<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended May 31, 1994 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission file number 0-5751
COMPREHENSIVE CARE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-2594724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16305 Swingley Ridge Drive
Suite 100
Chesterfield, Missouri 63017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 537-1288
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, Par Value $.10 per share New York Stock Exchange, Inc.
Common Share Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
7 1/2% Convertible Subordinated
Debentures due 2010 Over-the-Counter
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates
of the Registrant at August 22, 1994, was $14,839,164.
At August 25, 1994, the Registrant had 21,986,916 shares of Common
Stock outstanding.
Documents Incorporated by Reference
Part III incorporates information by reference from the
Registrant's definitive proxy statement for the Registrant's 1994
annual meeting of shareholders presently scheduled to be held on
November 14, 1994, which Proxy Statement will be filed no later than
120 days after the close of the Registrant's fiscal year ended May 31,
1994.
<PAGE>
PART I
Item 1. BUSINESS.
Comprehensive Care Corporation (the "Company") is a Delaware
corporation organized in January 1969. The Company is transitioning
from predominantly a provider of treatment programs for psychiatric
disorders and chemical dependency (including alcohol and drug) to a
managed care behavioral health care company providing a continuum of
services. Such services include risk based contract capitation of
behavioral health expenses for specific populations and a broad
spectrum of inpatient and outpatient mental health and substance abuse
therapy and counseling. Programs are provided at freestanding
facilities operated by the Company and at independent general
hospitals under contracts with the Company. A wholly-owned
subsidiary, CareUnit, Inc., develops, markets and manages the
Company's contract programs. During fiscal 1994, psychiatric and
chemical dependency treatment programs accounted for approximately 86%
of the Company's operating revenues. AccessCare, Inc. ("AccessCare")
a wholly-owned subsidiary primarily engaged in the development and
delivery of managed care services for behavioral medicine, accounted
for approximately 10% of the Company's operating revenues. The
remaining 4% of fiscal 1994 revenues were derived from other
activities.
The following table sets forth for each of the years in the five-
year period ended May 31, 1994, the contribution to operating revenues
of the Company's freestanding operations, CareUnit, Inc. contracts,
AccessCare operations, RehabCare programs, and other activities.
<TABLE>
<CAPTION>
<S> Year Ended May 31,
1994 1993 1992 1991 1990
<C> <C> <C> <C> <C>
Freestanding operations . . . . . . 70% 81% 75% 34% 53%
CareUnit, Inc. contracts. . . . . . . 16 12 14 14 19
AccessCare operations . . . . . . . . 10 2 --- --- ---
RehabCare programs (1). . . . . . . . --- --- 6 47 23
Other activities. . . . . . . . . . . 4 5 5 5 5
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
(1) The Company formerly owned a company known as RehabCare
Corporation ("RehabCare"), which developed, marketed and managed the
delivery of comprehensive medical rehabilitation services for
functionally disabled persons. The Company offered RehabCare common
stock to the public in fiscal 1992, maintaining a minority interest,
and during fiscal 1993, sold its remaining 48% stake in RehabCare.
Accordingly, revenues from RehabCare were not material to the Company
during fiscal 1993.
<PAGE>
FREESTANDING OPERATIONS
The Company currently operates six owned or leased facilities
representing 347 available beds. The following table sets forth
selected operating data regarding the Company's freestanding
facilities. Facilities are designated either psychiatric or chemical
dependency based on the license of the facility and the predominant
treatment provided. For information concerning the nature of the
Company's interest in the facilities, see Item 2, "PROPERTIES".
<TABLE>
<CAPTION>
YearLicensed Inpatient Days for Year Ended May 31,
Acquired(1) Beds 1994 1993 1992 1991 1990
<S? <C> <C> <C> <C> <C> <C> <C>
Psychiatric/Chemical Dependency Facilities
CareUnit Hospital of Fort Worth . 1971 83 9,02710,91013,534 10,591 15,612
CareUnit Hospital of Kirkland . . 1981 83 5,699 6,506 9,478 9,682 12,812
CareUnit Hospital of Cincinnati . 1982 12812,13312,243 12,744 12,131 20,608
Starting Point, Orange County . . 1983 70 2,422 3,487 7,046 10,349 12,818
CareUnit of Grand Rapids. . .1985 76 6,545 6,348 6,221 7,662 10,190
Aurora Behavioral Health Hospital (2) . 1988 100 2,859 7,237 22,070 8,730 11,709
Closed/Facilities Held for Sale
CareUnit of Jacksonville Beach (3) . . 1982 --- --- --- 5,026 6,119 12,430
Starting Point, Oak Avenue (4)(5) . . . 1983 --- --- 8,868 11,988 14,639 21,155
CareUnit of Orlando (6) 1987 --- --- --- -- 1,492 7,486
CareUnit of San Diego (7) . .1988 --- --- -- -- -- 2,972
Closed/Sold Facilities
Crossroads Hospital (8) --- --- --- 1,705 5,078 6,747
CareUnit Hospital of Albuquerque (4)(9) . . . --- --- 4,150 4,098 4,5227,215
CareUnit of Coral Springs (4)(10) . . . --- --- 3,539 7,617 9,611 13,293
CareUnit Hospital of Nevada (11). --- --- 6,920 7,881 8,632 11,644
CareUnit of South Florida/Tampa (4)(10) . . . --- --- 6,891 6,761 6,9577,813
Newport Point, Inc. (12). . . --- --- 4,669 --- --- ---
Woodview-Calabasas Hospital (8) . --- --- --- 7,913 13,809 14,318
Other (13). . . . . . . --- --- --- 6,089 53,402
------ ------ ------- ------- -------
Patient days served during period . . . 38,68581,768 124,082 136,093 242,224
====== ====== ======= ====== ======
Admissions . . . . . . . . . . . . . 3,916 7,047 8,859 9,312 14,388
Available beds at end of period (14) . . 347 385 748 1,059 1,513
Average occupancy rate for period (15) . . . . 30% 28% 38% 29% 39%
=== === === === ===
</TABLE>
(1)Calendar year acquired or leased.
(2)Formerly known as CareUnit of Colorado.
(3)In February 1992, CareUnit of Jacksonville Beach, an 84-bed
chemical dependency facility, was closed. This facility is currently
for sale.
(4)In March 1993, CareUnit Hospital of Albuquerque, a seventy-bed
chemical dependency facility, CareUnit of Coral Springs, a 100-bed
chemical dependency facility, CareUnit of South Florida/Tampa, a 100-
bed chemical dependency facility and Starting Point, Oak Avenue, a
136-bed chemical dependency facility were closed.
(5)Includes Starting Point, Grand Avenue which was sold in July 1991.
(6)In October 1990, CareUnit of Orlando, a 100-bed chemical dependency
facility, was closed. This facility is currently for sale.
(7)In December 1989, CareUnit of San Diego, a 92-bed chemical
dependency facility, was closed. This facility is currently for sale.
(8)The Company is currently in negotiations to dissolve, retroactive
to December 31, 1991, the joint venture which leased Crossroads
Hospital and Woodview-Calabasas Hospital. Crossroads Hospital
continued to be managed by the Company although in August 1992 it was
closed and was subleased through the term of the lease which expired
in September 1993. Woodview-Calabasas continues to be managed by the
Company's joint venture partner although it was closed in April 1993.
(9)On July 1, 1993, CareUnit Hospital of Albuquerque was sold.
