<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
TRANSITIONAL HOSPITALS CORPORATION
(NAME OF SUBJECT COMPANY)
TRANSITIONAL HOSPITALS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $1.00 PER SHARE, INCLUDING THE
ASSOCIATED RIGHTS TO PURCHASE SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
(TITLE OF CLASS OF SECURITIES)
20 401 510
(CUSIP NUMBER OF CLASS OF SECURITIES)
RICHARD L. CONTE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
TRANSITIONAL HOSPITALS CORPORATION
5110 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102
(702) 257-3600
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING THIS STATEMENT)
----------------
COPIES TO:
STEPHEN D. SILBERT, ESQ. JULIA L. KOPTA, ESQ.
CHRISTENSEN, MILLER, FINK, JACOBS, EXECUTIVE VICE PRESIDENT AND GENERAL
GLASER, WEIL & SHAPIRO, LLP COUNSEL
2121 AVENUE OF THE STARS, SUITE 1800 TRANSITIONAL HOSPITALS CORPORATION
LOS ANGELES, CALIFORNIA 90067 5110 WEST SAHARA AVENUE
(310) 553-3000 LAS VEGAS, NEVADA 89102
(702) 257-3600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule
14D-9") relates to the tender offer by LV Acquisition Corp., a Delaware
corporation (the "Purchaser") and a wholly-owned subsidiary of Vencor, Inc., a
Delaware corporation ("Vencor"), to purchase all of the outstanding shares of
common stock, par value $1.00 (the "Shares"), of Transitional Hospitals
Corporation, a Nevada corporation (the "Company"), including the associated
rights to purchase Series B Junior Participating Preferred Stock (the
"Rights"), upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated May 7, 1997 and the related Letter of Transmittal
(collectively, the "Offer"), filed as exhibits to the Statement on Schedule
14D-1, dated May 7, 1997 (collectively, the "Schedule 14D-1"), filed by the
Purchaser and Vencor with the Securities and Exchange Commission (the
"Commission"). The description in this Schedule 14D-9 of any agreement,
instrument, document or portion thereof filed as an exhibit to this Schedule
14D-9 is qualified in its entirety by reference to the copy of such agreement,
instrument, document or portion thereof filed as such exhibit hereto.
On May 2, 1997, the Company entered into an Agreement and Plan of Merger
(the "Select Merger Agreement") with Select Medical Corporation, a Delaware
corporation ("Select"), and SM Acquisition Corp., a Nevada corporation ("SM
Acquisition") and a wholly-owned subsidiary of Select. The Select Merger
Agreement provides for the merger of the Company with SM Acquisition (the
"Select Merger"). In the Select Merger, among other things, each Share, other
than Shares held in the treasury of the Company or by Select or any subsidiary
of Select or the Company, will be converted into the right to receive $14.55
in cash. See "Item 8. Additional Information to Be Furnished--Select Merger
Agreement" for a summary of the Select Merger Agreement.
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Transitional Hospitals Corporation, a
Nevada corporation. The address of the principal executive offices of the
Company is 5110 West Sahara Avenue, Las Vegas, Nevada 89102. The title of the
class of equity securities to which this Schedule 14D-9 relates is the Common
Stock, par value $1.00 per share, and the associated Rights to purchase Series
B Junior Participating Preferred Stock.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer by LV Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Vencor, as disclosed in
the Schedule 14D-1. According to the Schedule 14D-1, the address of the
principal executive offices of the Purchaser and Vencor is 3300 Providian
Center, 400 West Market Street, Louisville, Kentucky 40202.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, is set forth above under Item 1.
(b) Certain contracts, agreements, arrangements or understandings between
the Company and certain of its directors and executive officers may result in
a conflict of interest between such directors and executive officers and (i)
the Company or (ii) Vencor, the Purchaser, executive officers or directors of
Vencor or the Purchaser or affiliates of Vencor or the Purchaser. On numerous
occasions the Board of Directors of the Company (the "Board") was advised of
such possible conflicts, and Richard L. Conte, Chairman of the Board of
Directors, Chief Executive Officer and President of the Company, and Wendy L.
Simpson, Executive Vice President, Chief Operating Officer, Chief Financial
Officer and a director of the Company, have abstained from voting on all
matters relating to the Select Merger Agreement and the Offer and have offered
to exclude themselves from discussions relating thereto.
Employment Agreements. The employment agreements of each of Mr. Conte, Ms.
Simpson, James R. Laughlin, Executive Vice President--Development of the
Company, Ronald L. Ooley, Executive Vice President--U.S. Hospital Operations
of the Company, and Julia L. Kopta, Executive Vice President--General Counsel
and Secretary of the Company, provide for certain benefits upon a change of
control. Such agreements also
1
<PAGE>
provide them with certain rights to terminate their employment within one year
of a change of control of the Company. The consummation of the Offer (as well
as the consummation of the Select Merger) would constitute a change of control
under all such employment agreements.
Upon a change of control, hostile takeover or corporate reorganization (as
such terms are defined in Mr. Conte's employment agreement), Mr. Conte would
be entitled to receive a lump sum payment in an amount equal to the sum of:
(i) six times Mr. Conte's salary (presently $750,000 per year); (ii) salary
for the period commencing on the date of the change of control, hostile
takeover or corporate reorganization and ending one year following such date;
(iii) the maximum bonus Mr. Conte could have received under the Company's
annual incentive compensation plan for the fiscal year in which the change of
control, hostile takeover or corporate reorganization occurred (which amount
must be at least equal to his salary); (iv) the maximum bonus Mr. Conte could
have received for each three-year plan cycle under the Company's long-term
compensation plan (which amount for each plan year must be at least equal to
his salary, and provided that amounts payable for any three-year plan cycle
will be pro rated to the extent the change of control, hostile takeover or
corporate reorganization occurs less than halfway through such plan cycle);
(v) all deferred compensation accrued through the date of the change of
control, hostile takeover or corporate reorganization; and (vi) pursuant to
his deferred compensation plan, an additional amount equal to 9.5% of the sum
of (A) all salary, bonus, deferred compensation, loan forgiveness (as
described herein) and other amounts paid to Mr. Conte upon a change of
control, hostile takeover or corporate reorganization and (B) the appreciated
value of stock options. Also, certain loans made to Mr. Conte by the Company
will be forgiven. Pursuant to his employment agreement, Mr. Conte would
receive approximately $6,379,000 and $6,249,000 upon consummation of the Offer
and the Select Merger, respectively, and the Company will forgive
approximately $599,000 in loans (in each case assuming such transaction is
consummated on June 30, 1997). For a description of such loans, see "Loans to
Management" below. In accordance with the terms of his employment agreement,
certain amounts were previously paid in connection with the sale of the
Company's psychiatric operations. Mr. Conte's employment agreement provides
that he may terminate his employment at any time within one year after a
change of control or corporate reorganization of the Company or immediately
upon a hostile takeover of the Company. For six years following the
termination of his employment, Mr. Conte will be reimbursed for premiums on a
$5,000,000 life insurance policy, will continue to be covered under the
Company's employee benefit programs and will continue to receive income tax
preparation services. Mr. Conte will also receive title to the automobile
provided for his use by the Company. In addition, the Company will pay Mr.
Conte for any excise taxes resulting from payments made to him in connection
with the change of control, corporate reorganization or hostile takeover of
the Company being deemed parachute payments under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). Mr. Conte will make himself
available as a consultant to the Company for ten years following his
termination of employment, during which time Mr. Conte will be entitled to use
his present office as well as secretarial and administrative services of the
Company.
The employment agreements for Ms. Simpson, Messrs. Laughlin and Ooley and
Ms. Kopta provide that upon a change of control of the Company (as such term
is defined in such employment agreements) each would be entitled to receive a
lump sum payment equal to the sum of: (i) two times his or her salary; (ii)
the maximum bonus he or she could have received under the Company's annual
incentive compensation plan for the fiscal year in which the change of control
occurs; (iii) the maximum incentive bonus he or she could have received for
each three-year plan cycle under the Company's long-term incentive
compensation plan (provided that amounts payable for any three-year plan cycle
will be prorated to the extent the change of control occurs less than halfway
through such plan cycle); and (iv) an amount equal to his or her car allowance
payable for two years following the change of control. Also certain loans made
to them by the Company will be forgiven as described in "Loans to Management"
below. The Company will also pay each of them for any excise taxes resulting
from payments made to them in connection with the change of control of the
Company being deemed parachute payments under Section 280G of the Code. The
present salaries of Ms. Simpson and Mr. Laughlin are $500,000 and $400,000,
respectively. The Company and Mr. Ooley and Ms. Kopta have agreed that the
foregoing payments will be calculated as if their annual salaries were
$300,000. Ms. Simpson, Messrs. Laughlin and Ooley and Ms. Kopta will receive
payments of approximately $2,433,000, $1,914,000, $1,594,000 and $1,394,000,
upon
2
<PAGE>
consummation of the Offer and the Select Merger, respectively, and will have
approximately $293,000, $757,000, $511,000 and $291,000 of indebtedness,
respectively, forgiven pursuant to their respective employment agreements upon
a change of control of the Company (assuming such change of control occurs on
June 30, 1997). In addition, in 1996, in accordance with the terms of their
employment agreements the Board approved interim payments to Ms. Simpson, Mr.
Laughlin and Ms. Kopta of $200,000 each in connection with the sale of the
Company's psychiatric operations. Each of the agreements provides that they
may terminate their employment at any time after six months and prior to one
year following a change of control of the Company. Upon a change of control
the Company will place into escrow an additional amount equal to one year's
salary for each person. Such amount will be released to each person at the
earlier of six months following the change of control and the date on which
such person is released from his or her employment with the Company. If any of
them terminate their employment, they will continue to be covered under the
Company's employee benefit programs for two years following their termination
of employment and will receive certain outplacement services. Each of them
will make themselves available as a consultant for five years following their
termination of employment, during which time they will be entitled to use
their present office as well as secretarial and administrative services of the
Company.
Stock Options. The employment agreements for each of Ms. Simpson, Messrs.
Laughlin and Ooley and Ms. Kopta provide that all stock options will vest
immediately prior to the consummation of the Offer. Ms. Simpson, Messrs.
Laughlin, Ooley and Ms. Kopta have 329,205, 151,000, 138,475 and 174,373
options, respectively, which will vest as a result of the Offer, including
26,023, 90,000, 47,475 and 37,373 options, respectively, which have an
exercise price above $16.00 per share. All options held by Mr. Conte are fully
vested. Vencor has indicated that if the conditions to the Offer are satisfied
and Shares are purchased pursuant thereto, Vencor plans to acquire any
remaining Shares pursuant to a merger between the Company and the Purchaser.
If such merger is consummated following consummation of the Offer, it is
expected that the holders of options would receive a payment for each option
in an amount equal to the difference between $16.00 and the exercise price of
the option. If such merger is consummated, Mr. Conte, Ms. Simpson, Messrs.
Laughlin and Ooley and Ms. Kopta would receive approximately $4,657,000,
$2,642,000, $1,748,000, $1,327,000 and $1,162,000, respectively, for their
options (including options which are vested) as a result of such Vencor
merger. If the Select Merger is consummated, each of the options will be
amended to provide that upon exercise thereof the holders will be entitled to
receive the difference between $14.55 and the exercise price of such option.
Pursuant to the Select Merger Mr. Conte, Ms. Simpson, Messrs. Laughlin and
Ooley and Ms. Kopta would receive approximately $3,298,000, $1,955,000,
$1,393,000, $892,000 and $800,000, respectively, for their options (including
options which are vested).
The Company's 1989 Stock Incentive Plan provides that each non-employee
director will receive options to purchase 5,000 shares on each January 26 for
a purchase price equal to the fair market value of the Shares on the date of
the grant. Such options are fully vested and exercisable. Each option includes
a limited stock appreciation right (an "SAR") which is exercisable only in the
event of a change of control of the Company. The consummation of the Offer or
the Select Merger would each constitute a change of control. Upon a change in
control, the non-employee director is entitled to surrender the option and SAR
in exchange for a payment equal to the difference between the fair market
value of the Shares less the exercise price of the option. Nigel Petrie also
received options to purchase 2,500 Shares in connection with services provided
to the Company as an independent director of the Company's former U.K.
subsidiary. If the Select Merger is consummated, Carol Burt, Nigel Petrie,
Dana Shires, Robert Thomas and Ralph Watts will receive approximately $23,000,
$34,000, $75,000, $70,000 and $23,000, respectively, pursuant to their options
and SARs. If the Offer is consummated, Ms. Burt, Mr. Petrie, Dr. Shires, and
Messrs. Thomas and Watts will receive approximately $30,000, $45,000,
$111,000, $99,000 and $30,000, respectively, pursuant to their options and
SARs. Dr. Jack H. Lindheimer received options to purchase Shares for services
rendered to the Company in his former position as Corporate Medical Director
and/or Medical Director of one of the Company's hospitals. Dr. Lindheimer will
receive approximately $327,000 if the Select Merger is consummated and
approximately $451,000 if the Vencor merger is consummated following the
Offer.
3
<PAGE>
Loans to Management. In 1995 the Company loaned $300,000 to each of Messrs.
Conte and Laughlin, Ms. Simpson and Ms. Kopta to enable these executive
officers to acquire residences in close proximity to their principal business
offices. The Company also loaned $296,000 to Mr. Ooley for the same purpose.
The loans bear interest at an annual rate of 5% and are secured by the
residences. The loans are payable in monthly installments of principal and
interest based on a 30-year amortization. The loans become immediately due and
payable ninety days after termination of employment. These loans will be
forgiven upon consummation of the Offer (as well as upon consummation of the
Select Merger) pursuant to the terms of such employees' employment agreements.
