<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Community Psychiatric Centers
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF COMMUNITY PSYCHIATRIC CENTERS]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Community Psychiatric Centers ("the
Company") will be held at the Hard Rock Hotel, 4455 Paradise Road, Las Vegas,
Nevada 89109, on Friday, November 8, 1996, at 11:00 a.m., for the following
purposes:
1. To elect one director for a three-year term;
2. To consider and vote upon a proposed amendment to the Company's Articles
of Incorporation to change the name of the Company to Transitional
Hospitals Corporation;
3. To consider and vote upon a proposal to ratify an amendment to the
Company's Bylaws to require that a person (except an executive officer
who is a director and his or her replacement) who is not an "independent
director" (as defined in the accompanying Proxy Statement) may only be
elected to the Board of Directors if following such election the Board
of Directors would consist of a majority of "independent directors"; and
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only stockholders of record at the close of business on September 24, 1996
are entitled to vote. The list of stockholders will be available for
examination for the ten days prior to the meeting at Community Psychiatric
Centers, Corporate Secretary's Office, 5110 West Sahara Avenue, Las Vegas,
Nevada 89102.
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
Ronald L. Ooley
Corporate Secretary
October 11, 1996
<PAGE>
COMMUNITY PSYCHIATRIC CENTERS
MAILING ADDRESS:
5110 WEST SAHARA AVENUE
LAS VEGAS, NEVADA 89102
------------
PROXY STATEMENT
To the Stockholders:
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board of Directors of Community Psychiatric Centers, a Nevada corporation (the
"Company"), for use at the annual meeting of stockholders (the "Annual
Meeting") to be held at the Hard Rock Hotel, 4455 Paradise Road, Las Vegas,
Nevada, 89109 on Friday, November 8, 1996, at 11:00 a.m., and at any
adjournment of such meeting. The proxy 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 October 11, 1996.
The proxy may be revoked at any time by delivery to the Company at the above
mailing 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 instructions are given, will be voted for the election of the nominee for
the Board of Directors listed below and in favor of each of the other
proposals presented to stockholders at the Annual Meeting, all as described in
this Proxy Statement.
Stockholders of record at the close of business on September 24, 1996 will
be entitled to vote at the Annual Meeting. The Company has outstanding only
its $1.00 par value Common Stock, of which there were 46,860,672 outstanding
shares entitled to vote at the close of business on September 24, 1996. Each
stockholder is entitled to one vote for each share held, and there is no right
to cumulate votes.
A majority of the outstanding shares of Common Stock represented at the
Annual Meeting, in person or by proxy, will constitute a quorum. The nominee
for director of the Company who receives the greatest number of votes cast by
stockholders present in person or by proxy at the Annual Meeting will be
elected a director of the Company. The affirmative vote of the holders of two-
thirds of the outstanding shares of Common Stock is required to approve the
amendment to the Company's Articles of Incorporation to change the name of the
Company. The proposal relating to ratification of the Bylaw amendment requires
the affirmative vote of the holders of a majority of the shares represented at
the meeting. Abstentions will have no effect on the election of a director,
but will have the effect of being cast against the other proposals. Broker
non-votes will have the effect of being cast against the proposal to amend the
Company's Articles of Incorporation and will have no effect on the Bylaw
proposal.
In an effort to have as large a representation at the Annual Meeting as
possible, proxy solicitation may be made personally or by telephone or
telegram by officers or employees of the Company, without added compensation,
or by Kissel-Blake, Inc., which has been retained by the Company for $6,500,
plus expenses. The Company will reimburse brokers, banks and other custodians,
nominees and fiduciaries for their expenses in sending proxy materials to
beneficial owners.
1
<PAGE>
MATTERS TO BE ACTED UPON
The following matters will be presented, considered and acted upon at the
meeting:
PROPOSAL ONE
ELECTION OF DIRECTORS
BOARD OF DIRECTORS OF THE COMPANY
The Company's Articles of Incorporation provide for a Board of Directors of
not less than six nor more than 11 directors and authorizes the Board to
determine the number within that range from time to time by the affirmative
vote of a majority of the directors then in office. The current Board of
Directors is comprised of seven directors. The Board of Directors is entitled
to elect an individual to fill any vacancy on the Board. At management's
request, the Company's Bylaws were recently amended to require that a person
(except an executive officer who is a director and his or her replacement) who
is not an "independent director" (as that term is defined in the Bylaws) may
only be elected to the Board of Directors if following such election the Board
of Directors would consist of a majority of "independent directors." Such
amendment is presented to the stockholders for ratification at this Annual
Meeting. See Proposal Three. A majority of the members of the current Board of
Directors are "independent directors." Assuming the election of the nominee
named below, a majority of the members of the Board of Directors will consist
of "independent directors."
In accordance with the Articles of Incorporation, the Board of Directors is
divided into three classes with staggered terms. Each class of directors is
elected for a term of three years. One director is to be elected at the 1996
Annual Meeting for a three-year term ending in 1999. Upon the recommendation
of the Nominating Committee of the Board of Directors, Wendy L. Simpson has
been nominated by the Board for election to this position. Following the
Annual Meeting the Board of Directors may determine to increase the number of
directors comprising the Board of Directors. In such event the Board of
Directors will fill any vacancies created by such increase.
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 the
proxy will be voted for Ms. Simpson. If Ms. Simpson 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 her. Management has no reason to believe, at
this time, that Ms. Simpson will be unable or will decline to serve if
elected, and Ms. Simpson has informed the Company that she consents to serve
and will serve if elected.
INFORMATION CONCERNING THE NOMINEE AND CONTINUING DIRECTORS
The following information is furnished with respect to the nominee and the
continuing directors. The term of the director elected at this Annual Meeting
will expire in 1999.
<TABLE>
<CAPTION>
DIRECTOR
OCCUPATION AND BUSINESS EXPERIENCE CONTINUOUSLY TERM
NAME AGE DURING THE LAST FIVE YEARS SINCE EXPIRES
---- --- ---------------------------------- ------------ -------
<S> <C> <C> <C> <C>
NOMINEES:
Wendy L. Simpson (1)(2)(3). 47 Chief Operating Officer 1995 1996
since August 1996 and
Executive Vice President
and Chief Financial
Officer since December
1994; Senior Vice
President--Transitional
Hospitals Corporation
("THC") 1994; Senior Vice
President and Chief
Financial Officer,
Weisman Taylor Simpson &
Sabatino 1992-1994;
Senior Vice President and
Chief Financial Officer,
American Medical
International 1990-1991.
Ms. Simpson is also a
director of LTC
Properties, Inc., a real
estate investment trust.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
OCCUPATION AND BUSINESS EXPERIENCE CONTINUOUSLY TERM
NAME AGE DURING THE LAST FIVE YEARS SINCE EXPIRES
---- --- ---------------------------------- ------------ -------
<S> <C> <C> <C> <C>
CONTINUING DIRECTORS:
Richard L. Conte................. 42 Chairman of the Board of 1991 1997
Directors since May
1992, Chief Executive
Officer since April 1992
and President since
October 1993; President
1991-1992; Chief
Financial Officer 1989-
1991.
Dana L. Shires, M.D.(1)(3)(4)(5). 63 Physician in private 1989 1997
practice since 1961
specializing in
nephrology; Chairman,
Chief Executive Officer
and President of
LifeLink Foundation, a
not-for-profit
corporation.
