FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended November 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-7008
COMMUNITY PSYCHIATRIC CENTERS
(Exact name of registrant as specified in its charter)
Nevada 94-1599386
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
24502 Pacific Park Drive, Laguna Hills, CA 92656
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 831-1166
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 Par Value New York Stock Exchange
Pacific Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant on January 31, 1994, based on the closing price on the New York Stock
Exchange was: $742,819,500
Number of shares outstanding on January 31, 1994 46,860,672
<PAGE>
Item 1. Business
The following discussion should be read in conjunction with the industry
segment information presented in the notes to the financial statements appearing
in item 8.
Overview
The Company is a leading provider of psychiatric services for adults,
adolescents and children with acute psychiatric, emotional, substance abuse and
behavioral disorders. The Company offers a broad spectrum of inpatient, partial
hospitalization, outpatient and residential treatment programs through 37
hospitals (as of 11/30/93; excludes one restructured hospital still in
operation) in 17 states and Puerto Rico and nine hospitals in the United
Kingdom. The Company also offers long-term critical care services in five
states through four freestanding hospitals and three units within its
psychiatric hospitals.
Psychiatric Services
The inpatient psychiatric hospital industry in the United States is
undergoing significant change due to the expanding influence of managed care and
cost-containment measures imposed by governmental and third party payors and
employers. In recent years, providers such as the Company have experienced a
significant increase in the percentage of revenues from payors that reimburse on
a negotiated per diem or capitated rate, or on a discounted basis. In addition,
this same trend has resulted in higher deductibles and co-insurance for
patients. Payors also have increasingly stringent admission and length of stay
criteria and other treatment constraints. All of these adversely affect
utilization and reimbursement for psychiatric services.
The Company's operating results for the periods presented have been
adversely affected by the influence of managed care and efforts by government
and private payors to contain or reduce the cost of psychiatric care, as well
as the Company's efforts to address the changing demands of the marketplace.
The Company has, among other things (i) changed and expanded senior management,
(ii) significantly expanded the scope of its psychiatric programs to provide the
patient, clinical team and payor a continuum of care from which the most
appropriate and cost-effective treatments can be selected, (iii) increased its
marketing efforts to managed care organizations and (iv) implemented
company-wide cost control and reduction measures and closed underutilized
facilities. Operating results were negatively impacted from the third fiscal
quarter of 1992 through the first fiscal quarter of 1993 as the Company incurred
substantial operating expenses to implement its program expansion and marketing
initiatives.
Long-Term Critical Care
In November 1992, to diversify beyond psychiatric care, the Company,
through its wholly-owned subsidiary Transitional Hospitals Corporation ("THC"),
began to offer long-term critical care services in converted, previously
underutilized psychiatric hospitals and newly-acquired freestanding acute care
facilities. The Company incurs significant capital and start-up costs in
connection with the acquisition and conversion of each facility, and each of
the new facilities is expected to generate significant operating losses until
the facility is certified as a long-term critical care hospital at which time
it qualifies for cost-based reimbursement. Such certification typically occurs
after the facility's first six months of operations.
Legislation
On October 27, 1993, the Clinton Administration proposed the Health
Security Act of 1993 to Congress designed to reform the United States health
care system. The Health Security Act proposes a major restructuring of the
United States health care system, including (i) providing universal access to
health care to all United States residents, (ii) reforming the payment
methodology for health care goods and services by both the public (Medicare
and Medicaid) and private sectors, (iii) implementing measures to control or
<PAGE>
Overview (continued)
Legislaton (continued)
reduce public and private spending on health care, and (iv) imposing a
moratorium on the designation of additional long-term care hospitals.
Alternative federal health care reform legislation is being formulated in
Congress. The Health Security Act and other proposed federal legislation are
expected to undergo significant discussion prior to any Congressional approval
and implementation. The Company cannot predict the ultimate form or timing of
enacted legislation, if any, or its effect on the Company, and no assurance can
be given that any such legislation will not have a material adverse effect on
the Company's business and results of operations.
Business Strategy
Psychiatric Hospitals--United States
To address the changing needs and demands of its marketplace, the Company
has adopted the following strategies and programs:
- Expanded Services. The Company has significantly expanded and
expects to continue to broaden the scope of its psychiatric
treatment programs to create a continuum of care from which the most
appropriate and cost-effective treatments can be selected to meet
the needs of its patients. In addition to offering traditional
inpatient treatment programs, the Company now provides less costly
treatment alternatives such as partial hospitalization, residential
treatment and intensive and nonintensive outpatient programs. By
offering a continuum of care through a single organization, the
Company believes that patients receive the most appropriate
treatment, and that the transition among differing intensities of
care occurs rapidly and smoothly from the perspective of the
patient, clinical team and payor.
- Decentralized Operations. The Company has installed a new senior
management team, upgraded its field management and adopted a more
decentralized operating philosophy. The Company has reorganized its
field operations into four regional divisions, each managed by a
Senior Vice President of the Company with its own financial,
marketing and clinical services functions. Each hospital is
supported by its regional division team, but is operated as a
separate business unit and managed by its own Chief Executive
Officer, most of whom have been recruited within the last two years.
The Company believes this decentralized approach to management
facilitates the attraction and retention of highly capable managers
who can be responsive to the needs and opportunities of local
markets served by the Company.
- Increased Managed Care Focus. The Company's management and
marketing organization are focusing increasingly on the demands and
needs of managed care payors. In addition to expanding the range of
treatment programs it provides to offer less costly alternatives to
inpatient care, the Company, through its Managed Care Division, has
placed increased emphasis on developing and using internal systems
to measure outcomes, develop treatment plans, create and maintain
documentation, perform utilization review and communicate
effectively with external case managers.
- Implemented Operating Cost Controls. To position itself to remain
a high quality provider of cost-competitive services, the Company
has undertaken cost-reduction and cost-containment measures such as
the closure or disposition of underutilized facilities, reduction of
personnel and overhead. The Company intends to continue to closely
monitor the utilization of its hospitals and operating costs and
management is committed to taking such future action as it believes
is necessary, including discontinuing operations of underperforming
hospitals, to remain profitable and competitive.
<PAGE>
Item 1. Business (continued)
Business Strategy (continued)
Psychiatric Hospitals and Dialysis Units--United Kingdom
As of November 30, 1993, the Company owned nine psychiatric hospitals and
operated five smaller units in the United Kingdom through which it provides
primarily inpatient treatment to patients covered by private health insurance.
It also operates two kidney dialysis facilities for the National Health Service
("NHS"). The Company is the leading commercial provider of psychiatric services
in the United Kingdom, where psychiatric services are generally available to
residents without charge from NHS hospitals which are British government-owned.
(Approximately 12% of the population is covered by private health insurance.)
Management also intends to continue to explore acquisitions and alliances to
take advantage of an increasing willingness on the part of the British
government to contract with private providers, and to expand the dialysis
business.
THC Hospitals
Traditionally, patients suffering from long-term complex medical problems
have stayed in the intensive care unit of general acute care hospitals until
they were sufficiently well to be transferred to less intensive care settings.
Such stays are relatively expensive, reflecting the cost of extensive on-site
equipment and services that, while necessary for hospitals to accomplish their
primary missions, are not required for the treatment of these critically ill
patients. Over the past ten years, hospitals have come under increasing
pressure to reduce the length of patient stays as a means of containing costs.
Managed care organizations have limited hospitalization costs by controlling
hospital utilization and negotiating discounted fixed rates for hospital
services. Traditional third party indemnity insurers have begun to limit
reimbursement to pre-determined amounts of "reasonable charges," regardless
of actual costs, and to increase the co-payments required to be paid by
patients. Also, in 1983, Congress sought to contain Medicare hospital costs
by adopting the Prospective Payment System ("PPS"), rather than payment of
actual costs plus a specified profit. Under PPS, hospitals generally receive
a specified reimbursement rate regardless of how long the patient remains in
the hospital or the volume of ancillary services ordered by the attending
physician. The effect of these various cost-containment measures have
provided hospitals with an incentive to discharge patients more quickly.
The aging of the population, advancements in medical care, the desire of
payors and patients for lower cost and more specialized alternatives to
traditional acute care hospitals and the disincentive for such hospitals to
provide long-term care has led to a growing demand for long-term critical care
services. The Company believes that providers such as skilled nursing
facilities and home care providers are not well positioned to efficiently
provide health care services to critically ill patients. Traditional skilled
nursing facilities have generally focused on providing long-term custodial
care to persons eligible for Medicaid. As a result of Medicaid "cost
ceilings" on reimbursement for each patient, nursing homes face an economic
disincentive to treat medically complex patients. Home health care is not a
viable alternative to inpatient care for such patients because of their
continued need for more intensive and specialized medical care and equipment,
the availability of physicians and 24-hour nursing care and a comprehensive
array of rehabilitative therapy. As a result, the Company believes that a
significant market opportunity exists for providers dedicated exclusively to
providing long-term critical care.
<PAGE>
Item 1. Business (continued)
THC Hospitals (continued)
To capitalize on this opportunity, the Company formed THC to offer
long-term critical care to patients who do not require the intensive care
provided by traditional acute care hospitals but who are too ill to return home
or be placed in a nursing home. THC provides care to those suffering from
pulmonary diseases, kidney failure and other complex medical problems; they
require a variety of intensive services including life-support systems,
post-surgical stabilization, intravenous therapy, subacute rehabilitation and
wound care. THC's strategy is to provide a comprehensive range of long-term
critical care that will enable it to treat most types of critical care patients,
regardless of their diagnosis or medical condition, with the objectives of
returning these patients to full activity and offering managed care
organizations and indemnity insurance payors a single source from which to
obtain long-term critical care services. The Company believes THC addresses
cost-containment pressures affecting the health care industry by offering a
high quality, cost-effective alternative to traditional acute care hospitals.
THC has embarked on a rapid expansion plan, and plans to open up to 18
additional facilities by the end of December 1994. THC has primarily targeted
larger-population markets which have significant populations of persons over the
age of 65. The Company will expand THC's operations primarily by (i) converting
the Company's previously underutilized psychiatric hospitals to long-term
critical care use, (ii) acquiring and converting freestanding acute care and
psychiatric facilities and (iii) leasing beds in acute care facilities owned by
others.
Psychiatric Care Operations
Services and Programs
The Company offers a continuum of specialized treatment programs that are
designed to provide high quality care that is specific to the patient's needs
and is cost-effective to payors. The Company's programs include:
- Inpatient. Inpatient treatment is provided when the patient's
disorder prevents him or her from safely performing routine daily
activities without 24-hour supervision. Intensive individual or
group therapy is provided and the patient's daily activities are
highly structured. Treatment regimens are designed to enable
transition to a less intensive treatment program as soon as
feasible.
- Residential. Residential treatment programs specialize in providing
treatment for adolescents who need more structured treatment than
can be provided through outpatient care. The Company's 21
residential treatment centers typically have 10 to 30 beds and each
is staffed with a psychiatrist, 24-hour nursing and an on-site
licensed program therapist.
- Partial Hospitalization. Partial hospitalization (including
outpatient visits) is provided when the patient's disorder does not
require 24-hour supervision and is such that the patient may be
treated while living at home. Treatment regimens are generally for
6-12 hours per day, up to 7 days per week, and are structured to
meet the patient's specific clinical needs as well as the patient's
work, school and home life requirements.
<PAGE>
Item 1. Business (continued)
Psychiatric Care Operations (continued)
Services and Programs (continued)
- Intensive Outpatient. Intensive outpatient programs are provided
when a patient is manifesting symptoms of a disorder that
necessitate routine observation, supervision or intervention but
they do not require inpatient or partial hospitalization treatment.
Treatment is generally provided for 3-4 hours per day, typically 3-4
days per week, according to the patient's clinical needs and daily
routine.
- Outpatient. Outpatient treatment is offered when a patient's
disorder requires therapeutic intervention at a level that is less
intensive than the Company's other psychiatric services. This type
of treatment generally involves individual, family or group therapy
of 45-90 minutes per session on a scheduled basis. Typically, the
Company will refer these types of patients to community-based
clinicians as appropriate to the needs and location of the patient.
For the year ended November 30, 1993, the average length of stay for
psychiatric hospitals for the Company's domestic inpatient and residential
treatment programs was 12.4 days and 88.3 days, respectively. Adjusted patient
days for inpatient, partial hospitalization (including outpatient visits), and
residential treatment programs were 570,416, 56,632 and 112,370, respectively,
for the same period.
Psychiatric Hospitals Pro Forma Operating Data
The following is a comparison of the quarterly and annual statistical data
for fiscal years 1993 and 1992 for the Company's 37 United States psychiatric
hospitals and its nine United Kingdom hospitals throughout the entire period.
In all periods presented, adjusted patient days include inpatient days and
equivalent days for partial hospitalization and outpatient programs.
<TABLE>
<CAPTION>
Quarter Ended
Feb. 28 May 31 Aug. 31 Nov. 30
<S> <C> <C> <C> <C> <C>
Adjusted patient days 1992 151,458 171,548 153,759 166,271
1993 168,766 184,209 160,604 171,040
Admissions 1992 8,200 9,003 8,280 9,090
1993 9,362 10,225 9,026 9,491
Average length of stay 1992 17.5 16.6 16.6 15.4
1993 16.2 15.7 16.1 14.7
</TABLE>
<PAGE>
Item 1. Business (continued)
Psychiatric Care Operations (continued)
Psychiatric Hospitals
As of November 30, 1993, the Company was operating the following
psychiatric hospitals:
<TABLE>
<CAPTION>
LICENSED YEAR
HOSPITAL CITY BEDS OPENED/ACQUIRED
ARKANSAS
<S> <S> <C> <C>
CPC Pinnacle Point Little Rock 102 1991
CALIFORNIA
Alhambra Hospital Rosemead 98 1968
Belmont Hills Hospital Belmont 84 1962
Fremont Hospital Fremont 78 1990
Heritage Oaks Hospital Sacramento 76 1988
Laguna Hills Hospital Laguna Hills 78 1988
Rancho Lindo Hospital Fontana 74 1988
San Luis Rey Hospital Encinitas 123 1976
Santa Ana Hospital Santa Ana 100 1970
Sierra Vista Hospital Sacramento 72 1986
Vista Del Mar Hospital Ventura 87 1985
Walnut Creek Hospital Walnut Creek 108 1972
FLORIDA
Fort Lauderdale Hospital Ft. Lauderdale 100 1978
Palm Bay Hospital Palm Bay 60 1986
St. Johns River Hospital Jacksonville 99 1973
GEORGIA
Parkwood Hospital Atlanta 152 1981
IDAHO
Intermountain Hospital Boise 75 1980
ILLINOIS
Old Orchard Hospital Skokie 168 1976
Streamwood Hospital Streamwood 100 1991
INDIANA
Valle Vista Hospital Greenwood 98 1983
(Indianapolis)
KANSAS
College Meadows Hospital Lenexa 79 1986
LOUISIANA
Brentwood Hospital Shreveport 174 1990
Coliseum Medical Center New Orleans 90 1980
East Lake Hospital New Orleans 80 1987
Meadow Wood Hospital Baton Rouge 85 1985
MISSISSIPPI
Sand Hill Hospital Gulfport 60 1984
MISSOURI
Spirit of St. Louis Hospital St. Charles 104 1980
(St. Louis)
NORTH CAROLINA
Cedar Spring Hospital Pineville 70 1985
(Charlotte)
OKLAHOMA
Southwind Hospital Oklahoma City 80 1989
</TABLE>
<PAGE>
Item 1. Business (continued)
Psychiatric Care Operations (continued)
<TABLE>
Psychiatric Hospitals
<CAPTION>
LICENSED YEAR
HOSPITAL CITY BEDS OPENED/ACQUIRED
TEXAS
<S> <S> <C> <C>
Afton Oaks Hospital San Antonio 130 1987
Capital Hospital Austin 130 1987
Cypress Point Hospital Houston 89 1987
Millwood Hospital Arlington 130 1981
Oak Bend Hospital Ft. Worth 130 1987
UTAH
Olympus View Hospital Salt Lake City 102 1986
WASHINGTON
Fairfax Hospital Kirkland (Seattle) 133 1971
WISCONSIN
Greenbriar Hospital Greenfield 80 1971
(Milwaukee)
PUERTO RICO
Hospital San Juan Capestrano Rio Piedras 88 1988
Total U. S. Psychiatric Licensed Beds 3,766
</TABLE>
Note: The above includes one hospital included in the restructured group but
still in operation at November 30, 1993.
<TABLE>
<CAPTION>
UNITED KINGDOM YEAR
Facility Name and Location BEDS OPENED/ACQUIRED
<S> <C> <C>
Altrincham Priory Hospital 54 1986
South Manchester
The Dukes Priory Hospital 42 1992
Chelmsford, Essex
Fulford Grange Medical Centre* 22 1993
Leeds
Grovelands Priory Hospital 65 1986
Southgate, London
Hayes Grove Priory Hospital 55 1983
Bromley, Kent
Marchwood Priory Hospital 57 1987
Southampton
Nottingham Clinic 21 1993
Nottingham
The Priory Hospital 86 1980
Roehampton, London
The Woodbourne Clinic 60 1984
Birmingham
Total U. K. Psychiatric Beds 462
* 50% owned
</TABLE>
Note: Since November 30, 1993, the United Kingdom division has added facilities
in Bristol (42 beds), Essex (26 beds) and Riegate (21 beds, a 50% joint
venture).
<PAGE>
Item 1. Business (continued)
Psychiatric Care Operations (continued)
Sources of Psychiatric Hospital Revenues - U.S.
Patients are typically referred to the Company by physicians and other
health care professionals, managed care organizations, employee assistance
programs, the clergy, law enforcement officials, schools, emergency rooms and
crisis intervention services. In some areas, the Company provides a community
outreach program called the Psychiatric Assessment Team which is able to respond
on a 24-hour basis to emergency calls for help in assessing people's problems
and making referrals to the appropriate mental health service or setting.
Psychiatrists and, in some states, psychologists are authorized to admit
patients to the Company's facilities. It is against Company policy to pay
referral sources for hospital admissions. The Company believes it obtains
referrals from both physicians and secondary sources primarily as a result of
its competitive pricing and the quality and scope of its programs.
The Company receives payment for its psychiatric hospital services from
patients, private health insurers, managed care organizations, and from the
Medicare, Medicaid and CHAMPUS governmental programs. While variations or
hybrid programs may exist, the following four categories include all methods
by which the Company's hospitals receive payment for services:
- Negotiated Rate. Negotiated rate reimbursement is at prices
established in advance by negotiation or competitive bidding for
contracts with insurers and other payors such as health maintenance
organizations, preferred provider organizations and other similar
plans.
- Private Pay. Payment by patients and their private indemnity health
insurance plans is generally based on the Company's schedule of
rates for that location. The Company's general policy is to set
rates for services at amounts equal to or less than the average
rates of its competitors' comparable facilities in each hospital
market.
- Cost-Based. Cost-based reimbursement is predicated on the allowable
cost of services, plus an incentive payment where costs fall below
a target rate. It is used by Medicare and Medicaid to reimburse
psychiatric hospital services and provides a lower rate of
reimbursement than the Company's schedule of rates.
- CHAMPUS. CHAMPUS is a federal program which provides health
insurance for certain active and retired military personnel and
their dependents. CHAMPUS reimbursement is at either (i) regionally
set rates, (ii) 1988 charges adjusted upward by the Medicare Market
Basket Index, or (iii) a fixed rate per day at certain of the
Company's California facilities where CHAMPUS contracts with a
benefit administration group.
The following table summarizes, as a percentage of operating revenues for
all of the Company's United States psychiatric hospitals (excluding the seven
Restructured Hospitals), the percentage of operating revenues from each
reimbursement method for the periods presented.
<TABLE>
<CAPTION>
Fiscal Year Ended
November 30,
1991 1992 1993
<S> <C> <C> <C>
Negotiated Rate 23% 41% 48%
Private Pay 59 38 23
Cost-Based 12 16 23
CHAMPUS 6 5 6
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
In 1993, as a percentage of U.S. psychiatric patient days, negotiated rate
represented 53%, private pay 16%, cost-based 24%, and CHAMPUS 7%.
<PAGE>
Item 1. Business (continued)
Psychiatric Care Operations (continued)
Sources of Psychiatric Hospital Revenues - U.K.
Approximately 12% of England's population has private health insurance
which provides benefits for psychiatric and substance abuse treatment. There
are few private psychiatric hospitals in the United Kingdom because NHS
hospitals (British government-owned) are available to its residents without
charge. Virtually all the Company's revenues for services in its psychiatric
hospitals and alcoholism treatment facilities in the United Kingdom are
derived from private sources not subject to any governmental payment
limitations, but which would be affected by reimbursement restrictions
imposed by private insurers.
Long-Term Critical Care
The Company, through THC, provides long-term critical care in converted
psychiatric and freestanding acute care facilities. Although THC's patients
range in age from pediatric to geriatric, a substantial portion of THC's
patients are over 65 years of age. THC's long-term critical care facilities
include the equipment and physician and other professional staff necessary to
care for most types of critically ill patients regardless of their diagnosis
or medical condition. THC's professional staffs work in inter-disciplinary
teams to evaluate patients upon admission to determine a treatment plan with
an appropriate level and intensity of care. Where appropriate, the treatment
programs may involve the services of several disciplines, such as pulmonary and
rehabilitation therapy. Currently, THC offers a complex medical care program,
ventilator management program, wound care program and low tolerance
rehabilitation program. Patients who successfully complete treatment programs
are discharged to skilled nursing homes, rehabilitation hospitals or home care
settings.
Long-Term Critical Care Hospitals
As of November 30, 1993, THC was operating the following long-term critical
care hospitals:
TRANSITIONAL HOSPITALS CORPORATION
<TABLE>
Hospital City/State Licensed Beds
<S> <S> <C>
THC Arlington Arlington, TX 80
THC Boston Peabody, MA 88
THC Houston Houston, TX 41
THC Hollywood Hollywood, FL 124
THC Indianapolis Greenwood, IN 38
THC New Orleans New Orleans, LA 78
Transitional Hospital of Tampa Tampa, FL 102
Total THC Licensed Beds 551
</TABLE>
Note: Since November 30, 1993, THC has opened additional facilities in Las
Vegas, NE (52 beds), Albuquerque, NM (61 beds) and Chicago, IL (107 beds).
Three additional facilities are under development in Minneapolis,
Milwaukee and Brea, CA.
The Company conducts market research prior to opening a new facility to
determine (i) the need for placement of ventilator-dependent patients or other
classes of critically ill patients, (ii) the existing physician referral
patterns, (iii) the presence of competitors, (iv) the payor mix and (v) the
political and regulatory climate. The Company generally seeks hospitals with
fewer than 100 beds in major metropolitan areas and also considers hospitals in
other markets where its research indicates the need for such hospitals.
<PAGE>
Item 1. Business (continued)
Long-Term Critical Care (continued)
Patient Admission
Substantially all of the patient admissions to THC's hospitals are
transfers from other health care providers. Patients are referred from general
acute care hospitals, rehabilitation hospitals, skilled nursing facilities and
home care settings. The majority of THC's admissions are directly from the
intensive care units of general acute care hospitals. Referral sources include
discharge planners, case managers of managed care plans, social workers,
physicians, third party administrators, HMOs and insurance companies.
THC has directors of patient referrals who educate health care
professionals from traditional acute care hospitals as to the unique nature of
the services provided by THC's hospitals. The directors of patient referrals
develop an annual admission plan for each hospital, with assistance from the
hospital's administrator. The admission plans involve ongoing education of
local physicians and the employees of managed care organizations and acute care
hospitals. THC anticipates that it will direct increased admission efforts
toward insurance company case managers and managed care organizations.
Sources of Long-Term Critical Care Revenues
For long-term critical care services rendered to patients, THC receives
payment from (i) the federal government under Medicare, (ii) certain states
under Medicaid, (iii) commercial insurers and patients and (iv) managed care
organizations. Payments from Medicare and Medicaid are generally based upon
cost; payments from commercial insurers are generally based upon charges and
payments from managed care organizations are based on negotiated rates. The
Company anticipates reimbursement from Medicare will constitute a significant
portion of THC's revenues in the future. See "Business--Regulation and
Reimbursement."
Competition
The Company's psychiatric hospitals compete with psychiatric units in
medical/surgical hospitals as well as with other specialty psychiatric
hospitals. Some competing hospitals are either owned or supported by government
agencies. Others are owned by nonprofit corporations and supported by
endowments and charitable contributions. In each case, they are
substantially exempt from income and property taxation. The competitive
position of a hospital is, to a significant degree, dependent upon the number
and quality of physicians practicing at the hospital and the members of its
medical staff. The Company also believes that the competitive position of a
hospital is dependent upon the variety of services offered by a facility, and
the Company strives to implement programs best suited to the needs of patients
and payors in each particular market.
THC's hospitals compete with medical/surgical hospitals, certain long-term
care hospitals, sub-acute facilities, rehabilitation hospitals and nursing homes
specializing in providing care to medically complex patients. Many of these
providers are larger and more established than THC. The Company believes that,
to offer programs providing a cost-effective continuum of care, nursing homes
and other companies are converting their facilities and developing programs that
will be competitive with THC's hospitals. This trend is expected to continue
due to and cost-containment pressures.
<PAGE>
Item 1. Business (continued)
Competition (continued)
The competitive position of a hospital, including the Company's psychiatric
hospitals and THC's hospitals, is affected by the ability of its management to
negotiate service contracts with purchasers of group health care services,
including private employers, PPOs and HMOs. Such organizations attempt to
obtain discounts from established hospital charges. The importance of obtaining
contracts with PPOs, HMOs and other organizations which finance health care, and
its effect on a hospital's competitive position, vary from market to market,
depending on the number and market strength of such organizations. It is the
Company's policy to enter into these contracts wherever feasible. Generally,
hospitals holding major contracts with managed care organizations are able to
attract more doctors to their active medical staffs than hospitals without such
contracts.
Employees
As of November 30, 1993, the Company had approximately 6,968 employees, of
which approximately half were employed full time and half were employed part
time. The employees at one of the Company's psychiatric hospitals (representing
less than 1% of total employees) are covered by a union agreement. The Company
considers its labor relations to be satisfactory. There is a national shortage
of nursing personnel which, in general, has required the Company to pay a wage
premium in excess of the normal standards to recruit a satisfactory complement
of nurses. However, the effect of these higher wages, when related to the
Company's overall business, is not material.
Regulation and Reimbursement
The Company's hospitals are subject to substantial and continuous federal,
state and local government regulation. Such regulations provide for periodic
inspections and other reviews by state and local agencies, the United States
Department of Health and Human Services (the "Department") and CHAMPUS to
determine compliance with their respective standards pertaining to medical care,
staffing utilization, safety and equipment necessary for continued licensing or
participation in the Medicare, Medicaid or CHAMPUS programs. The admission and
treatment of patients at the Company's psychiatric hospitals are also subject to
state and federal regulation relating to confidentiality of medical records.
State certificate of need ("CON") regulations generally provide that prior
to the expansion of existing facilities, the construction of new facilities, the
addition of beds, the acquisition of existing facilities or major items of
equipment or certain changes in services, approval must be obtained from the
designated state health planning agency. The stated objective of the CON
process is to promote quality health care at the lowest possible cost and avoid
unnecessary duplication of services, equipment and facilities. If the Company
and THC are unable to obtain the requisite CONs, their growth and business could
be adversely affected.
State licensing of hospitals is a prerequisite to the operation of each
hospital and to participation in all federally funded programs. Once a hospital
has been licensed, it must continue to comply with federal, state and local
licensing requirements in addition to local building and life-safety codes. All
of the Company's hospitals have obtained the necessary licenses to conduct
business.
A substantial portion of the Company's revenues is derived from patients
covered by Medicare and Medicaid. Medicare is a federal program that provides
certain hospital and medical insurance benefits to persons age 65 and over and
certain disabled persons. Medicaid is a medical assistance program administered
by the states and partially funded by the federal government under which
hospital benefits are available to the medically indigent. Within the Medicare
and Medicaid statutory framework, there are substantial areas subject to
administrative rulings, interpretations and discretion which may affect payments
made to providers.
<PAGE>
Item 1. Business (continued)
Regulation and Reimbursement (continued)
In order to receive Medicare reimbursement, each hospital must meet the
applicable conditions of participation set forth by the Department relating to
the type of hospital, its equipment, personnel and standard of medical care, as
well as comply with state and local laws and regulations. Hospitals undergo
periodic on-site Medicare certification surveys. The Medicare survey is limited
if the hospital is accredited by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"). All but one of the Company's operating
hospitals are certified as Medicare providers. All of the Company's operating
hospitals are certified by their respective state Medicaid programs. A loss of
certification could adversely affect a hospital's ability to receive payments
from Medicare and Medicaid.
Hospitals receive accreditation from JCAHO, a nationwide commission which
establishes standards relating to the physical plant, administration, quality of
patient care and operation of medical staffs of hospitals. Generally, hospitals
and certain other health care facilities are required to have been in operation
at least six months in order to be eligible for accreditation by JCAHO. After
conducting on-site surveys, JCAHO awards accreditation for up to three years to
hospitals found to be in substantial compliance with JCAHO standards.
Accredited hospitals are periodically resurveyed, including, at the option of
JCAHO, upon a major change in facilities or organization and after merger or
consolidation. All of the Company's hospitals are accredited by JCAHO. The
Company intends to seek and obtain JCAHO accreditation for any additional
hospitals it may purchase or lease.
Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and
indirect cost of the services provided to beneficiaries. The Social Security
Amendments of 1983 implemented PPS in an effort to reduce and control Medicare
costs. Under PPS, inpatient costs are reimbursed based upon a fixed payment
amount per discharge using Diagnosis Related Groups ("DRGs"). The DRG payment
under PPS is based upon the national average cost of treating Medicare patients
with the same diagnosis. Although the average length of stay varies for each
DRG, the average stay for all Medicare patients subject to PPS is approximately
six days. An additional outlier payment is made for patients with unusually
long lengths of stay or higher treatment costs. Outliers are designed to cover
only marginal costs. Additionally, PPS payments can only be made once every 60
days for each patient. Thus, PPS creates an economic incentive for general
acute care hospitals to discharge Medicare patients as soon as clinically
possible.
The Social Security Amendments of 1983 exempted psychiatric,
rehabilitation, cancer, children's and long-term hospitals from PPS. A long-
term hospital is defined as a hospital which has an average length of stay of
greater than 25 days. THC's facilities are expected to meet this definition.
Under current law, inpatient operating costs for long-term hospitals are
reimbursed under a cost-based reimbursement system, except for their initial six
months of operation, when they are subject to PPS reimbursement. As a result of
the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), reimbursement
under the cost-based system is subject to a computed target amount per discharge
(the "Target") for inpatient operating costs. A hospital's Target is currently
computed by multiplying the hospital's Target during the preceding period by the
change in a hospital "market basket" wage and price index. Prior to October 1,
1991, allowable Medicare operating costs per discharge in excess of the Target
were not reimbursed. Effective October 1, 1991, if a hospital exceeds the
Target, Medicare reimburses the lower of (i) the hospital's target amount plus
50% of the allowable Medicare operating costs per discharge in excess of the
Target or (ii) 110% of the Target. With regard to hospitals certified prior to
October 1, 1992, the TEFRA Target provisions do not apply with respect to
hospitals that have been in operation for less than three full years. For
hospitals certified after October 1, 1992, the TEFRA Target provisions do not
apply with respect to hospitals that have been in operation for less than two
full years. Under The Omnibus Budgeting Reconciliation Act of 1993 ("OBRA"),
increases in the Target for fiscal years 1994 through 1997 are generally limited
to the hospital market basket increase minus one percentage point.
<PAGE>
Item 1. Business (continued)
Regulation and Reimbursement (continued)
Medicare and Medicaid reimbursements are generally determined from annual
cost reports filed by the Company. These cost reports are subject to audit by
Medicare and Medicaid. The Company has established reserves for possible
adjustments at levels which management believes to be adequate to cover any
downward adjustments resulting from audits of these cost reports.
Federal regulations provide that admission to and utilization of hospitals
by Medicare and Medicaid patients must be reviewed by peer or utilization review
organizations ("PROs") in order to ensure efficient utilization of hospitals and
services. A PRO may conduct such review either prospectively or retroactively
and may, as appropriate, recommend denial of payments upon admission or
retrospectively for services provided to a patient. Such review is subject to
administrative and judicial appeal.