In 1995 the Company granted Special Recognition Awards to Messrs. Conte,
Laughlin and Ooley for their significant efforts on behalf of the shareholders
to develop the Company's transitional hospitals line of business. Because the
Board also wanted to incentivize these persons to remain with the Company,
this award was made in the form of a non-recourse, interest free loan due 36
months following the date of the award. Messrs. Conte, Laughlin and Ooley were
loaned $1,000,000, $1,000,000 and $750,000, respectively. One thirty-sixth of
the loan amount is forgiven each month, provided that such person does not
voluntarily terminate his employment with the Company during the term of the
loan. Upon any such voluntary termination, the remaining balance of the loan
will become due and payable. In the case of an involuntary termination, change
of control, disability or pursuant to the provisions of any applicable
employment agreement permitting such person to terminate his employment for
cause, the remaining balance of the loan will be forgiven. These loans will be
forgiven upon consummation of the Offer (as well as upon consummation of the
Select Merger) pursuant to the terms of such loans.
BHC Services Agreement. Behavioral Healthcare Corporation, a Delaware
corporation ("BHC") of which the Company owns a significant portion of the
equity, the Company and Mr. Conte are parties to a Services Agreement pursuant
to which Mr. Conte serves as Chairman of the Board of BHC, and also directs
its Puerto Rico operations, through November 30, 2000. The Services Agreement
provides that for so long as Mr. Conte is employed by the Company. BHC will
pay the Company $200,000 per year for making Mr. Conte's services available to
BHC. At such time as Mr. Conte is no longer employed by the Company, BHC will
pay such amounts to Mr. Conte. The parties have agreed in principal (and the
Boards of Directors of BHC and the Company have approved) to an amendment to
the Services Agreement whereby if there is a change of control of BHC, BHC
would pay to the Company, or to Mr. Conte if he is no longer employed by the
Company in his current positions or if the Board of Directors of the Company
otherwise agrees, all amounts which would have been paid by BHC under the
Services Agreement from the date of the change of control of BHC through
November 30, 2000. The amendment would also provide that if Mr. Conte's
employment with the Company terminates subsequent to a change of control of
BHC, Mr. Conte would be entitled to receive a payment from the Company in an
amount equal to the portion of the payment made to the Company by BHC which is
attributable to periods commencing after the termination of Mr. Conte's
employment.
Select Merger Agreement. The Select Merger Agreement provides certain other
benefits to the executive officers and directors of the Company, including
provisions relating to indemnification and maintenance of officers' and
directors' insurance. See "Item 8. Additional Information to Be Furnished--
Select Merger Agreement." In connection with negotiations with Vencor
regarding the Offer as described in "Item 7. Certain Negotiations and
Transactions by the Subject Company," the parties have discussed provisions
relating to indemnification and maintenance of officers' and directors'
insurance which are substantially similar to those contained in the Select
Merger Agreement.
Other. The Company has certain limited operations and projects in
development outside the United States, including in the United Kingdom, Panama
and Antigua. Both Vencor and Select have indicated to the Company that they
are not interested in continuing such operations or projects in development
and have suggested that Mr. Conte and/or employees of the Company should make
a proposal to acquire such operations and projects in development. Select has
also indicated that if the Select Merger is consummated it may invite Mr.
Conte to serve on its board of directors for a period of time following the
Select Merger to aid in the transition. Mr. Conte has volunteered to Vencor to
serve on its Board of Directors for a transitional period if Vencor should so
desire.
4
<PAGE>
Except as set forth in this Item 3 or in Item 8 below, there are no material
contracts, agreements, arrangements or understandings or any actual or
potential conflicts of interest between the Company or its affiliates and (i)
the Company's executive officers, directors or affiliates or (ii) Vencor, the
Purchaser, executive officers or directors of Vencor or the Purchaser or
affiliates of Vencor or the Purchaser.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a)-(b) The Board remains committed to maximizing shareholder value.
Although the price being offered pursuant to the Offer is significantly above
the consideration payable pursuant to the Select Merger Agreement, there are
certain uncertainties and contingencies associated with the Offer which are
beyond the Company's control and which could result in the termination of the
Offer. For example, the Offer is conditioned upon there not being threatened,
instituted or pending any action, litigation, proceeding, investigation or
other application seeking to prohibit or impose any material limitations on
the Purchaser's or Vencor's ownership or operation of all or any portion of
their or the Company's business or assets or to compel Vencor or the Purchaser
to dispose of or hold separate all or any portion of Vencor's or the
Purchaser's or the Company's business or assets as a result of the
transactions contemplated by the Offer. Select has informed the Company that
it believes the Offer raises significant issues under antitrust laws, which
could result in some or all of the foregoing effects. The Company is reviewing
these issues. Select has also advised the Company that it has presented its
views regarding the Offer to certain Federal and state agencies and such
agencies are reviewing the issues raised by Select. The Company has retained
two law firms having antitrust expertise to assist the Board in evaluating
such issues. The Offer is also conditioned upon, among other things, (i) no
person (or group of persons) becoming the beneficial owner of more than 5% of
the Shares, other than acquisitions for bona fide arbitrage purposes, (ii) no
person (or group of persons) who, prior to May 7, 1997, was the beneficial
owner of more than 5% of the Shares having acquired or proposed to acquire an
additional 1% of the Shares, other than acquisitions for bona fide arbitrage
purposes, and (iii) there not being any pending litigation which could have a
material adverse effect on the Company, Vencor or the Purchaser. There is no
assurance that all the conditions to the Offer will be satisfied.
If the Board were to recommend the Offer at this time, then under the
provisions of the Select Merger Agreement, Select would have the immediate
right to terminate the Select Merger Agreement and receive a payment of
$19,415,000 from the Company. (With respect to litigation challenging such
payment, see "Item 8. Additional Information to Be Furnished--Vencor, et. al.
v. Transitional Hospitals Corporation, et. al.") In the event Select elected
to terminate the Select Merger Agreement, and if the Offer were not
consummated as a result of the failure of conditions thereto to be satisfied,
then the Company's stockholders would no longer have the right to receive the
$14.55 per Share consideration payable pursuant to the Select Merger
Agreement, which the Board and its financial advisors believe is an attractive
price for the Company, and the Company (subject to the litigation described in
"Item 8. Additional Information to Be Furnished--Vencor, et. al. v.
Transitional Hospitals Corporation, et. al.") would have been required to pay
Select the $19,415,000 termination fee.
Since the Board and its financial advisors believe that the consideration
payable pursuant to the Select Merger Agreement is an attractive price for the
Company, the Board does not believe it would be prudent to take a position
with respect to the Offer which could result in the termination of the Select
Merger Agreement unless and until the uncertainties and contingencies
associated with the Offer have been resolved to the Board's satisfaction. The
Company has commenced discussions with Vencor regarding the Offer, and Vencor
has expressed a willingness to cooperate with the Company to resolve the
uncertainties and contingencies associated with the Offer. There can be no
assurance that all uncertainties and contingencies associated with the Offer
will be resolved to the Board's satisfaction.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
In March 1997 the Company retained jointly Dean Witter Reynolds Inc. and
Morgan Stanley & Co. Incorporated (collectively, the "Financial Advisors") to
act as financial advisors to the Company in connection with possible
transactions or series or combinations of transactions whereby, directly or
indirectly, control of, or a material interest, in the securities, assets or
business of the Company or any of its affiliates would be transferred
5
<PAGE>
(a "Transaction"). The Financial Advisors will, upon request of the Board,
render an opinion (a "Fairness Opinion") to the Board as to the fairness from
a financial point of view to the Company of the consideration to be received
in connection with any such Transaction. The Financial Advisors have not
rendered a Fairness Opinion as to the consideration to be paid by the
Purchaser in the Offer. The Company has paid the Financial Advisors a non-
refundable retainer of $250,000. The Company will pay the Financial Advisors
an additional fee of $500,000 upon delivery of a Fairness Opinion. In
addition, upon consummation of any Transaction the Company will pay the
Financial Advisors a fee equal to the greater of (x) $1,500,000 or (y) an
amount equal to a percentage of the value of the Transaction. The Financial
Advisors would receive a fee of approximately $4.1 million in connection with
the Offer and a fee of approximately $3.7 million in connection with the
Select Merger (including the retainer and any amounts paid for a Fairness
Opinion). The Company also agreed to reimburse the Financial Advisors for
their out-of-pocket expenses, not to exceed $100,000 without the prior written
approval of the Company, and to indemnify the Financial Advisors and certain
related parties against certain liabilities, including liabilities under the
federal securities laws.
In the event an indication of interest is made public, or threatened to be
made public, regarding the Company which has not been agreed to by the Board,
appropriate retainer and advisory fees are to be negotiated in good faith.
The Company has also retained Cronus Partners, Inc. ("Cronus") to serve as a
financial advisor in connection with a possible sale of all or substantially
all of the Shares. The Company paid Cronus a non-refundable retainer of
$250,000. The Company has agreed to pay Cronus an additional $1,250,000 upon
consummation of a sale of all or substantially all of the Shares, subject to
certain conditions established by the Board. The Company also agreed to
reimburse Cronus for its out-of-pocket expenses, not to exceed $50,000 without
the prior written approval of the Company, and to indemnify Cronus and certain
related parties against certain liabilities, including liabilities under the
federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to the stockholders of the Company with respect to the
Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) During the past 60 days, neither the Company nor any subsidiary of the
Company, nor to the best of the Company's knowledge, any executive officer,
director or affiliate of the Company, has effected a transaction in the
Shares.
(b) To the Company's knowledge, none of its executive officers, directors,
affiliates or subsidiaries has determined, with respect to any Shares held of
record or beneficially owned by such persons, whether they intend to tender to
the Purchaser, sell or hold such Shares.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a)-(b) In February 1997, Vencor proposed to purchase all the outstanding
Shares for $11.50 per Share. Thereafter, the Company had discussions with
numerous parties who expressed an interest in acquiring all or a portion of
the Company.
On April 1, 1997 Vencor proposed to pay $13.00 per Share in cash. Vencor
indicated, however, that it had no strategic interest in BHC and its offer was
contingent upon the value a third party would be willing to pay for the
Company's BHC stock.
On April 26, 1997, the Board held a meeting to consider proposals by Vencor,
Select and a third party. Both Vencor and Select offered the Company two
possible structures. Select offered to acquire all the outstanding Shares for
either (i) $13.15 per share in cash or (ii) $13.00 per Share in cash, with the
Company's shareholders
6
<PAGE>
having the right to receive up to an additional $.30 per Share depending on
the value received from the liquidation of the Company's investment in BHC,
such liquidation to be controlled by the Company. Vencor offered to acquire
all Shares in a transaction in which shareholders would receive either (i)
$10.68 per share in cash and an interest in a liquidating trust which would be
formed to dispose of the Company's investment in BHC or (ii) $13.00 per share
in cash and up to an additional $.50 per share in cash depending on the value
received by Vencor from the liquidation of the Company's investment in BHC,
such liquidation to be controlled by Vencor. A third party submitted a written
proposal for a transaction similar to a leveraged recapitalization of the
Company which included a 20% stub equity left in the public market place.
After discussions and deliberations which included advice from the Board's
outside financial advisors that the $13.15 cash per Share offer best suited
the interests of the shareholders, the Board voted (with Mr. Conte and
Ms. Simpson abstaining) to authorize management to negotiate an agreement with
Select based on its proposal to acquire the Company for $13.15 cash per Share.
Among the reasons for the Board's decision was that the $13.15 per Share cash
offer removed the uncertainty regarding the timing and price at which the
Company's investment in BHC would be liquidated and the attendant illiquidity
and discount which might affect the contingent payment rights. The Board
determined that under any of the other proposals the BHC investment would have
to be disposed of at a pre-tax price that the Board's outside financial
advisors indicated would need to be at the upper end of the market value of
BHC in order for shareholders to ultimately receive $13.15.
On April 27, 1997, Vencor proposed to acquire the Company for $14.25 per
Share in cash. On April 28, 1997, the Board held a meeting to consider
Vencor's proposal. After discussions and deliberations which included advice
from the Board's outside financial advisors, the Board voted (with Mr. Conte
and Ms. Simpson abstaining) to authorize management to negotiate an agreement
with Vencor based on its proposal. Representatives of Vencor arrived at the
Company's executive office on April 30, 1997 to conduct additional due
diligence.
On May 1, 1997 the Company received a telephone call from Select inquiring
as to the possibility of meeting with representatives of the Company before
its May 2nd Board meeting. On May 2, 1997, after receiving confirmation that
representatives of Select were coming to the Company's office to present a new
and improved bid, the Company immediately informed a Vencor senior officer,
who was conducting due diligence at the Company's headquarters, of these
developments and encouraged Vencor's senior officer to make Vencor's highest
and best offer prior to the Company's Board meeting. While the Company was
meeting with representatives of Select, Vencor responded by delivering a
letter to the Company approximately 20 minutes before the Board meeting which
stated that "nothing has come to Vencor's attention that would cause it to
change the price of $14.25 per share of THY which Vencor offered to pay in its
proposal." Coincident with the scheduled start time of the Board meeting,
Select presented a new offer of $14.55 per Share, waived further due diligence
and agreed to immediately sign a merger agreement as prepared by the Company.
Select indicated that the $14.55 per Share offer would be withdrawn if a
merger agreement was not signed immediately after the Board meeting. The Board
and its advisors, deliberated and discussed the respective offers and voted to
accept Select's higher offer of $14.55 per Share (with Mr. Conte and Mr.
Simpson abstaining). The Board considered, among other things, the oral
opinion of the Financial Advisors that $14.55 was fair from a financial point
of view to the Company's shareholders. Pursuant to the Board's direction,
management immediately executed the agreement. Approximately one hour after
the Board had adjourned and shortly after the Select representatives had left,
Vencor submitted a letter increasing its price to $15.00 per Share and orally
agreed to the same conditions as those agreed to by Select and reaffirmed
certain other commitments made in connection with its $14.25 per Share
proposal. The Company responded that it would schedule a Board meeting for May
4th and present this new proposal to the Board upon the receipt of a formal
written offer incorporating the oral representations made by the Vencor senior
officer.
Not having received the formal written proposal as expected, the Company
cancelled its May 4th Board meeting. On May 7th Vencor commenced the Offer.