Robert L. Thomas(1)(2)(3)(4)(5).. 72 Retired since 1993; 1993 1997
Consultant, 1992-1993,
and Executive Director,
1977-1992, National
Association of Private
Psychiatric Hospitals, a
nonprofit entity.
Jack H. Lindheimer, M.D.(2)(3)... 64 Corporate Medical 1983 1998
Director, U.S.
Psychiatric Services
since 1991; Medical
Director, CPC Alhambra
Hospital 1970-1992;
physician in private
practice since 1960,
specializing in
psychiatry.
Nigel Petrie(1)(4)(5)............ 49 Managing Director, 1995 1998
United Kingdom, Edison
Mission Energy, a
subsidiary of Edison
International based in
Rosemead, California,
independent power
developers and
operators, since 1996;
General Manager of the
Pumped Storage Business
of National Grid Company
plc 1993-1996; General
Manager, resourcing,
National Grid Company,
1989-1993.
Ralph J. Watts(1)(4)(5).......... 49 President and Chief 1996 1998
Executive Officer,
Cardiovascular Ventures,
Inc. since 1992;
President and Chief
Executive Officer of
Ramsay Health Care, Inc.
1988-1992. Mr. Watts is
also a director of
Health and Retirement
Trust.
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Committee on Public Policy.
(3) Member of the Quality Management Committee.
(4) Member of the Compensation Committee.
(5) Member of the Nominating Committee.
3
<PAGE>
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
The Board of Directors held ten meetings during fiscal 1995. The Board of
Directors has standing audit, compensation, nominating, public policy and
quality management committees.
The Audit Committee met five times during fiscal 1995. The Audit Committee
reviewed with the auditors the results of the 1995 audit, evaluated the
adequacy of the internal accounting controls of the Company, the internal
audit function, the procedures for recording, evaluating and collecting
accounts receivable and the scope and cost of the audit for fiscal 1996.
The Compensation Committee met five times during fiscal 1995. The
Compensation Committee reviewed and set executive compensation for 1995. See
"Election of Directors--Compensation Committee Report on Executive
Compensation."
The Nominating Committee met twice during fiscal 1995. Its function is to
recommend nominees to the Company's Board of Directors. The Nominating
Committee will consider nominees recommended by stockholders; provided that
any stockholder recommendation must be in writing and must include (i) the
name, address and number of shares of 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
elections 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 Stockholder 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.
The Committee on Public Policy met four times during fiscal 1995. This
committee examines the potential effect on the Company of proposed legislation
and other rules and regulations affecting the Company.
The Quality Management Committee met four times during fiscal 1995. This
committee evaluates the quality and outcomes of care provided at the Company's
facilities.
In fiscal 1995 the Board of Directors had a standing Finance Committee which
met four times during the fiscal year. The Board of Directors has discontinued
the Finance Committee. The Finance Committee considered and evaluated the
Company's need for and the availability and terms of additional financing.
These matters are now considered by the full Board of Directors.
COMPENSATION OF DIRECTORS
During fiscal 1995 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, and they will receive the same
compensation for 1996. These directors also receive a fee of $2,500 for each
telephonic meeting of the Board of Directors and $500 for each telephonic
meeting of a committee thereof. Officers of the Company who serve as directors
receive only reimbursement of expenses incurred in attending meetings.
Pursuant to the Company's Stock Incentive Plan (the "Stock Incentive Plan"),
annual automatic grants of options covering 5,000 shares are made to each
nonemployee director on January 26 of each year.
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....... 42 Chairman of the Board, See information under
Chief Executive Officer "Election of Directors--
and President Information Concerning
Nominees and Continuing
Directors."
Wendy L. Simpson....... 47 Chief Operating Officer, See information under
Executive Vice "Election of Directors--
President, Chief Information Concerning
Financial Officer and Nominees and Continuing
Treasurer Directors."
William E. Hale........ 51 Executive Vice President Appointed Executive Vice
of the Company and President and
President--U.S. President--U.S.
Psychiatric Division Psychiatric Division
November 1995; Executive
Vice President and Chief
Operating Officer--
Managed Care Services
Division, May 1995-
November 1995; Senior
Vice President,
Operations and Business
Development, Charter
Medical Corporation
("Charter"), November
1993-May 1995; Vice
President, Hospital
Operations--Western
Division, Charter,
December 1992-November
1993; Chief Operating
Officer, Behavioral
Health Resources,
December 1987-1992.
James R. Laughlin...... 49 Executive Vice President Appointed Executive Vice
of the Company and President 1993 and
President--THC President--THC May 1992;
President, The Phoenix
Group, health care
consultants 1991-1992.
Ronald L. Ooley........ 50 Corporate Secretary of Appointed Chief
the Company and Chief Operating Officer--
Operating Officer--THC THC August 1996 and
Corporate Secretary
1994; Executive Vice
President--
Administration 1993-
1996; Senior Vice
President--Human
Resources 1992; Vice
President--Human
Resources, The Phoenix
Group 1991-1992.
Jack H. Lindheimer, 64 Corporate Medical See information under
M.D. ................. Director, U.S. "Election of Directors--
Psychiatric Services Information Concerning
Nominees and Continuing
Directors."
Julia L. Kopta......... 47 General Counsel and Appointed General
Executive Vice Counsel January 1995 and
President--Corporate Executive Vice
Planning and Development President--Corporate
Planning and Development
October 1993;
Chairperson and Chief
Executive Officer,
Care Visions
Corporation, 1987-1993.
</TABLE>
5
<PAGE>
OWNERSHIP OF COMPANY SECURITIES
Set forth in the following table is the beneficial ownership of Common Stock
as of August 31, 1996 for all current directors, including the nominee to the
Board of Directors, the executive officers of the Company named in the Summary
Compensation Table (see "Election of Directors--Executive Officer
Compensation"), directors and executive officers as a group and, to the best
of the Company's knowledge, beneficial owners of 5% or more of the Common
Stock.
<TABLE>
<CAPTION>
AMOUNT
OF BENEFICIAL
OWNERSHIP AS OF
DIRECTORS AND EXECUTIVE OFFICERS AUGUST 31, 1996 PERCENT OF CLASS(1)
-------------------------------- --------------- -------------------
<S> <C> <C>
Richard L. Conte(2)........................ 870,802 1.93%
James R. Laughlin(3)....................... 263,000 *
Jack H. Lindheimer(4)...................... 71,000 *
Ronald L. Ooley(5)......................... 131,500 *
Nigel Petrie(6)............................ 1,000 *
Kay E. Seim(7)............................. -- *
Dana L. Shires(8).......................... 63,299 *
Wendy L. Simpson(9)........................ 90,400 *
Robert L. Thomas(10)....................... 20,000 *
David A. Wakefield(11)..................... 155,007 *
Ralph J. Watts............................. -- --
All directors and executive officers as a
group (11 persons)(12).................... 1,622,001 3.53%
OTHER BENEFICIAL OWNERS:
Brandywine Asset Management................ 3,133,700 7.07%
3 Christina Center, Suite 1200
201 North Walnut Street
Wilmington, Delaware 19801
Fund Asset Management...................... 4,629,956 10.44%
P.O. Box 9011
800 Scudders Mill Road
Plainsboro, New Jersey 08543
</TABLE>
- --------
*Less than 1%.
(1) Shares which each identified stockholder has the right to acquire within
60 days of the date of the table are deemed to be outstanding in
calculating the percentage ownership of such stockholder, but are not
deemed to be outstanding as to any other person. Except as otherwise
noted, the Company believes that each stockholder has sole voting and
investment power over the shares beneficially owned.
