<PAGE>
UNITED STATES
SECURITIES EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report: December 16, 1996
Date of earliest event
reported: November 30, 1996
Transitional Hospitals Corporation
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 1-7008 94-1599386
- ----------------------- ------------------------ ------------------
(State of incorporation) (Commission File Number) (IRS Employer
Identification No.)
5110 W Sahara Avenue, Las Vegas, Nevada 89102
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(702) 257-3600
- --------------------------------------------------
Registrant's telephone number, including area code
Community Psychiatric Centers
- --------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Disposition of Assets:
On November 30, 1996, Transitional Hospitals Corporation (the "Company" or
"THC") consummated the sale of its psychiatric operations in the U.S. and Puerto
Rico (with certain limited exceptions set forth below) to Behavioral Healthcare
Corporation ("BHC"). Prior to such sale, BHC owned 17 psychiatric hospitals. At
the November 30 closing, the Company transferred title to 22 freestanding
psychiatric hospitals, a joint venture interest in another psychiatric
operation, an outpatient psychiatric center, two closed hospitals and vacant
land located at three sites in California. Two other operating hospitals and a
joint venture interest (the "Escrowed Assets") are to be transferred to BHC upon
receipt of necessary regulatory approvals, and BHC is receiving the economic
benefit thereof pending such transfer. The transfer of these assets has been
reflected in the pro forma financial statements included in item 7 of this
document. At the initial closing, the Company received $60,000,000 in cash,
2,214,400 shares of BHC Common Stock, 5,072,579 shares of BHC Series A Preferred
Stock and 46,902 shares of BHC Series B Preferred Stock. In general, the Series
A Preferred converts into BHC Common Stock on a share for share basis on sales
and dispositions of the Series A Preferred Stock by the Company and under
certain other limited circumstances. At the closing of the sale of the Escrowed
Assets, the Company will receive an additional 3,538,000 to 3,785,600 shares of
BHC Common Stock, an additional 578,844 shares of BHC Series A Preferred Stock
and from 1,675 to 3,350 additional shares of BHC Series B Preferred Stock. In
determining the amount of the consideration to be paid to the Company, the
parties compared their respective EBITDAs (Earnings before interest, taxes,
depreciation, and amortization) and used multiples generally accorded to
publicly-traded psychiatric hospitals.
Richard L. Conte, the Company's Chairman and Chief Executive Officer, will
serve as Chairman of BHC's Board of Directors. Wendy L. Simpson, the Company's
Chief Operating Officer and Chief Financial Officer, and Robert L. Thomas, a
Company board member, will also serve on BHC's eleven member Board of Directors.
Mr. Conte has been engaged as BHC's Chairman for a four year period for annual
compensation of $200,000, which is payable to the Company so long as Mr. Conte
is an employee of the Company. BHC has also agreed to grant Mr. Conte options to
purchase BHC Common Stock in an amount equal to one-half the options granted
from time to time to BHC's Chief Executive Officer.
As previously reported on the Company's Form 8-K dated July 5, 1996, the
Company completed the sale of Priory Hospitals Group, the Company's United
Kingdom operations. As a result of such sale and BHC sale, the Company's primary
business will be long-term acute care hospital services.
<PAGE>
Item 7. Financial Statement:
The following unaudited pro forma financial information gives effect to the
sales of the Company's psychiatric operations as described in Item 2, as if the
sales occurred as of November 30, 1994 for purposes of the unaudited Pro Forma
Condensed Combined Statements of Operations and as of August 31, 1996 for
purposes of the Unaudited Pro Forma Condensed Combined Balance Sheet for the
sale of the U.S. and Puerto Rico psychiatric operations. The U.K. psychiatric
sale is accounted for in the August 31, 1996 balance sheet as the sale was
consummated in June 1996. The unaudited pro forma condensed combined financial
statements are based on historical audited financial statements for the year
ended November 30, 1995 and the unaudited financial statements as of and for the
nine months ended August 31, 1996.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions and adjustments described in the notes to
the Unaudited Pro Forma Condensed Combined Financial Statements. The unaudited
pro forma financial information presented herein is not necessarily indicative
of the results of operations or financial position that THC would have obtained
had such events occurred at the beginning of the period, as assumed, or of the
future results of THC. The unaudited pro forma financial statements should be
read in conjunction with the audited financial statements for the year ended
November 30, 1995 included in the Company's Form 10-K and the unaudited
financial statements for the nine months ended August 31, 1996 included in the
Company's Form 10-Q.
The unaudited pro forma financial information included in this Form 8-K
contains certain forward looking statements that are subject to risk and
uncertainty. There can be no assurance that these future results will be
achieved. Readers are cautioned that a number of factors, including those
identified below, could adversely affect the Company's ability to obtain these
results: (a) uncertainties in the regulatory environment due to possible future
health care reform legislation, including changes in Medicare and Medicaid
reimbursements programs, (b) increased payor pressures in the domestic
psychiatric industry with respect to negotiated rates and other cost-containment
measures that could affect the Company's equity earnings in BHC, and (c)
increased competition among hospitals, managed care providers and other health
care providers.
<PAGE>
Exhibits
--------
99.1. First Amendment to Asset Purchase Agreement between the Company and
BHC, dated November 30, 1996.
99.2. Amendment to Agreement and Plan of Merger, between the Company and
BHC, dated November 30, 1996.