On May 8, 1997 the Board determined that its fiduciary duties to
shareholders required that the Company discuss with Vencor the terms of its
Offer and authorized management to have discussions with representatives of
Vencor to explore whether the parties could enter into a merger agreement.
Such discussions are continuing.
7
<PAGE>
Except for approval of the Select Merger Agreement (as described in Item 8)
by the Board and the terms and conditions thereof or as set forth in this Item
7, no negotiation is being undertaken or is underway by the Company in
response to the Offer which relates to or would result in:
(1) An extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(2) A purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(3) A tender offer for or other acquisition of securities by or of the
Company; or
(4) Any material change in the present capitalization or dividend policy
of the Company.
On May 15, 1997, in accordance with the terms of the Rights Agreement dated
as of June 21, 1996 (the "Rights Agreement"), between the Company and
ChaseMellon Shareholder Services, L.L.C., the Board determined to extend the
Distribution Date (as defined in the Rights Agreement) until the earlier of
(i) the date on which an Acquiring Person (as defined in the Rights Agreement)
becomes such and (ii) June 3, 1997. For a summary of the Rights Agreement, see
"Item 8. Additional Information to Be Furnished--Rights Agreement." On May 15,
1997 the Board also approved the content and filing of this Schedule 14D-9 as
well as the contents of a letter to be sent to stockholders (the "Stockholder
Letter") and a press release (the "Press Release"), each dated May 19, 1997,
describing the position of the Board set forth herein. Copies of the
Stockholder Letter and the Press Release are filed as Exhibits (1) and (2),
respectively, hereto and are incorporated herein by reference.
Except as set forth in this Item 7, the Company has not entered into any
transaction, board resolution, agreement in principle or signed contract in
response to the Offer which relates to or would result in one or more of the
enumerated matters referred to in Item 7(1), (2), (3) or (4) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Select Merger Agreement. On May 2, 1997 the Company, Select and SM
Acquisition entered into the Select Merger Agreement. A copy of the Select
Merger Agreement is filed as Exhibit (3) hereto and incorporated herein by
reference. Select is a newly-formed entity owned by investment partnerships
affiliated with Welsh, Carson, Anderson & Stowe ("WCA&S"), Golder, Thoma,
Cressey, Rauner ("GTCR"), Ferrer Freeman Thompson & Co., Inc. ("FFT") and
certain individuals. WCA&S, GTCR and FFT have committed to provide Select with
an aggregate of $565 million of financing in connection with the Merger
Agreement (the "Stockholder Commitments"). Pursuant to the Select Merger
Agreement, SM Acquisition will be merged with and into the Company, with the
Company as the surviving corporation. At the effective time of the Select
Merger (the "Effective Time"), each Share, other than Shares held in the
treasury of the Company or by Select or any subsidiary of the Company or
Select, will be converted into the right to receive $14.55 in cash. At the
Effective Time all outstanding options or other rights to purchase Shares
("Options") will immediately vest and become fully exercisable. At the
Effective Time each Option with an exercise price of $14.54 or less (a "Lower
Priced Option") will be amended to provide that the holders need not tender
any exercise price therefor and that upon exercise the holder will receive an
amount of cash equal to $14.55 minus the exercise price of the Lower Priced
Option. All other Options will be converted into a right to receive upon
exercise of such Options $14.55 in cash. The Company, after consultation with
Select, may adopt a severance plan providing for aggregate payments of up to
$2 million for administrative and non-contractual corporate personnel of the
Company terminated without cause within one year after the Effective Time. The
Company may also establish additional severance plans for officers of the
Company which provide for cash payments of an aggregate amount equal to the
difference, if any, between $18 million and the cash severance obligations
payable to executive officers of the Company as a result of the transactions
contemplated by the Select Merger Agreement. Under the Select Merger
Agreement, the Company has the right to amend employee benefit arrangements to
provide for the effectuation thereof simultaneously with the Effective Time.
8
<PAGE>
The Select Merger Agreement provides that until its termination the Company
and its subsidiaries will not, and will cause their respective officers,
directors, employees or other agents (including, without limitation,
investment bankers, attorneys or accountants) not to, directly or indirectly,
(i) take any action to solicit, initiate, encourage, enter into any agreement
or otherwise facilitate any offer or proposal for, or any indication of
interest in, a merger or other business combination involving the Company or
the acquisition of any equity interest in, or a substantial portion of the
assets of the Company, other than the transactions contemplated by the Select
Merger Agreement and other than the sale of the hospital in Kirkland,
Washington and the sale of real estate and buildings relating to hospitals
formerly operated by the Company or a subsidiary (an "Acquisition Proposal"),
or (ii) engage in or continue discussions or negotiations with, or disclose
any nonpublic information relating to the Company or its subsidiaries,
respectively, or afford access to their respective properties, books or
records to, any person that may be considering making, or has made, an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. Notwithstanding the foregoing, nothing in
the Select Merger Agreement prohibits the Company and the Board from (i)
taking and disclosing a position with respect to a tender offer by a third
party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the Commission under
the Securities Exchange Act of 1934, as amended, or (ii) furnishing
information to, or entering into negotiations with, any person or entity that
makes an unsolicited bona fide proposal to acquire the Company pursuant to a
merger, consolidation, share exchange, purchase of a substantial portion of
the assets, business combination or other similar transaction, if, and only to
the extent that, (i) the Board determines in good faith upon advice of counsel
that such action is required for the Board to comply with its fiduciary duties
to shareholders imposed by law, and (ii) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
the Company provides written notice to Select to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
such person or entity, and the Company keeps Select informed of the status and
principal financial terms of any such negotiations or discussions.
For a period of ten years from and after the Effective Time, Select and the
Company will indemnify, and advance expenses in matters that may be subject to
indemnification to, persons who served as directors, officers, employees or
agents of the Company or any entity in which Select directly or indirectly
held equity securities on or before the Effective Time with respect to
liabilities and claims (and related expenses) made against them resulting from
their service as such prior to the Effective Time with and subject to the
requirements and other provisions of the Company's Articles of Incorporation,
by-laws and indemnification agreements in effect on the date of the Select
Merger Agreement and applicable provisions of law. Select must cause to be
maintained in effect for a period ending not sooner than the sixth anniversary
of the Effective Time directors' and officers' liability insurance providing
at least the same coverage with respect to the Company's directors and
officers as the policies maintained on behalf of directors and officers of the
Company as of the date of the Select Merger Agreement, and containing terms
and conditions which are no less advantageous, with respect to matters
occurring on or prior to the Effective Time (to the extent such insurance is
available with respect to such matters); provided, that Select will not be
required to spend to maintain or procure insurance coverage an amount per
annum in excess of 200% of the current annual premiums with respect to such
insurance, or, if the cost of such coverage exceeds such amount, the maximum
amount of coverage that can be purchased or maintained for such amount. Select
will reimburse all expenses, including attorneys' fees, incurred by any person
to enforce the indemnification obligations of Select described in this
paragraph.
The Select Merger Agreement may be terminated at any time before the
Effective Time by either Select or the Company, either before or after the
approval of the shareholders of Company has been obtained, as authorized by
the respective Board of Directors of Select or the Company, in the following
events: (a) by mutual written consent of the parties; (b) by either Select or
the Company if the Merger has not been consummated on or before November 30,
1997, (c) by either Select or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission has issued
an order, decree or ruling or taken any other action (which order, decree or
ruling the parties will use their commercially reasonable efforts to lift)
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Select Merger Agreement, and such order, decree, ruling or
other action has become final and nonappealable; (d) by Select or
9
<PAGE>
the Company if the other is in material breach of its obligations under the
Select Merger Agreement; (e) by the Company if WCA&S, GTCR or FFT is in
material breach of its respective obligations under the Stockholder
Commitments; (f) by Select if the Board (1) withdraws or modifies (or publicly
announces an intention to withdraw or modify) in any adverse manner its
approval or recommendation of the Select Merger Agreement or the transactions
contemplated thereby, (2) approves or recommends any Acquisition Proposal,
other than by Select or an affiliate thereof, or (3) resolves to take any of
the actions specified in clause (1) or (2) above; (g) by either Select or the
Company if the required approval of the shareholders of the Company is not
obtained at a duly held meeting of the shareholders of the Company; (h) by the
Company, if, as a result of an Acquisition Proposal received by the Company
from a person other than Select or any of its affiliates, the Board determines
in good faith that the members' fiduciary obligations under applicable law
require that such Acquisition Proposal be accepted; provided, however, that
(1) the Board must have determined in good faith, after considering applicable
provisions of state law and after giving effect to all concessions, if any,
which have been offered by Select pursuant to clause (2) below, on the basis
of oral or written advice of outside counsel, that such action is required by
the members' fiduciary obligations under applicable law, and (2) prior to any
such termination, the Company has, and has caused its respective financial and
legal advisors to, negotiate with Select to make such adjustments in the terms
and conditions of the Select Merger Agreement as would enable the Company to
proceed with the transactions contemplated thereby; (i) by Select if the Board
fails to both hold a meeting of shareholders and recommend consummation of the
transactions contemplated by the Select Merger Agreement as a result of the
exercise of the Board's fiduciary duty.
If the Select Merger Agreement is terminated by Select (1) pursuant to
clause (f) of the preceding paragraph, (2) as a result of the Company's
material breach of its covenants with respect to Acquisition Proposals, as
described above, (3) pursuant to clause (i) of the preceding paragraph, (4)
pursuant to clause (d) of the preceding paragraph, or (5) pursuant to clause
(h) of the preceding paragraph (the Select Merger Agreement states if such
termination is effected by Select; Select believes if such termination is
effected by the Company), or in the event the Company consummates an
Acquisition Proposal on terms more favorable than the Select Merger, which
proposal was first made to the Company prior to its shareholder meeting to
consider the Select Merger Agreement, then the Company will pay to Select a
termination fee of $19,415,000. For a summary of certain litigation
challenging the termination fee, see "Item 8. Additional Information to Be
Furnished--Vencor, et al. v. Transitional Hospitals Corporation, et al."
Vencor, et. al. v. Transitional Hospitals Corporation, et. al. (CV-S-97-
00565). On May 7, 1997, Vencor, Jill L. Force and Patrick W. Mattingly filed a
complaint in the United States District Court of Nevada against the Company,
each of the directors of the Company and SM Acquisition. A copy of the
Complaint is filed as Exhibit (4) hereto and incorporated herein by reference.
The Complaint seeks, among other things, (i) injunctive relief requiring the
Board to redeem the Rights and to make inapplicable to the Offer and any
subsequent merger the Nevada Control Share Acquisition Statute and the Nevada
Business Combination Statute, (ii) injunctive relief to invalidate the
provisions of the Select Merger Agreement providing for the break up fee of
$19,415,000; and (iii) damages against the Company's directors for breaching
their fiduciary duties in connection with the negotiations and execution of
the Select Merger Agreement. The Company believes that the allegations in the
complaint are without merit. For a summary of the Nevada Business Combination
Statute and the Nevada Business Combination Statute, see "Item 8. Additional
Information to Be Furnished--Nevada Control Share Acquisition Statute" and
"Item 8. Additional Information to Be Furnished--Nevada Business Combination
Statute." The Offer provides that if the obligation of the Company to pay the
$19,415,000 to Select is reduced or eliminated prior to the expiration date of
the Offer, then Vencor will increase the aggregate amount to be paid pursuant
to the Offer and the cash-out of the Company's options by two-thirds of any
such reduction.
Rights Agreement. A copy of the Rights Agreement is filed as Exhibit (5)
hereto and incorporated herein by reference. On June 21, 1996, the Company
declared a dividend of one Right on each outstanding Share, payable to
stockholders of record on July 16, 1996. Each Right will entitle the holder
thereof, after the Rights become exercisable and until June 20, 2006 (or the
earlier redemption, exchange or termination of the Rights), to buy one-
hundredth of a share of Series B Junior Participating Preferred Stock (the
"Preferred Stock") at an exercise price of $45.00, subject to certain anti-
dilution adjustments (the "Purchase Price"). The Rights will be
10
<PAGE>
represented by the Share certificates and will not be exercisable or
transferrable apart from the Shares until the earlier of (i) the tenth day
after the public announcement that a Person (as defined in the Rights
Agreement) or group has become an Acquiring Person (a Person who has acquired,
or obtained the right to acquire, beneficial ownership of 15% or more of the
Shares) or (ii) the tenth day after a Person or group commences, or announces
an intention to commence, a tender or exchange offer, the consummation of
which would result in the beneficial ownership by a Person or group of 15% or
more of the Shares (the earlier of (i) and (ii) being called herein the
"Distribution Date"). Prior to the Distribution Date, the Board has the power
under certain circumstances, to postpone the Distribution Date. The Board has
postponed the Distribution Date until the earlier of (i) the date on which an
Acquiring Person becomes such and (ii) June 3, 1997. Separate certificates
representing the Rights will be mailed to holders of the Shares as of the
Distribution Date. The Rights will first become exercisable on the
Distribution Date, unless earlier redeemed or exchanged, and may then begin
trading separate from the Shares. The Rights will at no time have any voting
rights.
In the event that a Person were to become an Acquiring Person (except
pursuant to certain cash offers for all outstanding Shares approved by the
Board) or if the Company were the surviving corporation in a merger and its
Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the Acquiring Person
(which Rights will thereafter be void), will thereafter have the right to
receive upon exercise that number of Shares having a market value of two times
the then-current exercise price of one Right. With certain exceptions, in the
event that (i) the Company were acquired in a merger or other business
combination transaction in which the Company is not the surviving corporation
or its Shares are changed or exchanged (other than a merger which follows
certain cash offers for all outstanding Shares approved by the Board) or (ii)
more than 50% of the Company's assets or earning power were sold, proper
provision shall be made so that each holder of a Right (except Rights which
previously have been voided as set forth above) would thereafter have the
right to receive, upon exercise thereof, that number of shares of common stock
of the acquiring company which at the time of such transaction would have a
market value of two times the then-current exercise price of one Right.