Health Care Reform
The Health Security Act, the Clinton Administration's proposed health care
reform legislation, was submitted to Congress on October 27, 1993. Section 4105
of the Health Security Act provides that critical care hospitals (such as THC's)
which are not reimbursed as such prior to the date of enactment of the Health
Security Act will be reimbursed under PPS rather than the cost-based system
under which they currently receive reimbursement. Generally, reimbursement
under PPS may be inadequate for THC to operate its business profitably and, if
Section 4105 is passed in its current form, it could adversely affect THC's
operations and expansion. However, Section 4105 provides that PPS will not
apply to hospitals which are being reimbursed under the cost-based system as of
the date of the enactment of the Health Security Act. To the extent THC's
hospitals are entitled to cost-based reimbursement as of the date the Health
Security Act is enacted, such hospitals would continue to be reimbursed under
the current cost-based system and would not be adversely affected by the
legislation. Although several other legislative proposals have been or are
expected to be made shortly, none of the proposals so far submitted to
Congress contains a provision like Section 4105; however, no assurance can be
given that future health care reform legislation, if an affect THC's operations.
Reimbursement Limitations and Cost-Containment
Regardless of the outcome of the proposed health care reform bills,
Congress and the administration can be expected to continue vigorous efforts to
effectuate cost savings in the Medicare program. These efforts could include
change in the reimbursement of the Company's long-term critical care hospitals
to the DRG method and OBRA mandates a study of methods of bringing under PPS
hospitals such as the Company's and THC's which are currently exempt from that
system. Even if cost-based reimbursement for the THC facilities continues, it
is anticipated that additional reimbursement limits will be imposed and that the
return on invested capital will be reduced as part of the 1994 budgetary pro-
cess. Such cost-containment initiatives may vary substantially from the proposed
structural reforms discussed above and may impact the Company more quickly and
directly. Similar changes in reimbursement of psychiatric services could
adversely impact the Company's business and results of operations. Conversely,
there is also potential for a positive effect which mandated mental health
benefits for all Americans could have on the Company's psychiatric operations.
Rate Setting Laws
In recent years various forms of prospective reimbursement legislation have
been proposed or enacted in states in which the Company owns hospitals. For
example, the Company's Florida hospitals are governed by a prospective
reimbursement law which generally allows rate increases based on the Consumer
Price Index. The Company's Washington hospital was subject to a prospective
reimbursement law based on each facility's budgeted costs until June 30, 1989,
when the law lapsed and was not renewed. If prospective reimbursement laws were
to be enacted in the future in one or more of the states in which the Company
operates hospitals, it could have an adverse effect on the Company's business
and results of operations. In addition, the enactment of such legislation in
states where the Company does not now have hospitals could have a deterrent
effect on the decision to acquire or establish facilities in such states.
<PAGE>
Item 1. Business (continued)
Regulation and Reimbursement (continued)
Relationships With Clinicians
The Company is subject to federal and state laws that regulate its
relationships with physicians and other providers of health care services.
These laws include the "fraud and abuse" provisions of the Social Security Act,
under which criminal penalties can be imposed upon persons who pay or receive
any remuneration in return for referrals of patients eligible for reimbursement
under the Medicare, Medicaid or comparable state programs. Violations of these
laws may result in civil penalties. Civil penalties range from monetary fines
that may be levied on a per violation basis to temporary or permanent exclusion
from these programs. The Company is also subject to state and federal laws
prohibiting false claims.
The Department, courts and officials of the Office of Inspector General
have broadly construed the fraud and abuse provisions of the Social Security
Act. "Safe harbor" regulations promulgated by the Department define a narrow
range of practices that will be exempted from prosecution or other enforcement
action. These regulations may, however, be followed by more aggressive
enforcement against relationships that do not fit within the specified safe
harbor rules. Similarly, state fraud and abuse laws, which vary from state to
state, are often vague and have infrequently been interpreted by courts or
regulatory agencies. The Company believes its arrangements with providers are
within the safe harbor regulations. Given the breadth of these laws and the
dearth of court rulings dealing with businesses like the Company's, there can
be no assurance that the Company's arrangements with its providers will not be
challenged.
OBRA contains provisions prohibiting physicians having a financial
relationship with an entity from making referrals eligible for Medicare
reimbursement to that entity for "designated health services," including
clinical laboratory services; radiation therapy services; durable medical
equipment; parenteral and enteral nutrients, equipment, and supplies;
prosthetics, orthotics, and prosthetic devices; home health services;
outpatient prescription drugs; and inpatient and outpatient hospital
services. In addition, if such a financial relationship exists, the entity
is prohibited from billing for or receiving reimbursement on account of such
referral. These provisions take effect January 1, 1995.
Numerous exceptions are allowed under OBRA for financial arrangements that
would otherwise trigger the referral prohibitions. These provide, under certain
conditions, exceptions for relationships involving rental of office space and
equipment, employment relationships, personal service arrangements, payments
unrelated to designated services, physician recruitment, and certain isolated
transactions. The Department may adopt regulations in the future which expand
upon the conditions attached to qualification for these exceptions. The Company
believes it is in compliance with these provisions.
<PAGE>
Item 1. Business (continued)
Litigation
Immediately following the Company's public announcement of the increased
charge for uncollectible accounts in September of 1991, eleven securities class
action lawsuits were filed against the Company and several of its officers and
directors in the United States District Court for the Central District of
California. These suits allege generally that the Company has in the past made
materially false and misleading public statements or failed to disclose material
adverse information regarding its earnings, financial condition and business
prospects. A shareholders' derivative action was filed at about the same time
in the Superior Court for Orange County, California, against the Company and all
of its directors alleging breach of fiduciary duty, waste of corporate assets
and gross mismanagement based largely on the same operative facts. The Company
maintains that the public statements and reports in question were complete and
correct and that its policy is and always has been to disclose material adverse
information publicly and on a timely basis. It has not been possible to assess
the likely outcome of these actions, but the Company intends to defend them
vigorously. Each of its officers and directors has broad indemnification
contracts with the Company and are entitled to indemnity under circumstances
prescribed by applicable law. In addition, the Company's Articles of
Incorporation and applicable law restrict the liability of its officers and
directors for damages for breach of their fiduciary duties.
The Company is subject to ordinary and routine litigation incidental to its
business, including those arising from patient treatment, injuries or death for
which it is covered by liability insurance. Management believes that the
ultimate resolution of all pending proceedings will not have a material adverse
effect on the Company.
Item 2. Properties
This item incorporates by reference the tables of psychiatric and long-term
critical care hospital and dialysis facility locations set forth in Item 1.
Ownership information is set forth in the text of this item.
Psychiatric Hospital Properties
The Company owns, in fee simple, all of the real property on which its
acute psychiatric hospital facilities are located. Twenty-one of these
facilities are detached, single story wood frame or structural steel, and thirty
are multi-storied, structural steel or brick structures. All facilities have
been constructed or extensively remodeled since 1969. Nineteen facilities are
located on sites ranging from one to five acres and thirty-two facilities are on
sites ranging from five to forty-two acres.
In 1993, three of the above described facilities were shared with THC. As
of November 30, 1993, the Company was in the process of converting two other
facilities to long-term critical care facilities.
All of the Company's existing hospital facilities range in size from 20,000
to 100,000 square feet and each facility has sufficient acreage to allow space
for outdoor recreation. All of the existing hospital buildings meet all state
and local requirements for licensing as hospitals to provide the services
indicated. However, seven facilities have suspended operations to date. Two of
these hospitals were sold in January and February of 1994.
The Company has four separate mortgage loans with lenders, each of which
is secured by one of the Company's hospitals.
Other properties:
The Company also owns a three-story building completed in 1988 used for its
Corporate headquarters; medical office buildings adjacent to twenty of its
hospital facilities; three parcels of land for potential hospital development or
future sale, two parcels of land being developed for sale for investment
purposes (non-hospital related), and one apartment in a location central to
the Company's operations for use by employees whose duties require them to
travel.
<PAGE>
Item 2. Properties (continued)
THC Properties:
The Company owns, in fee simple, all of the real property on which its
long-term critical care facilities are located. Two of these facilities are
detached single story buildings and five are multi-storied buildings. Three
facilities are located on sites ranging from one to five acres and four
facilities are located on sites ranging from five to forty-two acres. Three of
these facilities were opened after year-end. As of November 30, 1993, THC
operated additional units within three of the Company's psychiatric hospitals.
Item 3. Legal Proceedings
Immediately following the Company's public announcement of the increased
charge for uncollectible accounts referred to in "Management's Discussion and
Analysis of Results of Operations and Financial Condition 1991 Compared to
1990", eleven securities class action lawsuits were filed against the Company
and several of its officers and directors in the United States District Court
for the Central District of California. These suits allege generally that the
Company has in the past made materially false and misleading public statements
or failed to disclose material adverse information regarding its earnings,
financial condition and business prospects. These suits have been consolidated
into a single action. A shareholders' derivative action was filed at about the
same time in the Superior Court for Orange County, California, against the
Company, its then directors and certain other officers alleging breach of
fiduciary duty, waste of corporate assets and gross mismanagement based largely
on the same operative facts. The Company maintains that the public statements
and reports in question were complete and correct and that its policy is and
always has been to disclose material adverse information publicly and on a
timely basis. It has not been possible to assess the likely outcome of these
actions, but the Company intends to defend them vigorously. Each of its
officers and directors has broad indemnification contracts with the Company
and are entitled to indemnity under circumstances prescribed by applicable law.
In addition, the Company's Articles of Incorporation and applicable law restrict
the liability of its officers and directors for damages for breach of their
fiduciary duties.
The Company is subject to ordinary and routine litigation incidental to its
business, including those arising from patient treatment, injuries or death for
which it is covered by liability insurance. Management believes that the
ultimate resolution of all pending proceedings will not have a material adverse
effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE>
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
(a) Market Information
(1) (i) The Common Stock of Community Psychiatric Centers
is traded on the New York, Boston, Midwest and Pacific Stock Exchanges. Ticker
symbol: CMY.
(ii) The information in response to this portion of Item
5 is incorporated by reference from footnote 13 to the financial statements in
Item 8.
(b) Holders
(1) Approximate number of holders of the $1.00 Par Value
Common Stock of the Company at January 31, 1994 2,636
* The number of record holders includes banks and brokerage houses
which are holding shares of the Company's Common Stock for an undetermined
number of beneficial owners.
(c) Dividends
(1) The information in response to this portion of Item 5 is
incorporated by reference from footnote 13 to the financial statements in
Item 8.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Year Ended November 30
1993 1992 1991 1990 1989
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $335,578 $344,274 $392,873 $371,221 $318,902
Net earnings (loss):
From continuing
operations <F1> (24,892) 23,137 45,289 83,211 71,961
From discontinued
operations <F2> -- -- -- -- 8,422
Total assets 530,340 540,600 569,670 551,590 475,416
Long-term debt, ex-
clusive of current
maturities 40,718 26,293 27,172 28,577 29,677
Earnings (loss) per
common share:
From continuing
operations $ (.58) $ 0.52 $ .98 $ 1.80 $ 1.56
From discontinued
operations -- -- -- -- 0.18
Dividends per share 0.09 0.36 0.36 0.36 0.36
<FN>
<F1> Effective February 28, 1993, the Company recorded a pre-tax charge of
$54,950,000 ($34,906,000 net of tax) in connection with the restructuring
of certain of its psychiatric hospitals. The charge includes the
write-down to estimated net realizable value of hospitals to be sold or
shut down, the write-off of previously capitalized costs, anticipated
future losses until disposition, provisions for severance pay and write-
downs of related assets to net realizable value. Operating results of
these hospitals are excluded from the Company's results of operations
after February 28, 1993.
<F2> Effective August 31, 1989, the dialysis and home health business segments
of the Company were spun off to stockholders by issuance of stock in a
new publicly traded corporation, Vivra Incorporated. The financial
statements of the Company have been prepared to reflect the spun-off
segments as discontinued operations.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the selected
financial data on the preceding page and the notes to financial statements
appearing in Item 8.
Restructuring Charge
Effective February 28, 1993, the Company recorded a pre-tax charge of
$54,950,000 ($34,906,000 after tax) in connection with the restructuring of
seven of its psychiatric hospitals. The charge comprised $35,270,000 to write-
down buildings and other fixed assets, $2,121,000 to write-off intangibles,
$14,369,000 for future operating losses of the seven hospitals and related
corporate restructuring costs associated with terminating employees, and
$3,190,000 for additional accounts receivable allowances at the seven hospitals.
Six of the above hospitals have ceased operations. As of November 30, 1993, one
of the seven hospitals remains operating. The ultimate disposition of that
hospital will be determined shortly. The Company received cash proceeds of
approximately $5 million in January and February of 1994 from the sale of two of
these hospitals.
Liquidity and Capital Resources
At November 30, 1993, cash and cash equivalents were $24.6 million and
working capital was $94.5 million (including the accrual for restructuring costs
of $8.7 million), a decrease of $43.2 million and $39.2 million, respectively,
from the fiscal year end, November 30, 1992. During the fiscal year ended
November 30, 1993, cash was principally used to fund the start up of THC,
including the acquisition and conversion of hospitals in Tampa, FL, Las Vegas,
NE, Albuquerque, NM, Hollywood, FL, Boston, MA, Minneapolis, MN, Indianapolis,
IN, and Houston, TX ($33 million), payments of a deferred liability to the
Company's former chairman ($6.5 million), purchase of equipment and improvements
($25.2 million) and dividend payments ($3.9 million). During April 1993, the
Company's Board of Directors suspended further payment of dividends to assist
the Company in funding the capital and operating requirements of THC.
Capital expenditures for the year ended November 30, 1993 totalled
approximately $58 million. A total of $18.0 million has been committed to be
spent over the three year period 1992 to 1994 (of which approximately $4.8
million was spent in fiscal year 1993) for a new computer system which will
automate many of the Company's functional areas including outcomes research,
intake, admissions, marketing, hospital business office, decision support,
financial reporting and flexible budgeting. The Company expects to spend $12.0
million on the computer system in fiscal 1994.
The Company's current ratio in 1991, 1992, and 1993 was 6.6, 5.0, and 2.7,
respectively. The Company's ratio of long-term debt to total capital at
November 30, 1991, 1992, and 1993 was 5%, 6%, and 10%. The increase in the
long-term debt to total capital ratio is reflective of the $14 million increase
in long-term debt.
The Company presently expects to expend up to $100 million in fiscal 1994
for the acquisition and conversion of up to 18 facilities in connection with the
continued rapid expansion of its THC operations. In addition to these capital
expenditures, the Company expects to expend up to $55 million of cash in fiscal
1994 to fund both the working capital (principally accounts receivable) and
start-up operating losses principally for facilities opening in 1994 of this
expansion. The Company also expects to spend approximately $13.0 million on
capital expenditures for maintenance of its psychiatric facilities and
acquisitions in the United Kingdom.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
In January 1992, the Board of Directors authorized the expenditure of up
to $50.0 million of cash on hand for the repurchase of the Company's common
stock from time-to-time in the open market. As of November 30, 1992, the
Company had purchased 2,890,000 shares for $31.1 million, including 451,000
at market value from the former chairman, under that authorization. Through
November 30, 1993, an additional 85,000 shares were repurchased for
$0.8 million. Under an authorization in effect prior to January 31 ,1992, the
Company had repurchased 549,800 shares for $6.3 million.
The Company received net cash proceeds of approximately $5 million in
January and February of 1994 from the sale of two closed facilities. Unused
revolving credit facilities of approximately $20 million remain available to the
Company at November 30, 1993. In December 1994, the Company received a
commitment letter from a bank to provide a $50 million revolving credit facility
with a term loan conversion option; the option is subject to the Company
maintaining certain financial covenants. A definitive credit facility is
subject to completing final loan documentation. The Company believes that its
current cash and cash equivalent balances, its operating cash flow, and the
amounts available under its revolving credit facilities will be sufficient to
fund the Company's operations and capital expenditures through the middle of
fiscal 1994. The Company is also presently evaluating proposals for
additional funding from other financing sources. The level of expansion of
THC operations will be dependant on successfully obtaining such additional
funding.
The increase in accounts receivable, accounts payable, and accrued expenses
in 1993 is due to the expansion of THC's operations. The increase in the amount
payable to third parties under reimbursement contracts results from interim
reimbursement rates being higher than final settlement rates, the effect of
which is to create a short-term liability.
Fiscal Year 1993 Compared to Fiscal Year 1992
<TABLE>
The following table presents selected unaudited pro forma income statement data
for the years ended November 30, 1993 and 1992 adjusted as if the restructuring
had occurred on November 30, 1991. The data presented below may not be
indicative of the results that would have been obtained had the restructuring
actually occurred on the date assumed. In the opinion of management, this data
includes all adjustments, consisting of normal recurring adjustments, that the
Company considers necessary for a fair presentation of the data set forth
therein.
<CAPTION>
Year Ended November 30,
1993 1992
<S> <C> <C>
Net operating revenues $326,988 $305,595
Other 2,301 3,433
-------- --------
329,291 309,028
Costs and expenses:
Operating 163,681 145,005
General and administrative 132,319 112,966
Depreciation 12,252 11,179
Interest 2,420 1,607
------- -------
310,672 270,757
------- -------
Earnings before income taxes 18,619 38,271
Income taxes 7,261 14,160
------- -------
Net earnings $ 11,358 $ 24,111
======== ========
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Fiscal Year 1993 Compared to Fiscal Year 1992 (continued)
The following discussion excludes the restructuring charge and operating
results of the Restructured Hospitals.
Total revenues for the year ended November 30, 1993 increased by
approximately 7% to $329.3 million from $309.0 million for the prior year. This
increase was due primarily to the addition of $18.1 million of THC revenue in
1993 as compared to effectively no THC revenue in 1992.
Net operating revenues from the United States psychiatric hospitals
increased by 1.1% or approximately $2.9 million as a result of a 5.9% increase
in adjusted patient days to 581,397 from 549,072 which was partially offset by
a decrease in the net revenue per adjusted patient day. The increase in
adjusted patient days was due in large part to (i) a 82% increase in residential
treatment patient days to 106,495 from 58,402 and (ii) a 72.7% increase in
partial hospitalization visits to 113,899 from 65,958. The increase in adjusted
patient days more than offset the 8.1% decrease in average length of stay. The
decrease in net revenue per adjusted patient day was the result of the continu-
ing shift in reimbursement to negotiated rates and cost-based reimbursement from
private pay.
Net operating revenues from the Company's United Kingdom operations
increased by 1.2% or approximately $412,000 as a result of an increase in
inpatient admissions and average length of stay which was partially offset by a
decline in net revenue per adjusted patient day.
Operating expenses as a percentage of total revenues increased to 49.7%
from 46.9% in the year ended November 30, 1993 compared to the prior year. This
increase was primarily attributable to expenses incurred in connection with the
Company's THC operations which were not existent in the 1992 period and an
increase in personnel costs in the first quarter of 1993 related to the
Company's expansion of its continuum of care.
General and administrative expenses increased by approximately 17.1% to
$132.3 million from $113.0 million and increased as a percentage of total
revenues to 40.2% from 36.6% due primarily to (i) an increase in personnel costs
related to the Company's initiatives to enhance the quality of its services and
strengthen its revenue generation efforts (ii) the expenses incurred in
connection with providing a continuum of care and (iii) THC operations which
were not existent in the 1992 period. Provision for uncollectible accounts,
exclusive of a 1992 recovery of previously written off accounts receivable,
increased as a percentage of total revenues to 6.5% from 4.6%.
Cost-containment programs, which included reduction of personnel and
elimination of overhead, were implemented during the second and third quarters
of 1993 and resulted in reductions of operating expenses as a percentage of
total revenues from 52.0% in the first quarter to 49.7% in the fourth quarter.
Similarly, general and administrative expenses as a percentage of total revenues
were reduced from 47.5% to 36.4% between the first and fourth quarters of 1993.
For the reasons described above, earnings before depreciation,
amortization, interest, and income taxes for the twelve months ended November
30, 1993 declined by approximately 33.4% to $35.1 million from $52.7 million in
the prior year period and net earnings declined to $11.4 million from $24.1
million compared to the prior year period.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Fiscal Year 1993 Compared to Fiscal Year 1992 (continued)
Other operating results, after the effect of the restructuring charge, are
described as follows:
- Depreciation expense decreased because the Restructured Hospitals
were excluded from operations subsequent the end of the first
quarter of 1993.
- Interest expense increased in 1993 because of the decrease in
amounts capitalized and the increase in long-term debt.
- Income taxes (benefit) as a percent of pre-tax income (loss) was
(35.4%) in 1993 compared to 37% in 1992.
In 1993, approximately 30% of the Company's net revenues were paid by
private sources and insurance companies which based reimbursement on the
Company's price schedule. Approximately 24% of the Company's net revenues were
paid by Medicare, Medicaid and other programs which based reimbursement on the
Company's costs and DRG rates. Therefore, to the extent that costs increased,
higher reimbursement was generally received on a dollar-for-dollar basis.
Approximately 5% was paid by CHAMPUS, a Federal Government Program which based
reimbursement generally on a regional average rate. The balance of approxi-
mately 41% was paid based upon rates negotiated with insurers and other payors
including managed care companies, health maintenance organizations, preferred
provider organizations and similar plans. The number of patients covered under
negotiated rate plans has grown significantly in recent years and such growth is
expected to continue in the future.
The Company's ability to negotiate rate increases successfully with these
plans that are comparable to the Company's cost increases is significant to
maintaining adequate operating margins.
Fiscal Year 1992 Compared to Fiscal Year 1991
Operating revenues decreased by $48.6 million in 1992. Adjusted patient
days decreased by approximately 7.8% while inpatient admissions increased by
2.8%. Average length of stay declined 10.0% from 20.1 days in 1991 to 18.1 days
in 1992. The decline in length of stay principally results from restricting use
and duration of inpatient psychiatric treatment as more payors shift benefits
coverage to managed care plans and seek to contain costs through tighter
restrictions on inpatient treatment and length of stay. The Company believes
that it was also negatively impacted by the publicity about fiscal and treatment
abuses in the psychiatric hospital industry involving other providers.
Net revenue per patient day declined 5.0% in 1992. On a net revenue basis,
the percentage of revenue attributable to patients paying at the price levels
contained in the Company's price schedule declined in 1992 as compared to 1991.
The movement to negotiated rate contracting with payors and utilization by
Medicare and other cost-based payors continued during 1992 and utilization by
Medicare and other cost-based programs increased as a percentage of the total.
The Company expects a continuing decline in the percentage of price
schedule-based patients as measured by net revenue.
Operating expenses increased by $7.8 million in 1992. The Company
maintains staffing levels at its hospitals necessary to promote high quality
care while also attempting to adapt the levels for census fluctuations. The
Company continues to strive to increase the quality of services and marketing,
and develop new programs while adapting to increasing payor restrictions.
Additional operating staff is required to support these efforts. In addition,
the Company's operations are labor intensive and require highly qualified
workers with specific
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Fiscal Year 1992 Compared to Fiscal Year 1991 (continued)
professional skills such as nurses and therapists. The Company pays wages
prevailing in the areas necessary to obtain skilled personnel, and the Company
does not feel that it is possible to obtain or retain such qualified personnel
unless reasonably steady employment can be provided. Accordingly, the Company's
labor costs do not vary in direct proportion with census fluctuations at its
facilities, even though staffing levels are closely monitored in an attempt to
improve efficiency.
In 1991, general and administrative costs included a special charge of
approximately $37.0 million for the write down of uncollectible accounts
receivable. In 1992, a specific reversal of a $4.2 million charge in fiscal
1991 was realized due to the recovery from the Ontario (Canada) Health Insurance
Plan ("OHIP"). The provision for uncollectible accounts included in general and
administrative costs adjusted for the items described above increased by
approximately $7.4 million in 1992 compared to 1991. In general, current
economic conditions have negatively impacted patients' ability to pay deductions
and co-payments, and scrutiny of coverage limitations and medical necessity
issues by payors continues to intensify.
Exclusive of the change in the provision for uncollectible accounts and
write off in 1991 of $1.6 million of abandoned acquisition costs, general and
administrative costs increased by approximately $15.1 million or 13.2% in fiscal
1992. This increase is principally attributable to increased staffing in the
marketing, managed care, clinical and fiscal consulting areas.
Depreciation increased $690,000 as a result of current year equipment
additions and routine renovations.
Interest expense increased due to the decreased amount capitalized. Only
one hospital project was in progress during 1992.
Income taxes as a percent of pre-tax income increased to 37% from 36.4%.
Earnings before depreciation, amortization, interest, and income taxes for
the twelve months ended November 30, 1992 declined by 38.7% to $52.7 million
from $85.9 million in 1991 and net earnings declined to $23.1 million from $45.3
million compared to the prior year period.
In 1992, approximately 45% of the Company's hospital net revenues were paid
by private sources and insurance companies which based reimbursement on the
Company's price schedule. Approximately 16% of the Company's hospital net
revenues were paid by Medicare, Medicaid and other programs which based
reimbursement on the Company's costs. Therefore, to the extent that costs
increased, higher reimbursement was generally received on a dollar-for-dollar
basis. Approximately 4% was paid by CHAMPUS, a Federal Government Program which
based reimbursement generally on a regional average rate. The balance of
approximately 35% was paid based upon rates negotiated with insurers and other
payors including managed care companies, health maintenance organizations,
preferred provider organizations and similar plans. The number of patients
covered under negotiated rate plans has grown significantly in the past few
years and such growth is expected to continue in the future.
The Company's ability to successfully negotiate rate increases with these
plans that are comparable to the Company's cost increases is significant to
maintaining adequate operating margins. The Company has generally good rela-
tions with such plans and anticipates this will continue.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The information in response to this item is incorporated by reference from
Exhibit 1 in Item 14.
Item 9. Change in and Disagreement with Accountants on Accounting and Financial
Disclosure.
Not Applicable.
PART III
Information under the following items required by Part III of Form 10-K is
incorporated by reference from Registrant's definitive Proxy Statement applic-
able to Registrant's 1993 Annual Meeting of Shareholders, or will be provided by
Amendment to Form 10-K on Form 10-K/A, to be filed with the Commission by
Registrant no later than March 29, 1994.
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements. The Financial Statements listed
in response to Item 8 are filed herewith.
2. The following Financial Statement Schedules are filed
herewith:
Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees other than Related Parties
Property, Plant and Equipment
Accumulated Depreciation and Amortization of Property, Plant
and Equipment
Valuation and Qualifying Accounts
Supplementary Income Statement Information
3. Exhibits:
(3) Articles of Incorporation and By-laws
3.1 Restated Articles of Incorporation as adopted
by vote of shareholders on May 20, 1993 (filed as Appendix B to Registrant's
Proxy Statement dated April 20, 1993 relating to the annual meeting of its
shareholders on May 20, 1993 and incorporated in full herein by this reference).
3.2 By-Laws of Registrant as amended by vote of
shareholders on May 23, 1991 (filed as Exhibit 3.2 to Registrant's Annual Report
on Form 10-K for its fiscal year ended November 30, 1991 and incorporated in
full herein by this reference) and as amended by vote of shareholders on May 20,
1993 (filed as Appendix A to Registrant's Proxy Statement dated April 20, 1993
relating to the annual meeting of its shareholders on May 20, 1993 and
incorporated in full herein by this reference).
<PAGE>
PART IV (continued)
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(continued)
(10) Material Contracts
10.1 Employment Contract between Registrant and
Richard L. Conte, dated as of May 1, 1992.
10.2 Employment Contract between Registrant and
Steven S. Weis, effective as of December 1, 1991, dated January 28, 1992, which
is required to be filed as an exhibit pursuant to Item 14(c), (filed as Exhibit
10.2 to Registrant's Annual Report on Form 10-K for its fiscal year ended
November 30, 1991 and incorporated in full herein by this reference).
10.3 Form of Indemnification Agreements between
Registrant and its Directors and Executive Officers (filed as Exhibit C to
Registrant's Proxy Statement, dated April 24, 1987, relating to the annual
meeting of its shareholders on June 1, 1987, and incorporated in full herein by
this reference).
10.4 Supplemental Retirement Contract between
Registrant and Richard L. Conte, dated as of September 1, 1988 (filed as Exhibit
10.4 to Registrant's Annual Report on Form 10-K for its fiscal year ended
November 30, 1988, and incorporated in full herein by this reference).
10.5 Termination Agreement between Registrant and
James W. Conte dated as of December 1, 1992 (filed as Exhibit 10.8 to
Registrant's amendment on Form 8 to Registrant's Annual Report on Form 10-K for
its fiscal year ended November 30, 1992, and incorporated in full herein by this
reference).
10.6 Registrant's 1989 Stock Incentive Plan.
(filed as Exhibit A to Registrant's Proxy Statement, dated July 12, 1989, and
incorporated in full herein by this reference.)
10.6.1 Form of Stock Option Agreement (filed as
Exhibit 10.6.1 to Registrant's Report on Form 10-K for its fiscal year ended
November 30, 1990 and incorporated in full herein by this reference).
10.6.2 Form of Nonstatutory Stock Option Agreement
with Director (filed as Exhibit 10.6.2 to Registrant's Report on Form 10-K for
its fiscal year ended November 30, 1990 and incorporated in full herein by this
reference).
10.7 Registrant's Combined Stock Option Plan for
Key Employees and Amendment Numbers One, Two, Three, Four and Five thereto
(filed as Exhibit 10.7 to Registrant's Report on Form 10-K for its fiscal year
ended November 30, 1989 and incorporated in full herein by this reference).
10.7.1 Form of Stock Option Agreement -- General
Stock Option (filed as Exhibit 10.7.1 to Registrant's Report on Form 10-K for
its fiscal year ended November 30, 1989 and incorporated in full herein by this
reference).
10.7.2 Form of Stock Option Agreement -- Incentive
Stock Option (filed as Exhibit 10.7.2 to Registrant's Report on Form 10-K for
its fiscal year ended November 30, 1989 and incorporated in full herein by this
reference).
<PAGE>
PART IV (continued)
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(continued)
(10) Material Contracts (continued)
10.8 Credit Agreement among Registrant,
Transitional Hospitals Corporation and Bank of America National Trust and Sav-
ings Association, dated as of September 20, 1993 (filed as Exhibit 10 to
Registrant's Report on Form 10-Q for its fiscal quarter ended August 31, 1993
and incorporated in full herein by this reference).
10.9 Employment Contract between Registrant and
Kay Seim dated as of June 15, 1992, which is required to be filed as an exhibit
pursuant to Item 14(c).
10.10 Termination Agreement between Registrant and
Loren B. Shook dated as of October 11, 1993, which is required to be filed as an
exhibit pursuant to Item 14(c).
10.11 Credit Agreement among Registrant, Priory
Hospitals Group Limited and Bank of America National Trust and Savings
Association dated as of December 23, 1993.
(11) Statement re computation of earnings per share
(22) Subsidiaries of the Registrant
(24) Consents of Experts
(b) Report on Form 8-K: None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COMMUNITY PSYCHIATRIC CENTERS
By:/s/ RICHARD L. CONTE Date: February 25, 1994
Richard L. Conte
Chairman of the Board
of Directors and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the regis-
trant and in the capacities and on the dates indicated.
/s/ RICHARD L. CONTE Date: February 25, 1994
Richard L. Conte
Chairman of the Board
of Directors and
Chief Executive Officer
(Principal Executive Officer)
/s/ STEVEN S. WEIS Date: February 25, 1994
Steven S. Weis
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ DAVID WAKEFIELD Date: February 25, 1994
David Wakefield
Director and Executive
Vice President
/s/ HARTLY FLEISCHMANN Date: February 25, 1994
Hartly Fleischmann
Director
/s/JACK H.LINDHEIMER,M.D. Date:February 25, 1994
Jack H. Lindheimer, M.D.
Director
/s/DANA L. SHIRES, M.D. Date: February 25, 1994
Dana L. Shires, Jr., M.D.