<PAGE>
Transitional Hospitals Corporation
(Formerly Community Psychiatric Centers)
Pro Forma Condensed Combined Statement of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended August 31, 1996
------------------------------------------------------------------------
US UK
Psychiatric Psychiatric
Operations Operations
Divested Divested Pro Forma Pro Forma
Historical (A) (B) Adjustments as Adjusted
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net operating revenues $373,700 $(156,835) $(37,190) $(1,316)(D) $178,359
Equity in earnings of
affiliate 4,250 (E) 4,250
Gain on sale of UK subsidiary 55,515 (55,515)
Investment and other income 2,628 (505) 345 (C) 2,468
-------- --------- -------- ------- --------
431,843 (157,340) (92,705) 3,279 185,077
Costs and expenses:
Operating expense 292,766 (125,864) (24,390) 142,512
General &
Administrative expense 25,484 (7,232) (3,007) 15,245
Bad debt expense 13,961 (8,613) (351) 4,997
Depreciation & amortization 17,182 (6,278) (1,954) 8,950
Interest expense 3,761 (117) (612) (2,225)(D) 807
Settlement costs
Impairment loss
Restructuring charge 2,165 (2,165) 0
-------- --------- -------- ------- --------
355,319 (150,269) (30,314) (2,225) 172,511
-------- --------- -------- ------- --------
Net income (loss)
before taxes 76,524 (7,071) (62,391) 5,504 12,566
Income taxes (credit) 27,467 (2,970) (21,852) 2,103 (F) 4,748
-------- --------- -------- ------- --------
Net income (loss) $ 49,057 $ (4,101) $(40,539) $ 3,401 $ 7,818
======== ========= ======== ======= ========
Net income per share $ 1.11 $ 0.18
Weighted average shares
outstanding 44,142 44,142
<CAPTION>
Year ended November 30, 1995
------------------------------------------------------------------------
US UK
Psychiatric Psychiatric
Operations Operations
Divested Divested Pro Forma Pro Forma
Historical (A) (B) Adjustments as Adjusted
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net operating revenues $506,663 $(248,408) $(63,319) $(2,088)(D) $192,848
Equity in earnings of
affiliate 5,000 (E) 5,000
Gain on sale of UK subsidiary
Investment and other income 2,513 (721) 693 (C) 2,485
-------- --------- -------- ------ --------
509,176 (249,129) (63,319) 3,605 200,333
Costs and expenses:
Operating expense 384,818 (189,793) (41,597) 153,428
General &
Administrative expense 39,444 (14,895) (3,338) 21,211
Bad debt expense 28,732 (25,596) (504) 2,632
Depreciation & amortization 23,344 (10,743) (3,215) 9,386
Interest expense 5,256 (156) (632) (3,360)(D) 1,108
Settlement costs 45,985 (45,985) 0
Impairment loss 46,021 (44,723) 1,298
Restructuring charge 2,110 (2,110) 0
-------- --------- -------- ------ --------
575,710 (334,001) (49,286) (3,360) 189,063
-------- --------- -------- ------ --------
Net income (loss)
before taxes (66,534) 84,872 (14,033) 6,965 11,270
Income taxes (credit) (24,902) 31,488 (4,912) 2,661 (F) 4,335
-------- --------- -------- ------ --------
Net income (loss) $(41,632) $ 53,384 $ (9,121) $ 4,304 $ 6,935
======== ========= ======== ======= ========
Net income per share $(0.95) $0.16
Weighted average shares
outstanding 43,642 43,642
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
<PAGE>
Transitional Hospitals Corporation
(Formerly Community Psychiatric Centers)
Pro Forma Combined Balance Sheet
(in thousands, except par value data)
(Unaudited)
<TABLE>
<CAPTION>
As of August 31, 1996
-----------------------------------------------------
US
Psychiatric
Hospitals Pro Forma
Historical Divested (A) Adjustments Pro Forma
-----------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 73,763 $ 59,637 $133,400
Accounts receivable, less allowance
doubtful accounts 100,553 (43,035) 57,518
Prepaid expenses and other current assets 20,307 (4,316) 15,991
Property held for sale 24,808 (8,729) 16,079
Deferred income taxes 3,444 10,372 13,816
Refundable taxes 1,213 17,590 18,803
-------- --------- -------- --------
Total current assets 224,088 31,519 0 255,607
Property, buildings and equipment, at cost less
accumulated depreciation 289,225 (139,383) 149,842
Deferred income taxes 18,956 18,956
Other assets 25,863 (1,462) 24,401
Investment in BHC 70,000 70,000
Goodwill 4,014 (3,946) 68
-------- --------- -------- --------
Total Assets $562,146 $ (43,272) 0 $518,874
======== ========= ========
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable & accrued expenses $ 41,967 $ (11,962) $ 30,005
Payable to third parties under reimbursement contracts 6,782 9,717 16,499
Income taxes payable 8,549 (95) 8,454
Current maturities on long-debt 8,670 8,670
Other accrued liabilities 525 14,683 15,208
-------- --------- -------- --------
Total current liabilities 66,493 12,343 0 78,836
Long-term debt 17,885 17,885
Deferred compensation 2,001 2,001
Deferred income taxes 17,313 (7,057) 10,256
Stockholders' Equity:
Common stock, par value $1 a share, authorized
100,000 shares; issued 46,856 shares 46,856 46,856
Additional paid in capital 56,657 56,657
Retained earnings 376,119 (48,558) 327,561
Less: treasury stock at cost (21,178) (21,178)
-------- --------- -------- --------
Total stockholders' equity 458,454 (48,558) 409,896
-------- --------- --------
Total Liabilities & Stockholders' Equity $562,146 $ (43,272) 0 $518,874
======== ========= ========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The adjustments to arrive at the Unaudited Pro Forma Combined Financial
Statements are as follows:
(A) To reflect the diverstiture of the Company's U.S. and Puerto Rico
psychiatric operations to Behavioral HealthCare Corporation ("BHC") for $60
million in cash and $70 million in stock, representing a 44.2% common equity
interest in BHC. Based on preliminary estimates, the Company expects to record a
