<PAGE>
COMMUNITY PSYCHIATRIC CENTERS
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 15, 1994
TO THE STOCKHOLDERS:
The annual meeting of the stockholders of COMMUNITY PSYCHIATRIC CENTERS, a
Nevada corporation, will be held on Thursday, May 19, 1994, at 11:00 A.M.
Pacific Daylight Time, at CPC Laguna Hills Hospital, 24552 Pacific Park Drive,
Laguna Hills, California 92656, for the following purposes:
1. To elect three directors for three-year terms;
2. To vote on a shareholder proposal recommending that the Board of
Directors terminate the Company's Shareholder Rights Plan (the "Rights
Plan") and redeem all rights heretofore issued thereunder unless the
Rights Plan is approved by the affirmative vote of a majority of the
outstanding shares at a meeting of the Company's shareholders to be
held as soon as practical; and
5. To transact such other business as may properly come before the
meeting or any adjournment of it.
Only stockholders of record at the close of business on April 1, 1994, will
be entitled to notice of and to vote at the meeting.
If you do not expect to attend the meeting in person, please date and sign
the enclosed proxy and return it promptly by mail in the envelope provided.
By Order of the Board of Directors
MORGAN L. STAINES
SECRETARY
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS
MAILING ADDRESS:
24502 PACIFIC PARK DRIVE
LAGUNA HILLS, CALIFORNIA 92656
_____________
PROXY STATEMENT
TO THE STOCKHOLDERS:
The proxy accompanying this statement is solicited on behalf of the Board
of Directors of Community Psychiatric Centers (the "Company") for use at the
annual meeting of stockholders to be held on May 19, 1994, and at any
adjournment of it; it will be used for the purposes described in the foregoing
notice of meeting. This Proxy Statement and the accompanying proxy will be
first mailed to stockholders on or about April 15, 1994.
The proxy may be revoked at any time by delivery to the Company at the
above address of written notice of revocation, or if the stockholder is present
at the annual meeting and elects to vote in person. If not so revoked, the
proxy, when executed and returned to the Company, will be voted in accordance
with the instructions thereon specified by the stockholder and, if no
specification is made, will be voted for the election of the nominees for the
Board of Directors listed below and against the shareholder proposal, all as
described in this Proxy Statement.
Stockholders of record at the close of business on April 1, 1994 will be
entitled to vote at the meeting. The Company has outstanding only its $1.00 par
value Common Stock of which there were 43,518,066 outstanding shares entitled to
vote at the close of business on April 1, 1994. Each stockholder is entitled to
one vote for each share held and there is no right to cumulate votes.
Election of directors and approval of the shareholder proposals require the
affirmative vote of the holders of at least a majority of the voting power of
the Common Stock present in person or represented by proxy at the meeting,
provided a quorum is present. Abstentions and withheld votes are counted in
determining the presence or absence of a quorum for the meeting and have the
effect of a negative vote. Broker non-votes are determining quorum but are not
part of the voting power and are not considered in determining the necessary
majority.
MATTERS TO BE ACTED UPON
The following matters will be presented, considered and acted upon at the
meeting:
1. ELECTION OF DIRECTORS
Richard L. Conte, Dana L. Shires, M.D. and Robert L. Thomas, presently
members of the Board of Directors whose terms expire in 1994, will be nominees
for re-election to hold office until the annual meeting in 1997 and until their
successors are elected.
If the enclosed proxy is duly executed and received in time for the meeting
and if no direction to withhold the vote is made, shares represented by it will
be voted for Messrs. Conte and Thomas and Dr. Shires. If any nominee should
refuse or be unable to serve, the proxy will be voted for such person as shall
be designated by the Board of Directors to replace him, but management has no
knowledge that any nominee will refuse or be unable to serve.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
The Board of Directors held eight meetings during fiscal 1993, all of which
were attended by all directors. The Company has standing audit, compensation
and nominating committees.
<PAGE>
The Audit Committee met once during the fiscal year. Its members were
Messrs. Dennis, Powers, Fleischmann and Thomas and Dr. Shires, all of whom
attended the meeting. The Audit Committee reviewed with the auditors the
results of the 1992 audit, evaluated the adequacy of the Company's internal
accounting controls, the internal audit function and the procedures for
recording, evaluating and collecting accounts receivable, and it also reviewed
the scope and cost of the audit for fiscal 1993.
Messrs. Powers, Dennis and Thomas and Dr. Shires were members of the
Compensation Committee and the Nominating Committee and attended all meetings of
both committees, except that Mr. Thomas was not a member of the Board at the
time of the first Compensation Committee meeting and therefore did not attend
that meeting. The Compensation Committee held four meetings during the fiscal
year. It set executive compensation for 1993. See "Compensation of Executive
Officers--Compensation Committee Report on Executive Compensation."
The Nominating Committee met twice during the fiscal year. It will
consider nominees recommended by stockholders; provided that notice of any
shareholder recommendation must be written and must include (i) the name,
address and number of shares of the Company's Common Stock beneficially owned by
the stockholder and the nominee, (ii) all biographical information relating to
the nominee, required by law to be disclosed in solicitations of proxies for
election of directors and (iii) the nominee's written consent to submission of
his or her name to the Nominating Committee for consideration. Such notices may
be submitted at any time, but a recommendation of a nominee for the election of
directors at an annual meeting of stockholders must be received by the Company
no later than the date stockholder proposals for such meeting must be submitted.
See "Time for Submission of Shareholder Proposals." The Nominating Committee
and the Board have and reserve the right to make all final decisions, in their
sole discretion, with respect to nominees for director.
2
<PAGE>
INFORMATION CONCERNING NOMINEES AND CONTINUING DIRECTORS
The following information is furnished with respect to each nominee and the
continuing Directors.*
<TABLE>
<CAPTION>
DIRECTOR
OCCUPATION AND CONTINUOUSLY TERM
NAME AGE BUSINESS EXPERIENCE SINCE EXPIRES
---- --- ------------------- ----- -------
<S> <C> <C> <C> <C>
NOMINEES:
Richard L. Conte . . . . . . 40 Chairman of the Board of Directors since May 21, 1992 and Chief 1991 1994
Executive Officer since April 13, 1992; President 1991-1992; Chief
Financial Officer 1989-1991; Executive Vice President--Dialysis,
European and Home Health Division 1985-1989; General Counsel 1980-1990.
Dana L. Shires, M.D. . . . . 61 Physician in private practice since 1961 specializing in nephrology; 1989 1994
Chairman, Chief Executive Officer and President of LifeLink Foundation,
a not-for-profit corporation.
Robert L. Thomas . . . . . . 69 Retired since 1993; Consultant, 1992-1993 and Executive Director, 1993 1994
1977-1992, National Association of Private Psychiatric Hospitals, a
nonprofit entity.
CONTINUING DIRECTORS:
David L. Dennis. . . . . . . 45 Managing Director, Investment Banking, Donaldson, Lufkin & Jenrette 1991 1996
Securities Corporation, responsible for that corporation's health care
and media industry financing on the West Coast since 1989.
Hartly Fleischmann . . . . . 66 Attorney since 1952, member of Fleischmann & Fleischmann, San Francisco, 1972 1995
California, engaged in the general practice of law; counsel to the
Company since 1971.
Jack H. Lindheimer, M.D. . . 62 Corporate Medical Director since 1991; Medical Director, CPC Alhambra 1983 1995
Hospital 1970-1992; physician in private practice since 1960,
specializing in psychiatry.
Stephen J. Powers. . . . . . 45 President and Founder, Cronus Partners, Inc. a private investment banking 1991 1996
firm specializing in mergers, acquisitions, corporate reorganizations and
general corporate finance since 1988.
David A. Wakefield . . . . . 47 Chairman, Priory Hospitals Group since 1993; Executive Vice President 1992 1996
since 1992, responsible for hospital operations and development in the
United Kingdom and Europe; Senior Vice President--United Kingdom and
European Division 1988-1992.