(10)On October 1, 1993, CareUnit of So. Florida/Tampa was sold and on
December 10, 1993, CareUnit of Coral Springs was sold.
(11)On April 5, 1993, CareUnit Hospital of Nevada, a 50-bed
psychiatric facility, was sold.
(12)Joint operating agreement between Century Healthcare of California
and Starting Point, Inc. to manage Newport Harbor Psychiatric
Hospital, a 68-bed adolescent psychiatric hospital and Starting Point,
Orange County, a 70-bed psychiatric facility. This agreement was
mutually dissolved on February 28, 1993.
(13)Includes Brea Hospital Neuropsychiatric Center, CareUnit Hospital
of Orange, CareUnit Hospital of St. Louis, CareUnit of DuPage, Sutter
Center for Psychiatry and Golden Valley Health Center. These
facilities were closed or sold in fiscal 1989 through 1991.
(14)A facility may have appropriate licensure for more beds than are
in use for a number of reasons, including lack of demand, anticipation
of future need, renovation and practical limitations in assigning
patients to multiple-bed rooms. Available beds is defined as the
number of beds which are available for use at any given time.
(15)Average occupancy rate is calculated by dividing total patient
days by the average number of available bed-days during the relevant
period.
Freestanding Facility Programs
The services offered at a freestanding facility are
determined by the licensure of the facility, the needs of the patient
community and reimbursement considerations including working
relationships with managed care companies. A program within the
facility represents a separately staffed unit dedicated to the
treatment of patients whose primary diagnosis suggests that their
treatment needs will best be met within the unit. Patients whose
diagnosis suggests the need for supplemental services are accommodated
throughout their stay as dictated by the individual treatment plan
developed for each patient.
Psychiatric. Psychiatric programs are offered in
most of the Company's freestanding facilities. Admission to the
programs offered by the Company is typically voluntary although
certain facilities provide emergency psychiatric services and accept
involuntary patients who are suffering an acute episodic psychiatric
incident.
Each patient admitted to a psychiatric program
undergoes a complete assessment including an initial evaluation by a
psychiatrist, a medical history, physical examination, a laboratory
work-up, a nursing assessment, a psychological evaluation, and social
and family assessments. The assessments are utilized to develop an
individualized treatment plan for each patient.
The treatment programs are undertaken by an
interdisciplinary team of professionals experienced in the treatment
of psychiatric problems. Length of stay varies in accordance with the
severity of the patient's condition. A comprehensive discharge plan
which may include outpatient psychiatric or psychological treatment,
or referral to an alternate treatment facility is prepared for each
patient. Psychiatric programs are also available on an inpatient, day
treatment and outpatient basis and form a continuum of care.
Chemical Dependency. Chemical dependency programs,
offered in all freestanding facilities, are delivered under the names
CareUnit , Starting Point and Aurora Behavioral Health and include
programs for adults and adolescents. Facilities offer a comprehensive
treatment program based on therapy and education. The medically based
programs utilize a team approach to treatment, with a supervising
physician, psychologists, counselors, therapists and specially trained
nurses. This multi-disciplinary team approach means that the medical,
emotional, psychological, social and physical needs of the patient are
all addressed in treatment.
Facilities offer levels of care that can form a
continuum, including detoxification, inpatient, residential, day
treatment and outpatient programs which meet the evolving needs of
patients and their families. Based on an initial assessment, each
patient is placed into the level of care that is most appropriate for
his or her needs. Following assessment, each patient admitted into
treatment receives a full medical and social history as well as a
physical examination that includes those diagnostic studies ordered by
the patient's attending physician. Throughout the course of
treatment, each plan is reviewed frequently to ensure that it
continues to meet the changing needs of the patient. The length of
time spent in treatment is dependent on an individual's needs and can
range from several weeks to several months.
Sources of Revenues
During fiscal 1994, approximately 57% of the
Company's operating revenues from freestanding operations were
received from private sources (private health insurers, managed care
companies and directly from patients) and the balance from Medicare,
Medicaid and other governmental programs.
Private health insurers offer plans that typically
include coverage for psychiatric and chemical dependency treatment.
In many instances, the level of coverage for psychiatric and chemical
dependency benefits is less than that provided for medical/surgical
services. Lower coverage levels result in higher co-payments by the
patient, who is often unable to meet his or her commitment in its
entirety or is unable to pay as rapidly as the insurance company.
This pattern tends to increase bad debts and days outstanding in
receivables.
Private insurance plans vary significantly in their
methods of payment, including cost, cost plus, prospective rate,
negotiated rate, percentage of charges, and billed charges. Health
insurers have adopted a number of payment mechanisms for the primary
purpose of decreasing the amounts paid to hospitals (including the
Company's operations) for services rendered. These mechanisms include
various forms of utilization review, preferred provider arrangements
where use of participating hospitals is encouraged in exchange for a
discount, and payment limitations or negotiated rates based on
community standards. Without program changes that offer a continuum
of care ranging from outpatient to intensive inpatient services, the
Company believes these changing payment mechanisms will continue to
have a negative effect on its revenues.
Employers, union trusts and other major purchasers of
health care services have become increasingly aggressive in pursuing
cost containment. To the extent that major purchasers are
self-insured, they actively negotiate with hospitals, Health
Maintenance Organizations ("HMOs") and Preferred Provider
Organizations ("PPOs") for lower rates. Those major purchasers that
are insured or use a third-party administrator expect the insurer or
administrator to control claims costs. In addition, many major
purchasers of health care services are reconsidering the benefits that
they provide and in many cases reducing the level of coverage, thereby
shifting more of the burden to their employees or members. Such
reductions in benefits have had a negative impact on the Company's
business.
Under the Social Security Amendments Act of 1983, a
prospective payment system ("PPS") was adopted to cover routine and
ancillary operating costs of most Medicare inpatient hospital
services. Under this system, the Secretary of the United States
Department of Health and Human Services ("HHS") established fixed
payment amounts per discharge based on diagnostic-related groups
("DRG's"). In general, a hospital's payment for Medicare inpatients
is limited to the DRG rate and capital costs, regardless of the amount
of services provided to the patient or the length of the patient's
hospital stay. Under PPS, a hospital may keep any difference between
its prospective payment rate and its operating costs incurred in
furnishing inpatient services, but is at risk for any operating costs
that exceed its payment rate. Qualified providers of alcohol and drug
treatment services are paid under PPS. Psychiatric hospitals,
freestanding inpatient rehabilitation facilities and outpatient
rehabilitation services are exempt from PPS. Inpatient psychiatric
and rehabilitation units within acute care hospitals are eligible to
obtain an exemption from PPS upon satisfaction of specified federal
criteria. Exempt hospitals and exempt units within acute care
hospitals are subject to limitations on the level of cost or the
permissible increase in cost subject to reimbursement under the
Medicare program, including those limitations imposed under the Tax
Equity and Fiscal Responsibility Act of 1982 ("TEFRA"). No assurance
can be given that psychiatric services will continue to be eligible
for exemption from PPS or that other regulatory or legislative changes
will not adversely affect the Company's business.