At any time after a Person has become an Acquiring Person and prior to the
acquisition of 50% or more of the then-outstanding Shares by such Acquiring
Person, the Board may cause the Company to acquire the Rights (other than
Rights owned by an Acquiring Person which have become void), in whole or in
part, in exchange for that number of Shares having an aggregate value equal to
the excess of the value of the Shares issuable upon exercise of a Right after
a Person becomes an Acquiring Person over the Purchase Price.
The Rights are redeemable at $0.01 per Right prior to the first date of
public announcement that a Person or group has become an Acquiring Person.
Prior to the expiration of the period during which the Rights may be redeemed,
the Company Board has the power, under certain circumstances, to extend the
redemption period. The Rights will expire on June 20, 2006 (unless earlier
redeemed or exchanged). ChaseMellon Shareholder Services, L.L.C. is the Rights
Agent. Under certain circumstances set forth in the Rights Agreement, the
decision to redeem or to lengthen or shorten the redemption period requires
the concurrence of a majority of the Continuing Directors (as defined in the
Rights Agreement).
The Purchase Price payable, and the number of shares of Preferred Stock or
other securities or property issuable upon exercise of the Rights, are subject
to adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on or a subdivision, combination or reclassification of the
Preferred Stock, (ii) upon the grant to holder of the Preferred Stock of
certain rights or warrants to subscribe for or purchase the Preferred Stock or
convertible securities at less than the current market price of the Preferred
Stock, or (iii) upon the distribution to holders of the Preferred Stock of
evidences of indebtedness, cash, securities or assets (excluding regular
periodic cash dividends at a rate not in excess of 125% of the last regular
periodic cash dividend theretofore paid or, in case regular periodic dividends
have not theretofore been paid, at a rate not in excess of 50% of the average
net income per share of the Company for the four quarters ended immediately
prior to the payment of such dividend, or dividends payable in the Preferred
Stock) or of subscription rights or warrants (other than those referred to
above). No adjustments in the Purchase Price will be required until cumulative
adjustments require an adjustment of at least 1% in such Purchase Price.
11
<PAGE>
Nevada Control Share Acquisition Statute. In general, Sections 78.378 to
78.379 of the Nevada Revised Statutes ("NRS") provide that, an "acquiring
person," who acquires a "controlling interest" in an "issuing corporation,"
may not exercise voting rights on any "control shares" unless such voting
rights are conferred by a majority vote of the disinterested shareholders of
the issuing corporation at an annual or special meeting of such shareholders.
In the event that the control shares are accorded full voting rights and the
acquiring person acquires control shares with a majority or more of all the
voting power, any shareholder, other than the acquiring person, who does not
vote in favor of authorizing voting rights for the control shares, is entitled
to demand payment for the fair value of such shareholder's shares, and the
corporation must comply with the demand within 30 days after its delivery. For
purposes of the provisions under this subsection, "acquiring person" means any
person who, individually or in association with others, acquires or offers to
acquire, directly or indirectly, the ownership of outstanding voting shares of
an issuing corporation sufficient to enable the acquiring person, individually
or in association with others, directly or indirectly, to exercise (i) one-
fifth or more but less than one-third, (ii) one-third or more but less than a
majority, and/or (iii) a majority or more, of all the voting power of the
issuing corporation in the election of directors. Voting rights must be
conferred by a majority of the outstanding voting shares of disinterested
shareholders as each threshold is reached and/or exceeded.
For purposes of the provisions described above, "control shares" means those
outstanding voting shares of an issuing corporation which an acquiring person
acquires or offers to acquire in an acquisition and acquires within 90 days
immediately preceding the date when the acquiring person became an acquiring
person. "Issuing corporation" means a corporation that is organized in Nevada
has 200 or more shareholders (at least 100 of whom are shareholders of record
and residents of Nevada) and does business in Nevada directly or through an
affiliated corporation.
The above provisions do not apply if the articles of incorporation or bylaws
of the corporation in effect on the tenth day following the acquisition of a
controlling interest by an acquiring person provide that said provisions do
not apply. The Articles and the bylaws currently do not provide that the
restrictions imposed by such provisions do not apply to the Company.
Nevada Business Combination Statute. In general, Sections 78.411 to 78.444
of the NRS restrict the ability of a "resident domestic corporation" to engage
in any combination with an "interested stockholder" for three years following
the date the interested stockholder became such, unless the combination or the
purchase of shares by the interested stockholder on the date the interested
stockholder acquired the shares that caused such stockholder to become an
interested stockholder is approved by the board of directors of the resident
domestic corporation before that date.
If the combination was not previously approved, the interested stockholder
may effect a combination after the three-year period only if such combination
meets all of the requirements of the articles of incorporation of the resident
domestic corporation and such stockholder receives approval from a majority of
the outstanding voting shares of disinterested stockholders or the offer meets
certain fair price criteria.
For purposes of the above provisions, "resident domestic corporation" means
a Nevada corporation having 200 or more stockholders. "Interested stockholder"
means any persons, other than the resident domestic corporation or its
subsidiaries, who is (i) the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the outstanding voting shares of the resident
domestic corporation, or (ii) an affiliate or associate of the resident
domestic corporation and, at any time within three years immediately before
the date in question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding shares of the resident
domestic corporation. The above provisions do not apply to corporations that
so elect in their original articles of incorporation or in a charter amendment
approved by a majority of the outstanding voting shares of disinterested
stockholders. Such a charter amendment, however, would not become effective
until 18 months after its passage and could apply only to stock acquisitions
occurring after its date. The Company's Articles of Incorporation do not
exclude the Company from the restrictions imposed by such provisions.
Nevada Fiduciary Duty Statute. Section 78.138 of the NRS provides that
directors and officers of a corporation must exercise their powers in good
faith and with a view to the interests of the corporation. In
12
<PAGE>
exercising their respective powers with a view to the interests of the
corporation, directors and officers may consider (i) the interests of the
corporation's employees, suppliers, creditors and customers; (ii) the economy
of the state and nation; (iii) the interests of the community and of society;
and (iv) the long-term as well as short-term interests of the corporation and
its stockholders, including the possibility that such interests might be best
served by the continued independence of the corporation. The directors may
resist a change in control of the corporation if the directors by a majority
vote of a quorum determine that the change in control is not in the best
interests of the corporation upon consideration of the interests of the
corporation's stockholders and any of the matters described above.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
99.1 Letter dated May 19, 1997 from the Company to its stockholders.
99.2 Press Release of the Company dated May 19, 1997.
99.3 Agreement and Plan of Merger, dated as of May 2, 1997, among Select, SM
Acquisition and the Company (filed as Exhibit 99.1 to the Company's Form
8-K dated May 2, 1997 and incorporated herein by reference).
99.4 Complaint in Vencor, et al. v. Transitional Hospitals Corporation, et
al. (CV-S-97-00565).
99.5 Rights Agreement dated as of June 21, 1996 between the Company and
ChaseMellon Shareholder Services LLC (filed as Exhibit 99.1 to the
Company's Form 8-A filed with the Commission on July 10, 1996 and
incorporated herein by Reference).
99.6 Employment Contract dated as of December 1, 1995 between Richard Conte
and the Company (filed as Exhibit 10.2.1 to the Company's Form 10-K for
the fiscal year ended November 30, 1995 and incorporated herein by
reference).
99.7 Employment Contract Amendment No. 1 dated April 3, 1997 between the
Company and Richard Conte.
99.8 Employment Contract dated as of June 6, 1996 between Wendy Simpson and
the Company (filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended November 30, 1996 and incorporated herein by
reference).
99.9 Employment Contract Amendment No. 1 dated as of April 3, 1997 between
the Company and Wendy Simpson.
99.10 Employment Contract dated as of June 6, 1996 between James Laughlin and
the Company (filed as Exhibit 10.9 to the Company's Form 10-K for the
fiscal year ended November 30, 1996 and incorporated herein by
reference).
99.11 Employment Contract Amendment No. 1 dated as of April 3, 1997 between
the Company and James Laughlin.
99.12 Employment Contract dated as of June 6, 1996 between Ronald Ooley and
the Company (filed as Exhibit 10.8 to the Company's Form 10-K for the
fiscal year ended November 30, 1996 and incorporated herein by
reference).
99.13 Employment Contract Amendment No. 1 dated April 3, 1997 between the
Company and Ronald Ooley.
99.14 Employment Contract dated as of June 6, 1996 between Julia Kopta and the
Company (filed as Exhibit 10.6 to the Company's Form 10-K for the fiscal
year ended November 30, 1996 and incorporated herein by reference).
99.15 Employment Contract Amendment No. 1 dated as of April 3, 1997 between
the Company and Julia Kopta.
99.16 1989 Stock Incentive Plan (filed as Exhibit A to the Company's Proxy
Statement dated July 12, 1989 and incorporated herein by reference).
</TABLE>
13
<PAGE>
SIGNATURE
After reasonable inquiry and the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Date: May 19, 1997 TRANSITIONAL HOSPITALS CORPORATION,
a Nevada corporation
By: RICHARD L. CONTE
----------------------------------
Name: Richard L. Conte
Title: Chairman, Chief Executive
Officer and President
14
<PAGE>
EXHIBIT 99.1
[LOGO OF TRANSITIONAL HOSPITALS CORPORATION]
[LETTERHEAD OF TRANSITIONAL HOSPITALS CORPORATION]
May 19, 1997
Dear Transitional Hospitals Corporation Shareholder:
As you may be aware, on May 2, 1997, Transitional Hospitals
Corporation entered into a merger agreement with Select Medical
Corporation, pursuant to which our shareholders would receive $14.55
per share in cash from Select. On May 7, 1997, Vencor, Inc. announced
a $16.00 per share cash tender offer for all the outstanding shares of
our stock.
Although the price per share currently being offered by Vencor is
significantly greater than the consideration shareholders would
receive in the merger with Select, there are certain uncertainties and
contingencies associated with Vencor's offer, including potential
anti-trust considerations and issues relating to the payment of a
termination fee to Select, that are beyond the control of the Company
and could result in the termination of the offer.
According to the terms of the merger agreement with Select, if the
Board were to recommend that shareholders accept Vencor's offer,
Select would have the immediate right to terminate its merger
agreement with the Company and receive payment of a $19,415,000
termination fee from the Company. Vencor has commenced litigation
seeking to invalidate this fee.
Because of the uncertainties surrounding the Vencor offer, the Board
and its advisors do not believe it would be prudent at this time to
take a position with respect to Vencor's offer which could result in
the termination of the merger agreement with Select, until the various
issues associated with Vencor's offer have been resolved to the
Board's satisfaction. In essence, the Board is taking steps to
preserve our agreement with Select, while we are simultaneously
exploring the possibility of consummating a transaction with Vencor at
a higher price.
Since February 24, 1997, when we received Vencor's first written
indication of interest in purchasing the Company at $11.50 per share,
management, the Board and their advisors have worked diligently and
have had discussions with over ten companies in order to achieve the
greatest possible returns for our shareholders. The Board is committed
to exploring all options and to obtaining the highest value for our
shareholders. To that end, we have commenced discussions with Vencor
regarding its offer, and Vencor has expressed a willingness to
cooperate with the Company to resolve the uncertainties and
contingencies, although there can be no assurances that these issues
will be resolved in a timely fashion.
Accompanying this letter is a copy of the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, which we urge
you to review carefully.
We will keep you advised of future developments, and we thank you
for your continued support.
Very truly yours,
<TABLE>
<S> <C>
Richard L. Conte Wendy L. Simpson
Chairman and Chief Chief Operating Officer and Chief Financial Officer
Executive Officer
</TABLE>
<PAGE>
EXHIBIT 99.2
TRANSITIONAL HOSPITALS CORPORATION RESPONDS
TO VENCOR'S TENDER OFFER;
POSTPONES DISTRIBUTION DATE UNDER RIGHTS AGREEMENT
LAS VEGAS, NEVADA -- MAY 19, 1997 -- TRANSITIONAL HOSPITALS CORPORATION
(NYSE: THY) today announced that its Board of Directors has determined that it
would not be prudent at this time to take a position with respect to Vencor's
tender offer which could result in the termination of the merger agreement with
Select Medical Corporation. In making its decision the Board noted that it was
taking steps to preserve the agreement with Select, while simultaneously
exploring the possibility of consummating a transaction with Vencor at a higher
price.
In a letter to shareholders, Richard Conte, the Company's Chairman and
Chief Executive Officer, explained that while the $16.00 price per share
currently being offered by Vencor is significantly greater than the
consideration shareholders would receive in the merger with Select, there are
uncertainties and contingencies associated with Vencor's offer, including
potential anti-trust considerations and issues relating to the payment of a
termination fee to Select, that are beyond the control of the Company and could
result in the termination of the offer.
Mr. Conte said that according to the terms of the merger agreement with
Select, if the Board were to recommend that shareholders accept Vencor's offer,
Select would have the immediate right to terminate its merger agreement with the
Company and receive payment of a $19,415,000 termination fee from the Company.
Vencor has commenced litigation seeking to invalidate this fee.
Mr. Conte said, "Since February 24, 1997, when we received Vencor's first
written indication of interest in purchasing the Company at $11.50 per share,
management, the Board and their advisors have worked diligently and have had
discussions with over ten companies in order to achieve the greatest possible
returns for our shareholders. The Board is committed to exploring all options
and to obtaining the highest value for our shareholders."
Mr. Conte added, "To that end, we have commenced discussions with Vencor
regarding its offer, and Vencor has expressed a willingness to cooperate with
the Company to resolve the uncertainties and contingencies, although there can
be no assurances that these issues will be resolved in a timely fashion."
The Company also announced that the Board has voted to postpone the
"distribution date" under its Stockholder Rights Plan until the earlier of
either June 3, 1997 or the date an acquiring person (as defined in the
Stockholders Rights Plan) acquires 15% of the outstanding common stock.