(2) Includes 840,000 shares of Common Stock which Mr. Conte has the right to
acquire within 60 days of the date of the table upon exercise of options
vested under the Stock Incentive Plan. Does not include options to
purchase 100,000 shares of Common Stock issued under the Stock Incentive
Plan, none of which are exercisable within 60 days of the date of the
table. Includes 6,640 shares owned by Mr. Conte and also includes 24,162
held in trust for Mr. Conte's children for which he disclaims any
beneficial ownership or interest.
(3) Consists of 263,000 shares of Common Stock which Mr. Laughlin has the
right to acquire within 60 days of the date of the table upon exercise of
options vested under the Stock Incentive Plan. Does not include options
to purchase 242,000 shares of Common Stock issued under the Stock
Incentive Plan, none of which are exercisable within 60 days of the date
of the table.
(4) Consists of 71,000 shares of Common Stock which Dr. Lindheimer has the
right to acquire within 60 days of the date of the table upon exercise of
options vested under the Stock Incentive Plan. Does not include options
to purchase 94,000 shares of Common Stock issued under the Stock
Incentive Plan, none of which are exercisable within 60 days of the date
of the table.
6
<PAGE>
(5) Includes 129,000 shares of Common Stock which Mr. Ooley has the right to
acquire within 60 days of the date of the table upon exercise of options
vested under the Stock Incentive Plan. Does not include options to
purchase 218,475 shares of Common Stock issued under the Stock Incentive
Plan, none of which are exercisable within 60 days of the date of the
table.
(6) Consists of 1,000 shares of Common Stock which Mr. Petrie has the right
to acquire within 60 days of the date of the table upon exercise of
options vested under the Stock Incentive Plan. Does not include options
to purchase 1,500 shares of Common Stock issued under the Stock Incentive
Plan, none of which are exercisable within 60 days of the date of the
table.
(7) Ms. Seim resigned as Executive Vice President of Company and President--
U.S. Psychiatric Operations effective November 3, 1995. See "Election of
Directors--Seim Severance Agreement."
(8) Includes 35,000 shares of Common Stock which Dr. Shires has the right to
acquire within 60 days of the date of the table upon exercise of options
vested under the Stock Incentive Plan. Includes 49 shares held by
Dr. Shires' spouse.
(9) Includes 86,000 shares of Common Stock which Ms. Simpson has the right to
acquire within 60 days of the date of the table upon exercise of options
vested under the Stock Incentive Plan. Does not include options to
purchase 190,023 shares of the Common Stock issued under the Stock
Incentive Plan, none of which are exercisable within 60 days of the date
of the table. Includes 300 shares held by Ms. Simpson's spouse in an IRA
account and 1,900 shares which are jointly owned by Ms. Simpson and her
spouse.
(10) Consists of 20,000 shares of Common Stock which Mr. Thomas has the right
to acquire within 60 days of the date of the table upon exercise of
options vested under the Stock Incentive Plan.
(11) Includes 153,882 shares of Common Stock which Mr. Wakefield has the right
to acquire within 60 days of the date of the table upon exercise of
options vested under the Stock Incentive Plan. Does not include options
to purchase 145,000 shares of Common Stock issued under the Stock
Incentive Plan, none of which are exercisable within 60 days of the date
of the table. Mr. Wakefield resigned as Executive Vice President of the
Company and Chairman of Priory Hospitals Group in connection with the
sale by the Company of Priory Hospitals Group. See "Election of
Directors--Wakefield Severance Agreement."
(12) Includes 1,556,000 shares of Common Stock subject to options granted
pursuant to the Stock Incentive Plan, all of which are exercisable within
60 days of the date of the table. Excludes all beneficial ownership of
Common Stock by Ms. Seim and Mr. Wakefield.
7
<PAGE>
EXECUTIVE OFFICER COMPENSATION
Summary of Cash and Certain Other Compensation. The following table shows
the cash compensation paid by the Company to (i) the Chief Executive Officer
for his service in all executive capacities during the fiscal years ending
November 30, 1993, 1994 and 1995, (ii) to each of the other four most highly
compensated executive officers who were serving as executive officers on
November 30, 1995 in all executive capacities in which they served during the
fiscal years ending November 30, 1993, 1994 and 1995 and (iii) a person who
would have been one of the four other most highly compensated executive
officers had she been an executive officer on November 30, 1995 in all
capacities in which she served during the fiscal years ending November 30,
1993, 1994 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------- ------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS COMPENSATION($)
------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Richard L. Conte, 1995 750,000 498,000 300,000 837,475(1)
Chief Executive 1994 750,000 237,500 100,000 218,802(2)
Officer and
President
1993 550,000 412,500 550,000(3) 223,844(2)
James R. Laughlin, 1995 400,000 83,200 155,000 124,982(4)
Executive Vice 1994 400,000 50,000 105,000 --
President of the
Company
and President, THC 1993 275,000 275,000 115,000 --
Wendy L. Simpson, 1995 267,468 145,665 80,000 25,000(5)
Executive Vice 1994 87,800 50,000 76,023 --
President
and Chief Financial 1993 -- -- -- --
Officer
David A. Wakefield, 1995 234,000(6) 510,900(6) 30,000 --
Executive Vice 1994 191,250(6) 191,250(6) 30,000 --
President of the
Company
and Chairman--Priory 1993 150,000(6) 150,000(6) 155,000 --
Hospitals Group(7)
Ronald L. Ooley, 1995 200,000 144,160 170,000 156,730(8)
Executive Vice 1994 200,000 -- 27,475 --
President--
Administration 1993 161,003 123,750 85,000 --
Kay E. Seim 1995 370,000 -- 30,000 309,488(10)
Executive Vice 1994 407,209 -- 30,000 --
President of the
Company
and President--U.S. 1993 222,807 50,000 115,000 --
Psychiatric
Operations(9)
</TABLE>
- --------
(1) Includes $133,803 deferred compensation accrued for Mr. Conte, $192,308 in
loan forgiveness, $118,293 paid in lieu of accrued vacation, $11,125 in
life insurance premiums and $75,000 in relocation funds accrued for Mr.
Conte. Also includes $306,946 paid to Mr. Conte as reimbursement for
certain income taxes arising from the payout of deferred compensation in
connection with the termination of the Company's Supplemental Retirement
Plan. The Company received approximately $4.5 million in connection with
the termination of such plan. See "Election of Directors--Certain
Employment Arrangements--Retirement Benefits."
(2) Represents $54,930 and $56,528 in life insurance premiums paid by the
Company on behalf of Mr. Conte in 1994 and 1993, respectively, and $163,872
and $167,316 deferred compensation accrued for Mr. Conte in 1994 and 1993,
respectively.
(3) Includes options on 166,328 shares, which were repriced on January 29,
1993 in exchange for the forfeiture of options on 332,656 shares.
(4) Represents $41,666 in loan forgiveness, $29,230 paid in lieu of accrued
vacation, $47,000 in relocation funds and $7,086 paid for car allowance.
(5) Represents amounts paid for reimbursement of relocation expenses.
(6) Paid in currency of the United Kingdom. Exchange rates used were 1.56,
1.53 and 1.50 for the years ended November 30, 1995, November 30, 1994 and
November 30, 1993, respectively.
(7) Mr. Wakefield resigned as Executive Vice President of the Company on June
21, 1996 in connection with the sale of Priory Hospitals Group.
(8) Represents $153,846 for forgiveness of a loan made by the Company to Mr.
Ooley and $2,884 paid by the Company in lieu of accrued vacation time.