Director
/s/ DAVID L. DENNIS Date: February 25, 1994
David L. Dennis
Director
/s/ STEPHEN J. POWERS Date: February 25, 1994
Stephen J. Powers
Director
/s/ ROBERT L. THOMAS Date: February 25, 1994
Robert L. Thomas
Director
/s/ STEVEN M. GRAY Date: February 25, 1994
Steven M. Gray
Principal Accounting Officer or Controller
<PAGE>
Annual Report Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
Financial Statements and Supplementary Data
List of Financial Statements and Financial Statements Schedules
Certain Exhibits
Financial Statement Schedules
Community Psychiatric Centers and Subsidiaries
Laguna Hills, California
Year Ended November 30, 1993
<PAGE>
Community Psychiatric Centers
Form 10-K Item 14(a)(1) and (2)
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Community Psychiatric
Centers and subsidiaries are included in Item 8:
Report of Independent Auditors
Consolidated statements of operations - Years ended November 30, 1993,
1992 and 1991
Consolidated balance sheets - November 30, 1993 and 1992
Consolidated statements of stockholders' equity - Years ended
November 30, 1993, 1992 and 1991
Consolidated statements of cash flows - Years ended November 30,
1993, 1992 and 1991
Notes to consolidated financial statements - November 30, 1993
The following consolidated financial statement schedules of Community
Psychiatric Centers and subsidiaries are included in Item 14(d):
Schedule II - Amounts receivable from related parties and
underwriters, promoters, and employees other than
related parties
Schedule V - Property, plant and equipment
Schedule VI - Accumulated depreciation, depletion, and
amortization of property, plant and equipment
Schedule VIII - Valuation and qualifying accounts
Schedule X - Supplementary income statement information
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
<PAGE>
Report of Independent Auditors
Board of Directors
Community Psychiatric Centers
We have audited the accompanying consolidated balance sheets of Community
Psychiatric Centers and Subsidiaries as of November 30, 1993 and 1992, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended November 30, 1993. Our
audits also included the financial statement schedules listed in the index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Community Psychiatric Centers and Subsidiaries at November 30, 1993 and 1992,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended November 30, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in Note 5 to the consolidated financial statements, effective
December 1, 1992, the Company adopted Statement of Financial Accounting Standard
No. 109 Accounting for Income Taxes.
ERNST & YOUNG
Los Angeles, California
January 28, 1994
<PAGE>
<TABLE>
Community Psychiatric Centers and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
November 30
1993 1992
(In thousands)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 24,640 $ 67,837
Short-term investments 10,932 --
Accounts receivable, less allowance for doubtful
accounts (1993--$22,658 and 1992--$21,365) 80,024 77,342
Prepaid expenses and other current assets 16,468 13,330
Property held for sale, net 10,551 --
Refundable income taxes 5,763 3,764
Deferred income taxes 1,859 4,623
-------- --------
Total current assets 150,237 166,896
Property, buildings and equipment, at cost, less
allowances for depreciation 339,078 340,150
Other assets:
Deferred income taxes 1,126 2,384
Other assets 24,178 17,261
-------- --------
25,304 19,645
Excess of investment in subsidiaries over net assets
acquired 15,721 13,909
-------- --------
$530,340 $540,600
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Community Psychiatric Centers and Subsidiaries
Consolidated Balance Sheets (continued)
<CAPTION>
November 30
1993 1992
(In thousands)
Liabilities and stockholders' equity
Current liabilities:
<S> <C> <C>
Accounts payable $ 15,332 $ 7,714
Accrued payroll and other expenses 23,033 19,317
Dividends payable 111 3,950
Income taxes payable 2,641 --
Payable to third parties under reimbursement
contracts 4,990 1,820
Accrued restructuring charges 8,666 --
Current maturities on long-term debt 940 343
-------- -------
Total current liabilities 55,713 33,144
Long-term debt, exclusive of current maturities 40,718 26,293
Deferred credits:
Deferred compensation 1,814 5,278
Deferred income taxes 9,603 24,952
-------- -------
11,417 30,230
Stockholders' equity:
Preferred stock, par value $1 a share; authorized
2,000,000 shares; none issued -- --
Common stock, par value $1 a share; authorized
100,000,000 shares; issued 46,856,000 in 1993
and 1992 46,856 46,856
Additional paid-in capital 65,341 67,831
Less due from employees for exercise of stock options (35) (139)
-------- --------
112,162 114,548
Retained earnings 359,345 388,102
Foreign currency translation adjustment (3,815) (3,072)
-------- --------
467,692 499,578
Less cost of treasury stock--3,763,000 shares in 1993
and 3,831,000 shares in 1992 (45,200) (48,645)
-------- --------
422,492 450,933
-------- --------
$530,340 $540,600
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Community Psychiatric Centers and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Year Ended November 30
1993 1992 1991
(In thousands, except
per share amounts)
Revenues:
<S> <C> <C> <C>
Net operating revenues $335,578 $344,274 $392,873
Other income 2,301 3,433 3,738
-------- -------- --------
337,879 347,707 396,611
Costs and expenses:
Operating 170,077 167,116 159,323
General and administrative 136,416 129,600 153,124
Depreciation 12,570 12,631 11,941
Interest (principally on long-term debt) 2,420 1,607 1,067
Restructuring charge 54,950 -- --
-------- -------- --------
376,433 310,954 325,455
-------- -------- --------
Earnings (loss) before income taxes (38,554) 36,753 71,156
Income taxes (credit) (13,662) 13,616 25,867
-------- -------- --------
Net earnings (loss) $(24,892) $ 23,137 $ 45,289
======== ======== ========
Earnings (loss) per common share $ (.58) $ 0.52 $ 0.98
======== ======== ========
Average number of common shares 42,951 44,668 46,445
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Community Psychiatric Centers and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Amounts
Due From
Employees
for Foreign
Additional Exercise Currency
Common Paid-In of Stock Retained Translation Treasury Stock
Stock Capital Options Earnings Adjustment Shares Amount
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1990 $46,855 $67,961 $(6,047) $352,433 $5,595 (222) $(6,264)
Exercise of employees' stock options (254) (509) 33 1,022
Payments on amounts due on stock
options 6,415 (202) (5,917)
Income tax benefits derived from
employee stock option transactions 121
Stock repurchased (274) (3,022)
Net earnings for year 45,289
Dividends paid, $.36 per common share (16,727)
Foreign currency translation
adjustment (3,015)
Balance at November 30, 1991 46,855 67,828 (141) 380,995 2,580 (665) (14,181)
Payments on amounts due on stock
options 2
Subordinated debenture conversion 1 3
Stock repurchased (3,166) (34,464)
Net earnings for year 23,137
Dividends paid, $.36 per common share (16,030)
Foreign currency translation
adjustment (5,652)
Balance at November 30, 1992 46,856 67,831 (139) 388,102 (3,072) (3,831) (48,645)
Exercise of employees' stock
options (2,620) 153 4,283
Payments on amounts due on stock
options 104
Income tax benefits derived from
employee stock option transactions 130
Stock repurchased (85) (838)
Net loss for the year (24,892)
Dividends paid, $.09 per common share (3,865)
Foreign currency translation
adjustment (743)
Balance at November 30, 1993 $46,856 $65,341 $ (35) $359,345 $(3,815) (3,763) $(45,200)
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Community Psychiatric Centers and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended November 30
1993 1992 1991
(In thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $(24,892) $ 23,137 $45,289
Items not resulting in cash flows:
Depreciation and amortization 14,330 14,319 13,657
Provision for uncollectible accounts 21,266 17,482 51,276
Restructuring charge 54,950 -- --
(Gain) loss on sale of property,
buildings and equipment (232) 387 130
Other (1,561) (1,199) 766
Changes in assets and liabilities,
exclusive of business acquisition:
Short-term investments (10,932) -- --
Accounts receivable (23,948) (8,737) (21,560)
Receivable (payable) from third party
under reimbursement contracts 3,170 9,260 2,780
Prepaid expenses and other current
assets (3,138) (1,106) (3,943)
Accounts payable and accrued expenses 11,334 2,303 (513)
Accrued restructuring costs (8,892) -- --
Dividends payable (3,839) (232) (15)
Income taxes (10,685) 5,561 (17,873 )
Net cash provided from operations 16,931 61,175 69,994
Financing:
Proceeds from revolving credit facilities 13,267 -- --
Dividends paid (3,865) (16,030) (16,727)
Purchase of treasury shares (838) (34,464) --
Payments of deferred compensation (6,448) -- --
Net proceeds from exercise of stock
options, payments on loans and related
transactions 1,897 -- 742
Payments on long-term debt (667) (1,703) (1,028)
Net cash provided from (used for) financing
activities 3,346 (52,197) (17,013)
Investing:
Payment received on notes 669 277 259
Purchase of property, buildings and
equipment (58,269) (19,419) (23,494)
Proceeds from sale of property, buildings
and equipment 1,039 -- 80
Loans made to officers (227) (916) --
Investment in affiliate (1,602) -- --
Payment for business acquisitions:
Property, buildings and equipment (965) -- --
Excess of purchase price over fair value
of assets acquired (4,119) (584) (747)
Net cash used for investing activities (63,474) (20,642) (23,902)
Net increase (decrease) in cash and cash
equivalents (43,197) (11,664) 29,079
Beginning cash and cash equivalents 67,837 79,501 50,422
Ending cash and cash equivalents $ 24,640 $ 67,837 $ 79,501
See notes to consolidated financial statements.
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements
November 30, 1993
Note 1--Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany transactions have been
eliminated in the accompanying consolidated financial statements.
The excess of investment in subsidiaries over net assets acquired resulting
from acquisitions subsequent to 1970 is being amortized on a straight-line basis
over 40 years.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Those highly liquid
assets with a maturity of more than three months are classified as short-term
investments.
Property, Buildings and Equipment
Depreciation is generally computed on the straight-line method based on the
estimated useful lives of buildings or items of equipment.
Preopening Costs
Costs incurred prior to the opening of new facilities are deferred and
amortized on a straight-line basis over a five-year period.
Capitalization of Interest
Interest incurred in connection with development and construction of
hospitals is capitalized as part of the related property.
Net Operating Revenues
Net operating revenues include amounts for hospital services estimated by
management to be reimbursable by federal and state government programs
(Medicare, Medicaid and CHAMPUS); negotiated programs (managed care companies,
health maintenance organizations and preferred provider organizations) and
private pay payors (private sources and insurance companies which base
reimbursement on the Company's price schedule).
The following table summarizes the percent of net operating revenue
generated from all payors (1993 percentages include THC operations).
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Government and other cost-based <F1> 24% 16% 10%
CHAMPUS 5 4 5
Negotiated rate 41 35 30
Private pay 30 45 55
100% 100% 100%
Amounts received are generally less than the established billing rates of
the Company and the difference is reported as a contractual allowance and
deducted from operating revenues. Final determination of amounts earned for
hospital services is subject to audit by the payors. In the opinion of
management, adequate provision has been made for any adjustments that may result
from such audits. Differences between estimated provisions and final settlement
are reflected as charges and credits to operating revenues in the year the audit
reports are finalized. In the current year, the Company received approximately
$4.2 million in excess of recorded amounts related to prior year medicare
settlements. These amounts are included in operating revenue.
<F1> Includes Medicare DRG payments to THC.
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 1--Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
receivables from government programs.
The Company maintains cash equivalents and short-term investments with
various financial institutions. The Company's policy is designed to limit
exposure to any one institution. The Company performs periodic evaluations of
the relative credit standing to those financial institutions that are considered
in the Company's investment strategy. The Company and management do not believe
that there are any credit risks associated with receivables from governmental
programs. Negotiated and private receivables consist of receivables from
various payors, including individuals involved in diverse activities, subject to
differing economic conditions, and do not represent any concentrated credit
risks to the Company. Furthermore, management continually monitors and adjusts
its reserves and allowances associated with these receivables.
Stock Options
Proceeds from the exercise of stock options are credited to common stock,
to the extent of par value, and the balance to additional paid-in capital,
except when shares held in the treasury are issued. The difference between the
cost of the treasury stock and the option price is charged or credited to
additional paid-in capital. No charges or credits are made to earnings with
respect to options granted or exercised. Income tax benefits derived from
exercise of non-incentive stock options and from sales of stock obtained from
incentive stock options before the minimum holding period are credited to
additional paid-in capital.
Earnings (Loss) Per Share
Earnings (loss) per share have been computed based upon the weighted
average number of shares of common stock outstanding during the year. Dilutive
common stock equivalents have not been included in the computation of earnings
(loss) per share because the aggregate potential dilution resulting therefrom is
less than 3%.
Translation of Foreign Currencies
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with FASB Statement No. 52. All
balance sheet accounts have been translated at year-end exchange rates.
Statements of earnings amounts have been translated at the average exchange rate
for the year. The resulting currency translation adjustments were made directly
to a separate component of Stockholders Equity. The effect on the statement of
earnings of translation gains and losses is insignificant for all years
presented.
Reclassifications
Certain amounts have been reclassified to conform with 1993 presentations.
Note 2--Restructuring Charge
Effective February 28, 1993, the Company recorded a pre-tax charge of
$54,950,000 ($34,906,000 net of tax) in connection with the restructuring of
certain of its psychiatric hospitals. The charge comprised $35,270,000 to
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 2--Restructuring Charge (continued)
write-down buildings and other fixed assets, $2,121,000 to write-off
intangibles, $14,369,000 for future operating losses of the seven hospitals and
related corporate restructuring costs associated with terminating employees, and
$3,190,000 for additional accounts receivable allowances at the seven
hospitals. Six of the restructured hospitals have ceased operations. As of
November 30, 1993, one of the seven restructured hospitals remains operating.
The ultimate disposition of this hospital will be determined shortly. The
operating results of these hospitals are excluded from the Company's operations
after February 28, 1993. The Company received cash proceeds of approximately
$5 million in January and February of 1994 from the sale of two of these
restructured hospitals.
Note 3--Acquisitions
In April 1990, the Company acquired the assets of Harvard Medical Limited,
a patient liaison business in West Germany for approximately $2,250,000
including acquisition costs. The purchase agreement provided for additional
annual payments through 1993 if certain economic performance criteria are
achieved. In September 1991, October 1992, and October 1993, total additional
payments of $2,300,000 were made.
During 1993, the Company acquired six buildings and the related fixed
assets and modified the buildings into six long-term critical care facilities.
Total consideration paid was $33,047,000. The Company also acquired a substance
abuse center in the United Kingdom for a purchase price of $4,307,000.
The aggregate total costs of these acquisitions exceeded the fair value of
the assets acquired by approximately $7.8 million. The excess is being
amortized on a straight-line basis over a 40-year period. The acquisitions have
been accounted for as purchases and, accordingly, the results of operations of
the acquired facilities have been included in the consolidated statement of
earnings since the date of acquisition. The results of operations of the
acquired businesses prior to the date of acquisition were not material to the
consolidated financial statements.
During 1991, the Company incurred costs of approximately $1,600,000 in the
pursuit of two acquisitions that were eventually abandoned. The write-off of
these costs reduced earnings per share by $0.02.
Note 4--Property, Buildings and Equipment
<TABLE>
Property, buildings and equipment are summarized as follows:
<CAPTION>
Year Ended
November 30
1993 1992
(In thousands)
<S> <C> <C>
Land $ 55,685 $ 59,717
Buildings and improvements 282,027 293,833
Furniture, fixtures and equipment 70,855 55,688
Construction in progress (estimated additional
cost to complete at November 30, 1993--$16,599,000) 8,362 6,090
416,929 415,328
Less accumulated depreciation (77,851) (75,178)
$339,078 $340,150
The Company incurred interest expense of $2,655,000, $2,440,000 and
$2,504,000 in 1993, 1992 and 1991, respectively, including $235,000, $833,000
and $1,437,000 which was capitalized in 1993, 1992 and 1991, respectively.
Interest paid excluding capitalized portion is $2,450,000, $1,615,000 and
$1,079,000 during 1993, 1992 and 1991, respectively.
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 5--Income Taxes
Effective December 1, 1992, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
FASB Statement No. 109, "Accounting for Income Taxes". The changes required by
FASB No. 109 (principally adjusting the balances of certain deferred tax
accounts) did not have a significant effect on the financial statements of the
Company.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of November 30, 1993 are
as follows (in thousands):
<TABLE>
<CAPTION>
Deferred tax liabilities:
<S> <C>
Excess tax depreciation $ 15,393
Capitalized interest 5,565
Earnout payment 463
Other 2,219
Restructuring charge (14,037)
Total deferred tax liabilities $ 9,603
Deferred tax assets:
Current:
Excess of book over tax bad debt provision $ 1,575
Other 284
Total current deferred tax assets $ 1,859
Non-current:
Restructuring charge $ 2,134
Net operating loss 1,882
Excess tax depreciation (1,289)
Capitalized interest (847)
Other (54)
Net operating loss valuation reserve (700)
Total non-current deferred tax assets $ 1,126
</TABLE>
<TABLE>
Deferred tax liabilities and assets by tax jurisdictions are as follows:
<CAPTION>
Deferred Deferred
Tax Asset Tax liabilities
Current Non-current Current Non-current
U.S. Federal Income
<S> <C> <C> <C> <C> <C> <C>
Taxes (consolidated) $1,542 $ -- $ -- $8,875
Foreign (U.K.) -- -- -- 728
State 317 1,126 -- --
$1,859 $1,126 $ -- $9,603
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
Note 5--Income Taxes (continued)
For financial reporting purposes, income before income taxes includes the
following components:
<CAPTION>
1993 1992 1991
In thousands)
Pretax income (loss):
<S> <C> <C> <C>
United States $(44,796) $29,566 $63,079
Foreign 6,242 7,187 8,077
$(38,554) $36,753 $71,156
</TABLE>
<TABLE>
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<CAPTION>
Liability
Method Deferred Method
1993 1992 1991
(In thousands)
Current:
<S> <C> <C> <C>
Federal $ (3,576) $ 7,951 $15,355
Foreign 2,169 1,773 3,189
State 611 1,325 3,499
Total current (796) 11,049 22,043
Deferred:
Federal (9,967) 2,697 3,897
Foreign (94) (116) (364)
State (2,805) (14) 291
Total deferred (12,866) 2,567 3,824
$(13,662) $13,616 $25,867
</TABLE>
<TABLE>
The components of the provision for deferred income taxes for the years
ended November 30, 1992 and 1991 are as follows:
<CAPTION>
1992 1991
(In thousands)
<S> <C> <C>
Depreciation $ 1,771 $ 1,460
Bad debts 733 (195)
Other 63 2,559
Provision for deferred income taxes $ 2,567 $ 3,824
</TABLE>
<TABLE>
The reconciliation of income tax attributable to continuing operations
computed at the U.S. federal statutory tax rates to income tax expense is:
<CAPTION>
Liability Method Deferred Method
1993 1992 1991
Amount Percent Amount Percent Amount Percent
(Amounts in thousands)
Tax at U.S. statutory
<S> <C> <C> <C> <C> <C> <C>
rates $(13,108) (34)% $12,496 34% $24,193 34%
State income taxes,
net of federal tax
benefit, (charge) (1,448) (4) 865 2 2,501 4
Restructuring-intangibles 730 2 -- --
Other--net 164 1 255 1 (827) (2)
$(13,662) (35)% $13,616 37% $25,867 36%
The Company received income tax refunds (net of income taxes paid of
$3,170,000) of $3,240,000 in 1993. The Company made income tax payments of
$7,863,000 and $37,070,000 in 1992 and 1991, respectively.
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
Note 6--Long-Term Debt at November 30, 1993
<CAPTION>
1993 1992
(In thousands)
<S> <C> <C> <C>
Borrowings under revolving credit agreements $13,267 $ --
5 3/4% Convertible Subordinated Debentures due
2012, convertible into Common Stock of the
Company at $35.89 per share, may be redeemed
at 103.75% of face value as of October 15,
1992 declining annually to 100% of face value
on or after October 15, 1999 7,903 8,230
8 3/4% Subordinated Guaranteed Debentures due
1996 (net of unamortized discount of $68) 4,932 4,908
8 1/2% Subordinated Guaranteed Debentures due
1995 (net of unamortized discount of $73) 10,788 10,737
Notes payable, collateralized by deeds of trust on
land, buildings and equipment with a cost of
approximately $8,051, payable in installments to
2004 including interest ranging from 7% to 10 1/2% 2,421 2,761
Note payable due December 31, 1994, interest payable
quarterly at the LIBOR rate plus 2% 1,485 --
Other 434 --
41,658 26,636
Less current portion 940 343
$40,718 $26,293
</TABLE>
During September 1993, the Company entered into a credit agreement ("the
Agreement") whereby the Company may borrow, repay and reborrow up to $25 million
through November 30, 1995 (the revolving loan period), at which time any amount
outstanding is converted into a term loan payable in equal quarterly install-
ments through November 30, 1998. Interest is payable at the lesser of (1) LIBOR
plus 1.25% during the revolving loan period and LIBOR plus 1.50% during the term
loan period or (2) the greater of (a) the Bank's reference rate or (b) the Fed
Funds rate plus .5%.
During October 1993, the Company's subsidiary in the United Kingdom entered
into a temporary revolving credit facility whereby the Company was allowed to
borrow up to $7.5 million through December 31, 1993. Interest was to be
calculated at the rate of interest at which sterling pounds deposits would be
offered to major banks in the London interbank market, plus 1.25%. A final loan
agreement was signed in December 1993 to replace the temporary facility whereby
the Company may borrow up to 10 million sterling pounds through November 30,
1995, at which time any amount outstanding is converted into a term loan payable
in equal quarterly installments through November 30, 1998. Interest is payable
at the sterling LIBOR rate plus 1.25% up to the conversion date and LIBOR plus
1.50% after the conversion date.
The Agreements contain provisions which, among other things, place
restrictions on borrowing, capital expenditures and the payment of dividends,
and requires the maintenance of certain financial ratios including tangible net
worth, fixed charge coverage and funded debt. Management believes that the
Company is currently in compliance with all material covenants and restrictions
contained in the Agreements. Borrowings are unsecured and are guaranteed by the
Company's domestic subsidiaries.
Under the terms of the Debenture Payment Assumption Agreement, Vivra
Incorporated is obligated to pay $4,139,000 of the 8 1/2% Subordinated Guaran-
teed Debentures due 1995. The balance shown above has been reduced by that
amount. The Company has guaranteed the payment by Vivra.
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 6--Long-Term Debt at November 30, 1993 (continued)
The conversion price of the convertible debentures is subject to
antidilutive provisions.
<TABLE>
The approximate annual maturities of long-term debt for five years ending
November 30, 1998 are as follows (In thousands):
<CAPTION>
<C> <C>
1994 $ 940
1995 $13,010
1996 $ 9,669
1997 $ 4,733
1998 $ 4,572
</TABLE>
Note 7--Capital Stock and Stock Options
The Company has stock option plans whereby options may be granted at not less
than 100% of fair market value at the date of grant and are exercisable at any
time thereafter for a period of ten years, or five years for options granted
prior to November 8, 1990. Options granted on and after November 8, 1990, are
exercisable 20% at date of grant with the remaining 80% becoming exercisable at
the rate of 20% each December 1 thereafter, with the exception of 100,000 op-
tions re-issued to certain officers of the Company (see below) which vested
immediately. At the time of exercise, at least one-third is payable in cash and
the balance, if any, with a five-year note bearing interest at 8%. The unpaid
portion of options exercised, evidenced by a note, has been deducted from
Stockholders' Equity in the accompanying Consolidated Balance Sheet. Stock
options may also be exercised by the return of previously acquired shares of
common stock. Shares obtained by such exercises are included in treasury stock
and valued at the market value at date of exercise.
On May 20, 1993, the Company issued 860,000 of non-qualified options to
several key executives. The option price is $20 above the closing price of the
Company's stock on the date of grant, or $29.50 per share. For each year during
which the Company meets specified performance targets, the option price will
decrease by $5.00 until the option price and market price converge. The option
price will be fixed at the market price on the date of convergence and the
options will vest. If convergence does not occur during the first five years
after grant of the options, the options will be cancelled and the shares will
revert to the 1989 Stock Incentive Plan and be available for reissuance.
On February 14, 1992, 315,200 outstanding options granted in previous years
at prices ranging from $18.54 to $34.13 were revalued to $14.63, the market
price on that day. Options granted previously to the five then most highly-
compensated officers were not revalued. On January 29, 1993, 717,249 options
granted previously to those individuals were cancelled, revalued, and re-issued
at a 1 to 2 ratio. The options were granted in previous years at prices ranging
from $24.08 to $26.81. The options were revalued to $10.88, $.25 higher than
the closing market price on that day.
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 7--Capital Stock and Stock Options (continued)
<TABLE>
A summary of activity under the plans during 1993, 1992 and 1991 is as
follows:
<CAPTION>
Number Aggregate
of shares Per share option price
(In thousands, except per share amounts)
Options outstanding at November 30,
<C> <C> <C> <C>
1990 1,636,200 $13.02-31.88 $42,686
Options granted 25,500 28.88-34.13 751
Options cancelled and expired (56,500) 13.02-28.88 (1,495)
Treasury stock issued on exercise (32,600) 13.02-31.88 (754)
Options outstanding at November 30,
1991 1,572,600 18.54-34.13 41,188
Options granted 624,000 10.88-14.63 8,108
Options cancelled and expired (132,600) 21.27-27.13 (3,451)
Options revalued (3,769)
Options outstanding at November 30,
1992 2,064,000 10.88-31.88 42,076
Options granted 2,325,000 9.50-33.00 40,673
Options cancelled and expired (1,017,000) 14.63-31.88 (23,593)
Options revalued and reissued 359,000 10.88 3,906
Treasury stock issued on exercise (153,000) 10.88-14.63 (1,663)
Options outstanding at November 30,
1993 3,578,000 $ 9.50-33.00 $ 61,399
The market value of the Company's common stock at the date the options were
exercised was $26.75-$38.63 for 1991. There were no options exercised in 1992.
The market value of the Company's common stock at the date the options were
exercised was $13-13.88 for 1993.
At November 30, 1993, 1,147,733 options were exercisable and 2,716,187
(354,844 at November 30, 1992) were available for grant under the plans.
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 8--Deferred Compensation
On May 21, 1992, the then Chairman of the Board of Directors of the Company
resigned. During the course of his employment with the Company, the former
Chairman had an employment contract which provided for consideration for
consulting services and a noncompetition agreement to commence in 1995 or earl-
ier in the event of permanent disability. The consideration was equivalent to
one-half of the total qualifying compensation paid during full time employment
from December 1, 1970 through November 30, 1990 and commencing December 1, 1975,
the amount on which such qualifying consideration based was increased by 6.5%
annually through November 30, 1990 and 8% annually thereafter. The amount due
under the terms of the contract was payable in equal annual installments over
the life of the former Chairman.
At the time of the former Chairman's resignation, an acceleration of
payments due him was agreed to by the Company. Based on a computation of the
present value of the contractually due amount, a payment of $6,286,000 was made
in December 1992. Of this amount, $3,356,000 was provided for in the financial
statements of the Company through November 30, 1992. The remaining amount,
$2,930,000, is being amortized as consideration (approximately $244,000 annual-
ly) for services rendered over the term of the consulting and non-competition
agreements which extend to November 30, 2004.
Effective November 30, 1989, a former Chairman of the Board of Directors
(and current Chairman of the Board of Directors of Vivra Incorporated) termin-
ated his employment with the Company and began receiving deferred compensation
benefits in accordance with contract terms substantially the same as the con-
tract described above. Approximately $162,000 of the annual payment of $323,000
is charged to expense as consideration for services rendered over the term of
the consulting and noncompetition agreements which extend to November 30, 2000.
Deferred compensation accrued for 1993, 1992 and 1991 was $329,000,
$292,000 and $241,000, respectively.
Note 9--Profit Sharing Plan
The Company has a noncontributory, trusteed profit sharing plan which is
qualified under Section 401 of the Internal Revenue Code. All regular nonunion
employees in the United States (union employees are eligible if the collective
bargaining agreement so specifies) with at least 1,000 hours of service per
annum, over 21 years of age, and employed at year-end are eligible for
participation in the plan after one year of employment. The Company's
contribution to the plan for any fiscal year, as determined by the Board of
Directors, is discretionary, but is limited to an amount which is deductible for
federal income tax purposes. Contributions to the plan are allocated among
eligible participants in the proportion of their salaries to the total salaries
of all participants. There were no contributions made by the Company in 1993,
1992 and 1991. During the current year, a 401(k) segment was added to the plan
which allows employees to defer a portion of their salary on a pre-tax basis.
The Company may match a portion of the amount deferred. The Company's matching
contribution is determined by the Board of Directors each year. During 1993, no
matching contribution was made.
Note 10--Business Segment Information
The Company is engaged in two principal business segments. The Company
provides psychiatric services for adults, adolescents, and children with acute
psychiatric, emotional, substance abuse, and behavioral disorders in the United
States and the United Kingdom. The Company also offers long-term critical care
services.
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 10--Business Segment Information (continued)
<TABLE>
The following tables have been prepared in accordance with the requirements
of FASB Statement No. 14. This information has been derived from the Company's
accounting records.
<CAPTION>
Year Ended November 30
1993 1992 1991
(In thousands)
Operating revenues:
<S> <C> <C> <C>
U.S. Psychiatric division $ 283,539 $ 310,768 $ 357,536
U.K. Psychiatric division 33,918 33,506 35,337
Long-term critical care division 18,121 -- --
Total operating revenues $ 335,578 $ 344,274 $392,873
Operating profit:
U.S. Psychiatric division $ 25,134 $ 38,384 $ 70,038
U.K. Psychiatric division 8,862 9,505 10,388
Long-term critical care division (4,911) (331) --
Total operating profit 29,085 47,558 80,426
Other income and expense:
Other income 2,301 3,433 3,738
Depreciation expense (12,570) (12,631) (11,941)
Interest expense (2,420) (1,607) (1,067)
Restructuring charge (54,950) -- --
Earnings (loss) before income taxes $ (38,554) $ 36,753 $ 71,156
Identifiable Assets:
U.S. Psychiatric division $ 410,892 $ 499,110 $ 526,647
U.K. Psychiatric division 50,550 39,684 43,023
Long-term critical care division 68,898 1,806 --
Total assets $ 530,340 $ 540,600 $ 569,670
Depreciation Expense:
U.S. Psychiatric division $ 10,401 $ 11,021 $ 10,470
U.K. Psychiatric division 1,691 1,610 1,471
Long-term critical care division 478 -- --
$ 12,570 $ 12,631 $ 11,941
Capitalized Expenditures for property,
building, and equipment: <F1>
U.S. Psychiatric division $ 9,104 $ 10,914 $ 18,587
U.K. Psychiatric division 5,018 7,254 4,907
Long-term critical care division 44,147 1,251 --
$ 58,269 $ 19,419 $ 23,494
<F1> Excludes assets acquired in business acquisitions of $965,000 in 1993.
</TABLE>
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 11--Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Short-term investments: The fair values for marketable securities are
based on quoted market prices.
Long-term and short-term debt: The carrying amounts of the Company's
long-term and short-term debt approximates its fair value.
<TABLE>
The carrying amounts and fair values of the Company's financial instruments
at November 30, 1993:
<CAPTION>
Carrying Fair
Amount Value
(In thousands)
<S> <C> <C>
Cash and cash equivalents $24,640 $24,660
Short-term investments $10,932 $11,147
Short-term debt $ 940 $ 940
Long-term debt $40,718 $40,718
</TABLE>
Note 12--Contingencies
Following the release of the Company's third quarter earnings in September
1991, several securities class action lawsuits and one related shareholder
derivative action were filed against the Company and certain of its officers and
directors. These suits allege the Company made false and misleading statements
about its financial condition and business prospects in past periods. The
Company maintains its actions were correct and will vigorously defend these
suits.
The Company is subject to other claims and suits arising in the ordinary
course of business. In the opinion of management, ultimate resolution of all
pending legal proceedings will not have a material adverse effect on the
Company's business or financial condition.
<PAGE>
Community Psychiatric Centers and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Note 13--Quarterly Results of Operations (Unaudited)
<TABLE>
The following is a tabulation of the unaudited quarterly data for the three
years ended November 30, 1993:
<CAPTION>
Three Months Ended
February 28 May 31 August 31 November 30
(Thousands of dollars, except per share data)
1993
<S> <C> <C> <C> <C>
Total revenues $ 84,689 $86,149 $80,009 $87,032
Net earnings (loss) (37,935) 3,490 4,068 5,485
Earnings per common share <F2> (.88) 0.08 0.09 0.13
Per common share:
Dividends declared .09 -- -- --
Stock prices:
High 11 3/4 13 3/4 12 3/4 14 7/8
Low 8 7/8 9 9 3/4 10 1/8
1992
Total revenues $84,451 $94,696 $81,662 $86,898
Net earnings 6,941 12,946 2,098 1,152
Earnings per common share 0.15 0.29 0.05 0.03
Per common share:
Dividends declared 0.09 0.09 0.09 0.09
Stock prices:
High 15 1/2 13 3/4 11 3/4 10 5/8
Low 11 3/4 10 5/8 9 1/2 8 5/8
1991
Total revenues $103,086 $117,724 $90,347 $85,454
Net earnings (loss) 21,145 26,712 435 (3,003)
Earnings (loss) per common share 0.46 0.58 0.01<F1> (0.06)<F1>
Per common share:
Dividends declared 0.09 0.09 0.09 0.09
Stock prices:
High 34 7/8 40 35 28 5/8
Low 25 1/4 30 25 1/2 10 5/8
<FN>
<F1> Earnings per share in the third and fourth quarter include $(0.32) and
$(0.19), respectively, for special additions of $23,000,000 and $14,000,000,
respectively, to the allowance for uncollectible accounts. This action was
in recognition of the increase in accounts receivable caused by a slowdown in
billing and collection activity resulting from increased volume in admissions
coupled with increased volume and complexity of managed care contracts.
