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Pioneer and Acadia sign merger agreement

May 25, 2011
by News release
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Peabody, Mass. and Franklin, Tenn. — PHC, Inc., d/b/a Pioneer Behavioral Health and Acadia Healthcare Company, Inc. have announced the signing of a definitive merger agreement. Upon completion, Acadia stockholders will own approximately 77.5 percent of the combined company, and PHC stockholders will own approximately 22.5 percent of the combined company. Acadia intends to file a registration statement on Form S-4 with the Securities and Exchange Commission in connection with the transaction. Effective with the approval of the merger, the corporate headquarters will be in Franklin, Tenn., and the combined company will do business under the name Pioneer Behavioral Health. Acadia intends to apply for listing of the combined company's common stock to be issued in the merger on the NASDAQ stock market. Joey Jacobs (who was recently named chairman and CEO of Acadia) will become chairman and CEO of the combined company. Bruce Shear, President & CEO of PHC, will become the Executive Vice Chairman and a member of the Board of Directors of the combined company. The merger will bring together Acadia's 19 behavioral health facilities, which, with approximately 1,700 beds in 13 states, produce annual revenues of approximately $260 million, with PHC's five inpatient facilities with approximately 270 beds in four states.

In addition, PHC's internet and telephonic-based referral services, which include employee assistance programs and critical incident services, provide contracted services covering more than one million individuals. PHC's revenues for the trailing 12 months ended March 31, 2011 were $59 million. On March 16, 2011, PHC announced that it has entered into a definitive agreement
to acquire MeadowWood Behavioral Health. "This merger with PHC will represent a significant expansion of our current revenues, facilities and beds and take us into four new states. In addition, access to the public markets will position the combined company to continue acting on attractive opportunities to expand our business through acquisition in the highly fragmented behavioral health industry," said Jacobs.

"The management teams of the combined company are highly experienced in completing and integrating such transactions, as well as in producing on-going organic growth within acquired facilities. Based on the continuing opportunities we see in the market, our extensive record of success and our solid financial position as a combined company, we are confident of our prospects for further growth." Added Shear: "We are pleased with this agreement to join forces with the Acadia team. The Acadia management team has a demonstrated record of producing high quality care for patients and their families, which aligns perfectly with our clinical mission. The combined senior management teams will further improve both companies capabilities for growth during this exciting time in our industry.

"In addition," he said, "this transaction will enable our stockholders to participate with a management team that has an unparalleled history of producing long-term profitable growth in the behavioral health industry. We are confident that this transaction represents a great opportunity for PHC." The merger agreement has been approved by the boards of directors of both companies. Consummation of the transaction is subject to various conditions, including approval of the stockholders of PHC. Certain officers and directors of PHC have executed voting agreements under which they have committed to vote their shares of PHC in favor of the transaction. The transaction is expected to be completed in late summer of 2011.

The transaction will be a stock for stock exchange except for payments to PHC shareholders for fractional shares and $5 million of merger consideration payable to Class B holders of PHC's privately held securities. We anticipate that, after refinancing existing indebtedness of both companies, payment of the merger consideration to the Class B holders, payment of a dividend to the equity holders of Acadia prior to the merger, and payment of fees and expenses relating to the transaction, the combined company will have pro forma net funded indebtedness of approximately $285 million. In connection with the transaction, Jefferies & Company, Inc. acted as exclusive financial advisor and Arent Fox LLP acted as legal advisor to PHC. Kirkland & Ellis LLP served as legal advisor to Acadia and Jefferies Finance LLC provided financing commitments to Acadia to support the transaction.

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