(9) Ms. Seim resigned as Executive Vice President of the Company and
President--U.S. Psychiatric Operations effective November 3, 1995. See
"Election of Directors--Seim Severance Agreement."
(10) Represents amounts paid or to be paid in connection with the resignation
of Ms. Seim as follows: $263,334 in severance pay and $46,154 in accrued
vacation. See "Election of Directors--Seim Severance Agreement."
8
<PAGE>
Stock Options and Stock Appreciation Rights. The following table contains
information concerning the grant of stock options and tandem limited stock
appreciation rights ("SARs") under the Stock Incentive Plan to the persons
listed in the Summary Compensation Table during the fiscal year ended November
30, 1995:
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OF OVER OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PRICE ($/SH.) DATE 5%(2) 10%(2)
---- ------------ ------------ ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte........ 100,000(3) 5.97 9.875 12/01/04 $ 621,033 $1,573,821
200,000(3) 11.93 11.625 06/02/05 1,462,180 3,705,451
James R. Laughlin....... 30,000(3) 1.79 9.875 12/01/04 186,310 472,146
125,000(3) 7.46 11.625 06/02/05 913,863 2,315,907
Wendy L. Simpson........ 30,000(3) 1.79 9.875 12/01/04 186,310 472,146
50,000(4) 2.98 11.625 01/27/05 365,545 926,363
David A. Wakefield...... 30,000(3) 1.79 9.875 12/01/04 186,310 472,146
Ronald L. Ooley......... 20,000(3) 1.19 9.875 12/01/04 124,207 314,764
50,000(4) 2.98 12.875 03/31/05 404,851 1,025,972
100,000(3) 5.97 11.625 06/02/05 731,090 1,852,726
Kay E. Seim............. 30,000(3) 1.79 9.875 12/01/04 186,310 472,416
</TABLE>
- --------
(1) These stock options were granted under the Stock Incentive Plan.
(2) The assumed 5% and 10% annual rates of appreciation over the term of the
options are set forth in accordance with rules and regulations adopted by
the Securities and Exchange Commission and do not represent the Company's
estimate of stock price appreciation.
(3) Twenty percent of the granted options vested on the date of grant. An
additional 20% vest on the first day of each of the following four fiscal
years. Pursuant to the terms of his Employment Agreement all options
granted to Mr. Conte vested as a result of the sale of Priory Hospitals
Group ("PHG").
(4) Twenty percent of the granted options vested on the date of grant. An
additional 20% vest on the anniversary date of the grant date of each of
the following four fiscal years.
9
<PAGE>
Options/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, 1995 and the number subject to outstanding stock options held by
each of the persons listed in the Summary Compensation Table as of the end of
that fiscal year. The closing price of the Common Stock on the New York Stock
Exchange on November 30, 1995 was $11.125.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
SHARES OPTIONS/SARS HELD AT IN THE MONEY OPTIONS/
ACQUIRED FISCAL YEAR END SARS AT FISCAL YEAR END(1)
ON VALUE ------------------------- -----------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Conte........ 0 0 326,531 513,469 $82,883 $155,867
James R. Laughlin....... 0 0 177,000 298,000 58,250 55,500
Wendy L. Simpson........ 0 0 36,000 120,023 7,500 30,000
David A. Wakefield...... 0 0 119,882 149,000 44,250 54,500
Ronald L. Ooley......... 0 0 69,000 213,475 28,250 35,500
Kay E. Seim............. 0 0 76,500 0 46,875 0
</TABLE>
- --------
(1) An option is "in the money" at the fiscal year-end if the fair market
value of the Common Stock underlying the option on such date exceeds the
exercise or base price of the option. The amounts set forth in the table
above represent the difference between the fair market value of the Common
Stock underlying the options on November 30, 1995, as reported by the New
York Stock Exchange ($11.125 per share), and the exercise price of the
options, multiplied by the number of "in the money" options. Mr. Conte had
196,531 exercisable and 193,469 unexercisable options that were "in the
money"; Mr. Laughlin had 110,000 exercisable and 60,000 unexercisable
options that were "in the money"; Ms. Simpson had 6,000 exercisable and
24,000 unexercisable options that were "in the money"; Mr. Wakefield had
54,000 exercisable and 56,000 unexercisable options that were "in the
money"; Mr. Ooley had 31,000 exercisable and 34,000 unexercisable options
that were "in the money"; and Ms. Seim had 64,500 exercisable options that
were "in the money."
CERTAIN EMPLOYMENT ARRANGEMENTS
Employment Contracts
In December 1995, the Company entered into a new employment agreement with
Mr. Conte. In connection with such agreement, the Company obtained the advice
of an independent compensation firm and outside legal counsel. The agreement
was unanimously approved by the Company's Compensation Committee.
Pursuant to the agreement, Mr. Conte is employed as the President, Chief
Executive Officer and Chairman of the Board of the Company for a four-year
term beginning December 1, 1995, with an automatic one-year extension of such
term on December 1 of each year. Mr. Conte is to receive an annual salary of
not less than $750,000 and will be entitled to participate in insurance and
deferred compensation plans which may be established from time to time by the
Company, with such participation generally to be on the same terms on which
any such plan is made available to any senior Company executive. Mr. Conte
presently receives deferred compensation equal to 9.5% of his salary, which
deferred compensation is payable following his termination of employment. Mr.
Conte also participates in the Company's 401(k) and profit sharing plans. The
agreement provides that the Company will reimburse Mr. Conte for premiums on a
$5 million life insurance policy. In connection with the sale of PHG, the
Company agreed to make Mr. Conte available to serve on the Board of Directors
of the purchaser of PHG ("New PHG") for one year and thereafter with the
consent of the Company and New PHG. Any fees payable by New PHG for Mr.
Conte's service as a director of New PHG will be paid to the Company. New PHG
presently pays the Company (Pounds)50,000 (approximately $78,000) each year
plus reimbursements for certain expenses.
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<PAGE>
If Mr. Conte terminates his employment within six months after a
"constructive termination," within one year after a "change in control" (as
the terms "constructive termination" and "change in control" are defined in
the employment agreement) or within one year after a "corporate
reorganization" (generally, one or more dispositions of at least 80% of the
Company's assets or of assets generating at least 80% of the Company's
consolidated revenues), or if Mr. Conte's employment is terminated by the
Company without cause (as defined in the agreement), in general he would be
entitled to receive the following (collectively, the "Termination Benefits"):
(i) a lump sum payment (the "Lump Sum Payment") equal to six times his highest
salary level during the employment term plus an additional 9.5% of such amount
(the "Applicable Percentage"), (ii) the maximum bonus which he could have
achieved under the Company's Incentive Compensation Plan for the fiscal year
in which his employment terminates, which shall not be less than his then
salary, (iii) the maximum bonus which he could have achieved for each three-
year plan cycle which commences under the Company's Long-Term Incentive
Compensation Plan prior to his termination date, which for each plan cycle
shall not be less than his then salary, (iv) forgiveness of certain loans made
to him by the Company, (v) payment of all deferred compensation, (vi) title to
his company car, (vii) payment of premiums on a $5 million life policy for six
years, and (viii) continuation of coverage under certain employee benefit
programs for up to six years. Mr. Conte would also be entitled to receive the
Termination Benefits, whether or not his employment terminates, after a
"hostile takeover" (as defined in the agreement).