Five of the Company's facilities participate in the
Medicare program. Of these, three are currently excluded from PPS
(TEFRA limits are applicable to these facilities). Medicare
utilization at those facilities participating in the Medicare program
averaged approximately 34% in fiscal 1994. The Company does not
believe that the imposition of TEFRA limits or PPS has had a material
adverse impact on its business at its freestanding facilities or that
loss of exclusion from PPS at freestanding facilities would materially
impact the Company's business. During fiscal 1994, three of the
Company's facilities reflected an increase in Medicare utilization
primarily due to their partial hospitalization programs. In addition,
two of the Company's facilities' first full year in the Medicare
program was fiscal 1994.
Hospitals participating in the Medicare program are
required to retain the services of a peer review organization ("PRO").
The PRO is responsible for determining the medical necessity,
appropriateness and quality of care given Medicare program patients.
In instances where the medical necessity of an admission or procedure
is challenged by the PRO, payment may be delayed, reduced or denied in
its entirety. Amounts denied because of medical review may not be
charged to the service recipient, and are absorbed by the hospital. In
non-emergency admissions (which encompass most of the Company's
admissions) review is performed prior to the patient's arrival at the
hospital. In the event that the PRO does not approve inpatient
admission, the patient may be admitted for outpatient treatment,
referred to an alternative treatment provider or sent home. The
Company believes that the existence of PROs has reduced inpatient
admissions in its facilities serving Medicare patients.
The Medicaid program is a combined federal and state
program providing coverage for low income persons. The specific
services offered and reimbursement methods vary from state to state.
Less than 9% of the Company's freestanding facility revenues are
derived from the Medicaid program. Accordingly, changes in Medicaid
program reimbursement are not expected to have a material adverse
impact on the Company's business.
Competition and Promotion
The Company's primary competitors are hospitals and
hospital management companies (both not-for-profit and investor-owned)
that offer programs similar to those of the Company. The Company has
faced generally increasing competition in the last few years. Some of
the hospitals that compete with the Company are either owned or
supported by governmental agencies or are owned by not-for-profit
corporations supported by endowments and charitable contributions
enabling some of these hospitals to provide a wide range of services
regardless of cost-effectiveness.
Most patients are directed to a specific facility by
their employer (or their agent), the employer's insurance company
(i.e. managed care companies), a physician, a social services agency
or another health care provider. The Company markets its services by
contracting with these referral sources. The primary competitive
factors in attracting referral sources and patients are reputation,
success record, cost and quality of care, location and scope of
services offered at a facility. The Company believes it is
competitive in factors necessary for patient attraction. The Company
and its competitors also compete to attract qualified physicians and
psychiatrists and other licensed mental health providers.
The Company maintains a public relations program
designed to increase public awareness of its treatment programs.
During fiscal 1994, the Company spent approximately $0.4 million for
media advertising (television, radio and print) in support of its
freestanding operations. The forms of media used are specifically
tailored to the geographic area in which the public relations efforts
are directed.
CONTRACT OPERATIONS
CareUnit, Inc. operates contract programs for
behavioral medicine services in dedicated units of independent
hospitals. The programs offered are similar to the behavioral
medicine services offered in the Company's freestanding facilities.
Under a contract, the hospital furnishes patients
with all hospital facilities and services necessary for their
generalized medical care, including nursing, dietary and housekeeping.
CareUnit, Inc. is obligated to provide a multi-disciplinary team
consisting of a physician (who serves as medical director for the
program), a program manager, a social worker, a therapist and other
appropriate supporting personnel. CareUnit, Inc. also typically
provides support in the areas of program implementation and
management, staff recruiting, continuing education, treatment team
training, community education, advertising, public relations,
insurance and ongoing program quality assurance. As a result of
reimbursement changes and competitive pressures, the contractual
obligations of CareUnit, Inc. have been subject to intense evaluation.
In general, some prospective client hospitals have expressed a desire
for more control over the services provided by CareUnit, Inc. and, in
response, CareUnit, Inc. is providing a more flexible approach to
contract management. During fiscal 1994 and 1993, CareUnit, Inc.
through CareInstitute, a wholly owned non-profit subsidiary, managed
two contracts for the State of Idaho. These programs provide
behavioral medicine services in a residential and outpatient setting.
During fiscal 1994, CareUnit, Inc. continued to
experience a decline in the number of contracts and beds although
three new contracts were opened. The Company believes that the
decline in the number of contracts and beds under contract is a result
of managed care intervention and reduction in available reimbursement
from third parties, which have had the effect of making CareUnit,
Inc.'s contracts less profitable to hospitals. In addition, CareUnit,
Inc. terminated one unprofitable contract during the fiscal year and
four were terminated by the contracting hospital.
Responding to market demands, CareUnit, Inc. has
implemented, in the majority of its contracts, a program of levels of
care, offering a wide range of treatment options including
detoxification, inpatient, residential, day-treatment and outpatient.
As a result, inpatient occupancy rates have declined as patients are
moved to a more appropriate level of care.
<PAGE>
<TABLE>
The following table sets forth selected operating data regarding behavioral medicine programs managed under contract:
<CAPTION>
Year Ended May 31,
---------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of contracts at end of period (1):
Adult CareUnits (2)(3) . . . 10 12 15 21 36
Adolescent CareUnits (2) . . 1 1 1 2 4
Adult CarePsychCenters (2) . 3 3 3 4 6
Adolescent CarePsychCenters (2). . 0 0 0 0 1
Eating disorders units . . . 1 1 2 2 2
--- --- --- --- ---
Total. . . . . . . . . . . . 15 (5) 17 21 29 49
=== === === === ===
Available beds at end of period. . . 236 306 479 6851,210
Patient days served during period. .34,46451,52492,574 151,219 358,185
Admissions . . . . . . . . . . 3,992 5,139 7,86711,90223,996
Average occupied beds per contract . 7.3 8.3 9.9 10.6 12.9
Average occupancy rate for period (4). . . 37% 39% 42% 45% 50%
</TABLE>
(1)Excludes contracts which have been executed but are not operational
as of the end of the period.
(2)CareUnit is the service mark under which the Company markets
chemical dependency treatment programs. CarePsychCenter is the
service mark under which the Company markets psychiatric treatment
programs.
(3)Includes two state chemical dependency full-service contracts.
(4)Average occupancy rate is calculated by dividing total patient days
by the number of available bed-days during the relevant period.
(5)During fiscal 1994, CareUnit, Inc. opened 3 contracts and closed 5
contracts, 1 of which was terminated by CareUnit, Inc. and 4 by the
contracting hospitals.
Sources of Revenues
Patients are admitted to a behavioral medicine program
under the contracting hospital's standard admission policies and
procedures. The hospital submits to the patient, the patient's
insurance company, or other responsible party a bill that covers the
services of the hospital. Generally, CareUnit, Inc. receives a
negotiated fee for each patient day of service provided and in many
cases also receives a fixed monthly management fee or a percentage of
net revenue. Fees paid by the hospital are subject to annual
adjustments to reflect changes in the Consumer Price Index. CareUnit,
Inc. and the hospital share the risk of nonpayment by patients based
on a predetermined percentage participation by CareUnit, Inc. in bad
debts. CareUnit, Inc. may also participate with a contracting
hospital in charity care and certain contractual allowances and
discounts. Hospitals contracting for programs generally suffer from
the same reimbursement pressures as the Company's freestanding
facilities.
Management contracts are generally entered into for a
period of two to five years and thereafter are automatically renewed
for successive one-year periods unless either party gives notice of
termination at least 90 days prior to the end of such periods.
Contracts are also terminable for material defaults. A significant
number of contracts are terminable by either party on their
anniversary dates.