Earnings per share in the fourth quarter include $(0.02) for the write-off of
abandoned acquisition costs.
<F2> Earnings per share in the first quarter include (.81) for a pre-tax charge of
$54,950,000 ($34,906,000 net of tax) in connection with the restructuring of
certain of its psychiatric hospitals.
</TABLE>
[TEXT]
<TABLE>
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B Column C Column D Column E
Deductions Balance at end of period
Balance at (1) (2)
beginning of Amounts Amounts (1) (2)
Name of Debtor period Additions collected written off Current Not current
-------------- ------------ ---------- ----------- ----------- ------- -----------
Year ended November 30, 1993:
Due from Richard L. Conte:
<S> <C> <C> <C> <C> <C>
Other $298,000 $ 3,000 $295,000<F3><F4>
For interest 1,000 $ 13,000 13,000 $1,000<F1>
Due from Loren B. Shook:
Other 240,000 7,000 233,000<F3><F4>
For interest 1,000 12,000 12,000 1,000<F1>
Due from Steven S. Weis:
Other 298,000 4,000 294,000<F3><F4>
For interest 1,000 15,000 15,000 1,000<F1>
Due from James P. Smith:
Other 268,000 268,000 --
For interest 1,000 1,000 2,000 --
Due from Barry Dyches:
For exercise of stock option 8,000 8,000 --
Other 298,000 4,000 294,000<F3><F4>
For interest 1,000 12,000 13,000 --
Due from Terrance Bridges:
Other 299,000 4,000 295,000<F3><F4>
For interest 1,000 15,000 15,000 1,000<F1>
Due from Walter Grono:
Other 239,000 3,000 236,000<F3><F4>
For interest 1,000 12,000 12,000 1,000<F1>
Due from Kay E. Seim:
Other 227,000 227,000<F3><F4>
<FN>
<F1> Included in other current assets.
<F2> Deducted from common stock.
<F3> Notes bear interest at 5% or 8% and are due thirty years from execution.
<F4> Included in other assets.
<F5> Amounts collected on exercise of stock option loans and related interest
receivable include cash payments and shares of common stock surrendered
to the Company.
</TABLE>
<PAGE>
<TABLE>
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties (continued)
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B Column C Column D Column E
Deductions Balance at end of period
Balance at (1) (2)
beginning of Amounts Amounts (1) (2)
Name of Debtor period Additions collected written off Current Not current
-------------- ------------ ----------- --------- ------------ -------- -----------
Year ended November 30, 1992:
Due from Richard Conte:
<S> <C> <C> <C> <C> <C>
Other $249,000 $ 54,000 $5,000 $298,000<F3><F4>
For interest 1,000 10,000 10,000 $1,000<F1>
Due from Loren B. Shook:
Other 249,000 9,000 240,000<F3><F4>
For interest 1,000 11,000 1,000 1,000<F1>
Due from Steven S. Weis:
Other 300,000 2,000 298,000<F3><F4>
For interest 2,000 1,000 1,000<F1>
Due from James P. Smith:
Other 274,000 6,000 268,000<F3><F4>
For interest 1,000 12,000 12,000 1,000<F1>
Due from Barry Dyches:
For exercise of stock option 8,000 8,000<F2><F3>
Other 280,000 21,000 3,000 298,000<F3><F4>
For interest 1,000 6,000 6,000 1,000<F1>
Due from Terrance Bridges:
Other 300,000 1,000 299,000<F3><F4>
For interest 1,000 1,000<F1>
Due from Walter Grono:
Other 240,000 1,000 239,000<F3><F4>
For interest 2,000 1,000 1,000<F1>
<FN>
<F1> Included in other current assets.
<F2> Deducted from common stock.
<F3> Notes bear interest at 5% or 8% and are due thirty years from execution.
<F4> Included in other assets.
<F5> Amounts collected on exercise of stock option loans and related interest
receivable include cash payments and shares of common stock surrendered
to the Company.
</TABLE>
<PAGE>
<TABLE>
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties (continued)
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B Column C Column D Column E
Deductions Balance at end of period
Balance at (1) (2)
beginning of Amounts Amounts (1) (2)
Name of Debtor period Additions collected written off Current Not current
-------------- ------------- ---------- ----------- ------------- --------- -----------
Year ended November 30, 1991:
Due from Loren B. Shook:
<S> <C> <C> <C> <C> <C>
For exercise of stock option $3,450,000 $3,450,000<F5>
Other 255,000 6,000 $249,000<F3><F4>
For interest 73,000 $20,000 92,000<F5> $1,000<F1>
Due from Richard L. Conte:
For exercise of stock option 2,202,000 2,202,000<F5>
Other 255,000 6,000 249,000<F3><F4>
For interest 43,000 19,000 61,000<F5> 1,000<F1>
Due from James P. Smith:
For exercise of stock option 135,000 135,000<F5>
Other 279,000 5,000 274,000<F3><F4>
For interest 2,000 15,000 16,000 1,000<F1>
Due from Barry Dyches:
For exercise of stock option 11,000 3,000<F5> 8,000<F2>
Other 285,000 5,000 280,000<F3><F4>
For interest 1,000 14,000 14,000<F5> 1,000<F1>
<FN>
<F1> Included in other current assets.
<F2> Deducted from common stock.
<F3> Notes bear interest at 5% or 8% and are due thirty years from execution.
<F4> Included in other assets.
<F5> Amounts collected on exercise of stock option loans and related interest
receivable include cash payments and shares of common stock surrendered
to the Company.
</TABLE>
<PAGE>
<TABLE>
Schedule V--Property, Buildings and Equipment
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Other charges--
beginning of Additions Add (deduct)-- Balance at end
Classification period at cost Retirements Describe of period
-------------- ------------ ----------- ------------ --------------- --------------
Year ended November 30, 1991:
<S> <C> <C> <C> <C> <C>
Land $ 53,764,000 $ 5,603,000 $ (359,000)<F2> $ 59,008,000
Buildings and improvements 269,772,000 3,246,000 16,623,000 <F1> 287,228,000
(2,413,000)<F2>
Furniture, fixtures and equipment 46,332,000 5,693,000 $ 500,000 (572,000)<F2> 50,953,000
Construction in progress 13,828,000 8,952,000<F7> 23,000 (16,623,000)<F1> 6,104,000
(30,000)<F2>
------------ ----------- ---------- ----------- ------------
$383,696,000 $23,494,000 $ 523,000 $(3,374,000) $403,293,000
============ =========== ========== =========== ============
Year ended December 31, 1992:
Land $ 59,008,000 $ 1,376,000 $ 95,000 $ (572,000)<F2> $ 59,717,000
Buildings and improvements 287,228,000 7,069,000 264,000 4,473,000 <F1> 293,833,000
(4,673,000)<F2>
Furniture, fixtures and equipment 50,953,000 6,325,000 319,000 (1,253,000)<F2> 55,688,000
(18,000)<F1>
Construction in progress 6,104,000 4,649,000<F7> 11,000 (4,455,000)<F1> 6,090,000
(197,000)<F2>
------------ ----------- ---------- ------------ ------------
$403,293,000 $19,419,000 $ 689,000 $(6,695,000) $415,328,000
============ =========== ========== =========== ============
Year ended November 30, 1993:
Land $ 59,717,000 $ 7,045,000 $1,267,000 $ 812,000 <F1> $ 55,685,000
(71,000)<F2>
(10,551,000)<F4>
Buildings and improvements 293,833,000 23,230,000 549,000 2,905,000 <F1> 282,027,000
(565,000)<F2>
(37,792,000)<F3>
965,000 <F6>
Furniture, fixtures and equipment 55,688,000 21,457,000<F5> 479,000 1,301,000 <F1> 70,855,000
(170,000)<F2>
(6,942,000)<F3>
Construction in progress 6,090,000 7,399,000<F7> 12,000 (5,050,000)<F1> 8,362,000
(65,000)<F2>
------------ ----------- ---------- ------------ ------------
$415,328,000 $59,131,000 $2,307,000 $(55,223,000) $416,929,000
============ =========== ========== ============ ============
<FN>
<F1> Reclassification.
<F2> Foreign currency translation adjustment.
<F3> Write-down of fixed assets at closed hospitals.
<F4> Reclassification of land to be held for sale.
<F5> Includes $862,000 of fixed assets acquired under capital lease.
<F6> Represents assets acquired in business acquisitions of $965,000 in 1993.
<F7> Construction or renovation of hospitals and related facilities.
</TABLE>
<PAGE>
<TABLE>
Schedule VI--Accumulated Depreciation, Depletion and Amortization of Property, Buildings and Equipment
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B Column C Column D Column E Column F
Balance at Other charges--
beginning of Charged to costs Add (deduct)-- Balance at end
Classification period and expenses Retirements Describe of period
-------------- ------------ ---------------- ----------- --------------- ---------------
Year ended November 30, 1991:
<S> <C> <C> <C> <C> <C>
Buildings and improvements $33,506,000 $ 7,629,000 $ 1,000 $ (302,000)<F1> $40,832,000
Furniture, fixtures and equipment 19,491,000 4,312,000 292,000 (252,000)<F1> 23,259,000
----------- ----------- -------- ----------- -----------
$52,997,000 $11,941,000<F2> $293,000 $ (554,000) $64,091,000
=========== =========== ======== =========== ===========
Year ended November 30, 1992:
Buildings and improvements $40,832,000 $ 7,946,000 $103,000 $ (624,000) $48,051,000
Furniture, fixtures and equipment 23,259,000 4,685,000 200,000 (617,000) 27,127,000
----------- ----------- -------- ----------- -----------
$64,091,000 $12,631,000<F2> $303,000 $(1,241,000) $75,178,000
=========== =========== ======== =========== ===========
Year ended November 30, 1993:
Buildings and improvements $48,051,000 $ 7,455,000 $280,000 $ (15,000)<F1> $48,688,000
(6,523,000)<F3>
Furniture, fixtures and equipment 27,127,000 5,115,000 25,000 (113,000)<F1> 29,163,000
(2,941,000)<F3>
----------- ----------- -------- ----------- -----------
$75,178,000 $12,570,000<F2> $305,000 $(9,592,000) $77,851,000
=========== =========== ======== =========== ===========
<FN>
<F1> Foreign currency translation adjustment.
<F2> The annual provisions for depreciation have been computed principally on
a straight-line basis in accordance with the following estimated useful
lives:
Building and improvements 20-40 years
Furniture, fixtures and equipment 3-10 years
<F3> Related to write-down of fixed assets at closed hospitals.
</TABLE>
<PAGE>
<TABLE>
Schedule VIII--Valuation and Qualifying Accounts
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(2)
Charged
Balance at (1) to other
beginning of Charged to costs accounts-- Deductions-- Balance at end
Description period and expenses Describe Describe of period
----------- ------------ ---------------- ------------ ------------- --------------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C>
Year ended November 30, 1991 $12,454,000 $51,276,000 $(40,293,000)<F1> $23,304,000
(133,000)<F2>
Year ended November 30, 1992 23,304,000 17,482,000 (19,165,000)<F1> 21,365,000
(256,000)<F2>
Year ended November 30, 1993 21,365,000 21,266,000 (19,943,000)<F1> 22,658,000
(30,000)<F2>
<FN>
<F1> Write-offs, net of recoveries.
<F2> Foreign currency translation adjustment.
</TABLE>
<PAGE>
<TABLE>
Schedule X--Supplementary Income Statement Information
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Column A Column B
Charged to costs and expenses
Year Ended November 30,
Item 1991 1992 1993
------ ------ ------ ------
<S> <C> <C> <C>
Maintenance and repairs $4,043,393 $4,085,454 $3,723,354
Taxes, other than payroll and
income taxes:
Real estate and personal property
taxes 6,427,000 6,981,000 6,788,737
Royalties None None None
Advertising costs <F1> <F1> <F1>
<FN>
<F1> Amounts for maintenance and repairs and advertising costs are not
presented as such amounts are less than 1% of total operating revenues.
</TABLE>
<PAGE>
<TABLE>
Exhibit 11 Statements Re:
Computation of Per Share Earnings
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Years Ended November 30,
1991 1992 1993
------ ------ ------
Primary:
<S> <C> <C> <C>
Average shares outstanding during
the period--treating as outstanding
only the paid portion of shares
portion of shares issued to employees
for exercise of stock options 46,445,000 44,668,000 42,951,000
(a) Stock options granted to
employees and unpaid portion
of shares issued to employees
for exercise of stock options,
based on the treasury-stock
method using average market price 200,000<F1> <F2> <F3>
----------- ----------- ------------
TOTAL 46,645,000 44,668,000 42,951,000
=========== =========== ============
Net earnings (loss) $45,289,000 $23,137,000 $(24,892,000)
=========== =========== ============
Earnings (loss) per share $ 0.97 $ 0.52 $ (.58)
=========== =========== ============
Fully diluted:
Average shares outstanding during the
year--treating as outstanding only
the paid portion of shares issued to
employees for exercise of stock options 46,445,000 44,668,000 42,951,000
(a) Stock options granted to
employees and unpaid portion of
shares issued to employees for
exercise of stock options,
based on the treasury-stock
method using the year-end
market price, if higher than
average market price 200,000<F1> <F2> <F3>
----------- ----------- ------------
TOTAL 46,645,000 44,668,000 42,951,000
=========== =========== ============
Net earnings (loss) $45,289,000 $23,137,000 $(24,892,000)
=========== =========== ============
Earnings (loss) per share $ 0.97 $ 0.52 $ (.58)
=========== =========== ============
<FN>
<F1> As the dilutive common stock equivalents are less than 3% of the
weighted average outstanding shares, they have not been included in
the 1991 computation of earnings per share as shown in the
Consolidated Statement of Earnings and Five Year Summary of Selected
Financial Data.
<F2> During the fiscal year ended November 30, 1992, there were no stock
options outstanding at exercise prices above average or ending
market price.
<F3> The impact of stock options is excluded from earnings (loss) per share
as the impact of stock equivalents is anti-dilutive.
</TABLE>
<PAGE>
<TABLE>
Exhibit 11 Statements Re:
Computation of Per Share Earnings
Community Psychiatric Centers and Subsidiaries
<CAPTION>
Years Ended November 30,
1991 1992 1993
------ ------ ------
Primary:
<S> <C> <C> <C>
Average shares outstanding during the
period--treating as outstanding only the
paid portion of shares issued to employees
for exercise of stock options 46,445,000 44,668,000 42,951,000
(a) Stock options granted to employees and
unpaid portion of shares issued to
employees for exercise of stock options,
based on the treasury-stock method using
the year-end market price, if higher than
average market price 200,000<F1> <F2> <F3>
----------- ----------- ------------
TOTAL 46,645,000 44,668,000 42,951,000
=========== =========== ============
Net earnings (loss) $45,289,000 $23,137,000 $(24,892,000)
=========== =========== ============
Earnings (loss) per share $ 0.97 $ 0.52 $ (0.58)
=========== =========== ============
Fully diluted:
Average shares outstanding during the
year--treating as outstanding only the paid
portion of shares issued to employees for
exercise of stock options 46,445,000 44,668,000 42,951,000
(a) Stock options granted to employees and
unpaid portion of shares issued to
employes for exercise of stock options,
based on the treasury-stock method using
the year-end market price, if higher than
average market price 200,000<F1> <F2> <F3>
----------- ----------- ------------
TOTAL 46,645,000 44,668,000 42,951,000
=========== =========== ============
Net earnings (loss) $45,289,000 $23,137,000 $(24,892,000)
=========== =========== ============
Earnings (loss) per share $ 0.97 $ 0.52 $ (0.58)
=========== =========== ============
<FN>
<F1> As the dilutive common stock equivalents are less than 3% of the weighted
average outstanding shares, they have not been included in the 1991
computation of earnings per share as shown in the Consolidated
Statement of Earnings and Five Year Summary of Selected Financial Data.
<F2> During the fiscal year ended November 30, 1992, there were no stock
options outstanding at exercise prices above average or ending market
price.
<F3> The impact of stock options is excluded from earnings (loss) per share
as the impact of stock equivalents is anti-dilutive.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT INDEXES
<CAPTION>
Exhibit
No. Document
- - ------- ----------
<C> <S>
3 Articles of Incorporation and By-Laws:
3.1 Restated Articles of Incorporation as
adopted by vote of shareholders on May 20, 1993
(filed as Appendix B to Registrant's Proxy
Statement dated April 20, 1993, relating to the
annual meeting of its shareholders on May 20,
1993 and incorporated in full herein by this
reference).
3.2 By-Laws of Registrant as amended by vote
of shareholders on May 23, 1991 (filed as
Exhibit 3.2 to Registrant's Annual Report on Form
10-K for its fiscal year ended November 30, 1991
and incorporated in full herein by this reference)
and as amended by vote of shareholders on May 20,
1993 (filed as Appendix A to Registrant's Proxy
Statement dated April 20, 1993, relating to the
annual meeting of its shareholders on May 20,
1993, and incorporated in full herein by this
reference).
10 Material Contracts
10.1 Employment Contracts between Registrant
and Richard L. Conte, dated as of May 1, 1992.
10.2 Employment Contracts between Registrant
and Steven S. Weis, effective December 1, 1991, dated
January 28, 1992, which is required to be filed as an
exhibit pursuant to Item 14(c), (filed as Exhibit 10.2
to Registrant's Annual Report on Form 10-K for its
fiscal year ended November 30, 1991 and incorporated
in full herein by this reference).
10.3 Form of Indemnification Agreements between
Registrant and its Directors and Executive Officers
(filed as Exhibit C to Registrant's Proxy Statement,
dated April 24, 1987, relating to the annual meeting
of its shareholders on June 1, 1987, and incorporated
in full herein by this reference).
10.4 Supplemental Retirement Contract between
Registrant and Richard L. Conte, dated as of
September 1, 1988 (filed as Exhibit 10.4 to
Registrant's Annual Report on Form 10-K for its
fiscal year ended November 30, 1988, and incorporated
in full herein by this reference).
10.5 Termination Agreement between Registrant
and James W. Conte, dated as of December 1, 1992
(filed as Exhibit 10.8 to Registrant's amendment
on Form 8 to Registrant's Annual Report on
Form 10-K for its fiscal year ended November 30,
1992, and incorporated in full herein by this
reference).
10.6 Registrant's 1989 Stock Incentive Plan.
(filed as Exhibit A to Registrant's Proxy Statement,
dated July 12, 1989, and incorporated in full herein
by this reference).
10.6.1 Form of Stock Option Agreement (filed as
Exhibit 10.6.1 to Registrant's Report on Form 10-K
for its fiscal year ended November 30, 1990 and
incorporated in full herein by this reference).
</TABLE>
<PAGE>
<TABLE>
EXHIBIT INDEXES (continued)
<CAPTION>
Exhibit
No. Document
- - ------- ----------
<C> <S>
10 10.6.2 Form of Nonstatutory Stock Option Agreement
with Director (filed as Exhibit 10.6.2 to Registrant's
Report on Form 10-K for its fiscal year ended
November 30, 1990 and incorporated in full herein by
this reference).
10.7 Registrant's Combined Stock Option Plan for
Key Employees and Amendment Numbers One, Two, Three,
Four and Five thereto (filed as Exhibit 10.7 to
Registrant's Report on Form 10-K for its fiscal year
ended November 30, 1989 and incorporated in full
herein by this reference).
10.7.1 Form of Stock Option Agreement--General
Stock Option (filed as Exhibit 10.7.1 to Registrant's
Report on Form 10-K for its fiscal year ended
November 30, 1989 and incorporated in full herein by
this reference).
10.7.2 Form of Stock Option Agreement--Incentive
Stock Option (filed as Exhibit 10.7.2 to Registrant's
Report on Form 10-K for its fiscal year ended
November 30, 1989 and incorporated in full herein by
this reference).
10.8 Credit Agreement among Registrant,
Transitional Hospitals Corporation and Bank of
America National Trust and Savings Association,
dated as of September 20, 1993 (filed as Exhibit 10
to Registrant's Report on Form 10-Q for its fiscal
quarter ended August 31, 1993 and incorporated in
full herein by this reference).
10.9 Employee Contract between Registrant and Kay
Seim dated as of June 15, 1992, which is required to be
filed as an exhibit pursuant to Item 14(c).
10.10 Termination Agreement between Registrant
and Loren B. Shook dated as of October 11, 1993.
10.11 Credit Agreement, among Registrant, Priory
Hospitals Group Limited and Bank of America National
Trust and Savings Association dated as of December 23,
1993.
11 Statement re computation of earnings per share.
22 Subsidiaries of the Registrant.
24 Consents of Experts.
</TABLE>
<PAGE>
<TABLE>
Exhibit 22 Re: Subsidiaries of the Registrant
The Company's subsidiaries, the fictitious business names (if any) under which they do business, and the state or other
jurisdiction of incorporation or organization of each are set forth below. All are wholly owned by the Company and included
in the Consolidated Financial Statement.
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <S> <S>
Community Psychiatric Centers of California CPC Alhambra Hospital California
CPC Belmont Hills Hospital
CPC Brea Canyon Hospital (Closed)
CPC Fairfax Hospital
CPC Fremont Hospital
CPC Heritage Oaks Hospital
CPC Horizon Hospital
CPC Laguna Hills Hospital
CPC Rancho Lindo Hospital
CPC Redwoods Hospital (Closed)
CPC Santa Ana Hospital
CPC San Luis Rey Hospital
CPC Sierra Gateway Hospital (Closed)
CPC Sierra Vista Hospital
CPC Vista Del Mar Hospital
CPC Walnut Creek Hospital
CPC Westwood Hospital (Closed)
Community Psychiatric Centers of Florida,Inc. CPC Ft. Lauderdale Hospital Florida
CPC Palm Bay Hospital
CPC St. Johns River Hospital
Community Psychiatric Centers of Idaho, Inc. CPC Intermountain Hospital of Boise Idaho
Community Psychiatric Centers of Indiana,Inc. CPC Valle Vista Hospital Indiana
Community Psychiatric Centers of Kansas, Inc. CPC College Meadows Hospital Kansas
CPC Great Plains Hospital (Closed)
Community Psychiatric Centers of
Mississippi, Inc. CPC Sand Hill Hospital Mississippi
Community Psychiatric Centers of Missouri,Inc. CPC Spirit of St. Louis Hospital Missouri
Community Psychiatric Centers of North
Carolina, Inc. CPC Cedar Spring Hospital North Carolina
Community Psychiatric Centers of Oklahoma,
Inc. CPC Southwind Hospital Oklahoma
Community Psychiatric Centers of Oregon, Inc. CPC Cedar Hills Hsptl.(Closed) Oregon
</TABLE>
<PAGE>
<TABLE>
Exhibit 22 Re: Subsidiaries of the Registrant (continued)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <S> <S>
Community Psychiatric Centers of CPC Hospital San Juan Capestrano
Puerto Rico, Inc. Puerto Rico
Community Psychiatric Centers of Texas,Inc. CPC Afton Oaks Hospital Texas
CPC Capital Hospital
CPC Cypress Point Hospital
CPC Millwood Hospital
CPC Oak Bend Hospital
Community Psychiatric Centers of Utah,Inc. CPC Olympus View Hospital Utah
Community Psychiatric Centers of
Wisconsin, Inc. CPC Greenbriar Hospital Wisconsin
CPC of Georgia, Inc. Georgia
C.P.C. of Louisiana, Inc. CPC Brentwood Hospital Louisiana
CPC Coliseum Medical Center
CPC East Lake Hospital
CPC Meadow Wood Hospital
Miami Valley Community Centers, Inc. Ohio
Old Orchard Hospital, Inc. CPC Old Orchard Hospital Illinois
CounterPoint Center of Old Orchard, Inc. CPC Streamwood Hospital Illinois
Peachtree-Parkwood Hospital, Inc. CPC Parkwood Hospital Georgia
Community Psychiatric Centers
of Arkansas, Inc. CPC Pinnacle Pointe Hospital Arkansas
Priory Hospitals Group Altrincham Priory United Kingdom
Grovelands Priory
Hayes-Grove Priory
Marchwood Priory
The Priory
The Woodbourne Clinic
The Dukes Priory
The Nottingham Clinic
P.P.P., Inc. Georgia
Community Psychiatric Centers Properties
Incorporated California
CPC Properties of Illinois, Inc. Illinois
CPC Properties of Indiana, Inc. Indiana
</TABLE>
<PAGE>
<TABLE>
Exhibit 22 Re: Subsidiaries of Registrant (continued)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <S> <S>
CPC Properties of Kansas, Inc. Kansas
CPC Properties of Louisiana, Inc. Louisiana
CPC Properties of Mississippi, Inc. Mississippi
CPC Properties of Missouri, Inc. Missouri
CPC Properties of North Carolina, Inc. North Carolina
CPC Properties of Arkansas, Inc. Arkansas
CPC Properties of Oklahoma, Inc. Oklahoma
CPC Properties of Wisconsin, Inc. Wisconsin
Community Psychiatric Centers Properties of
Texas, Inc. Texas
Community Psychiatric Centers Properties
of Utah, Inc. Utah
Florida Hospital Properties Florida
Psychiatric Hospital Consultants CPC Consultants California
Belmedco Belmont Hills Pharmacy California
CPC Pharmacy, Inc. California
CPC Investment Corp. California
Cottonwood Hill, Inc. Colorado
CPC Laboratories, Inc. Georgia
CalProp I, Inc. Delaware
CalProp II, Inc. Delaware
CPC (Londinium) Unlimited United Kingdom
Community Psychiatric Centres Limited Canada
CPC Managed Care Services, Inc. CPC Managed Care Delaware
Harvard Medical Ltd. United Kingdom
Michael A. Bell Agency West Germany
</TABLE>
<PAGE>
<TABLE>
Exhibit 22: Subsidiaries of the Registrant (continued)
<CAPTION>
State or Country
Subsidiary Fictitious Business Name of Incorporation
---------- ------------------------ ----------------
<S> <S> <S>
Transitional Hospitals Corporation Delaware
Transitional Hospitals Corporation
of Louisiana, Inc. THC-New Orleans Louisiana
Transitional Hospitals Corporation
of Texas, Inc. THC-Arlington Texas
THC - Seattle, Inc. THC - Seattle Washington
Transitional Hospitals Corporation
of Indiana, Inc. THC - Indianapolis Indiana
THC - Minneapolis, Inc. THC - Minneapolis Minnesota
Transitional Hospitals Corporation
of Massachussettes, Inc. Massachussettes
Transitional Hospitals Corporation
of Nevada, Inc. THC - Las Vegas Nevada
THC - Chicago, Inc. THC - Chicago Illinois
Transitional Hospitals Corporation
of New Mexico, Inc. THC - Albuquerque New Mexico
Transitional Hospitals Corporation
of Tampa, Inc. THC - Tampa Florida
THC - Hollywood, Inc. THC - Hollywood Florida
Transitional Hospitals Corporation
of North Carolina, Inc. North Carolina
THC - Houston, Inc. THC - Houston Texas
J. B. Thomas Hospital, Inc. THC - Boston Massachussettes
Transitional Hospitals Corporation
of Wisconsin, Inc. THC - Milwaukee Wisconsin
</TABLE>
<PAGE>
Exhibit 24
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statement
No. 33-37920 on Form S-8 dated November 21, 1990, and No. 33-14747 on Form S-3
dated August 6, 1987 of our report dated January 28, 1994 on the consolidated
financial statements and financial statement schedules included in the Annual
Report on Form 10-K of Community Psychiatric Centers and Subsidiaries for the
year ended November 30, 1993.
ERNST & YOUNG
Los Angeles, California
February 24, 1994
[/TEXT]
EXHIBIT 10.1
EMPLOYMENT CONTRACT NUMBER FOUR
-------------------------------
THIS EMPLOYMENT CONTRACT NUMBER FOUR (the "Contract"), dated
as of May 1, 1992, is made between COMMUNITY PSYCHIATRIC CENTERS, a Nevada
Corporation ("CPC") and RICHARD L. CONTE, an individual ("Conte").
RECITALS
--------
A. CPC has employed Conte as an executive employee pursuant to
prior and existing employment agreements.
B. CPC desires to revise the terms of Conte's employment and to
continue to employ him, and Conte desires to continue in CPC's employment.
NOW THEREFORE, Conte and CPC agree as follows:
1. DEFINITIONS. As used in this Contract, the following terms
have the following meanings:
1.1 Beneficiarv. "Beneficiary" means any Person or
Persons designated from time to time by Conte pursuant to paragraph 6.5.1.
1.2 Board. "Board" means the Board of Directors of CPC.
1.3 Change of Control. "Change of Control" means a
change of control that would be required to be reported pursuant to Item 6(e)
of Schedule 14A of Rule 14 under the Exchange Act; and, without limitation of
the foregoing clause, such a change of control shall be deemed to have occurred
if (i) any Person is or becomes the beneficial owner (as defined in Rule 13d-3
under the
<PAGE>
Exchange Act), directly or indirectly, of securities of CPC
representing 20% or more of the combined voting power of CPC's then outstanding
securities, or (ii) during any twenty-four-month period during the Employment
Term, individuals who at the beginning of such period constitute the Board
cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least
four-fifths of the directors then in office who were directors at the beginning
of such twenty-four-month period. However, a Change of Control does not
include a distribution to CPC's shareholders of stock of any subsidiary or a
purchase of securities or assets of CPC by a group controlled by directors or
executive officers of CPC.
1.4 Code. "Code" means the Internal Revenue Code
of 1986 as amended.
1.5 Commission. "Commission" means the Securities and
Exchange Commission.
1.6 Compete. "Compete" means either directly or
indirectly to own, initiate, manage, operate, join, control, advise, consult
with or participate in the ownership, operation, management or control (other
than as a shareholder owning less than five percent (5%) of the capital stock
of any entity, the shares of which are traded on a national exchange) of any
business similar to the Existing Businesses or the Proposed Businesses within
the United States, the United Kingdom or any foreign country in which Existing
or Proposed Businesses are located, or to lease or sell real or personal
property to any such business.
2
<PAGE>
1.7 Confidential Information. "Confidential Information"
means
1.7.1 Locations. Data regarding location of
proposed and existing hospitals, facilities and buildings;
1.7.2 Markets. Market surveys, studies and
analyses;
1.7.3 Personnel. Information concerning the
identity, location and qualifications of professionals and employees,
existing and prospective;
1.7.4 Referrals. Information concerning
referral sources;
1.7.5 Reimbursement. Information concerning
reimbursement sources, insurers and other third-party payors and related
procedures;
1.7.6 Legal and Regulatory. Tabulated and
organized information concerning legislative, administrative, regulatory and
zoning requirements, bodies, procedures and officials;
1.7.7 Medical and Personnel Records. Medical and
personnel records;
1.7.8 Data. Statistical, financial, cost and
accounting data.
1.7.9 Patient and Customer Lists. Existing and
prospective patient and customer lists; and
1.7.10 Manuals. Administrative, operations and
procedure manuals and directives.
1.7.11 Ideas. Business ideas pertaining to any
Existing or Proposed Businesses. Business ideas include, but are
3
<PAGE>
not limited to, ideas, concepts or proposals that are conceived, developed or
implemented by or communicated to Conte.
1.8 Death Benefit. "Death Benefit" means the death
benefit of not less than Five Million Dollars ($5,000,000) payable under the
Policy to Conte's Beneficiaries on his death.
1.9 Deliver the Policy. "Deliver the Policy" means to
transfer the ownership of and title to the Policy to Conte or his Beneficiary
free and clear of all liens, claims, security interests and other encumbrances
except for Policy Loans, together with cash sufficient to pay all premiums on
the Policy due after such transfer, to the extent such premiums cannot be
financed by Policy Loans without reducing the Death Benefit.
1.10 Employment Term. "Employment Term" means the period
commencing May 1, 1992 and continuing for a period of four (4) years and seven
(7) months ending November 30, 1996 unless earlier terminated pursuant to
paragraph 5; provided however, that on December 1, 1993 and on each December 1
thereafter, the Employment Term shall be automatically extended until the
earliest to occur of (i) the fourth anniversary of the immediately preceding
November 30 or (ii) termination of this Contract pursuant to paragraph 5.