If Mr. Conte's employment terminates because of his permanent disability (as
defined in the agreement), he will receive the Termination Benefits except
that (i) the Lump Sum Payment will be reduced to five times his highest salary
during the employment term (plus the Applicable Percentage of such amount) and
(ii) the Company will be obligated to pay the premiums on a $5 million life
insurance policy for five rather than six years and continue coverage under
certain employee benefit programs for up to five rather than six years. If
Mr. Conte's employment were to terminate by reason of his death, Mr. Conte's
beneficiary would be entitled to receive the Termination Benefits, except that
there would be no Lump Sum Payment, and the Company would be obligated to
continue coverage for Mr. Conte's beneficiary under certain employee benefit
programs for up to five rather than six years. Mr. Conte's beneficiary would
also receive payments under certain insurance policies.
If Mr. Conte terminates his employment within six months of a constructive
termination or within one year of a corporate reorganization, or if the
Company terminates his employment without cause, all outstanding options other
than converging options ("Options") and related stock appreciation rights then
held by Mr. Conte will vest, and such Options and stock appreciation rights
may be exercised for up to 12 months following his termination. In the event
of a change of control or hostile takeover, all outstanding Options and stock
appreciation rights will vest immediately prior to the change in control or
hostile takeover, whether or not Mr. Conte terminates his employment, and will
be exercisable for up to a 12 month period.
If Mr. Conte's employment terminates in connection with a change of control,
a corporate reorganization or permanent disability, under his new employment
agreement Mr. Conte will be subject to a four-year non-competition covenant in
specified territories and a four-year non-solicitation covenant, and he will
be obligated to make himself available for consulting services during such
period for up to eight hours per month. If Mr. Conte voluntarily resigns, in
certain instances he will remain subject to his non-competition, non-
solicitation and consulting covenants, but he will receive no other severance
benefits under the employment agreement other than the appraised value of the
non-competition and consulting covenants.
Mr. Conte will receive no severance payments or other benefits if his
employment is terminated by the Company for cause (as defined and subject to
certain standards of proof set forth in the agreement) unless the Company
elects to enforce his non-competition and consulting covenants, in which event
the Company will pay him the appraised value of such covenants.
Upon each "corporate divestiture" (generally, the disposition of any one or
more stand-alone business operations or other disposal of assets which
represent at least 30% of the book value of the Company's consolidated assets
or which generate at least 30% of its consolidated revenues), Mr. Conte will
receive an interim payment of a portion of his severance benefit (an "Interim
Payment"), determined on a formula basis,
11
<PAGE>
and all his unvested Options will immediately vest. The total amount which may
be paid during the term of the agreement in connection with "corporate
divestitures" is limited to five times Mr. Conte's highest salary during the
employment period (plus the Applicable Percentage of such amount) plus the
amount credited to all his deferred compensation accounts. The amount of all
such interim benefits which are deemed to be parachute payments under Section
280G of the Internal Revenue Code of 1986, as amended (the "Code"), together
with all other interim benefits received pursuant to this provision which are
deemed to be parachute payments, is also limited to 2.99 times Mr. Conte's
average compensation for the five years prior to such payment. Any Interim
Payments will be subtracted from any severance benefits later payable to Mr.
Conte upon a termination of employment.
On June 21, 1996, the Company completed the sale of PHG, which was
substantially all of the Company's United Kingdom operations. Such sale
constituted a corporate divestiture (as such term is defined above) and
resulted in Mr. Conte receiving an Interim Payment of $549,499. In addition,
an aggregate of 356,735 Options having exercise prices ranging from $9.50 to
$11.625 per share immediately vested.
The agreement provides that Mr. Conte will be entitled to reimbursement by
the Company for (i) all excise taxes imposed upon any of the benefits paid to
him under the employment agreement which are deemed to constitute excess
parachute payments under Section 280G of the Code and (ii) the ordinary
federal and state income taxes imposed on that reimbursement.
The Company also has entered into separate employment contracts with Ms.
Simpson and Mr. Ooley, each of which expire November 30, 1999 and provide for
automatic one-year extensions of such term on December 1 of each year. Ms.
Simpson is entitled to an annual salary of not less than $400,000, and
Mr. Ooley is entitled to receive an annual salary of not less than $250,000.
Each of their contracts contains non-competition and non-solicitation
covenants. Should the employment of Ms. Simpson or Mr. Ooley terminate within
one year after certain specified changes in control or ownership of the
Company involving 20% or more of the Company's outstanding voting securities,
the terminated individual would be entitled to receive a lump sum severance
payment equal to two times the highest salary level during the employment
term, the maximum bonus which she or he could have achieved under the
Company's Incentive Compensation Plan for the fiscal year in which such
employment terminates plus the maximum bonus which she or he could have earned
for each three-year plan cycle which commences under the Company's Incentive
Compensation Plan prior to such termination date, forgiveness of certain loans
owed to the Company, and the continuation of her or his coverage under certain
employee benefit programs and car allowance at the Company's expense for a
two-year period. In addition, all Options and related stock appreciation
rights held by either of them at the time of the change in control event will
immediately vest, whether or not their employment terminates. Each individual
will be subject to a two year non-competition covenant in specified
territories upon such termination of employment and would also be obligated to
render consulting services for up to eight hours per month during that two-
year period.
Ms. Simpson and Mr. Ooley would be entitled to receive substantially the
same benefits if their employment were to be terminated by the Company other
than for certain specified events of misconduct or if they terminated their
employment following (i) a material breach by the Company of their respective
contracts or (ii) a material change in their duties or responsibilities. In
such event, the terminating individual would not be subject to the non-
competition covenant or consulting arrangement under her or his contract.
In the event of a "corporate divestiture" (generally, the disposition of any
one or more stand-alone business operations or other disposal of assets which
represent at least 30% of the book value of the Company's consolidated assets
or which generate at least 30% of its consolidated revenues), the Board of
Directors may elect, in its sole discretion, to pay Ms. Simpson and/or
Mr. Ooley a special interim payment in amount determined by the Board of
Directors. Any interim payment to Ms. Simpson or Mr. Ooley will be subtracted
from any severance benefits later payable to them upon a termination of
employment.
12
<PAGE>
Neither Ms. Simpson nor Mr. Ooley would receive any severance payments or
other benefits under their contracts in the event their employment were to be
terminated by the Company for certain specified acts of misconduct, unless the
Company elects to enforce the non-competition and consulting covenants under
their contracts, in which event the Company will pay Ms. Simpson or Mr. Ooley
the appraised value of those covenants. If either Ms. Simpson or Mr. Ooley
should voluntarily resign other than in connection with a material change in
her or his duties or responsibilities, then such individual will remain
subject to her or his non-competition and consulting covenants under the
contract upon the Company's payment of the appraised value of those covenants,
but such individual will receive no other severance benefits under the
contract.