<FN>
__________
* Loren B. Shook resigned as a Director of the Company effective October 7,
1993. See "Settlement with Loren B. Shook."
</TABLE>
3
<PAGE>
INFORMATION CONCERNING EXECUTIVE OFFICERS
The following table lists and provides biographical data about the
executive officers of the Company.*
<TABLE>
<CAPTION>
PERIOD OF SERVICE AND
NAME AGE TITLE BUSINESS EXPERIENCE
---- --- ----- -------------------
<S> <C> <C> <C>
Richard L. Conte . . . . . . 40 Chairman of the Board and Chief Appointed April 13, 1992; President 1991-1992; Chief
Executive Officer Financial Officer 1989-1991; Executive Vice
President--Dialysis, European and Home Health
Division 1985-1989; General Counsel 1980-1990.
James R. Laughlin. . . . . . 47 Executive Vice President of the Appointed Executive Vice President 1993; Appointed
Company and President-- President--Transitional Hospitals Corporation 1992;
Transitional Hospitals Corporation President, The Phoenix Group, health care consultants
1991-1992; Executive Vice President, Development and
Administrative Services, Charter Medical Corporation
1987-1990.
Kay E. Seim. . . . . . . . . 47 Executive Vice President and Appointed March 1994; Executive Vice President--U.S.
President--U.S. Psychiatric Psychiatric Operations 1993; Executive Vice
Operations President--West Coast Hospitals 1992; Senior Vice
President and Chief Operating Officer, Ramsay Health
Care, Inc. 1991-1992; Vice President--Northwest Region
of the Company 1986-1991.
Steven S. Weis . . . . . . . 51 Executive Vice President and Chief Appointed 1991; President, The CFO GROUP, Corporate
Financial Officer Financial Management Services 1989-1991.
David A. Wakefield . . . . . 47 Executive Vice President Appointed 1992; Senior Vice President--United Kingdom
and European Division 1988-1992.
Geoffrey J. Deutsch. . . . . 35 Executive Vice President---Marketing Appointed 1993; Senior Vice President--Marketing 1992;
and Client Services Vice President--Marketing and Vice President--
Contracting 1991; Senior Director--Sales, Charter
Medical Corporation 1990-1991; National Program
Consultant, Intracorp/Cigna 1987-1990.
Ronald L. Ooley. . . . . . . 48 Executive Vice President-- Appointed 1993; Senior Vice President--Human Resources
Administration 1992; Vice President--Human Resources, The Phoenix Group
1991-1992; consultant, Core Management Resources, a
benefits consulting company, 1990-1991; Senior Vice
President--Human Resources, Charter Medical Corporation,
1988-1990.
Jack H. Lindheimer, M.D. . . 62 Corporate Medical Director Appointed in 1991; Medical Director, CPC Alhambra
Hospital 1970-1992; physician in private practice since
1960, specializing in psychiatry.
Julia Kopta. . . . . . . . . 44 Executive Vice President--Corporate Appointed 1993; Chairperson, Care Visions Corporation
Planning and Development 1987-1993.
<FN>
________________
* Loren B. Shook resigned as President and Chief Operating Officer effective
October 7, 1993. See "Settlement with Loren B. Shook."
</TABLE>
REMUNERATION OF DIRECTORS
During fiscal 1993 those directors who were not employed by the Company
received a fee of $3,000 for each Board meeting and $1,000 for each Committee
meeting attended, plus travel expenses, if any, and they will receive the same
compensation for 1994. Officers of the Company who serve as directors receive
only reimbursement of expenses, if any, incurred in attending meetings.
Pursuant to the Company's 1989 Stock Incentive Plan, annual automatic grants of
options on 5,000 shares have been and will be made to each nonemployee director
on January 26 of each year, the first of such grants having been made on
January 26, 1989.
CERTAIN BUSINESS RELATIONSHIPS
Fleischmann & Fleischmann, of which Mr. Fleischmann is a general partner,
was paid $232,520 for legal services rendered to the Company and its subsidiary,
Transitional Hospitals Corporation, during fiscal 1993. Also during fiscal
1993, Cronus Partners, Inc., of which Mr. Powers is the president and founder,
provided consulting services to the Company. The compensation paid to Cronus
Partners, Inc. was not material to that entity or to the Company and does not
affect the independence of Mr. Powers. The Company believes that the terms and
conditions of its relationships with Cronus Partners, Inc. and Fleischmann &
Fleischmann are as favorable as those that could have been obtained from a third
party.
4
<PAGE>
INDEBTEDNESS OF MANAGEMENT
OPTION LOANS. The Company's 1989 Stock Incentive Plan authorizes the Board
of Directors to extend credit to enable optionees to exercise their options.
The Board has discretion from time to time to change the terms of such credit.
The past policy and practice of the Board has been to require payment of
one-third of the option price in cash with the balance payable within the
earlier of ten years of the date of exercise or twelve years of the date of
grant. The resulting obligations are evidenced by full recourse promissory
notes with interest at a rate established by the Board, payable annually, and
are secured by a pledge of the stock so purchased. The Company also makes
unsecured loans on the same terms to optionees to enable them to pay income
taxes due on exercise of options granted thereunder which do not qualify as
incentive stock options.
RESIDENCE LOANS. The Company has loaned $300,000 each to Messrs. Conte and
Weis, $299,646 to Ms. Seim and $90,000 to Mr. Deutsch, in each case at 5%
interest, to enable these officers to acquire residences in close proximity to
their principal business offices. The loans, which are secured by the
residences, originally mature in three years and provide for consecutive
three-year extensions while employment continues. The loans are paid in monthly
installments based on a 30-year amortization. The Company had loaned $300,000
to Mr. Shook on the same terms outlined above. On February 24, 1994, Mr. Shook
paid the entire principal balance of such loan, plus accrued interest. See
"Settlement with Loren B. Shook."
SCHEDULE OF INDEBTEDNESS. All of the loans described herein are
accelerated and become immediately due and payable ninety days after termination
of employment. The following table shows, as to each director or executive
officer whose indebtedness exceeded $60,000, the largest aggregate amount of
such indebtedness during fiscal year 1993 and the balance due the Company as of
February 28, 1994.
<TABLE>
<CAPTION>
Largest Balance
Aggregate Due as of
Indebtedness February 28, 1994
------------ -----------------
<S> <C> <C>
Richard L. Conte $298,547 $294,040
Jack H. Lindheimer 97,020 -0-
Steven S. Weis 299,278 293,664
Geoffrey J. Deutsch 90,000 -0-
Kay E. Seim 299,646 298,590
Loren B. Shook 240,945 -0-
</TABLE>
LEGAL PROCEEDINGS INVOLVING THE COMPANY AND ITS DIRECTORS AND OFFICERS
Immediately following the Company's public announcement of an increased
charge for uncollectible accounts on September 27, 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
Directors and officers who are parties to the shareholders' derivative action
may be viewed as having material interests adverse to the Company's in those
lawsuits.
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 each is also entitled to
indemnity under circumstances prescribed by applicable law. In addition, the
Company's
5
<PAGE>
Articles of Incorporation and applicable law restrict the liability of its
officers and directors for damages for breach of their fiduciary duties.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the outstanding shares of the Company's common stock, to file with the
Securities and Exchange Commission and the New York and Pacific Stock Exchanges
initial reports of ownership and reports of changes in ownership of such stock.
SEC regulations establish specific due dates for these reports. The Company is
required to disclose in this proxy statement any failure to file a report for
the 1993 fiscal year on a timely basis.
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to it, during the fiscal year ended November 30, 1993 all
Section 16(a) filing requirements applicable to its executive officers and
directors were complied with, except that Dr. Lindheimer filed a late report of
the disposition of 8,200 shares.
