioneer and its Subsidiaries) from any and all debt financing
incurred in connection with the Transactions contemplated by
this Agreement,
plus
(B) Pioneer’s Cash on Hand
as of the Effective Time,
plus
(C) Acadia’s
Cash on Hand as of the Effective Time,
minus
(D) the
amount of the Pioneer Class B Cash Consideration,
minus
(E) the aggregate amount of Acadia’s
Indebtedness actually repaid or payable in connection with the
Transactions contemplated by this Agreement,
minus
(F) the aggregate amount of Pioneer’s Indebtedness
actually repaid or payable in connection with the Transactions
contemplated by this Agreement,
minus
(G) the
Pioneer Expenses,
minus
(H) the Acadia Expenses,
minus
(I) the Shared Expenses,
minus
(J) the Financing Expenses.
“
Net Proceeds Condition
”
means the Net
Proceeds being equal to or greater than $90,000,000.
“
Net Proceeds Deficit
”
means the greater
of (i) $0.00 and (ii) the difference of
(i) $90,000,000
minus
(ii) the Net Proceeds.
“
Permitted Lien
”
means
(a) statutory Liens for current Taxes, special assessments
or other governmental charges not yet due and payable or the
amount or validity of which is being contested in good faith by
appropriate proceedings and for which appropriate reserves have
been established in accordance with GAAP,
(b) mechanics’, materialmen’s, carriers’,
workers’, repairers’ and similar statutory liens
arising or incurred in the ordinary course of business,
(c) zoning, entitlement, building and other land use
regulations imposed by any Governmental Authority having
jurisdiction over any owned real property which are not violated
in any material respect by the current use and operation of such
property, (d) covenants, conditions, restrictions,
easements, encumbrances and other similar matters of record
affecting title to, but not adversely affecting current
occupancy or use of any owned real property in any material
respect, (e) restrictions on the transfer of
securities arising under federal and state securities laws,
(f) any Liens caused by state statutes
and/or
principles of common law and specific agreements within some
leases providing for landlord liens with respect to
tenant’s personal property, fixtures
and/or
leasehold improvements at the subject premises, and
(h) Liens securing debt that is reflected in the Acadia
Balance Sheet or the Pioneer Balance Sheet, as applicable.
“
Person
”
means an individual,
corporation, partnership, limited partnership, limited liability
company, syndicate, person (including a “person” as
defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision,
agency or instrumentality of a Governmental Authority.
“
Pioneer Balance Sheet Date
”
means
June 30, 2010.
“
Pioneer Class B Cash
Consideration
”
means $5,000,000.
“
Pioneer Common Stock
”
means the Pioneer
Class A Common Stock and the Pioneer Class B Common
Stock.
“
Pioneer Expenses
”
means all of
Pioneer’s reasonably documented
out-of-pocket
fees and expenses (including reasonable legal and advisory fees
and expenses) actually incurred by Pioneer and its Affiliates in
connection with the Transactions contemplated by this Agreement,
which shall not include Pioneer’s portion of the Shared
Expenses.
“
Pioneer Health Care Facility
”
means any
hospital, residential treatment center, pharmacy, laboratory,
facility or ancillary department that is leased or owned, and
operated, by or for the benefit of Pioneer or any of its
Subsidiaries.
“
Pioneer Material Adverse Effect
”
means
any event, change, condition or effect that, individually or in
the aggregate, is, or is reasonably likely to be, materially
adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, value, operations or results of
operations of Pioneer and its Subsidiaries, taken as a whole,
other than any event, change, condition or effect relating to
(i) the Transactions or the announcement thereof,
(ii) compliance with the terms of this Agreement or the
taking of any action consented to or requested by Pioneer,
(iii) any change in accounting requirements or principles
required by GAAP, or any interpretations thereof, (iv) the
United States economy in general, or (v) the behavioral
healthcare industry in general;
provided
that, a Pioneer
Material Adverse Effect shall include any change in or effect on
the business of Pioneer and its Subsidiaries that, individually
or in the aggregate, is, or is reasonably likely to be,
materially adverse to the condition (financial or otherwise),
properties, assets, liabilities, business, operations or results
of operations of Pioneer and its Subsidiaries taken as a whole,
if such change or effect is significantly more adverse to
Pioneer and its Subsidiaries, taken as a whole, than to the
behavioral healthcare industry in general.
“
Pioneer Per Share Class B Cash
Consideration
”
means the result of (i) the
Pioneer Class B Cash Consideration,
divided
by
(ii) the aggregate number of issued and
outstanding shares of Pioneer Class B Common Stock
immediately prior to the Effective Time (other than (i) any
shares of Pioneer Class B Common Stock to be cancelled
pursuant to Section 2.01(b) and (ii) any share of
Pioneer Class B Common Stock owned by any Pioneer
Subsidiary).
“
Pioneer Related Party
”
means
(i) each individual who is, or who has at any time since
the inception of Pioneer been, an equityholder, director,
limited liability company manager, officer, employee or
independent contractor of Pioneer or any of its Subsidiaries,
(ii) each immediate family member of the individuals
described in clause (i) above, and (iii) each Person
(other than Pioneer and its Subsidiaries) in which any Person
described in clause (i) or clause (ii) above holds,
beneficially or otherwise, a material voting, proprietary or
financial interest.
“
Pioneer Shareholder Approval
”
means the
affirmative vote of the holders of at least (i) two-thirds
of the outstanding Pioneer Class A Common Stock and Pioneer
Class B Common Stock entitled to vote, voting together as a
single class, with the holders of Pioneer Class A Common
Stock having one vote per share and the holders of the Pioneer
Class B Common Stock having five votes per share,
(ii) two-thirds of the outstanding Pioneer Class A
Common Stock entitled to vote, voting as a single class and
(iii) two-thirds of the outstanding Pioneer Class B
Common Stock entitled to vote, voting as a single class, the
approval of this Agreement.
“
Pioneer Stock Plans
”
means,
collectively, the (i) 1995 Non-Employee Director Stock
Option Plan, as amended December 2002, (ii) 1995 Employee
Stock Purchase Plan, as amended December 2002, (iii) 1993
Stock Purchase and Option Plan, as amended December 2002,
(iv) 2004 Non-Employee Director Stock Option Plan,
(v) 2005 Employee Stock Purchase Plan and (vi) 2003
Stock Purchase and Option Plan, as amended December 2007.
“
Pioneer Stock Purchase Plans
”
means,
collectively, the (i) 1995 Employee Stock Purchase Plan, as
amended December 2002 and (ii) 2005 Employee Stock Purchase
Plan.
“
Pioneer Tax Certificate
”
shall mean a
certificate substantially to the effect of the form of the
Pioneer Tax Certificate attached hereto as
Exhibit H
.
“Pioneer Third Party Intellectual Property
Rights
” means all material licenses, sublicenses and
other agreements as to which Pioneer or any Subsidiary of
Pioneer is a party and is authorized to use any Intellectual
Property Rights of any third parties (except for click-through,
shrink-wrap and other
off-the-shelf
licenses for commercially available software that are either
licensed for a one-time fee less than $5,000 or licensed for
annual license fees in the aggregate equal to $25,000 or less).
“
Professional Services Agreement
”
means
that Professional Services Agreement, dated as of April 1,
2011 between Waud Capital Partners, LLC and Acadia Healthcare
Company, LLC.
“
PSA Amount
”
means $20,559,000.
“
PSA Termination Amount
”
means
$15,559,000.
“
Representatives
”
means, with respect to
any Person, any of such Person’s officers, directors,
employees, accountants, consultants, legal counsel, agents and
other representatives.
“
SEC
”
means the Securities and Exchange
Commission.
“
Shared Expenses
”
means (i) the
aggregate filing, Edgarizing, printing, mailing and similar out
of pocket fees and expenses (but not legal or accounting fees
and expenses) relating to the Proxy Statement, the
Form S-4
and any other necessary filings with respect to the Transactions
under the Securities Act, the Exchange Act and applicable state
“blue sky” laws and the rules and regulations
promulgated thereunder and (ii) the listing fee(s) incurred
in obtaining (or attempting to obtain) the stock exchange
listing(s) or trading eligibility pursuant to
Section 6.09
.
“
Software
”
means, in any form or format,
any and all (i) computer programs, whether in source code,
interpreted code, or object code, (ii) related databases
and compilations, including any and all data and collections of
data, whether machine readable or otherwise, (iii) related
descriptions, flow charts and other work product used to design,
plan, organize and develop any of the foregoing and
(iv) related programmer and user documentation, including
user manuals and training materials, related to any of the
foregoing.
“
Subsidiary
”
means, with respect to any
Person, any Person directly or indirectly controlled by such
Person, and, without limiting the foregoing, includes any
Person, in respect of which, such Person, directly or
indirectly, beneficially owns 50% or more of the voting
securities or equity.
“
Superior Proposal
”
shall mean a bona
fide written Acquisition Proposal (with all of the percentages
included in the definition of Acquisition Proposal increased to
66
2
/
3
%)
and not solicited in violation of Section 6.04 which the
Pioneer Board determines in good faith, after consultation with
independent financial advisor and outside legal counsel, and
taking into consideration, among other things, all of the terms,
conditions, impact and all legal, financial, regulatory and
other aspects of such Acquisition Proposal and this Agreement
(in each case taking into account any revisions to this
Agreement made or proposed in writing by Acadia prior to the
time of determination), including financing, regulatory
approvals, stockholder litigation, identity of the Person or
group making the Acquisition Proposal, breakup fee and expense
reimbursement provisions and other events or circumstances
beyond the control of the Party invoking the condition,
(a) is reasonably likely to be consummated in accordance
with its terms and (b) would result in a transaction more
favorable to the stockholders of Pioneer from a financial point
of view than the transactions provided for in this Agreement
(after taking into account the expected timing and risk and
likelihood of consummation).
“
Takeover Statutes
”
means any takeover,
anti-takeover, moratorium, “fair price”, “control
share” or other similar law enacted under any law
applicable to Pioneer, including Mass. Gen Laws Ann. Ch. 156D.
“
Tax
”
means any and all federal, state,
local and foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on
minimum, estimated, or other similar tax (together with any and
all interest, penalties and additions to tax imposed with
respect thereto) imposed by any governmental or Tax authority.
“
Tax Returns
”
means any and all returns,
declarations, claims for refund, or information returns or
statements, reports and forms relating to Taxes, including any
schedule or attachment thereto and amendment thereof.
“
Termination Fee
”
means $3,000,000.
“
Warrants
”
means, collectively, the
(a) warrants to purchase up to 250,000 shares of
Pioneer Class A Common Stock at an exercise price of $3.09
per share (subject to certain adjustments) that were issued by
Pioneer on June 13, 2007 and (b) warrants to purchase
up to 93,000 shares of Pioneer Class A Common Stock at
an exercise price of $3.50 per share (subject to certain
adjustments) that were issued by Pioneer on various dates
between September 1, 2007 and February 1, 2009.
Section
9.02
Non-Survival
of Representations, Warranties and
Agreements
.
The representations, warranties,
covenants and agreements in this Agreement, and in any
certificate delivered pursuant hereto, shall not survive the
Effective Time;
provided
that, this
Section 9.02
shall not limit any covenant or
agreement of the parties that, by its terms, contemplates
performance after the Effective Time.
Section
9.03
Notices
.
All
notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in
person, by a nationally recognized next day courier service,
registered or certified mail (postage prepaid, return receipt
requested) or by facsimile transmission. All notices hereunder
shall be delivered to the respective parties at the following
addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this
Section 9.03
):
if to Acadia or Merger Sub:
Acadia Healthcare Company, Inc.
725 Cool Springs Blvd., Suite 600
Franklin, TN 37067
Facsimile No:
Attention: Chris Howard
with a copy to:
Acadia Healthcare Holdings, LLC
c/o Waud
Capital Partners, LLC
300 North LaSalle Street — Suite 4900
Chicago, Illinois 60654
Attention:
Reeve B. Waud
Charles E. Edwards
with a copy to:
Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, Illinois 60654
Facsimile No:
(312) 862-2000
Attention:
PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Facsimile No:
(978) 536-2677
Attention: Bruce A. Shear
with a copy to:
Arent Fox LLP
1050 Connecticut Avenue, NW
Washington, DC
20036-5339
Facsimile No: (202)857-6395
Attention: Steven A. Cohen
Section
9.04
Interpretation
.
When
a reference is made in this Agreement to Sections, Schedules or
Exhibits, such reference is to a Section, Schedule or Exhibit of
this Agreement, respectively, unless otherwise indicated.
Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be
deemed to be followed by the words “without
limitation.” The phrases “the parties,” “the
parties hereto,” and words of similar import mean the
parties to this Agreement. The phrase “made available”
when used in this Agreement means that the information referred
to (i) has been delivered to the requesting party in hard
or electronic copy prior to the date hereof or
(ii) currently is, and has been for a minimum of three
Business Days prior to the date hereof, available for review and
download by the requesting party in the electronic data room
maintained for purposes of the Transactions by Acadia or
Pioneer, as applicable. The phrases “the date of this
Agreement,” “the date hereof,” and words of
similar import, unless the context otherwise requires, shall be
deemed to refer to May 23, 2011. The words
“hereof,” “herein” and “hereunder”
and words of similar import when used in this Agreement refer to
this Agreement as a whole and not any particular provision of
this Agreement. The term “or” is not exclusive. The
definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms. References
to a Person are also to its permitted successors and assigns.
Whenever the context may require, any pronoun used herein
includes the corresponding masculine, feminine and neuter forms.
Section
9.05
Disclosure
Schedules
.
Any reference in a particular
Section of either the Acadia Disclosure Schedule or the Pioneer
Disclosure Schedule, as applicable, shall only be deemed to be
an exception to (or, as applicable, a disclosure for purposes
of) (i) the representations and warranties (or covenants,
as applicable) of the relevant party that are contained in the
corresponding Section of this Agreement, and (ii) any other
representations and warranties of such party that are contained
in this Agreement, but only in each case if the relevance of
that reference as an exception to (or a disclosure for purposes
of) such representations and warranties would be readily
apparent on its face to a reasonable person who has read that
reference and such representations and warranties, without any
independent knowledge on the part of the reader regarding the
matter(s) so disclosed. The mere inclusion of an item in either
the Acadia Disclosure Schedule or the Pioneer Disclosure
Schedule as an exception to a representation or warranty shall
not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such
item has had or will have an Acadia Material Adverse Effect or a
Pioneer Material Adverse Effect, as applicable.
Section
9.06
Severability
.
If
any term or other provision of this Agreement is deemed invalid,
illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the Transactions is
not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the Transactions be
consummated as originally contemplated to the fullest extent
possible.
Section
9.07
Disclaimer
of Other Representations and Warranties
.
Each
of the parties hereto acknowledges and agrees that, except for
the representations and warranties expressly set forth in this
Agreement, (a) no party makes, and has not made, any
representations or warranties relating to itself or its
businesses or otherwise in
connection with the Transactions, (b) no Person has been
authorized by any party to make any representation or warranty
relating to such party or its businesses or otherwise in
connection with the Transactions and, if made, such
representation or warranty must not be relied upon as having
been authorized by such party, and (c) any estimates,
projections, predictions, data, financial information,
memoranda, presentations or any other materials or information
provided or addressed to any party or any of its Representatives
are not and shall not be deemed to be or to include
representations or warranties unless any such materials or
information is the subject of any representation or warranty set
forth in this Agreement.
Section
9.08
Entire
Agreement; Assignment
.
(a) This Agreement, the Confidentiality Agreement and the
Exhibits and Schedules hereto constitute the entire agreement
among the parties hereto with respect to the subject matter
hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, among the parties with
respect to the subject matter hereof and thereof. No party may
assign, delegate or otherwise transfer (whether pursuant to a
merger, by operation of law or otherwise) any of its rights or
obligations under this Agreement without the prior written
consent of each other party hereto.
(b) Notwithstanding any provision herein to the contrary
(but without modifying the provisions of the Debt Commitment
Letters as they relate to Acadia), each of the parties hereto
agrees that with respect to any action or proceeding against any
of the Lenders or any affiliate thereof arising out of or
relating to this Agreement, the Debt Commitment Letters or the
Financing or the performance of any services thereunder
(i) such action or proceeding shall be subject to the
exclusive jurisdiction of any court of the State of Delaware or
the State of New York sitting in the City of New York, New York,
or of the United States located in Delaware or sitting in the
City of New York, New York, (ii) such party will not,
and it will not permit any of its affiliates to, bring or
support anyone else in bringing such action or proceeding in any
other court, (iii) the Lenders (and their respective
affiliates) are express third-party beneficiaries of this
Section 9.08(b)
reflecting the foregoing agreements.
Section
9.09
Parties
in Interest
.
This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement,
other than
Section 6.05
(which is intended to be for
the benefit of the persons covered thereby and may be enforced
by such persons) and as provided in
Section 8.02(a)
,
Section
9.08(b)
,
Section 9.10
and
Section 9.12
.
Section
9.10
Remedies
.
The
remedies provided in
Section 8.02
shall be the sole
and exclusive remedies conferred herein or by law or equity to
each party to this Agreement;
provided
that in the event
any party acts fraudulently, with intentional misconduct or
otherwise willfully breaches this Agreement, the non-breaching
party shall be entitled to any other remedy at law or in equity
and any and all remedies conferred upon such party in
Section 8.02
will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The
Lenders and each Indemnified Party (as defined in the Debt
Commitment Letters) are express third-party beneficiaries of
this Section 9.10.
Section
9.11
Governing
Law; Jurisdiction
.