Retirement Benefits
During 1995, the Company terminated the Supplemental Retirement Agreement
(the "SRA") to which Mr. Conte and four former executive officers had been
parties since 1988. At the same time, the Board of Directors authorized and
the Company is in the process of establishing a new Supplemental Retirement
Agreement (the "New SRA") to which Mr. Conte will be a party. Mr. Conte agreed
to the termination of the SRA which allowed the Company to terminate or borrow
against the 11 corporate-owned life insurance policies pertaining to these
five executive officers. The Company received approximately $4.5 million from
these policies. During 1995, Mr. Conte, the sole remaining participant, agreed
to receive a lump sum payment, which allowed the Company to complete the
termination of the SRA. Accordingly, Mr. Conte received $779,400 which had
been accrued under the SRA, and the Company was able to record a tax benefit
of approximately $287,000 as a result of this payout. The terms of the New SRA
have not been finalized, but it is anticipated that the New SRA will provide
Mr. Conte greater flexibility in the selection of investments for amounts
accrued thereunder. The New SRA will provide for the same contributions as the
SRA: (i) deferred benefits equal to 9.5% of annual compensation plus any
amount by which the Company's authorized contributions for a participant to
its profit sharing plan or any other employee benefit plan that cannot be
allocated to an account in the plan because the contribution exceeds limits
imposed by the Code; and (ii) interest will continue to be credited annually
to this accrued amount at a rate to be specified from time to time by the
Company, currently at 8% per year. Distributions will be made at the time of
Mr. Conte's retirement or termination of employment. During fiscal 1995,
$65,176 was accrued on behalf of Mr. Conte under the New SRA, and $68,627 of
deferred compensation accrued for Mr. Conte under the SRA for the first six
months of fiscal year 1995. The Board of Directors also authorized $306,946
for reimbursement of income taxes on the deferred benefits paid in connection
with the termination of the SRA, which amounts were included in the payment
described above. See "Election of Directors--Executive Officer Compensation--
Summary Compensation Table."
SEIM SEVERANCE AGREEMENT
Effective November 3, 1995, Kay Seim resigned as Executive Vice President of
the Company and President--U.S. Psychiatric Operations. Pursuant to an
agreement between the Company, Kay Seim, Richard Seim and Continuum
Healthcare, Inc., the Company agreed to pay Ms. Seim severance pay of $263,334
on a bi-weekly basis through July 1, 1996. In addition, the Company paid Ms.
Seim $46,154 for accrued but unused vacation. The Company also provided Ms.
Seim with health insurance benefits through July 1, 1996 and will pay up to
$12,000 for outplacement services through February 1997. Ms. Seim was
permitted to exercise 76,500 vested stock options through July 1, 1996. Ms.
Seim did not exercise any such options. Unvested options held by Ms. Seim
terminated November 3, 1995. Prior to Ms. Seim's resignation, the Company had
entered into an employment contract with Ms. Seim which automatically renewed
for an additional one-year term through July 1, 1996. This contract contained
non-competition and non-solicitation covenants. In connection with Ms. Seim's
termination of employment, the non-competition provisions were waived by the
Company. The Company also granted Continuum Healthcare, Inc. the option to
lease a portion of the Company's Fairfax Hospital located in Kirkland,
Washington, but such option expired without being exercised.
13
<PAGE>
WAKEFIELD SEVERANCE AGREEMENT
The Company had an employment agreement with David A. Wakefield which
automatically renewed for an additional one-year term through July 31, 1996.
Effective December 1, 1994, Mr. Wakefield's salary was increased to
(Pounds)150,000 ($234,000). The agreement contained non-competition and non-
solicitation covenants and provided that if Mr. Wakefield terminated
employment within 90 days after certain changes in control or ownership of the
Company as specified in the agreement, he would be entitled to receive
severance benefits equal to two years salary and would not be bound by the
non-competition and non-solicitation covenants of his agreement after such
termination. In June 1996, the Company and PHG entered into a severance
agreement with Mr. Wakefield pursuant to which Mr. Wakefield's employment with
the Company terminated. The severance agreement provides that its terms may
not be disclosed. Mr. Wakefield resigned from the Board of Directors in July
1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Thomas, Dr. Shires and David Dennis, who recently resigned from the
Board of Directors, served on the Compensation Committee during the last
fiscal year. Mr. Dennis is a Managing Director, Investment Banking, at
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), an investment
banking firm which provided advisory and other services to the Company. DLJ
was paid $1,299,000 by the Company in connection with the sale of PHG. In
fiscal 1996 Nigel Petrie and Ralph Watts were elected to fill vacancies on the
Board of Directors and were appointed to the Compensation Committee.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed entirely of non-employee directors.
The Compensation Committee is responsible for approving the compensation of
the management directors, reviewing the compensation of executive officers,
including the executive officers named in the Summary Compensation Table, and
approving awards under the Company's incentive plans, including stock options,
for each such officer.
Compensation Policy
The Company's management compensation policies have been designed to
encourage and reward substantial efforts to achieve the Company's primary
business goals, 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 retain talented,
experienced and entrepreneurial professionals capable of developing, operating
and marketing a new business or new product lines while containing costs in an
increasingly competitive and difficult health care environment; (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 managers; and (iii) provides incentives that reward performance and
encourage cooperative effort to 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-term operating and
investment results of the Company as a whole. The Compensation Committee
strongly believes that this order of priorities enables the Company to respond
competitively and relates compensation more directly to enhancement of
stockholder value.
14
<PAGE>
Compensation of the Chief Executive Officer
The compensation of the Chief Executive Officer in 1995 was composed of base
salary, bonus payments, stock options and other compensation described under
"Election of Directors--Executive Officer Compensation--Summary Compensation
Table." The Committee calculates Mr. Conte's base salary on an analysis of the
remuneration of executives in businesses that are in direct competition with
the Company for executive recruitment and retainment, but does not limit the
analysis to the businesses forming the Company's peer group since the Company
seeks executive talent from a broader pool of health care service companies
than its operations represent. Therefore, compensation packages must be
competitive to recruit and retain highly qualified individuals to lead the
Company. Mr. Conte's base salary also reflects his performance of the duties
of the Company's Chairman and President and Chief Operating Officer since
those positions were vacated in 1992 and 1993, respectively.
At Mr. Conte's request, the Committee did not recommend a salary increase
for Mr. Conte in 1995. He earned a cash bonus of $285,000 based on specific
performance of annual goals being achieved under the Company's Incentive
Compensation Plan due to strong performances by PHG and THC. The Company's
Incentive Compensation Plan provides for cash bonuses as a function of each
business segment meeting certain annual net income targets. Awards are
weighted among the three business divisions as follows: PHG-25%; U.S.
Psychiatric Division-25%; and THC-50%. PHG's 1995 results exceeded 100% of its
target, as net operating revenues increased 37.0% and net income grew 39.6%
over 1994 levels. Same-store patient days increased 15.6% from 1994 and
average net revenue per patient day was 5.6% higher than in 1994. Further
growth was achieved with the addition of two new facilities. THC's performance
resulted in Mr. Conte receiving 13% of the potential 50% bonus for this unit.
THC had its first profitable year, earning $0.15 per share to reverse a loss
of $0.19 per share in 1994. Net operating revenues improved 93.1% as same-
store admissions and patient days rose 62.3% and 82.6%, respectively. The
portion of Mr. Conte's potential bonus which was tied to the results of the
U.S. Psychiatric Division was not earned in 1995.
The Committee also believes that stock options relate Mr. Conte's total
compensation directly to increases in stockholder value, and thus considers
stock options an important part of his incentive plan. The Committee
recommended and the Board approved the issuance of new options to Mr. Conte as
set forth under "Election of Directors--Executive Officer Compensation--
Option/SAR Grants in Last Fiscal Year."
The Company's Incentive Compensation Plan also measures long-term executive
performance over successive three-year periods against EBITDA (earnings before
interest, taxes, depreciation and amortization) targets applicable to each of
the Company's business segments and strategic criteria established by the
Committee. In the case of THC, expansion of its facility base is also a
factor. Performance measures are stated in terms of minimum, target and
maximum achievement standards. Incentive opportunities 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. Weighting among the three business segments is the same as annual
bonuses under the Incentive Compensation Plan. At the end of each performance
cycle the long-term incentive is paid in cash, stock or a combination of cash
and stock at the Committee's discretion. In 1995, Mr. Conte earned a long-term
cash bonus of $213,000 based on PHG achieving the maximum of its EBITDA target
(equal to 25% of his base salary) and THC exceeding the minimum of its
facility expansion target over the two-year period (equal to 3.4% of his
salary). The portion of Mr. Conte's potential bonus which was tied to the
results of the U.S. Psychiatric Division was not earned in 1995.