6
<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
The table under this section of Item 12 is amended in its entirety as
follows:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF
NAME AS OF 2/28/94(1) CLASS(2)
---- -------------------- ----------
<S> <C> <C>
Richard L. Conte 215,798
David L. Dennis 15,000
Hartly Fleischmann 36,665
James R. Laughlin 97,000
Jack H. Lindheimer 35,000
Ronald L. Ooley 22,000
Stephen J. Powers 15,000
Kay E. Seim 36,544
Dana L. Shires 33,250
Robert L. Thomas 10,000
David A. Wakefield 83,006
Steven S. Weis 82,000
All directors and executive 722,263 1.5%
officers as a group (14 persons)
<FN>
_____________
(1) Includes shares subject to options granted under the Company's 1989 Stock
Incentive Plan which are presently exercisable or which will become
exercisable on or before April 29, 1993, as follows: Mr. Conte, 189,796;
Mr. Wakefield, 81,881; Ms. Seim, 36,500; Dr. Lindheimer, 35,000; Mr.
Fleischmann, 30,765; Dr. Shires, 25,000; Messrs. Dennis and Powers, 15,000;
Mr. Thomas, 10,000; Mr. Ooley, 22,000; Mr. Laughlin, 97,000; Mr. Weis,
82,000; and the group, 677,942. Also includes shares held in trust, for
which an above listed person acts as trustee.
(2) In all cases except the group, the holdings represent less than 1% of the
outstanding shares of common stock.
</TABLE>
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the cash compensation paid by the Company, as
well as certain other compensation paid or accrued, (i) to the Chief Executive
Officer for his service in all executive capacities during 1992, the fiscal year
in which he was appointed chief executive officer and during the fiscal year
ending November 30, 1993; (ii) to each of the other four most highly compensated
executive officers who were serving as executive officers on November 30, 1993,
in all executive capacities in which they served during the fiscal years ending
November 30, 1991, 1992 and 1993 and (iii) to a former executive officer who
would have been included in (ii) but for the fact that he was not serving as an
executive officer on November 30, 1993, in all executive capacities in which he
served during the fiscal years ending November 30, 1991, 1992 and 1993:
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities All
Name and Underlying Other
Principal Options/ Compen-
Position Year Salary ($) Bonus ($) SARs (#) sation
-------- ---- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Richard L. Conte, 1993 550,000 412,500 550,000(7) 223,844(8)
Chief Executive 1992 456,246 150,000 50,000 31,469(9)
Officer(1)
James R. Laughlin, 1993 275,000 275,000 115,000
Executive Vice President of 1992 181,850 100,000
the Company and
President--Transitional
Hospitals Corporation(2)
Steven S. Weis, 1993 243,577 50,000 115,000
Executive Vice 1992 219,950 25,000 100,000
President and Chief
Financial Officer(3)
Kay E. Seim, Executive 1993 222,807 50,000 115,000
Vice President and 1992 89,154 20,000 100,000
President--U.S. Psychiatric
Operations(4)
Ronald L. Ooley, 1993 161,003 123,750 85,000
Executive Vice President-- 1992 37,500
Administration(5)
Loren B. Shook(6) 1993 376,557 200,000(7) 468,016(10)
1992 379,250 50,000 50,000 28,500(9)
1991 300,000 28,500(9)
<FN>
- --------------------
(1) Mr. Conte was appointed Chief Executive Officer on April 13, 1992.
(2) Prior to his appointment as an executive in May 1992, Mr. Laughlin received
compensation as a consultant to the Company.
(3) Mr. Weis joined the Company as an executive on December 15, 1991.
(4) Ms. Seim rejoined the Company as an executive on June 29, 1992.
(5) Mr. Ooley was appointed as an executive officer on September 1, 1992.
(6) Mr. Shook resigned as President and Chief Operating Officer effective
October 7, 1993. See "Settlement with Loren B. Shook."
</TABLE>
FOOTNOTES CONTINUED NEXT PAGE . . .
8
<PAGE>
FOOTNOTES TO SUMMARY COMPENSATION TABLE (CONTINUED)
<TABLE>
<S> <C>
(7) Includes options on 166,328 and 137,500 shares for Messrs. Conte and Shook,
respectively, which were repriced on January 29, 1993 in exchange for their
forfeiture of options on 332,656 and 275,000 shares, respectively. See
"Option/SAR Grants in Last Fiscal Year," "Report on Repricing of
Options/SARs" and related table. This repricing was disclosed in the
Compensation Committee Report on Executive Compensation in the Company's
previous Proxy Statement dated April 20, 1993.
(8) Includes $56,528 in life insurance premiums paid by the Company on behalf
of Mr. Conte (see "Employment Contracts") and $167,316 deferred
compensation (see "Employment Contracts -- Retirement Benefits").
(9) Deferred compensation accrued for Messrs. Conte and Shook. See "Employment
Contracts -- Retirement Benefits."
(10) Paid in connection with the resignation of Mr. Shook. An additional
$308,078 was paid in fiscal 1994 to Mr. Shook in connection with
his resignation. See "Settlement with Loren B. Shook."
</TABLE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options and tandem limited stock appreciation rights ("SARs") under the
Company's 1989 Stock Incentive Plan to the named executives during the fiscal
year ended November 30, 1993:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- ----------------------------------------------------------------------------------------------------- -------------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted in Fiscal Price tion
Name (#)(1) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ---------- ---------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte 400,000(2) 15.13 10.88 1/29/03 2,735,692 6,932,780
50,000 1.89 9.50 5/20/03 298,725 757,028
100,000(3) 3.78 29.50 5/20/03 392,810(5) 1,072,470(5)
James R. Laughlin 10,000 .38 10.88 1/29/03 68,392 173,319
30,000 1.13 9.50 5/20/03 179,235 454,217
75,000(3) 2.84 29.50 5/20/03 294,608(5) 804,352(5)
Steven S. Weis 10,000 .38 10.88 1/29/03 68,392 173,319
30,000 1.13 9.50 5/20/03 179,235 454,217
75,000(3) 2.84 29.50 5/20/03 294,608(5) 804,352(5)
Kay E. Seim 10,000 .38 10.88 1/29/03 68,392 173,319
30,000 1.13 9.50 5/20/03 179,235 454,217
75,000(3) 2.84 29.50 5/20/03 294,608(5) 804,352(5)
Ronald L. Ooley 25,000 .94 10.88 1/29/03 170,980 433,299
20,000 .76 9.50 5/20/03 119,490 302,811
40,000(3) 1.51 29.50 5/20/03 157,124(5) 428,988(5)
Loren B. Shook 200,000(2) 7.56 10.88 2/28/94(4) 1,367,846 3,466,390
<FN>
- --------------------
1 Except as disclosed in footnotes 2 and 3, all options vest 20% on the date of
grant and on the first day of each of the following four fiscal years.
</TABLE>
FOOTNOTES CONTINUED NEXT PAGE . . .
9
<PAGE>
FOOTNOTES TO TABLE ON OPTION/SAR GRANTS IN LAST FISCAL YEAR (CONTINUED)
<TABLE>
<S> <C>
2 Includes options on 166,328 and 137,500 shares for Messrs. Conte and Shook,
respectively, vested immediately upon grant which were repriced in exchange
for their forfeiture of options on 332,656 and 275,000 shares, respectively,
which had an average exercise price of $25.94 for Mr. Conte and $26.81 for
Mr. Shook. The granting of these repriced options was disclosed in the
Compensation Committee Report on Executive Compensation in the Company's
previous Proxy Statement dated April 20, 1993.
3 A special one-time grant of premium priced nonqualified options ("Converging
Options") were granted on May 20, 1993, at an exercise price of $29.50, which
is $20.00 above the closing price of the Company's common stock on the New
York Stock Exchange on that date. For each year during which the Company
meets specific targets or increases total return to shareholders, the
exercise price will decrease by $5.00 until the exercise price and the market
price of the Company's common stock converge. The exercise price will be
fixed at the market price on the date of convergence, and the Converging
Options will then vest. Thus, the market price must improve above the
convergence price before any gain can be realized. If convergence does not
occur during the first five years after the grant of the Converging Options,
the Converging Options will be cancelled. The intention to grant these
Converging Options also was disclosed in the Compensation Committee Report on
Executive Compensation in the Company's previous Proxy Statement dated April
20, 1993.