This Agreement shall be
governed by, and construed in accordance with, the Laws of the
State of Delaware applicable to contracts executed in and to be
performed in that State. The parties hereby (a) submit to
the exclusive jurisdiction of the Delaware Court of Chancery (or
any proper appellate court thereof) for the purpose of any
Action arising out of or relating to this Agreement brought by
any party hereto, and (b) irrevocably waive, and agree not
to assert by way of motion, defense, or otherwise, in any such
Action, any claim that it is not subject personally to the
jurisdiction of the courts described above, that its property is
exempt or immune from attachment or execution, that the Action
is brought in an inconvenient forum, that the venue of the
Action is improper, or that this Agreement or the Transactions
may not be enforced in or by the courts described above.
Section
9.12
WAIVER
OF JURY TRIAL
.
EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY
WITH RESPECT TO ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT
OR THE TRANSACTIONS. The Lenders and each Indemnified Party (as
defined in the Debt Commitment Letters) are express third-party
beneficiaries of this Section 9.12.
Section
9.13
Headings
.
The
descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section
9.14
Counterparts
.
This
Agreement may be executed and delivered (including by facsimile
transmission) in two or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of Pioneer, Acadia and Merger Sub have
caused this Agreement and Plan of Merger to be executed as of
the date first written above by their respective officers
thereunto duly authorized.
MASSACHUSETTS
BUSINESS CORPORATIONS ACT
(Massachusetts General Laws, Chapter 156D)
Article 13.
Subdivision
A. Right to Dissent and Obtain Payment for Shares
§ 13.01.
Definitions.
In this Part the following words shall have the following
meanings unless the context requires otherwise:
“Affiliate”,
any person that directly or
indirectly through one or more intermediaries controls, is
controlled by, or is under common control of or with another
person.
“Beneficial shareholder”,
the person who is a
beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
“Corporation”,
the issuer of the shares held by
a shareholder demanding appraisal and, for matters covered in
sections 13.22 to 13.31, inclusive, includes the surviving
entity in a merger.
“Fair value”,
with respect to shares being
appraised, the value of the shares immediately before the
effective date of the corporate action to which the shareholder
demanding appraisal objects, excluding any element of value
arising from the expectation or accomplishment of the proposed
corporate action unless exclusion would be inequitable.
“Interest”,
interest from the effective date of
the corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank
loans or, if none, at a rate that is fair and equitable under
all the circumstances.
“Marketable securities”,
securities held of
record by, or by financial intermediaries or depositories on
behalf of, at least 1,000 persons and which were
(a) listed on a national securities exchange,
(b) designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or
(c) listed on a regional securities exchange or traded in
an interdealer quotation system or other trading system and had
at least 250,000 outstanding shares, exclusive of shares held by
officers, directors and affiliates, which have a market value of
at least $5,000,000.
“Officer”,
the chief executive officer,
president, chief operating officer, chief financial officer, and
any vice president in charge of a principal business unit or
function of the issuer.
“Person”,
any individual, corporation,
partnership, unincorporated association or other entity.
“Record shareholder”,
the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights granted
by a nominee certificate on file with a corporation.
“Shareholder”,
the record shareholder or the
beneficial shareholder.
§ 13.02.
Right to Appraisal.
(a) A shareholder is entitled to appraisal rights, and
obtain payment of the fair value of his shares in the event of,
any of the following corporate or other actions:
(1) consummation of a plan of merger to which the
corporation is a party if shareholder approval is required for
the merger by section 11.04 or the articles of organization
or if the corporation is a subsidiary that is merged with its
parent under section 11.05, unless, in either case,
(A) all shareholders are to receive only
cash for their shares in amounts equal to what they would
receive upon a dissolution of the corporation or, in the case of
shareholders already holding marketable securities in the
merging corporation, only marketable securities of the surviving
corporation
and/or
cash
and (B) no director, officer or controlling shareholder has
a direct or indirect material financial interest in the merger
other than in his capacity as (i) a shareholder of the
corporation, (ii) a director, officer, employee or
consultant of either the merging or the surviving corporation or
of any affiliate of the surviving corporation if his financial
interest is pursuant to bona fide arrangements with either
corporation or any such affiliate, or (iii) in any other
capacity so long as the shareholder owns not more than five
percent of the voting shares of all classes and series of the
corporation in the aggregate;
(2) consummation of a plan of share exchange in which his
shares are included unless: (A) both his existing shares
and the shares, obligations or other securities to be acquired
are marketable securities; and (B) no director, officer or
controlling shareholder has a direct or indirect material
financial interest in the share exchange other than in his
capacity as (i) a shareholder of the corporation whose
shares are to be exchanged, (ii) a director, officer,
employee or consultant of either the corporation whose shares
are to be exchanged or the acquiring corporation or of any
affiliate of the acquiring corporation if his financial interest
is pursuant to bona fide arrangements with either corporation or
any such affiliate, or (iii) in any other capacity so long
as the shareholder owns not more than five percent of the voting
shares of all classes and series of the corporation whose shares
are to be exchanged in the aggregate;
(3) consummation of a sale or exchange of all, or
substantially all, of the property of the corporation if the
sale or exchange is subject to section 12.02, or a sale or
exchange of all, or substantially all, of the property of a
corporation in dissolution, unless:
(i) his shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for
his shares; or
(ii) the sale or exchange is pursuant to court
order; or
(iii) in the case of a sale or exchange of all or
substantially all the property of the corporation subject to
section 12.02, approval of shareholders for the sale or
exchange is conditioned upon the dissolution of the corporation
and the distribution in cash or, if his shares are marketable
securities, in marketable securities
and/or
cash,
of substantially all of its net assets, in excess of a
reasonable amount reserved to meet unknown claims under
section 14.07, to the shareholders in accordance with their
respective interests within one year after the sale or exchange
and no director, officer or controlling shareholder has a direct
or indirect material financial interest in the sale or exchange
other than in his capacity as (i) a shareholder of the
corporation, (ii) a director, officer, employee or
consultant of either the corporation or the acquiring
corporation or of any affiliate of the acquiring corporation if
his financial interest is pursuant to bona fide arrangements
with either corporation or any such affiliate, or (iii) in
any other capacity so long as the shareholder owns not more than
five percent of the voting shares of all classes and series of
the corporation in the aggregate;
(4) an amendment of the articles of organization that
materially and adversely affects rights in respect of a
shareholder’s shares because it:
(i) creates, alters or abolishes the stated rights or
preferences of the shares with respect to distributions or to
dissolution, including making non-cumulative in whole or in part
a dividend theretofore stated as cumulative;
(ii) creates, alters or abolishes a stated right in respect
of conversion or redemption, including any provision relating to
any sinking fund or purchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) excludes or limits the right of the holder of the
shares to vote on any matter, or to cumulate votes, except as
such right may be limited by voting rights given to new shares
then being authorized of an existing or new class; or
(v) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is
to be acquired for cash under section 6.04;
(5) an amendment of the articles of organization or of the
bylaws or the entering into by the corporation of any agreement
to which the shareholder is not a party that adds restrictions
on the transfer or registration or any outstanding shares held
by the shareholder or amends any pre-existing restrictions on
the transfer or registration of his shares in a manner which is
materially adverse to the ability of the shareholder to transfer
his shares;
(6) any corporate action taken pursuant to a shareholder
vote to the extent the articles of organization, bylaws or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to appraisal;
(7) consummation of a conversion of the corporation to
nonprofit status pursuant to subdivision B of
Part 9; or
(8) consummation of a conversion of the corporation into a
form of other entity pursuant to subdivision D of Part 9.
(b) Except as otherwise provided in subsection (a) of
section 13.03, in the event of corporate action specified
in clauses (1), (2), (3), (7) or (8) of subsection
(a), a shareholder may assert appraisal rights only if he seeks
them with respect to all of his shares of whatever class or
series.
(c) Except as otherwise provided in subsection (a) of
section 13.03, in the event of an amendment to the articles
of organization specified in clause (4) of
subsection (a) or in the event of an amendment of the
articles of organization or the bylaws or an agreement to which
the shareholder is not a party specified in clause (5) of
subsection (a), a shareholder may assert appraisal rights with
respect to those shares adversely affected by the amendment or
agreement only if he seeks them as to all of such shares and, in
the case of an amendment to the articles of organization or the
bylaws, has not voted any of his shares of any class or series
in favor of the proposed amendment.
(d) The shareholder’s right to obtain payment of the
fair value of his shares shall terminate upon the occurrence of
any of the following events:
(i) the proposed action is abandoned or rescinded; or
(ii) a court having jurisdiction permanently enjoins or
sets aside the action; or
(iii) the shareholder’s demand for payment is
withdrawn with the written consent of the corporation.
(e) A shareholder entitled to appraisal rights under this
chapter may not challenge the action creating his entitlement
unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
§ 13.03.
Assertion of Rights by Nominees
and Beneficial Owners.
(a) A record shareholder may assert appraisal rights as to
fewer than all the shares registered in the record
shareholder’s name but owned by a beneficial shareholder
only if the record shareholder objects with respect to all
shares of the class or series owned by the beneficial
shareholder and notifies the corporation in writing of the name
and address of each beneficial shareholder on whose behalf
appraisal rights are being asserted. The rights of a record
shareholder who asserts appraisal rights for only part of the
shares held of record in the record shareholder’s name
under this subsection shall be determined as if the shares as to
which the record shareholder objects and the record
shareholder’s other shares were registered in the names of
different record shareholders.
(b) A beneficial shareholder may assert appraisal rights as
to shares of any class or series held on behalf of the
shareholder only if such shareholder:
(1) submits to the corporation the record
shareholder’s written consent to the assertion of such
rights no later than the date referred to in subclause (ii)
of clause (2) of subsection (b) of
section 13.22; and
(2) does so with respect to all shares of the class or
series that are beneficially owned by the beneficial shareholder.
Subdivision
B. Procedure for Exercise of Appraisal Rights
§ 13.20.
Notice of Appraisal Rights.
(a) If proposed corporate action described in
subsection (a) of section 13.02 is to be submitted to
a vote at a shareholders’ meeting or through the
solicitation of written consents, the meeting notice or
solicitation of consents shall state that the corporation has
concluded that shareholders are, are not or may be entitled to
assert appraisal rights under this chapter and refer to the
necessity of the shareholder delivering, before the vote is
taken, written notice of his intent to demand payment and to the
requirement that he not vote his shares in favor of the proposed
action. If the corporation concludes that appraisal rights are
or may be available, a copy of this chapter shall accompany the
meeting notice sent to those record shareholders entitled to
exercise appraisal rights.
(b) In a merger pursuant to section 11.05, the parent
corporation shall notify in writing all record shareholders of
the subsidiary who are entitled to assert appraisal rights that
the corporate action became effective. Such notice shall be sent
within 10 days after the corporate action became effective
and include the materials described in section 13.22.
§ 13.21.
Notice of Intent to Demand
Payment.
(a) If proposed corporate action requiring appraisal rights
under section 13.02 is submitted to vote at a
shareholders’ meeting, a shareholder who wishes to assert
appraisal rights with respect to any class or series of shares:
(1) shall deliver to the corporation before the vote is
taken written notice of the shareholder’s intent to demand
payment if the proposed action is effectuated; and
(2) shall not vote, or cause or permit to be voted, any
shares of such class or series in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment under this
chapter.
§ 13.22.
Appraisal Notice and Form.
(a) If proposed corporate action requiring appraisal rights
under subsection (a) of section 13.02 becomes
effective, the corporation shall deliver a written appraisal
notice and form required by clause (1) of
subsection (b) to all shareholders who satisfied the
requirements of section 13.21 or, if the action was taken
by written consent, did not consent. In the case of a merger
under section 11.05, the parent shall deliver a written
appraisal notice and form to all record shareholders who may be
entitled to assert appraisal rights.
(b) The appraisal notice shall be sent no earlier than the
date the corporate action became effective and no later than
10 days after such date and must:
(1) supply a form that specifies the date of the first
announcement to shareholders of the principal terms of the
proposed corporate action and requires the shareholder asserting
appraisal rights to certify (A) whether or not beneficial
ownership of those shares for which appraisal rights are
asserted was acquired before that date and (B) that the
shareholder did not vote for the transaction;
(2) state:
(i) where the form shall be sent and where certificates for
certificated shares shall be deposited and the date by which
those certificates shall be deposited, which date may not be
earlier than the date for receiving the required form under
subclause (ii);
(ii) a date by which the corporation shall receive the form
which date may not be fewer than 40 nor more than 60 days
after the date the subsection (a) appraisal notice and form
are sent, and state that the shareholder shall have waived the
right to demand appraisal with respect to the shares unless the
form is received by the corporation by such specified date;
(iii) the corporation’s estimate of the fair value of
the shares;
(iv) that, if requested in writing, the corporation will
provide, to the shareholder so requesting, within 10 days
after the date specified in clause (ii) the number of
shareholders who return the forms by the specified date and the
total number of shares owned by them; and
(v) the date by which the notice to withdraw under
section 13.23 shall be received, which date shall be within
20 days after the date specified in subclause (ii) of
this subsection; and
(3) be accompanied by a copy of this chapter.
§ 13.23.
Perfection of Rights; Right to
Withdraw.
(a) A shareholder who receives notice pursuant to
section 13.22 and who wishes to exercise appraisal rights
shall certify on the form sent by the corporation whether the
beneficial owner of the shares acquired beneficial ownership of
the shares before the date required to be set forth in the
notice pursuant to clause (1) of subsection (b) of
section 13.22. If a shareholder fails to make this
certification, the corporation may elect to treat the
shareholder’s shares as after-acquired shares under
section 13.25. In addition, a shareholder who wishes to
exercise appraisal rights shall execute and return the form and,
in the case of certificated shares, deposit the
shareholder’s certificates in accordance with the terms of
the notice by the date referred to in the notice pursuant to
subclause (ii) of clause (2) of subsection (b) of
section 13.22. Once a shareholder deposits that
shareholder’s certificates or, in the case of
uncertificated shares, returns the executed forms, that
shareholder loses all rights as a shareholder, unless the
shareholder withdraws pursuant to said subsection (b).
(b) A shareholder who has complied with subsection (a)
may nevertheless decline to exercise appraisal rights and
withdraw from the appraisal process by so notifying the
corporation in writing by the date set forth in the appraisal
notice pursuant to subclause (v) of clause (2) of
subsection (b) of section 13.22. A shareholder who
fails to so withdraw from the appraisal process may not
thereafter withdraw without the corporation’s written
consent.
(c) A shareholder who does not execute and return the form
and, in the case of certificated shares, deposit that
shareholder’s share certificates where required, each by
the date set forth in the notice described in
subsection (b) of section 13.22, shall not be entitled
to payment under this chapter.
§ 13.24.
Payment.
(a) Except as provided in section 13.25, within
30 days after the form required by subclause (ii) of
clause (2) of subsection (b) of section 13.22 is
due, the corporation shall pay in cash to those shareholders who
complied with subsection (a) of section 13.23 the
amount the corporation estimates to be the fair value of their
shares, plus interest.
(b) The payment to each shareholder pursuant to
subsection (a) shall be accompanied by:
(1) financial statements of the corporation that issued the
shares to be appraised, consisting of a balance sheet as of the
end of a fiscal year ending not more than 16 months before
the date of payment, an income statement for that year, a
statement of changes in shareholders’ equity for that year,
and the latest available interim financial statements, if any;
(2) a statement of the corporation’s estimate of the
fair value of the shares, which estimate shall equal or exceed
the corporation’s estimate given pursuant to
subclause (iii) of clause (2) of subsection (b)
of section 13.22; and
(3) a statement that shareholders described in
subsection (a) have the right to demand further payment
under section 13.26 and that if any such shareholder does
not do so within the time period specified therein, such
shareholder shall be deemed to have accepted the payment in full
satisfaction of the corporation’s obligations under this
chapter.
§ 13.25.
After-Acquired Shares.
(a) A corporation may elect to withhold payment required by
section 13.24 from any shareholder who did not certify that
beneficial ownership of all of the shareholder’s shares for
which appraisal rights are asserted was acquired before the date
set forth in the appraisal notice sent pursuant to
clause (1) of subsection (b) of section 13.22.
(b) If the corporation elected to withhold payment under
subsection (a) it must, within 30 days after the form
required by subclause (ii) of clause (2) of
subsection (b) of section 13.22 is due, notify all
shareholders who are described in subsection (a):
(1) of the information required by clause (1) of
subsection (b) of section 13.24:
(2) of the corporation’s estimate of fair value
pursuant to clause (2) of subsection (b) of said
section 13.24;
(3) that they may accept the corporation’s estimate of
fair value, plus interest, in full satisfaction of their demands
or demand appraisal under section 13.26;
(4) that those shareholders who wish to accept the offer
shall so notify the corporation of their acceptance of the
corporation’s offer within 30 days after receiving the
offer; and
(5) that those shareholders who do not satisfy the
requirements for demanding appraisal under section 13.26
shall be deemed to have accepted the corporation’s offer.
(c) Within 10 days after receiving the
shareholder’s acceptance pursuant to subsection(b), the
corporation shall pay in cash the amount it offered under
clause (2) of subsection (b) to each shareholder who
agreed to accept the corporation’s offer in full
satisfaction of the shareholder’s demand.
(d) Within 40 days after sending the notice described
in subsection (b), the corporation must pay in cash the amount
if offered to pay under clause (2) of subsection (b)
to each shareholder deserved in clause (5) of subsection
(b).
§ 13.26.
Procedure if Shareholder
Dissatisfied With Payment or Offer.