1.11 Exchange Act. "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
1.12 Existing Businesses. "Existing Businesses" means
the following businesses in which CPC is currently engaged:
1.12.1 Dialysis. Ownership, operation and
management of facilities and businesses which provide hemodialysis services and
treatments to patients with chronic or acute kidney diseases or conditions;
4
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1.12.2 Psychiatric Hospitals. Ownership and
operation of acute psychiatric hospitals, medical office buildings and
pharmacies and related facilities;
1.12.3 Substance Abuse. Ownership and operation of
facilities which provide chemical, drug and alcohol dependency treatment and
services;
1.12.4 Transitional Care. Ownership and operation
of transitional care facilities which provide medically complex treatment to
patients with subacute illnesses.
1.13 Fiscal Year. "Fiscal Year" means CPC's annual
accounting period for financial accounting and reporting purposes, which on the
date hereof is the period from each December I to and including the next
following November 30.
1.14 Permanent Disability. "Permanent Disability" means
any mental or physical illness, disease or condition which in the opinion of an
independent, duly licensed physician will or does result in Conte's inability
to perform his duties during normal working hours for six months.
1.15 Person. "Person" means any individual,
corporation, partnership, business trust, joint venture, association, joint
stock company, trust, unincorporated organization or government or agency or
political subdivision thereof.
1.16 Policy. "Policy" means a life insurance policy
insuring Conte's life, which provides a death benefit of not less than Five
Million Dollars ($5,000,000).
1.17 Policy Loan. "Policy Loan" means any loan secured
by the cash surrender value of the Policy.
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1.18 Prior Contracts. "Prior Contracts" means the
following employment contracts between Conte and CPC: (i) the Employment
Agreement executed by Conte and CPC on January 21, 1982 and effective December
1, 1981, (ii) the Employment Agreement executed by Conte on September 1, 1988
and by CPC on November 1, 1988 and effective August 1, 1988, and (iii) the
Employment Agreement executed by Conte and CPC on December 1, 1991 and
effective December 1, 1991.
1.19 Proposed Businesses. "Proposed Businesses" means
businesses other than and whether or not related to Existing Businesses in
which CPC may from time to time be or plan to be engaged.
1.20 Salary. "Salary" means $550,000 per Fiscal Year, as
adjusted from time to time pursuant to paragraph 3.1.1; provided, however, that
the Salary shall not include any bonuses or other employment benefits or
remuneration paid or payable by CPC to Conte.
1.21 Supplemental Retirement Agreement. "Supplemental
Retirement Agreement" means the Supplemental Retirement Agreement dated as of
September 1, 1988 between CPC and Conte.
2. Employment and Duties.
2.1 Duties. During the Employment Term, CPC shall
employ Conte and Conte shall serve CPC as its Chief Executive Officer or in
another capacity in which he has primary and official authority and
responsibility for the business, operation and management of CPC. During the
Employment Term, Conte shall devote his full productive time, energies and
abilities to the business of CPC under the authority of the Board.
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2.2 Place of Business. During the Employment Term,
Conte's principal place of business shall be in Orange County, California, and
he shall not be obliged to maintain his principal place of business elsewhere.
3. Compensation and Benefits.
3.1 Salary. During the Employment Term, CPC shall pay
the Salary to Conte in equal monthly or more frequent installments in
accordance with CPC's general practice and subject to legally required
withholdings.
3.1.1 Salary Review. The Salary for any
Fiscal Year commencing after December 1, 1992 shall be subject to annual review
by the Board, but in no event shall the Salary be reduced below the greater of
$550,000 or the Salary most recently determined by the Board pursuant to this
paragraph 3.1.1. Conte understands that the requirement of annual review by the
Board shall not be construed in any manner as an express or implied agreement
by CPC to raise the Salary.
3.2 Expense Reimbursement. During the Employment Term,
CPC shall promptly reimburse Conte, upon submission to CPC by Conte of adequate
documentation, for all reasonable out-of-pocket expenses respecting
entertainment, travel, meals, hotel accommodations and other like-kind
expenses, in each case incurred by Conte in the interest of CPC's business.
3.3 Group Insurance. During the Employment Term, CPC
shall provide group life insurance, group travel and accident insurance and
group medical, dental and hospital insurance to Conte in the amount and on the
terms such insurance is made available to other senior executives of CPC.
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3.4 Life Insurance. CPC shall pay the entire cost of
the Policy. a policy of life insurance insuring Conte's life, which provides a
death benefit to his Beneficiaries of not less than Five Million Dollars
($5,000,000).
3.5 Profit Sharing Plan. During the Employment Term,
Conte shall be a participant in CPC's Profit Sharing Plan.
3.6 Other Benefits. During the Employment Term and the
Post-Employment Term, by mutual agreement with CPC, Conte may participate in
employment benefits made available to other senior executives of CPC; provided,
however, that this Contract itself shall neither prevent nor compel such
participation.
4. Protection of Business Information: Noncompetition;
Nonsolicitation.
4.1 Nondisclosure.
4.1.1 Confidential Information. In the operation
and expansion of the Existing Businesses and in the planning and development of
the Proposed Businesses, CPC has generated and will generate Confidential
Information which is and will be proprietary and confidential and the
disclosure of which would be extremely detrimental to CPC and of great
assistance to its competitors.
4.1.2 Information Held as a Fiduciary. All of the
Confidential Information which is acquired by, communicated to or in any way
comes into the possession or control of Conte shall be held by Conte in a
fiduciary capacity for the exclusive benefit of CPC.
4.1.3 Nondisclosure Covenant. Conte shall not
disclose any Confidential Information to any person, without the consent of
CPC.
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4.1.4 Exemptions. The restrictions set forth in
this paragraph 4.1 shall not apply to any part of the Confidential Information
which: (i) is or becomes generally available to the public or publicly known
other than as a result of disclosure in breach of any obligation of
confidentiality; (ii) becomes available to Conte on a nonconfidential basis
from a source other than CPC or its agents or affiliates; (iii) is disclosed
pursuant to the requirement of a governmental agency or court of competent
jurisdiction or as otherwise required under applicable law; or (iv) was
otherwise known or available to Conte without any obligation of
confidentiality.
4.1.5 Following Employment. Upon termination of
this Agreement, Conte shall promptly relinquish and return to CPC all
Confidential Information and all files, correspondence, memoranda, diaries and
other records, minutes, notes, manuals, papers and other documents and data,
however prepared or memorialized, and all copies thereof, belonging to or
relating to the business of CPC, that are in Conte's custody or control whether
or not they contain Confidential Information.
4.2 Noncompetition Covenant. During the Employment Term
and for a period of three (3) five (5) years thereafter, Conte shall
not compete or plan or prepare to compete with CPC.
4.3 Nonsolicitation Covenant. Conte shall not solicit
other employees, independent contractors, customers, referral sources or
reimbursement sources of CPC for use or employment other than in the Existing
or Proposed Businesses.
4.4 Scope and Duration: Severability. CPC and Conte
understand and agree that the scope and duration of the covenants
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contained in this paragraph 4 are reasonable both in time and area and are
fairly necessary to protect the business of CPC. Nevertheless, it is further
agreed that such covenants shall be regarded as divisible and shall be
operative as to time and area to the extent that they may be made so
operative and, if any part of them is declared invalid or unenforceable, the
validity and enforceability of the remainder shall not be affected.
4.5 Injunction. Conte understands and agrees that, due
to the highly competitive nature of the health care industry, the breach of any
of the covenants set out in paragraphs 4.1.3, 4.2 and 4.3 will cause
irreparable injury to CPC for which it will have no adequate monetary or other
remedy at law. Therefore, CPC shall be entitled, in addition to such other
remedies as it may have hereunder, to a temporary restraining order and to
preliminary and permanent injunctive relief for any breach or threatened breach
of the covenants without proof of actual damages that have been or may be
caused hereby. In addition, CPC shall have available all remedies provided
under state and federal statutes, rules and regulations as well as any and all
other remedies as may otherwise be contractually or equitably available.
4.6 Assignment. Except as provided in paragraphs 5.2.4
and 5.2.5, Conte agrees that the covenants contained in paragraph 4 shall inure
to the benefit of any successor or assign of CPC with the same force and effect
as if such covenants had been made by Conte with such successor or assign.
5. Termination. This Contract shall be terminated before the end
of the Employment Term for the reasons set out in paragraph 5.1, in each case
with the consequences set out in paragraph 5.2.
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5.1 Grounds for Termination.
5.1.1 By CPC. This Contract may be terminated by
CPC at any time on 30 days written notice to Conte, for any of the following
reasons, provided, however, that CPC no termination described in subparagraphs
(a) and (b) (i) shall have be made or take effect unless (i) CPC has the
burden of proving proved the causes described in subparagraphs (a) and (b)
by clear and convincing evidence and (ii) the termination has been approved by
the votes of at least seventy-five percent (75%) of all of the members of the
Board:
(a) Willful Breach. Breach of any
material provision of this Contract by Conte or breach or gross neglect by
Conte of his duties as director, officer or employee of CPC;
(b) Cause. For cause which shall
consist of any act of intentional dishonesty or self-dealing by Conte, in each
case in connection with his duties as director, officer or employee of CPC;
(c) Termination upon Permanent
Disability Conte's Permanent Disability.
5.1.2 Termination by Conte. This Contract may be
terminated by Conte at any time upon thirty (30) days' written notice for any
of the following reasons:
(a) Breach. Breach of any material
provision of this Contract by CPC which is not remedied within thirty days
after written notice specifying such breach in reasonable detail;
(b) Change of Control. A Change of
Control; provided, however, that termination pursuant to this 5. 1. 2 (b)
shall
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be effective if and only if Conte gives CPC written notice of such termination
within one year after such Change of Control;
(c) Permanent Disability. Conte's
Permanent Disability.
5.1.3 Termination upon Death. This Contract shall
terminate immediately upon the death of Conte.
5.2 Effect of Termination. If this Contract is
terminated pursuant to paragraph 5.1, the parties shall have the following
rights and obligations:
5.2.1 By CPC for Breach or Cause: Wrongful
Termination. If this Contract is terminated by CPC pursuant to paragraphs
5.1.1(a) or (b), Conte shall not have the right or obligation to perform the
services described in paragraph 2.1, nor shall Conte have the right to receive
the Salary or any other compensation or benefits described in paragraph 3 after
the date of termination; but Conte shall be obligated to CPC as provided in
paragraph 4, and CPC shall have all remedies available at law or in equity.
5.2.2 By CPC or Conte upon Permanent Disability.
If this Contract is terminated by CPC or Conte pursuant to paragraph 5.1.1(c),
or 5.1.2(c), (i) Conte shall thereafter have the obligations described in
paragraph 4, and (ii) CPC shall (A) pay to Conte or his Beneficiary, within
sixty (60) days after such termination, the aggregate Salary through the
November 30 next following the fourth (4th) anniversary of the date of
termination, (B) continue to have the obligations described in paragraphs 3.3
through 3.6, but, as to paragraphs 3.3 and 3.5, only to the extent those
benefits are available under the plans then in effect, and
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(C) sell to Conte, at his option, at its net book value the automobile then
being provided to him.
5.2.3 Death. If Conte dies, CPC shall (i) cause
the proceeds of the life insurance policy described in paragraph 3.4 to be
paid to Conte's Beneficiary as soon as reasonably possible (ii) within sixty
(60) days pay the Salary to the date of his death if he dies during the
Employment Term and (iii) pay or continue such other benefits as may be due
pursuant to paragraphs 3.3, 3.5 and 3.6.
5.2.4 By Conte for Breach. If this Contract is
terminated by Conte pursuant to paragraph 5.1.2(a), he shall not have any
further obligation to CPC under paragraphs 2 and 4, and CPC shall (i) pay to
him, within sixty (60) days after such termination, the aggregate Salary
through the November 30 next following the fourth anniversary of the date of
termination, (ii) transfer to Conte deliver the life insurance Policy described
in paragraph 3.4 with sufficient funds to pay all future premiums and (iii)
continue to have the obligations described in paragraphs 3.3, 3.4 and 3.6,
but only to the extent those benefits are available under those plans as then
in effect. Conte shall have all remedies available at law or in equity and
shall have no duty to mitigate his damages.
5.2.5 By Conte upon Change of Control. If this
Contract is terminated by Conte pursuant to paragraph 5.1.2(b),
(a) Payments. CPC shall, within 30
days after the effective date of such termination, pay to him (i) the aggregate
Salary through the November 30 next following the fourth anniversary of the
date of termination, plus (ii) of all other
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compensation and benefits remaining to be paid to him under this Contract, and
(iii) all sums due him under the Supplemental Retirement Agreement, accrued and
with all credits thereunder to the date of termination of this Contract;
(b) Vesting of Options, etc. Whether or
not Conte terminates this Contract pursuant to paragraph 5.1.2 (b) , all stock
options and related stock appreciation rights, restricted stock, contingent
bonuses or payments and similar deferred benefits held by Conte shall vest and
become exercisable immediately upon a Change of Control, and any restrictions
on shares of stock of CPC or on stock units that were awarded to Conte under
any plan or arrangement maintained by CPC for his benefit shall lapse upon the
occurrence of such an event;
(c) Life Insurance Policy. CPC shall
transfer to Conte the life insurance Policy described in paragraph 3.4 with
sufficient funds to pay all future premiums to Conte;
(d) Automobile. Conte shall have the
option to purchase at net book value the automobile then provided for him by
CPC; and
(e) Release of Conte Obligations.
Conte shall not be obligated to perform any duties under paragraph 2.1, any
obligations under paragraph 4 or any other duty, obligation or covenant under
this Contract or as an employee of CPC.
5.3 Withholding. Anything in this contract to the
contrary notwithstanding,
5.3.1 Withholding. All payments required to be
made to Conte or the Beneficiary under this Contract shall be subject to the
withholding of such amounts, if any, for income and
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other payroll taxes and deductions as CPC may reasonably determine should be
withheld pursuant to any applicable law or regulation.
6. Miscellaneous.
6.1 Prior Contracts Null and Void. CPC and Conte agree
that upon execution and delivery of this Contract by each of them, the Prior
Contracts shall terminate and be deemed null and void, and shall have no
further force or effect.
6.2 Assignment by CPC. Subject to paragraphs 5.2.4 and
5.2.5, this Contract shall be binding upon and shall inure to the benefit of
any successors or assigns of CPC. As used in this Contract, the term
"successor" includes any Person or combination of Persons acting in concert
which at any time in any form or manner acquires all or substantially all of
the assets or business or more than twenty percent (20%) of the voting stock of
CPC.
6.3 Nonassignability by Conte. Neither Conte nor any
Beneficiary shall assign, transfer, pledge or hypothecate any rights, interests
or benefits created hereunder or hereby. Any attempt to do so contrary
to the provisions of this Contract, and any levy of any attachment, execution
or similar process created thereby, shall be null and void and without effect.
6.4 Spendthrift Provision. Prior to actual receipt by
Conte or the Beneficiary, as the case may be, no right or benefit under this
Contract and, without limitation, no interest in any payment hereunder shall
be:
6.4.1 Anticipation. Anticipated, assigned or
encumbered or subject to any creditor's claim or subject to execution,
attachment or similar legal process, or
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6.4.2 Liability for Debts: Claims. Applied on
behalf of or subject to the debts, contracts, liabilities or torts of the
Person entitled or who might become entitled to such benefits, or subject to
the claims of any creditor of any such Person.
6.5 Beneficiary: Recipients of Payments: Designation of
Beneficiary. The Salary, the proceeds of the life insurance policy described
in paragraph 3.4 and other compensation and benefits payable by CPC pursuant to
this Contract shall be made only to Conte during his lifetime or, in the event
of his death, to the Beneficiary. If Conte has not designated a
Beneficiary, the payments shall be made to his estate. CPC shall have no
obligation to make payments to any person not designated pursuant to paragraph
6.5.1 and shall be discharged, defended and held harmless from any liability
for payments actually made to any Beneficiaries or to Conte's estate if no
Beneficiaries have been designated.
6.5.1 Designation of Beneficiary. Conte may
designate and from time to time change the Beneficiary only by giving a
written, signed designation to CPC's Corporate Secretary pursuant to paragraph
6.7.
6.5.2 Elections. Whenever this Contract provides
for any option or election by Conte or the Beneficiary, the option shall be
exercised or the election made solely by the person or persons receiving
payments pursuant to this Contract at that time, and shall be made in that
Person's sole discretion and without regard to the effect of the decision on
subsequent recipients of payments. Such decision by such Person shall be final
and binding on all subsequent recipients of payments.
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6.6 Arbitration. If any controversy, question or dispute
arises out of or relating to the construction, application or enforcement of
this Contract, it shall be settled by arbitration as follows:
6.6.1 Appointment of Arbitrators. Within five days
after the delivery of written notice of any such dispute from one to the other,
CPC and Conte shall each appoint one person to hear and determine the dispute,
and, if the two persons so selected are unable to agree on its resolution with
ten (10) days after their appointment, they shall select a third impartial
arbitrator, and the three arbitrators so selected shall hear and determine the
dispute within sixty (60) days thereafter.
6.6.2 Finality. The determination of a majority
of the arbitrators shall be final and conclusive on Conte and CPC.
6.6.3 Rules. The arbitration shall be conducted
in accordance with the rules of the American Arbitration Association, and
judgment on any award rendered by the arbitrators may be entered in any court
having jurisdiction.
6.6.4 Discovery. The parties shall be entitled to
avail themselves of all discovery procedures available in civil actions in the
State of California, and, without limitation, Conte and CPC hereby incorporate
Section 1283.05 of the California Code of Civil Procedure into this Contract
pursuant to Section 1283.1 of that Code.
6.7 Notices. Any notice provided for by this Contract
and any other notice, demand, designation or communication which either party
may wish to send to the other (the "Notices") shall be in writing and shall be
deemed to have been properly given if
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served by (i) personal delivery, (ii) registered or certified mail, return
receipt requested, in a sealed envelope, postage and other charges prepaid, or
(iii) telegram, telecopy, telex, facsimile or other similar form of
transmission followed by delivery pursuant to clause (i) or (ii), in each case
addressed to the party for which such notice is intended as follows:
If to CPC:
Community Psychiatric Centers
Board of Directors
24502 Pacific Park Drive
Laguna Hills, California 92656
FAX: (714) 831-2202
If to Conte:
Richard L. Conte
30971 Hunt Club Drive
San Juan Capistrano, California 92675
FAX: (714) 831-2875
6.7.1 Change of Address. Any address or name
specified in this paragraph 6.6 may be changed by a Notice given by the
addressee to the other party in accordance with paragraph 6.6.
6.7.2 Effective Date of Notice. All notices shall
be given and effective as of the date of personal delivery thereof or the date
of receipt set forth on the return receipt. The inability to deliver because
of a changed address of which no Notice was given, or rejection or other
refusal to accept any Notice shall be deemed to be the receipt of the Notice as
of the date of such inability to deliver or rejection or refusal to accept.
6.8 Governing Law; Jurisdiction. This Contract shall
be construed in accordance with and governed by the laws of the
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State of California as that State is presently constituted. CPC hereby
consents and submits to the jurisdiction of the state and federal courts in
California in any suit for the enforcement or construction of or otherwise
arising out of this Contract.
IN WITNESS WHEREOF, this Contract has been executed and delivered by
the parties as of the date first set forth above.
Richard L. Conte
COMMUNITY PSYCHIATRIC CENTERS
By:
19
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
1. Parties. This Employment Agreement ("Agreement") is made between
COMMUNITY PSYCHIATRIC CENTERS, a Nevada corporation with its International
Headquarters located in Laguna Hills, California ("CPC"), and KAY SEIM an
individual ("Employee"), under the following circumstances:
2. Continuation of Employment, End of Prior Contract. Pursuant to all
the terms and conditions of this Agreement, CPC desires to continue to employ
Employee and she desires to continue in her employment, and each of them
desires to terminate and cancel any prior contract.
2.1 Employment and Duties. CPC shall employ Employee and
Employee shall serve CPC as one of its executive employees and shall
perform such duties as the President or Chief Executive Officer of CPC
may direct. Employee shall devote her full productive time, energies
and abilities to the business of CPC.
2.2 Subsidiaries of CPC. From time to time, Employee may be
assigned to work for or on behalf of various subsidiaries of CPC. All
obligations of Employee to CPC shall also apply between Employee and
all subsidiaries of CPC.
3. Employment Term. The initial Employment Term of this Agreement
shall commence on July 1, 1992 and shall continue for a period of three years,
ending on July 1, 1995. Unless either party gives written notice of
non-renewal to the other not less than sixty (60) days prior to the expiration
of any Employment Term, this Agreement shall automatically renew for additional
Employment Terms of one (1) year each.
4. Compensation.
4.1 Salary. CPC shall pay to Employee an initial salary of
$200,000.00 (Two Hundred Thousand Dollars) per year in equal semi-
monthly or more frequent installments in accordance with CPC's payroll
practices from time to time in effect.
4.1.1 Salary Review. For fiscal years commencing on or
after December 1, 1992, Employee's salary shall be subject to
annual review by the parties but this requirement of annual
review shall not be construed in any manner as an express or
implied agreement by CPC to raise Employee's salary.
4.2 Expense Reimbursement. Upon submission of appropriate
vouchers and in accordance with the
<PAGE>
reimbursement policy stated in CPC's Administrative Manual from time to time
in effect, CPC shall reimburse Employee for all authorized travel and
entertainment expenses.
4.3 Other Benefits. Employee shall be entitled to participate
in employment benefits made available to other salaried employees of
CPC and described in Chapter 700 of the CPC's Administrative Manual
from time to time in effect. This Agreement shall not restrict in any
way the right of CPC to add to, modify or eliminate any employment
benefits.
4.4 Bonus Plan. Employee shall be allowed to participate in a
bonus plan as approved from time to time by CPC's Board of Directors.
5. Termination. This Agreement may be terminated prior to the end of the
Employment Term as follows:
5.1 Mutual Consent. By mutual written consent of the parties.
5.2 CPC. By CPC, for any of the following reasons:
5.2.1 Breach. Upon breach by Employee of any of her duties
as Employee or the breach by Employee of any term of this
Agreement;
5.2.2 Neglect, etc. For habitual neglect or
nonperformance by Employee of her duties;
5.2.3 Incapacity. Upon incapacity of Employee to
perform her duties under this Agreement for any consecutive
period of more than ninety (90) business days; or
5.2.4 Cause. For cause.
5.3 Employee. By Employee, for any of the following reasons:
5.3.1 Breach. Upon breach by CPC of any of its material
obligations to Employee under this Agreement;
5.3.2 Cause. For cause; or
5.3.3 Change in Control. Within ninety (90) days after
the occurrence of any of the following events:
5.3.3.1 Tender or Exchange Offer. The purchase of
thirty-three and
<PAGE>
one-third percent (33-1/3%) of the outstanding shares of the CPC's One Dollar
par value Common Stock (the "Common Stock") pursuant to any tender or exchange
offer (other than such an offer by CPC), whether or not such purchase is
opposed by CPC;
5.3.3.2. Other Acquisition of Controlling Stock.
The date CPC receives notice that any person or group
deemed to be a person under Section 13(d) (3) of the
Securities Exchange Act of 1934 and regulations
thereunder, in any transaction or series of
transactions, becomes the beneficial owner directly
or indirectly of Common Stock sufficient to entitle
such person or group to thirty-three and one-third
percent (33-1/3%) or more or all votes which all
shareholders of CPC would be entitled to cast in an
election held on such date;
5.3.3.3 Change in Directors. A date during any
one-year period when individuals, who at the
beginning of that period, constituted the Board of
Directors of CPC cease for any reason to constitute a
majority thereof, unless the election, or the
nomination for election by the shareholders of CPC of
each new director was approved by a vote of at least
two-thirds of the directors in office who were
directors at the beginning of the period;
5.3.3.4 Reorganization, Sale of Assets. The date
of approval by the shareholders of CPC of an
agreement providing for:
5.3.3.4.1 The merger or consolidation of
CPC with another corporation where the
shareholders of CPC immediately prior to the
merger or consolidation do not beneficially
own immediately thereafter shares of the
corporation issuing cash or securities in
the merger or consolidation, entitling such
shareholders to fifty percent (50%) or more
of all votes to which all shareholders of
such corporation would be entitled in the
election of Directors, or where the members
of the board of Directors of CPC immediately
prior to the merger or consolidation do not
immediately thereafter constitute a majority
of the Board of Directors of the
<PAGE>
corporation issuing cash or securities in
the merger or consolidation; or
5.3.3.4.2 The sale or other disposition of
all or substantially all of the assets of
CPC.
5.5 Payment on Termination.
5.5.1 Change in Control. If Employee
terminates her employment pursuant to paragraph 5.3.3, he
shall be entitled to receive, in addition to any amounts due
pursuant to paragraph 5.5.2, a cash payment equivalent to two
(2) year's salary as severance pay, regardless of the
Employment Term remaining at the time of such termination.
5.5.2 Other Termination. Upon termination of Employee's
employment for any reason, she shall be paid all salary and
vacation time (not including sick time) accrued to the date of
termination; provided, however, that:
5.5.2.1 Notice of and Payments upon Termination.
Employee shall give at least sixty (60) days prior
written notice to CPC of her intention to terminate
her employment pursuant to paragraphs 5.3.1 or 5.3.2
and if she fails to give such notice to CPC, she
shall pay to CPC, as liquidated damages, an amount
equal to one month's salary which amount shall be
used by employer to offset the costs incurred in
replacing Employee on short notice; and
5.5.2.2 Repayment of Obligations, etc. Upon
termination of her employment for any reason,
Employee shall pay to CPC all sums due under any
notes or other obligations from her to it and all
such obligations shall then become due and payable.
Such obligations include, but are not limited to,
those incurred for purchase of CPC stock upon
exercise of stock options held by Employee.
5.5.3 Return of Property. Upon termination of
employment for any reason, Employee shall return to
CPC all property belonging to CPC, in her possession
or under her control.
<PAGE>
5.5.4 Stock Options. Employee acknowledges
that CPC's Qualified, Non-qualified and Combined
Stock Option Plans for Key Employees provide that all
unexercised options held by her thereunder shall
expire upon termination of employment for any reason,
except for termination by Employee pursuant to
paragraph 5.3.3. Upon termination of employment
pursuant to that paragraph, Employee will be entitled
to a cash payment in the amount of the difference
between the option price of shares of CPC stock
subject to options held by her and the then fair
market value of such shares, all as more fully
described in CPC'S stock option plans. The plans may
be changed or eliminated and may not be modified or
controlled by this Agreement.
6. Protection of Business Information.
6.1 Existing Businesses. At the present time, CPC is engaged in
the following businesses (the "Existing Businesses"):
6.1.1 ownership and operation of acute psychiatric
hospitals and related facilities, which include, but are not
limited to, medical buildings and pharmacies;
6.1.2 ownership and operation of facilities which provide
chemical, drug and alcohol dependency treatment and
services;
6.2 Proposed Businesses. In addition, CPC plans to be engaged in other
businesses (the "Proposed Businesses") related and unrelated to the Existing
Businesses.
6.3 Information. In the operation, planning and development of the
Existing Businesses and the Proposed Businesses, CPC generates and will
generate business information, confidential information and trade secrets which
are and will be proprietary and confidential ("Information") and the disclosure
of which would be extremely detrimental to CPC and of great assistance to its
competitors. The Information includes, but is not limited to:
6.3.1 Data regarding location of proposed and existing facilities;
6.3.2 Market survey, studies and analyses;
6.3.3 Information concerning the identity, location and
qualifications of professionals and employees, existing and
prospective;
<PAGE>
6.3.4 Information concerning referral sources;
6.3.5 Information concerning reimbursement sources, insurers and
other third-party payors;
6.3.6 Tabulated and organized information concerning legislative,
administrative, regulatory and zoning requirements, bodies and
officials;
6.3.7 Medical and personnel records;
6.3.8 Statistical, financial, cost and accounting data;
6.3.9 Existing and prospective customer lists; and
6.3.10 Administrative, operations and procedure manuals and
directives.
6.3.11 Business ideas pertaining to any Existing or Proposed
Businesses of CPC. Business ideas include, but are not limited to,
ideas, concepts or proposals that are conceived, developed or
implemented by or communicated to Employee.
6.4 Information Held as a Fiduciary. All of the Information which is
acquired by, communicated to or in any way comes into the possession or control
of Employee shall be held by employee in a fiduciary capacity for the exclusive
benefit of CPC.
6.5 During Employment. Prior to termination of this Agreement,
Employee shall have these obligations:
6.5.1 No Competition. Employee shall not compete with CPC.
"Compete" means to either directly or indirectly own, manage, operate,
control or participate or join in or advise, consult with or assist in
the establishment or operation of any business similar to the Existing
Businesses or the Proposed Businesses which is located within any
county or equivalent jurisdiction in which any of the Existing
Businesses or Proposed Businesses are located or proposed to be
located; within any contiguous county; within the United Kingdom; or
within a two hundred mile radius of any Prospective Business located
in any foreign country.
6.5.2 No Planning to Compete Following Employment. Employee shall
not plan or otherwise prepare to compete with CPC following Employee's
employment with CPC.
6.5.3 No Solicitation to Compete. Employee shall not solicit other
employees, independent contractors, customers, referral sources or
reimbursement sources of CPC to compete with CPC during or following
Employee's employment with CPC.
<PAGE>
6.5.4 No Disclosure. Employee shall not disclose to any person,
who, on behalf of CPC, has no business reason to know, any business
information, confidential information or trade secrets of CPC.
6.6 Following Employment. Upon termination of this Agreement, Employment
shall have the following obligations:
6.6.1 Return of Information. Employee will promptly relinquish to
CPC all files, correspondence, memoranda, diaries and other records,
minutes, notes, manuals, papers and other documents and data, however
prepared or memorialized, and all copies thereof, belonging to or
relating to the business of CPC, that are in Employee's custody or
control.
6.6.2 No Use of Trade Secrets. Employee shall not use or disclose
any trade secret acquired from or on behalf of CPC before, during or
after Employee's employment with CPC.
6.6.3 No Use of Confidential Information. Employee shall not use
or disclose any confidential information acquired from, for or about
CPC before, during or after Employee's employment with CPC.
6.6.4 No Use of Business Information. Employee shall not use or
disclose any business information acquired from, for or about CPC
before, during or after Employee's employment with CPC.
6.6.5 No Interference. Employee shall not interfere with any
contracts or business relationships of CPC.
6.6.6 No Solicitation. Employee shall not solicit other employees,
independent contractors, customers, referral sources or reimbursement
sources of CPC to compete with CPC.
6.6.7 No Competition. Employee shall not compete with CPC for a
period of two years following termination of employment.
6.7 Exception for Publicly Held Companies. Notwithstanding the
provisions of paragraphs 6.5 and 6.6 above, Employee may participate as a
non-controlling shareholder (but not in any other capacity) , holding less than
five percent (5%) of any class of stock in a publicly owned corporation whose
stock is traded on a National securities Exchange or on the over-the-counter
market.
6.8 Exception for Change of Control. The provisions of paragraph 6.6
shall not apply if employee's employment is terminated pursuant to paragraph
5.3.3 above.
<PAGE>
6.9 Scope of Covenant. It is expressly understood and agreed that the
scope of the various covenants in this paragraph 6 are reasonable both in time
and area and are fair and necessary to protect the investment of CPC against
the material adverse effects which would result from the violation of any of
these covenants.
6.10 Divisibility of covenants. The covenants of this paragraph 6 shall be
regarded as divisible and shall be given the greatest operative effect
possible. If any part of them is declared invalid or unenforceable in any
respect, the validity and enforceability of the remainder shall not be
affected.
6.11 Remedies for Breach of Obligations Regarding Business Information. In
addition to CPC's right to seek damages for any violation of the covenants in
this paragraph 6, Employee acknowledges that because her duties are of a
special, unique, unusual, extraordinary or intellectual character, which gives
them peculiar value which cannot be reasonably or adequately compensated by an
award of damages, equitable relief in the form of injunction or other order
will be available to CPC.
7. Notices. Any notice provided for by this Contract and any other
notice, demand or communication which either party may wish to send to the
other ("Notices") shall be in writing and shall be deemed to have been properly
given when received if delivered by personal delivery; certified mail, return
receipt requested; or other commercially acceptable means. Notices shall be
addressed as follows:
If to CPC: Richard L. Conte, Chairman & Chief Executive Officer
Community Psychiatric Centers
24502 Pacific Park Drive
Laguna Hills, California 92656
If to Employee:
Kay Seim
422 Waverly Way
Kirkland, WA 98033
Either party may change its address for Notices by giving notice of the change
to the other party.
