<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMUNITY PSYCHIATRIC CENTERS
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
TO REPORT ON FORM 10-K FOR THE
FISCAL YEAR ENDED NOVEMBER 30, 1993
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
fiscal year ended November 30, 1993, as set forth in the pages attached hereto:
ITEM 1. Business
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 8. Financial Statements and Supplementary Data
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
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
These items amend certain information previously provided, provide the
information required by Part III and amend an exhibit previously filed.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMUNITY PSYCHIATRIC CENTERS
By: STEVEN S. WEIS
-------------------------------------
STEVEN S. WEIS
CHIEF FINANCIAL OFFICER
Dated: March 29, 1994
EXHIBIT INDEX IS ON PAGE 11.
Page 1 of 19
<PAGE>
PART I
ITEM 1. BUSINESS
REGULATION AND REIMBURSEMENT
The following sections of Item 1 are amended to provide in their entirety
as follows:
HEALTH CARE REFORM
The Clinton Administration has proposed legislation, known as the Health
Security Act of 1993, which has been introduced in Congress and is 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, and (ii) implementing measures to
control or reduce the rate of increase of public and private spending on health
care. Alternative federal health care reform legislation is being considered by
Congress, including a single payor system, managed competition proposals,
expansion of Medicare and various more incremental approaches. Considerable
discussion of these initiatives is expected prior to any congressional enactment
and implementation. In addition, some states have enacted and others are
considering health care reform legislation. 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.
REIMBURSEMENT LIMITATIONS AND COST-CONTAINMENT
Regardless of the outcome of the proposed health care reform bills, there
will likely continue to be vigorous efforts to effectuate cost savings in the
Medicare program. These efforts could include a change in the reimbursement of
the Company's long-term critical care hospitals to the DRG method. In fact, the
conference report accompanying the 1993 OBRA urged prompt completion of a study
of methods to subject hospitals such as THC's to PPS, from which they are
currently exempt. Even if cost-based reimbursement for the THC facilities
continues, additional reimbursement limits may be imposed. Such cost-
containment initiatives may vary substantially from the proposed structural
reforms discussed above and may impact the Company more quickly and directly.
See "Business--Regulation and Reimbursement." Similar changes in reimbursement
of psychiatric services could also adversely impact the Company's business and
results of operations. Conversely, there is also potential for a positive
effect on the Company's psychiatric operations in the event that Congress, as a
part of any health care reform legislation, mandates mental health benefits for
all Americans.
RELATIONSHIPS WITH PHYSICIANS AND OTHER PROVIDERS--ANTI-KICKBACK LAWS
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 Medicare and Medicaid anti-kickback statute, under which
criminal penalties can be imposed upon persons who pay or receive any
remuneration in return for referrals of patients for items or services
reimbursed under the Medicare, Medicaid or certain state health care programs.
Violation of this law also results 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 Office of Inspector General of HHS and the courts have broadly
construed the anti-kickback statute. "Safe harbor" regulations promulgated by
HHS define a narrow range of practices that will be exempted from prosecution or
other enforcement action under this statute. To the extent that any purpose of
an offer to pay or payment is deemed to be for the purpose of inducing referrals
and such offer or payment does not satisfy all the criteria for a safe harbor,
it could be found to violate the anti-kickback statute. Similarly, the state
anti-kickback laws, which vary from state to state, are often very broad and
vague. These federal and state laws have only infrequently been interpreted by
courts or regulatory agencies; given their breadth 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.
2
<PAGE>
OBRA contains provisions prohibiting physicians having a financial
relationship with another provider from making referrals for Medicare
reimbursement to that provider for certain additional "designated health
services" to be rendered to patients of the physician by such a provider. These
services include 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 provider 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. HHS has not yet issued regulations, and there can be no assurance
that these provisions will be interpreted in a manner consistent with the
practices of the Company. The Company believes it is in compliance with these
provisions.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
The table presented in this section of Item 7 is amended to indicate that
all amounts are "in thousands" and to provide Pro Forma Net Operating Revenues
for 1993 of $326,990.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The table presented in Note 6 of the Notes to Consolidated Financial
Statements is amended to provide Other Long-Term Debt as of November 30, 1993
of $862.
3
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
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
----- --- ------------------- ----- -------
NOMINEES:
<S> <C> <C> <C> <C>
Richard L. Conte..... 40 Chairman of the Board 1991 1994
of Directors since
May 21, 1992 and Chief
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 1989 1994
since 1961 specializing in
nephrology; Chairman, Chief
Executive Officer and President
of LifeLink Foundation, a
not-for-profit corporation.