(a) A shareholder paid pursuant to section 13.24 who
is dissatisfied with the amount of the payment shall notify the
corporation in writing of that shareholder’s estimate of
the fair value of the shares and demand payment of that estimate
plus interest, less any payment under section 13.24. A
shareholder offered payment under section 13.25 who is
dissatisfied with that offer shall reject the offer and demand
payment of the shareholder’s stated estimate of the fair
value of the shares plus interest.
(b) A shareholder who fails to notify the corporation in
writing of that shareholder’s demand to be paid the
shareholder’s stated estimate of the fair value plus
interest under subsection (a) within 30 days after
receiving the corporation’s payment or offer of payment
under section 13.24 or section 13.25, respectively,
waives the right to demand payment under this section and shall
be entitled only to the payment made or offered pursuant to
those respective sections.
Subdivision
C. Judicial Appraisal of Shares
§ 13.30.
Court Action.
(a) If a shareholder makes demand for payment under
section 13.26 which remains unsettled, the corporation
shall commence an equitable proceeding within 60 days after
receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the
60-day
period, it shall pay in cash to each shareholder the amount the
shareholder demanded pursuant to section 13.26 plus
interest.
(b) The corporation shall commence the proceeding in the
appropriate court of the county where the corporation’s
principal office, or, if none, its registered office, in the
commonwealth is located. If the corporation is a foreign
corporation without a registered office in the commonwealth, it
shall commence the proceeding in the county in the commonwealth
where the principal office or registered office of the domestic
corporation merged with the foreign corporation was located at
the time of the transaction.
(c) The corporation shall make all shareholders, whether or
not residents of the commonwealth, whose demands remain
unsettled parties to the proceeding as an action against their
shares, and all parties shall be served
with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by
law or otherwise as ordered by the court.
(d) The jurisdiction of the court in which the proceeding
is commenced under subsection (b) is plenary and exclusive.
The court may appoint 1 or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value.
The appraisers shall have the powers described in the order
appointing them, or in any amendment to it. The shareholders
demanding appraisal rights are entitled to the same discovery
rights as parties in other civil proceedings.
(e) Each shareholder made a party to the proceeding is
entitled to judgment (i) for the amount, if any, by which
the court finds the fair value of the shareholder’s shares,
plus interest, exceeds the amount paid by the corporation to the
shareholder for such shares or (ii) for the fair value,
plus interest, of the shareholder’s shares for which the
corporation elected to withhold payment under section 13.25.
§ 13.31.
Court Costs and Counsel
Fees.
(a) The court in an appraisal proceeding commenced under
section 13.30 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess cost against
all or some of the shareholders demanding appraisal, in amounts
the court finds equitable, to the extent the court finds such
shareholders acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this chapter.
(b) The court in an appraisal proceeding may also assess
the fees and expenses of counsel and experts for the respective
parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all
shareholders demanding appraisal if the court finds the
corporation did not substantially comply with the requirements
of sections 13.20, 13.22, 13.24 or 13.25; or
(2) against either the corporation or a shareholder
demanding appraisal, in favor of any other party, if the court
finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court in an appraisal proceeding finds that the
services of counsel for any shareholder were of substantial
benefit to other shareholders similarly situated, and that the
fees for those services should not be assessed against the
corporation, the court may award to such counsel reasonable fees
to be paid out of the amounts awarded the shareholders who were
benefited.
(d) To the extent the corporation fails to make a required
payment pursuant to sections 13.24, 13.25, or 13.26, the
shareholder may sue directly for the amount owed and, to the
extent successful, shall be entitled to recover from the
corporation all costs and expenses of the suit, including
counsel fees.
We understand that PHC, Inc. (“PHC” or the
“Company”), Acadia Healthcare Company, Inc.
(“Acadia”) and a wholly-owned subsidiary of Acadia
(“Merger Sub”) are considering entering into an
Agreement and Plan of Merger (the “Merger Agreement”)
pursuant to which among other things PHC will merge with and
into Merger Sub, with Merger Sub continuing as the surviving
company (the “Transaction”) and that, in connection
with the Transaction, each issued and outstanding share of PHC
Class A common stock shall be converted into
1
/
4
share of Acadia common stock (the “Class A
Consideration”) and each issued and outstanding share of
PHC Class B common stock shall be converted into
1
/
4
share of Acadia common stock and its pro rata share of
$5 million in cash (the “Class B
Consideration”, and together with the Class A
Consideration, in the aggregate, the “Merger
Consideration”) such that following the consummation of the
Transaction, the aggregate shareholders of PHC (including
in-the-money
option and warrant holders calculated on a treasury method
basis) in the aggregate will own 22.5% of the fully-diluted
common shares of Acadia. We further understand that Acadia
currently is a wholly owned subsidiary of Acadia Healthcare
Holdings, LLC (“Holdings”) and that in connection with
the Transaction, Acadia will become the corporate successor to
Holdings. All information provided to us or reviewed by us with
respect to Acadia and Holdings has been at the Holdings level
and we have been informed, and assumed, that there is no
difference between the management, operating results, financial
position and other aspects of Acadia and Holdings in any respect
material to our analyses.
The Board of Directors (the “Board”) of PHC has
requested that Stout Risius Ross, Inc. (“SRR”) render
an opinion (the “Opinion”) to the Board with respect
to the fairness, from a financial point of view, as of the date
hereof, (i) to the holders of shares of PHC Class A
common stock, of the Class A Consideration to be received
by them (in the aggregate), and (ii) to the holders of
shares of PHC common stock, of the Merger Consideration to be
received them (in the aggregate), in each case pursuant to the
Transaction.
We have not been requested to opine as to, and our Opinion does
not in any manner address: (i) the Company’s
underlying business decision to proceed with or effect the
Transaction, (ii) the amount of the Class B
Consideration, any distribution paid to Acadia shareholders, the
allocation of the Merger Consideration among the PHC
shareholders or the amount per share of the Merger
Consideration, the amount of the Class A Consideration
relative to the Class B Consideration or the Merger
Consideration, or any other term or condition of any agreement
or document related to, or the form or any other portion or
aspect of, the Transaction, except as stated in the final
paragraph of this letter, or (iii) the solvency,
creditworthiness or fair value of the Company, Acadia or any
other participant in the Transaction under any applicable laws
relating to bankruptcy, insolvency or similar matters. Further,
we were not requested to consider, and our Opinion does not
address, the merits of the Transaction relative to any
alternative business strategies that may have existed for the
Company or the effect of any other transactions in which the
Company might have engaged, nor do we offer any opinion as to
the terms of the Transaction. Moreover, we were not engaged to
recommend, and we did not recommend, a Transaction price or
exchange ratio, or participate in, and we did not participate
in, the Transaction negotiations. Furthermore, no opinion,
counsel or interpretation is intended in matters that require
legal, regulatory, accounting, insurance, tax or other similar
professional advice. This Opinion does not constitute, and we
have not made, a recommendation to the Board or any
security holder of PHC or any other person as to how to act or
vote with respect to the Transaction or otherwise. We have also
assumed, with your consent, that the final executed form of the
Merger Agreement will not differ from the draft of the Merger
Agreement that we have examined, that the conditions to the
Transaction as set forth in the Merger Agreement will be
satisfied, and that the Transaction will be consummated on a
timely basis in the manner contemplated by the Merger Agreement,
without any limitations, restrictions, or conditions, regulatory
or otherwise.
Our Opinion is intended to be utilized by the Board as only one
input to consider in its process of analyzing the Transaction.
In connection with our Opinion, we have made such reviews,
analyses, and inquiries as we have deemed necessary and
appropriate under the circumstances. The sources of information
used in performing our analysis included, but were not limited
to:
•
PHC’s
10-K
filings
for the fiscal years ended June 30, 2006 through 2010;
•
PHC’s
10-Q
filing
for the quarter ended March 31, 2011;
Holdings’ audited financial statements for the years ending
December 31, 2006 though 2010;
•
Youth and Family Centered Services’ (“YFCS”)
audited financial statements for the years ending
December 31, 2006 through 2010;
•
Holdings’ internally prepared unaudited financial
statements for the three-month periods ended March 31, 2010
and 2011;
•
YFCS’ internally prepared unaudited financial statements
for the three-month periods ended March 31, 2010 and 2011;
•
Draft of the Merger Agreement, dated May 19, 2011;
•
PHC’s five-year financial forecast for the fiscal years
ending December 31, 2011 through 2015 and subsequent growth
rates prepared by PHC management;
•
Holdings’ five-year financial forecast (including YFCS) for
the fiscal years ending December 31, 2011 through 2015 and
subsequent growth rates prepared by Holdings management;
•
Combined (both PHC and Holdings) five-year financial forecast
for the fiscal years ending December 31, 2011 through 2015
and subsequent growth rates prepared by PHC and Holdings
management;
•
A review of publicly available financial data of certain
publicly traded companies that we deemed relevant;
•
A review of publicly available information regarding certain
publicly available merger and acquisition transactions that we
deemed relevant;
•
A review of other financial and other information for PHC and
Holdings that was publicly available or provided to us by
management of PHC or Holdings;
•
Discussions with PHC and Holdings management concerning their
business, industry, history, and prospects;
•
Discussions with PHC’s financial advisors,
Jefferies & Company, Inc.; and
An analysis of other facts and data resulting in our conclusions.
We have assumed that the assets, liabilities, financial
condition, and prospects of PHC and Acadia as of the date of
this letter have not changed materially since the date of the
most recent financial information made available to us. We also
have assumed and relied upon the accuracy and completeness of
all financial and other information that was publicly available,
furnished by PHC or Acadia, or otherwise reviewed by or
discussed with us, and of the representations and warranties of
PHC and Acadia contained in the draft Merger Agreement, in each
case without independent verification of such information. We
have assumed, without independent verification, that the
financial forecasts and projections, as well as the synergy
estimates, provided to us have been reasonably prepared and
reflect the
best currently available estimates of the future financial
results of the Company, Acadia and the combined company, and
represent reasonable estimates, and we have relied upon such
forecasts, projections and estimates in arriving at our Opinion.
We have not been engaged to assess the reasonableness or
achievability of such forecasts, projections and estimates or
the assumptions upon which they were based, and we express no
view as to the forecasts, projections, estimates, or
assumptions. We have assumed that the Transaction will be
consummated on the terms described in the Merger Agreement,
without any waiver of any material terms or conditions by PHC or
Acadia.
We have not conducted any physical inspection, evaluation or
appraisal of PHC’s or Holdings’ facilities, assets or
liabilities. Our Opinion is necessarily based on business,
economic, market, and other conditions as they exist and can be
evaluated by us at the date of this letter. It should be noted
that although subsequent developments may affect this Opinion,
we do not have any obligation to update, revise, or reaffirm our
Opinion. We reserve the right, however, to withdraw, revise, or
modify our Opinion based upon additional information that may be
provided to or obtained by us after the issuance of the Opinion
that suggests, in our judgment, a material change in the
assumptions upon which our Opinion is based.
SRR conducted its analyses at the request of the Board to
provide a particular perspective of the Transaction. In so
doing, SRR did not form a conclusion as to whether any
individual analysis, when considered independently of the other
analyses conducted by SRR, supported or failed to support our
Opinion. SRR does not specifically rely or place any specific
weight on any individual analysis. Rather, SRR deems that the
analyses, taken as a whole, support our Opinion. Accordingly,
SRR believes that the analyses must be considered in their
entirety, and that selecting portions of the analyses or the
factors we considered, without considering all analyses and
factors together, could create an imperfect view of the
processes underlying the analyses performed by SRR in connection
with the preparation of the Opinion.
Our Opinion is furnished for the use and benefit of the Board in
connection with its evaluation of the Transaction and is not
intended to be used, and may not be used, for any other purpose,
without our express, prior written consent. We have acted as a
financial advisor to the Board and will receive a fee for our
services, however our compensation for providing services to the
Board is neither based upon nor contingent on the results of our
engagement or the consummation of the proposed Transaction. In
addition, PHC has agreed to indemnify us for certain liabilities
arising out of our engagement. We have not previously provided
financial advisory services to PHC, Holdings or Acadia. We have
not been requested to opine to, and this Opinion does not
address, the fairness of the amount or nature of the
compensation to any of PHC’s officers, directors or
employees, or class of such persons, relative to the
compensation to PHC’s public shareholders. The issuance of
this Opinion has been approved by a committee of SRR authorized
to approve opinions of this nature.
This Opinion was prepared at the request of the Board for its
confidential use and may not be reproduced, disseminated,
quoted, or referred to at any time in any manner or for any
purpose without our prior written consent. Notwithstanding the
foregoing, the Company may reproduce this letter in its entirety
in any filing with the Securities and Exchange Commission
required to be made by the Company in respect of the Transaction
pursuant to the Securities Act of 1933 or the Securities
Exchange Act of 1934, provided that any description of or
reference to us or summary of this Opinion or our analyses
therein is in a form acceptable to us.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, that (i) the Merger Consideration to
be received by the holders of outstanding shares of PHC’s
common stock (in the aggregate) is fair, from a financial point
of view, to such holders, and (ii) the Class A
Consideration to be received by the holders of the outstanding
shares of PHC’s Class A common stock (in the
aggregate) is fair, from a financial point of view, to such
holders.
Adopted
in accordance with the provisions
of §§242 and 245 of the General Corporation Law
of the State of Delaware
* * * * *
Acadia Healthcare Company, Inc., a corporation duly organized
and existing under and by virtue of the General Corporation Law
of the State of Delaware (the “
Corporation
”),
does hereby certify as follows:
That the Certificate of Incorporation of the Corporation was
originally filed on May 13, 2011. That the Certificate of
Incorporation be, and hereby is, amended and restated in its
entirety to read as follows as set forth in the attached
Exhibit A
.
That the Board of Directors of the Corporation approved the
Amended and Restated Certificate of Incorporation by unanimous
written consent pursuant to the provisions of
Section 141(f) and 242 of the General Corporation Law of
the State of Delaware and directed that such amendment be
submitted to the stockholders of the Corporation entitled to
vote thereon for their consideration, approval and adoption
thereof.
That the stockholders entitled to vote thereon approved the
Amended and Restated Certificate of Incorporation by written
consent in accordance with Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned does hereby certify under
penalties of perjury that this Amended and Restated Certificate
of Incorporation is the act and deed of the undersigned and the
facts stated herein are true and accordingly has hereunto set
his hand this day
of ,
2011.
The name of the Corporation is Acadia Healthcare Company, Inc.
(the “
Corporation
”).
ARTICLE TWO
The address of the Corporation’s registered office in the
State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its
registered agent at such address is The Corporation
Trust Company. Subject to the applicable filing
requirements of the General Corporation Law of the State of
Delaware (the “
DGCL
”), the registered office
and/or
registered agent of the Corporation may be changed from time to
time by resolution of the Board of Directors of the Corporation
(the “
Board of Directors
”).
ARTICLE THREE
The nature of the business of the Corporation is to engage in
any lawful act or activity for which corporations may be
organized under the General Corporation Law of the DGCL.
ARTICLE FOUR
PART A.
AUTHORIZED SHARES
The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is
100,000,000 shares, consisting of:
1. 10,000,000 shares of Preferred Stock, par value
$0.01 per share (the “
Preferred
Stock
”); and
2. 90,000,000 shares of Common Stock, par value $0.01
per share (the “
Common Stock
”).
The Preferred Stock and the Common Stock shall have the rights,
preferences and limitations set forth below.
PART B.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations
prescribed by law, to provide by resolution or resolutions for
the issuance of shares of Preferred Stock in one or more series,
and by filing a certificate pursuant to the DGCL, to establish
the number of shares to be included in each such series, and to
fix the voting powers (if any), designations, powers,
preferences, and relative, participating, optional or other
rights, if any, of the shares of each such series, and any
qualifications, limitations or restrictions thereof. Within the
limitations or restrictions stated in any series of Preferred
Stock, the Board of Directors may increase or decrease (but not
below the number of shares of any such series of Preferred Stock
then outstanding) by resolution the number of shares of any such
series of Preferred Stock. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority in voting power of the
outstanding shares of capital stock of the Corporation entitled
to vote thereon, without the separate vote of the holders of the
Preferred Stock as a class irrespective of the provisions of
Section 242(b)(2) of the DGCL, unless a vote of any such
holders is required pursuant to the terms of any Preferred Stock
designation.
PART C.
COMMON STOCK
Except as otherwise provided by the DGCL or this Amended and
Restated Certificate of Incorporation (this “
Certificate
of Incorporation
”) and subject to the terms of any
series of Preferred Stock, all of the voting power of the
stockholders of the Corporation shall be vested in the holders
of the Common Stock. Each share of Common Stock shall entitle
the holder thereof to one vote for each share held by such
holder on all matters voted upon by the stockholders of the
Corporation;
provided
,
however
, that, except as
otherwise required by the terms of any series of Preferred
Stock, holders of Common Stock, as such, shall not be entitled
to vote on any amendment to this Certificate of Incorporation
(including any certificate of designations relating to any
series of Preferred Stock) that relates solely to the terms of
one or more outstanding series of Preferred Stock if the holders
of such affected series are entitled, either separately or
together with the holders of one or more other such series, to
vote thereon pursuant to this Certificate of Incorporation
(including any certificate of designations relating to any
series of Preferred Stock).
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
Section
1.
Board
of Directors
.
The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate
of Incorporation or the Bylaws of the Corporation, the directors
are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
Section
2.
Number
of Directors
.
Subject to any rights of the
holders of any class or series of Preferred Stock to elect
additional directors under specified circumstances, the number
of directors which shall constitute the Board of Directors shall
be fixed exclusively from time to time by resolution adopted by
the affirmative vote of a majority of the directors then in
office.
Section
3.
Classes
of Directors
.