pre-tax loss of approximately $80 million on the sale of the U.S. and Puerto
Rico psychiatric operations. This loss will be partially offset by the $55.5
million pre-tax gain recorded on the sale of the U.K. psychiatric operations
discussed in note (B) below. THC's common equity interest in BHC net income will
be recorded on the equity method of accounting. The pro forma results include
estimated reductions in general and administrative expenses related to positions
and other expenses which have been eliminated as a result of the sale of the
psychiatric operations. The pro forma results also exclude the operating
revenues and expenses related to closed psychiatric hospitals that have been
sold or are being held for sale. The pro forma results include provisions for
estimated current holding costs for closed hospitals that are held for sale as
of November 30, 1996. These costs are estimated to be $1.8 million and $1.4
million for fiscal year ended November 30, 1995 and the nine months ended August
31, 1996, respectively. Included in other accrued liabilities are estimated
reserves for severance, transaction, and other costs related to the disposition
of the psychiatric operations. For purposes of the pro forma condensed combined
statement of operations for the year ended November 30, 1995, settlement costs
of $46.0 million, impairment losses of $44.7 million and net restructuring
charges of $2.1 million have been included with the divested operations as these
costs relate directly to activities of the U.S. psychiatric division.
(B) To reflect the divestiture of the Company's United Kingdom operations,
Priory Hospitals Group ("PHG"), after payment of taxes, severance costs,
employee performance bonuses, transaction fees and PHG's debt, net proceeds were
approximately $97 million, which included a $4.6 million 15% subordinated note
due 2009 issued by the buyer. The pre-tax gain recorded on the sale of PHG was
$55.5 million.
(C) To reflect interest income on the $4.6 million note due from Foray at
an annual interest rate of 15%.
(D) To reflect the reduction in interest expense and the related
reimbursement impact due to the June 1996 re-payment of $50 million of long-term
debt which bore interest at approximately 8%.
(E) To reflect THC's estimated pro forma equity earnings of BHC. Excluded
from this amount for fiscal year 1995 are charges related to the adoption of
FASB Statement 121, "Accounting for the impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of" as well as restructuring charges related to
closed facilities that are being held for sale by BHC and will not be part of
BHC's ongoing operations. The before tax impact of these charges was $18.7
million for BHC. Excluded from the 1995 pro forma earnings of BHC are the
settlement costs related to the CPC shareholder lawsuit from 1991 which is
considered to be a nonrecurring charge. Also excluded from the 1995 pro forma
earnings of BHC was an extraordinary item of $2.4 million related to a debt
restructuring.
(F) To reflect income taxes at THC's effective tax rate of 38.2%.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Transitional Hospitals Corporation
Dated: December 16, 1996
By Wendy Simpson
----------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT 99.1
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
-------------------------------------------
THIS FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT (the "Amendment"),
dated November 30, 1996, is by and between TRANSITIONAL HOSPITALS CORPORATION, a
Nevada corporation formerly known as Community Psychiatric Centers ("THC"),
COMMUNITY PSYCHIATRIC CENTERS OF CALIFORNIA, a California corporation, COMMUNITY
PSYCHIATRIC CENTERS PROPERTIES INCORPORATED, a California corporation, COMMUNITY
PSYCHIATRIC CENTERS OF FLORIDA, INC., a Florida corporation, FLORIDA HOSPITAL
PROPERTIES, INC., a Florida corporation, COMMUNITY PSYCHIATRIC CENTERS OF IDAHO,
INC., an Idaho corporation, COMMUNITY PSYCHIATRIC CENTERS OF NORTH CAROLINA,
INC., a North Carolina corporation, CPC PROPERTIES OF NORTH CAROLINA, INC., a
North Carolina corporation, COMMUNITY PSYCHIATRIC CENTERS OF KANSAS, INC., a
Kansas corporation, CPC PROPERTIES OF KANSAS, INC., a Kansas corporation, C.P.C.
OF LOUISIANA, INC., a Louisiana corporation, CPC PROPERTIES OF LOUISIANA, INC.,
a Louisiana corporation, COMMUNITY PSYCHIATRIC CENTERS PROPERTIES OF TEXAS,
INC., a Texas corporation, COMMUNITY PSYCHIATRIC CENTERS OF UTAH, INC., a Utah
corporation, COMMUNITY PSYCHIATRIC CENTERS PROPERTIES OF UTAH, INC., a Utah
corporation, COMMUNITY PSYCHIATRIC CENTERS OF ARKANSAS, INC., an Arkansas
corporation, CPC PROPERTIES OF ARKANSAS, INC., an Arkansas corporation,
COMMUNITY PSYCHIATRIC CENTERS OF MISSISSIPPI, INC., a Mississippi corporation,
CPC PROPERTIES OF MISSISSIPPI, INC., a Mississippi corporation, COMMUNITY
PSYCHIATRIC CENTERS OF MISSOURI, INC., a Missouri corporation, CPC PROPERTIES OF
MISSOURI, INC., a Missouri corporation, OLD ORCHARD HOSPITAL, INC., an Illinois
corporation, CPC PROPERTIES OF ILLINOIS, INC., an Illinois corporation,
COMMUNITY PSYCHIATRIC CENTERS OF INDIANA, INC., an Indiana corporation, CPC
PROPERTIES OF INDIANA, INC., an Indiana corporation, CPC MANAGED CARE HEALTH
SERVICES, INC., a Delaware corporation, and COMMUNITY BEHAVIORAL HEALTH SYSTEM,
INC., a Louisiana corporation (collectively with THC, the "Sellers"), and
BEHAVIORAL HEALTHCARE CORPORATION, a Delaware corporation (the "Parent"),
individually and on behalf of various wholly-owned subsidiaries of the Parent
(collectively, the "BHC Subs"), (the BHC Subs and the Parent, collectively and
individually when the context so requires, the "Purchaser").