Pursuant to the Stockholder Rights Plan, following the distribution date,
stockholders have the right to purchase 1/100th of a share of Series B Junior
Participating Preferred Stock for $45.00. The Stockholder Rights Plan further
provides that if Vencor were to acquire 15% of the outstanding common stock,
stockholders, other than Vencor, would have the right to purchase common stock
having a value of $90.00 for $45.00. Without the Board's action, the rights
would have become exercisable on May 17, 1997 as a result of Vencor's tender
offer. Vencor's tender offer expires on June 4, 1997.
# # #
<PAGE>
EXHIBIT 99.4
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
SULLIVAN & CROMWELL
ROBERT A. SACKS
444 South Flower Street
Los Angeles, California 90071-2901
(213) 955-8000
SULLIVAN & CROMWELL
THOMAS R. LEUBA
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20015
(202) 956-7500
Attorneys for Plaintiffs,
VENCOR, INC., JILL L. FORCE
and PATRICK W. MATTINGLY
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
CASE NO.
VENCOR, INC., JILL L. FORCE,
and PATRICK W. MATTINGLY
Plaintiffs,
CV-S-97-00565-LDG (RLH)
-vs-
TRANSITIONAL HOSPITALS CORPORATION,
RICHARD L. CONTE, DANA L. SHIRES,
M.D., ROBERT L. THOMAS, JACK H.
LINDHEIMER, M.D., NIGEL PETRIE,
RALPH J. WATTS, WENDY L. SIMPSON,
CAROL J. BURT and SM ACQUISITION CO.,
Defendants.
COMPLAINT FOR INJUNCTIVE, DECLARATORY, AND MONETARY RELIEF
----------------------------------------------------------
Plaintiffs Vencor, Inc. ("Vencor"), Jill L. Force, and Patrick W.
Mattingly (collectively "Plaintiffs"), by their attorneys, allege upon knowledge
with respect to themselves and their own acts, and upon information and belief
as to all other matters, as follows:
<PAGE>
NATURE OF THE ACTION
--------------------
1. Vencor has today commenced a cash tender offer to purchase all
of the outstanding stock of defendent Transitional Hospitals Corp.
("Transitional") at $16 per share (the "Offer" or "Vencor Offer"). As explained
below, Vencor has been treated unfairly and discriminated against by
Transitional and its board of directors in a process that culminated on May 2,
1997 when Transitional entered into a merger agreement with Select Medical
Corporation ("Select") and SM Acquisition Co. (the "Select Agreement") on terms
less favorable to Transitional and its stockholders than the terms
simultaneously being offered by Vencor. In addition to binding Transitional to
a merger agreement that provides Transitional's stockholders with less
consideration per share than Vencor was then offering and is currently offering
to pay in the Offer, the members of Transitional's board effectively wasted
millions of dollars of stockholder's money by, in a clear breach of their
fiduciary duties, agreeing to pay Select a $19.415 million break-up fee under
circumstances where they knew that Vencor was prepared to top Select's offer and
pay more to acquire Transitional. Select, which was Transitional's favored
bidder and the beneficiary of this largesse on the part of Transitional's board,
is being financed by various venture capital firms which have an existing
relationship with Transitional.
2. Plaintiffs bring this action against Transitional, the members
of Transitional's board of directors (the "Board" or the "Individual
Defenders"), and SM Acquisition Co. ("SM") for injunctive, declaratory and
monetary relief to prevent defendants from interfering with the ability of
Transitional's stockholders to realize the substantial benefits of Vencor's
Offer. Specifically, Plaintiffs seek (a) injunctive and declaratory relief (i)
declaring that the Individual Defendants have breached their fiduciary duties,
(ii) requiring Transitional to dismantle its takeover defenses, including its
"poison pill" and its reliance on the Nevada anti-takeover statutes, that would
preclude consummation of the Offer, and (iii) declaring the break-up fee
-2-
<PAGE>
provision of the Select Agreement to be invalid and unenforceable, and (o) to
the extent the break-up fee is not invalidated, damages from the Individual
Defendants for wasting Transitional's assets in breach of their fiduciary
duties.
PARTIES
-------
3. Plaintiff Vencor is a Delaware corporation with its principal
executive officers located at 3300 Providian Center, 400 West Market Street,
Louisville, Kentucky 40202. Vencor is one of the nation's largest providers of
healthcare services primarily focusing on the needs of the elderly.
4. Plaintiff Jill L. Force ("Force"), a resident of Kentucky, is
Senior Vice President and General Counsel of Vencor. Force, together with her
husband Patrick W. Mattingly, also a resident of Kentucky, owns 243 shares of
Transitional common stock, which they have owned since the late 1970s.
5. Defendant Transitional Hospitals Corp. is a Nevada corporation
with its principal executive offices at 5110 W. Sahara Avenue, Las Vegas, Nevada
89102.
6. Defendant Richard L. Conte has been a director of Transitional
since 1991. Conte currently serves as Chairman and Chief Executive Officer of
Transitional and is a resident of a state other than Kentucky or Delaware.
7. Defendant Dana L. Shires, M.D., has been a director of
Transitional since 1989. Shires is a physician in private practice and is a
resident of a state other than Kentucky or Delaware.
8. Defendant Robert L. Thomas has been a director of Transitional
since 1993. Thomas is retired and is a resident of a state other than Kentucky
or Delaware.
9. Defendant Jack H. Lindheimer, M.D., has been a director of
Transitional since 1983. Lindheimer currently serves as Corporate Medical
Director of U.S. Psychiatric Services and is a resident of a state other than
Kentucky or Delaware.
-3-
<PAGE>
10. Defendant Nigel Petrie has been a director of Transitional since
1995. Petrie currently serves as Managing Director of Edison Mission Energy and
is a resident of a state other than Kentucky or Delaware.
11. Defendant Ralph J. Watts has been a director of Transitional
since 1996. Watts is President and Chief Executive Officer of Cardiovascular
Ventures, Inc. and is a resident of a state other than Kentucky or Delaware.
12. Defendant Wendy L. Simpson has been a director of Transitional
since 1995. Simpson currently serves as Chief Operating Officer of Transitional
and is a resident of a state other than Kentucky or Delaware.
13. Defendant Carol J. Burt has been a director of Transitional
since 1996. Burt is currently Senior Vice President of Finance and Treasurer of
American Medical Response and is a resident of a state other than Kentucky or
Delaware.
14. Defendant SM Acquisition Co. is a Nevada corporation that was
formed on May 1, 1997 for purpose of carrying out an acquisition of transition.
It is a wholly-owned subsidiary of Select and is a party to the Select
Agreement.
JURISDICTION AND VENUE
----------------------
15. This Court has jurisdiction over this action pursuant to 28
U.S.C. (S) 1332(a) and 2201. The amount in controversy is in excess of
$75,000.
16. Venue is proper in this District under 28 U.S.C. (S) 1391(a)
and (c).
FACTUAL BACKGROUND
------------------
I. Unfair Treatment of Vencor
--------------------------
17. A representative of Vencor first contracted Transitional during
the fall of 1996 to inquire whether Transitional might be interested in selling
its hospital business to Vencor. Following that contact on October 28, 1996,
Vencor signed, at Transitional's request, a confidentiality agreement (the
"Confidentiality Agreement") in connection with what it understood would be the
good faith consideration by Transitional of a potential transaction with
-4-
<PAGE>
Vencor. The Confidentiality Agreement contained, among other things, various
restrictions of Vencor's use of information it obtained and on its acquisition
of Transitional shares.
18. Notwithstanding its agreement to provide Vencor with access to
business and financial information from which Vencor would be able to evaluate a
potential transaction, Transitional initially provided Vencor with little, if
any, meaningful information. In early 1997, Vencor expressed its
dissatisfaction with Transitional's failure to provide it with information, as a
result of which Transitional permitted Vencor to conduct a limited due diligence
investigation.
19. While that process was ongoing, Vencor was informed that several
other potential bidders might have an interest in acquiring Transitional and
would be visiting its headquarters to conduct due diligence. Vencor was also
advised by Transitional that the highest bidder would be able to conduct a more
thorough due diligence review price to the execution of a definitive agreement.
20. In late April 1997, Vencor submitted three alternative proposals
to Transitional. The first proposal involved Vencor's acquisition of all the
outstanding shares of Transitional (the "Shares") in a tender offer at a price
that excluded consideration for Transitional's investment in Behavioral Health
Corporation (the "Psych Business"), and contemplated that the Psych Business
would be put in a liquidating trust and sold by Transitional with the proceeds
going to existing Transitional stockholders. The second proposal contemplated
that Vencor would purchase Transitional, including the Psych Business, based on
certain contingencies. In a third alternative proposal, Vencor offered to pay
$14.25 in cash per Share pursuant to a tender offer to acquire all of
Transitional's outstanding shares. None of Vencor's three proposals was subject
to any financing contingency.
21. On April 28, 1997, Transitional informed Vencor that it had
submitted the highest bid and that Transitional wanted Vencor to conduct a more
detailed due diligence review and be in a position to enter into a definitive
merger agreement within one week. Vencor confirmed to Transitional that it
could meet this time frame and promptly commenced detailed due diligence.
-5-
<PAGE>
It also prepared to participate in what it had been led to believe would be the
good faith negotiation of a definitive merger agreement.
22. Beginning on Thursday, April 30, 1997, Vencor conducted detailed
due diligence at Transitional's headquarters in Las Vegas. On the evening of
May 1, 1997, Transitional informed Vencor that it had tentatively scheduled a
meeting of the Transitional Board for the upcoming Saturday or Sunday with the
expectation that its Board would approve the merger agreement to be finalized
between Vencor and Transitional.
23. Much to Vencor's surprise, on the morning of Friday, May 2,
1997, Transitional's Chairman and CEO, Richard L. Conte, reveled to Vencor that
he would be meeting that day with Russ Carson, who is a principal of the primary
investment firm which is providing equity and debt financing to Select, and that
a special Board meeting had been scheduled for 1:00 p.m. that same day. Conte,
who already benefits from an existing business relationship involving Carson and
his firm, claimed that he had not arranged to meet with Carson, but that Carson
had called from an airplane and said he would be at Transitional's headquarters
at noon that day. In that same conversation with Vencor, Conte also claimed
that he did not know what Carson wanted to discuss, but speculated that Carson
might want to submit a new bid for Transitional.
24. At the same time as Conte revealed that a meeting of the
Transitional Board had been scheduled for 1:00 p.m. that same day to discuss the
status of the auction for Transitional, he asked whether Vencor would be willing
to pay more. He nonetheless assured Vencor that Transitional did not have
another deal, and that Vencor should continue its ongoing, final extended due
diligence review. The Vencor representative with whom Conte spoke indicated that
he needed to speak to Vencor's CEO, but left open the possibility that Vencor
might increase its $14.25 per share offer if appropriate. Conte informed the
Vencor representative that he would get back to him to report on the results of
his meeting with Carson prior to the scheduled Transitional Board meeting.
///
-6-
<PAGE>
25. Pending his discussion with Vencor's CEO and prior to the
Transitional Board meeting on May 2, the Vencor representative delivered a
letter to Conte reaffirming that Vencor had substantially completed its due
diligence review, had not encountered any reason to reduce the $14.25 in cash
per Share it had offered to pay to acquire Transitional, and would be prepared
to negotiate and execute a definitive merger agreement by the evening of Sunday,
May 4, 1997.
26. Later on May 2, 1997, Vencor became aware that Transitional was
engaged in some sort of a negotiation with Carson, who had arrived at
Transitional's headquarters with his legal advisors. Vencor expressed immediate
concern as to the fairness of the process being conducted by Transitional, and
at the same time made it clear that Vencor was prepared to participate in any
further bidding process.
27. Shortly after 2:00 p.m. that afternoon, Vencor was informed that
Select had offered to acquire Transitional at a price of $14.55 per Share.
Immediately thereafter, Vencor verbally informed Conte that Vencor was prepared
to increase its offer and within 30 minutes submitted a written offer to acquire
Transitional for $15.00 per Share in cash, with no financing contingency, and to
commence negotiations in order to execute a definitive merger agreement as soon
as possible.
28. Notwithstanding Vencor's offer, just minutes later Conte informed
Vencor that the Transitional Board had approved a merger agreement with Select
at a price $14.55 per share--$.45 per Share less than Vencor's then existing
offer. Vencor was also informed that not only did the Transitional Board accept
a lower price from Select than Vencor had offered to pay to Transitional
stockholders in an all-cash offer, but that Transitional had also agreed to pay
Select a "break-up" fee, which subsequent disclosure of the Select Agreement has
revealed exceeds $19.4 million.
29. Having been treated unfairly and discriminated against by the
Transitional Board, on May 7, 1997, Vencor commenced the Offer directly to
Transitional's stockholders at a price of $16 per share.
-7-
<PAGE>
II. TRANSITIONAL'S POISON PILL
--------------------------
30. Transitional has in place an arrangement -- commonly known as a
Poison Pill -- that effectively allows Transitional's Board unilaterally to
block acquisitions by third parties, even those, such as the Vencor Offer, that
are non-coercive and provide substantial benefits to Transitional stockholders.
Unless the rights issued pursuant to the Poison Pill (the "Rights") are redeemed
or the Poison Pill is declared inapplicable to the Offer, Vencor will be
precluded from proceeding with the Offer and be deprived of the opportunity to
acquire Transitional even though it is offering to pay all cash and has made the
highest offer for the Shares. At the same time, Transitional stockholders will
be denied the opportunity to receive the $1.45 per Share additional
consideration being offered to them by Vencor.
