-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QSU8W0YTCeoOJYkJKCJ+8pZO4w8HitGPaKfPL4W3r8Wn4rX8e9gqsM53qQl5F1MJ Hrg0euEDOyu/j95A6M5P3A== 0000912057-94-001173.txt : 19940331 0000912057-94-001173.hdr.sgml : 19940331 ACCESSION NUMBER: 0000912057-94-001173 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19931130 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNITY PSYCHIATRIC CENTERS /NV/ CENTRAL INDEX KEY: 0000022764 STANDARD INDUSTRIAL CLASSIFICATION: 8060 IRS NUMBER: 941599386 STATE OF INCORPORATION: NV FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 34 SEC FILE NUMBER: 001-07008 FILM NUMBER: 94519143 BUSINESS ADDRESS: STREET 1: 24502 PACIFIC PARK DR CITY: LAGUNA HILLS STATE: CA ZIP: 92656 BUSINESS PHONE: 7148311166 FORMER COMPANY: FORMER CONFORMED NAME: SUCCESSOR TO COMMUNITY PSYCHIATRIC CENTERS/CA/ DATE OF NAME CHANGE: 19600201 10-K/A 1 10-K/A 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 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 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 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.
DIRECTOR OCCUPATION AND CONTINUOUSLY TERM NAME* AGE BUSINESS EXPERIENCE SINCE EXPIRES ----- --- ------------------- ----- ------- NOMINEES: 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. - ------------- * Loren B. Shook resigned as a Director of the Company effective October 7, 1993. See "Settlement with Loren B. Shook."
4 INFORMATION CONCERNING EXECUTIVE OFFICERS The following table lists and provides biographical data about the executive officers of the Company.
PERIOD OF SERVICE AND NAME* AGE TITLE BUSINESS EXPERIENCE ----- --- ----- --------------------- 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 ________________ * Loren B. Shook resigned as President and Chief Operating Officer effective October 7, 1993. See "Settlement with Loren B. Shook."
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 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:
SUMMARY COMPENSATION TABLE Long Term Compensation Annual Compensation Awards ------------------- ------------ Securities All Name and Underlying Other Principal Options/ Compen- Position Year Salary($) Bonus($) SARs(#) sation --------- ---- --------- -------- ---------- ------- 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) (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 $308,078 was paid in fiscal 1994 to Mr. Shook in connection with his resignation. See "Settlement with Loren B. Shook."
6 STOCK OPTIONS AND STOCK APPRECIATION RIGHTS The following table contains information concerning the grant of stock options and tandem limited stock appreciation rights ("SARs") under the Company's 1989 Stock Incentive Plan to the named executives during the fiscal year ended November 30, 1993:
Option/SAR Grants in Last Fiscal Year ------------------------------------- Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants for Option Term - ------------------------------------------------------------------------------ ----------------------- Number of % of Total Securities Options/ Underlying SARs Options/ Granted to Exercise SARs Employees or Base Expira- Granted in Fiscal Price tion Name (#)1 Year ($/Sh) Date 5% ($) 10% ($) ---- ---------- ---------- ------ ------- ------ -------- 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 - ------------------ (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.
7 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 $12.75.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values Number of Securities Underlying Value of Unexercised, Shares Unexercised Options/SARs In-The-Money Options/SARs Acquired on Value At Fiscal Year End At Fiscal Year End($)(4) Name Exercise (#) Realized($)(1) Exercisable (2) Unexercisable(3) Exercisable Unexercisable ---- ----------- -------------- --------------- ---------------- ----------- ------------- 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 (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."
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 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 BENEFICIAL OWNERSHIP OF MANAGEMENT
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF NAME AS OF 2/28/94(1) CLASS(2) ---- -------------------- ------------ 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) _____________ (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.
OTHER BENEFICIAL OWNERSHIP
AMOUNT AND NATURE OF NAME AND ADDRESS(1) BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS ------------------- ----------------------- ---------------- 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 _______________ (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.
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 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.
Largest Balance Aggregate Due as of Indebtedness February 28, 1994 ------------ ----------------- 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-
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 EX-10. 2 EX. 10.1 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 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 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 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 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 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 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: 18 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: -------------------------------- -------------------------------- 19 -----END PRIVACY-ENHANCED MESSAGE-----