4 See "Settlement with Loren B. Shook."
5 The potential realizable values of the Converging Options are based on the
assumption that the Company meets specific targets so that the exercise price
of the Converging Options is reduced by $20 ($5 a year over four years) and
converge with the market price of the Company's common stock at (i) $11.55,
assuming 5% annual appreciation of the Company's common stock, and (ii)
$13.90, assuming 10% annual appreciation of the Company's common stock.
</TABLE>
OPTION/SAR HOLDINGS
The following table sets forth the number of shares of Common Stock
acquired on exercise of options during the fiscal year ended November 30, 1993,
and the number subject to outstanding stock options held by each of the named
executives as of the end of that fiscal year. The closing price of the
Company's common stock on the New York Stock Exchange on November 30, 1993 was
$12.75.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values
---------------------------------
Number of Securities Underlying Value of Unexercised,
Shares Unexercised Options/SARs In-The-Money Options/SARs
Acquired on Value At Fiscal Year End At Fiscal Year End($) 4
Name Exercise (#) Realized($)1 Exercisable 2 Unexercisable 3 Exercisable Unexercisable
---- ------------ ------------ ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte 0 0 273,062 326,938 431,991 480,509
James R. Laughlin 0 0 48,000 167,000 98,250 205,500
Steven S. Weis 0 0 48,000 167,000 23,250 93,000
Kay E. Seim 0 0 48,000 167,000 98,250 205,500
Ronald L. Ooley 0 0 9,000 76,000 22,375 89,500
Loren B. Shook 105,000 248,125 95,000 5 0 84,375 0
<FN>
- -------------------
1 Represents the difference between the market value of the underlying
securities at exercise minus the exercise or base price.
2 Includes options on 50,000 shares for Messrs. Conte and Shook and 40,000
shares for Mr. Weis which were not "in the money" as of November 30, 1993.
3 Includes Converging Options on 100,000 shares for Mr. Conte, 75,000 shares
for Messrs. Laughlin, Weis and Ms. Seim and 40,000 shares for Mr. Ooley,
which were not "in the money" as of November 30, 1993.
4 Represents the difference between the closing price of the Company's common
stock on November 30, 1993 as reported on the New York Stock Exchange and the
exercise price of options that were "in the money" as of that date.
5 Mr. Shook exercised options on all of these shares during fiscal 1994,
realizing a gain of $203,750. See "Settlement with Loren B. Shook."
</TABLE>
EMPLOYMENT CONTRACTS
EMPLOYMENT CONTRACTS. The Company has entered into an employment contract
with Mr. Conte, which provided (i) for the last seven months of fiscal 1992 and
for fiscal 1993, an annual salary of $550,000, subject to annual review by the
Board; (ii) an initial employment term ending November 30, 1996 and
automatically extending for an additional year on each December 1 of the
employment term; (iii) noncompetition, nondisclosure and nonsolicitation
covenants; and (iv) payment by the Company of the cost of a life insurance
policy for Mr. Conte with a death benefit of not less than $5,000,000. If
employment terminates because of Mr. Conte's permanent disability as defined in
the contract or if Mr. Conte terminates employment because of a breach of the
contract by
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the Company or within one (1) year after a "change in control" of the Company as
defined in the contract, he would be entitled to receive termination payments
equal to his salary through the November 30 following the fourth anniversary of
such termination and all other compensation and benefits due under the contract
and his "Supplemental Retirement Agreement" (see "Retirement Benefits"); and in
the case of termination because of a breach by the Company or a "change in
control," after such termination, Mr. Conte would not be bound by the
noncompetition, nondisclosure and nonsolicitation covenants. Further, all
options, contingent bonuses and similar deferred benefits held by Mr. Conte
immediately vest and become exercisable upon a change in control. Effective
December 1, 1993, Mr. Conte's annual salary was increased to $750,000. See
"Compensation Committee Report on Executive Compensation -- Compensation of
Chief Executive Officer."
The Company also has entered into employment contracts with Mr. Weis and
Ms. Seim which expire November 30, 1994 and July 1, 1995, respectively, and
which automatically renew for additional one-year periods. For fiscal 1992,
these contracts provided for annual salaries of $225,000 for Mr. Weis and
$200,000 for Ms. Seim and were increased to $250,000 and $225,000, respectively,
for fiscal 1993. Effective December 1, 1993, the annual salaries for Mr. Weis
and Ms. Seim were increased to $275,000 and $300,000, respectively. Each
contract contains noncompetition, nondisclosure and nonsolicitation covenants.
If the executive terminates employment within ninety (90) days after a "change
in control" of the Company as defined in the agreements, these executives would
be entitled to receive termination payments equal to two years' salary and would
not be bound by the noncompetition, nondisclosure and nonsolicitation covenants
after such termination.
RETIREMENT BENEFITS. In addition to his employment agreement, Mr. Conte,
as of June 1, 1988, entered into a Supplemental Retirement Agreement with the
Company pursuant to which he will become vested at the rate of 10% per year in
deferred benefits equal to 9 1/2% of his compensation each year plus any amount
by which the Company's authorized contributions for him to its profit sharing or
any other employee benefit plan cannot be allocated to his account in the plan
because the contribution exceeds limits imposed by the Internal Revenue Code of
1986 as amended. Interest will be credited annually to this accrued amount at a
rate to be specified from time to time by the Company but at not less than 6%
per annum. Distributions of the retirement benefits will be made in 20 equal
annual installments commencing 60 days after the later of the executive's 55th
birthday or the termination of his employment. During fiscal 1993, the Board of
Directors authorized vesting of Mr. Conte's deferred benefits at the rate of
100%, which resulted in $167,316 accrued on behalf of Mr. Conte for that year.
See "Summary Compensation Table."
Mr. Shook had a similar Supplemental Retirement Agreement with the Company.
The Company has paid Mr. Shook $258,505, which is 100% of the amount accrued on
his behalf, including the amount that would have been credited on June 1, 1994.
See "Settlement with Loren B. Shook."
SETTLEMENT WITH LOREN B. SHOOK
Loren B. Shook resigned as President, Chief Operating Officer and a
Director of the Company effective October 7, 1993. Mr. Shook and the Company
have entered into an agreement which settles the rights and obligations of Mr.
Shook and the Company with regard to his employment. Mr. Shook has released the
Company from certain obligations related to his employment and remains subject
to certain nondisclosure and nonsolicitation covenants, but he is no longer
bound by the noncompetition covenant in the employment contract. The Company
has paid Mr. Shook an aggregate of $776,094, consisting of $517,589 severance
pay and $258,505 in discharge of its deferred compensation obligations to him,
including the amount that would have been credited on June 1, 1994 under the
Supplemental Retirement Agreement. The Company will continue to provide Mr.
Shook with certain personal benefits through November 30, 1994. In addition,
the Company amended Mr. Shook's residential loan agreement to reflect a loan
maturity date of September 30, 1998 and annual increases in the interest rate of
such loan. On February 24, 1994, however, Mr. Shook paid the entire principal
balance of such loan plus interest accrued to that date. See "Indebtedness of
Management -- Residential Loans." The Company also extended until February 28,
1994 the expiration date for options to purchase 150,000 and 50,000 shares of
the Company's common stock at exercise prices of $10.875 and $14.625 per share,
respectively, which options had been fully vested in Mr. Shook at the time his
employment terminated. Nonvested options held by Mr. Shook terminated October
7, 1993. Mr. Shook exercised all vested options prior to February 28, 1994.