Development, Competition and Promotion
CareUnit, Inc. directs its development activities
toward increasing the number of management contracts with hospitals.
The primary competitors of CareUnit, Inc. are hospitals and hospital
management companies that offer programs similar to those offered by
CareUnit, Inc. A major development effort will be made in conjunction
with the Company's managed care subsidiary, AccessCare, Inc., to
expand the contract operations in general hospitals and develop the
continuum of care.
PUBLISHING ACTIVITIES
Since 1976, the Company (under the name CompCare
Publishers) has been engaged in the publication, distribution and sale
of books, pamphlets and brochures generally relating to the Company's
health care activities. Literature distributed by the Company is sold
to the general public and educational institutions. Such literature
is also sold to patients participating in programs managed by the
Company. The Company does not own or operate the printing facilities
used in the publication of its literature.
In April 1994, certain assets and rights representing
a material portion of the publishing business were sold. CompCare
Publishers is currently operating and distributing the books and
material remaining after the sale via a distribution agreement with
the buyer that expires on April 30, 1995. The Company will determine
on or before April 30, 1995 as to whether it will liquidate the
remaining assets and rights or continue to operate via a distribution
agreement. Publishing activities accounted for less than 3% of the
Company's operating revenues in fiscal 1994.
MANAGED CARE OPERATIONS
The Company has provided a managed care product since
the acquisition of AccessCare, Inc's predecessor in December 1992.
AccessCare provides managed behavioral health care and substance abuse
service for employers, HMO's, PPO's, government organizations, third
party claim administrators and other group purchasers of health care.
AccessCare currently provides service to contracted members in 29
states. The programs and services currently offered by AccessCare
include fully integrated capitated behavioral health care services,
employee assistance programs, case management/utilization review
services, provider sponsored health plan development, preferred
provider network development and management and physician advisor
reviews. AccessCare distinguishes itself from other providers by
furnishing superior clinical management systems, total quality
management and supervision, mutual respect for both providers and
clients and responsive and appropriate care that includes quality and
cost effectiveness. AccessCare distinguishes itself from the
competition by being the "science-based" provider of care. AccessCare
manages its clinical service programs on proven treatment technologies
and is a leader in training its providers to use science-based
efficacious treatment.
AccessCare accounted for approximately 10% of the
Company's operating revenues in fiscal 1994. AccessCare, in concert
with a network of providers (i.e., CareUnit, Inc.), will assist the
Company in developing an integrated service model to provide high
quality, cost effective care.
GOVERNMENTAL REGULATION
The development and operations of health care
facilities are subject to compliance with various federal, state and
local laws and regulations. Health care facilities operated by the
Company as well as by hospitals under contract with CareUnit, Inc.
must comply with the licensing requirements of federal, state and
local health agencies, with state-mandated rate control initiatives,
with state certificate of need and similar laws regulating various
aspects of the operation of health facilities (including construction
of facilities and initiation of new services), and with the
requirements of municipal building codes, health codes and local fire
departments. State licensing of facilities is a prerequisite to
participation in the Medicare and Medicaid programs. Legislative,
regulatory and policy changes by governmental agencies (including
reduction of budgets for payments under the Medicare, Medicaid and
other state and federal governmental health care reimbursement
programs) may impact the Company's ability to generate revenue and the
utilization of its health care facilities.
Certain facilities operated by the Company are
certified as providers for Medicare and Medicaid services. Both the
Medicare and Medicaid programs contain specific physical plant,
safety, patient care and other requirements that must be satisfied by
health care facilities in order to qualify under those programs. The
Company believes that the facilities it owns or leases are in
substantial compliance with the various Medicare and Medicaid
regulatory requirements applicable to them. The requirements for
certification under these governmental reimbursement programs are
subject to change, and in order to remain qualified for the program,
it may be necessary for the Company to effect changes from time to
time in its facilities, equipment, personnel and services.
Under the Social Security Act, the Department of
Health and Human Services ("HHS") has the authority to impose civil
monetary penalties against any participant in the Medicare program
that makes claims for payment for services that were not rendered as
claimed or were rendered by a person or entity not properly licensed
under state law or other false billing practices. The Social Security
Act also contains provisions making it a felony for a hospital to make
false statements relating to claims for payments under the Medicare
program or to make false statements relating to compliance with the
Medicare conditions of participation. In addition, the making of
false claims for payment by providers participating in the Medicare
program is subject to criminal penalty under federal laws relating
generally to claims for payment made to the federal government or any
agency.
Various federal and state laws regulate the
relationship between providers of health care services and physicians.
These laws include the "fraud and abuse" provisions of the Social
Security Act, under which civil and criminal penalties can be imposed
upon persons who pay or receive remuneration in return for inducement
of referrals of patients who are eligible for reimbursement under the
Medicare or Medicaid programs. Violations of the law may result in
civil and criminal penalties. Civil penalties range from monetary
fines that may be levied on a per-violation basis to temporary or
permanent exclusion from the Medicare program.
The prohibitions on inducements for referrals are so
broadly drafted that they may create liability in connection with a
wide variety of business transactions and other hospital-physician
relations that have been traditional or commonplace in the health care
industry. Courts, HHS and officials of the Office of Inspector
General have construed broadly the fraud and abuse provisions of the
Social Security Act concerning illegal remuneration arrangements and,
in so doing, have created uncertainty as to the legality of numerous
types of common business and financial relationships between health
care providers and practitioners. Such relationships often are
created to respond to competitive pressures.
Limiting "safe harbor" regulations define a narrow
scope of practices that will be exempted from prosecution or other
enforcement action under the illegal remuneration provisions of the
fraud and abuse law. These clarifying regulations may be followed by
more aggressive enforcement of these provisions with respect to
relationships that do not fit within the specified safe harbor rules.
Activities that fall outside of the safe harbor rules include a wide
range of activities frequently engaged in between hospitals,
physicians and other third parties. These regulations identifying
business practices that do not constitute illegal remuneration do not
eliminate this uncertainty, and may cause providers and practitioners
alike to abandon certain mutually beneficial relationships. The
Company does not believe that any such claims or relationships exist
with respect to the Company.
In April 1989, the Inspector General of the Department
of HHS issued a report on financial arrangements between physicians
and health care businesses. The report contained a number of
recommendations, including a prohibition of physician referrals to any
facilities in which the physician has a financial interest. Congress
adopted legislation in 1989 (effective January 1992, the "Stark
Amendment"), that unless an exemption is otherwise available,
prohibits or restricts a physician from making a referral for which
Medicare reimbursement may be made to a clinical laboratory with which
such physician has a financial relationship, and prohibits such
clinical laboratory from billing for or receiving reimbursement on
account of such referral. On March 11, 1992, proposed regulations
implementing the Stark Amendment were issued, but have not been
adopted. The Company believes that it is in compliance with the
proposed regulations in all material respects.
Additional legislation expanding the Stark Amendment
to other physician and health care business relationships has been
passed as part of the Omnibus Reconciliation Act of 1993 ("OBRA
1993"). OBRA 1993 broadens the services included within the referral
prohibition of the Stark Amendment: a physician having a financial
relationship with an entity may not make referrals to that entity for
"designated health services," which include, in addition to clinical
laboratory services, physician therapy services; occupational therapy
services; radiology or other diagnostic services; radiation therapy
services; durable medical equipment; parenteral and enteral nutrients,
equipment and supplies; prosthetics, orthotics and prosthetic devices;
home health services; outpatient prescription drugs; and inpatient and
outpatient hospital services. This law, applicable to services
covered by Medicaid as well as Medicare, takes effect after December
31, 1994 with respect to referrals for the expanded list of designated
health services.