31. On June 21, 1996, Transitional declared a dividend of one Right
with respect to each outstanding Share payable to stockholders of record on July
16, 1996. Each Right entitles the holder to purchase one one-hundredth of a
share of Series B Junior Participating Preferred Stock at an exercise price of
$45.00, subject to adjustment. In the event that a person becomes the
beneficial owner of 15% or more of the outstanding shares of Transitional common
stock (except pursuant to certain cash offers approved by the Transitional
Board), proper provision will be made so that each holder of a Right, other than
Rights beneficially owned by the acquiring person, will thereafter have the
right to receive upon exercise that number of common stock having a market value
of two times the then-current exercise price of one Right. Further, in the event
that, at any time following such acquisition of 15% or more of the outstanding
Transition common stock, Transitional is acquired in a merger or other business
combination transaction or 50% or more of its assets or earning power are sold,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon exercise thereof, that number of shares of
common stock of the acquiring company which at the time of such transaction
would have the a market value of two times the then-current exercise price of
one Right. The Rights are redeemable at $0.01 per Right prior to the first date
of public announcement that a person or
-8-
<PAGE>
group has become an acquiring person, and Transitional has the power, under
certain circumstances, to extend the redemption period.
32. The effect of Transitional's Poison Pill is preclude any offer
to acquire Transitional's Shares-including an all-cash offer at the highest
price being offered, such as Vencor's Offer-unless the Transitional Board
redeems the rights or otherwise renders the Poison Pill inapplicable to the
offer. In connection with the Select Agreement, the Transitional Board agreed to
take all steps necessary to ensure that the Select merger would not trigger the
Poison Pill. However, the Transitional Board has not redeemed the Rights to
permit the Vencor Offer to proceed.
III. Transitional's Statutory Anti-Takeover Defense
----------------------------------------------
33. Transitional is also subject to the anti-takeover protections of
Nevada Rev. Statutes section (S)(S) 78 378 et seq. (the "Control Share
------
Acquisition Statute") and Nevada Rev. Statutes 78.411 et seq. (the "Business
------
Combination Statute").
34. Under the Control Share Acquisition Statute, a third-party like
Vencor which acquires a "controlling interest" in the shares of Transitional
cannot vote those shares unless: (a) such voting rights are conferred by a
majority vote of the disinterested shareholders of the corporation; or (b) the
Transitional Board adopts a by-law or amends the corporation's charter opting
out of the coverage of the Statute, something that the Transitional Board has
not done with respect to Vencor.
35. Under the Business Combination Statute, a third-party like
Vencor which acquires 10% or more of the voting power of Transitional's stock
cannot engage in a business combination with Transitional for three years unless
the acquisition of the shares or the business combination is approved by the
Transitional Board in advance. Application of this provision to Vencor's Offer,
which is neither coercive nor inadequate, would delay the acquisition of
Transitional by Vencor for at least three years and, as a practical matter,
prevent the Vencor Offer altogether.
-9-
<PAGE>
36. In the Select Agreement, Transitional has undertaken to render
the Control Share Acquisition Statute and the Business Combination Statute
inapplicable to the $14.55 per share transaction between Select and Transitional
contemplated by the Select Agreement. However, the Transitional Board has not
exempted the Vencor Offer from the application of those sections. There is
simply no legitimate reason for the Transitional Board to apply either of these
anti-takeover devices to obstruct the Vencor Offer, which is non-coercive and
non-discriminatory, offers Transitional stockholders a substantial premium for
their shares, provides superior value over the Select merger and poses no threat
to the interests of Transitional stockholders or Transitional, which has been
put up for sale by the Board.
DECLARATORY RELIEF
------------------
37. The Court may grant the declaratory relief sought herein
pursuant to 28 U.S.C. (S) 2201. Transitional has failed to create a level
playing field by favoring Select to the exclusion of Vencor and by entering into
the Select Agreement at a time when it knew that Vencor was prepared to and had
actually offered to pay a higher price for the Shares in cash without any
financing contingency. Moreover, Transitional has been unwilling to redeem the
Rights or to amend the Poison Pill to make it inapplicable to the Vencor Offer,
or to approve the Vencor Offer for purposes of the Nevada anti-takeover
provisions, even though it has done so in connection with the less-advantageous
Select Agreement.
38. Such actions (or inactions) of Transitional and its Board
demonstrate that share is a substantial controversy among the parties. The
refusal by the Transitional Board to redeem Transitional's Poison Pill and to
take steps to render the Control Share Acquisition Statute and the Business
Combination Statute inapplicable to the Vencor Offer will interfere with and
preclude that Offer from proceeding.
IRREPARABLE INJURY
------------------
39. The unlawful actions of Transitional in discriminatorily
shopping itself without creating a level playing field and agreeing to the
Select merger will irreparably harm Vencor by
-10-
<PAGE>
depriving it of the unique opportunity to acquire Transitional. The
unwillingness of Transitional to redeem the Rights, to amend the Poison Pill to
make it inapplicable to the Vencor Offer and to approve the Offer for purposes
of the Nevada anti-takeover provisions will prevent Vencor from proceeding with
its Offer. Vencor's resulting injury will not be compensable by money damages,
and it has no adequate remedy at law.
FIRST CLAIM FOR RELIEF
----------------------
(Declaratory and Injunctive Relief: The Poison Pill and Anti-Takeover
Statutes)
40. Plaintiffs repeat and realledge each of the allegations set
forth in paragraphs 1 through 39 as if fully set forth herein.
41. The Individual Defendants stand in a fiduciary relationship with
plaintiffs Force and Mattingly in their capacity as a Transitional shareholder.
As fiduciaries, the Individual Defendants owe Force and Mattingly the highest
duties of care, loyalty and good faith.
42. The Vencor Offer is non-coercive and non-discriminatory, it is
fair to Transitional stockholders and poses no threat to Transitional's
corporate policy and effectiveness; and it exceeds the market price of
Transitional common stock and the value of the Select merger.
43. Refusal by the Transitional Board to (i) redeem the Rights or to
amend the Poison Pill to make it inapplicable to the Vencor Offer and (ii)
approve the Offer for purposes of the Control Share Acquisition Statute and the
Business Combination Statute is not proportionate to any threat posed by, or
within the range of reasonable responses to, the Vencor Offer. Vencor will be
precluded from consummating the Offer by virtue of this conduct.
44. Plaintiffs seek (i) a declaration that Transitional's failure
to redeem the Rights, or to otherwise amend the Poison Pill to make it
inapplicable to the Vencor Offer and to approve the Offer for purposes of the
Nevada anti-takeover provisions is a breach of the Individual Defendants'
fiduciary duties and (ii) an injunction compelling Transitional and the
Individual
-11-
<PAGE>
Defendants to redeem the Rights or to otherwise amend the Poison Pill to make it
inapplicable to the Vencor Offer and to approve the Offer for purposes of the
Control Share Acquisition Statute and the Business Combination Statute.
45. Plaintiffs have no adequate remedy at law.
SECOND CLAIM FOR RELIEF
-----------------------
(Declaratory and Injunctive Relief: Breach of Fiduciary Duty
and Discriminatory Treatment of Competing Bidders)
46. Plaintiffs repeat and reallege each of the allegations set forth
in paragraphs 1 through 45 as if fully set forth herein.
47. The Individual Defendants made a decision to put Transitional up
for sale. Even ignoring that express decision, the actions of Transitional,
including, but not limited to, encouraging prospective bidders to make
acquisition proposals for Transitional, and sharing confidential Transitional
information with potential bidders in order to encourage them to make such
proposals, constitute a determination to sell Transitional.
48. Having determined to put Transitional up for sale, Transitional
has discriminatorily favored other potential bidders over Vencor. Indeed, the
decision by the Individual Defendants to cause Transitional to enter into the
Select Agreement in the face of a higher, all-cash offer from Vencor is
inexplicable, cannot be based upon any legitimate business reason and
constitutes a clear violation of the Individual Defendants' fiduciary duties,
including their duty to secure the best value reasonably available to the
corporation's shareholders.
49. In furtherance of its efforts to preclude Vencor from allowing
the stockholders of Transitional to consider the Vencor Offer, the Transitional
Board agreed to pay Select a $19.4 million break-up fee in the event
Transitional were to receive and accept a higher offer. Given that Vencor had
already made an all-cash offer to purchase the Transitional Shares at a price
above the $14.55 per share offered by Select, this provision was gratuitous and
almost certain to be implicated. In the context of the foregoing events, the
sole function of this break-up
-12-
<PAGE>
fee provision is to take more than $19.4 million out of the pockets of
Transitional's stockholders and shift it to the pockets of Select and its
financial backers.
50. Indeed, notwithstanding that the break-up fee is payable by
Transitional in the event of a higher bid and without any breach of the Select
Agreement, the break-up fee is described in the Select Agreement as "liquidated
damages" and further described as not being a penalty. In fact, the
break-up fee does not constitute damages at all given the circumstances of its
payment; any actual expenses incurred by Select would be capable of precise
calculation and could not legitimately be the basis of what is undeniably a
"punitive" clause if measured on the basis of actual damages, and the fee cannot
be justified on the basis that it was needed to induce Select to commit to a
merger proposal given that a higher offer was already avialable to Transitional.
51. The inclusion of the break-up fee in the Select Agreement serves
no legitimate purpose, constitutes a breach of the Individual Defendants'
fiduciary duties, and violates public policy. The break-up fee provision of the
Select Agreement is invalid as a manner of law and is unenforceable.
52. Plaintiffs seek (i) a declaration that the actions taken by the
Individual Defendants to tilt the playing field against Vencor, including but
not limited to, entering in the Select Agreement, are unlawfully discriminatory
and constitute breaches of fiduciary duty, (ii) an injunction compelling
Transitional and the Individual Defendants to create a level playing field,
treating Vencor and all prospective bidders for the acquisition of Transitional
equally and fairly, and (iii) an injunction prohibiting enforcement of the
break-up fee in the Select Agreement.
53. Defendant SM is added as a Defendant on this claim because it is
a party to the Select Agreement through which the merger is to be consummated
and is a wholly-owned subsidiary of Select.
54. Plaintiffs have no adequate remedy at law.
///
-13-
<PAGE>
THIRD CLAIM FOR RELIEF
----------------------
(Monetary Damages: Waste of Corporate Assets)
55. Plaintiffs repeat and reallege each of the allegations set forth
in paragraphs 1 through 54 as if fully set forth herein.
56. Plaintiffs Force and Mattingly bring this claim individually and
derivatively on behalf of Transitional.
57. Under the foregoing circumstances, the break-up fee included in
the Select Agreement is a waste of Transitional's assets. No reasonable
director exercising his or her ordinary sound business judgment would have
agreed to pay a multi-million dollar break-up fee for a transaction that was
less favorable to another simultaneously being offered and, at the same time,
would short-circuit a competitive bidding process. The Individual Defendants,
who authorized and approved the Select Agreement, are liable for that waste to
the extent Transitional is obligated to pay the break-up fee.
58. Plaintiffs have not made any efforts to have Transitional's
directors pursue this claim on Transitional's behalf because the Individual
Defendants constitute all of those directors and all of them were involved in
and themselves liable for the unlawful conduct being alleged. The Individual
Defendants were not disinterested and independent due to their relationships
with Select and its financial backers. The actions by Transitional were not the
results of a valid exercise of business judgment in light of the Individual
Defendants' disparate treatment of Select and Vencor in the bidding process and
their preexisting relationship with Select and its backers.
59. There is no collusion between Plaintiffs and defendants for
purposes of seeking federal jurisdiction.
WHEREFORE, Plaintiffs respectfully request that this Court enter an
Order:
(1) Declaring that the Individual Defendants have breached their
fiduciary duties;
(2) Declaring that the failure of the Individual Defendants to
redeem the Rights or to otherwise amend the Poison Pill to make it inapplicable
to the Vencor Offer and to approve the
-14-
<PAGE>
Offer for purposes of the Nevada anti-takeover provisions is a breach of their
fiduciary duties;
(3) Directing Transitional and the Individual Defendants to redeem
the Rights or otherwise to amend the Poison Pill to make it inapplicable to the
Vencor Offer and to approve the offer for purposes of the Nevada anti-takeover
provisions;
(4) Declaring the break-up fee provision of the Select Agreement to
be unenforceable and enjoining its enforcement;
(5) To the extent the break-up fee is payable, awarding monetary
damages, payable by the Individual Defendants, in the amount of any break-up fee
which Transitional is required to pay pursuant to the Select Agreement;
(6) Awarding Plaintiffs their costs and expenses in this action,
including reasonable attorneys' fees; and
(7) Granting such other and further relief as the Court deems just
and proper.
DATED: May 7, 1997.
SCHRECK MORRIS
/s/ STEVE MORRIS
By: ----------------------
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
ROBERT A. SACKS
SULLIVAN & CROMWELL
444 South Flower Street
Los Angeles, California 90071-2901
THOMAS R. LEUBA
SULLIVAN & CROMWELL
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20015
Attorneys for Plaintiffs,
VENCOR, INC., JILL L. FORCE and
PATRICK W. MATTINGLY
-15-
<PAGE>
VERIFICATION
I, Jill L. Force, declare under penalty of perjury of the laws of the
United States that I have read the foregoing Complaint and believe it to be true
to the best of my knowledge, information and belief.
Dated: May 6, 1997
/s/ Jill L. Force
-----------------
Jill L. Force
<PAGE>
SCHRECK MORRIS
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
(702) 474-9400
SULLIVAN & CROMWELL
ROBERT A. SACKS
444 South Flower Street
Los Angeles, California 90071-2901
(213) 955-8000
SULLIVAN & CROMWELL
THOMAS R. LEUBA
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20015
(202) 956-7500
Attorneys for Plaintiffs,
VENCOR, INC., JILL L. FORCE
and PATRICK W. MATTINGLY
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
CASE NO.
VENCOR, INC., JILL L. FORCE
and PATRICK W. MATTINGLY,
Plaintiffs,
CV-S-97-00565-LDG (RLH)
-vs-
TRANSITIONAL HOSPITALS CORPORATION,
RICHARD L. CONTE, DANA L. SHIRES,
M.D., ROBERT L. THOMAS, JACK H.
LINDHEIMER, M.D., NIGEL PETRIE,
RALPH J. WATTS, WENDY L. SIMPSON,
CAROL J. BURT and SM ACQUISITION CO.,
Defendants.
CERTIFICATE REQUIRED BY LOCAL BY LOCAL RULE 10-6
------------------------------------------------
The undersigned, counsel of record for Plaintiffs, VENCOR, INC., JILL L.