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REPORT ON REPRICING OF OPTIONS/SARS
REPRICING REPORT OF THE COMPENSATION COMMITTEE. On January 29, 1993 on the
recommendation of the Compensation Committee (the "Committee"), the Board of
Directors repriced options held by Messrs. Conte and Shook. These options and
options held by another executive officer who has since left the Company had
been excepted when all of the Company's other outstanding options were repriced
early in 1992. Options on 332,656 shares held by Mr. Conte with an average
option price of $25.94 per share were cancelled in exchange for options on
166,328 shares issued at an option price of $10.875 per share, $.25 higher than
the closing price of the Company's Stock on the New York Stock Exchange on
January 29, 1993. Options on 275,000 shares held by Mr. Shook at an average
option price of $26.81 per share were cancelled in exchange for options on
137,500 shares at the same option price as Mr. Conte. All of these repriced
options were exercisable immediately upon grant. The repricing was undertaken
because, at the time, none of the options held by Messrs. Conte and Shook were
"in the money," and the Committee believed, and the Board of Directors agreed,
that they should have additional incentive for their efforts. This repricing
also was disclosed in the Compensation Committee Report on Executive
Compensation in the Company's previous Proxy Statement dated April 20, 1993.
THE COMPENSATION COMMITTEE
DANA L. SHIRES, M.D.
DAVID L. DENNIS
STEPHEN J. POWERS
ROBERT L. THOMAS
<TABLE>
<CAPTION>
Ten-Year Option/SAR Repricings
------------------------------
Number of Length of
Securities Market Price Exercise Original
Underlying of Stock at Price at Option Term
Options/SARs Time of Time of New Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Amended Amendment Amendment Price Repricing or
Name Date (#) 2 ($) ($) ($) Amendment
- ------------------------ ---------- ------------ ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte, 01/29/93 28,828 10.63 21.79 10.88 One Year
Chief Executive Officer 01/29/93 12,500 10.63 23.63 10.88 Two Years
01/29/93 125,000 10.63 27.13 10.88 Two Years
David A. Wakefield, 02/14/92 576 14.63 18.54 14.63 One Year
Executive Vice President 02/14/92 2,882 14.63 21.79 14.63 Two Years
02/14/92 1,000 14.63 23.63 14.63 Three Years
02/14/92 50,000 14.63 27.13 14.63 Three Years
Loren B. Shook 1 01/29/93 12,500 10.63 23.63 10.88 Two Years
01/29/93 125,000 10.63 27.13 10.88 Two Years
<FN>
- --------------------
1 Mr. Shook resigned as President and Chief Operating Officer effective
October 7, 1993. See "Settlement with Loren B. Shook."
2 In exchange for the options repriced on January 29, 1993, Messrs. Conte and
Shook forfeited options on 332,656 and 275,000 shares, respectively.
</TABLE>
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Powers, Dennis and Thomas and Dr. Shires have served on the
Company's Compensation Committee during the last fiscal year. Mr. Powers is the
president and founder of Cronus Partners, Inc., a private investment banking
firm. During the past fiscal year, the Company retained Cronus Partners, Inc.
to provide consulting services. See "Certain Business Relationships."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION POLICY
The Company's management compensation policies have been designed to
encourage and reward substantial efforts to achieve its primary business goal,
which is to be the preeminent provider of quality behavioral health and
long-term critical care services wherever it operates. These policies must
provide remuneration which (i) is competitive in the employment market so as to
enable the Company to aggressively pursue and hire talented and experienced
professionals capable of adapting one business to be profitable in a very
difficult and rapidly changing competitive environment and entrepreneurial
managers capable of developing and expanding an entirely new business; (ii) is
comprehensive and consistent at all management levels so as to avoid arbitrary
differences that historically hindered the Company's ability to retain higher
caliber management; and (iii) provides incentives that reward performance and
encourage cooperative effort for the good of the Company as a whole and its
stockholders.
The Compensation Committee places heavy emphasis on incentives at all
levels to implement these policies. As executive responsibility increases, the
performance-based portion of compensation will also increase. Thus, basic
salary and employment market considerations will give way to incentives measured
both qualitatively and by the short and long-run operating and investment
results of the Company as a whole. The Committee strongly believes that this
order of priorities enables the Company to respond competitively and relates
compensation more directly to enhancement of shareholder value.
1993 ACHIEVEMENTS
During 1993 the Company executed initiatives designed to adapt to and take
advantage of changes in the psychiatric hospital business, expanded its United
Kingdom operations and greatly enlarged its new long-term critical care
division. Compensation for 1993 was intended to reward Richard L. Conte, the
Chief Executive Officer, for his successful direction of these efforts and
particularly for his reorganization and reinvigoration of management.
Compensation for the other executive officers and for management on all levels
provides strong incentives to assure that the Company continues on this course
to achieve its goals which are to increase earnings by maintaining itself as a
leading provider of psychiatric and related services in this country and the
United Kingdom and by the rapid development of the long-term critical care
division. The Committee specifically recognized the following achievements in
setting compensation without giving any of them specific weighting.
- The management of the U.S. psychiatric division was completely
restructured during 1993. Regional operations were consolidated and the four
resulting regional offices were strengthened through the addition of financial
officers and other staff, unproductive facilities were closed, administrators at
the facilities were given additional authority and responsibility and new
administrators capable of accepting these challenges were employed. The
restructuring resulted in an annual savings of more than $5 million from the
elimination of executive and support staff positions.
- The Company has implemented cost containment plans and the decline in
patient day revenues has slowed. New programs at various levels in the
continuum of care have been added, and marketing personnel and programs have
been strengthened, resulting in improved admission and patient day trends.
These measures led to a profitable final three quarters of the year in spite of
the difficult restructuring and large loss in the first quarter.
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<PAGE>
- The United Kingdom operations have continued to grow, overcoming the
impact of the poor economy there. Three facilities were added in the United
Kingdom in 1993 and two more in February of 1994. The Company remains the
dominant private psychiatric and substance abuse provider in the U.K. Its
achievements in 1993 included, and a major focus of its future growth will be,
contracts with the British National Health Service.
- The expansion of THC has continued, and by the fourth quarter of 1993
its first three facilities in New Orleans, Arlington, Texas and Tampa, Florida
were each filled to their available bed capacity. By the end of fiscal 1993,
four additional facilities were opened, and since the end of the year four more
facilities were opened.
- Senior management undertook successful efforts to raise additional
capital, having concluded a credit agreement with one lender which has provided
$40 million in revolving credit for the U.S. and U.K. Negotiations for another
such agreement for an additional $50 million with the same lender are currently
near conclusion and further initiatives are under discussion with investment
bankers.
- The Company's stock price improved from 10-1/4 at the close of fiscal
1992 on November 30, to 17-7/8 at the end of the first quarter of 1994 on
February 28, a 74% increase. This improvement raised the Company's market value
more than $325 million. The Company also received "buy" recommendations from
three national investment banking firms, the first such ratings since 1991.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Compensation of the Chief Executive Officer was based primarily on the
foregoing results. His remuneration took three forms: base salary, bonus and
stock options:
BASE SALARY
The base salary of the Chief Executive Officer was established initially to
reflect the responsibilities he undertook in 1992 to reorganize management and
prepare the Company to confront the changes in its psychiatric business in the
U.S., to expand its operations in the United Kingdom and to initiate the
long-term acute care business. In September of 1992 Mr. Conte's salary was
increased to $550,000 per year effective April 13, 1992. This determination was
made on the basis of the criteria identified in the introductory paragraphs of
this report and an overall evaluation of his performance. This salary was
determined with the assistance of an analysis by compensation consultants
retained by the Committee. These consultants concluded that this compensation
was lower than the average salary of chief executive officers of hospital
management firms, some of which are included in the performance graph.
In November 1993 the Committee recommended and the Board approved an
increase in Mr. Conte's salary to $750,000 per year, effective December 1, 1993.