RECITALS
--------
A. Certain of the parties hereto entered into that certain Asset
Purchase Agreement dated as of October 22, 1996 (the "Asset Purchase
Agreement"), pursuant to which, among other things, the Purchaser will acquire
THC's psychiatric hospital and residential treatment center business in the
United States (other than the property and assets used by Southwind Hospital,
which hospital is not being sold to Purchaser).
<PAGE>
Capitalized terms used herein without definition shall have the meanings set
forth in the Asset Purchase Agreement.
B. The parties have been unable to obtain as of the date hereof all
approvals and licenses from the State of Washington necessary to permit the
transfer of the assets relating to the Hospital (the "Fairfax Hospital") located
in Kirkland, Washington (the "Fairfax Hospital Assets").
C. The parties desire to amend the Asset Purchase Agreement to
provide for the consummation, effective as of November 30, 1996, of the
transactions contemplated by the Asset Purchase Agreement, other than the
transfer of the Fairfax Hospital Assets, and to permit the transfer of the
Fairfax Hospital Assets at such time as all required approvals and licenses from
the State of Washington have been obtained.
D. The parties desire to make certain other modifications to the
Asset Purchase Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements, the parties hereto hereby
agree to amend the Asset Purchase Agreement as follows:
1. Section 1.4 of the Asset Purchase Agreement is hereby amended and
restated in its entirety as follows:
"Section 1.4. Purchase Price. The total purchase price of the Assets
--------------
(the "Purchase Price") shall be cash (represented by one or more
cashier's checks) in the aggregate amount of $60,000,000 together with
2,504,694 shares of the common stock, par value $.01 per share, of
Purchaser (the "BHC Common Stock"), 5,651,368 shares of the Series A
Preferred Stock, par value $.01 per share, of Purchaser, having the
terms and conditions set forth in Schedule 1.4 (the "BHC Preferred
------------
Stock"), and 46,902 shares of the Series B Preferred Stock, par value
$.01 per share (the "Series B Preferred Stock"), of Purchaser, having
the terms and conditions set forth in Schedule 1.4 (the "Series B
------------
Preferred Stock"). The Purchase Price shall be payable to each Seller
as follows:
(a) In consideration of the sale of its portion of the Assets (other
than the stock of CPC of Texas), Community Psychiatric Centers of
California ("CPC of Calif.") shall receive $4,963,598 in cash,
999,749 shares of BHC Common Stock, 957,941 shares of BHC
Preferred Stock and 8,375 shares of Series B Preferred Stock.
(b) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers Properties Incorporated ("CPC
Properties") shall
2
<PAGE>
receive $775,702 in cash, 1,385,076 shares of
BHC Common Stock, 4,350,712 shares of BHC Preferred Stock and
33,501 shares of Series B Preferred Stock.
(c) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Florida, Inc. shall receive
$5,124,507 in cash and 3,350 shares of Series B Preferred Stock.
(d) In consideration of the sale of its portion of the Assets,
Florida Hospital Properties, Inc. shall receive $1,033,842 in
cash.
(e) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Idaho, Inc. shall receive
$2,187,000 in cash.
(f) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of North Carolina, Inc. shall
receive $1,466,000 in cash.
(g) In consideration of the sale of its portion of the Assets, CPC
Properties of North Carolina, Inc. shall receive $2,528,664 in
cash.
(h) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Kansas, Inc. shall receive
$2,209,000 in cash.
(i) In consideration of the sale of its portion of the Assets, CPC
Properties of Kansas, Inc. shall receive $2,566,313 in cash.
(j) In consideration of the sale of their portion of the Assets,
C.P.C. of Louisiana, Inc. and Community Behavioral Health System,
Inc. shall receive an aggregate of $2,080,000 in cash, 6,700
shares of BHC Common Stock, 838 shares of BHC Preferred Stock and
838 shares of Series B Preferred Stock to be allocated among them
as they determine.
(k) In consideration of the sale of its portion of the Assets, CPC
Properties of Louisiana, Inc. shall receive $3,746,918 in cash.
(l) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers Properties of Texas, Inc. shall
receive $3,208,407 in cash.
(m) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Utah, Inc. shall receive
$1,967,000 in cash.
3
<PAGE>
(n) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers Properties of Utah, Inc. shall
receive $2,809,626 in cash.
(o) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Arkansas, Inc. shall receive
$1,370,000 in cash.
(p) In consideration of the sale of its portion of the Assets, CPC
Properties of Arkansas shall receive $4,281,870 in cash.