The Committee requested that a study be conducted by its external
compensation consultant on the prevalence and scope of special recognition
awards, which indicated that such awards could be considered as a means to
reward selected personnel for their significant efforts on behalf of the
stockholders. As a result, the Committee also recommended, and the Board
unanimously approved, a Special Recognition Award to Mr. Conte and selected
members of the management team as described under "Election of Directors--
Indebtedness of Management" to reward them for their significant efforts on
behalf of the stockholders to develop a new line of business, the long-term
acute care services division (THC). The growth of THC helped the Company
achieve its highest revenue level in its history. In fiscal 1995, this new
line of business increased the Company's net revenue
15
<PAGE>
base by $195.0 million and contributed $5.5 million in net income from
operations, representing earnings of $0.15 per share to the Company's
stockholders. The Company has profitably utilized the psychiatric assets by
converting certain of the Company's under performing psychiatric hospitals to
THC facilities. The Company also acquired eight non-Company facilities and
converted them to THC facilities.
Executive Compensation Plan
On January 29, 1993, the Board of Directors adopted an executive
compensation plan, the key elements of which are: (1) 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, which emphasize growth in stockholder value. These incentives will
permit participating executives to earn significantly above competitive levels
when their performances collectively and individually warrant it, but if
performance standards are not met, these executives earn below competitive
levels; and (iii) Options--Stock options that also are weighted toward long-
term performance will promote efficient management and growth of the Company
as a whole and will directly relate to management and stockholder interests.
This program 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" 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 stockholders. Total compensation for each Company
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 both the responsibilities of their positions and their performance
against competitive market remuneration. Also taken into consideration when
establishing salary levels is the fact that the Company does not fund a
pension plan or provide employees with other retirement funding, such as a
company "match" for its 401(k) plan, as most U.S. companies do. Furthermore,
the Company's executive officers tend to have fewer staff resources than
larger companies against which the Company competes to attract qualified
executives.
Annual Incentives; Cash Bonuses. Under the Company's Incentive Compensation
Plan, all management-level personnel, to the level of hospital department
directors, have an opportunity to earn annual cash bonuses. This aspect of the
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, other
executive officers and senior management are measured against company-wide
standards and other participants against individual and profit center
standards. Incentives range from 10% to 50% of salary per target, as each
target goal is achieved, but no incentive is earned unless the participant's
profit center meets its annual 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 Incentives.
(a) Option Awards. The Committee intends to review performance not less
often than annually and as appropriate award stock options to selected
managers. These options are priced at fair market value at the time of
grant, vest 20% on date of grant and during each of the following four
years, and will have maximum terms of ten years. The 1995 option awards
shown in the foregoing tables (see "Election of Directors--Executive
Officer Compensation--Summary Compensation Table" and "Election of
Directors--Executive Officer Compensation--Option/SAR Grants in Last Fiscal
Year") were based on the performance described in this report. (See
"Compensation of the Chief Executive Officer" above.)
16
<PAGE>
(b) Long-Term Performance Awards. Another element of the Incentive
Compensation Plan is long-term bonuses. (See "Compensation of the Chief
Executive Officer" above.) The Company's Chief Executive Officer has
discretion to increase or decrease such award by up to 20%.
$1 Million Pay Cap. The Internal Revenue Code has been 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 which are granted pursuant to objective performance
criteria. While the Company does not presently have a specific policy with
respect to qualifying compensation under this new section, the Compensation
Committee may 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.
Compensation Committee
Dr. Dana L. Shires (Chairman)
David L. Dennis
Robert L. Thomas
17
<PAGE>
PERFORMANCE GRAPH FOR COMMON STOCK
This graph 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 comprises Ramsay Health Care Inc.,
Comprehensive Care Corporation, Magellan Health Services, Inc. (formerly
Charter Medical Corporation), Tenet Healthcare Corp. (formerly National
Medical Enterprises, Inc.) and Vencor, Incorporated. This peer group is not
identical to the group of companies used by the Compensation Committee for
compensation comparisons, because it comprises companies (a) whose revenues
and earnings derive primarily from the delivery of the same health care
services as the Company's, i.e., psychiatric or long-term critical care
services; (b) who compete in some markets directly with the Company for the
same patients and referral and payor sources; and (c) whose facilities and
treatment programs are subject to the same government regulations and
reimbursement practices by private and public payors as the Company's. The
companies used as a basis of comparison for establishing executive
compensation may deliver services and derive the majority of their revenues
and earnings from health care services different than the Company's--i.e.,
medical surgical hospitals or nursing homes--but are considered competitors in
the employment market for executive talent.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG COMMUNITY PSYCHIATRIC CENTERS, S&P 500 INDEX AND PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
COMMUNITY
Measurement Period PSYCHIATRIC S&P
(Fiscal Year Covered) CENTERS 500 INDEX Peer Group
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 11/90 $100 $100 $100
FYE 11/91 $ 46 $120 $ 78
FYE 11/92 $ 42 $143 $ 81
FYE 11/93 $ 53 $157 $ 81
FYE 11/94 $ 41 $159 $ 98
FYE 11/95 $ 46 $217 $114
</TABLE>
* $100 INVESTED ON 11/30/90 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING NOVEMBER 30.
INDEBTEDNESS OF MANAGEMENT
Option Loans. The 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 12 years of the date of grant.
18
<PAGE>
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 under the Stock Incentive Plan which do not
qualify as incentive stock options.
Residence Loans. The Company has loaned $300,000 to each of Messrs. Conte,
Ooley and Laughlin, Ms. Simpson, Ms. Kopta and Ms. Seim, in each case at 5%
interest per year, to enable these executive 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 of principal and interest based on a 30-year
amortization and are accelerated and become due and payable 90 days after
termination of employment. In June 1996, Ms. Seim repaid $254,915 of her loan.
The Company forgave $44,000 of the loan to Ms. Seim. The remaining portion of
this loan had previously been paid by Ms. Seim.
Special Recognition Awards. Pursuant to an Agreement and Promissory Note
between the Company and Mr. Conte, in 1995 the Company granted a Special
Recognition Award to Mr. Conte for his significant efforts on behalf of the
stockholders to develop the new THC business. Because the Board also wanted to
incentivize management to remain with the Company, this award was made in the
form of a 36-month non-recourse interest free loan to Mr. Conte in the amount
of $1 million. One thirty-sixth of the loan amount is forgiven each month
provided that Mr. Conte does not voluntarily terminate his employment with the
Company during the term of the loan. Upon any such voluntary termination, the
remaining balance of the loan shall become due and payable. In the case of
involuntary termination, change of control, disability or pursuant to the
provisions of any applicable employment agreement permitting Mr. Conte to
terminate his employment for cause, the remaining balance of the loan is to be
forgiven.
Upon the same terms and conditions as those described above with respect to
the Special Recognition Award to Mr. Conte, in 1995 the Company made a 36-
month loan to (a) Mr. Laughlin in the amount of $1 million in recognition of
his efforts to develop THC and as an incentive for him to remain with the
Company and (b) to Mr. Ooley in the amount of $750,000 in recognition of his
efforts to develop THC and as an incentive for him to remain with the Company.