Robert L. Thomas...... 69 Retired since 1993; Consultant, 1993 1994
1992-1993 and Executive Director,
1977-1992, National Association of
Private Psychiatric Hospitals, a
nonprofit entity.
CONTINUING DIRECTORS:
David L. Dennis......... 45 Managing Director, Investment 1991 1996
Banking, Donaldson, Lufkin
& Jenrette 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 1972 1995
Fleischmann & Fleischmann, San
Francisco, California, engaged
in the general practice of law;
counsel to the Company since 1971.
Jack H. Lindheimer, M.D. 63 Corporate Medical Director since 1983 1995
1991; Medical Director, CPC Alhambra
Hospital since 1970; physician in
private practice since 1960,
specializing in psychiatry.
Stephen J. Powers....... 44 President and Founder, Cronus 1991 1996
Partners, Inc. a private investment
banking firm specializing in
mergers, acquisitions, corporate
reorganizations and general
corporate finance since 1988.
David A. Wakefield...... 47 Chairman, Priory Hospitals Group 1992 1996
since 1993; Executive Vice President
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>
4
<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 Appointed April 13, 1992;
Board and Chief 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 Appointed Executive Vice President
President of the 1993; Appointed President--
Company and Transitional Hospitals Corporation
President-- 1992; President, The Phoenix
Transitional Group, health care consultants
Hospitals 1991-1992; Executive Vice
Corporation President, Development and
Administrative Services, Charter
Medical Corporation 1987-1990.
Kay E. Seim ........ 47 Executive Vice Appointed March 1994; Executive
President and Vice President--U.S. Psychiatric
President--U.S. Operations 1993; Executive Vice
Psychiatric President--West Coast Hospitals
Operations 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 Appointed 1991; President, The CFO
President and Chief GROUP,
Corporate Financial Financial
Officer Management Services
1989-1991.
David A. Wakefield.. 47 Executive Vice Appointed 1992; Senior Vice
President President---United Kingdom and
European Division 1988-1992.
Geoffrey J. Deutsch. 35 Executive Vice Appointed 1993; Senior Vice
President-- President--Marketing 1992; Vice
Marketing President--Marketing and Vice
and Client President--Contracting 1991;
Services Senior Director--Sales, Charter
Medical Corporation 1990-1991;
National Program Consultant,
Intracorp/Cigna 1987-1990.
Ronald L. Ooley .... 48 Executive Vice Appointed 1993; Senior Vice
President-- President--Human Resources 1992;
Administration 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.
Julia Kopta ........ 44 Executive Vice Appointed 1993; Chairperson, Care
President-- Visions Corporation 1987-1993.
Corporate Planning
and Development
<FN>
________________
* Loren B. Shook resigned as President and Chief Operating Officer effective
October 7, 1993. See "Settlement with Loren B. Shook."
</TABLE>
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 Dr. Lindheimer filed a late report of the
disposition of 8,200 shares.
5
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
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 376,557 230,000(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, 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 on September 1, 1992.
(6) Mr. Shook resigned as President and Chief Operating Officer effective
October 7, 1993. See "Settlement with Loren B. Shook."
(7) Includes options for 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 for 332,656 and 275,000 shares,
respectively. See "Option/SAR Grants in Last Fiscal Year."
(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
$308,078 was paid in fiscal 1994 to Mr. Shook in connection with his
resignation. See "Settlement with Loren B. Shook."
</TABLE>
6
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock options
and tandem limited stock appreciation rights ("SARs") under the Company's 1989
Stock Incentive Plan to the named executives during the fiscal year ended
November 30, 1993:
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
- ------------------------------------------------------------------------------ -----------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base Expira-
Granted in Fiscal Price tion
Name (#)1 Year ($/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(6) 1,072,470(6)
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(6) 804,352(6)
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(6) 804,352(6)
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(6) 804,352(6)
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(6) 428,988(6)
Loren B. Shook 200,000(2) 7.56 10.88 2/28/94(4) 1,367,846 3,466,390
30,000(3) 1.13 9.50 10/7/93(5) 179,235 454,217
<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.
(2) Includes options for 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 for 332,656 and 275,000 shares,
respectively, which had an average exercise price of $29.54 for Mr. Conte
and $26.81 for Mr. Shook.
(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.
(4) See "Settlement with Loren B. Shook."
(5) The 30,000 options granted to Mr. Shook on May 20, 1993 were not vested at
the time of his termination. See "Settlement with Loren B. Shook."