Beginning immediately following
the effective time of the merger of PHC, Inc. with and into a
wholly-owned subsidiary of the Corporation (the
‘‘
Effective Time
”), the directors of the
Corporation, other than those who may be elected by the holders
of any series of Preferred Stock under specified circumstances,
shall be divided into three classes, hereby designated
Class I, Class II and Class III (each a
“
Class
”).
Section
4.
Term
of Office
.
Subject to the terms of any series
of Preferred Stock, the directors shall be elected by a
plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote in the
election of directors;
provided
that, whenever the
holders of one or more classes or series of capital stock of the
Corporation are entitled to elect, separated as a class, one or
more directors pursuant to the provisions of this Certificate of
Incorporation (including, but not limited to, any duly
authorized certificate of designation), such directors shall be
elected by a plurality of the votes of such classes or series
present in person or represented by proxy at the meeting and
entitled to vote in the election of such directors. The term of
office of the initial Class I directors shall expire at the
first succeeding annual meeting of stockholders after the
Effective Time, the term of office of the initial Class II
directors shall expire at the second succeeding annual meeting
of stockholders after the Effective Time and the term of office
of the initial Class III directors shall expire at the
third succeeding annual meeting of the stockholders after the
Effective Time. For the purposes hereof, the Board of Directors
may assign directors already in office to the initial
Class I, Class II and Class III at the Effective
Time. At each annual meeting of stockholders after the Effective
Time, directors elected to replace those of a Class whose terms
expire at such annual meeting shall be elected for a term
expiring at the third succeeding annual meeting after their
election and shall remain in office until their respective
successors shall have been duly elected and qualified. After the
Effective Time, each director shall hold office until the annual
meeting of stockholders for the year in which such
director’s term expires and a successor is duly elected and
qualified or until his or her earlier death, resignation or
removal. Nothing in this Certificate of Incorporation shall
preclude a director from serving consecutive terms. Elections of
directors need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
Section
5.
Newly-Created
Directorships and Vacancies
.
Subject to the
rights of the holders of any series of Preferred Stock then
outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies
in the Board of Directors resulting from death, resignation,
disqualification, removal from office or any other cause may be
filled only by a majority of the directors then in office,
although less than a quorum or by the sole remaining director.
Notwithstanding the foregoing, to the fullest extent permitted
by law, until
such date as Waud Capital Partners, L.L.C. and its affiliates
(collectively, the “
WCP Investors
”) no longer
beneficially own at least 17.5% of the outstanding Common Stock
of the Corporation, upon any vacancy in the Board of Directors
for any reason of a director designated by a person or persons
in accordance with the terms of the Stockholders Agreement to be
entered into by and between the Corporation and the Stockholders
party thereto on or about the Effective Time (as amended or
restated from time to time, the “
Stockholders
Agreement
”), the resulting vacancy on the Board of
Directors shall be filled by a representative designated by the
person(s) entitled to designate such director pursuant to the
Stockholders Agreement. Prior to the Effective Time, a director
chosen to fill a vacancy or a position resulting from an
increase in the number of directors shall hold office until his
or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. After the Effective Time,
a director elected to fill a vacancy shall be elected for the
unexpired term of his or her predecessor in office and until his
or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. After the Effective Time,
a director chosen to fill a position resulting from an increase
in the number of directors shall hold office until the next
election of the class for which such director shall have been
chosen and until his or her successor is elected and qualified,
or until his or her earlier death, resignation or removal. No
decrease in the authorized number of directors shall shorten the
term of any incumbent director.
Section
6.
Removal
of Directors
.
Subject to the rights of the
holders of any series of Preferred Stock then outstanding, to
the fullest extent permitted by law, (i) until such date as
the WCP Investors no longer beneficially own at least 17.5% of
the outstanding Common Stock of the Corporation (such date, the
“
Trigger Date
”), a director may be removed at
any time, either for or without cause, only upon either
(a) the affirmative vote of the holders of eighty percent
(80%) of the voting power of the capital stock of the
Corporation outstanding and entitled to vote thereon or
(b) if such director is being removed at the request of the
person(s) entitled to designate such director in accordance with
the Stockholders Agreement, by the affirmative vote of the
holders of a majority of the voting power of the stock
outstanding and entitled to vote thereon; and (ii) from and
after the Trigger Date, a director may be removed from office
only for cause and only by the affirmative vote of the holders
of at least a majority of the voting power of the capital stock
of the Corporation outstanding and entitled to vote thereon.
Section
7.
Bylaws
.
In
furtherance and not in limitation of the powers conferred upon
it by the laws of the State of Delaware, the Board of Directors
shall have the power to adopt, amend, alter or repeal the
Corporation’s Bylaws. In addition to any other vote
required by law, the affirmative vote of a majority of the
directors then in office shall be required to adopt, amend,
alter or repeal the Corporation’s Bylaws. The
Corporation’s Bylaws also may be adopted, amended, altered
or repealed by the stockholders;
provided
,
however
, that in addition to any vote of the holders of
any class or series of stock of the Corporation required by law
or by this Certificate of Incorporation, the affirmative vote of
the holders of at least a majority of the voting power of all of
the then outstanding shares of the capital stock of the
Corporation entitled to vote thereon, voting together as a
single class shall be required for the stockholders to adopt,
amend, alter or repeal any provisions of the Bylaws of the
Corporation.
Section
8.
Advance
Notice
.
Advance notice of stockholder
nominations for the election of directors and of business to be
brought by stockholders before any meeting of the stockholders
of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
ARTICLE SEVEN
To the fullest extent permitted by the DGCL as it now exists or
may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the
Corporation to provide broader rights than permitted prior
thereto), no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages arising
from a breach of fiduciary duty as a director. Any repeal or
modification of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification with respect
to any act, omission or other matter occurring prior to the time
of such repeal or modification.
Prior to the Effective Time, the stockholders of the Corporation
may take any action by written consent in lieu of a meeting,
without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and
bearing the dates of signature of the stockholders who signed
the consent or consents, shall be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were
present and voted. On and after the Effective Time and subject
to the rights of the holders of any series of Preferred Stock,
(i) (A) until such time as WCP Investors no longer
beneficially own at least a majority of the outstanding Common
Stock of the Corporation, the stockholders of the Corporation
may take any action by written consent in lieu of a meeting,
without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and
bearing the dates of signature of the stockholders who signed
the consent or consents, shall be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were
present and voted and (B) after such time, the stockholders
may not take any action by written consent in lieu of a meeting,
and must take any actions at a duly called annual or special
meeting of stockholders and the power of stockholders to consent
in writing without a meeting is specifically denied; and
(ii) special meetings of stockholders of the Corporation
may be called only by a resolution adopted by the Board of
Directors, by at least the affirmative vote of the majority of
the directors then in office.
ARTICLE NINE
Section
1.
Certain
Acknowledgments
.
In recognition of the fact
that the Corporation, on the one hand, and the WCP Group (as
defined below), on the other hand, may currently engage in, and
may in the future engage in, the same or similar activities or
lines of business and have an interest in the same areas and
types of corporate opportunities, and in recognition of the
benefits to be derived by the Corporation, through its continued
corporate and business relations with the WCP Group (including
possible service of directors, officers and employees of the WCP
Group as directors, officers and employees of the Corporation),
the provisions of this ARTICLE NINE are set forth to
regulate and define the conduct of certain affairs of the
Corporation and its Affiliated Companies, as they may involve
the WCP Group, the powers, rights, duties and liabilities of the
Corporation and its Affiliated Companies as well as the
respective directors, officers, employees and stockholders
thereof, and the powers, rights, duties and liabilities of the
Corporation and its directors, officers, employees and
stockholders in connection therewith.
Section
2.
Renouncement
of Certain Corporate Opportunities
.
To the
fullest extent permitted by law: (i) the Corporation and
its Affiliated Companies shall have no interest or expectancy in
any corporate opportunity and no expectation that such corporate
opportunity be offered to the Corporation or its Affiliated
Companies, if such opportunity is one that any member of the WCP
Group has acquired knowledge of or is otherwise pursuing, and
any such interest or expectancy in any such corporate
opportunity is hereby renounced, so that as a result of such
renunciation, the corporate opportunity shall belong to the WCP
Group; (ii) each member of the WCP Group shall have the
right to, and shall have no duty (contractual or otherwise) not
to, directly or indirectly: (A) engage in the same, similar
or competing business activities or lines of business as the
Corporation or its Affiliated Companies, (B) do business
with any client or customer of the Corporation or its Affiliated
Companies, or (C) make investments in competing businesses
of the Corporation or its Affiliated Companies, and such acts
shall not be deemed wrongful or improper; (iii) no member
of the WCP Group shall be liable to the Corporation, its
stockholders or its Affiliated Companies for breach of any duty
(contractual or otherwise), including without limitation
fiduciary duties, by reason of any such activities or of such
Person’s participation therein; and (iv) in the event
that any member of the WCP Group acquires knowledge of a
potential transaction or matter that may be a corporate
opportunity for the Corporation or its Affiliated Companies, on
the one hand, and any member of the WCP Group, on the other
hand, or any other Person, no member of the WCP Group shall have
any duty (contractual or otherwise), including without
limitation fiduciary duties, to communicate, present or offer
such corporate opportunity to the Corporation or its Affiliated
Companies and shall not be liable to the Corporation, its
stockholders or its Affiliated Companies for breach of any duty
(contractual or otherwise), including without limitation
fiduciary duties, by reason of the fact that any member of the
WCP Group directly or indirectly pursues or acquires such
opportunity for itself, directs,
sells, assigns or transfers such opportunity to another Person,
or does not present or communicate such opportunity to the
Corporation or its Affiliated Companies, even though such
corporate opportunity may be of a character that, if presented
to the Corporation or its Affiliated Companies, could be taken
by the Corporation or its Affiliated Companies.
Section
3.
Certain
Definitions
.
For purposes of this
ARTICLE NINE, (i) “
WCP Group
” means
Waud Capital Partners, L.L.C., its affiliates and any of their
respective managed investment funds and portfolio companies
(other than the Corporation and its Affiliated Companies) and
their respective partners, members, directors, employees,
stockholders, agents, any successor by operation of law
(including by merger) of any such person, and any entity that
acquires all or substantially all of the assets of any such
person in a single transaction or series of related
transactions, in each case, whether or not any of the foregoing
are serving as directors or officers of the Corporation or any
Affiliated Company; (ii) “
Affiliated
Company
” means any company or entity controlled by the
Corporation.
Section
4.
Amendment
of this Article
.
Notwithstanding anything to
the contrary elsewhere contained in this Certificate of
Incorporation: (i) the affirmative vote of the holders of
at least eighty percent (80%) of the voting power of all shares
of Common Stock then outstanding, voting together as a single
class, shall be required to alter, amend or repeal, or to adopt
any provision inconsistent with, this ARTICLE NINE;
(ii) neither the alteration, amendment or repeal of this
ARTICLE NINE nor the adoption of any provision of this
Amended and Restated Certificate of Incorporation inconsistent
with this ARTICLE NINE shall eliminate or reduce the effect
of this ARTICLE NINE in respect of any matter occurring, or
any cause of action, suit or claim that, but for this
ARTICLE NINE, would accrue or arise, prior to such
alteration, amendment, repeal or adoption.
Section
5.
Deemed
Notice
.
Any person or entity purchasing or
otherwise acquiring any interest in any shares of the
Corporation shall be deemed to have notice of, and to have
consented to, the provisions of this ARTICLE NINE.
Section
6.
Exception
.
Notwithstanding
the foregoing provisions of this ARTICLE NINE, the
preceding provisions of this ARTICLE NINE shall not apply
to any corporate opportunity which is expressly offered to a
member of the WCP Group who is then a director or officer of the
Corporation if such corporate opportunity is offered to such
person in writing solely in his or her capacity as an officer or
director of the Corporation, and the Corporation does not
renounce any interest or expectancy in such opportunity.
ARTICLE TEN
Section
1.
Section 203
of the DGCL
.
The Corporation expressly elects
not to be governed by Section 203 of the DGCL.
Section
2.
Interested
Stockholder Transactions
.
Notwithstanding any
other provision in this Certificate of Incorporation to the
contrary, the Corporation shall not, after the Effective Time,
engage in any Business Combination (as defined hereinafter) with
any Interested Stockholder (as defined hereinafter) for a period
of three years following the time that such stockholder became
an Interested Stockholder, unless:
(a) prior to such time the Board of Directors approved
either the Business Combination or the transaction which
resulted in such stockholder becoming an Interested Stockholder;
(b) upon consummation of the transaction which resulted in
such stockholder becoming an Interested Stockholder, such
stockholder owned at least eighty-five percent (85%) of the
Voting Stock (as defined hereinafter) of the Corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the Voting Stock outstanding (but not
the outstanding Voting Stock owned by such stockholder) those
shares owned (i) by Persons (as defined hereinafter) who
are directors and also officers of the Corporation and
(ii) employee stock plans of the Corporation in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
(c) at or subsequent to such time the Business Combination
is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative
vote of at least a majority of the outstanding Voting Stock
which is not owned by such stockholder.
Section
3.
Exceptions
to Prohibition on Interested Stockholder
Transactions
.
The restrictions contained in
this ARTICLE TEN shall not apply if:
(a) a stockholder becomes an Interested Stockholder
inadvertently and (i) as soon as practicable divests itself
of ownership of sufficient shares so that the stockholder ceases
to be an Interested Stockholder; and (ii) would not, at any
time within the three-year period immediately prior to a
Business Combination between the Corporation and such
stockholder, have been an Interested Stockholder but for the
inadvertent acquisition of ownership; or
(b) the Business Combination is proposed prior to the
consummation or abandonment of and subsequent to the earlier of
the public announcement or the notice required hereunder of a
proposed transaction which (i) constitutes one of the
transactions described in the second sentence of this
Section 3(b) of this ARTICLE TEN; (ii) is with or
by a Person who either was not an Interested Stockholder during
the previous three years or who became an Interested Stockholder
with the approval of the Board of Directors; and (iii) is
approved or not opposed by a majority of the directors then in
office (but not less than one) who were directors prior to any
Person becoming an Interested Stockholder during the previous
three years or were recommended for election or elected to
succeed such directors by a majority of such directors. The
proposed transactions referred to in the preceding sentence are
limited to (x) a merger or consolidation of the Corporation
(except for a merger in respect of which, pursuant to
§ 251(f) of the DGCL, no vote of the stockholders of
the Corporation is required); (y) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition (in one
transaction or a series of transactions), whether as part of a
dissolution or otherwise, of assets of the Corporation or of any
direct or indirect majority-owned subsidiary of the Corporation
(other than to any direct or indirect wholly-owned subsidiary or
to the Corporation) having an aggregate market value equal to
fifty percent (50%) or more of either that aggregate market
value of all of the assets of the Corporation determined on a
consolidated basis or the aggregate market value of all the
outstanding Stock (as defined hereinafter) of the Corporation;
or (z) a proposed tender or exchange offer for fifty
percent (50%) or more of the outstanding Voting Stock of the
Corporation. The Corporation shall give not less than
20 days’ notice to all Interested Stockholders prior
to the consummation of any of the transactions described in
clause (x) or (y) of the second sentence of this
Section 3(b) of this ARTICLE TEN.
Section
4.
Definitions
.