This increase reflects the Committee's satisfaction with Mr. Conte's performance
over the almost 20 months since April 13, 1992, the date of his previous salary
increase and is intended to stimulate comparable or better results in 1994.
This salary is based on an analysis of the remuneration of executives in
businesses similar to the Company's, and it takes into account the fact that Mr.
Conte's duties as the Company's Chief Executive Officer expanded with the
departure of the President and Chief Operating Officer who was earning a base
salary of $450,000, plus benefits.
BONUS
In November 1993 the Committee recommended and the Board approved a cash
bonus of $412,500 based on the criteria mentioned previously and an overall
evaluation of Mr. Conte's performance. The Annual Management Incentive Plan
adopted by the Board effective December 1, 1992 provided for cash bonuses as a
function of pretax profit, quality of service and certain individual objectives
for each executive. Because of the large restructuring charge in the first
quarter, Mr. Conte could not qualify in the first of these categories.
Nevertheless, the Committee and the Board were strongly of the opinion that his
performance in reorganizing and improving the Company's psychiatric business and
in the dramatic development of the long-term critical care business merited a
bonus. The Committee gave equal weight to the performance of the psychiatric
and long-term care divisions. With
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<PAGE>
regard to the former, the Committee decided that Mr. Conte achieved his target
performance, entitling him to a bonus credit of 50% of the potential award (or
25% of his salary); and with regard to the latter, the Committee strongly
believed that Mr. Conte had earned a maximum credit of 100% of the potential
award (50% of his salary). The overall bonus, therefore, totalled 75% of Mr.
Conte's $550,000 salary. The Board and the Committee believe that this bonus
directly recognizes improvements in the Company's general business condition and
dramatic increases in shareholder value during the year.
STOCK OPTIONS
Stock options are an important part of the Long-Term Incentive Compensation
Plan adopted effective December 1, 1993. With the bonus, stock options are the
most substantial portion of Mr. Conte's compensation, and they relate his total
compensation directly to increases in shareholder value.
REPRICED OPTIONS. As disclosed in this Committee's previous report
contained in the Company's Proxy Statement dated April 20, 1993, on January 29,
1993, on the Committee's recommendation, the Board repriced options held by Mr.
Conte. These options and options held by two other top executives who have
since left the Company had been excepted from the repricing of all the Company's
other outstanding options early in 1992. Options on 332,656 shares held by Mr.
Conte with an average option price of $25.94 per share were cancelled as of
January 29, 1993 in exchange for new options on 166,328 shares (50% of the
cancelled shares) issued at an average option price of $10.875 per share, $.25
higher than the closing price of the Company's stock on the New York Exchange on
January 29, 1993. This repricing was undertaken because, at the time, none of
Mr. Conte's options were "in the money," and the Committee believed, and the
Board agreed, that he should have additional incentive for his efforts.
NEW OPTIONS. On January 29, 1993, the Committee recommended and the Board
agreed to issue new options on 233,672 shares to Mr. Conte at an option price of
$10.875 per share, $.25 higher than the closing price of the Company's stock on
the New York Stock Exchange on that date. These options were issued separately
from the Long-Term Incentive Compensation Plan in order to provide Mr. Conte
with a larger stake in the Company's future performance and were disclosed in
the Company's previous Proxy Statement dated April 20, 1993.
In addition to options granted on January 29, 1993, on May 20, 1993, upon
recommendation of the Committee and approval of the Board, additional options on
50,000 shares were granted to Mr. Conte, consistent with the Board's executive
compensation plan, after an interim review of his performance. These options
are priced at the closing price of the Company's stock on the New York Stock
Exchange on the date of grant, and they vest 20% on the date of grant and during
each of the following four years.
CONVERGING OPTIONS. On May 20, 1993, pursuant to the Company's Long-Term
Incentive Compensation Plan (see "Executive Compensation Plan -- Long-Term
Incentive Compensation Plan") a special one-time award of premium priced
nonqualified options on 100,000 shares at an option price of $29.50, $20.00
above the closing price of the Company's stock on the New York Stock Exchange on
that date was made to Mr. Conte. For each year during which the Company meets
specific targets or increases total return to shareholders, the option price
will decrease by $5.00 until the option price and the market price of the
Company's stock converge. The option price will be fixed at the market price on
the date of convergence, and the options will then vest. Thus, the market price
must improve above the convergence price before Mr. Conte can realize any gain.
If the convergence does not occur during the first five years after grant of
these options, the options will be cancelled. The Company met these targets for
fiscal 1993. The intention to award these options also was disclosed in the
Committee's Report on Executive Compensation contained in the Company's previous
Proxy Statement dated April 20, 1994.
EXECUTIVE COMPENSATION PLAN
On January 29, 1993 the Board of Directors adopted an executive
compensation plan, the key elements of which are:
15
<PAGE>
(I) SALARY. Base salary, benefits and executive perquisites structured to
be consistent with competitive market practices and decreasing as a proportion
of total compensation as executive responsibility increases.
(II) CASH INCENTIVES. Incentives linked to short and long-term
performances, but weighted to the latter, that emphasize growth in shareholder
value. These incentives will permit participating executives to earn
significantly above competitive levels when their performance collectively and
individually warrants it, but if performance standards are not met, these
executives will earn significantly below competitive levels.
(III) OPTIONS. Stock Options which also are weighted toward long-term
performance, will promote efficient management and growth of the Company as a
whole and will directly relate management and shareholder interests.
This program has been effective from December 1, 1993 and provides for base
salary, annual cash bonuses based on business unit and individual performance
for the year, and long-term bonus and option incentives based on standards
related to the overall performance of the Company. The annual cash bonus and
long-term elements of the program are "at risk" -- i.e., performance-based --
and are designed to link the interest of the executive with the overall success
of the Company, or his or her part of it, and thus with the interests of
shareholders. Total compensation for each CPC executive will be variable, but,
as indicated above, as executive responsibility increases, so too will the long
and short-term performance-based portion of compensation. Each of these plan
components is discussed in greater detail below:
BASE SALARY. Base salaries for executive officers are determined by
evaluating the responsibilities of his or her position, and the individual's
performance against competitive market remuneration. Salaries of executives
will be reviewed annually.
ANNUAL MANAGEMENT INCENTIVE PLAN: CASH BONUSES. Under the Annual
Management Incentive Plan, all management-level personnel, to the level of
hospital department directors, have an opportunity to earn cash bonuses. This
plan has three performance categories: pretax profit, quality of service and
individual objectives. Each category is measured in terms of minimum, target
and maximum achievement standards. The Chief Executive Officer, executive
officers and senior management are measured against Company-wide standards and
other participants against individual and profit center standards. Incentive
ranges from 10% to 50% of salary as each target goal is achieved, but no
incentive is earned unless the participant's profit center meets its minimum
pretax profit goal, so that no individual is rewarded unless his or her group,
or the Company, as the case may be, is financially successful.
LONG-TERM INCENTIVE COMPENSATION PLAN: OPTIONS. The Long-Term Incentive
Compensation Plan provides for incentive compensation in the form of cash,
annual stock awards and converging options:
(A) OPTION AWARDS. The Committee intends to review performance not less
often than annually and as appropriate award stock options to selected managers.
For 1994, it is anticipated that stock options on one million shares will be
awarded to approximately 200 employees. These options will be priced at fair
market value at the time of grant, will vest 20% on date of grant and during
each of the following four years and will have maximum terms of ten years. The
1993 option awards shown in the foregoing tables (see "Summary Compensation
Table" and "Option/SAR Grants in Last Fiscal Year") were based on the
performance described in this Report (see "1993 Achievements").