FORCE, PATRICK W. MATTINGLY, certify that there are no known interested parties
other than those participating in the case.
<PAGE>
These representations are made to enable the judges of this Court to
evaluate refusal and not for any other purpose. They do not constitute an
admission or waiver of any kind.
DATED: May 7, 1997.
SCHRECK MORRIS
/s/ STEVE MORRIS
By: ----------------------
STEVE MORRIS
KRISTINA PICKERING
1200 Bank of America Plaza
300 South Fourth Street
Las Vegas, Nevada 89101
ROBERT A. SACKS
SULLIVAN & CROMWELL
444 South Flower Street
Los Angeles, California 90071-2901
THOMAS R. LEUBA
SULLIVAN & CROMWELL
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20015
Attorneys for Plaintiffs,
VENCOR, INC., JILL L. FORCE and
PATRICK W. MATTINGLY
-2-
<PAGE>
EXHIBIT 99.7
Employment Contract
Amendment No. 1
The Employment Contract ("Contract") entered into as of December 1, 1995
(the "Effective Date") by and between Community Psychiatric Centers (now known
as Transitional Hospitals Corporation and hereafter referred to as "THC"), and
Richard L. Conte, an individual ("Conte") is amended as set forth below. The
effective date of this Amendment No. 1 is the date of execution by an authorized
agent of THC
1. Notwithstanding anything to the contrary contained in the
Employment Contract, in the event of a Contract Payout Event as defined in
Article One, Sections 1.5, 1.13 or 1.19 of the Contract, which sections are
further referred to in Section 1.11, the Contract Benefits as defined in
Section 1.10 shall become immediately due and payable in a lump sum at the time
of the Contract Payout Event, except the Employee Continuation Benefits set
forth in subsection (vi), which Continuation Benefits shall be payable according
to the terms set forth in (vi).
2. Notwithstanding anything to the contrary contained in Article
One ("Definitions") Section 1.10 (iv), the special founder recognition award
("Award") is to be forgiven pursuant to the terms of the Agreement and
Promissory Note, separately executed by Conte at the time of the Award.
3. Article One ("Definitions") Section 1.10(v).
Delete: "plus nine percent (or the percentage applicable to
Conte's salary under the deferred compensation plan then
in effect, whichever is greater) of the Salary Contract
Benefit."
Add: "plus nine and one-half percent (9.5%) of the Total Cash
Compensation paid to Conte. Total Cash Compensation is
defined as all cash compensation received, including
salary; all bonus plans; special recognition payments,
including payable in cash or in the form of loan
forgiveness; interim payouts pursuant to this Employment
Contract; and, the appreciated value of stock options."
Article Two ("Duties") Section 2.3.6.
Delete: "CPC's deferred compensation plan existing on the
Effective Date of this Contract provides for deferred
compensation equivalent to nine percent of the Salary."
4. Nothing contained in Article One ("Definitions"), Section 1.24
("Present Value") is to infer, or in any matter result in an interpretation that
the payment of Contract Benefits as defined in Section 1.10 is to be valued or
calculated at "Present Value."
5. Article Three, Section 3.1.3 ("Non competition Covenant").
Delete: "or any shire within the United Kingdom..."
<PAGE>
6. Article Three, Section 3.2 ("Consulting Agreement").
Delete: "four (4) years ..."
Add: "ten (10) years ..."
(c) Office Privileges
-----------------
Delete: "appropriate office facilities ..."
Add: "office facilities and parking being used by Conte, as
of the date of this Amendment No. 1 ..."
7. Article Four, Section 4.1.4 (Total Interim Payout).
Delete: "... plus nine percent (or the percentage then
applicable to Conte's salary under the deferred
compensation plan then in effect, whichever is greater)
of the amount payable under Section 4.1.4(I)."
Add: "plus nine and one-half percent (9.5%) of the Total Cash
Compensation paid to Conte. Total Cash Compensation is
defined as all cash compensation received, including
salary; all bonus plans; special recognition payments,
including payable in cash or in the form of loan
forgiveness; interim payouts pursuant to this Employment
Contract; and, the appreciated value of stock options."
8. Article Five, Section 5.6 (Change of Control - Contract
Benefits).
Add: "Conte's Salary for the one-year period shall be paid at
the time of the Change in Control."
4/3/97 /s/ Richard L. Conte
- ---------------------- --------------------------------------
Date Richard L. Conte
Transitional Hospitals Corporation
4/3/97 /s/ Dana Shires, M.D.
- ---------------------- --------------------------------------
Date Dana Shires, M.D.
Chairman, Compensation Committee
2
<PAGE>
May 15, 1997
Mr. Richard L. Conte
Chairman and Chief Executive Officer
Transitional Hospitals Corporation
5110 West Sahara Avenue
Las Vegas, Nevada 89102
Dear Richard:
This letter confirms that it was the intent of the Compensation Committee
that your employment agreement provide that upon a change of control, corporate
reorganization or hostile take-over all contract benefits, compensation and
payments, other than the employee continuation benefits described in section
1.10(vi) of your employment agreement, shall become immediately due and payable
in a lump sum at the time of the change of control, corporate reorganization or
hostile take-over. The employee continuation benefits are to continue to be
payable as provided in section 1.10(vi) of your employment agreement.
Very truly yours,
/s/ DANA SHIRES, M.D.
Dana Shires, M.D.
Chairman of the Compensation Committee
Acknowledged:
/s/ RICHARD L. CONTE
- --------------------
Richard L. Conte
<PAGE>
EXHIBIT 99.9
Employment Contract
Amendment No. 1
The Employment Contract ("Contract") entered into as of June 6, 1996
(the "Effective Date") by and between Community Psychiatric Centers (now known
as Transitional Hospitals Corporation and hereafter referred to as "THC"), and
Wendy L. Simpson, an individual ("Simpson") is amended as set forth below. The
effective date of this Amendment No. 1 is the date of execution by an authorized
agent of THC.
1. Notwithstanding anything to the contrary contained in the
Employment Contract, in the event of a Change of Control as defined in Article
One, Section 1.4 of the Contract, the Contract Benefits as defined in Section
1.9 and referred to in Article Five, Section 5.6 shall become immediately due
and payable in a lump sum at the time of the Change of Control, except the
Employee Continuation Benefits set forth in subsection (vi) which Continuation
Benefits shall be payable according to the terms set forth in (vi).
2. Article One, Section 1.10("Contract Payout Event").
Add: "(iv) Simpson's termination of employment within one (1)
year after a Change in Control."
3. Article Three, Section 3.1.3 ("Non Competition Covenant").
Delete: "or any shire within the United Kingdom..."
4. Article Three, Section 3.2 ("Consulting Contract").
Delete: "two (2) years..."
Add: "five (5) years..."
(c) Office Privileges
-----------------
Delete: "appropriate office facilities..."
Add: "Office facilities and parking being used by Simpson, as
of the date of this Amendment No. 1..."
5. Article Five, Section 5.6 ("Change of Control - Contract
Benefits").
Add: "Simpson's Salary for the one-year period shall be
placed in an escrow account earning market rate interest
to be released to
1
<PAGE>
Simpson at the earlier of the 6 month period expiring or
at such time when Simpson is released from employment by
the employer."
6. New - Article Seven.
ARTICLE SEVEN
SPECIAL TAX BENEFIT
-------------------
7.1 Tax Payments. Simpson shall be entitled to receive one or more
------------
payments from THC which shall compensate her for the following tax liabilities:
(A) any and all exercise taxes (collectively, the "Parachute
Tax") imposed pursuant to Code Section 4999 (or any successor provision) and
comparable provisions of applicable state tax laws upon (I) any payment or other
compensation or benefit which is made or provided to or on behalf of Simpson in
connection with any Parachute Event under this Contract or her subsequent
termination of employment in connection therewith and which is deemed to be a
parachute payment under Code Section 280G(b)(2) and (ii) all the special tax
payments made to her pursuant to this ARTICLE SEVEN, and
(B) the ordinary federal and state income taxes imposed upon
all the special tax payments made to her pursuant to this ARTICLE SEVEN.
7.1.1 Initial Payment. Within ninety (90) days after determination is
---------------
made by the Internal Revenue Service or Simpson's tax advisor that Simpson has
received a parachute payment for which she is liable for a Parachute Tax,
Simpson shall identify the nature of such parachute payment to THC and submit to
THC the calculation of the Parachute Tax attributable to that payment and the
tax benefit to which she is entitled under this ARTICLE SEVEN with respect to
such payment. Upon receipt of such calculation, THC shall pay Simpson an amount
sufficient to satisfy (I) such Parachute Tax and (ii) the ordinary federal and
sate income taxes attributable to clause (I) payment and all additional payments
made pursuant to this clause (ii), with the net effect of providing Simpson with
the necessary funds to satisfy both her total Parachute Tax liability at that
time and the additional ordinary federal and state income taxes attributable to
the Section 7.1.1 payments made to her. Simpson's Parachute Tax calculations
shall be final and binding upon THC for purposes of this Contract, and THC shall
accordingly base any Parachute Tax withholding on such calculations, provided
such calculations are based on reasonable interpretations of the law.
7.1.2 Final Determination. In the event that Simpson's actual
-------------------
Parachute Tax liability is determined by a Final Determination to be greater
than the Parachute Tax liability taken into account for purposes of the payments
made to her pursuant to Section 7.1.1, then within ninety (90) days following
the Final Determination, Simpson shall submit to THC a new Parachute Tax
calculation based upon the Final Determination. Upon receipt of such
calculation, THC shall pay
2
<PAGE>
Simpson an amount which, when added to any amounts paid under Section 7.1.1,
will be sufficient to satisfy (I) her aggregate Parachute Tax and (II) the
ordinary federal and state income taxes attributable to all payments made
pursuant to any provision of this ARTICLE SEVEN, including all additional
payments made pursuant to this clause (II), with the net effect of providing
Simpson with sufficient aggregate funds to cover (1) her entire Parachute Tax
liability and (2) the additional federal and state ordinary income taxes
attributable to all the payments made to her pursuant to any provisions of this
ARTICLE SEVEN.
7.1.3 Refund. In the event that Simpson's actual Parachute Tax
------
liability is determined by a Final Determination to be less than the Parachute
Tax liability taken into account for purposes of the payments made to her
pursuant to Sections 7.1.1 and 7.1.2, then Simpson shall refund to THC, promptly
upon receipt, any federal or state tax refund attributable to the Parachute Tax
overpayment.
7.1.4 Definition. For purposes of this ARTICLE SEVEN a Final
----------
Determination means an audit adjustment by the Internal Revenue Service that
is either agreed to by Simpson or her estate of an adjustment that is sustained
by a court of competent jurisdiction in a decision with which she concurs or
with respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed.
4/4/97 /s/ Wendy L. Simpson
- ------------------------ ----------------------
Date Wendy L. Simpson
Transitional Hospitals Corporation
4/3/97 /s/ Dana Shires, M.D.
- ----------------------- ----------------------
Date Dana Shires, M.D.
Chairman, Compensation Committee
3
<PAGE>
EXHIBIT 99.11
Employment Contract
Amendment No. 1
The Employment Contract ("Contract") entered into as of June 6, 1996
(the "Effective Date") by and between Community Psychiatric Centers (now known
as Transitional Hospitals Corporation and hereafter referred to as "THC"), and
James R. Laughlin, an individual ("Laughlin") is amended as set forth below.
The effective date of this Amendment No. 1 is the date of execution by an
authorized agent of THC.
1. Notwithstanding anything to the contrary contained in the
Employment Contract, in the event of a Change of Control as defined in Article
One, Section 1.4 of the Contract, the Contract Benefits as defined in Section
1.9 and referred to in Article Five, Section 5.6 shall become immediately due
and payable in a lump sum at the time of the Change of Control, except the
Employee Continuation Benefits set forth in subsection (vi) which Continuation
Benefits shall be payable according to the terms set forth in (vi).
2. Article One, Section 1.10 ("Contract Payout Event").
Add: "(iv) Laughlin's termination of employment within one
(1) year after a Change in Control."
3. Article Three, Section 3.1.3 ("Non Competition Covenant").
Delete: "or any shire within the United Kingdom..."
4. Article Three, Section 3.2 ("Consulting Contract").
Delete: "two (2) years..."
Add: "five (5) years..."
(c) Office Privileges
-----------------
Delete: "Appropriate office facilities..."
Add: "Office facilities and parking being used by Laughlin,
as of the date of this Amendment No. 1..."
5. Article Five, Section 5.6 ("Change of Control - Contract
Benefits").
<PAGE>
Add: "Laughlin's Salary for the one-year period shall be
placed in an escrow account earning market rate interest
to be released to Laughlin at the earlier of the 6 month
period expiring or at such time when Laughlin is
released from employment by the employer."
7. New - Article Seven.
ARTICLE SEVEN
SPECIAL TAX BENEFIT
-------------------
7.1 Tax Payments. Laughlin shall be entitled to receive one or
------------
more payments from THC which shall compensate him for the following tax
liabilities:
(A) any and all excise taxes (collectively, the "Parachute
Tax") imposed pursuant to Code Section 4999 (or any successor provision)
and comparable provisions of applicable state tax laws upon (I) any
payment or other compensation or benefit which is made or provided to or
on behalf of Laughlin in connection with any Parachute Event under this
Contract or his subsequent termination of employment in connection
therewith and which is deemed to be a parachute payment under Code
Section 280G(b)(2) and (ii) all the special tax payments made to him
pursuant to this ARTICLE SEVEN, and
(B) the ordinary federal and state income taxes imposed upon
all the special tax payments made to him pursuant to this ARTICLE SEVEN.