As
used in this ARTICLE TEN only, and unless otherwise
provided by the express terms of this ARTICLE TEN, the
following terms shall have the meanings ascribed to them as set
forth in this Section 4 of this ARTICLE TEN:
(a)
“
Affiliate
”
means a Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
another Person;
(b)
“
Associate
,”
when used to
indicate a relationship with any Person, means: (i) any
corporation, partnership, unincorporated association or other
entity of which such Person is a director, officer or partner or
is, directly or indirectly, the owner of twenty percent (20%) or
more of any class of Voting Stock; (ii) any trust or other
estate in which such Person has at least a twenty percent (20%)
beneficial interest or as to which such Person serves as trustee
or in a similar fiduciary capacity; and (iii) any relative
or spouse of such Person, or any relative of such spouse, who
has the same residence as such Person;
(c)
“
Business Combination
”
means:
(i) any merger or consolidation of the Corporation or any
direct or indirect majority-owned subsidiary of the Corporation
with (A) the Interested Stockholder, or (B) with any
Person if the merger or consolidation is caused by the
Interested Stockholder and as a result of such merger or
consolidation Section 2 of this ARTICLE TEN is not
applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions), except proportionately as a stockholder of the
Corporation, to or with the
Interested Stockholder, whether as part of a dissolution or
otherwise, of assets of the Corporation or of any direct or
indirect majority-owned subsidiary of the Corporation which
assets have an aggregate market value equal to ten percent (10%)
or more of either the aggregate market value of all the assets
of the Corporation determined on a consolidated basis or the
aggregate market value of all the outstanding Stock of the
Corporation; or
(iii) any transaction or series of transactions which
results in the issuance or transfer by the Corporation or by any
direct or indirect majority-owned subsidiary of the Corporation
of ten percent (10%) or more of any class or series of Stock of
the Corporation or of such subsidiary to the Interested
Stockholder, except: (A) pursuant to the exercise, exchange
or conversion of securities exercisable for, exchangeable for or
convertible into Stock of the Corporation or any such subsidiary
which securities were outstanding prior to the time that the
Interested Stockholder became such; (B) pursuant to a
merger under § 251(g) or § 253 of the DGCL;
(C) pursuant to a dividend or distribution paid or made, or
the exercise, exchange or conversion of securities exercisable
for, exchangeable for or convertible into Stock of the
Corporation or any such subsidiary which security is
distributed, pro rata to all holders of a class or series of
Stock of the Corporation subsequent to the time the Interested
Stockholder became such; or (D) pursuant to an exchange
offer by the Corporation to purchase Stock made on the same
terms to all holders of such Stock;
(d)
“
Control
,”
including the terms
“
controlling
,” “
controlled by
”
and “
under common control with
,” means the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through the ownership of stock or other equity
interests, by contract or otherwise. A Person who is the owner
of twenty percent (20%) or more of the outstanding Voting Stock
of any corporation, partnership, unincorporated association or
other entity shall be presumed to have control of such entity,
in the absence of proof by a preponderance of the evidence to
the contrary; notwithstanding the foregoing, a presumption of
control shall not apply where such Person holds Voting Stock, in
good faith and not for the purpose of circumventing this
ARTICLE TEN, as an agent, bank, broker, nominee, custodian
or trustee for one or more owners who do not individually or as
a group have control of such entity;
(e)
“
Interested Stockholder
”
means
any Person (other than the Corporation and any direct or
indirect majority-owned subsidiary of the Corporation) that
(i) is the owner of fifteen percent (15%) or more of the
outstanding Voting Stock of the Corporation, or (ii) is an
Affiliate or Associate of the Corporation and was the owner of
fifteen percent (15%) or more of the outstanding Voting Stock of
the Corporation at any time within the three-year period
immediately prior to the date on which it is sought to be
determined whether such Person is an Interested Stockholder, and
the Affiliates and Associates of such Person. Notwithstanding
anything in this ARTICLE TEN to the contrary, the term
“
Interested Stockholder
” shall not include:
(x) Waud Capital Partners, L.L.C. or any investment fund
managed by Waud Capital Partners, L.L.C. or any of their
respective Affiliates or Associates from time to time and any
other person or entity with whom any of the foregoing are acting
as a group or in concert for the purpose of acquiring, holding,
voting or disposing of shares of stock of the Corporation;
(y) any Person who would otherwise be an Interested
Stockholder because of a transfer, sale, assignment, conveyance,
hypothecation, encumbrance, or other disposition of five percent
(5%) or more of the outstanding Voting Stock of the Corporation
(in one transaction or a series of transactions) by any party
specified in the immediately preceding clause (x) to such
Person;
provided
,
however
, that such Person was
not an Interested Stockholder prior to such transfer, sale,
assignment, conveyance, hypothecation, encumbrance, or other
disposition; or (z) any Person whose ownership of shares in
excess of the fifteen percent (15%) limitation set forth herein
is the result of action taken solely by the Corporation,
provided
that, for purposes of this clause (z), such
Person shall be an Interested Stockholder if thereafter such
Person acquires additional shares of Voting Stock of the
Corporation, except as a result of further action by the
Corporation not caused, directly or indirectly, by such Person;
(f)
“
Owner
,”
including the terms
“
own
” and “
owned
,” when used
with respect to any Stock, means a Person that individually or
with or through any of its Affiliates or Associates beneficially
owns such Stock, directly or indirectly; or has (A) the
right to acquire such Stock (whether such right is exercisable
immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise;
provided
,
however
, that a
Person shall not be deemed the owner of Stock tendered pursuant
to a tender or exchange offer made by such Person or any of such
Person’s Affiliates or Associates until such tendered Stock
is accepted for purchase or exchange; or (B) the right to
vote such Stock pursuant to any agreement, arrangement or
understanding;
provided
,
however
, that a Person
shall not be deemed the owner of any Stock because of such
Person’s right to vote such Stock if the agreement,
arrangement or understanding to vote such Stock arises solely
from a revocable proxy or consent given in response to a proxy
or consent solicitation made to ten (10) or more Persons;
or has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting (except voting pursuant to
a revocable proxy or consent as described in (B) of this
Section 4(f) of ARTICLE TEN), or disposing of such
Stock with any other Person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or
indirectly, such Stock;
provided
, that, for the purpose
of determining whether a Person is an Interested Stockholder,
the Voting Stock of the Corporation deemed to be outstanding
shall include Stock deemed to be owned by the Person through
application of this definition of “owned” but shall
not include any other unissued Stock of the Corporation which
may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants
or options, or otherwise;
(g)
“
Person
”
means any individual,
corporation, partnership, unincorporated association or other
entity;
(h)
“
Stock
”
means, with respect to
any corporation, capital stock and, with respect to any other
entity, any equity interest; and
(i)
“
Voting Stock
”
means, with
respect to any corporation, Stock of any class or series
entitled to vote generally in the election of directors and,
with respect to any entity that is not a corporation, any equity
interest entitled to vote generally in the election of the
governing body of such entity. Every reference to a percentage
of Voting Stock shall refer to such percentage of the votes of
such Voting Stock.
ARTICLE ELEVEN
On or before the third anniversary of the Effective Date,
neither the Corporation nor any of its direct or indirect
subsidiaries shall adopt or otherwise implement any “poison
pill” stockholder rights plan, or issue, sell or otherwise
distribute any rights or securities to any person pursuant to
such a plan, without first obtaining the approval of the holders
of a majority of the voting power of the capital stock of the
Corporation then outstanding. Any action taken in contravention
of the preceding sentence shall be null and void.
ARTICLE TWELVE
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed herein
and by the laws of the State of Delaware, and all rights
conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding any other provision of this
Certificate of Incorporation or the Bylaws of the Corporation,
and notwithstanding the fact that a lesser percentage or
separate class vote may be specified by law or otherwise, but in
addition to any affirmative vote of the holders of any
particular class or series of the capital stock required by law
or otherwise, the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of
capital stock of the Corporation entitled to vote thereon, other
than shares owned by any Interested Stockholder, shall, voting
together as a single class, be required to adopt any provision
inconsistent with, to amend, alter, change or repeal any
provision of ARTICLE SIX, SEVEN, EIGHT, TEN, ELEVEN,
TWELVE, THIRTEEN or FOURTEEN of this Certificate of
Incorporation.
ARTICLE THIRTEEN
Unless the Corporation consents in writing to the selection of
an alternative forum, the Court of Chancery of the State of
Delaware shall be the sole and exclusive forum for (i) any
derivative action or proceeding brought on behalf of the
Corporation, (ii) any action asserting a claim of breach of
a fiduciary duty owed by any director or officer of the
Corporation to the Corporation or the Corporation’s
stockholders, (iii) any action asserting a claim
against the Corporation arising pursuant to any provision of the
Delaware General Corporation Law or the Corporation’s
Certificate of Incorporation or by-laws or (iv) any action
asserting a claim against the Corporation governed by the
internal affairs doctrine. Any person or entity purchasing or
otherwise acquiring any interest in shares of capital stock of
the Corporation shall be deemed to have notice of and consented
to the provisions of this ARTICLE THIRTEEN.
ARTICLE FOURTEEN
To the extent that any provision of this Certificate of
Incorporation is found to be invalid or unenforceable, such
invalidity or unenforceability shall not affect the validity or
enforceability of any other provision of this Certificate of
Incorporation, and following any determination by a court of
competent jurisdiction that any provision of this Certificate of
Incorporation is invalid or unenforceable, this Certificate of
Incorporation shall contain only such provisions (i) as
were in effect immediately prior to such determination and
(ii) were not so determined to be invalid or unenforceable.
AMENDED
AND RESTATED BYLAWS
OF
ACADIA HEALTHCARE COMPANY, INC.
A
Delaware corporation
(Adopted
as
of ,
2011)
ARTICLE I
OFFICES
Section
1.
Offices
.
Acadia
Healthcare Company, Inc. (the “
Corporation
”)
may have an office or offices other than its registered office
at such place or places, either within or outside the State of
Delaware, as the Board of Directors of the Corporation (the
“
Board of Directors
”) may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS
OF STOCKHOLDERS
Section
1.
Place
of Meetings
.
The Board of Directors
may designate a place, if any, either within or outside the
State of Delaware, as the place of meeting for any annual
meeting or for any special meeting.
Section
2.
Annual
Meeting
.
An annual meeting of the
stockholders shall be held each year at such time as is
specified by the Board of Directors. At the annual meeting,
stockholders shall elect directors to succeed those whose terms
expire and transact such other business as properly may be
brought before the annual meeting pursuant to Section 11 of
ARTICLE II.
Section
3.
Special
Meetings
.
Special meetings of the
stockholders may only be called in the manner provided in the
Corporation’s certificate of incorporation as then in
effect (the ‘‘
Certificate of
Incorporation
”). Business transacted at any special
meeting of stockholders shall be limited to business brought by
or at the direction of the Board of Directors. The Board of
Directors may postpone or reschedule any previously scheduled
special meeting.
Section
4.
Notice
of Meetings
.
Notice of the place, if any,
date, and time of all meetings of the stockholders, the means of
remote communications, if any, by which stockholders and
proxyholders may be deemed to be present in person and vote at
such meeting, and the record date for determining the
stockholders entitled to vote at the meeting, if such date is
different from the record date for determining stockholders
entitled to notice of the meeting, shall be given, not less than
10 nor more than 60 days before the date on which the
meeting is to be held, to each stockholder entitled to vote at
such meeting as of the record date for determining the
stockholders entitled to notice of the meeting, except as
otherwise provided herein or required by law (meaning, here and
hereinafter, as required from time to time by the General
Corporation Law of the State of Delaware (the
“
DGCL
”) or the Certificate of Incorporation).
(a)
Form of Notice
.
All such
notices shall be delivered in writing or by a form of electronic
transmission if receipt thereof has been consented to by the
stockholder to whom the notice is given. If mailed, such notice
shall be deemed given when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its
address as the same appears on the records of the Corporation.
If given by facsimile telecommunication, such notice shall be
deemed given when directed to a number at which the stockholder
has consented to receive notice by facsimile. Subject to the
limitations of Section 4(c) of this ARTICLE II, if
given by electronic transmission, such notice shall be deemed to
be delivered: (i) by electronic mail, when directed to an
electronic mail address at which the stockholder has consented
to receive notice; (ii) if by a posting on an electronic
network together with separate notice to the stockholder of such
specific posting, upon the later of (x) such posting and
(y) the giving of such separate notice; and (iii) if
by any other form of electronic transmission, when directed to
the stockholder. An affidavit of the secretary or an assistant
secretary of the Corporation, the transfer agent of the
Corporation or any
other agent of the Corporation that the notice has been given
shall, in the absence of fraud, be
prima facie
evidence
of the facts stated therein.
(b)
Waiver of
Notice
.
Whenever notice is required to be
given under any provisions of the DGCL, the Certificate of
Incorporation or these Amended and Restated Bylaws (these
“
Bylaws
”), a written waiver thereof, signed by
the stockholder entitled to notice, or a waiver by electronic
transmission by the person or entity entitled to notice, whether
before or after the time stated therein, shall be deemed
equivalent to notice. Neither the business to be transacted at,
nor the purpose of, any meeting of the stockholders of the
Corporation need be specified in any waiver of notice of such
meeting. Attendance of a stockholder of the Corporation at a
meeting of such stockholders shall constitute a waiver of notice
of such meeting, except when the stockholder attends for the
express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not
lawfully called or convened.
(c)
Notice by Electronic
Delivery
.
Without limiting the manner by
which notice otherwise may be given effectively to stockholders
of the Corporation pursuant to the DGCL, the Certificate of
Incorporation or these Bylaws, any notice to stockholders of the
Corporation given by the Corporation under any provision of the
DGCL, the Certificate of Incorporation or these Bylaws shall be
effective if given by a form of electronic transmission
consented to by the stockholder of the Corporation to whom the
notice is given. Any such consent shall be deemed revoked if:
(i) the Corporation is unable to deliver by electronic
transmission two (2) consecutive notices given by the
Corporation in accordance with such consent; and (ii) such
inability becomes known to the secretary or an assistant
secretary of the Corporation or to the transfer agent or other
person responsible for the giving of notice. However, the
inadvertent failure to treat such inability as a revocation
shall not invalidate any meeting or other action. For purposes
of these Bylaws, except as otherwise limited by applicable law,
the term “electronic transmission” means any form of
communication not directly involving the physical transmission
of paper that creates a record that may be retained, retrieved
and reviewed by a recipient thereof and that may be directly
reproduced in paper form by such recipient through an automated
process.
Section
5.
List
of Stockholders
.
The officer who has charge
of the stock ledger of the Corporation shall prepare and make
available, at least 10 days before each meeting of
stockholders, a complete list of the stockholders entitled to
vote at the meeting; provided, however, that if the record date
for determining the stockholders entitled to vote is less than
10 days before the meeting date, the list shall reflect the
stockholders entitled to vote as of the 10th day before the
meeting date, arranged in alphabetical order and showing the
address of each such stockholder and the number of shares
registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting:
(a) on a reasonably accessible electronic network, provided
that the information required to gain access to such list is
provided with the notice of the meeting, or (b) during
ordinary business hours, at the principal place of business of
the Corporation. In the event the Corporation determines to make
the list available on an electronic network, the Corporation may
take reasonable steps to ensure that such information is
available only to stockholders of the Corporation. The list
shall also be produced and kept at the time and place, if any,
of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section
6.
Quorum
.
The
holders of a majority of the outstanding voting power of all
shares of capital stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum at all meetings
of the stockholders for all purposes, unless or except to the
extent that the presence of a larger number may be required by
the DGCL, the Certificate of Incorporation or the rules of any
stock exchange upon which the Corporation’s securities are
listed. If a quorum is not present, the chairman of the meeting
or the holders of a majority of the voting power present in
person or represented by proxy at the meeting and entitled to
vote at the meeting may adjourn the meeting to another time
and/or
place. When a specified item of business requires a separate
vote by a class or series (if the Corporation shall then have
outstanding shares of more than one class or series) voting as a
class or series, the holders of a majority of the voting power
of such class or series shall constitute a quorum (as to such
class or series) for the transaction of such item of business.
Section
7.
Adjourned
Meetings
.
When a meeting is adjourned to
another time and place, notice need not be given of the
adjourned meeting if the time and place, if any, thereof and the
means of remote communications, if any, by which stockholders
and proxyholders may be deemed to be present in person and vote
at such adjourned
meeting are announced at the meeting at which the adjournment is
taken; provided, however, that if the adjournment is for more
than 30 days, a notice of the place, if any, date and time
of the adjourned meeting and the means of remote communications,
if any, by which stockholders and proxyholders may be deemed to
be present in person and vote at such adjourned meeting shall be
given to each stockholder of record entitled to vote at the
meeting. If after the adjournment a new record date for
stockholders entitled to vote is fixed for the adjourned
meeting, the Board of Directors shall fix a new record date for
notice of such adjourned meeting, which record date shall not
precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and, except as
otherwise required by law, shall not be more than 60 days
nor less than 10 days before the date of such adjourned
meeting, and shall give notice of the adjourned meeting to each
stockholder of record entitled to vote at such adjourned meeting
as of the record date fixed for notice of such adjourned
meeting. At the adjourned meeting the Corporation may transact
any business which might have been transacted at the original
meeting.
Section
8.
Vote
Required
.
When a quorum is present, the
affirmative vote of the majority of voting power of capital
stock present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of
the stockholders, unless by express provisions of an applicable
law, the rules of any stock exchange upon which the
Corporation’s securities are listed, or the Certificate of
Incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such
question.
Section
9.
Voting
Rights
.
Except as otherwise provided by the
DGCL, the Certificate of Incorporation, the certificate of
designation relating to any outstanding class or series of
preferred stock or these Bylaws, every stockholder shall at
every meeting of the stockholders be entitled to one vote in
person or by proxy for each share of capital stock held by such
stockholder.
Section
10.
Proxies
.
Each
stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is
coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in
the stock itself or an interest in the Corporation generally.
Section
11.
Business
Brought Before a Meeting of the Stockholders.
(a)
Annual Meetings
.
(i) At an annual meeting of the stockholders, only such
nominations of persons for election to the Board of Directors
shall be considered and such business shall be conducted as
shall have been properly brought before the meeting. To be
properly brought before an annual meeting, nominations and other
business must be a proper matter for stockholder action under
Delaware law and must be (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) brought before the meeting
by or at the direction of the Board of Directors,
(C) brought by a party to the Stockholders Agreement to be
entered into by and between the Corporation and the stockholders
party thereto on or about the date of these Bylaws (as amended
or restated from time to time, the “
Stockholders
Agreement
”) in accordance with the terms of the
Stockholders Agreement with respect to such stockholder’s
rights provided therein or (D) otherwise properly brought
before the meeting by a stockholder who (I) is a
stockholder of record of the Corporation (and, with respect to
any beneficial owner, if different, on whose behalf such
business is proposed or such nomination or nominations are made,
only if such beneficial owner is the beneficial owner of shares
of the Corporation) both at the time the notice provided for in
paragraph (a) of this Section 11 of this
ARTICLE II is delivered to the secretary of the Corporation
and on the record date for the determination of stockholders
entitled to vote at the annual meeting of stockholders,
(II) is entitled to vote at the meeting, and
(III) complies with the notice procedures set forth in
paragraph (a) of this Section 11 of this
ARTICLE II. For nominations or other business to be
properly brought before an annual meeting by a stockholder, the
stockholder must either have the right to nominate a director
under the Stockholders Agreement or have given timely notice
thereof in writing and in proper form to the secretary of the
Corporation. To be timely, a stockholder’s notice must be
delivered to or mailed and received at the principal executive
offices of the Corporation, not later than the close of business
on the ninetieth (90th) day nor earlier than the close of
business on the one hundred twentieth (120th) day prior to the
first anniversary of the preceding year’s annual meeting
(provided, however, that in the event that the date of the
annual meeting is more than thirty (30) days before or more
than seventy (70) days
after such anniversary date, notice by the stockholder must be
so delivered not earlier than the close of business on the one
hundred twentieth (120th) day prior to such annual meeting and
not later than the close of business on the later of the
ninetieth (90th) day prior to such annual meeting or the tenth
(10th) day following the day on which Public Announcement of the
date of such meeting is first made by the Corporation). In no
event shall any adjournment, deferral or postponement of an
annual meeting or the Public Announcement thereof commence a new
time period (or extend any time period) for the giving of a
stockholder’s notice as described above. Notwithstanding
anything in this paragraph to the contrary, in the event that
the number of directors to be elected to the Board of Directors
at an annual meeting is increased and there is no Public
Announcement by the Corporation naming the nominees for the
additional directorships at least one hundred (100) days
prior to the first anniversary of the preceding year’s
annual meeting, a stockholder’s notice required by
paragraph (a) of this Section 11 of this
ARTICLE II shall also be considered timely, but only with
respect to nominees for the additional directorships, if it
shall be delivered to the secretary at the principal executive
offices of the Corporation not later than the close of business
on the tenth (10th) day following the day on which such Public
Announcement is first made by the Corporation.