8. Successors, Assignment. Except as provided in paragraph 5.3.3, this
agreement shall be binding on the heirs, assigns, personal representatives and
successors of CPC and Employee. However, due to the nature of the services to
be provided by Employee, Employee shall have no power to assign any rights or
duties under this Agreement.
9. Applicable Law. This agreement shall be governed by and construed in
accordance with the laws of the State of California and the parties consent to
the jurisdiction of its courts.
<PAGE>
10. Divisibility of Agreement. This Agreement shall be divisible and if
any part of it is determined to be invalid or unenforceable the remaining
portions shall not be affected and the Agreement shall be carried out to the
greatest extent possible in accordance with all of its provisions.
11. Entire Agreement. This Agreement represents the entire agreement
between CPC and Employee, and this Agreement supersedes any other agreements,
oral or written, that may define the employment relationship between Employee
and CPC. Neither CPC nor Employee has relied upon any promise or other
inducement which is not expressed in this Agreement.
12. Amendment. This Agreement may be amended only by written agreement
of CPC and Employee and may not be modified by any oral agreement.
13. Practices Inconsistent with this Agreement. No provision of this
Agreement shall be modified or construed by any practice or occurrence that is
inconsistent with any provision. Failure of either party to insist upon
compliance with any provision shall not constitute an amendment or a waiver of
the right to insist upon compliance with that provision or nay other
provision.
EMPLOYEE:
Dated:
Kay Seim
Executive Vice President
COMMUNITY PSYCHIATRIC CENTERS
Dated:
By:
Richard L. Conte, Chairman
Chief Executive officer
<PAGE>
ADDENDUM TO EMPLOYMENT CONTRACT BETWEEN CPC AND KAY E. SEIM
1. EXEMPTION OF CONFLICT OF INTEREST: CPC acknowledges the joint
ownership of Continuum Healthcare by Richard A. and Kay E. Seim.
Continuum Healthcare is a business incorporated in the State of
Washington which is a community property state. CPC acknowledges that
Kay Seim is a shareholder, officer and director of Continuum
Healthcare. CPC consents to Kay Seim continuing to hold and perform her
obligations under such offices while employed at CPC. CPC agrees that
Mr. Seims' current or future work with or on behalf of Continuum
Healthcare in the areas of residential, partial and in-home mental
health care shall not be deemed to place Kay Seim into a conflict of
interest situation. CPC recognizes Mr. Seim's involvement with
Continuum Healthcare in King County and Pierce County in the State of
Washington and hereby notices both Mr. & Mrs. Seim that such work by
Mr. Seim is acceptable to CPC. CPC agrees that such work shall not be
deemed to infringe upon or to otherwise compromise the employment
relationship of Kay Seim with CPC.
2. CAPITALIZATION NEEDS: During the course of its operation, the
shareholders and directors of Continuum Healthcare may deem it
necessary to infuse Continuum Healthcare with additional capital. CPC
hereby agrees that not only is such expansion of Continuum Healthcare's
business acceptable to CPC but that CPC would seriously consider
advancing sums to Continuum Healthcare or to otherwise joint venture
with Continuum Healthcare in its future expansion plans.
3. COMPANY LOAN: CPC agrees to grant to Kay Seim upon request a home
equity loan in the amount desired by Ms. Seim up to $300,000 or such
greater amount then authorized by CPC at an annual interest rate of 5%
or whatever current lower rate may be in effect to enable Kay Seim to
purchase a new home, remodel existing home or for such other purposes
desired by Kay Seim.
4. COVENANTS NOT TO COMPETE: CPC and Continuum Healthcare agree to not
compete with each other if such competition might be detrimental to
the working relationship of CPC and Kay Seim or the personal
relationships of Rick and Kay Seim. Furthermore, CPC rather than to
create its own competing business agrees to use its best efforts to
work with, subcontract or co-venture with Continuum Healthcare in King
and Pierce Counties in the State of Washington in a mutually agreed
upon manner. Given the exceedingly close physical proximity of
Continuum Healthcare's Kirkland operation and the location of CPC
Fairfax Hospital, it would be clearly disadvantageous to all parties to
set up two similar operations in such a limited market place which can,
at best, properly support one such operation.
/s/ KAY E. SEIM /s/ RICHARD CONTE
- - ------------------------------- -------------------------------
Kay E. Seim, Employee Richard L. Conte, Chairman
Community Psychiatric Centers
6-15-92 6-12-92
- - ------------------------------- -------------------------------
Date Date
EXHIBIT 10.10
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Separation Agreement and General Release ("Agreement") is
entered into by and between Community Psychiatric Centers ("EMPLOYER") and
Loren B. Shook ("EMPLOYEE").
I.
RECITALS
1.1 EMPLOYEE has been employed by EMPLOYER pursuant to a written
Employment Agreement, most recently in the position of President, Chief
Operating Officer, and member of the Board of Directors of EMPLOYER and certain
of its subsidiaries.
1.2 EMPLOYEE was relieved of his duties effective September 7,
1993 and was advised BY EMPLOYER that he would be terminated immediately if he
did not resign from all positions with EMPLOYER and its subsidiaries. EMPLOYEE
elected to resign and EMPLOYEE and EMPLOYER have subsequently agreed to an
effective date of October 7, 1993 (Effective Date).
1.3 EMPLOYER and EMPLOYEE desire to enter into an agreement which
will assist EMPLOYEE in finding new employment, provide for the release of any
claims related to EMPLOYEE'S employment or the termination of said employment,
facilitate the payment of the loans referred to in Paragraphs 2.5 and 2.6 and
resolve various other matters between EMPLOYER and EMPLOYEE.
II.
AGREEMENTS
2.1 Review Period. EMPLOYEE shall have until the close of business
on October 7, 1993, to accept the terms of this Agreement. EMPLOYEE has been
encouraged to consult with an attorney before signing this Agreement and has
done so.
2.2 Termination of Employment. EMPLOYEE'S employment with EMPLOYER
and its subsidiaries, as President, Chief Operating Officer, member of the
Board of Directors, and all other capacities, is terminated for all purposes,
effective October 7, 1993.
2.3 Payments. Following execution of this Agreement, EMPLOYER
shall pay to EMPLOYEE a severance benefit, equal to EMPLOYEE'S most recent
rate of pay ($450,000 per year) for EMPLOYEE'S regularly scheduled hours
(bonuses, overtime or other enhancements will not be included in the rate or
hours), for the period from the Effective Date through November 30, 1994, plus
100% of the amount accrued for EMPLOYEE'S account in the EMPLOYER'S Deferred
Compensation Plan ($258,505,
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including the amount which would otherwise be credited on June 1, 1994), all
less deductions required by law. Payment will be made in one installment of
$262,632.21 gross on Employer's regular payroll date of October 22, 1993,
followed BY five equal monthly installments, without interest, beginning on
the first regular pay day in November 1993 and continuing on the first regular
pay day of each succeeding month until all five payments have been made.
Payment will be mailed to Employee's most recent address on file with
Employer. These payments, the additional benefits specified below, and
other consideration have been agreed upon by EMPLOYER and EMPLOYEE as
consideration for the EMPLOYEE'S promises set forth in this Agreement. EMPLOYEE
acknowledges that he has timely received, in accordance with all applicable
provisions of law, rules and regulations of the State Labor Code, all wages and
vacation benefits due him. (Regular wages paid through October 7, 1993;
vacation accrued and paid through September 7, 1993.)
2.4 Additional Benefits.
a. Medical Insurance. During the period from the
Effective Date until the earlier of November 30, 1994 or the date on which
EMPLOYEE is first eligible for health care benefits under another employer's
plan (Conversion Date), EMPLOYEE will continue to be covered under the
EMPLOYER'S usual health insurance programs on terms not less favorable to
EMPLOYEE than those provided to other corporate office employees of EMPLOYER.
Within ten (10) calendar days next following the Conversion Date, EMPLOYER
shall provide EMPLOYEE, and any members of his family eligible to receive such
notice, written notice of his and/or their rights to continue medical insurance
under the provisions of the Consolidated Omnibus Reconciliation Act of 1986
("COBRA"). Following the Conversion Date, EMPLOYEE, or any member of
EMPLOYEE'S family otherwise eligible to receive such notice will be responsible
for the full cost of continuation coverage in accordance with the provisions of
COBRA. EMPLOYEE will notify EMPLOYER promptly of his new employment and any
applicable waiting period for eligibility under the new employer's health
insurance plan.
b. Profit Sharing. For purposes of calculating
EMPLOYEE'S service under the "CPC Employees' Profit Sharing Plan" ("Plan"),
EMPLOYEE shall be deemed to have been employed until the Effective Date and not
thereafter. This Agreement is not intended to change any of EMPLOYEE'S rights
or responsibilities as provided in the Plan documents for persons whose
employment with EMPLOYER terminates.
c. Stock Options. Stock options granted to EMPLOYEE by
EMPLOYER which are vested and exercisable as of the Effective Date, to wit,
options to purchase a total of 200,000 shares of the common stock of EMPLOYER
(50,000 shares at $14.625 per share and 150,000 shares at $10.875 per share),
will remain valid and exercisable through February 28, 1994, except that
EMPLOYER will not extend credit to EMPLOYEE for the purpose of exercising those
options. Any options not vested as of the Effective Date will automatically
terminate at that time, as provided in applicable stock option plan documents
and agreements. EMPLOYEE will remain responsible for
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compliance with all applicable requirements concerning exercise of stock
options and acquisition or disposition of EMPLOYER stock, including but not
limited to prohibitions on insider trading, short-swing profits and the like.
d. Automobile. EMPLOYER will deliver to EMPLOYEE a Bill
of Sale and the Certificate of Ownership for the company car assigned to
EMPLOYEE, along with the mobile telephone installed in the car. Normal
expenses for fuel, maintenance, repairs, insurance and mobile telephone service
will be paid or reimbursed by EMPLOYER, in accordance with its usual practices,
for the period from the Effective Date through November 30, 1993.
e. Outplacement. EMPLOYER will provide outplacement
services for EMPLOYEE from EMPLOYEE'S choice of three such agencies to be
nominated by EMPLOYER. These services will be limited to one placement, and
will be further detailed in materials to be provided EMPLOYEE prior to his
selection of the agency to be used.
f. Indemnification. EMPLOYER will honor the
Indemnification Agreement between EMPLOYER and EMPLOYEE dated June 1, 1987, in
accordance with its terms, provided EMPLOYEE cooperates fully in any such
matter.
g. Non-Competition Covenant. EMPLOYER releases
EMPLOYEE from any obligation under the provisions of Paragraph 6.6.7 of the
Employment Agreement between EMPLOYEE and EMPLOYER.
h. Tax Services. EMPLOYER will continue to pay for tax
preparation services to EMPLOYEE, on substantially the same terms as EMPLOYER
provides for other of its executives who receive this service, through November
30, 1994.
2.5 Residential Loan. The Residential Loan Agreement dated June
15, 1982 between EMPLOYEE and EMPLOYER ("Loan Agreement"), the Installment Note
dated July 2, 1982 issued by EMPLOYEE ("Note"), and the Short Form Deed of
Trust and Assignment of Rents dated July 6, 1982, executed BY EMPLOYEE and
Carolyn Shook as Trustors ("Deed of Trust"), shall be amended to extend the
maturity date of loan evidenced by the Note to September 30, 1998. The parties
agree that the Note shall be further modified to reflect the correct unpaid
principal balance on the Note as of October 1, 1993, which sum is Two Hundred
Thirty-Four Thousand Seven Hundred Fifty-Nine and 67/100 Dollars ($234,759.67)
(assuming the payment due on that date is made) and to modify the interest
rate payable on the unpaid principal balance of the Note. The Note shall be
modified to provide that interest per annum on the amount of principal
remaining unpaid on the Note shall be five percent (5%) for the period from
October 1, 1993 to September 30, 1994, six percent (6%) for the period from
October 1, 1994 to September 30, 1995, seven percent (7%) for the period from
October 1, 1995 to September 30, 1996, and seven and one-half percent (7-1/2%)
for the period from October 1, 1996 until the maturity date of the Note, on
September 30, 1998. The Note shall be dated as of October 1, 1993, and
principal and interest
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<PAGE>
shall be paid in equal monthly installments in an amount required to fully
amortize the outstanding principal amount of the modified Note over a period
of thirty (30) years, such installments to be calculated for each payment
period at the rate of interest applicable for such payment period as specified
hereinabove. The amendments to the Loan Agreement, Note and Deed of Trust
shall be evidenced by amendments to or restatements of such agreements and
instruments which shall contain such other terms and conditions as are
customary in loan modifications. EMPLOYER'S agreement to extend and modify the
Loan as described in this Paragraph 2.5 shall be conditioned upon EMPLOYEE'S
satisfaction of all of the following conditions on or before October 31, 1993:
(i) all payments on the Note must be current; (ii) execution and at the
election of EMPLOYER, recordation, of a modification to the Deed of Trust
executed BY EMPLOYEE and any other person(s) whose signatures are necessary to
complete the transaction; (iii) issuance for the benefit of EMPLOYER, of an
endorsement to the original lender's policy of title insurance which insured
the Deed of Trust or of a new lender's policy of title insurance insuring the
first lien position of the Deed of Trust on the property which is the subject
of said Deed of Trust ("Property"), or a commitment from an acceptable title
insurance company that such policy or endorsement shall be issued promptly
following recordation of the modified Deed of Trust; (iv) the satisfaction and
discharge by EMPLOYEE at his sole expense, of any liens or encumbrances which
may have been recorded against the Property or become a lien thereon subsequent
to the recordation of the original Deed of Trust, and (v) EMPLOYEE'S continued
performance of his obligations under this Agreement.
2.6 Stock Option Loan. The total balance of any other loans to
EMPLOYEE (e.g., stock option loans) will be paid to EMPLOYER on or before
November 30, 1993.
2.7 Further Documents. Each party agrees to timely execute and
deliver, at any time and from time to time, upon the request of another party,
such further instruments or documents as may be necessary or appropriate to
carry out the provisions contained herein, and to take such other action as
another party may reasonably request to effectuate the purposes of this
Agreement.
2.8 Release of Claims.
(a) Release by EMPLOYEE. Subject only to Paragraph 2.9,
EMPLOYEE on EMPLOYEE'S own behalf, and on behalf of EMPLOYEE'S successors and
assigns releases the EMPLOYER and its officers, directors, employees, agents,
and attorneys and any parent, subsidiary, affiliated or related companies and
their respective successors and assigns ("Released Parties") from all claims,
demands, actions, or other legal responsibilities of any kind which EMPLOYEE
may have against EMPLOYER or any of the Released Parties, including but not
limited to any arising under Title VII of the Civil Rights Act of 1964, as
amended, which prohibits discrimination in employment based on race, color,
sex, religion or national origin, or any other federal, state or local law or
regulation prohibiting employment discrimination. This Release also includes,
but is not limited to, any claims arising under the Employment Agreement,
relating to
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<PAGE>
EMPLOYEE'S employment or the termination of it, for emotional distress,
wrongful discharge, violation of any public policy or statute, breach of any
implied or express contract between EMPLOYER and EMPLOYEE or any policy of the
EMPLOYER, any acts or omissions of the Released Parties, and any remedy for
any such claim.
(b) Release by EMPLOYER. EMPLOYER on its own behalf, and
on behalf of its successors and assigns releases the EMPLOYEE from all claims,
demands, actions, or other legal responsibilities of any kind which EMPLOYER
may have against EMPLOYEE ("Claim"), except:
(1) any Claim for which EMPLOYER would not be
required to provide indemnification or advancement of
expenses under the Indemnification Agreement or
applicable law;
(2) any Claim arising under the terms of the
Indemnification Agreement; and
(3) any Claim arising from a breach by EMPLOYEE
of this Agreement.
2.9 Claims Not Affected by Release. This Release does not affect
these claims or rights of EMPLOYEE:
(a) any rights of a terminated employee under the terms
of the CPC Employees' Profit Sharing Plan;
(b) any rights to apply for continuation or conversion
of insurance coverage to the extent that the EMPLOYER'S insurance plans or
applicable law provide for such continuation or conversion;
(c) any claim for workers' compensation under any federal
or state workers' compensation or occupational disease law;
(d) any claim under the Indemnification Agreement; and
(e) any claim arising from a breach by EMPLOYER of this
Agreement.
2.10 Unknown Claims. EMPLOYEE and EMPLOYER understand that the
releases given by each of them in this Agreement cover claims which each of
them knows about and those they may not know about. EMPLOYEE and EMPLOYER
expressly waive all rights under Section 1542 of the California Civil Code,
which Section they have read and understand, and which provides as follows:
"Section 1542. A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES
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NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR."
Nothing in this Paragraph 2.10 is intended to release any claims which are
otherwise reserved under this Agreement.
2.11 Agreement Not to Sue. EMPLOYEE and EMPLOYER promise never to
file a lawsuit asserting any claims that are released BY this Agreement.
2.12 Warranty of Non-Assignment. EMPLOYEE warrants that EMPLOYEE
has not assigned to any other person or entity the claims which are the subject
of Paragraphs 2.8 and 2.10 above. EMPLOYER warrants that EMPLOYER has not
assigned to any other person or entity the claims which are the subject of
Paragraphs 2.8 and 2.10 above.
2.13 Consequences of Violation of Promises. IF EMPLOYEE violates
EMPLOYEE'S promises contained herein, EMPLOYER shall have all remedies provided
by law, and EMPLOYEE will pay for all costs incurred by any of the Released
Parties, including reasonable attorney's fees, in defending against the
EMPLOYEE'S claim. If EMPLOYER violates EMPLOYER'S promises contained herein,
EMPLOYEE shall have all remedies provided by law, and EMPLOYER will pay for all
costs incurred by EMPLOYEE in remedying EMPLOYER'S breach of this Agreement.
2.14 EMPLOYER'S Property. EMPLOYEE has, or forthwith will vacate
the offices assigned to him and return to EMPLOYER all physical property of any
kind of the EMPLOYER in EMPLOYEE'S possession, including, without limitation,
directories, documents, lists, plans, files, software programs, tapes,
materials, manuals, keys, access cards and credit cards.
2.15 Confidentiality. EMPLOYEE and EMPLOYER both agree not to
disclose the terms and conditions of this Agreement for any reason to any
person or entity not a party hereto unless such communication is required by
law or is necessary to prosecute or defend an alleged breach of this Agreement,
and except as may be necessary for any party to obtain tax, legal or other
professional advice regarding the implications of this Agreement.
2.16 Parties' Reputations. EMPLOYEE agrees not to make any
unfavorable or disparaging communication regarding EMPLOYER or EMPLOYEE'S
employer-employee relationship with EMPLOYER. EMPLOYER agrees not to make any
unfavorable or disparaging communication regarding EMPLOYEE or EMPLOYER'S
employer-employee relationship with EMPLOYEE.
2.17 Other Employment. EMPLOYEE shall not, at any time, be
foreclosed from seeking, soliciting or accepting employment with any persons
other than the Released
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Parties referred to in Paragraph 2.8. EMPLOYER waives any future employment
rights with any of the Released Parties.
2.18 Protection of Business Information. EMPLOYEE agrees that the
provisions of Paragraph 6, "Protection of Business Information," in the
Employment Agreement between EMPLOYEE and EMPLOYER, remain in force as stated
in the Employment Agreement, except for Paragraph 6.6.7, which is specifically
nullified by this Agreement. Notwithstanding the provisions of Paragraph 6.6.1
of the Employment Agreement, EMPLOYEE may make and retain copies of all notes,
letters, records, files, memoranda, papers and the like, relating to his
service as an employee, officer or director of EMPLOYER, which are reasonably
related to pending or threatened suits or claims involving EMPLOYEE, provided
EMPLOYEE preserves the confidentiality of the copies except as may be necessary
to defend such suits or claims. EMPLOYEE and EMPLOYER will cooperate to
arrange the identification and copying of such documents. The following
categories of information are agreed not to be included in the terms trade
secret, confidential information or business information mentioned in
Paragraphs 6.6.2, 6.6.3 and 6.6.4 of the Employment Agreement: (i) information
that is generally available to the public other than by reason of any
prohibited disclosure by EMPLOYEE or others, (ii) information that is or
becomes known or available from a source other than EMPLOYER or its employees
or representatives and is not the subject of any other confidentiality
agreement, and (iii) information that is subsequently and independently
developed by an agent or representative of EMPLOYEE and to whom EMPLOYEE has
not directly or indirectly divulged the information.
2.19 Acknowledgment of Benefits. EMPLOYEE understands and
acknowledges that the payments provided for in Paragraph 2.3, the additional
benefits provided for in Paragraph 2.4 and the other consideration set forth in
this Agreement are all that EMPLOYEE is entitled to receive from the EMPLOYER,
and are more than the EMPLOYER is required to provide under its normal policies
and procedures and any prior or current agreements between EMPLOYER and
EMPLOYEE, and are in lieu of any other monies or benefits which EMPLOYEE may
claim to have earned or accrued.
2.20 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with and subject to the laws of the State
of California.
2.21 Notices. All notices or other communications provided for by
this Agreement shall be made in writing and shall be deemed properly delivered:
(i) when delivered personally or (ii) by the mailing of such notice by
registered or certified mail, postage pre-paid, to the parties at the addresses
set forth on the signature page of this Agreement (or to such other address as
one party designates to the other in writing).
2.22 Amendments. No addition, modification, amendment or waiver of
any part of this Agreement shall be binding or enforceable unless executed in
writing by both parties hereto.
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2.23 Entire Agreement. This is the entire Agreement between
EMPLOYEE and EMPLOYER. EMPLOYER has made no promises other than those set
forth in this Agreement. This Agreement supersedes all prior agreements
between EMPLOYER and EMPLOYEE, including without limitation, the Employment
Agreement between EMPLOYER and EMPLOYEE, a copy OF which is attached to this
Agreement.
EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS READ THIS AGREEMENT,
UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT WITH THE INTENTION
OF RELINQUISHING ALL CLAIMS AND RIGHTS OTHER THAN THOSE SPECIFICALLY
RESERVED.
EMPLOYER:
COMMUNITY PSYCHIATRIC CENTERS
Attention: Morgan L. Staines
24502 Pacific Park Drive
Laguna Hills, California 92656-3035
By /s/ MORGAN L. STAINES
----------------------------------------
Morgan L. Staines
Vice President and General Counsel
Date 10/11/93
--------------------------------------
EMPLOYEE:
/s/ LOREN B. SHOOK
- - -------------------------------------------
Loren B. Shook
Date: 10/11/93
-------------------------------------
-8-
EXHIBIT 10.11
PRIORY HOSPITALS GROUP LIMITED
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
10,000,000 POUNDS STERLING LOAN AGREEMENT
Dated 23 December, 1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Clause Heading Page No
<S> <C> <C>
1 DEFINITIONS 1
2 CONDITIONS PRECEDENT 8
3 THE LOAN 9
4 PAYMENTS 12
5 REPRESENTATIONS AND WARRANTIES 13
6 COVENANTS 18
7 NEGATIVE COVENANTS 22
8 EVENTS OF DEFAULT 27
9 EXPENSES 30
10 CHANGES IN CIRCUMSTANCES 30
11 ASSIGNMENT 32
12 MISCELLANEOUS 32
Schedule 1 Form of Notice of Advance 35
Schedule 2 Additional Interest 36
Schedule 3 List of Subsidiaries 38
Schedule 4 Existing Encumbrances 41
Schedule 5 Existing Indebtedness 42
</TABLE>
<PAGE>
THIS LOAN AGREEMENT is made the day of December
One thousand nine hundred and ninety three.
BETWEEN:-
(1) Priory Hospitals Group Limited (Registered No: 1505382) whose
registered office is at The Priory, Priory Lane, Roehampton, London
SW15 5JJ (the "Borrower");
(2) BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION acting through
its London Branch of Bank of America House, 1 Alie Street, London El
8DE. (the "Bank");
WHEREAS the Bank has agreed to make available to the Borrower a revolving
term loan facility (the "Facility") in the maximum aggregate principal amount
of 10,000,000 pounds sterling upon and subject to the terms and conditions
contained in this Agreement and the Guarantor has agreed to guarantee the
obligations expressed to be assumed by the Borrower in or pursuant to this
Agreement
NOW IT IS HEREBY AGREED as follows:
CLAUSE 1 DEFINITIONS
In this Agreement and the Recitals and Schedules hereto the following
expressions shall, unless there is something in the subject or context
inconsistent therewith, have the following meanings:-
"ACCOUNTS" means the audited accounts of the Borrower for the year
ended 30 November 1992.
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or
of any business or division of a Person (including, without
limitation, acquisition by, assumption, purchase, assignment, sublease
or in any other manner of leases, leasehold interests or lease rights
or obligations), (b) the acquisition, of in excess of 50% of the share
capital, partnership interests or equity of any Person or otherwise
causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than
a Person that is a Subsidiary of the Guarantor) provided that the
Guarantor or the Guarantor's Subsidiary (as appropriate) is the
surviving entity or retains legal and beneficial ownership of in
excess of fifty percent (50%) of the voting capital thereof.
"ADVANCE" means an advance under the Facility made pursuant to Clause
3.01.
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. A Person shall be deemed to
control another Person if the controlling Person possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the
ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing and for the avoidance of doubt, the
Bank shall not be deemed an "Affiliate" of the Company or of any
Subsidiary of the Company.
<PAGE>
"BUSINESS DAY" means a day (other than a Saturday or Sunday) on which
banks are open for banking business in London.
"CAPITAL EXPENDITURE" means, for any period and with respect to any
Person, the aggregate of all expenditure by such Person and its
Subsidiaries for the acquisition or leasing of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs
and improvements during such period) which should be capitalized under
Generally Accepted Accounting Principles on a consolidated balance
sheet of such Person and its Subsidiaries. Without limiting the
foregoing, each Acquisition is a Capital Expenditure.
"CAPITAL LEASE" has the meaning specified in the definition of
"Capital Lease Obligations."
"CAPITAL LEASE OBLIGATIONS" means all monetary obligations of the
Guarantor or any of its Subsidiaries under any leasing or similar
arrangement which, in accordance with Generally Accepted Accounting
Principles, is classified as a capital lease ("CAPITAL LEASE").
"CASH EQUIVALENTS" means:
(a) securities issued or fully
guaranteed or insured by the United States Government or the
Government of the United Kingdom or any agency thereof and backed by
the full faith and credit of the United States or the United Kingdom
(as the case may be) having maturities of not more than twelve months
from the date of acquisition;
(b) certificates of deposit, time
deposits, Eurodollar time deposits, repurchase agreements, reverse
repurchase agreements, or bankers' acceptances, having in each case a
tenor of not more than twelve months, issued by any bank having
combined capital and surplus of not less than US$100,000,000 (or its
equivalent) whose short term securities are rated at least A-1 by
Standard & Poor's Corporation and P-1 by Moody's Investors Service,
Inc.;
(c) commercial paper of an issuer
rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's
Investors Service Inc. and in either case having a tenor of not more
than three months.
"CONTINGENT OBLIGATION" means, as to any Person, (a) any Guarantee
Obligation of that Person; and (b) any direct or indirect obligation
or liability, contingent or otherwise, of that Person (i) in respect
of any Surety Instrument issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings
or payments, (ii) to purchase any materials, supplies or other
Property from, or to obtain the services of, another Person if the
relevant contract or other related document or obligation requires
that payment for such materials, supplies or other Property, or for
such services, shall be made regardless of whether delivery of such
materials, supplies or other Property is ever made or tendered or such
services are ever performed or tendered to such Person, or (iii) in
respect of any Rate Contract that is not entered into in connection
with a bona fide hedging operation that provides offsetting benefits
to such Person. The amount of any Contingent Obligation shall
2
<PAGE>
(subject, in the case of Guarantee Obligations, to the last sentence
of the definition of "Guarantee Obligation") be deemed equal to the
maximum reasonably anticipated liability in respect thereof, and
shall, with respect to item (iii) of this definition, be marked to
to market on a current basis.
"CONVERSION DATE" means 30 November 1995;
"CURRENT ASSETS" means the amount (less the amount of any
depreciations or provisions applicable thereto) which would be
included in respect of tangible current assets in a balance sheet of
the Borrower prepared on a basis and in accordance with accounting
policies consistent with that of and those applied in preparing the
balance sheet contained in the Accounts and in accordance with
Generally Accepted Accounting Principles.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"ENCUMBRANCE" means any mortgage, charge (whether fixed or floating),
pledge, lien, encumbrance, hypothecation, title retention or other
security interest or security agreement of any kind whatsoever and
howsoever arising and whether legal or equitable.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
Person alleging liability or responsibility for violation of any
Environmental Law, or for release or injury to the environment, threat
to public health, personal injury (including sickness, disease or
death), property damage, natural resources damage, or otherwise
alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution,
civil or criminal penalties, injunctive relief, or other type of
relief, resulting from or based upon the presence, placement,
discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from
Property, whether or not owned by the Guarantor or any of its
Subsidiaries.
"ENVIRONMENTAL Laws" means all governmental, federal, state or local
laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties,
requests, licenses, authorisations and permits of, and agreements
with, any Governmental Authorities, in each case relating to
environmental, health, safety and land use matters;
3
<PAGE>
"EVENTS OF DEFAULT" means any one of the events specified in Clause
8.01.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means accounting principles
generally accepted (i) in the case of the Guarantor, in the United
States; and (ii) in the case of the Borrower, in the United Kingdom.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other
entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
"GUARANTOR" means Community Psychiatric Centers, a Nevada Corporation
having its chief office at 24502 Pacific Park Drive, Laguna Hills,
California 92656, USA.
"GUARANTEE OBLIGATION" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person, whether or not contingent, (a) to purchase,
repurchase or otherwise acquire such primary obligations or any
property constituting direct or indirect security therefor, or (b) to
advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, or (c) to purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (d) otherwise to assure
or hold harmless the holder of any such primary obligation against
loss in respect thereof; in each case (a), (b), (c) or (d), including
arrangements wherein the rights and remedies of the holder of the
primary obligation are limited to repossession or sale of certain
property of such Person. The amount of any Guaranty Obligation shall
be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated
liability in respect thereof.
"HAZARDOUS MATERIALS" means all those substances which are regulated
by, or which may form the basis of liability under, any Environmental
Law, including all substances identified under any Environmental Law
as a pollutant, contaminant, hazardous waste, hazardous constituent,
special waste, hazardous substance, hazardous material, or toxic
substance, or petroleum or petroleum derived substance or waste.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary
course of business pursuant to ordinary terms); (c) all non-contingent
reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred
4
<PAGE>
in connection with the acquisition of property, assets or business;
(e) all indebtedness created or arising under any conditional sale or
other title retention agreement, or incurred as financing, in either
with respect to Property acquired by the Person (even though the
rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such
property); (f) all Capital Lease Obligations; (g) all net obligations
with respect to Rate Contracts; (h) all indebtedness referred to in
clauses (a) to (g) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Encumbrance upon or in Property (including accounts
and contracts rights) owned by such Person, even though such Person
has not assumed or become liable for the payment of such Indebtedness;
and (i) all Guaranty Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) to (g)
above.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership,
administrative receivership, administration, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit
of, or composition with, creditors or other similar arrangement in
respect of its creditors generally or any substantial portion of its
creditors; in each case (a) and (b) undertaken under U.S. Federal,
United Kingdom, US State or foreign law, including the Bankruptcy Code
of the USA or the Insolvency Act 1986 of the United Kingdom.
"INTEREST PAYMENT DATE" means the last day of an Interest Period and
additionally, in the case of any Interest Period having a duration of
more than three months, the date or dates falling at three monthly
intervals after the commencement of such Interest Period.