7.1.1 Initial Payment. Within ninety (90) days after each
---------------
determination is made by the Internal Revenue Service or Laughlin's tax advisor
that Laughlin has received a parachute payment for which she is liable for a
Parachute Tax, Laughlin shall identify the nature of such parachute payment to
THC and submit to THC the calculation of the Parachute Tax attributable to that
payment and the tax benefit to which she is entitled under this ARTICLE SEVEN
with respect to such payment. Upon receipt of such calculation, THC shall pay
Laughlin an amount sufficient to satisfy (I) such Parachute Tax and (ii) the
ordinary federal and sate income taxes attributable to clause (I) payment and
all additional payments made pursuant to this clause (ii), with the net effect
of providing Laughlin with the necessary funds to satisfy both his total
Parachute Tax liability at that time and the additional ordinary federal and
state income taxes attributable to the Section 7.1.1 payments made to him.
Laughlin's Parachute Tax calculations shall be final and binding upon THC for
purposes of this Contract, and THC shall accordingly base any Parachute Tax
withholding on such calculations, provided such calculations are based on
reasonable interpretations of the law.
7.1.2 Final Determination. In the event that Laughlin's actual
-------------------
Parachute Tax liability is determined by a Final Determination to be greater
than the Parachute Tax liability taken into account for purposes of the payments
made to him pursuant to Section 7.1.1, then within ninety
2
<PAGE>
(90) days following the Final Determination, Laughlin shall submit to THC a new
Parachute Tax calculation based upon the Final Determination. Upon receipt of
such calculation, THC shall pay Laughlin an amount which, when added to any
amounts paid under Section 7.1.1, will be sufficient to satisfy (I) his
aggregate Parachute Tax and (II) the ordinary federal and state income taxes
attributable to all payments made pursuant to any provision of this ARTICLE
SEVEN, including all additional payments made pursuant to this clause (II), with
the net effect of providing Laughlin with sufficient aggregate funds to cover
(1) his entire Parachute Tax liability and (2) the additional federal and state
ordinary income taxes attributable to all the payments made to him pursuant to
any provisions of this ARTICLE SEVEN.
7.1.3 Refund. In the event that Laughlin's actual Parachute Tax
------
liability is determined by a Final Determination to be less than the Parachute
Tax liability taken into account for purposes of the payments made to him
pursuant to Sections 7.1.1 and 7.1.2, then Laughlin shall refund to THC,
promptly upon receipt, any federal or state tax refund attributable to the
Parachute Tax overpayment.
7.1.4 Definition. For purposes of this ARTICLE SEVEN a Final
----------
Determination means an audit adjustment by the Internal Revenue Service that is
either agreed to by Laughlin or his estate or an adjustment that is sustained by
a court of competent jurisdiction in a decision with which she concurs or with
respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed.
4/4/97 /s/ James R. Laughlin
- ----------------- ----------------------
Date James R. Laughlin
Transitional Hospitals Corporation
4/3/97 /s/ Dana Shires, M.D.
- ----------------- ----------------------
Date Dana Shires, M.D.
Chairman, Compensation Committee
3
<PAGE>
EXHIBIT 99.13
Employment Contract
Amendment No. 1
The Employment Contract ("Contract") entered into as of June 6, 1996
(the "Effective Date") by and between Community Psychiatric Centers (now known
as Transitional Hospitals Corporation and hereafter referred to as "THC"), and
Ronald L. Ooley, an individual ("Ooley") is amended as set forth below. The
effective date of this Amendment No. 1 is the date of execution by an authorized
agent of THC.
1. Notwithstanding anything to the contrary contained in the
Employment Contract, in the event of a Change of Control as defined in Article
One, Section 1.4 of the Contract, the Contract Benefits as defined in Section
1.9 and referred to in Article Five, Section 5.6 shall become immediately due
and payable in a lump sum at the time of the Change of Control, except the
Employee Continuation Benefits set forth in subsection (vi) which Continuation
Benefits shall be payable according to the terms set forth in (vi).
2. Article One, Section 1.10 ("Contract Payout Event.").
Add: "(iv) Ooley's termination of employment within one (1)
year after a Change in Control."
3. Article Three, Section 3.1.3 ("Non Competition Covenant").
Delete: "or any shire within the United Kingdom..."
4. Article Three, Section 3.2 ("Consulting Contract").
Delete: "two (2) years..."
Add: "five (5) years..."
(c) Office Privileges
-----------------
Delete: "appropriate office facilities..."
Add: "Office facilities and parking being used by Ooley, as
of the date of this Amendment No. 1..."
5. Article Five, Section 5.6 ("Change of Control - Contract
Benefits").
<PAGE>
Add: "Ooley's Salary for the one-year period shall be placed
in an escrow account earning market rate interest to be
released to Ooley at the earlier of the 6 month period
expiring or at such time when Ooley is released from
employment by the employer."
7. New - Article Seven.
ARTICLE SEVEN
SPECIAL TAX BENEFIT
-------------------
7.1 Tax Payments. Ooley shall be entitled to receive one or more
------------
payments from THC which shall compensate him for the following tax liabilities:
(A) any and all excise taxes (collectively, the "Parachute
Tax") imposed pursuant to Code Section 4999 (or any successor provision)
and comparable provisions of applicable state tax laws upon (I) any
payment or other compensation or benefit which is made or provided to or
on behalf of Ooley in connection with any Parachute Event under this
Contract or his subsequent termination of employment in connection
therewith and which is deemed to be a parachute payment under Code
Section 280G(b)(2) and (ii) all the special tax payments made to him
pursuant to this ARTICLE SEVEN, and
(B) the ordinary federal and state income taxes imposed upon
all the special tax payments made to him pursuant to this ARTICLE SEVEN.
7.1.1 Initial Payment. Within ninety (90) days after each
---------------
determination is made by the Internal Revenue Service or Ooley's tax advisor
that Ooley has received a parachute payment for which she is liable for a
Parachute Tax, Ooley shall identify the nature of such parachute payment to THC
and submit to THC the calculation of the Parachute Tax attributable to that
payment and the tax benefit to which she is entitled under this ARTICLE SEVEN
with respect to such payment. Upon receipt of such calculation, THC shall pay
Ooley an amount sufficient to satisfy (I) such Parachute Tax and (ii) the
ordinary federal and state income taxes attributable to clause (I) payment and
all additional payments made pursuant to this clause (ii), with the net effect
of providing Ooley with the necessary funds to satisfy both his total Parachute
Tax liability at that time and the additional ordinary federal and state income
taxes attributable to the Section 7.1.1 payments made to him. Ooley's Parachute
Tax calculations shall be final and binding upon THC for purposes of this
Contract, and THC shall accordingly base any Parachute Tax withholding on such
calculations, provided such calculations are based on reasonable interpretations
of the law.
7.1.2 Final Determination. In the event that Ooley's actual
-------------------
Parachute Tax liability is determined by a Final Determination to be greater
than the Parachute Tax liability taken into account for purposes of the payments
made to him pursuant to Section 7.1.1, then within ninety (90) days following
the Final Determination, Ooley shall submit to THC a new Parachute Tax
2
<PAGE>
calculation based upon the Final Determination. Upon receipt of such
calculation, THC shall pay Ooley an amount which, when added to any amounts paid
under Section 7.1.1, will be sufficient to satisfy (I) his aggregate Parachute
Tax and (II) the ordinary federal and state income taxes attributable to all
payments made pursuant to any provision of this ARTICLE SEVEN, including all
additional payments made pursuant to this clause (II), with the net effect of
providing Ooley with sufficient aggregate funds to cover (1) his entire
Parachute Tax liability and (2) the additional federal and state ordinary income
taxes attributable to all the payments made to him pursuant to any provisions
of this ARTICLE SEVEN.
7.1.3 Refund. In the event that Ooley's actual Parachute Tax liability
------
is determined by a Final Determination to be less than the Parachute Tax
liability taken into account for purposes of the payments made to him pursuant
to Sections 7.1.1 and 7.1.2, then Ooley shall refund to THC, promptly upon
receipt, any federal or state tax refund attributable to the Parachute Tax
overpayment.
7.1.4 Definition. For purposes of this ARTICLE SEVEN a Final
----------
Determination means an audit adjustment by the Internal Revenue Service that is
either agreed to by Ooley or his estate or an adjustment that is sustained by a
court of competent jurisdiction in a decision with which she concurs or with
respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed.
4-3-97 /s/ Ronald L. Ooley
- --------------------- --------------------
Date Ronald L. Ooley
Transitional Hospitals Corporation
4/3/97 /s/ Dana Shires, M.D.
- --------------------- ---------------------
Date Dana Shires, M.D.
Chairman, Compensation Committee
3
<PAGE>
EXHIBIT 99.15
Employment Contract
Amendment No. 1
The Employment Contract ("Contract") entered into as of June 6, 1996
(the "Effective Date") by and between Community Psychiatric Centers (now known
as Transitional Hospitals Corporation and hereafter referred to as "THC"), and
Julia Kopta, an individual ("Kopta") is amended as set forth below. The
effective date of this Amendment No. 1 is the date of execution by an
authorized agent of THC.
1. Notwithstanding anything to the contrary contained in the
Employment Contract, in the event of a Change of Control as defined in Article
One, Section 1.4 of the Contract, the Contract Benefits as defined in Section
1.9 and referred to in Article Five, Section 5.6 shall become immediately due
and payable in a lump sum at the time of the Change Control, except the Employee
Continuation Benefits set forth in subsection (vi) which Continuation Benefits
shall be payable according to the terms set forth in (vi).
2. Article One, Section 1.10 ("Contract Payout Event").
Add: "(iv) Kopta's termination of employment within one (1)
year after a Change in Control."
3. Article Three, Section 3.1.3 ("Non Competition Covenant").
Delete: "or any shire within the United Kingdom..."
4. Article Three, Section 3.2 ("Consulting Contract").
Delete: "two (2) years..."
Add: "five (5) years..."
(c) Office Privileges
-----------------
Delete: "appropriate office facilities..."
Add: "Office facilities and parking being used by Kopta, as
of the date of this Amendment No. 1..."
5. Article Five, Section 5.6 ("Change of Control - Contract
Benefits").
Add: "Kopta's Salary for the one-year period shall be placed
in an escrow account earning market rate interest to be
released to Kopta at the
<PAGE>
earlier of the 6 month period expiring or at such time
when Kopta is released from employment by the employer."
6. New - Article Seven.
ARTICLE SEVEN
SPECIAL TAX BENEFIT
-------------------
7.1 Tax Payments. Kopta shall be entitled to receive one or more
------------
payments from THC which shall compensate her for the following tax liabilities:
(A) any and all excise taxes (collectively, the "Parachute Tax")
imposed pursuant to Code Section 4999 (or any successor provision) and
comparable provisions of applicable state tax laws upon (I) any payment
or other compensation or benefit which is made or provided to or on
behalf of Kopta in connection with any Parachute Event under this
Contract or her subsequent termination of employment in connection
therewith and which is deemed to be a parachute payment under Code
Section 280G(b)(2) and (ii) all the special tax payments made to her
pursuant to this ARTICLE SEVEN, and
(B) the ordinary federal and state income taxes imposed upon all
the special tax payments made to her pursuant to this ARTICLE SEVEN.
7.1.1 Initial Payment. Within ninety (90) days after each
---------------
determination is made by the Internal Revenue Service or Kopta's tax advisor
that Kopta has received a parachute payment for which she is liable for a
Parachute Tax, Kopta shall identify the nature of such parachute payment to THC
and submit to THC the calculation of the Parachute Tax attributable to that
payment and the tax benefit to which she is entitled under this ARTICLE SEVEN
with respect to such payment. Upon receipt of such calculation, THC shall pay
Kopta an amount sufficient to satisfy (I) such Parachute Tax and (ii) the
ordinary federal and sate income taxes attributable to clause (I) payment and
all additional payments made pursuant to this clause (ii), with the net effect
of providing Kopta with the necessary funds to satisfy both her total Parachute
Tax liability at that time and the additional ordinary federal and sate income
taxes attributable to the Section 7.1.1 payments made to her. Kopta's Parachute
Tax calculations shall be final and binding upon THC for purposes of this
Contract, and THC shall accordingly base any Parachute Tax withholding on such
calculations, provided such calculations are based on reasonable interpretations
of the law.
7.1.2 Final Determination. In the event that Kopta's actual Parachute
-------------------
Tax liability is determined by a Final Determination to be greater than the
Parachute Tax liability taken into account for purposes of the payments made to
her pursuant to Section 7.1.1, then within ninety (90) days following the Final
Determination, Kopta shall submit to THC a new Parachute Tax calculation based
upon the Final Determination. Upon receipt of such calculation, THC shall pay
Kopta an amount which, when added to any amounts paid under Section 7.1.1, will
be sufficient
2
<PAGE>
to satisfy (I) her aggregate Parachute Tax and (II) the ordinary federal and
state income taxes attributable to all payments made pursuant to any provision
of this ARTICLE SEVEN, including all additional payments made pursuant to this
clause (II), with the net effect of providing Kopta with sufficient aggregate
funds to cover (1) her entire Parachute Tax liability and (2) the additional
federal and state ordinary income taxes attributable to all the payments made to
her pursuant to any provisions of this ARTICLE SEVEN.
7.1.3 Refund. In the event that Kopta's actual Parachute Tax liability
------
is determined by a Final Determination to be less than the Parachute Tax
liability taken into account for purposes of the payments made to her pursuant
to Sections 7.1.1 and 7.1.2, then Kopta shall refund to THC, promptly upon
receipt, any federal or state tax refund attributable to the Parachute Tax
overpayment.
7.1.4 Definition. For purposes of this ARTICLE SEVEN a Final
----------
Determination means an audit adjustment by the Internal Revenue Service that is
either agreed to by Kopta or her estate or an adjustment that is sustained by a
court of competent jurisdiction in a decision with which she concurs or with
respect to which the period within which an appeal may be filed has lapsed
without a notice of appeal being filed.
4/3/97 /s/ Julia Kopta
- -------------- ----------------
Date Julia Kopta
Transitional Hospitals Corporation
4/3/97 /s/ Dana Shires, M.D.
- -------------- ---------------------
Date Dana Shires, M.D.
Chairman, Compensation Committee
3