(q) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Mississippi, Inc. shall receive
$1,824,000 in cash.
(r) In consideration of the sale of its portion of the Assets, CPC
Properties of Mississippi, Inc. shall receive $2,024,954 in cash.
(s) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Missouri, Inc. shall receive
$625,000 in cash.
(t) In consideration of the sale of its portion of the Assets, CPC
Properties of Missouri, Inc. shall receive $1,857,183 in cash.
(u) In consideration of the sale of its portion of the Assets, Old
Orchard Hospital, Inc. shall receive $1,380,000 in cash.
(v) In consideration of the sale of its portion of the Assets, CPC
Properties of Illinois, Inc. shall receive $3,670,496 in cash.
(w) In consideration of the sale of its portion of the Assets,
Community Psychiatric Centers of Indiana, Inc. shall receive
$2,190,000 in cash.
(x) In consideration of the sale of its portion of the Assets, CPC
Properties of Indiana, Inc. shall receive $4,109,921 in cash.
In addition, Purchaser shall issue to CPC of Calif. 113,170 shares of
BHC Common Stock, 341,876 shares of BHC Preferred Stock and 838 shares of Series
B Preferred Stock as consideration for the outstanding stock of CPC of Texas.
2. The conditions to the obligations of the parties to consummate
the transactions contemplated by the Asset Purchase Agreement have been
satisfied with respect to all Assets other than the following condition with
respect to the Fairfax Hospital Assets: the Purchaser shall have received and
have been issued all licenses and approvals required under the provisions of
state and federal law necessary for the Purchaser to legally conduct all
relevant operations of the Fairfax Hospital on the Closing Date (except for the
4
<PAGE>
Controlled Substance Registration Certificate relating to the pharmacy located
in the Fairfax Hospital) (the "Fairfax Licensing Condition"). No conditions
apply to the sale of the Assets, other than the Fairfax Licensing Condition.
3. The Sellers shall transfer to Purchaser, effective as of 9:59
p.m. Nashville time on November 30, 1996, all Assets owned by them which are to
be transferred to Purchaser pursuant to Asset Purchase Agreement, other than the
Fairfax Hospital Assets. There shall be no adjustment to the consideration
payable to the Sellers, except as follows: the portion of the Purchase Price to
be paid to CPC of Calif. at the Closing (notwithstanding Section 1.4 of the
Asset Purchase Agreement as amended hereby) shall be $4,963,598 in cash, 763,484
shares of BHC Common Stock, 721,676 shares of BHC Preferred Stock and 8,375
shares of Series B Preferred Stock, and the portion of the Purchase Price to be
paid to CPC Properties at the Closing (notwithstanding Section 1.4 of the Asset
Purchase Agreement as amended hereby) shall be $775,702 in cash, 1,331,046
shares of BHC Common Stock, 4,008,133 shares of BHC Preferred Stock and 33,501
shares of Series B Preferred Stock. Concurrently herewith, BHC Fairfax
Hospital, Inc., CPC of Calif. and CPC Properties are entering into the
Management Agreement in the form attached hereto as Exhibit A (the "Fairfax
---------
Management Agreement"). At 11:59 p.m. Pacific time on the last day of the
calendar month during which the Fairfax Licensing Condition is satisfied (the
"Fairfax Effective Time"), CPC of Calif. and CPC Properties shall transfer the
Fairfax Hospital Assets to Purchaser, and Purchaser shall deliver to CPC of
Calif. 236,265 shares of BHC Common Stock and 236,265 shares of BHC Preferred
Stock and shall deliver to CPC Properties 54,030 shares of BHC Common Stock and
342,579 shares of BHC Preferred Stock. For purposes of Section 5.5 of the Asset
Purchase Agreement, the Closing shall be deemed to have occurred with respect to
employees at the Fairfax Hospital (the "Fairfax Employees") as of the
commencement of the Fairfax Management Agreement, and the provisions of such
Section shall be deemed to apply as of such time to the Fairfax Employees
notwithstanding anything to the contrary contained in the Fairfax Management
Agreement. In the event the Fairfax Management Agreement is extended to a term
of years pursuant to the terms thereof, Purchaser shall pay Sellers the
consideration which would have been paid had the Fairfax Hospital Assets been
transferred to Purchaser.
4. At or prior to the transfer of the respective Assets Sellers
shall pay all indebtedness for borrowed money and capitalized lease obligations
secured by any of the Assets. Notwithstanding Section 9.3 of the Asset Purchase
Agreement, Sellers shall defend the title to all Assets and rights granted,
bargained, sold, conveyed, assigned, transferred, set over and delivered to
Purchaser against every person whomsoever lawfully claiming an interest in the
Assets arising from obligations for borrowed money or capitalized lease
obligations at the time of transfer and will take all actions reasonably
necessary to release any liens relating to such indebtedness.
5. Clause (v) of Section 1.2 of the Asset Purchase Agreement is
hereby amended to read as follows: "certain excess land located at the Spirit of
St. Louis Hospital, Streamwood Hospital and Pinnacle Point Hospital described in
Schedule 1.2."
5
<PAGE>
6. Section 11.4 of the Asset Purchase Agreement is hereby amended
and restated in its entirety as follows:
"Section 11.4 Effective Time. The Closing and the other
--------------
transactions contemplated hereby shall be effective for accounting and all other
purposes as of 9:59 p.m. Nashville time on November 30, 1996 with respect to all
of the Assets other than the Fairfax Hospital Assets and shall be effective for
accounting and all other purposes as of the Fairfax Effective Time with respect
to the Fairfax Hospital Assets, unless otherwise agreed in writing by the Seller
and the Purchaser."