Numerous exceptions are allowed under the OBRA 1993
revisions to the Stark Amendment for financial arrangements that would
otherwise trigger the referral prohibition. 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 may adopt
regulations in the future which expand upon the conditions attached to
qualification for these exceptions. Certain of the Company's
relationships with physicians in its contract operations, as well as
the Company's development of relationships with physicians, will need
to be structured in compliance with the law and its exceptions,
including any future regulations, by the January 1, 1995 effective
date. The Company is unable to predict at this time what effect, if
any, the expanded Stark Amendment and any future regulations
implementing its provisions, will have upon its business.
Proposals for health care reform on a national basis
have been introduced in both the House of Representatives and the
Senate. The goals of these health care proposals may include, but
would not necessarily be limited to, proposals which would impose
short-term governmental price controls, create a national health care
budget limiting the amount to be spent on health care coverage, and
give federal and state governments new powers with respect to medical
fees and health insurance premiums. At this time, it is not possible
to determine the exact nature of the proposals, or their legislative
outcome, or their likely impact upon institutional providers.
In addition, several states are undertaking analysis
and legislation designed to modify the financing and delivery of
health care at the state level. A wide variety of bills and
regulations are pending in several states proposing to regulate,
control or alter the financing of health care costs; however, it is
not possible at this time to predict with assurance the effect on the
business of the Company, if any, of such bills or regulatory actions.
ACCREDITATION
The Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO") is an independent commission that conducts
voluntary accreditation programs with the goal of improving the
quality of care provided in health care facilities. Generally,
hospitals including dedicated units, long-term care facilities and
certain other health care facilities may apply for JCAHO
accreditation. If a hospital under contract with CareUnit, Inc.
requests a JCAHO survey of its entire facility, the contract program,
if a psychiatric or chemical dependency program, will be separately
surveyed. After conducting on-site surveys, JCAHO awards
accreditation for up to three years to facilities found to be in
substantial compliance with JCAHO standards. Accredited facilities
are periodically resurveyed. Loss of JCAHO accreditation could
adversely affect the hospital's reputation and its ability to obtain
third-party reimbursement. All of the Company's freestanding
facilities are accredited and the hospitals under contract with
CareUnit, Inc. have received or have applied for such accreditation.
To develop standards that effectively evaluate the
structure and function of medical and quality management systems in
managed care organizations, the National Committee for Quality
Assurance ("NCQA") has developed in conjunction with the managed care
industry, health care purchasers, state regulators and consumers, an
extensive review and development process. The Standards for
Accreditation of Managed Care Organizations used by NCQA reviewers to
evaluate a managed care organization address the following areas:
quality improvement, utilization management, credentialing, members'
rights and responsibilities, preventative care services guidelines and
medical records. These standards validate that a managed care
organization is founded on principals of quality and is continuously
improving the clinical care and services provided. NCQA also utilizes
Health Plan Data and Information Set ("HEDIS") which is a core set of
performance measurements developed to respond to complex but simply
defined employer needs as standards for patient and customer
satisfaction. AccessCare is accredited by NCQA and has adopted HEDIS.
ADMINISTRATION AND EMPLOYEES
The Company's executive and administrative offices are
located in Chesterfield, Missouri, where management controls
operations, business development, legal and accounting functions,
governmental and statistical reporting, research and treatment program
evaluation.
At August 3, 1994, the Company employed approximately
32 persons in its corporate and administrative offices, 326 persons in
its freestanding facilities, 104 persons assigned to CareUnit, Inc.,
37 persons assigned to AccessCare, Inc. and 2 persons in other
operations. Many of the physicians and psychiatrists who are the
medical directors of the Company's contract units, the psychologists
serving on treatment teams and the physicians utilizing the facilities
operated by the Company are not employed by the Company and are
treated as independent contractors. The Company is in the process of
reviewing the treatment of these individuals as part of its settlement
with the Internal Revenue Service (See Note 15-- "Commitments and
Contingencies"). The Company has not encountered any work stoppages
due to labor disputes with its employees.
<PAGE>
Item 2. PROPERTIES.
The following table sets forth certain information
regarding the properties owned or leased by the Company at May 31,
1994:
<TABLE>
<S>
Owned or Lease Monthly
Name and Location Leased(1) Expires(2)Rental(3)
<C> <C> <C>
Psychiatric/Chemical Dependency Treatment Facilities
CareUnit Hospital . . . . . Owned --- ---
Fort Worth, Texas
CareUnit Hospital . . . . . Leased 2035 $16,106(4)
Kirkland, Washington
CareUnit Facility (5) . . . Owned --- ---
Jacksonville Beach, Florida
CareUnit Hospital . . . . . Owned --- ---
Cincinnati, Ohio
Starting Point, Oak Avenue (6). . . . Owned --- ---
Orangevale, California
Starting Point, Orange County . . . . Owned --- ---
Costa Mesa, California
CareUnit Facility . . . . . Leased 1995 8,333
Grand Rapids, Michigan
CareUnit Facility (7) . . . Owned --- ---
Orlando, Florida
Aurora Behavioral Health Hospital . . Owned --- ---
Aurora, Colorado
CareUnit Facility (8) . . . Owned --- ---
San Diego, California
Other Operating Facilities
CompCare Publishers (9) . . Leased 1997 3,009
Minneapolis, Minnesota
AccessCare, Inc.
Tampa, Florida . . . . . Leased 1995 7,435
Las Vegas, Nevada. . . . Leased 1995 1,997
Edgewood, Kentucky . . . Leased 1995 392
Ft. Lauderdale, Florida. Leased 1995 586
Tarrytown, New York. . . Leased 1994 412
Administrative Facilities
Corporate Headquarters. . . Leased 1997 11,355
Chesterfield, Missouri
Regional Headquarters (9) . Leased 1995 4,408
Newport Beach, California
Data Processing Center (10) . . . . . Leased 1997 3,882
Riverside, California
</TABLE>
(1)Subject to encumbrances. For information concerning the Company's
long-term debt, see Note 10 to the Company's consolidated financial
statements contained in this report.
(2)Assumes all options to renew will be exercised.
(3)All leases, other than those relating to the Company's
administrative facilities, are triple net leases under which the
Company bears all costs of operations, including insurance, taxes and
utilities. The Company is responsible for specified increases in
taxes, assessments and operating costs relating to its administrative
facilities.
(4)Subject to increase every three years based upon increases in the
Consumer Price Index, not to exceed 10%.
(5)Closed February 1992. The Company intends to sell this property.
(6)Closed March 1993. The Company intends to sell this property.
(7)Closed October 1990. The Company intends to sell this property.
(8)Closed December 1989. The Company intends to sell this property.
(9)Office/operation closed; Company has sublet this property.
(10)This lease was converted to month-to-month.
Item 3. LEGAL PROCEEDINGS.