"INTEREST PERIOD" means:
(i) in relation to any Advance, the period from (and including)
the date on which such Advance is made to (and including) its
Maturity Date;
(ii) in relation to the Term Loan Drawing, a period of 1, 2, 3 or 6
months (or such other period as may be agreed between the Bank
and the Borrower) to apply to the whole or a part of the Term
Loan Drawing as selected by the Borrower by irrevocable notice
given to the Bank prior to 11.00 a.m. (London time) on the
date on which the relevant Interest Period commences, provided
that:
(a) each part of the Term Loan Drawing shall have a first
Interest Period or, as the case may be, first
Interest Periods which shall commence on the
Conversion Date;
(b) the first day of each Interest Period (other than a
Interest Period which is the first to apply in
respect of any part of the Term Loan Drawing) shall
be the last day of the immediately preceding Interest
Period;
5
<PAGE>
(c) (i) Interest Periods shall be selected or deemed
to have been selected by the Borrower so as
to ensure that a part or parts of the Term
Loan Drawing equal or, as the case may be
equal in aggregate, to the repayment
instalment due on each Repayment Date shall
have a final Interest Period or, as the case
may be, final Interest Periods, which shall
expire on such Repayment Date; and
(ii) the final Interest Period(s) shall end on
the final Repayment Date;
(d) if the Borrower shall fail to give notice in
accordance with the foregoing provisions selecting
the duration of any Interest Period, the Borrower
shall (without prejudice to the provisions of
subparagraph (d) above) be deemed to have selected
for the relevant Interest Period a period of three
months; and
(e) subject to the provisions of clause 4.02, the exact
length of each interest Period shall be determined by
the Bank in accordance with London interbank market
practices for dealing with sterling deposits of
similar maturity. A certificate of the Bank as to
the length of any Interest Period shall, save for any
manifest error, be conclusive and binding.
"JOINT VENTURE" means a single-purpose company or corporation,
partnership, joint venture or other similar legal arrangement (whether
created pursuant to contract or conducted through a separate legal
entity) now or hereafter formed by the Borrower with another Person in
order to conduct a common venture or enterprise with such Person.
"LEVERAGE RATIO" means the ratio of Total Liabilities to Tangible Net
Worth.
"LIBOR" means, in relation to any Interest Period, the rate per annum
determined by the Bank to be the rate (rounded up to the nearest
1/16%) at which sterling deposits of an amount equal to the Advance in
respect of which the interest rate to be ascertained by reference to
the said rate is to apply would have been offered by the Bank's
principal London office to prime banks in the London interbank market
at such banks' request at or about 11.00 a.m. (London time) on the
date on which the relevant Interest Period commences for a period
equal thereto.
"LOAN" means the aggregate principal amount advanced and for the time
being outstanding under the Facility.
"MARGIN" means:-
(a) in respect of the period from (and including) the
date on which the first Advance is made to (but
excluding) the Conversion Date one and one quarter
per cent. (1 1/4%); and
6
<PAGE>
(b) in respect of any period commencing on or after the
Conversion Date one and one half per cent. (1 1/2%).
"MATERIAL ADVERSE EFFECT" means in relation to a Person (a) a material
adverse change in or a material adverse effect upon the operations,
business, properties, condition (financial or otherwise) or prospects
of that Person or that Person and its Subsidiaries taken as a whole,
or (b) an impairment of the ability of that Person to perform under
this Agreement or the Guarantee and to avoid any Event of Default, or
(c) the illegality, invalidity, non-binding effect or unenforceability
of this Agreement or the Guarantee. However, the effectuation of the
restructuring disclosed in the Form 10Q of the Guarantor for the
financial quarter ended February 28, 1993 shall not be deemed to be a
subsequent Material Adverse Effect.
"MATURITY DATE" means, in relation to any Advance, the date on which
such Advance is to mature in accordance with Clauses 3.01(A)(b) and
3.01(B).
"MAXIMUM Amount" means the maximum aggregate principal amount for
which the Facility is for the time being available, such amount being,
subject to reduction in accordance with Clause 3.02, 1O,000,000 pounds
sterling.
"NET ISSUANCE PROCEEDS" means, in respect of any issuance of share
capital or equity of a Person, cash proceeds and non-cash proceeds
received or receivable by that Person in connection therewith, net of
commission and underwriting discounts and reasonable out-of-pocket
costs and expenses paid or incurred in connection therewith in favor
of any Person (not being an Affiliate of such Person), such costs and
expenses not to exceed 5% of the gross proceeds of such issuance.
"NOTICE OF ADVANCE" means a notice of advance in the form set out
Schedule 1.
"PERMITTED ENCUMBRANCES" has the meaning specified in Section 7.01.
"PERSON" means an individual, partnership, company, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
"RATE CONTRACTS" means interest rate or currency swap agreements and
any other agreements or arrangements designed to provide protection
against fluctuations in interest or currency exchange rates.
"REPAYMENT DATE" means the last Business Day of each February, May,
August and November, from (and including) 28 February 1996 to (and
including) 30 November 1998.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its propety or to which the Person or any
of its property is subject.
7
<PAGE>
"RESPONSIBLE OFFICER" means (i) in relation to the Guarantor, the
chief executive officer or the president of the Guarantor, or any
other officer having substantially the same authority and
responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the
Guarantor, or any other officer having substantially the same
authority and responsibility; and (ii) in relation to the Borrower,
any director or the secretary of the Borrower.
"ROLLOVER DATE" means, in relation to the Term Loan Drawing, the last
day of an Interest Period.
"SUBSIDIARY" in relation to a Person, means any subsidiary (as defined
in Clause 736 of the Companies Act, 1985 as such section may be
amended or substituted) for the time being such person.
"SURETY INSTRUMENTS" means all letters of credit (including standby
and commercial), banker's acceptances, bank guarantees, shipside
bonds, surety bonds and similar instruments.
"TANGIBLE NET WORTH" means the amount (less the amount of any
depreciations or provisions applicable thereto) which would be
included in respect of tangible assets (both current and otherwise) in
a balance sheet minus the amount of the Consolidated Total
Liabilities; and
"TOTAL LIABILITIES" means the amount which would be included in
respect of liabilities (both current and otherwise) in a balance sheet
of the Borrower.
"TERM LOAN DRAWING" means the drawing deemed to be made by the
Borrower on the Conversion Date pursuant to Clause 3.02;
CLAUSE 2 CONDITIONS PRECEDENT
The obligation of the Bank to make any Advance pursuant to Clause 3.01 is
conditional upon the following documents having been received by the Bank and
found by it to be satisfactory not later than noon (London time) on the fifth
Business Day prior to the date on which the first Advance is to be made:-
(a) copies of the following:-
(i) the Memorandum and Articles of Association of the Borrower,
certified as of such date by the Secretary of the Borrower as
being a true, complete and up-to-date copy;
(ii) a resolution of the Board of Directors of the Borrower,
certified as of such date by the Secretary of the Borrower as
being a true and complete copy, approving the borrowings
under, and the terms and conditions of, this Agreement and
authorising a person or persons to sign, deliver, give and/or
despatch on behalf of the Borrower this Agreement, Notices of
Advance and all other notices, letters and other
communications to be given by the Borrower hereunder and
8
<PAGE>
generally to operate the Facility on behalf of the Borrower;
(iii) a duly executed copy of the Guarantee;
(iv) the by-laws and other constitutional documents of the
Guarantor, certified as of such date by a Responsible Officer
of the Guarantor as being a true, complete and up-to-date
copy;
(v) a resolution of the Board of Directors of the Guarantor,
certified as of such date by a Responsible Officer of the
Guarantor as being a true and complete copy, approving the
borrowings under, and the terms and conditions of, this
Agreement and the Guarantee and authorising a person or
persons to sign, deliver, give and/or despatch the Guarantee
on behalf of the Guarantor and any notices, letters and other
communications to be given by the Guarantor pursuant thereto;
and
(b) specimen signatures (authenticated to the satisfaction of the Bank) of
the person or persons mentioned in paragraphs (a)(ii) and (a)(v)
above.
CLAUSE 3 THE LOAN
3.01 ADVANCES
(A) Subject to:-
(i) the provisions of Clause 2;
(ii) no Default or Event of Default having occurred; and
(iii) the Bank having received prior to 11.00 a.m. (London time) on
the date upon which the relevant Advance is to be made a
Notice of Advance duly completed on behalf of the Borrower by
one of the persons authorised for such purpose as specified in
paragraph (a) (ii) of Clause 2
the Borrower may (subject to the other provisions of this Agreement)
draw an Advance on any Business Day prior to the Conversion Date in
the manner provided in this Clause and otherwise in accordance with
the relevant Notice of Advance, provided that:-
(a) each Notice of Advance shall be given for an Advance of no
less than 1,000,000 pounds sterling (one million pounds) and
in integral multiples of 500,000 pounds sterling (FIVE
hundred thousand pounds);
(b) each Notice of Advance shall be given for an Advance of either
1, 2, 3 or 6 months (or such other period as may be agreed
between the Bank and the Borrower);
9
<PAGE>
(c) a Notice of Advance shall not be given for an Advance which:-
(i) would cause the Loan to exceed the Maximum Amount on
the proposed date of the Advance;
(ii) would mature on any day after the Conversion Date; and
(B) Subject to the provisions of Clause 4.02, the exact maturity of each
Advance shall be determined by the Bank in accordance with London
interbank market practices for dealing with sterling deposits of
similar maturity. The certificate of the Bank as to the maturity of
any Advance shall, save for any manifest error, be conclusive and
binding.
(C) Subject to the other provisions of this Agreement, the Borrower shall
repay the principal amount of each Advance to the Bank on its Maturity
Date.
3.02 TERM LOAN DRAWING
(A) Subject to no Default or Event of Default having occurred, the
Borrower shall, on the Conversion Date, be deemed to have made a term
loan drawing in an amount equal to the Loan immediately prior to the
Conversion Date.
(B) Subject to the other provisions of this Agreement, the Borrower shall
repay the Term Loan Drawing to the Bank in twelve equal instalments on
each Repayment Date.
3.03 PREPAYMENT AND CANCELLATION
(A) The Borrower may not voluntarily cancel or prepay the whole or any
part of any Advance or the Term Loan Drawing except as expressly
provided in Clause 10, or cancel the whole or any part of the Facility
except as expressly provided in this Clause or in Clause 10.
(B) Prior to the Conversion Date, the Borrower may cancel the whole or any
part of the unutilized portion of the Facility without penalty or
premium provided that:-
(i) any such cancellation may only be effected on a Business Day;
(ii) the Borrower must give to the Bank not less than 5 days' prior
notice (which shall be irrevocable) of its intention to make
such cancellation, specifying the amount thereof and the
Business Day on which it is to be made;
(iii) any cancellation shall be in a minimum amount and in integral
multiples of 500,000 pounds sterling; and
(iv) the amount which is to be cancelled on any Business Day shall
not exceed the amount by which the Maximum Amount, but for
such cancellation, would exceed the Loan at the close of
business on that Business Day.
(C) On the expiry of a notice given in accordance with paragraph (B) of
this Clause such cancellation shall take effect accordingly and the
Maximum Amount shall be reduced by the amount specified in such
notice.
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<PAGE>
(D) After the Conversion Date, the Borrower may prepay the whole or any
part of the Term Loan Drawing without penalty or premium provided
that:-
(i) any such prepayment may only be effected on a Rollover Date
applicable to that part of the Loan to be prepaid;
(ii) the Borrower must give to the Bank not less than thirty days'
prior notice of its intention to make such prepayment,
specifying the amount thereof and the Rollover Date on which
it is to be made;
(iii) any partial prepayment of the Loan shall be in a minimum
amount, and in multiples, of 500,000 pounds sterling; and
(iv) the Borrower shall simultaneously pay all interest accrued to
the date of prepayment on the amount prepaid.
(E) Once having given notice of an intended prepayment under sub-clause
(D) above, the Borrower shall be obliged to make the prepayment in
accordance with the notice.
(F) No amount prepaid after the Conversion Date may be redrawn.
(G) Any partial prepayment shall be applied towards to reducing the
prepayment instalments referred to in Clause 3.02(B) in inverse order
of maturity.
3.04 INTEREST
(A) Subject to the provisions of Clause 8.02, the Borrower shall pay
interest on each Advance and on each part of the Term Loan Drawing for
the Interest Period relating thereto at the rate per annum determined
by the Bank to be the aggregate of (i) LIBOR and (ii) the Margin.
(B) Interest at the rates determined as aforesaid shall (i) accrue from
(and including) the first day to (but excluding) the last day of each
Interest Period and (ii) be paid in arrears on each Interest Payment
Date.
(C) The Borrower shall also pay additional interest on each Advance on
each Interest Payment Date relating thereto in such amounts as may be
calculated by the Bank in accordance with Schedule 2, and such
additional interest shall be treated as interest for all the purposes
of this Agreement.
(D) The certificate of the Bank as to any rate or amount of interest
payable pursuant to this Agreement shall, save for any manifest error,
be conclusive and binding. Each determination of an interest rate
made by the Bank in accordance with this Agreement shall be promptly
notified by the Bank to the Borrower.
3.05 COMMITMENT FEE
The Borrower shall pay to the Bank a commitment fee calculated, from (and
including) the date of this Agreement up to (but excluding) the Conversion
Date, at the rate of one half of one percent (1/2%) per annum upon the amount
(calculated on a daily basis) by which the Maximum Amount exceeds the Loan.
Such commitment fee shall be paid in arrears at the end of each successive
period of three months from the date hereof and on the last day upon which
such fee shall accrue as aforesaid.
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3.06 ARRANGEMENT FEE
The Borrower shall pay to the Bank on the date hereof the Arrangement Fee
agreed between the Borrower and the Bank.
CLAUSE 4 PAYMENTS
4.01 PAYMENTS BY THE BORROWER
All payments due to be made by the Borrower pursuant to this Agreement shall be
made in immediately available funds before 12 noon (London time) on the date on
which payment is due in such manner as the Bank may from time to time direct.
4.02 PAYMENT DUE ON NON-BUSINESS DAY TO BE MADE ON NEXT BUSINESS DAY
If any sum becomes due for payment pursuant to this Agreement on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day and interest and commitment fee shall be adjusted accordingly.
4.03 PAYMENTS TO BE CLEAR OF ALL TAXES
All sums payable by the Borrower pursuant to this Agreement shall be paid in
full without set-off or counter-claim and free and clear of and without
deduction of or withholding for or on account of any present or future taxes,
duties or other charges wheresoever and howsoever arising and including,
without limitation, any interest or penalties which may attach as a consequence
of non-payment. If any such payment shall be subject to any such tax or if the
Borrower shall be required by law to make any such deduction or withholding,
the Borrower will pay such tax, will ensure that such payment, deduction or
withholding will not exceed the minimum legal liability therefor and will
simultaneously pay to the Bank such additional amounts as will result in the
Bank receiving a net amount equal to the full amount which the Bank would have
received had no such payment, deduction or withholding been required. If the
Borrower shall make any such payment, deduction or withholding, the Borrower
shall within 30 days thereafter forward to the Bank an official receipt or
other official documentation evidencing such payment or the payment of such
deduction or withholding.
4.04 CALCULATIONS
All sums which accrue pursuant to this Agreement by reference to the passage of
time shall (a) accrue from day to day and (b) be calculated on the basis of
actual days elapsed and a 365 day year.
4.05 RIGHT OF SET-OFF
The Borrower hereby. authorises the Bank, at any time and from time to time,
without prior notice or demand, to debit to any of its existing or future
accounts with the Bank at any of its branches anywhere all or any part of any
sum due from it to the Bank hereunder. Nothing in this Agreement shall be
construed as voiding, negating or restricting any right of set-off or any
other right whatsoever in the Bank's favour existing or arising at common law,
by statute or otherwise howsoever.
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CLAUSE 5 REPRESENTATIONS AND WARRANTIES
5.01 The Borrower represents and warrants to the Bank that:
(1) CORPORATE EXISTENCE AND POWER
Each of the Borrower and the Guarantor:
(a) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorisations, consents and approvals to own its assets, carry on its
business and execute, deliver, and perform its obligations (if any)
under, this Agreement and the Guarantee;
(c) is duly qualified as a foreign corporation, and licensed and in good
standing, under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires
such qualification or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (C), to the extent that the failure
to do so could not reasonably be expected to have a Material Adverse Effect.
(2) CORPORATE AUTHORISATION; NO CONTRAVENTION
The execution, delivery and performance by the Borrower and the Guarantor of
this Agreement, and the Guarantee have been duly authorised by all necessary
corporate action, and do not and will not:
(a) contravene the terms of the Borrower's or the Guarantor's Memorandum
or Articles of Association or equivalent constitutional documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Encumbrance under, any agreement to which the Borrower
or the Guarantor is a party or any order, injunction, writ or decree
of any Governmental Authority to which the Borrower or the Guarantor
or its Property is subject; or
(c) violate any Requirement of Law.
(3) GOVERNMENTAL AUTHORISATION
No approval, consent, exemption, authorisation, or other action by, or notice
to, or filing with, any Governmental Authority is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Borrower or the Guarantor of this Agreement or the Guarantee;
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(4) BINDING EFFECT
This Agreement and the Guarantee constitute the legal, valid and binding
obligations of the Borrower or the Guarantor (as appropriate) enforceable
against such Person in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
(5) LITIGATION
Except as specifically disclosed in Schedule 5.05 of the Credit Agreement dated
as of September 20, 1993 among Community Psychiatric Centre, Transitional
Hospitals Corp. and the Bank (the "Credit Agreement"), there are no actions,
suits, proceedings, claims or disputes pending, or to the best knowledge of the
Borrower, threatened or contemplated, at law, in equity, in arbitration or
before any Governmental Authority, against the Guarantor or the Borrower or any
of their respective Properties which:
(a) purport to affect or pertain to this Agreement or the Guarantee or any
of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Guarantor or the Borrower, would
reasonably be expected to have a Material Adverse Effect. No
injunction, writ, temporary restraining order or any order of any
nature has been issued by any court or other Governmental Authority
purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or the Guarantee or directing that the
transactions provided for herein or therein not be consummated as
herein or therein provided.
(6) NO DEFAULT
No Default or Event of Default exists or would result from the Borrower
entering into the Agreement or the Guarantor entering into the Guarantee. None
of the Borrower nor the Guarantor nor any of their respective Subsidiaries is
in default under or with respect to any agreement to which it is a party in any
respect which, individually or together with all such defaults, could
reasonably be expected to have a Material Adverse Effect or that would, if such
default had occurred after the date hereof, create an Event of Default under
subsection 8.01(e).
(7) TITLE TO PROPERTIES
The Borrower and the Guarantor have good record and marketable title in fee
simple to, or valid leasehold interests in, all real Property necessary or used
in the ordinary conduct of their respective businesses, except for such defects
in title as could not, individually or in the aggregate, have a Material
Adverse Effect. As of the date hereof, the Property of the Borrower and the
Guarantor is subject to no Encumbrances, other than Permitted Encumbrances.
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(8) TAXES
The Borrower and the Guarantor have filed all tax returns and reports required
to be filed, and have paid all taxes, assessments, fees and other governmental
charges levied or imposed upon them or their Properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided
in accordance with Generally Accepted Accounting Principles. There is no
proposed tax assessment against the Guarantor or any of its Subsidiaries which
would, if the assessment were made, have a Material Adverse Effect.
(9) FINANCIAL CONDITION
(a) The audited consolidated financial statements of financial condition
of the Guarantor and its Subsidiaries dated November 30, 1992, and the
related consolidated statements of income or operations, shareholders'
equity and cash flows for the fiscal year ended on that date and the
audited profit and loss account and balance sheet of the Borrower for
the year ended on that date:
(i) were prepared in accordance with Generally Accepted Accounting
Principles consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein;
(ii) fairly present the financial condition of the Guarantor and
its Subsidiaries and the Borrower respectively as of the date
thereof and the results of operations for the period covered
thereby; and
(iii) show all material indebtedness and other liabilities, direct or
contingent of the Guarantor and its consolidated Subsidiaries
and the Borrower respectively as of the date thereof,
including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since 28 February 1993, there has been no Material Adverse Effect.
(10) ENVIRONMENTAL MATTERS
(a) The on-going operations of the Guarantor and each of its Subsidiaries
(including the Borrower) comply in all respects with all Environmental
Laws, except such non-compliance which would not (if enforced in
accordance with applicable law) result in liability in excess of
$500,000 (or its equivalent) in the aggregate.
(b) The Guarantor and the Borrower have obtained all licenses, permits,
authorisations and registrations required under any Environmental Law
("Environmental Permits") and necessary for their respective ordinary
business operations, all such Environmental Permits are valid and in
full force and effect and the Guarantor and each of its Subsidiaries
(including the Borrower) are in compliance with all material terms and
conditions of such Environmental Permits.
(c) None of the Guarantor, the Borrower, any of their respective
Subsidiaries or any of their respective present Property or
operations, is subject to any outstanding written order from or
agreement with any Governmental Authority, nor subject to any
judicial or administrative proceeding with respect to any
Environmental Law, Environmental Claim or Hazardous Material.
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(d) There are no Hazardous Materials or other conditions or circumstances
existing with respect to any Property, or arising from the business
prior to the date hereof, of the Guarantor or any of its Subsidiaries
(including the Borrower) that would reasonably be expected to give
rise to Environmental Claims with a potential liability of the
Guarantor and its Subsidiaries (including the Borrower) in excess of
$1,000,000 (or its equivalent) in the aggregate. In addition, (i)
neither the Guarantor, nor any of its Subsidiaries (including the
Borrower) has any underground storage tanks (x) that are not properly
registered or permitted under applicable Environmental Laws, or (y)
that are leaking or disposing of Hazardous Materials off-site, and
(ii) the Guarantor and each of its Subsidiaries (including the
Borrower) have notified all of their employees of the existence, if
any, of any health hazard arising from the conditions of their
employment and have met all notification requirements under all
Environmental Laws.
(11) REGULATED ENTITIES
None of the Guarantor, any Person controlling the Guarantor, or any Subsidiary
of the Guarantor, is (a) an "Investment Company" within the meaning of the
Investment Company Act of 1940 of the USA; or (b) subject to regulation under
the Public Utility Holding Company Act of 1935 of the USA, the Federal Power
Act of the USA, the Interstate Commerce Act of the USA, any US state public
utilities code, or any other U.S. Federal or state statute or regulation
limiting its ability to incur Indebtedness.
(12) NO BURDENSOME RESTRICTIONS
Neither the Guarantor nor the Borrower is a party to or bound by any agreement
or subject to any restriction, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
(13) SOLVENCY
Neither the Guarantor on a consolidated basis nor the Borrower are insolvent as
defined in Section 123 of the Insolvency Act 1986.
(14) LABOUR RELATIONS
There are no significant strikes, lockouts or other labour disputes against the
Guarantor or the Borrower or, to the best of their knowledge, threatened
against or affecting the Guarantor or the Borrower, and no significant unfair
labour practice complaint is pending against the Guarantor or the Borrower or,
to the best of their knowledge, threatened against any of them before any
Governmental Authority.
(15) INTELLECTUAL PROPERTY
The Guarantor and the Borrower own or are licensed or otherwise have the right
to use all of the patents, trademarks, service marks, trade names, copyrights,
contractual franchises, authorisations and other rights that are reasonably
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necessary for the operation of their respective businesses, without conflict
with the rights of any other Person. To the best knowledge of the Guarantor
and the Borrower, no slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to
be employed, by the Guarantor or the Borrower infringes upon any rights held
by any other Person:[except as specifically disclosed in Schedule 5.15 of the
Credit Agreement, no claim or litigation regarding any of the foregoing is
pending or threatened, and no patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is pending
or, to the knowledge of the Guarantor or the Borrower, proposed, which, in
any case, could reasonably be expected to have a Material Adverse Effect.
(16) SUBSIDIARIES
As of the date hereof, neither the Guarantor nor the Borrower have any
Subsidiaries other than those specifically disclosed in part (a) of Schedule 3
hereto and have no equity investments in any other corporation or entity other
than those specifically disclosed in part (b) of Schedule 3.
(17) BROKER'S; TRANSACTION FEES
Neither the Guarantor nor any of its Subsidiaries (including the Borrower) have
any obligation to any Person in respect of any finder's, broker's or investment
banker's fee in connection with the transactions contemplated hereby.
(18) INSURANCE
The Properties of the Guarantor and its Subsidiaries (including the Borrower)
are insured with financially sound and reputable insurance companies not
Affiliates of the Guarantor, in such amounts, with such deductibles and
covering such risks as are customarily carried by companies engaged in similar
businesses and owning similar Properties in localities where the Guarantor or
such Subsidiary operates.
(19) FULL DISCLOSURE
None of the representations or warranties made by the Borrower in this
Agreement as of the date such representations and warranties are made or deemed
made, and none of the statements contained in each exhibit, report, statement
or certificate furnished by or on behalf of the Guarantor in connection with
this Agreement (including the offering and disclosure materials delivered by or
on behalf of the Borrower to the Bank prior to the date hereof), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they are made, not misleading as of the time when
made or delivered.
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5.02 The representations and warranties specified in Clause 5.01 shall be
made as of the date hereof and deemed repeated on the date of each
Notice of Advance and on the first day of each Interest Period with
reference to the facts existing at that time.
CLAUSE 6 AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as the Bank shall have any
commitment hereunder, or any Advance or the Term Loan Drawing shall remain
outstanding, unless the Bank otherwise agrees in writing:
6.01 FINANCIAL STATEMENTS
The Borrower shall deliver to the Bank in form and detail satisfactory to the
Bank:
(a) as soon as available, but not later than 120 days after the end of
each financial year, a copy of the audited balance sheet of the
Borrower as at the end of such year and the related profit and loss
account for such year, setting forth in each case in comparative form
the figures for the previous year, certified by an appropriate
Responsible Officer as being materially complete and correct and
fairly presenting, in accordance with Generally Accepted Accounting
Principles, the financial position and the results of operations of
the Borrower and accompanied by the opinion of the auditors of the
Borrower which report shall state that such accounts present fairly
the financial position for the periods indicated in conformity with
Generally Accepted Accounting Principles applied on a basis consistent
with prior years. Such opinion shall not be qualified or limited in
any material way;
(b) as soon as available, but not later than 90 days after the end of each
financial year, the annual financial projections (balance sheet,
income statement and statement of cash flows) for the Borrower for the
period up to and including the final Repayment Date.
6.02 CERTIFICATES; OTHER INFORMATION
The Borrower shall furnish to the Bank:
(a) concurrently with the delivery of the financial statements referred to
in sub-clause 6.01(a) above, a certificate of the auditors of the
Borrower reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements referred to
in sub-clause 6.01(a) a certificate of a Responsible Officer of the
Borrower (i) stating that, to the best of such Responsible Officer's
knowledge, the Borrower, during such period, has observed and
performed all of its covenants and other agreements, and satisfied
every condition contained in this Agreement to be observed, performed
or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified (by
applicable subsection reference) in such certificate, and (ii)
showing in detail the calculations supporting such statement in
respect of all financial covenants hereunder;
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(c) promptly after they are sent, copies of all financial statements and
reports which the Borrower sends to its shareholders; and promptly
after they are filed, copies of all financial statements and regular,
periodical or special reports which the Borrower may make to, or file
with any Governmental Authority; and
(d) promptly, such additional business, financial, corporate affairs and
other information as the Bank may from time to time reasonably
request.
6.03 NOTICES
The Borrower shall promptly notify the Bank:
(a) (i) of the occurrence of any Default or Event of Default; or
(ii) of the occurrence or existence of any event or circumstance that
is reasonably likely to result in a violation of any covenant
contained in clause 7 of this Agreement.
(b) of any material dispute, litigation, investigation, proceeding or
suspension which may exist at any time between the Borrower, the
Guarantor or any of its Subsidiaries and any Governmental Authority;
(c) of the commencement of, or any material development in, any litigation
or proceeding affecting the Borrower or the Guarantor (i) in which the
amount of damages claimed is $ 1,000,000 (or its equivalent in
another currency or currencies) or more, (ii) in which injunctive or
similar relief is sought and which, if adversely determined, would
reasonably be expected to have a Material Adverse Effect, or (iii) in
which the relief sought is an injunction or other stay of the
performance of this Agreement or the Guarantee;
(d) upon, but in no event later than 10 days after, becoming aware of (i)
any and all governmental or regulatory actions instituted, completed,
or threatened against the Borrower or the Guarantor or any of their
Property pursuant to any applicable Environmental Laws, (ii) all other
material Environmental Claims, and (iii) any Environmental Claims
relating to any real property adjoining or in the vicinity of any
material Property of the Borrower or the Guarantor that can reasonably
be anticipated to cause such Property or any part thereof to be
subject to any restrictions on its ownership, occupancy,
transferability or use under any Environmental Laws;
(g) of any Material Adverse Effect subsequent to 28 February, 1993;
(h) of any change in accounting policies or financial reporting practices
by the Guarantor or any of its Subsidiaries (including the Borrower);
and
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(i) of any labour controversy resulting in or threatening to result in any
strike, work stoppage, boycott, shutdown or other labour disruption
against or involving the Guarantor or any of its Subsidiaries
(including the Borrower).
Each notice pursuant to this clause shall be accompanied by a written statement
by a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein, and stating what action the Borrower proposes
to take with respect thereto and at what time. Each notice under sub-clause
6.03(a) shall describe in reasonable detail any and all clauses or provisions
of this Agreement or the Guarantee that have been breached or violated.
6.04 PRESERVATION OF CORPORATE EXISTENCE, ETC
The Borrower shall:
(a) preserve and maintain in full force and effect its incorporation and
good standing under English law;
(b) preserve and maintain in full force and effect all rights, privileges,
qualifications, permits, licenses and franchises necessary or
desirable in the ordinary course of the Borrower's business;
(c) use its reasonable efforts, in the ordinary course of business, to
preserve its business organisation and preserve the goodwill and
business of the customers, suppliers and others having material
business relations with it; and
(d) preserve or renew all of its registered trademarks, trade names and
service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.05 MAINTENANCE OF PROPERTY
The Borrower shall maintain and preserve all its Property which is used or
useful in its business in good working order and condition, ordinary wear and
tear excepted, and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The Borrower shall use the
standard of care typical in the industry in the operation and maintenance of
its facilities.
6.06 INSURANCE
The Borrower shall maintain with financially sound and reputable independent
insurers, insurance with respect to its properties and businesses against loss
or damage of the kinds customarily insured against by Persons engaged in the
same or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons; including workers'
compensation insurance. Upon request of the Bank, the Borrower shall furnish
the Bank, at reasonable intervals (but not more than once per calendar year) a
certificate of a Responsible Officer of the Borrower (and, if requested by the
Bank, any insurance broker of the Borrower) setting forth the nature and
extent of all insurance maintained by the Borrower and its Subsidiaries in
accordance with this Clause 6.06.
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6.07 PAYMENT OF OBLIGATIONS
The Borrower shall pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate
reserves in accordance with Generally Accepted Accounting Principles
are being maintained by the Borrower;
(b) all lawful claims which, if unpaid, would by law become an Encumbrance
upon its Property; and
(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
6.08 COMPLIANCE WITH LAWS
The Borrower shall comply in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business,
except such as may be contested in good faith or as to which a bona fide
dispute may exist.
6.09 INSPECTION OF PROPERTY AND BOOKS AND RECORDS
The Borrower shall maintain proper books of record and account, in which full,
true and correct entries in conformity with Generally Accepted Accounting
Principles consistently applied shall be made of all financial transactions and
matters involving the assets and business of the Borrower. The Borrower shall
permit representatives and independent contractors of the Bank to visit and
inspect any of their respective Properties, to examine their respective
corporate, financial and operating records, and make copies thereof or
abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective directors, officers, and independent public
accountants, all at the expense of the Borrower and at such reasonable times
during normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to the Borrower; provided, however, when an Event of
Default exists the Bank may do any of the foregoing at the expense of the
Borrower at any time during normal business hours and without advance notice.
6.10 ENVIRONMENTAL LAWS
(a) The Borrower shall conduct its operations and keep and maintain its
Properties in compliance with all Environmental Laws.
(b) Upon the written request of the Bank, the Borrower shall submit to the
Bank, at the Borrower's sole cost and expense, at reasonable
intervals, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue
identified in any notice or report required pursuant to sub-clause
6.03(d), that could, individually or in the aggregate, result in
liability in excess of L100,000.
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6.11 FURTHER ASSURANCES
(a) The Borrower shall ensure that all written information, exhibits and
reports furnished to the Bank do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any
material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made,
and will promptly disclose to the Bank and correct any defect or error
that may be discovered therein or in the execution or acknowledgement
thereof.
(b) Promptly upon request by the Bank, the Borrower shall do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts as the Bank may reasonably
require from time to time in order to carry out more effectively the
purposes of this Agreement or the Guarantee.