(ii) Other than a nomination of a person pursuant to the
terms of the Stockholders Agreement, a stockholder’s notice
providing for the nomination of a person or persons for election
as a director or directors of the Corporation shall set forth
(A) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination is made
(and for purposes of clauses (II) through (IX) below,
including any interests described therein held by any affiliates
or associates (each within the meaning of
Rule 12b-2
under the Securities Exchange Act of 1934 (the “
Exchange
Act
”) for purposes of these Bylaws) of such stockholder
or beneficial owner or by any member of such stockholder’s
or beneficial owner’s immediate family sharing the same
household, in each case as of the date of such
stockholder’s notice, which information shall be confirmed
or updated, if necessary, by such stockholder and beneficial
owner as of the record date for determining the stockholders
entitled to notice of the meeting of stockholders and as of the
date that is ten (10) business days prior to such meeting
of the stockholders or any adjournment or postponement thereof,
and such confirmation or update shall be received by the
Secretary at the principal executive offices of the Corporation
not later than the close of business on the fifth business day
after the record date for the meeting of stockholders (in the
case of the update and supplement required to be made as of the
record date), and not later than the close of business on the
eighth business day prior to the date for the meeting of
stockholders or any adjournment or postponement thereof (in the
case of the update and supplement required to be made as of ten
(10) business days prior to the meeting of stockholders or
any adjournment or postponement thereof)) (I) the name and
address of such stockholder, as they appear on the
Corporation’s books, and of such beneficial owner,
(II) the class or series and number of shares of capital
stock of the Corporation which are, directly or indirectly,
beneficially owned (within the meaning of
Rule 13d-3
under the Exchange Act) (provided that a person shall in all
events be deemed to beneficially own any shares of any class or
series and number of shares of capital stock of the Corporation
as to which such person has a right to acquire beneficial
ownership at any time in the future) and owned of record by such
stockholder or beneficial owner, (III) the class or series,
if any, and number of options, warrants, puts, calls,
convertible securities, stock appreciation rights, or similar
rights, obligations or commitments with an exercise or
conversion privilege or a settlement payment or mechanism at a
price related to any class or series of shares or other
securities of the Corporation or with a value derived in whole
or in part from the value of any class or series of shares or
other securities of the Corporation, whether or not such
instrument, right, obligation or commitment shall be subject to
settlement in the underlying class or series of shares or other
securities of the Corporation (each a “
Derivative
Security
”), which are, directly or indirectly,
beneficially owned by such stockholder or beneficial owner,
(IV) any agreement, arrangement, understanding, or
relationship, including any repurchase or similar so-called
“stock borrowing” agreement or arrangement, engaged
in, directly or indirectly, by such stockholder or beneficial
owner, the purpose or effect of which is to mitigate loss to,
reduce the economic risk (of ownership or otherwise) of any
class or series of capital stock or other securities of the
Corporation by, manage the risk of share price changes for, or
increase or decrease the voting power of, such stockholder or
beneficial owner with respect to any class or series of capital
stock or other securities of the Corporation, or that provides,
directly or indirectly, the opportunity to profit from any
decrease in the price or value of any class or series or capital
stock or other securities of the Corporation, (V) a
description of any other direct or indirect opportunity to
profit or share in any profit (including any performance-based
fees) derived from any increase or decrease in the value of
shares or other securities of the Corporation, (VI) any
proxy, contract, arrangement, understanding or
relationship pursuant to which such stockholder or beneficial
owner has a right to vote any shares or other securities of the
Corporation, (VII) any rights to dividends on the shares of
the Corporation owned beneficially by such stockholder or such
beneficial owner that are separated or separable from the
underlying shares of the Corporation, (VIII) any
proportionate interest in shares of the Corporation or
Derivative Securities held, directly or indirectly, by a general
or limited partnership in which such stockholder or beneficial
owner is a general partner or, directly or indirectly,
beneficially owns an interest in a general partner, if any,
(IX) a description of all agreements, arrangements, and
understandings between such stockholder or beneficial owner and
any other person(s) (including their name(s)) in connection with
or related to the ownership or voting of capital stock of the
Corporation or Derivative Securities, (X) any other
information relating to such stockholder or beneficial owner
that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with
solicitations of proxies for the election of directors in a
contested election pursuant to Section 14 of the Exchange
Act and the rules and regulations promulgated thereunder,
(XI) a statement as to whether either such stockholder or
beneficial owner intends to deliver a proxy statement and form
of proxy to holders of at least the percentage of the
Corporation’s voting shares required under applicable law
to elect such stockholder’s nominees
and/or
otherwise to solicit proxies from the stockholders in support of
such nomination and (XII) a representation that the
stockholder is a holder of record of shares of the Corporation
entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to propose such nomination, and
(B) as to each person whom the stockholder proposes to
nominate for election or reelection as a director, (I) all
information relating to such person that would be required to be
disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of
directors pursuant to the Exchange Act and the rules and
regulations promulgated thereunder (including such person’s
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected), (II) a
description of all direct and indirect compensation and other
material agreements, arrangements and understandings during the
past three years, and any other material relationships, between
or among such stockholder or beneficial owner, if any, and their
respective affiliates and associates, or others acting in
concert therewith, on the one hand, and each proposed nominee
and his or her respective affiliates and associates, or others
acting in concert therewith, on the other hand, including all
information that would be required to be disclosed pursuant to
Rule 404 promulgated under
Regulation S-K
if the stockholder making the nomination and any beneficial
owner on whose behalf the nomination is made, or any affiliate
or associate thereof or person acting in concert therewith, were
the “registrant” for purposes of such rule and the
nominee were a director or executive officer of such registrant,
(III) a completed and signed questionnaire regarding the
background and qualifications of such person to serve as a
director, a copy of which may be obtained upon request to the
secretary of the Corporation, (IV) all information with
respect to such person that would be required to be set forth in
a stockholder’s notice pursuant to this Section 11 of
this ARTICLE II if such person were a stockholder or
beneficial owner, on whose behalf the nomination was made,
submitting a notice providing for the nomination of a person or
persons for election as a director or directors of the
Corporation in accordance with this Section 11 of this
ARTICLE II, and (V) such additional information that
the Corporation may reasonably request to determine the
eligibility or qualifications of such person to serve as a
director or an independent director of the Corporation, or that
could be material to a reasonable stockholder’s
understanding of the qualifications
and/or
independence, or lack thereof, of such nominee as a director.
(iii) Other than business proposed to be brought before a
meeting of stockholders as contemplated by the Stockholders
Agreement or the nomination of persons for election to the Board
of Directors, a stockholder’s notice regarding business
proposed to be brought before a meeting of stockholders shall
set forth (A) as to the stockholder giving notice and the
beneficial owner, if any, on whose behalf the proposal is made,
the information called for by clauses (A)(I) through (A)(IX) of
the immediately preceding paragraph (ii) (including any
interests described therein held by any affiliates or associates
of such stockholder or beneficial owner or by any member of such
stockholder’s or beneficial owner’s immediate family
sharing the same household, in each case as of the date of such
stockholder’s notice, which information shall be confirmed
or updated, if necessary, by such stockholder and beneficial
owner as of the record date for determining the stockholders
entitled to notice of the meeting of stockholders and as of the
date that is ten (10) business days prior to such meeting
of the stockholders or any adjournment or postponement thereof,
and such confirmation or update shall be received by the
Secretary at the principal executive offices of the Corporation
not later than the close of business on the fifth business day
after the record date for the meeting of stockholders (in the
case of the update and supplement required to be made as of the
record date), and not later than the close of business on the
eighth business day prior to the date for the meeting of
stockholders or any adjournment or postponement thereof (in the
case of the update and supplement required to be made as of ten
(10) business days prior to the meeting of stockholders or
any adjournment or postponement thereof)), (B) a brief
description of (I) the business desired to be brought
before such meeting, (II) the reasons for conducting such
business at the meeting and (III) any material interest of
such stockholder or beneficial owner in such business, including
a description of all agreements, arrangements and understandings
between such stockholder or beneficial owner and any other
person(s) (including the name(s) of such other person(s)) in
connection with or related to the proposal of such business by
the stockholder, (C) as to the stockholder giving notice
and the beneficial owner, if any, on whose behalf the nomination
is made, (I) a statement as to whether either such
stockholder or beneficial owner intends to deliver a proxy
statement and form of proxy to holders of at least the
percentage of the Corporation’s voting shares required
under applicable law to approve the proposal
and/or
otherwise to solicit proxies from stockholders in support of
such proposal and (II) any other information relating to
such stockholder or beneficial owner that would be required to
be disclosed in a proxy statement or other filings required to
be made in connection with solicitations of proxies for the
election of directors in a contested election pursuant to
Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder, (D) if the matter such
stockholder proposes to bring before any meeting of stockholders
involves an amendment to the Corporation’s Bylaws, the
specific wording of such proposed amendment, (E) a
representation that the stockholder is a holder of record of
shares of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
propose such business and (F) such additional information
that the Corporation may reasonably request regarding such
stockholder or beneficial owner, if any,
and/or
the
business that such stockholder proposes to bring before the
meeting. The foregoing notice requirements shall be deemed
satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to present a proposal at an
annual meeting in compliance with
Rule 14a-8
(or any successor thereof) promulgated under the Exchange Act
and such stockholder’s proposal has been included in a
proxy statement that has been prepared by the Corporation to
solicit proxies for such annual meeting.
(iv) The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that a
nomination was not properly made or any business was not
properly brought before the meeting, as the case may be, in
accordance with the provisions of this Section 11 of this
ARTICLE II; if he or she should so determine, he or she
shall so declare to the meeting and any such nomination not
properly made or any business not properly brought before the
meeting, as the case may be, shall not be transacted.
(b)
Special Meetings of
Stockholders
.
Only such business shall be
conducted at a special meeting of stockholders as is a proper
matter for stockholder action under Delaware law and as shall
have been brought before the meeting by or at the direction of
the Board of Directors or as contemplated by the Stockholders
Agreement. The notice of such special meeting shall include the
purpose for which the meeting is called. Nominations of persons
for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected
pursuant to the Corporation’s notice of meeting (i) by
or at the direction of the Board of Directors or
(ii) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any
stockholder of the Corporation who (A) is a stockholder of
record of the Corporation (and, with respect to any beneficial
owner, if different, on whose behalf such nomination or
nominations are made, only if such beneficial owner is the
beneficial owner of shares of the Corporation) both at the time
the notice provided for in paragraph (b) of this
Section 11 of this ARTICLE II is delivered to the
Corporation’s secretary and on the record date for the
determination of stockholders entitled to vote at the special
meeting, (B) is entitled to vote at the meeting and upon
such election, and (C) complies with the notice procedures
set forth in the third sentence of paragraph (b) of this
Section 11 of this ARTICLE II. In the event the
Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of
Directors, any such stockholder entitled to vote in such
election of directors may nominate a person or persons (as the
case may be) for election to such position(s) as specified in
the Corporation’s notice of meeting, if the
stockholder’s notice required by paragraph (a)(ii) of this
Section 11 of this ARTICLE II shall be delivered to
the Corporation’s secretary at the principal executive
offices of the Corporation not earlier than the close of
business on the one hundred twentieth (120th) day prior to such
special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such special meeting
or the tenth (10th) day following the day on which Public
Announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall any adjournment,
deferral or postponement of a special meeting or the public
announcement thereof commence a new time period (or extend any
time period) for the giving of a stockholder’s notice as
described above.
(c)
General
.
(i) Only such persons who are nominated in accordance with
the procedures set forth in the Stockholders Agreement or this
Section 11 of this ARTICLE II shall be eligible to be
elected at an annual or special meeting of stockholders of the
Corporation to serve as directors and only such business shall
be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set
forth in this Section 11 of this ARTICLE II.
Notwithstanding the foregoing provisions of this Section 11
of this ARTICLE II, other than nominations pursuant to the
Stockholders Agreement, if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual
or special meeting of stockholders of the Corporation to present
a nomination or business, such nomination shall be disregarded
and such proposed business shall not be transacted,
notwithstanding that proxies in respect of such vote may have
been received by the Corporation.
(ii) For purposes of this section, “
Public
Announcement
” shall mean disclosure in a press release
reported by Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed
by the Corporation with the Securities and Exchange Commission
pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this
Section 11 of this ARTICLE II, a stockholder shall
also comply with all applicable requirements of the Exchange Act
and the rules and regulations promulgated thereunder with
respect to the matters set forth in this Section 11 of this
ARTICLE II; provided, however, that any references in these
Bylaws to the Exchange Act or the rules and regulations
promulgated thereunder are not intended to and shall not limit
the requirements applicable to any nomination or other business
to be considered pursuant to this Section 11 of this
ARTICLE II.
(iv) Nothing in these Bylaws shall be deemed to
(A) affect any rights of stockholders to request inclusion
of proposals in the Corporation’s proxy statement pursuant
to Rule
14a-8
under
the Exchange Act, (B) confer upon any stockholder a right
to have a nominee or any proposed business included in the
Corporation’s proxy statement, or (C) affect any
rights of the holders of any series of preferred stock to elect
directors pursuant to any applicable provisions of the
Certificate of Incorporation.
Section
12.
Fixing
a Record Date for Stockholder Meetings
.
In
order that the Corporation may determine the stockholders
entitled to notice of any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, except as
otherwise required by law, in advance, a record date, which
record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 days nor less
than 10 days before the date of such meeting. If the Board
of Directors so fixes a date, such date shall also be the record
date for determining the stockholders entitled to vote at such
meeting unless the Board of Directors determines, at the time it
fixes such record date, that a later date on or before the date
of the meeting shall be the date for making such determination.
If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of and to
vote at a meeting of stockholders shall be the close of business
on the day next preceding the day on which notice is first
given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. A
determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for determination of
stockholders entitled to vote at the adjourned meeting; and in
such case shall also fix as the record date for stockholders
entitled to notice of such adjourned meeting the same or an
earlier date as that fixed for determination of stockholders
entitled to vote in accordance with the foregoing provisions of
this Section 12 of this ARTICLE II at the adjourned
meeting.
Section
13.
Conduct
of Meetings
.
(a)
Generally
.
Meetings of
stockholders shall be presided over by a chairman designated by
the Board of Directors. The Secretary shall act as secretary of
the meeting, but in the Secretary’s absence or disability
the chairman of the meeting may appoint any person to act as
secretary of the meeting.
(b)
Rules, Regulations and
Procedures
.
The Board of Directors may adopt
by resolution such rules, regulations and procedures for the
conduct of any meeting of stockholders of the Corporation as it
shall deem appropriate, including, without limitation, such
guidelines and procedures as it may deem appropriate regarding
the participation by means of remote communication of
stockholders and proxyholders not physically present at a
meeting. Except to the extent inconsistent with such rules,
regulations and procedures as adopted by the Board of Directors,
the chairman of any meeting of stockholders shall have the right
and authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting.
Such rules, regulations or procedures, whether adopted by the
Board of Directors or prescribed by the chairman of the meeting,
may include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting;
(ii) rules and procedures for maintaining order at the
meeting and the safety of those present; (iii) limitations
on attendance at or participation in the meeting to stockholders
of record of the Corporation, their duly authorized and
constituted proxies or such other persons as shall be
determined; (iv) restrictions on entry to the meeting after
the time fixed for the commencement thereof; and
(v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by
the Board of Directors or the chairman of the meeting, meetings
of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure. The chairman of the
meeting shall announce at the meeting when the polls for each
matter to be voted upon at the meeting will be opened and
closed. After the polls close, no ballots, proxies or votes or
any revocations or changes thereto may be accepted. The chairman
shall have the power to adjourn the meeting to another place, if
any, date and time.
(c)
Inspectors of Elections
.
The
Corporation may, and to the extent required by law shall, in
advance of any meeting of stockholders, appoint one or more
inspectors of election to act at the meeting and make a written
report thereof. One or more other persons may be designated as
alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or
more inspectors to act at the meeting. Unless otherwise required
by law, inspectors may be officers, employees or agents of the
Corporation. Each inspector, before entering upon the discharge
of such inspector’s duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict
impartiality and according to the best of such inspector’s
ability. The inspector shall have the duties prescribed by law
and shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote
taken and of such other facts as may be required by law.
ARTICLE III
DIRECTORS
Section 1.
General
Powers
.
The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors. In addition to such powers as are herein and
in the Certificate of Incorporation expressly conferred upon it,
the Board of Directors shall have and may exercise all the
powers of the Corporation, subject to the provisions of the laws
of the State of Delaware, the Certificate of Incorporation and
these Bylaws.
Section 2.
Election
.