On October 30, 1992, the Company filed a complaint in the United
States District Court for the Eastern District of Missouri against
RehabCare Corporation ("RehabCare") seeking damages for violations by
RehabCare of the securities laws of the United States, for common law
fraud and for breach of contract (Case No. 4-92CV002194-SNL). The
Company seeks relief of damages in the lost benefit of certain
stockholder appreciation rights in an amount in excess of $3.6 million
and punitive damages. On May 18, 1993, the District Court denied a
motion for summary judgement filed by RehabCare. On June 16, 1993,
RehabCare filed a counterclaim seeking a declaratory judgement with
respect to the rights of both parties under the stock redemption
agreement, an injunction enjoining the Company from taking action
under stock redemption or restated shareholders agreements and
damages. The Company has filed a motion with the court to strike
RehabCare's request for damages for attorney's fees and costs on the
grounds that such relief is not permitted by law nor authorized by the
agreements between the parties. This case was scheduled for trial on
May 9, 1994, but has been continued on the court's own initiative and
the new trial date has not been set. Management believes that the
Company's allegations have merit and intends to vigorously pursue this
suit. Management further believes that should RehabCare prevail at
trial on its request for such attorneys fees and costs, such fees and
costs would not materially affect the financial statements of the
Company.
In connection with the proposed sale of hospitals to CMP
Properties, Inc. (see Note 5-- "Property and Equipment for Sale"), the
Company advanced $1.1 million to a former consultant which was to be
returned in the event the transaction was terminated. These advances
were to be secured by the common stock of an unrelated company. The
shares of common stock pledged were purported to be in the possession
of the Company's former legal firm as collateral for the advances, but
were not provided to the Company when the transaction was terminated.
The Company is currently in litigation with the former consultant and
legal firm to recover the advances.
Other Litigation
The Company is currently undergoing a payroll tax audit by the
Internal Revenue Service ("IRS") for calendar years 1983 through 1991.
The IRS agent conducting the audit has asserted that certain
physicians and psychologists and other staff engaged as independent
contractors by the Company should have been treated as employees for
payroll tax purposes. On April 8, 1991, the Company received a
proposed assessment related to this assertion claiming additional
taxes and penalties due totaling approximately $19.4 million for
calendar years 1983 through 1988. The Company filed a protest with
the IRS and contested the proposed assessment with the Appeals Office
of the Internal Revenue Service in St. Louis, Missouri. The Appeals
Office issued a reduced assessment in the amount of approximately
$6,300,000, plus penalties and interest of $6,500,000. The IRS is
also examining the Company's employment tax returns for the years 1989
through 1991, and the agent conducting the examination proposed the
assessment of additional taxes for those years in the approximate
amount of $1,600,000, plus penalties and interest in an undetermined
amount. While management believes the Company has strong arguments to
support its treatment of the payments to independent contractors to
whom substantially all of the assessment relates, the Company has
submitted an offer in compromise to the IRS for the calendar years
1983 through 1991 for $5 million. A reserve has been established with
respect to this matter to cover expenses the Company expects to incur;
however, there can be no assurance that such reserves are adequate
until a formal settlement is reached with the IRS. The Company and
RehabCare, in May 1991, entered into a Tax Sharing Agreement providing
for the Company to indemnify RehabCare for any claims of income or
payroll taxes due for all periods through February 28, 1991. The
Company has established a reserve with respect to covering expenses
the Company expects RehabCare to incur under the Tax Sharing
Agreement.
The federal income tax returns of the Company for its fiscal years
ended 1984 and 1987 through 1991, have been examined by the IRS. The
Company has provided the IRS with satisfactory documentary support for
the majority of items questioned and those items have been deleted
from the proposed assessment and accepted as originally filed. The
remaining items have been agreed to and resulted in a disallowance of
approximately $229,000 in deductions which will be offset against the
Company's net operating losses available for carryover. The
examination also included the review of the Company's claim for refund
of approximately $205,000 relating to an amended return for the fiscal
year ended May 31, 1992. During completion of the audit, the IRS
noted that the Company had received excess refunds representing its
alternative minimum tax ("AMT") liability of approximately $666,000 in
1990 and 1991 from the carryback of net operating losses to the fiscal
years ended May 31, 1988 and 1989, respectively. On March 29, 1994,
the Company agreed to the assessment of $666,000 plus interest and
received the final bill of $821,000 during the fourth quarter of
fiscal 1994. The Company has accrued for this liability, net of
refunds, in income taxes payable.
From time to time, the Company and its subsidiaries are also
parties and their property is subject to ordinary routine litigation
incidental to their business. In some pending cases, claims exceed
insurance policy limits and the Company or a subsidiary may have
exposure to liability that is not covered by insurance. Management
believes that the outcome of such lawsuits will not have a material
adverse impact on the Company's financial statements.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 7, 1994, the Board of Directors of the Company approved
and recommended to the Stockholders an amendment to the Company's
Certificate of Incorporation to effect a reverse stock split of the
Company's Common Stock proportionate to the range of two- (2) through
ten- (10) for-one, while reducing the par value of the Company's
Common Stock to one (1) cent ($0.01) per share. In addition, the
number of Common Shares authorized would be reduced to five (5) times
the number of shares outstanding, reserved or otherwise committed for
future issuance but not less than 12,500,000. On May 16, 1994, the
shareholders approved each proposal by written consent with the
following vote:
<TABLE>
<CAPTION>
For Disapprove Abstain
--------- ---------- --------
<S> <C> <C> <C>
1. Amendment to effect reverse stock split . . . . 18,378,536 1,219,079 106,856
2. Reduction in number of shares authorized. . . . 18,544,632 1,001,871 165,961
3. Reduction of the par value per share. 18,455,658 1,009,317 247,489
</TABLE>
There were no broker non-votes. The reverse stock split would become
effective on any date selected by the Board of Directors occurring
within nine months after the end of the consent solicitation period
(May 16, 1994). If no reverse stock split is effected by February 16,
1995, the Board of Directors will take action to abandon the reverse
stock split. On August 25, 1994, the Board of Directors authorized
management to file an application with the New York Stock Exchange for
the reverse stock split.
EXECUTIVE OFFICERS OF THE COMPANY
CHRISS W. STREET, age 44. Mr. Street has been employed by the
Company since May 1994. Mr. Street was named interim Chief Executive
Officer on May 4, 1994 and in June 1994, he was appointed Chief
Executive Officer of the Company. Mr. Street was elected as Chairman
of the Board of Directors in November 1993. Mr. Street is founder and
principal of Chriss Street & Company, a firm specializing in
investment banking, financial advisory services, securities trading
and factoring. Mr. Street commenced operations of Chriss Street &
Company in February 1992 and was Managing Director for Seider-Amdec
Securities, Inc. from 1988 to 1992.
FRED C. FOLLMER, age 51. Mr. Follmer joined the Company as Senior
Vice President and Chief Financial Officer in January 1993. In
September 1993, he was appointed Senior Executive Vice President. In
May 1994, he was named interim Chief Operating Officer, and in June
1994, he was appointed Chief Operating Officer of the Company. Prior
to his employment with the Company, he was a self-employed financial
consultant providing services to the health care and other industries.
He was Executive Vice President of Healthcare Services of America for
a portion of 1987 and was Vice President of Hospital Financial
Operations at Charter Medical Corporation from 1978 to 1986.
KERRI RUPPERT, age 35. Ms. Ruppert has been employed by the
Company since 1988. In October 1992, she was appointed Vice President
and Chief Accounting Officer and in January 1993, she was elected
Secretary of the Company. She was Vice President and Controller from
April 1990 to 1992 and Assistant Corporate Controller from 1988 to
1990. Prior to her employment with the Company, she served in a
variety of financial management positions with Maxicare Health Plans,
Inc. from 1983 to 1988.