(B) CONVERGING OPTIONS. As anticipated in this Committee's previous
report contained in the Company's Proxy Statement dated April 20, 1993, on May
20, 1993 a special one-time award of premium priced nonqualified options at an
option price of $29.50, $20.00 above the closing price of the Company's stock on
the New York Stock Exchange on that date was made to the following executive
officers: Messrs. Conte, Laughlin, Weis, Ooley and Ms. Seim. For each year
during which the Company meets specific targets or increases total return to
shareholders, the option price will decrease by $5.00 until the option price and
the market price of the Company's stock converge. The option price will be
fixed at the market price on the date of convergence, and the options will then
vest. Thus,
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<PAGE>
the market price must improve above the convergence price before the Company's
participating executives can realize any gain. If the convergence does not
occur during the first five years after grant of these options, the options will
be cancelled. The Company met these targets for fiscal 1993.
LONG-TERM PERFORMANCE INCENTIVE PLAN. The final element of the Long-Term
Incentive Compensation Plan is a Long-Term Performance Incentive Plan ("LTPIP").
The LTPIP will measure executive performance over successive periods against
certain financial targets applicable to each of the Company's business segments
and strategic criteria established by the Committee. The first performance
cycle is a two-year cycle beginning with the 1994 fiscal year. Concurrently, a
three-year performance cycle will start so that after three years the executive
will be participating in three separate performance cycles at the same time.
Performance measures will be stated in terms of minimum, target and maximum
achievement standards. Incentive opportunities will range from 40% to 50% of
average base salary over the performance cycle for achievement of target goals,
but no incentive can be earned unless the minimum financial goal is achieved.
The Company's chief executive officer has discretion to increase or decrease
such award by up to 20% thereof.
At the end of each performance cycle the incentive will be paid in cash,
stock or a combination of cash and stock at the Committee's discretion.
$1 MILLION PAY CAP
In 1993, the Internal Revenue Code was expanded to add section 162(m),
which generally disallows a tax deduction for compensation paid to a company's
senior executive officers in excess of $1 million per person in any year.
Excluded from the $1 million limitation is compensation which meets
preestablished, objective performance criteria or results from the exercise of
stock options. While the Company does not presently have a specific policy with
respect to qualifying compensation under this new section, the Company believes
that compensation to the Company's executive officers resulting from the
exercise of stock options will continue to be deductible. The Compensation
Committee intends to establish a policy in the future with respect to section
162(m). However, the Company reserves the right to pay compensation to its
executives from time to time that may not be tax deductible.
THE COMPENSATION COMMITTEE
DANA L. SHIRES, M.D.
DAVID L. DENNIS
STEPHEN J. POWERS
ROBERT L. THOMAS
17
<PAGE>
PERFORMANCE GRAPHS
The first graph ("A") compares the five-year cumulative total investment
return (including reinvestment of dividends) among the Company, the Standard &
Poors ("S&P") 500 Index and the peer group, which consists of the following
companies: National Medical Enterprises, Inc., Ramsay Health Care Inc.,
Comprehensive Care Corporation, Charter Medical Corporation and Vencor,
Incorporated. Two of these companies were not included in the previous year's
performance chart: Charter Medical Corporation, a psychiatric services
provider, became a publicly traded entity in mid 1992 and was added to the peer
group after a full year of operation as such; Vencor, Incorporated, a long-term
critical care provider, was added to the peer group because the Company became
one of its competitors in 1993 with the expansion of its subsidiary,
Transitional Hospitals Corporation ("THC").
The second graph ("B") compares the annual percentage improvement in
cumulative total return on the Company's stock, using 1989 as the base year,
with the S&P 500 Index and a peer group comprising the same companies as
indicated in graph "A". Graph "B" also includes the stock performance of the
Company and the other two indices through the first quarter of fiscal 1994 ended
February 28, in order to reflect the positive reaction of the investment
community to the Company's fiscal 1993 fourth quarter and year-end financial
results and the addition of four new THC facilities, all of which were reported
during the first quarter.
The third graph ("C") is the same as graph "B" except that it focuses on
the percentage improvement in cumulative total return since 1992, the year in
which the Company began to implement a new corporate strategy and to build a new
management team to carry out that strategy.
[Graph]
18
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[Graph]
[Graph]
19
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2. SHAREHOLDER PROPOSAL
The following proposal was submitted by Amalgamated Bank of New York, Long
View Collective Investment Fund, 11-15 Union Square, New York, New York 10003:
RESOLVED: The shareholders of Community Psychiatric Centers ("Company" or
"Community Psychiatric") recommend that the Board of Directors redeem its
Shareholder Rights Plan ("Rights Plan") unless said Rights Plan is approved by
the affirmative vote of a majority of the outstanding shares at a meeting of the
shareholders to be held as soon as practical.
SHAREHOLDER'S SUPPORTING STATEMENT
WHEREAS the Board of Directors of Community Psychiatric adopted without
shareholder approval, a Shareholder Rights Plan which provides that "unless the
Board of Directors decides otherwise, outstanding rights to acquire two shares
of the Company stock for the price of one will become exercisable in the event
there is an attempted takeover."
WHEREAS we strongly believe that this Rights Plan is a type of
anti-takeover device, commonly known as a poison pill, which injures
shareholders by reducing management accountability and adversely affecting
shareholder value.
WHEREAS the shareholders of the Company believe the terms of the Rights
Plan are designed to discourage or thwart an unwanted takeover of the Company.
While management and the Board of Directors should have appropriate tools to
ensure that all shareholders benefit from any proposal to buy the Company, the
shareholders do not believe that the future possibility of a takeover justifies
the unilateral implementation of a poison pill Rights Plan.
WHEREAS the negative effects of poison pill rights plans on the market
value of companies' stock have been the subject of extensive research. A 1986
study by the Office of the Chief Economist of the U.S. Securities and Exchange
Commission on the economics of poison pill rights plans states that "The
stock-returns evidence suggests that the effect of poison pills to deter
prospective hostile takeover bids outweighs the beneficial effects that come
from increased bargaining leverage of the target management." Another, more
recent study by Professor Michael Ryngaert in 1988 singled out rights plans such
as the one authorized by our Company for their negative effect on shareholder
value.
WHEREAS we believe that it is the shareholders who should have the right to
vote on the necessity of such a powerful tool which could be used to entrench
existing management. Rights plans like the Company's have become increasingly
unpopular in recent years.
WHEREAS the Company's performance is unsatisfactory. Out of 1,000
companies studied by the United Shareholders of America in 1993, Community
Psychiatric was rated near the bottom at number 987.
WHEREAS in light of what can at best be described as the debatable economic
benefit of shareholder rights plans and the undeniably undemocratic way in which
such a plan was adopted by our Company, we believe the Shareholder Rights Plan
should either be redeemed or voted on by shareholders.
WE THEREFORE URGE YOU TO VOTE FOR THIS RESOLUTION!
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COMPANY'S STATEMENT IN OPPOSITION
The Board of Directors recommends that the shareholders vote AGAINST this
proposal: -------
SUMMARY OF REASONS FOR OPPOSITION
The Board believes that the Rights Plan will not deter a good-faith
takeover offer but instead strengthens the Board's ability, as appropriate, to
undertake defensive measures or to negotiate directly with potential acquirers
to obtain the highest possible price for the Company's stockholders and to
ensure that all stockholders are treated fairly and equally.
The Board emphasizes that it may redeem the Rights to permit an acquisition
that it determines adequately reflects the underlying value of the Company and
to be in the best interest of all stockholders. The Board strongly believes
that the Plan is in the best interests of the shareholders, that it should
remain in place and that the Rights should remain outstanding, but the existence
of the Rights gives the Board indispensable time to oppose undesirable
acquisitions and to negotiate more desirable ones.
DISCUSSION
The Rights Plan is designed to encourage potential acquirers to negotiate
directly with the Board of Directors, which the Company believes is in the best
position to negotiate on behalf of all stockholders, evaluate the adequacy of
any potential offer, and protect stockholders against abuses during the takeover
process, such as partial and two-tiered tender offers and creeping stock
accumulation programs, which do not treat all stockholders fairly and equally.