Members
of the Board of Directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at
the meeting and entitled to vote in the election of directors;
provided that, whenever the holders of any class or series of
capital stock of the Corporation are entitled to elect one or
more directors pursuant to the provisions of the Certificate of
Incorporation (including, but not limited to, any duly
authorized certificate of designation), such directors shall be
elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and
entitled to vote in the election of such directors.
Section 3.
Annual
Meetings
.
The annual meeting of the Board of
Directors shall be held without other notice than this Bylaw
immediately after, and at the same place as, the annual meeting
of stockholders.
Section 4.
Regular
Meetings and Special Meetings
.
Regular
meetings, other than the annual meeting, of the Board of
Directors may be held without notice at such time and at such
place as shall from time to time be determined by resolution of
the Board of Directors and publicized among all directors.
Special meetings of the Board of Directors may be called by the
Chairman of the Board, if any, or upon the written request of at
least a majority of the directors then in office.
Section 5.
Notice
of Meetings
.
Notice of regular meetings of
the Board of Directors need not be given except as otherwise
required by law or these Bylaws. Notice of each special meeting
of the Board of Directors, and of each regular and annual
meeting of the Board of Directors for which notice shall be
required, shall be given by the Secretary as hereinafter
provided in this Section 5 of this ARTICLE III, in
which notice shall be stated the time and place of the meeting.
Notice of any special meeting, and of any regular or annual
meeting for which notice is required, shall be given to each
director at least (a) twenty-four (24) hours before
the meeting if by telephone or by being personally delivered or
sent by facsimile, telex, telecopy, email or similar means or
(b) five (5) days before the meeting if delivered by
mail to the director’s residence or usual place of
business. Such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage
prepaid, or when transmitted if sent by telex, telecopy, email
or similar means. Neither the business to be transacted at, nor
the purpose of, any special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such
meeting. Any director may waive notice of any meeting by a
writing signed by the director or by electronic transmission
from the director entitled to the notice and filed with the
minutes or corporate records.
Section 6.
Waiver
of Notice and Presumption of Assent
.
Any
member of the Board of Directors or any committee thereof who is
present at a meeting shall be conclusively presumed to have
waived notice of such meeting except when such member attends
for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting
is not lawfully called or convened. Such right to dissent shall
not apply to any member who voted in favor of such action.
Section 7.
Chairman
of the Board, Quorum, Required Vote and
Adjournment
.
The Board of Directors may
elect, by the affirmative vote of a majority of the directors
then in office, a Chairman of the Board. Subject to the
provisions of these Bylaws and the direction of the Board of
Directors, he or she shall perform all duties and have all
powers which are commonly incident to the position of Chairman
of the Board or which are delegated to him or her by the Board
of Directors, shall preside at all meetings of the stockholders
and Board of Directors at which he or she is present and shall
have such powers and perform such duties as the Board of
Directors may from time to time prescribe. If the Chairman of
the Board is not present at a meeting of the stockholders or the
Board of Directors, a majority of the directors present at such
meeting shall elect one of the directors present at the meeting
to so preside. A majority of the directors then in office shall
constitute a quorum for the transaction of business. Unless by
express provision of an applicable law, the Certificate of
Incorporation or these Bylaws a different vote is required, the
affirmative vote of a majority of directors present at a meeting
at which a quorum is present shall be the act of the Board of
Directors. At any meeting of the Board of Directors, business
shall be transacted in such order and manner as the Board of
Directors may from time to time determine. If a quorum shall not
be present at any meeting of the Board of Directors, the
directors present thereat may, to the fullest extent permitted
by law, adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present.
Section 8.
Committees
.
The
Board of Directors (a) may, by resolution passed by a
majority of the directors then in office, designate one or more
committees, including an executive committee, consisting of one
or more of the directors of the Corporation and (b) shall
during such period of time as any securities of the Corporation
are listed on any exchange, by resolution passed by a majority
of the directors then in office, designate all committees
required by the rules and regulations of such exchange. The
Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Except
to the extent restricted by applicable law or the Certificate of
Incorporation, each such committee, to the extent provided in
the resolution creating it, shall have and may exercise all the
powers and authority of the Board of Directors. Each such
committee shall serve at the pleasure of the Board of Directors
as may be determined from time to time by resolution adopted by
the Board of Directors or as required by the rules and
regulations of such exchange, if applicable. Each committee
shall keep regular minutes of its meetings and report the same
to the Board of Directors upon request.
Section 9.
Committee
Rules
.
Each committee of the Board of
Directors may fix its own rules of procedure and shall hold its
meetings as provided by such rules, except as may otherwise be
provided by a resolution of the Board of Directors designating
such committee or as otherwise provided herein or required by
law or the Certificate of Incorporation. Adequate provision
shall be made for notice to members of all meetings. Unless
otherwise provided in such a resolution, the presence of at
least a majority of the members of the committee shall be
necessary to constitute a quorum. All matters shall be
determined by a majority vote of the members present. Unless
otherwise
provided in such a resolution, in the event that a member and
that member’s alternate, if alternates are designated by
the Board of Directors, of such committee is or are absent or
disqualified, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting
in place of any such absent or disqualified member.
Section 10.
Action
by Written Consent
.
Unless otherwise
restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing or by
electronic transmission, and the writing or writings or
electronic transmission or transmissions are filed with the
minutes of proceedings of the board or committee. Such filing
shall be in paper form if the minutes are maintained in paper
form and shall be in electronic form if the minutes are
maintained in electronic form.
Section 11.
Compensation
.
Unless
otherwise restricted by the Certificate of Incorporation, the
Board of Directors shall have the authority to fix the
compensation, including fees and reimbursement of expenses, of
directors for services to the Corporation in any capacity,
including for attendance of meetings of the Board of Directors
or participation on any committees. No such payment shall
preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 12.
Reliance
on Books and Records
.
A member of the Board
of Directors, or a member of any committee designated by the
Board of Directors, shall, in the performance of such
person’s duties, be fully protected in relying in good
faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by
any of the Corporation’s officers or employees, or
committees of the Board of Directors, or by any other person as
to matters the member reasonably believes are within such other
person’s professional or expert competence and who has been
selected with reasonable care by or on behalf of the Corporation.
Section 13.
Telephonic
and Other Meetings
.
Unless restricted by the
Certificate of Incorporation, any one or more members of the
Board of Directors or any committee thereof may participate in a
meeting of the Board of Directors or such committee by means of
conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each
other. Participation by such means shall constitute presence in
person at a meeting.
ARTICLE IV
OFFICERS
Section 1.
Number
.
The
officers of the Corporation shall be elected by the Board of
Directors and shall consist of a Chief Executive Officer, a Vice
Chairman, a Chief Operating Officer, one or more Presidents, one
or more Vice Presidents, a Secretary, a Chief Financial Officer
and such other officers and assistant officers as may be deemed
necessary or desirable by the Board of Directors. Any number of
offices may be held by the same person. In its discretion, the
Board of Directors may choose not to fill any office for any
period as it may deem advisable.
Section 2.
Election
and Term of Office
.
The officers of the
Corporation shall be elected annually by the Board of Directors
at its first meeting held after each annual meeting of
stockholders or as soon thereafter as is convenient. The
Chairman of the Board, if any, shall be elected annually by the
Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of stockholders or as
soon thereafter as is convenient. Vacancies may be filled or new
offices created and filled by the Board of Directors. Each
officer shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3.
Removal
.
Any
officer or agent elected by the Board of Directors may be
removed by the Board of Directors at its discretion, with or
without cause.
Section 4.
Vacancies
.
Any
vacancy occurring in any office because of death, resignation,
removal, disqualification or otherwise may be filled by the
Board of Directors.
Section 5.
Compensation
.
Compensation
of all executive officers shall be approved by the Board of
Directors, a duly authorized committee thereof or by such
officers as may be designated by resolution of the Board of
Directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of
the Corporation.
Section 6.
Chief
Executive Officer
.
The Chief Executive
Officer shall have the powers and perform the duties incident to
that position. Subject to the powers of the Board of Directors
and the Chairman of the Board, the Chief Executive Officer shall
be in general and active charge of the entire business and
affairs of the Corporation, and shall be its chief policy making
officer. The Chief Executive Officer shall have such other
powers and perform such other duties as may be prescribed by the
Board of Directors or provided in these Bylaws. The Chief
Executive Officer is authorized to execute bonds, mortgages and
other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 7.
Vice
Chairman
.
The Vice Chairman shall perform
such duties and have such powers as the Board of Directors, the
Chairman of the Board or these Bylaws may, from time to time,
prescribe.
Section 8.
Chief
Operating Officer
.
The Chief Operating
Officer shall, subject to the powers of the Board of Directors,
the Chairman of the Board and the Chief Executive Officer, have
general charge of the business, affairs and property of the
corporation, and control over its officers, agents and employees
and shall see that all orders and resolutions of the board of
directors and Chief Executive Officer are carried into effect.
The Chief Operating Officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal
of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board
of Directors to some other officer or agent of the Corporation.
The Chief Operating Officer shall have such other powers and
perform such other duties as may be prescribed by the Chairman
of the Board, the Chief Executive Officer, the Board of
Directors or as may be provided in these Bylaws. The Chief
Operating Officer shall have the powers and perform the duties
incident to that position.
Section 9.
The
President
.
The President, or if there shall
be more than one, the Presidents, in the order determined by the
Board of Directors or the Chairman of the Board, shall, subject
to the powers of the Board of Directors, the Chairman of the
Board and the Chief Executive Officer, have general charge of
the business, affairs and property of the Corporation, and
control over its officers, agents and employees. The Presidents
are authorized to execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and
executed and except where the signing and execution thereof
shall be expressly delegated by the Board of Directors to some
other officer or agent of the Corporation. The Presidents shall
have such other powers and perform such other duties as may be
prescribed by the Chairman of the Board, the Chief Executive
Officer, the Board of Directors or as may be provided in these
Bylaws. The Presidents shall have the powers and perform the
duties incident to that position.
Section 10.
Vice
Presidents
.
The Vice President, or if there
shall be more than one, the Vice Presidents, in the order
determined by the Board of Directors or the Chairman of the
Board, shall, in the absence or disability of the President, act
with all of the powers and be subject to all the restrictions of
the President. The Vice Presidents shall also perform such other
duties and have such other powers as the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the
President or these Bylaws may, from time to time, prescribe. The
Vice Presidents may also be designated as Executive Vice
Presidents or Senior Vice Presidents, as the Board of Directors
may from time to time prescribe. A Vice President shall have the
powers and perform the duties incident to that position.
Section 11.
The
Secretary and Assistant Secretaries
.
The
Secretary shall attend all meetings of the Board of Directors
(other than executive sessions thereof) and all meetings of the
stockholders and record all the proceedings of the meetings in a
book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such
capacity. Under the Board of Directors’ supervision, the
Secretary shall give, or cause to be given, all notices required
to be given by these Bylaws or by law; shall have such powers
and perform such duties as the Board of Directors, the Chairman
of the Board, the Chief Executive Officer, the President or
these Bylaws may, from time to time, prescribe; and shall have
custody of the corporate seal of the Corporation.
The Secretary, or an Assistant Secretary, shall have authority
to affix the corporate seal to any instrument requiring it and
when so affixed, it may be attested by his or her signature or
by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to
affix the seal of the Corporation and to attest the affixing by
his or her signature. The Assistant Secretary, or if there be
more than one, any of the assistant secretaries, shall in the
absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such
other duties and have such other powers as the Board of
Directors, the Chairman of the Board, the Chief Executive
Officer, the President or the Secretary may, from time to time,
prescribe. The Secretary and any Assistant Secretary shall have
the powers and perform the duties incident to those positions.
Section 12.
The
Chief Financial Officer
.
The Chief Financial
Officer shall have the custody of the corporate funds and
securities; shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation as shall
be necessary or desirable in accordance with applicable law or
generally accepted accounting principles; shall deposit all
monies and other valuable effects in the name and to the credit
of the Corporation as may be ordered by the Chairman of the
Board or the Board of Directors; shall receive, and give
receipts for, moneys due and payable to the Corporation from any
source whatsoever; shall cause the funds of the Corporation to
be disbursed when such disbursements have been duly authorized,
taking proper vouchers for such disbursements; and shall render
to the Board of Directors, at its regular meeting or when the
Board of Directors so requires, an account of the Corporation;
shall have such powers and perform such duties as the Board of
Directors, the Chairman of the Board, the Chief Executive
Officer, the President or these Bylaws may, from time to time,
prescribe. The Chief Financial Officer shall have the powers and
perform the duties incident to that position.
Section 13.
Other
Officers, Assistant Officers and
Agents
.
Officers, assistant officers and
agents, if any, other than those whose duties are provided for
in these Bylaws, shall have such authority and perform such
duties as may from time to time be prescribed by resolution of
the Board of Directors.
Section 14.
Officers’
Bonds or Other Security
.
If required by the
Board of Directors, any officer of the Corporation shall give a
bond or other security for the faithful performance of his
duties, in such amount and with such surety as the Board of
Directors may require.
Section 15.
Delegation
of Authority
.
The Board of Directors may by
resolution delegate the powers and duties of such officer to any
other officer or to any director, or to any other person whom it
may select.
ARTICLE V
CERTIFICATES
OF STOCK
Section 1.
Form
.
The
shares of stock of the Corporation shall be represented by
certificates provided that the Board of Directors may provide by
resolution that some or all of any or all classes or series of
its stock shall be uncertificated shares. If shares are
represented by certificates, the certificates shall be in such
form as required by applicable law and as determined by the
Board of Directors. Each certificate shall certify the number of
shares owned by such holder in the Corporation and shall be
signed by, or in the name of the Corporation by the Chairman of
the Board, or the President or any Vice President and the
Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Corporation designated by the Board
of Directors. Any or all signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who
has signed, whose facsimile signature has been used on or who
has duly affixed a facsimile signature or signatures to any such
certificate or certificates shall cease to be such officer,
transfer agent or registrar of the Corporation whether because
of death, resignation or otherwise before such certificate or
certificates have been issued by the Corporation, such
certificate or certificates may nevertheless be issued as though
the person or persons who signed such certificate or
certificates, whose facsimile signature or signatures have been
used thereon or who duly affixed a facsimile signature or
signatures thereon had not ceased to be such officer, transfer
agent or registrar of the Corporation. All certificates for
shares shall be consecutively numbered or otherwise identified.
The Board of Directors may appoint a bank or trust company
organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar or both in
connection with the transfer of any class or series of
securities of the Corporation. The Corporation, or its
designated transfer agent or other agent, shall keep a book or
set of books to be known as the stock transfer books of the
Corporation, containing the name of each holder of record,
together with such holder’s address and the number
and class or series of shares held by such holder and the date
of issue. When shares are represented by certificates, the
Corporation shall issue and deliver to each holder to whom such
shares have been issued or transferred, certificates
representing the shares owned by such holder, and shares of
stock of the Corporation shall only be transferred on the books
of the Corporation by the holder of record thereof or by such
holder’s attorney duly authorized in writing, upon
surrender to the Corporation or its designated transfer agent or
other agent of the certificate or certificates for such shares
endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer,
authorization and other matters as the Corporation may
reasonably require, and accompanied by all necessary stock
transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate or certificates and record
the transaction on its books. When shares are not represented by
certificates, shares of stock of the Corporation shall only be
transferred on the books of the Corporation by the holder of
record thereof or by such holder’s attorney duly authorized
in writing, with such evidence of the authenticity of such
transfer, authorization and other matters as the Corporation may
reasonably require, and accompanied by all necessary stock
transfer stamps, and within a reasonable time after the issuance
or transfer of such shares, the Corporation shall send the
holder to whom such shares have been issued or transferred a
written statement of the information required by applicable law.
Unless otherwise provided by applicable law, the Certificate of
Incorporation, these Bylaws or any other instrument the rights
and obligations of shareholders are identical, whether or not
their shares are represented by certificates.
Section 2.
Lost
Certificates
.
The Corporation may issue or
direct a new certificate or certificates or uncertificated
shares to be issued in place of any certificate or certificates
previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost,
stolen or destroyed. When authorizing such issue of a new
certificate or certificates or uncertificated shares, the
Corporation may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen
or destroyed certificate or certificates, or his or her legal
representative, to give the Corporation a bond in such sum as it
may direct, sufficient to indemnify the Corporation against any
claim that may be made against the Corporation on account of the
alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate or uncertificated shares.
Section 3.
Registered
Stockholders
.
The Corporation shall be
entitled to recognize the exclusive right of a person registered
on its records as the owner of shares of stock to receive
dividends, to vote, to receive notifications and otherwise to
exercise all the rights and powers of an owner. The Corporation
shall not be bound to recognize any equitable or other claim to
or interest in such share or shares of stock on the part of any
other person, whether or not it shall have express or other
notice thereof, except as otherwise required by the laws of
Delaware.
Section 4.
Fixing
a Record Date for Purposes Other Than Stockholder
Meetings
.
In order that the Corporation may
determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purposes of
any other lawful action (other than stockholder meetings which
is expressly governed by Section 12 of ARTICLE II
hereof), the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall
be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for
any such purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto.
Section 5.
Regulations
.
The
issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board
of Directors may establish.
ARTICLE VI
GENERAL
PROVISIONS
Section 1.
Dividends
.
Subject
to the provisions of statutes and the Certificate of
Incorporation, dividends upon the shares of capital stock of the
Corporation may be declared by the Board of Directors, in
accordance with applicable law. Dividends may be paid in cash,
in property or in shares of the capital stock, subject to the
provisions of applicable law and the Certificate of
Incorporation. Before payment of any dividend, there may be set
aside out of
any funds of the Corporation available for dividends such sum or
sums as the Board of Directors from time to time, in its
absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for
such other purpose as the Board of Directors may think conducive
to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserves in the manner in which they
were created.