<PAGE>
PART II
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) The Company's Common Stock is traded on the New York
Stock Exchange under the symbol CMP. The following
table sets forth the range of high and low sale prices
for the Common Stock for the fiscal quarters indicated:
<TABLE>
<CAPTION>
<S> Price
Fiscal Year High Low
<C> <C>
1993:
First Quarter. . . . . . . . . . . . . . $1-3/4 $1-1/8
Second Quarter . . . . . . . . . . . . . 2 1-1/8
Third Quarter. . . . . . . . . . . . . . 1-3/4 5/8
Fourth Quarter . . . . . . . . . . . . . 1 1/2
1994:
First Quarter. . . . . . . . . . . . . . $1-1/8 $5/8
Second Quarter . . . . . . . . . . . . . 7/8 5/8
Third Quarter. . . . . . . . . . . . . . 1-1/4 1/2
Fourth Quarter . . . . . . . . . . . . . 7/8 1/2
</TABLE>
(b)As of July 31, 1994, the Company had 2,174 stockholders of record.
(c)As a result of the Company's operating losses and restrictions
contained in the Company's primary loan agreement, no cash dividend
was declared during any quarter of fiscal 1994, 1993 or 1992. The
Company does not expect to resume payment of cash dividends in the
foreseeable future. See Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
<PAGE>
Item 6. SELECTED FINANCIAL DATA.
The following tables summarize selected consolidated financial
data and should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this report.
Effective June 1, 1990, the Company adopted the new accounting and
reporting methods approved by the American Institute of Certified
Public Accountants ("AICPA") in its health care industry audit guide
(the "AICPA guide") dated July 15, 1990. Accordingly, provision for
losses on accounts receivable is included as an expense rather than as
a reduction of operating revenues beginning in fiscal 1991.
Reclassifications of prior year amounts have been made to conform with
the current year's presentation. See Item 7, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a
discussion of recent results of operations and liquidity.
<TABLE>
Year Ended May 31,
1994 1993 1992 1991 1990
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues and gains:
Operating revenues. . . . . . . . . $34,277$51,847 $59,969 $ 84,689 $163,235
Gain on sale of RehabCare stock, net. . --- 13,11417,683 --- ---
Gain on Sovran settlement, net. . . --- 584 --- --- ---
Gain on reorganization agreement. . --- --- --- --- 5,000
Interest income . . . . . . . . . . 50 69 336 531 1,093
Equity in earnings(loss) of unconsolidated
affiliates . . . . . . . . . --- 384 168(1,289) 231
Other . . . . . . . . . . . . . . --- --- --- --- 508
------ ------ ------ ------ ------
34,327 65,998 78,15683,931170,067
====== ====== ====== ====== ======
Costs and expenses:
Operating expenses. . . . . . . . . 31,875 50,92438,810 65,362 100,437
General and administrative expenses . . 5,455 5,75412,946 21,267 61,599
Provision for doubtful accounts . .1,558 6,187 6,065 4,759 19,541
Depreciation and amortization . . .1,762 2,946 2,602 3,580 8,440
Loss on sale/write-down of assets . --- 4,382 15,986 5,863 45,657
Interest expense. . . . . . . . . .1,228 1,759 3,908 7,380 9,588
Other restructuring/non-recurring expenses . . . --- 5,452 2,152 2,819 4,407
------ ------ ------ ------ ------
41,878 77,40482,469111,030 249,669
------ ------ ------ ------ ------
Loss before income taxes . . . . . . (7,551) (11,406)(4,313) (27,099) (79,602)
Provision(benefit) for income taxes. . . 301 194 249 401 (20,294)
------ ------ ------ ------ ------
Loss before extraordinary item . . . (7,852) (11,600)(4,562) (27,500) (59,308)
Extraordinary item - gain on debenture
conversion . . . . --- --- --- 11,465 ---
----- ------ ----- ------ ------
Net loss . . . . . . $(7,852) $(11,600) $(4,562) $(16,035) $(59,308)
===== ====== ===== ====== ======
Loss per common and common
equivalent share:
Loss before extraordinary item. . . $(0.36)$(0.53) $(0.21) $(2.27) $(5.83)
Extraordinary item - gain on debenture
conversion. . . . . . . . . . . . . . --- --- --- .95 ---
----- ------ ----- ------ ------
Net loss . . . . $(0.36) $(0.53) $(0.21) $(1.32) $(5.83)
===== ====== ===== ====== ======
Cash dividends per share . . . . . . $ ---$ --- $ --- $ --- $ ---
===== ====== ===== ====== ======
Weighted average common and common
equivalent shares outstanding . . . 21,987 21,95721,900 12,118 10,172
As of May 31,
1994 1993 1992 1991 1990
---- ----- ----- ----- -----
Balance Sheet Data: (Dollars in thousands)
Working capital. . . . . . . . . . . . . .$ 412$ 438 $11,901 $11,221 $ 49,832
Total assets . . . . . . . . . . . . 33,226. .46,96870,422 99,084 141,592
Long-term debt . . . . . . . . . . . . . . 10,477 10,65210,375 28,078 86,564
Stockholders' equity . . . . . . . .5,099 12,951 24,44128,976 20,214
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations - Fiscal 1994 (compared with Fiscal 1993)
The Company incurred a loss of approximately $7.9 million or $0.36
per share for the fiscal year ended May 31, 1994, which was an
improvement of $3.7 million or $0.17 per share more than the $11.6
million or $0.53 per share loss incurred in the prior fiscal year.
The fiscal 1994 fourth quarter loss of $4.0 million or $0.19 per
share reflected an improvement from the fourth quarter of the prior
fiscal year by $0.3 million or $0.01 per share.
Results for fiscal 1993 were impacted by a gain of approximately
$13.1 million recorded during the second quarter of the fiscal year as
a result of the sale by the Company of 2,300,000 shares of its
formerly wholly-owned subsidiary RehabCare. Prior to the sale the
Company owned a 48% interest in RehabCare which was accounted for on
the equity method. Subsequent to the sale, the Company no longer has
an interest in RehabCare and no longer reports a portion of
RehabCare's earnings in its statement of operations. Included in the
loss for fiscal 1993 is a charge of approximately $6.7 million,
attributable to restructuring the organization, of which $1.2 million
was reclassified as asset writedowns during the fourth quarter. In
fiscal 1993, the Company recorded pretax charges of approximately $4.4
million primarily associated with the write-down of property and
equipment held for sale. Of this amount, $3.4 million was a result of
revaluing certain underperforming assets that the Company had
designated for disposition and the remaining $1.0 million was
attributable to the write-down of other property and equipment to net
realizable value.
Operating revenues declined $17.6 million or 34% from fiscal 1993,
primarily as the result of the closure of four facilities during
fiscal 1993, the sale of a fifth facility and the decline in both
admissions and length of stay.
Operating expenses decreased by approximately $19.0 million or
37%, primarily as a result of the closure of four facilities during
fiscal 1993 and the sale of a fifth. General and administrative
expenses declined by approximately $0.3 million or 5% in fiscal 1994
primarily as a result of management's continued effort to reduce
corporate overhead expenses. Interest expense was reduced by $0.5
million or 30%, primarily as the result of the paydown of senior
secured debt by approximately $1.9 million with the proceeds of asset
sales. In addition, general and administrative expenses reflect a
credit of $0.8 million for fiscal 1993. This credit is the result of
the reduction of provisions for general and administrative expenses.