The Rights Plan will allow the Board adequate time and flexibility to (i)
defend the Company against undesirable acquisition offers and (ii) negotiate the
highest possible bid from potential acquirers, (iii) develop alternatives which
may maximize stockholder values, (iv) preserve the long-term value of the
Company for the stockholders, and (v) ensure that all stockholders are treated
fairly and equally. The Rights Plan is not intended to prevent a takeover on
terms that are fair and equitable to all stockholders. The Board of Directors
may, pursuant to the terms of the Rights Plan, redeem the Rights in order to
permit an acquisition that it determines, in the exercise of its fiduciary
duties, adequately reflects the value of the Company and is in the best
interests of all stockholders. Neither does the Plan in any way diminish the
fiduciary duties of the Board to the Company and the stockholders if and when an
acquisition offer is made.
In fact, a number of other companies with existing rights plans have
received unsolicited offers and have redeemed their rights after their directors
were satisfied that the offer, as negotiated by the board of directors,
adequately reflected the underlying value of the company and was fair and
equitable to all stockholders. The Board believes that rather than deterring
good-faith negotiations between a potential acquiror and the Board, the Rights
Plan will assist the Board in maximizing the price paid to stockholders in the
event the Company is acquired.
The proponent refers to two studies regarding the effect of rights plans on
the trading value of the adopting companies' stock. However, March and October
1988 studies by Georgeson & Company, a nationally recognized proxy solicitation
and investor relations firm, found that companies adopting rights plans do not
lessen the value of their stock and, more importantly, that companies with
rights plans received higher takeover premiums than those companies without
rights plans. The March 1988 study concluded that companies with rights plans
received takeover premiums averaging 69% higher than those received by companies
not protected by such plans.
The proponent also refers to a 1993 study conducted by the United
Shareholders of America ("USA"), an entity which has since disbanded. However,
that study does not take into account the Company's performance since 1992, the
year in which the Company began to implement its new business strategy and to
build a new management team to carry out that strategy. See "Compensation of
Executive Officers -- Compensation Committee Report on Executive
Compensation -- 1993 Achievements" and " -- Performance Graphs -- Graph C." In
addition, that study was based to an extent on nonfinancial criteria selected
and rated by USA. The Company disagrees with USA's scoring on certain of those
criteria, such as the existence of a shareholder rights plan, and has since
implemented a confidential voting procedure and compensation and nominating
committees composed of independent board members, which would improve its rating
on those criteria.
21
<PAGE>
The Board of Directors adopted the Rights Plan with the aim of protecting
the interests of all stockholders and maximizing the value of their investments
in the Company. Based on the Board's collective business experience and
knowledge of the Company, it believes that the adoption of the Rights Plan was a
valid exercise of its fiduciary obligations to all stockholders and is in accord
with the Board's responsibility under Nevada law to manage and direct the
management of the Company's business and affairs. The Board does not believe
that the Rights Plan will deter an acquisition offer that adequately reflects
the underlying value of the Company and that is fair to all stockholders. The
Board will continue to fulfill its fiduciary duties and exercise its business
judgment in determining whether to redeem the Rights in the event of a specific
offer. The Board believes that the redemption of the Rights at the present
time, rather than in the context of a specific acquisition proposal, would
deprive the board of a key negotiation tool that is invaluable in preserving the
long-term value of the Company and protecting all stockholders from coercive and
unfair takeover attempts.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE AGAINST THIS
PROPOSAL.
OTHER MATTERS
At the time of this Proxy Statement, the only matters management intends to
present at the meeting are those specified in the foregoing notice of meeting.
Management is not aware of any other matters to be presented for action at the
meeting; however, if any other matters come before the meeting, it is intended
that the proxies shall be voted in respect thereto in accordance with the
judgment of the persons voting the proxies.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors' present intention is to reappoint Ernst & Young as
independent accountants to audit the financial statements of the Company for the
current fiscal year. A representative of Ernst & Young is expected to attend
the annual meeting of stockholders, will have an opportunity to make a statement
and will be available to respond to appropriate questions.
EXPENSES OF SOLICITATION
The cost of soliciting proxies will be borne in full by the Company, and in
the event an insufficient number of proxies are received to constitute a quorum,
there will be further solicitation of stockholders by mail, telephone or oral
communication. The Company will also request brokerage houses and other
nominees of fiduciaries to forward copies of its proxy material and annual
report to beneficial owners of stock held in their names, and the Company will
reimburse them for reasonable out-of-pocket expenses incurred in doing so. The
Company has retained Kissel-Blake, Inc. to assist in the solicitation of proxies
for a fee of $6,000, plus out-of-pocket expenses. Any such further solicitation
will be made by regular employees of the Company who will not receive additional
compensation.
TIME FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Shareholder proposals to be presented at the next annual meeting, which
will take place on or about May 19, 1995, must be received by the Company for
inclusion in its proxy statement not later than December 16, 1994, unless such
meeting date is changed by more than 30 calendar days in which case such
proposals must be received a reasonable time prior to mailing of the proxy
statement.
ANNUAL REPORT
The Company's Annual Report on Form 10-K has been filed with the Securities
and Exchange Commission. Copies of that report may be obtained by shareholders
without charge by writing to Ms. Suzanne S. Hovdey, Community Psychiatric
Centers, 24502 Pacific Park Drive, Laguna Hills, California 92656.
The Company's Annual Report to Shareholders and Supplement thereto which
has been mailed or distributed to shareholders of record through April 1, 1994
in advance of or simultaneously with this Proxy Statement contains all the
information required to be included therein and in the 10-K Report as filed
except that it omits certain exhibits and supplemental financial statements and
schedules.
22
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS, MAY 19, 1994
The undersigned hereby appoints Hartly Fleischmann, Steven S. Weis and Morgan L.
Staines, and each of them, the attorneys and proxies of the undersigned with
full right of substitution to vote as designated on the reverse all the shares
of COMMUNITY PSYCHIATRIC CENTERS common stock held of record by the undersigned
on April 1, 1994 at the annual meeting of stockholders of the Corporation to be
held on May 19, 1994 at 11:00 a.m., and at all adjournments thereof, with the
same force and effect as the undersigned could do if personally present at the
meeting.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE
DIRECTORS NOMINATED AND AGAINST THE SHAREHOLDER PROPOSAL, ALL AS DESCRIBED IN
THE ACCOMPANYING PROXY STATEMENT.
Management knows of no other matters which may properly be, or which are likely
to be, brought before the meeting. However, if any other matters are properly
brought before the meeting, the persons named in this proxy or their substitutes
will vote in accordance with their best judgment on such matters. The proxies
appointed may act by a majority of them present at the meeting or, if only one
is present, by that one.
PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY.
See Reverse Side
<PAGE>
/X/ PLEASE MARK YOUR VOTES LIKE THIS
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED STOCKHOLDER.
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Common
Management recommends a vote FOR all three nominees:
1. ELECTION OF THREE DIRECTORS to serve until the annual meeting in 1997 and
until their successors are duly elected and qualified.
FOR / / WITHHOLD FOR ALL / /
NOMINEES: Richard L. Conte, Dana L. Shires, M.D., Robert L. Thomas
To withhold authority to vote for any individual nominee(s) write the name of
the nominee(s) on the space below:
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Management recommends a vote AGAINST the following proposal:
2. SHAREHOLDERS PROPOSAL recommending that the Board of Directors terminate
the Company's Shareholder Rights Plan (the "Rights Plan") and redeem all
rights heretofore issued thereunder unless the Rights Plan is approved by
the affirmative vote of a majority of the outstanding shares at a meeting of
the Company's shareholders to be held as soon as practical.
FOR / / AGAINST / / ABSTAIN / /
Please sign exactly as name appears on stock certificates. When signing as
attorney, executor, administrator, trustee, or guardian please give full title
as such. If signer is a corporation, sign in full corporate name by authorized
officer. Joint owners should each sign personally.
Signature(s) Date
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