7. Seller shall from time to time for a period of two years after
the transfer thereof, advance Purchaser an amount sufficient to pay insurance
and maintenance expenses relating to the Excess Real Estate. Purchaser shall be
responsible for real property taxes on the Excess Real Estate. All advances
shall be made on the terms set forth on the term sheet attached hereto as
Exhibit B.
- ---------
8. The Parent hereby indemnifies THC (and its stockholders,
employees, officers, directors, agents and representatives) from and against any
liabilities, damages, costs and expenses (including reasonable attorneys' fees)
incurred by THC, including liabilities, damages, costs and expenses resulting
from the reduction in value of any Seller that is a subsidiary of THC, as a
result of the failure by a BHC Sub to perform its obligations under the
Assignment and Undertaking executed by such BHC Sub, provided that the liability
of the Parent under this paragraph shall not exceed $129,858,663. The parties
acknowledge that the Parent's liability under this paragraph shall be without
regard to any limits contained in Sections 9.3(a) and (b) of the Asset Purchase
Agreement, but otherwise shall be applied consistent with Article IX of the
Asset Purchase Agreement.
9. Subsidiaries of THC which are Sellers shall retain their
corporate existence until at least November 30, 2001. During such time such
Sellers shall comply in all material respects with corporate formalities
pertaining thereto, including but not limited to maintaining the corporate
existence of such Sellers and having annual elections of directors and officers,
and will file all required franchise tax returns and make all other required
filings with governmental entities, except in each case where the failure to
comply or file would not have a material adverse effect on the Seller in
question.
10. The Parent agrees to maintain the corporate existence of
Community Psychiatric Centers of Texas, Inc. until at least November 30, 1998.
11. Article XII of the Asset Purchase Agreement is hereby amended and
restated in its entirety as follows:
"Sellers recognize that (i) Purchaser's entering into this
Agreement is induced primarily because of the covenants and
assurances made by Sellers hereunder, (ii) Sellers' covenant not
to
6
<PAGE>
compete is necessary to insure the continuation of the Hospital
Business subsequent to the Closing, and (iii) irreparable harm
and damage will be done to Purchaser in the event that Sellers or
Sellers' affiliates compete with Purchaser within the area or
areas specified in this Section. Therefore, in consideration of
the premises and as an inducement for Purchaser to enter into
this Agreement and consummate the transactions contemplated
herein, Sellers agree that, for a period of three (3) years from
and after the Closing Date, Sellers, their affiliates (other than
affiliates which become affiliates as a result of the acquisition
of stock or assets of CPC or one or more Sellers) (collectively,
the "Regulated Persons") will not own, lease, manage or operate
any psychiatric hospitals, beds or units in the United States
within the 25-mile radiuses of the Hospitals or any facility
operated by Purchaser on the Closing Date (the "Proscribed
Area"). Notwithstanding the foregoing, the Regulated Persons may
own, lease, manage and operate psychiatric beds and/or units
within the Proscribed Area: (a) in any non-psychiatric hospital
acquired by the Regulated Persons, provided that Purchaser has
been offered a right of first refusal to manage the psychiatric
services provided at such hospital on then reasonably customary
terms (provided that Sellers shall not enter into any agreement
to manage such psychiatric services on terms less favorable to
Seller than those last offered to Purchaser), and (b) at THC New
Orleans. The parties agree that no portion of the Purchase Price
shall be allocated to the noncompetition covenant contained in
this Article XII.
12. Purchaser shall pay all fees and costs associated with the
cancellation of the SMS contract, not to exceed $600,000.
13. CPC Managed Care Health Services, Inc. shall not be a Seller,
shall have no obligations under the Agreement, and the Asset Purchase Agreement
be and hereby is amended to delete such corporation as a party to the Asset
Purchase Agreement.
14. Included among the Assets shall be the net economic interest
(after all taxes, expenses, liabilities and obligations) of CPC Properties in
connection with that certain Renewed and Restated Partnership Agreement dated as
of October 4, 1995 with David A. Justice and Eve Bloomberg Justice relating to
the so-called "Tomato Patch" parcel and that certain Partnership Agreement dated
as of October 4, 1995 with such parties relating to the so-called "Camino
Station" parcel. CPC Properties and the Parent agree to discuss in good faith
the transfer of CPC Properties' aforesaid partnership interests to the Parent.
To the extent CPC Properties receives any revenues from such partnerships CPC
shall promptly pay such revenue, after deducting all applicable taxes, costs and
expenses, to Purchaser.
7
<PAGE>
15. Except as amended hereby, the Asset Purchase Agreement shall
remain in full force and effect.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
ENTITIES CONSTITUTING THE "SELLER"
TRANSITIONAL HOSPITALS CORPORATION
COMMUNITY PSYCHIATRIC CENTERS
OF CALIFORNIA
COMMUNITY PSYCHIATRIC CENTERS
PROPERTIES INCORPORATED
COMMUNITY PSYCHIATRIC CENTERS
OF FLORIDA, INC.
FLORIDA HOSPITAL PROPERTIES, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF IDAHO, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF NORTH CAROLINA, INC.
CPC PROPERTIES OF NORTH CAROLINA, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF KANSAS, INC.
CPC PROPERTIES OF KANSAS, INC.
C.P.C OF LOUISIANA, INC.