Schedule of Indebtedness. The following table shows, as to each director or
executive officer whose indebtedness exceeded $60,000, the largest aggregate
amount of such indebtedness since the beginning of fiscal 1995 and the balance
due the Company as of August 31, 1996.
<TABLE>
<CAPTION>
LARGEST
AGGREGATE
INDEBTEDNESS BALANCE
OUTSTANDING AS OF
FISCAL 1995 AUGUST 31, 1996
------------ ---------------
<S> <C> <C>
Richard L. Conte................................ $1,300,000 $ 880,778
Julia L. Kopta.................................. 300,000 294,440
James R. Laughlin............................... 1,286,111 1,033,188
Ronald L. Ooley................................. 344,287 724,934
Kay E. Seim..................................... 300,000 -0-
Wendy L. Simpson................................ 300,000 296,329
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of the outstanding shares of Common
Stock, to file with the Securities and Exchange Commission (the "SEC"), the
New York Stock Exchange and the Pacific Stock Exchange initial reports of
ownership and reports of changes in ownership of such stock. Regulations
adopted by the SEC 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 1995 fiscal year on a timely basis.
19
<PAGE>
To the Company's knowledge, based solely upon review of the copies of such
reports furnished to it, during the 1995 fiscal year all Section 16(a) filing
requirements applicable to its executive officers, directors and beneficial
owners of more than ten percent of the outstanding shares of Common Stock were
complied with.
PROPOSAL TWO
NAME CHANGE TO TRANSITIONAL HOSPITALS CORPORATION
In recent years, the Company has received inquiries and suggestions from
stockholders and the investment community regarding the Company's corporate
name, "Community Psychiatric Centers." With the recent divestiture of PHG, the
Company's United Kingdom Psychiatric division and the significant growth of
the Company's long-term critical care operations, the Board of Directors
believes that it is now appropriate to change the name of the Company.
Accordingly, Company stockholders are being asked to approve an amendment to
the Company Articles of Incorporation to change the corporate name to
"Transitional Hospitals Corporation."
PROPOSAL THREE
RATIFICATION OF BYLAW AMENDMENT TO REQUIRE A
MAJORITY OF THE COMPANY'S DIRECTORS TO BE INDEPENDENT
Management believes that the interest of the stockholders would be better
served if a majority of the members of the Board were independent of
management and free from relationships which would interfere with the exercise
of independent judgment. Accordingly, at management's request, the Company's
Bylaws were recently amended by the Board of Directors to require that a
person (except an executive officer who is a director and his or her
replacement) who is not an "Independent Director" (as that term is hereinafter
defined) may only be elected to the Board of Directors if following such
election the Board of Directors would consist of a majority of Independent
Directors.
A person shall be an "Independent Director" if (i) such person is not an
officer or employee of the Company or any subsidiary thereof and (ii) neither
such person nor any direct or indirect employer thereof nor any affiliate (as
that term is defined in the federal securities law) of such person or employer
or immediate family member of such person has, since the beginning of the
Company's third prior fiscal year, been a party to any transaction or series
of transactions with or received payments from the Company or its subsidiaries
(other than the payment of directors' fees, pension payments and/or deferred
compensation payments) where the aggregate amount involved exceeded $120,000
during the three prior fiscal years. No person shall be disqualified from
being an "Independent Director" solely as a result of the participation by
such person, such employer, such affiliate or family member in any transaction
with the Company or its subsidiaries or as a result of payments from the
Company or its subsidiaries where (a) the transaction or payments relate to
services as a bank depository of funds, transfer agent, registrar, trustee
under a trust indenture, or similar services or services as a common or
contract carrier or public utility or (b) the interest of such person,
employer, affiliate or family member arises solely from the ownership of
securities of an entity which is a party to a transaction with the Company or
its subsidiaries or receives payments from the Company or its subsidiaries and
such person, employer, affiliate or family member beneficially owns less than
5% of the outstanding securities of such entity.
If the foregoing amendment to the Bylaws is not ratified by the
stockholders, the Board of Directors may repeal the amendment.
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 with respect thereto in accordance with the
judgment of the persons voting the proxies.
20
<PAGE>
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Price Waterhouse LLP has been selected by the Board of Directors to serve as
the principal independent accountants for the Company for the fiscal year
ending November 30, 1996. Price Waterhouse LLP served as the principal
independent accountants for the fiscal year ended November 30, 1995. A
representative of Price Waterhouse LLP is expected to attend the Annual
Meeting. Such representative will have an opportunity to make a statement and
will be available to respond to appropriate questions.
TIME FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals to be presented at the next annual meeting, which is
presently anticipated to be held on or about May 16, 1997, must be received by
the Company for inclusion in its proxy statement not later than December 11,
1996 unless such meeting date is advanced by more than 30 calendar days or
delayed by more than 90 calendar days, in which case such proposals must be
received a reasonable time prior to mailing of the proxy statement as set
forth in the notice of such change of meeting date.
OTHER INFORMATION
The Company has terminated its previously announced preliminary plan to spin
off its U.S. psychiatric operations to its shareholders. The plan did not
anticipate the sale of PHG, which was consummated in June 1996. The Company,
however, continues to evaluate strategic options available to the Company.
There can be no assurance that the Company will implement any of such
strategic options.
ANNUAL REPORT
The Company Annual Report on Form 10-K and Quarterly Report on Form 10-Q for
the six months ended May 31, 1996 have been filed with the SEC. Copies of
those reports may be obtained by stockholders without charge by writing to Ms.
Suzanne C. Shirley, Community Psychiatric Centers, 5110 West Sahara Avenue,
Las Vegas, Nevada, 89102.
The Company's Annual Report to Shareholders for the fiscal year ended
November 30, 1995 (which contains a copy of the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995), together with the
Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1996,
accompanies this Proxy Statement.
BY ORDER OF THE BOARD OF DIRECTORS
Ronald L. Ooley
Corporate Secretary
21
<PAGE>
P R O X Y
COMMUNITY PSYCHIATRIC CENTERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS, NOVEMBER 8, 1996
The undersigned hereby appoints Richard L. Conte, Ronald L. Ooley and Julia
L. Kopta, 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 (the "Company") common stock held of record
by the undersigned at the close of business on September 24, 1996 at the
annual meeting of stockholders of the Corporation to be held on November 8,
1996 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 DIRECTOR NOMINATED AND IN FAVOR OF EACH OF THE OTHER PROPOSALS, AS
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
Management knows of no other matters 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.
----------------------
See Reverse Side
----------------------
PLEASE SIGN ON REVERSE SIDE AND RETURN PROMPTLY.
-- FOLD AND DETACH HERE --
<PAGE>
Please mark
your votes as [X]
indicated in
this example
This proxy when properly executed will be voted in the manner directed by the
undersigned stockholder.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEE AND FOR EACH OF THE OTHER
PROPOSALS.
1. ELECTION OF ONE DIRECTOR to serve until the annual meeting in 1999 and
until his or her successor is duly elected and qualified.
WITHHOLD
FOR AUTHORITY
[_] [_]
NOMINEE: Wendy L. Simpson
2. To amend the Company's Articles of Incorporation to change the name of the
Company to Transitional Hospitals Corporation.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. To ratify an amendment to the Company's Bylaws to generally require that a
majority of the members of the Board of Directors be Independent Directors (as
defined in the Proxy Statement).
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 ______________________________