Section 2.
Checks,
Notes, Drafts, Etc
.
All checks, notes, drafts
or other orders for the payment of money of the Corporation
shall be signed, endorsed or accepted in the name of the
Corporation by such officer, officers, person or persons as from
time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to
make such designation.
Section 3.
Contracts
.
In
addition to the powers otherwise granted to officers pursuant to
ARTICLE IV hereof, the Board of Directors may authorize any
officer or officers, or any agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver
any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or
confined to specific instances.
Section 4.
Loans
.
Subject
to compliance with applicable law (including Section 13(k)
of the Securities Exchange Act of 1934), the Corporation may
lend money to, or guarantee any obligation of, or otherwise
assist any officer or other employee of the Corporation or of
its subsidiaries, including any officer or employee who is a
director of the Corporation or its subsidiaries, whenever, in
the judgment of the directors, such loan, guaranty or assistance
may reasonably be expected to benefit the Corporation. The loan,
guaranty or other assistance may be with or without interest,
and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge
of shares of stock of the Corporation. Nothing in this section
shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the Corporation at common law or under
any statute.
Section 5.
Fiscal
Year
.
The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 6.
Corporate
Seal
.
The Board of Directors may provide a
corporate seal which shall be in the form of a circle and shall
have inscribed thereon the name of the Corporation and the words
“Corporate Seal, Delaware.” The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Notwithstanding the foregoing, no seal
shall be required by virtue of this Section 6 of this
ARTICLE VI.
Section 7.
Voting
Securities Owned By Corporation
.
The Chairman
of the Board, the Chief Executive Officer, the President or the
Chief Financial Officer shall have power to vote and otherwise
act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation
may hold securities and otherwise to exercise any and all rights
and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation, unless the
Board of Directors specifically confers authority to vote or act
with respect thereto, which authority may be general or confined
to specific instances, upon some other person or officer. Any
person authorized to vote securities shall have the power to
appoint proxies, with general power of substitution.
Section 8.
Facsimile
Signatures
.
In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in
these Bylaws, facsimile signatures of any officer or officers of
the Corporation may be used whenever and as authorized by the
Board of Directors or a committee thereof.
Section 9.
Inspection
of Books and Records
.
The Board of Directors
shall have power from time to time to determine to what extent
and at what times and places and under what conditions and
regulations the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the stockholders; and
no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the
laws of the State of Delaware, unless and until authorized so to
do by resolution of the Board of Directors.
Section 10.
Time
Periods
.
In applying any provision of these
Bylaws which requires that an act be done or not be done a
specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an
event, calendar days shall be used, the day of the doing of the
act shall be excluded and the day of the event shall be included.
Section 11.
Section Headings
.
Section
headings in these Bylaws are for convenience of reference only
and shall not be given any substantive effect in limiting or
otherwise construing any provision herein.
Section 12.
Inconsistent
Provisions
.
In the event that any provision
of these Bylaws is or becomes inconsistent with any provision of
the Certificate of Incorporation, the DGCL or any other
applicable law, the provision of these Bylaws shall not be given
any effect to the extent of such inconsistency but shall
otherwise be given full force and effect.
ARTICLE VII
INDEMNIFICATION
Section 1.
Right
to Indemnification and Advancement
.
Each
person who was or is made a party or is threatened to be made a
party to or is otherwise involved (including involvement,
without limitation, as a witness) in any actual or threatened
action, suit or proceeding, whether civil, criminal,
administrative or investigative (a
“
proceeding
”), by reason of the fact that he or
she is or was a director or officer of the Corporation or, while
a director or officer of the Corporation, is or was serving at
the request of the Corporation as an employee or agent of the
Corporation or as a director, officer, partner, member, trustee,
administrator, employee or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or
other enterprise, including service with respect to an employee
benefit plan (an ‘‘
indemnitee
”), whether
the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by
the DGCL, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against
all expense, liability and loss (including attorneys’ fees
and related disbursements, judgments, fines, excise taxes or
penalties under the Employee Retirement Income Security Act of
1974, as amended from time to time (“
ERISA
”),
penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an
indemnitee who has ceased to be a director, officer, partner,
member, trustee, administrator, employee or agent and shall
inure to the benefit of the indemnitee’s heirs, executors
and administrators; provided, however, that, except as provided
in this Section 1 of this ARTICLE VII with respect to
proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection
with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to
indemnification conferred in this Section 1 of this
ARTICLE VII shall be a contract right. In addition to the
right to indemnification conferred herein, an indemnitee shall
also have the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its
final disposition (an “
advance of expenses
”);
provided, however, that if and to the extent that the DGCL
requires, an advance of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any
capacity in which service was or is rendered by such indemnitee,
including without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an
undertaking (an “
undertaking
”), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which
there is no further right to appeal (a “
final
adjudication
”) that such indemnitee is not entitled to
be indemnified for such expenses under this Section 1 of
this ARTICLE VII or otherwise. The Corporation may also, by
action of its Board of Directors, provide indemnification and
advancement of expenses to employees and agents of the
Corporation.
Section 2.
Procedure
for Indemnification
.
Any indemnification of a
director or officer of the Corporation or advance of expenses
(including attorneys’ fees, costs and charges) under this
Section 2 of this ARTICLE VII shall be made promptly,
and in any event within forty-five days (or, in the case of an
advance of expenses, twenty days, provided that the director or
officer has delivered the undertaking contemplated by
Section 1 of this ARTICLE VII if required), upon the
written request of the director or officer. If a determination
by the Corporation that the director or officer is entitled to
indemnification pursuant to this ARTICLE VII is required,
and the Corporation fails to respond within sixty days to a
written request for indemnity, the Corporation shall be deemed
to have approved the request. If the Corporation denies a
written request for indemnification or advance of expenses, in
whole or in part, or if payment in full pursuant to such request
is not made within forty-five days (or, in the case of an
advance of
expenses, twenty days, provided that the director or officer has
delivered the undertaking contemplated by Section 1 of this
ARTICLE VII if required), the right to indemnification or
advances as granted by this ARTICLE VII shall be
enforceable by the director or officer in any court of competent
jurisdiction. Such person’s costs and expenses incurred in
connection with successfully establishing his or her right to
indemnification, in whole or in part, in any such action shall
also be indemnified by the Corporation to the fullest extent
permitted by Delaware law. It shall be a defense to any such
action (other than an action brought to enforce a claim for the
advance of expenses where the undertaking required pursuant to
Section 1 of this ARTICLE VII, if any, has been
tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the DGCL
for the Corporation to indemnify the claimant for the amount
claimed, but the burden of such defense shall be on the
Corporation to the fullest extent permitted by Delaware law.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel or its stockholders) to
have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard
of conduct set forth in the DGCL, nor an actual determination by
the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the
applicable standard of conduct. In any suit brought by the
indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation
to recover an advancement of expenses pursuant to the terms of
an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses,
under this ARTICLE VII or otherwise shall be on the
Corporation. The procedure for indemnification of other
employees and agents for whom indemnification and advancement of
expenses is provided pursuant to Section 1 of this
ARTICLE VII shall be the same procedure set forth in this
Section 2 of this ARTICLE VII for directors or
officers, unless otherwise set forth in the action of the Board
of Directors providing indemnification and advancement of
expenses for such employee or agent.
Section 3.
Insurance
.
The
Corporation may purchase and maintain insurance on its own
behalf and on behalf of any person who is or was or has agreed
to become a director, officer, trustee, employee or agent of the
Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, member, trustee,
administrator, employee or agent of another corporation or of a
partnership, joint venture, limited liability company, trust or
other enterprise against any expense, liability or loss asserted
against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether
or not the Corporation would have the power to indemnify such
person against such expenses, liability or loss under the DGCL.
Section 4.
Service
for Subsidiaries
.
Any person serving as a
director, officer, partner, member, trustee, administrator,
employee or agent of another corporation or of a partnership,
joint venture, limited liability company, trust or other
enterprise, at least 50% of whose equity interests are owned by
the Corporation (a “
subsidiary
” for this
ARTICLE VII) shall be conclusively presumed to be
serving in such capacity at the request of the Corporation.
Section 5.
Reliance
.
Persons
who after the date of the adoption of this provision become or
remain directors or officers of the Corporation or who, while a
director or officer of the Corporation, become or remain a
director, officer, employee or agent of a subsidiary, shall be
conclusively presumed to have relied on the rights to indemnity,
advance of expenses and other rights contained in this
ARTICLE VII in entering into or continuing such service.
The rights to indemnification and to the advance of expenses
conferred in this ARTICLE VII shall apply to claims made
against an indemnitee arising out of acts or omissions which
occurred or occur both prior and subsequent to the adoption
hereof. Any amendment, alteration or repeal of this
ARTICLE VII that adversely affects any right of an
indemnitee or its successors shall be prospective only and shall
not limit, eliminate, or impair any such right with respect to
any proceeding involving any occurrence or alleged occurrence of
any action or omission to act that took place prior to such
amendment or repeal.
Section 6.
Non-Exclusivity
of Rights; Continuation of Rights to
Indemnification
.
The rights to
indemnification and to the advance of expenses conferred in this
ARTICLE VII shall not be exclusive of any other right which
any person may have or hereafter acquire under the Certificate
of Incorporation or under any statute, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. All rights
to indemnification under this ARTICLE VII shall be deemed
to be a contract between the Corporation and each director or
officer of the Corporation who serves or served in such capacity
at any time while this ARTICLE VII is in effect. Any repeal
or modification of this ARTICLE VII or any repeal or
modification of relevant provisions of the Delaware General
Corporation Law or any other applicable laws shall not in any
way diminish any rights to indemnification and advancement of
expenses of such director or officer or the obligations of the
Corporation arising hereunder with respect to any proceeding
arising out of, or relating to, any actions, transactions or
facts occurring prior to the final adoption of such repeal or
modification.
Section 7.
Merger
or Consolidation
.
For purposes of this
ARTICLE VII, references to the “Corporation”
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under this ARTICLE VII with
respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its
separate existence had continued.
Section 8.
Savings
Clause
.
If this ARTICLE VII or any
portion hereof shall be invalidated on any ground by any court
of competent jurisdiction, then the Corporation shall
nevertheless indemnify and advance expenses to each person
entitled to indemnification under Section 1 of this
ARTICLE VII as to all expense, liability and loss
(including attorneys’ fees and related disbursements,
judgments, fines, ERISA excise taxes and penalties, penalties
and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such person and for which
indemnification and advancement of expenses is available to such
person pursuant to this ARTICLE VII to the fullest extent
permitted by any applicable portion of this ARTICLE VII
that shall not have been invalidated and to the fullest extent
permitted by applicable law.
ARTICLE VIII
AMENDMENTS
These Bylaws may be amended, altered, changed or repealed or new
Bylaws adopted only in accordance with the Certificate of
Incorporation.
THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts
corporation, (the “Company”) hereby acknowledges
receipt of the Notice of Special Meeting of Stockholders and
Proxy Statement/Prospectus and hereby appoints Bruce A. Shear
and Paula C. Wurts, and both of them, as proxies, with full
power to each of substitution, and hereby authorizes either of
them to represent and to vote, as designated on the reverse
side, all the shares of Class A Common Stock of the Company
held of record by the undersigned
on September 19, 2011 at the Special Meeting of Stockholders to be held
at 9:00 a.m. (Boston time),
on October 26, 2011 at the Corporate offices of PHC, Inc., 200 Lake Street,
Suite 102, Peabody, Massachusetts 01960, and at any
adjournments thereof. The undersigned
stockholder hereby revokes any proxy or proxies heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED, OR IF NO DIRECTION IS MADE, FOR SUCH
PROPOSALS AND IN ACCORDANCE WITH THE DETERMINATION OF THE
PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED STOCKHOLDER
HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING AND
PROXY STATEMENT/PROSPECTUS.
Address
Changes/Comments
(If you noted any Address Changes/Comments above, please mark
corresponding box on the reverse side).
(Continued And To Be Signed And Dated On Reverse Side)
PHC, INC.
200 LAKE STREET
SUITE 102
PEABODY, MA 01960
VOTE BY INTERNET — WWW.PROXYVOTE.COM
Use the Internet to transmit your voting instructions and
for electronic delivery of information up until 11:59 P.M.
Eastern Time the day before the cut-off date or meeting date.
Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in
mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery,
please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access
proxy materials electronically in future years.
VOTE BY
PHONE — 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Have your proxy card in
hand when you call and then follow the instructions
.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided or return it to Vote
Processing,
c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, mark blocks below in blue or black ink as
follows: Example
n
KEEP
THIS PORTION FOR YOUR RECORDS
1. To consider and vote on a proposal to approve the
Agreement and Plan of Merger, dated as of May 23, 2011,
among PHC, Inc., Acadia Healthcare Company, Inc. and Acadia
Merger Sub, LLC, a wholly-owned subsidiary of Acadia, pursuant
to which PHC will merge with and into Acadia Merger Sub, LLC
o
o
o
2. To consider and cast an advisory vote on the
compensation to be received by PHC’s named executive
officers in connection with the merger
o
o
o
3. To consider and vote on a proposal to approve the
adjournment of the special meeting, if necessary or appropriate,
to solicit additional proxies, in the event that there are not
sufficient votes at the time of such adjournment to approve the
merger agreement
o
o
o
In their discretion, the Proxies are authorized to vote upon
such other matters as may properly come before the meeting or
any adjournment or postponement thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE
ENCLOSED ENVELOPE.
Please indicate if you plan to attend this meeting
o
Yes
o
No
For address changes and/or comments, please check this
box
o
and write them on the back where indicated
(
NOTE:
Please sign exactly as your name(s)
appear(s) hereon. All holders must sign. When signing as
attorney, executor, administrator, or other fiduciary, please
give full title as such. Joint owners should each sign
personally. If a corporation, please sign in full corporate name
by authorized officer. If a partnership, please sign in
partnership name by authorized person.)
THIS PROXY
IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
The undersigned stockholder of PHC, Inc., a Massachusetts
corporation, (the “Company”) hereby acknowledges
receipt of the Notice of Special Meeting of Stockholders and
Proxy Statement/Prospectus and hereby appoints Bruce A. Shear and
Paula C. Wurts, and both of them, as proxies, with full power to
each of substitution, and hereby authorizes either of them to
represent and to vote, as designated on the reverse side, all
the shares of Class B Common Stock of the Company held of
record by the undersigned
on September 19,
2011 at the Special Meeting of Stockholders to be held
at 9:00 a.m. (Boston time),
on October 26,
2011 at the Corporate offices of PHC, Inc., 200 Lake Street,
Suite 102, Peabody, Massachusetts 01960, and at any
adjournments thereof. The undersigned
stockholder hereby revokes any proxy or proxies heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED, OR IF NO DIRECTION IS MADE, FOR SUCH
PROPOSALS AND IN ACCORDANCE WITH THE DETERMINATION OF THE
PROXY HOLDERS AS TO OTHER MATTERS. THE UNDERSIGNED STOCKHOLDER
HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND
PROXY STATEMENT/PROSPECTUS.
Address
Changes/Comments
(If you noted any Address Changes/Comments above, please mark
corresponding box on the reverse side).
(Continued And To Be Signed And Dated On Reverse Side)
PHC, INC.
200 LAKE STREET
SUITE 102
PEABODY, MA 01960
VOTE BY INTERNET —
WWW.PROXYVOTE.COM
Use the Internet to transmit your voting instructions and
for electronic delivery of information up until 11:59 P.M.
Eastern Time the day before the cut-off date or meeting date.
Have your proxy card in hand when you access the web site and
follow the instructions to obtain your records and to create an
electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in
mailing proxy materials, you can consent to receiving all future
proxy statements, proxy cards and annual reports electronically
via e-mail or the Internet. To sign up for electronic delivery,
please follow the instructions above to vote using the Internet
and, when prompted, indicate that you agree to receive or access
proxy materials electronically in future years.
VOTE BY
PHONE — 1-800-690-6903
Use any touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the day
before the cut-off date or meeting date. Have your proxy card in
hand when you call and then follow the instructions
.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the
postage-paid envelope we have provided or return it to Vote
Processing,
c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, mark blocks below in blue or black ink as
follows: Example
n
KEEP
THIS PORTION FOR YOUR RECORDS
1. To consider and vote on a proposal to approve the
Agreement and Plan of Merger, dated as of May 23, 2011,
among PHC, Inc., Acadia Healthcare Company, Inc. and Acadia
Merger Sub, LLC, a wholly-owned subsidiary of Acadia, pursuant
to which PHC will merge with and into Acadia Merger Sub, LLC
o
o
o
2. To consider and cast an advisory vote on the
compensation to be received by PHC’s named executive
officers in connection with the merger
o
o
o
3. To consider and vote on a proposal to approve the
adjournment of the special meeting, if necessary or appropriate,
to solicit additional proxies, in the event that there are not
sufficient votes at the time of such adjournment to approve the
merger agreement
o
o
o
In their discretion, the Proxies are authorized to vote upon
such other matters as may properly come before the meeting or
any adjournment or postponement thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE
ENCLOSED ENVELOPE.
Please indicate if you plan to attend this meeting
o
Yes
o
No
For address changes and/or comments, please check this
box
o
and write them on the back where indicated
(
NOTE:
Please sign exactly as your name(s) appear(s)
hereon. All holders must sign. When signing as attorney,
executor, administrator, or other fiduciary, please give full
title as such. Joint owners should each sign personally. If a
corporation, please sign in full corporate name by authorized
officer. If a partnership, please sign in partnership name by
authorized person.)