(6) 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>
7
<PAGE>
OPTION/SAR HOLDINGS
The following table sets forth the number of shares of Common Stock subject to
outstanding stock options held by each of the named executives as of the end of
the fiscal year ended November 30, 1993. 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 for 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 for 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 all of these options 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 provides (i) for the last seven months of fiscal 1992, an
annual salary of $550,000; (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 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 also
would not be bound by the noncompetition, nondisclosure and nonsolicitation
covenants. In any event, upon a "change in control," all options, contingent
bonuses and similar deferred benefits held by Mr. Conte shall vest and become
exercisable. Effective December 1, 1993, the annual salary for Mr. Conte was
increased to $750,000.
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 originally 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
8
<PAGE>
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 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 under his employment contract. Mr. Shook has released the
Company from any obligations under his employment contract or otherwise and
remains subject to certain nondisclosure and nonsolicitation covenants. 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. 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,
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 an exercise
price of $10.875 and $14.625 per share, respectively, which options were vested
to 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.
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.
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."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables show the beneficial ownership of the Company's common
stock, $1.00 par value, by all directors, executive officers and others.
9
<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
<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 215,799
David L. Dennis 15,000
Hartly Fleischmann 36,665
James R. Laughlin 82,000
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 83,007
Steven S. Weis 82,000
All directors and executive 707,265 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, 189,797;
Mr. Wakefield, 81,882; 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; Messrs. Laughlin and Weis, 82,000;
and the group, 662,944. 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>
OTHER BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS(1) BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
------------------- ----------------------- ----------------
<S> <C> <C>
Invesco M.I.M. PLC 5,666,437(2) 13.2%
11 Devonshire Square
London, EC 2M 4YR
England
Nicholas Company, Inc. 2,166,000(3) 5.0%
700 North Water Street
Milwaukee, Wisconsin 53202
<FN>
_______________
(1) Information based on Schedule 13D dated December 31, 1993, filed by the
named owner.
(2) Shared voting power and shared investment power with respect to all such
shares.
(3) Sole voting power and shared investment power with respect to all such
shares.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
10
<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 additional 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 on 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>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS. The financial statements filed in response to Item
8 are amended as follows:
The table presented in Note 6 of the Notes to Consolidated Financial
Statements is amended to provide Other Long-Term Debt as of November 30, 1993
of $862.
EXHIBITS.
10.1 Employment Contract between Registrant and Richard L. Conte dated as
of May 1, 1992, which is a Company plan or arrangement required to be filed as
an exhibit pursuant to Item 14(a).
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 1992: Not
applicable.
(c) The following exhibit is amended as filed herewith, beginning on page 12:
10.1 Employment Contract between Registrant and Richard L. Conte dated as
of May 1, 1992.
11
<PAGE>
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").
R E C I T A L S
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 BENEFICIARY. "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 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.
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;
12
<PAGE>
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 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;
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 long-term acute and 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 1 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.
13
<PAGE>
1.15 PERSON. "Person" means any individual, corpora-tion,
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.
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.
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.
3.4 LIFE INSURANCE. During the Employment Term, CPC shall pay the
entire cost of the Policy.
14
<PAGE>
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.
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 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 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.
15
<PAGE>
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.
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 no termination described in subparagraphs (a) and (b)
shall be made or take effect unless (i) CPC has proved the causes 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 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, 3.5 and 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, (C) deliver the Policy to Conte and (D) 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 Policy 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.
16
<PAGE>
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) deliver the
Policy and (iii) continue to have the obligations described in paragraphs 3.3,
3.5 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 there is a Change of
Control and
(a) TERMINATION. This Contract is terminated by Conte
pursuant to paragraph 5.1.2(b),
(i) PAYMENTS. CPC shall, within 30 days after the
effective date of such termination, pay to him (A) the aggregate Salary through
the November 30 next following the fourth anniversary of the date of
termination, plus (B) all other compensation and benefits remaining to be paid
to him under this Contract, and (C) all sums due him under the Supplemental
Retirement Agreement, accrued and with all credits thereunder to the date of
termination of this Contract;
(ii) AUTOMOBILE. Conte shall have the option to purchase at
net book value the automobile then provided for him by CPC; and
(iii) 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.
(b) NO TERMINATION. Whether or not Conte terminates this
Contract pursuant to paragraph 5.1.2(b),
(i) VESTING OF OPTIONS, ETC. 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; and
(ii) POLICY. CPC shall deliver the Policy to Conte;
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 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.
17
<PAGE>
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
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.
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 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:
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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 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:
--------------------------------
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