CPC PROPERTIES OF LOUISIANA, INC.
COMMUNITY PSYCHIATRIC CENTERS
PROPERTIES OF TEXAS, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF UTAH, INC.
COMMUNITY PSYCHIATRIC CENTERS
PROPERTIES OF UTAH, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF ARKANSAS, INC.
CPC PROPERTIES OF ARKANSAS, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF MISSISSIPPI, INC.
CPC PROPERTIES OF MISSISSIPPI, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF MISSOURI, INC.
CPC PROPERTIES OF MISSOURI, INC.
OLD ORCHARD HOSPITAL, INC.
CPC PROPERTIES OF ILLINOIS, INC.
COMMUNITY PSYCHIATRIC CENTERS
OF INDIANA, INC.
CPC PROPERTIES OF INDIANA, INC.
CPC MANAGED CARE HEALTH SERVICES, INC.
COMMUNITY BEHAVIORAL HEALTH SYSTEM, INC.
By: /s/ Julia Kopta
____________________________________________________
Title:_________________________________________________
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<PAGE>
PARENT
BEHAVIORAL HEALTHCARE CORPORATION
By: /s/ Michael Davis
____________________________________________________
Title: CFO
_________________________________________________
10
<PAGE>
EXHIBIT 99.2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------
This AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of November 30, 1996, is by and among TRANSITIONAL HOSPITALS
CORPORATION, a Nevada corporation formerly known as COMMUNITY PSYCHIATRIC
CENTERS ("THC"), COMMUNITY PSYCHIATRIC CENTERS OF PUERTO RICO, INC., a Nevada
corporation (the "Hospital Company"), CPC-PHP, INC., a Nevada corporation (the
"Partially Owned Company"), and BEHAVIORAL HEALTHCARE CORPORATION, a Delaware
corporation (the "Parent"), with respect to the following facts:
a. The parties hereto entered into that certain Agreement and
Plan of Merger, dated as of October 22, 1996 (the "Merger Agreement"), pursuant
to which the Companies (as that term is defined in the Merger Agreement) are to
be merged into two newly formed Tennessee corporations wholly-owned by the
Parent. Capitalized terms used herein within definition shall have the meanings
set forth in the Merger Agreement.
b. The parties hereto wish to modify the Hospital Company
Merger Consideration and the Partially Owned Merger Consideration as provided
below.
c. The Partially Owned Company is in the process of negotiating
the purchase of a 52% interest (the "Interest") in Integrated Health Care
Systems Corp., a Puerto Rico corporation ("IHS"), for a purchase price
(including the post-closing repayment of certain loans and obligations) of
approximately $575,000. No assurance can be given as to whether the Interest
will be purchased by the Partially Owned Company.
d. The Partially Owned Merger Consideration (as set forth below)
has been determined on the assumption that the Interest has been acquired by the
Partially Owned Company on or prior to the Closing.
e. In the event that the Interest has not been acquired by the
Partially Owned Company on or prior to the Closing, the parties wish to make
certain modifications in the Merger Agreement with respect thereto as
hereinafter set forth.
f. The parties wish to make certain additional modifications in
the Merger Agreement as set forth below.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements, the parties hereto hereby
agree to amend the Merger Agreement as follows:
1. Section 1.1 of the Merger Agreement is hereby revised to
provide that the Hospital Company Merger Consideration shall consist of an
aggregate of 3,248,405 shares of BHC Common
<PAGE>
Stock and an aggregate of 1,675 shares of Series B Preferred Stock (rather than
3,439,934 shares of Common Stock and 1,774 shares of Series B Preferred Stock).
2. Section 1.2 of the Merger Agreement is hereby revised to
provide that the Partially Owned Merger Consideration shall consist of an
aggregate of 246,900 shares of BHC Common Stock and 1,675 shares of Series B
Preferred Stock rather than 261,458 shares of BHC Common Stock and 1,774 shares
of BHC Preferred Stock.
3. In the event that the Interest has not been acquired by the
Partially Owned Company on or prior to the Closing, then no shares of BHC Common
Stock or BHC Preferred Stock shall be issued at the Closing in connection with
the Partially Owned Merger.
4. At such time as the Partially Owned Company acquires the
Interest, the 246,900 shares of BHC Common Stock and 1,675 shares of BHC
Preferred Stock comprising the Partially Owned Merger Consideration shall be
issued to the shareholder of CPC-PHP, Inc., provided that THC has paid to the
Partially Owned Company the purchase price for the Interest (and is obligated to
make or fund the other payments to be made by the Partially Owned Company
referred to in Exhibit A hereto).
---------
5. THC (as opposed to the Partially Owned Company) shall have
the right to vary the terms of the purchase of the Interest from those set forth
in Exhibit A, provided that THC is not obligated to pay more than $575,000
---------
pursuant to paragraph 4 above, and the Partially Owned Company shall take such
actions as THC may reasonably request to effectuate the purchase of the Interest
on terms satisfactory to THC, provided in each case that the Partially Owned
Company is not responsible (after any indemnification or payments by THC) for
significant liabilities or obligations in excess of those set forth in
Exhibit A.
- ---------
6. In the event the Interest is not purchased by the Partially
Owned Company on or before six months after the date hereof, and provided that
after the Closing the Partially Owned Company complies with its obligations set
forth in paragraph 5 above, THC will be obligated to pay the Parent $82,910.