CLAUSE 7 NEGATIVE COVENANTS
7.01 The Borrower hereby covenants and agrees that, so long as the Bank
shall have any commitment hereunder, or any Advance or the Term Loan
Drawing or any interest thereon shall remain unpaid or unsatisfied,
unless the Bank otherwise agrees in writing:
(1) LIMITATION ON ENCUMBRANCES
The Borrower shall not, and shall not suffer or permit any of its Subsidiaries
to, directly or indirectly, make, create, incur, assume or permit to subsist
any Encumbrance upon or with respect to any part of its Property, whether now
owned or hereafter acquired, other than the following ("PERMITTED
ENCUMBRANCES"):
(a) any Encumbrance existing on the date hereof and set forth in Schedule
4 securing Indebtedness outstanding on such date;
(b) any Encumbrance created under the Guarantee;
(c) Encumbrances for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty;
(d) Encumbrances arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of
the property subject thereto;
(e) Encumbrances consisting of pledges or deposits required in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation;
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(f) Encumbrances securing (i) the non-delinquent performance of bids,
trade contracts (other than for borrowed money), leases or statutory
obligations, (ii) contingent obligations on surety and appeal bonds,
and (iii) other non-delinquent obligations of a like nature; in each
case, incurred in the ordinary course of business, provided all such
Encumbrances in the aggregate would not (even if enforced) cause a
Material Adverse Effect;
(g) Encumbrances consisting of judgment or judicial attachment
Encumbrances, provided that the enforcement of such Encumbrances is
effectively stayed and all such Encumbrances in the aggregate at any
time outstanding for the Borrower do not exceed 100,000 pounds
sterling;
(h) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate,
are not substantial in amount, and which do not in any case materially
detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Borrower;
(i) Encumbrances on assets of companies which become Subsidiaries after
the date of this Agreement, provided however that such Encumbrances
existed at the time the respective companies became Subsidiaries and
were not created in anticipation thereof,
(j) security interests existing on the date of this Agreement on any
Property acquired or held by the Borrower in the ordinary course of
business in favour of the seller thereof, securing Indebtedness
incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such Property;
(k) Encumbrances securing Capital Lease Obligations on assets subject to
such Capital Leases, provided that such Capital Leases are permitted
under sub-clause 7.01(9);
(l) Encumbrances arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution;
(m) Other Encumbrances in the ordinary course of business securing
obligations not exceeding 100,000 pounds sterling in the aggregate
securing Indebtedness permitted to be incurred pursuant to
clause 7.01(5)(g).
(2) DISPOSITION OF ASSETS
The Borrower shall not directly or indirectly, sell, assign, lease, convey,
transfer or otherwise dispose of (whether in one or a series of transactions)
any of its Property (including accounts and notes receivable, with or without
recourse) or enter into any agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus equipment, all
in the ordinary course of business;
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(b) the sale of equipment to the extent that such equipment is exchanged
for credit against the purchase price of replacement equipment, or the
proceeds of such sale are reasonably promptly applied to the purchase
price of such replacement equipment;
(c) dispositions for fall value of inventory or equipment by the Borrower
to any of the Subsidiaries of the Guarantor pursuant to reasonable
business requirements;
(d) dispositions of accounts receivable in the ordinary course of business
on a nonrecourse basis;
(e) sales for full value of surplus real property; and
(f) other dispositions of assets not exceeding 200,000 pounds sterling in
the aggregate of gross book value of the assets so disposed in any
financial year.
(3) CONSOLIDATIONS AND MERGERS
The Borrower shall not merge, consolidate with or into, or convey, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to or in favour of any Person.
(4) LOANS AND INVESTMENTS
The Borrower shall not purchase or acquire, or make any commitment to purchase
or acquire, any share capital, equity interest, or any obligations or other
securities of, or any interest in, any Person, or make or commit to make any
Acquisitions, or make or commit to make any advance, loan, extension of credit
or capital contribution to, or any other investment in, any Person including
any Affiliate of the Guarantor, except for:
(a) investments in Cash Equivalents;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) extensions of credit by the Borrower to any of its wholly-owned
Subsidiaries or by any of its wholly-owned Subsidiaries to another of
its wholly-owned Subsidiaries;
(d) any transaction not exceeding two and one half percent (2-1/2%) of the
amount of the Borrower's Current Assets; and
(e) loans to the Borrower's employees not exceeding 100,000 pounds
sterling in the aggregate.
(5) LIMITATION ON INDEBTEDNESS
The Borrower shall not create, incur, assume, suffer to exist, or otherwise
become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
24
<PAGE>
(b) Indebtedness consisting of Contingent Obligations permitted pursuant
to clause 7.01(7);
(c) Indebtedness existing on the date hereof and set forth in Schedule 5;
(d) Indebtedness secured by Encumbrances permitted by clauses
7.01(l)(h)(i) and (j);
(e) Indebtedness incurred in connection with leases permitted pursuant to
clause 7.01(10);
(f) Indebtedness in the ordinary course of business in connection with
corporate credit cards;
(g) Indebtedness secured by Encumbrances permitted by Clause 7.01(l)(m)
under terms that are not more restrictive than this Agreement and on
which no principal payment shall be made prior to the final Repayment
Date; and
(6) TRANSACTIONS WITH AFFILIATES
The Borrower shall not enter into any transaction with any Subsidiary of the
Guarantor except (a) as expressly permitted by this Agreement, or (b) in the
ordinary course of business and pursuant to the reasonable requirements of the
business of the Borrower in each case (a) and (b), upon fair and reasonable
terms no less favourable to the Borrower than would obtain in a comparable
arm's-length transaction with a Person not a Subsidiary of the Guarantor.
(7) CONTINGENT OBLIGATIONS
The Borrower shall not create, incur, assume or suffer to exist any Contingent
Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Rate Contracts entered into in the ordinary course of business;
(8) JOINT VENTURES
The Borrower shall not enter into any Joint Venture, other than in the ordinary
course of business.
(a) LEASE OBLIGATIONS
The Borrower shall not create or suffer to exist any obligations for the
payment of rent for any Property under lease or agreement to lease, except for:
(a) leases of the Borrower in existence at the date hereof,
25
<PAGE>
(b) Operating Leases entered into by the Borrower after the date hereof in
the ordinary course of business;
(c) Capital Leases, entered into by the Borrower after the date hereof to
finance the acquisition of equipment; provided that the aggregate
annual rental payments for all such Capital Leases shall not exceed in
any fiscal year 100,000 pounds sterling; and
(d) Capital Leases for real estate where the related obligations
constitute Capital Expenditure.
7.11 RESTRICTED PAYMENTS
The Borrower shall not declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any class of its share capital, or purchase, redeem or otherwise
acquire for value any of its share capital or any warrants, rights or options
to acquire such shares, now or hereafter outstanding; except that the Borrower
may:
(a) declare and make dividend payments or other distributions payable
solely in its ordinary shares;
(b) purchase, redeem or otherwise acquire its ordinary shares or warrants
or options to acquire any such shares with the proceeds received from
the substantially concurrent issue of new shares of its ordinary share
capital; and
(c) declare or pay cash dividends to its shareholders and purchase, redeem
or otherwise acquire its share capital or warrants, rights or options
to acquire any such shares for cash solely out of 25% of net income of
the Borrower arising after the date hereof and computed on a
cumulative basis, provided that, immediately after giving effect to
such proposed action, no Default or Event of Default would exist.
7.12 LEVERAGE RATIO
The Company shall not permit its Leverage Ratio to be more than the applicable
maximum amount set forth opposite such period below:
<TABLE>
<CAPTION>
Each Financial Quarter End During
Each Fiscal Year Ending Ratio
--------------------------------- ------
<S> <C>
November 30, 1993 1.50 to 1.00
November 30, 1994 1.25 to 1.00
November 30, 1995 1.00 to 1.00
All times after November 30, 1995 1.00 to 1.00
</TABLE>
7.13 TANGIBLE NET WORTH
The Borrower shall not permit (as of the end of any fiscal quarter) its
Tangible Net Worth to be less than 95% of its Tangible Net Worth as of the last
financial quarter end prior to the date hereof plus 75% of the Borrower's net
income (not to be reduced by losses) earned in each financial quarter plus
75% of the Net Issuance Proceeds since the date hereof.
26
<PAGE>
7.14 CHANGE IN BUSINESS
The Borrower shall not engage in any material line of business substantially
different from those lines of business carried on by it on the date hereof.
7.15 ACCOUNTING CHANGES
The Borrower shall not make any significant change in accounting treatment or
reporting practices, except as required by Generally Accepted Accounting
Principles, or change its fiscal year.
CLAUSE 8 EVENTS OF DEFAULT
8.01 EVENT OF DEFAULT
Any of the following shall constitute an "EVENT OF DEFAULT":
(a) NON-PAYMENT. The Borrower fails to pay, (i) when and as required to
be paid herein, any amount of principal payable hereunder, or (ii)
within two days after the same shall become due, any interest, fee or
any other amount payable hereunder; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty by the
Borrower made or deemed made herein or which is contained in any
certificate, document or financial or other statement by the Borrower
or its Responsible Officers furnished at any time under this Agreement
shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) SPECIFIC DEFAULTS. The Borrower fails to perform or observe any term,
covenant or agreement contained in Clauses 6.01, 6.02, 6.03 and 6.09
or Clause 7; or
(d) OTHER DEFAULTS. The Borrower fails to perform or observe any other
term or covenant contained in this Agreement and such default shall
continue unremedied for a period of 20 days after the earlier of (i)
the date upon which a Responsible Officer of the Borrower knew or
should have known of such failure or (ii) the date upon which written
notice thereof is given to the Borrower by the Bank; or
(e) CROSS-DEFAULT. The Borrower or the Guarantor or any of its
Subsidiaries (i) fails to make any payment in respect of any
Indebtedness or Contingent Obligation having an aggregate principal
amount (including undrawn committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $1,000,000 (or its equivalent) when due
(whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise) and such failure continues after the applicable
grace or notice period, if any, specified in the document relating
thereto on the date of such failure; or (ii) fails to perform or
observe any other condition or covenant, or any other event
27
<PAGE>
shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, and such
failure continues after the applicable grace or notice period, if any,
specified in the document relating thereto on the date of such failure
if the effect of such failure, event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of
such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or the Guarantor or
any of its Subsidiaries (i) becomes insolvent as defined in Section
123 of the Insolvency Act 1986, or generally fails to pay, or admits
in writing its inability to pay, its debts as they become due, subject
to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) voluntarily ceases to conduct its business in the
ordinary course; (iii) commences any Insolvency Proceeding with
respect to itself, or (iv) takes any action to effectuate or
authorise any of the foregoing; or
(g) INSOLVENCY: INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or the Guarantor
or any of its Subsidiaries, or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied against
a substantial part of the Borrower's or the Guarantor's or any of its
Subsidiaries' Properties, and any such proceeding or petition shall
not be dismissed, or such writ, judgment, warrant of attachment,
execution or similar process shall not be released, vacated or fully
bonded within 60 days after commencement, filing or levy; (ii) the
Borrower or the Guarantor or any of its Subsidiaries admits the
material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief is ordered in any Insolvency
Proceeding; or (iii) the Borrower or the Guarantor or any of its
Subsidiaries acquiesces in the appointment of a receiver,
administrative receiver, administrator, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor),
or other similar Person for itself or a substantial portion of its
Property or business; or
(i) MONETARY JUDGMENTS. One or more final judgments, orders or decrees
shall be entered against the Borrower or the Guarantor or any of its
Subsidiaries involving in aggregate a liability (not fully covered by
independent third-party insurance) as to any single or related series
of transactions, incidents or conditions, of $1,000,000 (or its
equivalent) or more, and the same shall remain unsatisfied, unvacated
and unstayed pending appeal for a period of 30 days after the entry
thereof, or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or decree
shall be rendered against the Borrower or the Guarantor which does or
would reasonably be expected to have a Material Adverse Effect, and
there shall be any period of 10 consecutive days during which a stay
of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
28
<PAGE>
(k) LOSS OF LICENSES. Any Governmental Authority shall finally revoke or
fail to renew any material license, permit or franchise of the
Borrower or the Guarantor or either of them shall for any reason lose
any material license, permit or franchise or the Borrower or the
Guarantor or any of its Subsidiaries shall suffer the imposition of
any restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with
respect to any material license, permit or franchise; or
(l) ADVERSE CHANGE. There shall occur a Material Adverse Effect; or
(m) GUARANTOR DEFAULTS. The Guarantor shall fail in any material respect
to perform or observe any term, covenant or agreement in the
Guarantee; or the Guarantee shall for any reason be in material part
(including with respect to future advances) or wholly revoked or
invalidated, or otherwise cease to be in full force and effect, or the
Guarantor or any other Person shall contest in any manner the validity
or enforceability thereof or deny that it has any further liability or
obligation thereunder.
8.02 REMEDIES
If any Event of Default occurs and is not remedied during any applicable grace
period, the Bank may:
(a) terminate the commitments of the Bank to make Advances or the Term
Loan Drawing available, whereupon such commitment shall forthwith be
terminated;
(b) declare the unpaid principal amount of all outstanding Advances or the
Term Loan Drawing, all interest accrued and unpaid thereon, and all
other amounts owing or payable hereunder to be immediately due and
payable; without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Borrower; and
(c) exercise all rights and remedies available to it under this Agreement
or applicable law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in paragraph
(f) or (g) of clause 8.01 (in the case of clause (i) of paragraph (g) upon the
expiration of the 60-day period mentioned therein), the obligation of the Bank
to make Advances or the Term Loan Drawing shall automatically terminate and the
unpaid principal amount of all Advances or the Term Loan Drawing, and all
interest and other amounts shall automatically become due and payable without
further act of the Bank.
8.03 DEFAULT INTEREST AND INDEMNITY
(A) If default is made in the payment of any sum due under this
Agreement interest shall accrue on the amount in respect of which such
default has been made from the date of default until payment
calculated (after as well as before judgment) at the rate of two
percent (2%) per annum above the cost to the Bank of obtaining such
funds from such sources and for such periods as the Bank may in its
absolute discretion and from time to time decide and will be due and
payable at the end of each such period.
29
<PAGE>
(B) Without prejudice to paragraph (A) above but taking into) account any
payments of interest made thereunder, the Borrower will reimburse to
the Bank all amounts as the Bank may specify to be necessary to
compensate it for all costs, expenses, liabilities and losses
(including, but not limited to, any loss of any anticipated receipt of
interest in respect of any sum repaid by the Borrower for the
remainder (if any) of the then current Interest Period applicable
thereto and all losses incurred in liquidating or re-employing
deposits from third parties acquired to effect or maintain any
outstanding Advance or the Term Loan Drawing or any part or parts
thereof) sustained or incurred by it howsoever as a result of any
prepayment of the Loan made other than in accordance with Clause 3.03,
of the occurrence of an Event of Default and/or of the declaration of
each outstanding Advance or the Term Loan Drawing to be immediately
due and payable pursuant to Clause 8.01 and/or of the timing of any
payment made by the Borrower under this Agreement following the
occurrence of an Event of Default and/or of any failure by the
Borrower to pay any sum expressed to be due under this Agreement on
the due date therefor and/or of the occurrence of a Default which, by
reason of paragraph (A) (ii) of Clause 3.01, causes an Advance not to
be made in accordance with the Notice of Advance served in respect
thereof.
(C) The certificate of the Bank as to the amount of such costs, expenses,
liabilities and losses as are mentioned in sub-paragraph (B) above or
any such cost as is mentioned in sub-paragraph (A) above shall, save
in the case of any manifest error, be conclusive and binding on the
Borrower.
CLAUSE 9 EXPENSES
The Borrower shall reimburse to the Bank on demand all expenses (including, but
not limited to, legal fees and expenses and any value added tax and any stamp
or other similar duties or taxes and any court, registration or recording fees
in any applicable jurisdiction) incurred by the Bank in connection with the
negotiation, preparation and signature of this Agreement and the Appendices
hereto and in preserving, maintaining, protecting, perfecting or enforcing or
seeking to preserve, maintain, protect, perfect or enforce any of its rights
under this Agreement.
CLAUSE 10 CHANGE5 IN CIRCUMSTANCES
10.01 UNLAWFUL FOR THE BANK TO FUND OR MAINTAIN ITS OBLIGATIONS
If, by reason of any applicable present or future law or regulation or
regulatory requirement (whether of the United States of America, any State
therein, England or elsewhere) or the interpretation or application thereof or
any change therein or judicial decision relating thereto, it shall be unlawful
or otherwise prohibited for the Bank to maintain or give effect to any of its
obligations as contemplated by this Agreement, then the Bank may despatch a
notice to the Borrower cancelling the Facility whereupon the Facility shall be
cancelled and no further Advance may be made and the Borrower shall
forthwith prepay each outstanding Advance or the Term Loan Drawing to the
Bank together with any accrued interest and commitment fee and all other sums
expressed to be payable by the Borrower to the Bank pursuant to this
Agreement.
30
<PAGE>
10.02 ADDITIONAL COSTS
If the Bank shall at any time be of the opinion that the effect of any
applicable present or future law, regulation or regulatory requirement (whether
of the United States of America, any State therein, England or elsewhere) or
the interpretation or application thereof or any change therein or any judicial
decision relating thereto or of complying with any applicable present or future
direction, request or requirement (whether or not having the force of law) of
any central bank or any governmental, monetary or other authority is to
increase the cost to the Bank of making the Facility available or maintaining
any Advance or the Term Loan Drawing, to reduce the amount of any payment
received or receivable by the Bank from the Borrower pursuant to this
Agreement, to oblige the Bank to make any payment on, or calculated by
reference to, the amount of any sum received or receivable by it from the
Borrower pursuant to this Agreement, to reduce the rate of return on its
capital resources which it would have been able to achieve but for the Bank
entering into and/or performing its obligations hereunder, or to oblige the
Bank to forgo any interest or other return on or in relation to the Facility or
otherwise in connection with this Agreement, in any case by an amount which the
Bank deems material, then and in any such case (the Bank being under no
obligation to mitigate the effect of any such increase or reduction or the
amount of any such payment or forgone return):-
(a) the Bank shall notify the Borrower;
(b) the Borrower shall from time to time pay to the Bank on demand such
amounts as the Bank may specify to be necessary to compensate the Bank
for such increase, reduction, payment or forgone return; and
(c) the Borrower shall be at liberty at any time after receipt of any such
notice, so long as the circumstances giving rise to such increase,
reduction, payment or forgone return continue, to give not less than
fifteen days irrevocable notice of cancellation to the Bank and upon
the expiry of such notice the Facility shall be cancelled and no
further Advance shall be made and the Borrower shall forthwith prepay
each outstanding Advance or the Term Loan Drawing to the Bank together
with any accrued interest and commitment fee and all other sums
expressed to be payable by the Borrower to the Bank pursuant to this
Agreement.
Provided that nothing in this Clause shall apply to any deduction or
withholding contemplated by or referred to in Clause 4.03, to any reserve or
deposit requirement to which Appendix B applies or to any tax on the Bank's
overall net income imposed in the United States of America or England.
10.03 EFFECT OF CANCELLATION UNDER CLAUSE 10.01 OR CLAUSE 10.02
Where the Facility is to be cancelled and/or each Advance or the Term Loan
Drawing is to be prepaid pursuant to Clause 10.01 or Clause 10.02 the Borrower
will reimburse to the Bank all amounts as the Bank may specify to be necessary
to compensate it for all costs, expenses liabilities and losses (including,
but not limited to, any loss of any anticipated receipt of interest in respect
of any sum repaid by the Borrower for the remainder (if any) of the then
current Interest Period applicable thereto and all losses incurred in
liquidating or re-employing deposits from third parties acquired to effect or
maintain any Advance or the Term Loan Drawing or any part or parts thereof)
sustained or incurred by it howsoever as a result of such cancellation and/or
prepayment.
31
<PAGE>
10.04 CERTIFICATE OF THE BANK CONCLUSIVE
The certificate of the Bank as to any of the matters referred to in any of the
foregoing provisions of this Clause shall, save for any manifest error, be
conclusive and binding.
CLAUSE 11 ASSIGNMENT
11.01 ASSIGNMENT BY THE BANK
The Bank may at any time and from time to time without the consent of the
Borrower assign, grant a participation in, transfer or otherwise dispose of or
deal with all or any part of its rights and benefits under this Agreement to
any one or more banks or other financial institutions (an "Assignee"). For
this purpose the Bank may disclose to a potential or actual Assignee such
credit and other information relating to the Borrower and the Guarantor and
their respective conditions as the Borrower and/or the Guarantor shall have
made available to the Bank or as shall be known to the Bank otherwise
howsoever.
11.02 ASSIGNMENT BY THE BORROWER
The Borrower may not assign or transfer or otherwise dispose of or deal with
all or any of its rights, benefits and/or obligations under this Agreement.
11.03 "BANK" TO INCLUDE SUCCESSORS and ASSIGNS
The expression "Bank" wherever used in this Agreement shall include every
Assignee of the Bank and every successor in title of any such Assignee or of
the Bank.
CLAUSE 12 MISCELLANEOUS
12.01 NOTICES
(A) Any notice, demand or other communication given or sent to the Bank or
the Borrower in connection with this Agreement shall be given in
writing or by cable, telex or facsimile transmission addressed to the
Bank at 1 Alie Street, London El 8DE (telex number 888412, fax number
071 634 4707) or, as the case may be, to the Borrower at Priory Lane,
London SW15 5JJ (fax number 081 878 8491) or at such other address (or
telex or fax number) as may be, notified by the Bank or the Borrower
to the other from time to time for that purpose.
(B) Except where actual receipt is expressly required by the provisions of
this Agreement, any notice, demand or other communication sent to the
Borrower or the Bank as provided in this Clause 12.01 shall be deemed
to have been given, if sent by post, two week days after the time
when the same was put into the post in the United Kingdom and in
providing delivery it shall be sufficient to prove that the same was
properly addressed and put in the post. Any such notice, demand or
other communication sent by cable, telex or facsimile transmission
shall be deemed to have been given at the time of despatch.
32
<PAGE>
12.02 REMEDIES AND WAIVERS
No delay or omission of the Bank in exercising any right, power privilege or
remedy in respect of this Agreement shall impair such right, power, privilege
or remedy or be construed as a waiver thereof nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude any further
exercise thereof or the exercise of any other right, power, privilege or
remedy. The rights, powers, privileges and remedies herein provided are
cumulative and not exclusive of any rights, powers, privileges or remedies
provided by law.
12.03 LAW
This Agreement shall be governed by and construed in accordance with English
law and it is irrevocably agreed for the exclusive benefit of the Bank that the
courts of England are to have jurisdiction to settle any disputes which may
arise out of or in connection with this Agreement and that accordingly any
suit, action or proceeding arising out of or in connection with this Agreement
(in this Clause referred to as "Proceedings") may be brought in such courts.
Nothing in this Clause shall limit the right of the Bank to take Proceedings
against the Borrower in any other court of competent jurisdiction, nor shall
the taking of Proceedings in one or more jurisdictions preclude the taking of
Proceedings in any other jurisdiction, whether concurrently or not.
12.04 DISCLOSURE
In addition to any disclosure as may be permitted under Clause 11.01, the Bank
is hereby authorised to disclose any information whatsoever in relation to the
Borrower or this Agreement if required to do so by any law or regulation or by
any request or requirement (whether or not having the force of law) of any
central bank, governmental, monetary or other authority.
12.05 CLAUSES, SECTIONS, HEADINGS AND APPENDICES
The headings to Clauses and Sections in this Agreement are inserted for
convenience only and shall be ignored when construing this Agreement. Unless
otherwise specified, all references in this Agreement to Clauses, Sections and
Appendices are to Clauses, Sections and Appendices of this Agreement.
Signed by the duly authorised representatives of the parties
hereto the day and year first above written.
33
<PAGE>
The Borrower:
PRIORY HOSPITALS GROUP LIMITED
By: /s/ D. A. WAKEFIELD
-------------------------------
Chairman
The Bank:
- - ---------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By: /s/ T. ISDALIN
-------------------------------
Vice President
34
<PAGE>
SCHEDULE I
----------
NOTICE OF ADVANCE
To:- The Bank
Advance No. [ ] [ , 19 ].
REVOLVING TERM FACILITY
In the maximum aggregate principal amount of 10,000,000 pounds sterling made
available pursuant to a Loan Agreement dated December, 1993 (the "Loan
Agreement").
We refer to the Loan Agreement and hereby:-
(1) give you irrevocable notice that we wish an Advance to be made to us
under the Loan Agreement of ( pounds sterling) on , 19
.
(2) request that the proceeds of such Advance be made available to us on
such date by payment to account no.[ ] in the name of
[ ] at [ ] [in our favour];
(3) confirm that the borrowing to be effected by such Advance has been
validly authorised by appropriate corporate and other action, that no
Default or Event of Default has occurred, that the representations and
warranties contained in Clause 5 of the Loan Agreement, if repeated at
the date hereof by reference to the facts subsisting at the date
hereof, would be true and accurate and that the covenants contained in
Clauses 6 and 7 of the Loan Agreement have been complied with as at
the date hereof provided that the reference in Clause 5 to 30 November
1992 shall, for the purposes of the confirmation contained in this
paragraph be to [latest year end]; and
(4) select (subject to the provisions of Clause 3.01(B) of the Loan
Agreement) a period of [ ] month[s] as the period applicable to such
Advance.
Expressions defined in the Loan Agreement have the same meanings when used in
this Notice of Advance.
For and on behalf of
Priory Hospitals Group Limited
35
<PAGE>
SCHEDULE 2
Additional Interest
The additional interest (if any) payable on each Interest Payment Date pursuant
to Clause 3.04(C) will be calculated by the Bank as follows:-
1. In this Appendix the following expressions shall have the following
meanings:-
(a) "Additional Rate" means, in relation to any Interest Payment
Period, the additional percentage rate per annum calculated by
the Bank at the end of such Interest Payment Period in
accordance with paragraph 3 below.
(b) "Cost Determination Day" means the first Business Day of each
week and any day on which there is a change in the value of
"A!' or "R" or "S" as defined in paragraph 2 below.
(c) "eligible bank" and "eligible liabilities" shall have the
meanings assigned to them by the Bank of England from time to
time.
(d) "Interest Payment Period" means:-
(i) in relation to any Interest Period having a duration
of 3 months or less - that Interest Period; and
(ii) in relation to any Interest Period having a duration
of more than 3 months - each successive period ending
on each Interest Payment Date within such Interest
Period.
2. On each Cost Determination Day falling within the Interest Payment
Period ending on the relevant Interest Payment Date a rate of interest
shall be calculated by reference to the following formula:-
Rate of interest = AC + R (C-D) + S (C-T)
(expressed as a 100 - (A+S)
percentage)
where: A = the percentage of eligible liabilities which the Bank is
required to maintain as non-operational non-interest bearing
deposits with the Bank of England as at the close of business
on such Cost Determination Day.
C = the average interest rate (expressed as a percentage per
annum) at which one week fixed sterling deposits are offered
to the Bank in the ordinary course of business in the London
interbank market at the Bank's request at or about 11.00 a.m.
on such Cost Determination Day.
36
<PAGE>
R = the percentage of eligible liabilities which the Bank is
required, in order to qualify as an eligible bank, to maintain
on average on deposit with members of the London Discount
Market Association, money-brokers and gilt-edged jobbers as at
the close of business on such Cost Determination Day.
D = the lower of C and the average interest rate (expressed as
a percentage per annum) for one week callable sterling
deposits offered to the Bank in the ordinary course of
business by members of the London Discount Market Association
at the Bank's request at or about 11.00 a.m. on such Cost
Determination Day.
S = the percentage of eligible liabilities which the Bank is
required to maintain as special deposits with the Bank of
England as at the close of business on such Cost Determination
Day.
T = the lower of C and the interest rate (expressed as a
percentage per annum) being paid by the Bank of England on
special deposits placed with it by the Bank as at the close of
business on such Cost Determination Day.
3. At the end of the relevant Interest Payment Period the rates of
interest calculated on each Cost Determination Day failing within such
Interest Payment Period will be averaged to three decimal places to
produce the average rate applicable over the whole of such Interest
Payment Period. Such average rate shall be the Additional Rate
applicable to such Interest Payment Period, unless, in its sole and
absolute discretion, the Bank shall agree that such Additional Rate
shall be taken as zero.
4. Interest on the Advance or the Term Loan Drawing to which the relevant
Interest Payment Period relates at the Additional Rate determined as
aforesaid shall (i) accrue from (and including) the first day to (but
excluding) the last day of the relevant Interest Payment Period and
(ii) be paid in arrears on the relevant Interest Payment Date as
additional interest pursuant to Clause 3.04(C).
37
<PAGE>
SCHEDULE 3
----------
COMMUNITY PSYCHIATRIC CENTERS ("CPC")
AND PRIORY HOSPITALS GROUP LTD. ("PHG")
WHOLLY OWNED SUBSIDIARIES AND EQUITY INVESTMENTS
(i) SUBSIDIARIES OF CPC
-------------------
CORPORATION
- - -----------
Belmedco
C.P.C. of Louisiana
CPC Investment Corp.
CPC Laboratories, Inc.
CPC Pharmacy, Inc.
CPC Properties of Arkansas, Inc.
CPC Properties of Illinois, Inc.
CPC Properties of Indiana, Inc.
CPC Properties of Kansas, Inc.
CPC Properties of Louisiana, Inc.
CPC Properties of Mississippi, Inc.
CPC Properties of Missouri, Inc.
CPC Properties of North Carolina, Inc.
CPC Properties of Wisconsin, Inc.
CPC of Georgia, Inc.
CalProp I, Inc.
CalProp II, Inc.
Community Psychiatric Centers
Community Psychiatric Centers Properties
Incorporated
Community Psychiatric Centers Properties
of Oklahoma, Inc.
Community Psychiatric Centers Properties
of Texas, Inc.
Community Psychiatric Centers Properties
of Utah, Inc.
Community Psychiatric Centers
of Arkansas, Inc.
Community Psychiatric Centers
of California
Community Psychiatric Centers
of Florida, Inc.
Community Psychiatric Centers
of Idaho, Inc.
Community Psychiatric Centers
of Indiana, Inc.
Community Psychiatric Centers
of Kansas, Inc.
Community Psychiatric Centers
of Mississippi, Inc.
<PAGE>
Community Psychiatric Centers
of Missouri, Inc.
Community Psychiatric Centers
of North Carolina, Inc.
Community Psychiatric Centers
of Oklahoma, Inc.
Community Psychiatric Centers
of Oregon, Inc.
Community Psychiatric Centers
of Puerto Rico, Inc.
Community Psychiatric Centers
of Texas, Inc.
Community Psychiatric Centers
of Utah, Inc.
Community Psychiatric Centers
of Wisconsin
Peachtree-Parkwood Hospital, Inc.
P.P.P., Inc.
Psychiatric Hospitals Consultants
Florida Hospital Properties, Inc.
Old Orchard Hospital, Inc.
Cottonwood Hill, Inc.
Counterpoint Center of Old Orchard, Inc.
Miami Valley Community Centers, Inc.
Community Psychiatric Centres Limited
CPC (Londinium) Limited
Priory Hospitals Group
Harvard Medical Ltd
Transitional Hospitals Corporation
Transitional Hospitals Corporation
of Indiana, Inc.
Transitional Hospitals Corporation
of Louisiana, Inc.
Transitional Hospitals Corporation
of Massachusetts
Transitional Hospitals Corporation
of Nevada, Inc.
Transitional Hospitals Corporation
of North Carolina, Inc.
Transitional Hospitals Corporation
of Tampa, Inc.
Transitional Hospitals Corporation
of Texas, Inc.
Transitional Hospitals Corporation
of Wisconsin, Inc.
39
<PAGE>
(a)(ii) SUBSIDIARIES OF PHG
-------------------
Regency Park Limited
Jacques Hall Foundation Limited
(b)(i) EQUITY INVESTMENTS OF CPC
-------------------------
Welcam 80 Venture
Camino Station Investors
Leeds JV
Michael A Bell Agency (Germany)
(b)(ii) EQUITY INVESTMENTS OF PHG
-------------------------
Harvard Medical Limited 20% owned by PHG
Fulford Grange Medical Centre Limited 50% owned by PHG
Pinnacle Counselling Limited 35% owned by PHG
Interpres Medical Limited 60% owned by PHG
40
<PAGE>
SCHEDULE 4
----------
EXISTING ENCUMBRANCES
---------------------
1. Debenture granted by Fulford Grange Medical Centre Limited in favour
of Goldsborough Limited dated 7 May 1993.
2. Debenture granted by Fulford Grange Medical Centre Limited in favour
of the Borrower dated 7 May 1993.
41
<PAGE>
SCHEDULE 5
----------
EXISTING INDEBTEDNESS
---------------------
1. 1,000,000 Pounds sterling Overdraft facility with Midland Bank PLC
dated 26 August 1993 and accepted by the Borrower on 1 September 1993.
Legal\CDRS\Priory
- - -----------------
42