7. Section 5.5 of the Merger Agreement is hereby amended to read
as follows: Purchaser shall treat the Hospital Company Merger as a tax-free
reorganization within the meaning of Section 368 of the Code.
8. The conditions to the obligations of the parties to consummate
the transactions contemplated by the Merger Agreement have been satisfied other
than the following: the
2
<PAGE>
Purchaser shall have received and been issued all licenses and approvals
required under the provisions of state and federal law necessary for the
Purchaser to own and operate and legally conduct all relevant operations of the
Hospitals being conducted by the Companies on the Closing Date (except for the
Controlled Substance Certificates relating to the pharmacies in the Hospitals).
All conditions (other than the aforesaid licensing condition) no longer apply to
the Merger Agreement.
9. Concurrently herewith, the parties hereto are entering into
the Management Agreement in the form attached hereto as Exhibit B (the "Puerto
---------
Rico Management Agreement"). For purposes of Section 5.1 of the Merger
Agreement, the Closing shall be deemed to have occurred with respect to
employees working at the Hospitals (the "Employees") as of the commencement of
the Puerto Rico Management Agreement, and the provisions of such Section shall
be deemed to apply as of such time notwithstanding anything to the contrary
contained in the Puerto Rico Management Agreement.
10. Article XII of the Merger Agreement is hereby amended to
read as follows:
"COMPETITION AND NEW PROJECTS.
-----------------------------
Section 12.1 Noncompetition. Sellers recognize that (i)
--------------
Purchaser's entering into this Agreement is induced primarily
because of the covenants and assurances made by Sellers
hereunder, (ii) Sellers' covenant not to compete is necessary to
insure the continuation of the Hospital Businesses subsequent to
the Closing, and (iii) irreparable harm and damage will be done
to Purchaser in the event that Sellers, or Sellers' affiliates,
compete with Purchaser within the area or areas specified in this
Section. Therefore, in consideration of the premises and as an
inducement for Purchaser to enter into this Agreement and
consummate the transactions contemplated herein, Sellers agree
that, for a period of three (3) years from and after the Closing
Date, Sellers, their affiliates (other than affiliates which
become affiliates as a result of the acquisition of stock or
assets of THC or one or more Sellers) (collectively, the
"Regulated Persons") will not own, lease, manage or operate any
psychiatric hospitals, beds or units in the United States within
the 25-mile radiuses of the Hospitals or any facility operated by
Purchaser on the Closing Date (the "Proscribed Area").
Notwithstanding the foregoing, the Regulated Persons may own,
lease, manage and operate beds and/or units within the Proscribed
Area: (a) in any non-psychiatric hospital acquired by the
Regulated Persons,
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<PAGE>
provided that Purchaser has been offered a right of first refusal
to manage the psychiatric services provided at such hospital on
then reasonably customary terms (provided that THC shall not
enter into any agreement to manage such psychiatric services on
terms less favorable to THC than those last offered to
Purchaser), and (b) at THC New Orleans. The parties agree that
no portion of the Hospital Company Merger Consideration or the
Partially Owned Company Merger Consideration shall be allocated
the non-competition covenant contained in this Section 12.1
Section 12.2 New Projects. In the event Sellers desire
------------
to pursue an opportunity to provide new mental health services in
Puerto Rico, Sellers shall first present such opportunity to the
Board of Directors of the Parent. If the Board of Directors of
the Parent determines not to pursue such opportunity, Sellers may
pursue such opportunity unless the Board of Directors has
reasonably concluded that the pursuit of such opportunity by
Sellers would be detrimental to the business of any psychiatric
hospital or facility owned, leased, managed or operated by
Purchaser in Puerto Rico.
11. In the event the Parent plans to dispose directly or
indirectly of a significant amount of its Puerto Rico operations (whether
through a sale or issuance of stock, sale of a subsidiary, merger, sale of
assets or otherwise), then before such disposition is made THC shall have the
right for a 30 day period to negotiate with the Parent with respect to a
possible purchase by THC of such operations. In the event THC and the Parent are
unable to agree upon the terms thereof, then the Parent shall have the right to
dispose of such operations to a third party for a 360 day period on terms which
are more favorable to the Parent than those last proposed by THC. In the event
of any dispute as to whether the terms to be accepted directly or indirectly by
the Parent are more favorable, the dispute shall be submitted to binding
arbitration.
12. Richard Conte shall have the right (subject to the review and
oversight of the Parent's Board of Directors) to direct the Parent's business
operations in Puerto Rico to the extent set forth in that certain Services
Agreement between the Parent and Mr. Conte dated as of even date herewith.
4
<PAGE>
13. The parties hereto agree to negotiate in good faith an
agreement, which shall be mutually satisfactory to both THC and the Parent,
pursuant to which BHC San Juan Capestrano Hospital, Inc. will become the
exclusive provider of hospital psychiatric services to subscribers of plans
serviced by Caribbean Behavioral Health Systems, Inc.
14. Except as modified as set forth above, the Merger Agreement
shall remain in full force and effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have fully executed this
Amendment as of the day and year first above written.
ENTITIES CONSTITUTING THE "SELLERS"
TRANSITIONAL HOSPITALS CORPORATION
COMMUNITY PSYCHIATRIC CENTERS OF
PUERTO RICO, INC.
CPC-PHP, INC.
By /s/ Wendy Simpson
_______________________________
Title____________________________
"PARENT"
BEHAVIORAL HEALTHCARE CORPORATION
By /s/ Michael Davis
_______________________________
Title CFO
____________________________
6