Equity in the earnings of unconsolidated affiliates was
approximately $0.4 million during fiscal 1993. No equity in the
earnings of unconsolidated affiliates was included in the Company's
financial statements for fiscal 1994 (see Note 7-- "Investments in
Unconsolidated Affiliates").
The Financial Accounting Standards Board ("FASB") has issued
Statement No. 109, "Accounting for Income Taxes". Effective June 1,
1993, the Company adopted Statement No. 109 which changed the
Company's method of accounting for income taxes from the deferred
method to the asset and liability method. The change to Statement No.
109 had no cumulative effect on the financial statements of the
Company.
Freestanding Operations
Admissions in fiscal 1994 declined overall by 3,131 to 3,916 from
7,047 in fiscal 1993, an overall decline of 44%. Of this decline,
2,843 fewer admissions were attributable to facilities which were
closed or under contract to be sold as of May 31, 1994. The remaining
facilities ("same store", i.e., those operational during both fiscal
years) experienced a 7% decrease in admissions and a 11% decline in
length of stay to 10.0 days, resulting in 21% fewer patient days than
the prior fiscal year. The decrease in "same store" patient days was
primarily due to Aurora Behavioral Health Hospital which experienced a
16% decrease in admissions and a 53% decline in length of stay which
resulted in 60% fewer patient days in fiscal 1994 compared to the
prior fiscal year. This decline was primarily attributable to the
termination during fiscal 1993 of an acute psychiatric program
specializing in dissociative disorders. Patients in the dissociative
disorder program traditionally have a higher acuity requiring
additional care and a longer length of stay. The following table sets
forth selected quarterly utilization data on a "same store" basis:
<TABLE>
<CAPTION>
Same Store Utilization
Fiscal 1994 Fiscal 1993
-------------------------------- ---------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Admissions . . . . . . .1,011 955 996 954 1,019 914 1,058 1,213
Average length of stay . 10 9.9 9.9 10 10.1 10.2 11.8 12.0
Patient days . . . . . .9,7929,409 9,897 9,587 10,277 9,34812,52414,582
Average occupancy rate . 30% 30% 31% 30% 32% 30% 40% 46%
</TABLE>
Overall operating revenue per patient day increased by 20% to $618
in fiscal 1994 from fiscal 1993 and overall patient days declined 53%
to 38,685, resulting in a decrease of approximately $18.0 million, or
43%, in operating revenues. In addition to the decrease caused by the
sale and/or closure of hospitals, the Company believes that the
increasing role of HMOs, reduced benefits from employers and indemnity
companies, a greater number of competitive beds and a shifting to
outpatient programs are responsible for this decline in patient days.
In response to these factors the Company accelerated the development
of effective, lower cost outpatient, daycare, and partial
hospitalization programs in conjunction with its freestanding
facilities, and shifted its marketing activities toward developing
relationships and contracts with managed care and other organizations
which pay for or broker such services.
The following table illustrates the revenues in outpatient and
daycare programs offered by the freestanding facilities on a "same
store" basis:
<TABLE>
<CAPTION>
Net Outpatient/Daycare Revenues
(Dollars in thousands)
Fiscal 1994 Fiscal 1993
----------------------------- ----------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Facilities offering. . . 6 6 6 6 6 6 6 6
Net outpatient/daycare
revenues. . . . . . . $3,115$2,546$2,111 $1,965$1,500 $988$1,195 $1,539
% of total "same store"
net operating revenues. . 48% 43% 37% 35% 29% 21% 17% 18%
</TABLE>
The Company recorded no asset write-downs during fiscal 1994 and
$4.4 million in asset write-downs during fiscal 1993 primarily related
to the recognition of losses on facilities to be sold and revaluation
of facilities designated for disposition. These amounts include the
estimated future operating losses, selling costs and carrying costs of
such facilities until disposition at an assumed future point in time.
To the extent that actual costs and time required to dispose of the
facilities differ from these estimates, adjustments to the amount
written-down may be required. Future operating losses and carrying
costs of such facilities will be charged back directly to the carrying
value of the respective assets held for sale. Because chemical
dependency treatment facilities are special purpose structures, their
resale value is negatively affected by the oversupply of beds
resulting from the diminished demand for inpatient treatment currently
being experienced throughout the industry. In the first quarter of
1993, one facility previously designated for disposition was
redesignated as continuing due to improved operating performance. In
the second quarter of fiscal 1993, eight facilities previously
designated for disposition were redesignated as continuing operations.
These facilities were redesignated upon the termination of the
sale/leaseback of properties to CMP Properties, Inc., a wholly-owned
subsidiary (see Note 5-- "Property and Equipment Held for Sale"). In
the fourth quarter of fiscal 1993, the Company closed four facilities
which were listed for sale and sold another one. Additionally, three
facilities closed in the fourth quarter of 1993, were sold during
fiscal 1994. The Company currently has four facilities listed for
sale, of which one was closed in fiscal 1993, and the other three in
prior fiscal years. These facilities have been designated for
disposition because of their weak market positions relative to
competitors and limited prospects for generating an acceptable return
on investment as an operating property. The Company will continue to
evaluate the performance of all of these facilities in their
respective markets, and, if circumstances warrant, may increase or
reduce the number of facilities designated for disposition.
Contract Operations
During fiscal 1994, patient days of service under CareUnit, Inc.
contracts declined by approximately 33% from 51,524 patient days to
34,464 patient days. This decline is attributable to the 5 units
which were closed during fiscal 1994, a decline in length of stay and
managed care intervention. Of the units closed, 1 contract was
terminated by CareUnit, Inc. for poor operating performance. The
remaining 4 closures were terminated by the contracting hospitals upon
expiration of their term. The Company believes that these non-
renewals were influenced primarily by increased competition and
changes in reimbursement patterns by third-party payers. During
fiscal 1994, CareUnit, Inc. opened 3 new contracts.
The following table sets forth quarterly utilization data on a
"same store" basis:
<TABLE>
<CAPTION>
Same Store Utilization
Fiscal 1994 Fiscal 1993
-------------------------------- ---------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Admissions . . . . . . . 713 630 644 645 598 636 629 588
Average length of stay . 7.8 6.9 7.4 7.6 7.7 8.0 8.9 8.7
Patient days . . . . . .5,7334,955 5,375 5,591 5,697 5,856 6,426 6,439
Average occupancy rate . 40% 36% 38% 39% 40% 42% 46% 45%
</TABLE>
Units which were operational for both fiscal years
experienced a 7% increase in admissions which combined with the
decrease in length of stay resulted in an 11% decline in utilization
to 21,654 patient days. Since average net revenue per patient day at
these units increased by $19, net inpatient operating revenues
increased by 10% to $2.1 million. An additional $0.6 million was
generated by units closed during the fiscal year. Outpatient revenues
increased 11% in fiscal 1994.
The following table illustrates the revenues in
outpatient and daycare programs offered by eight contract units on a
"same store" basis:
<TABLE>
<CAPTION>
Net Outpatient/Daycare Revenues
(Dollars in thousands)
Fiscal 1994 Fiscal 1993
----------------------------- ----------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Facilities offering. . . 8 8 8 8 8 8 8 8
Net outpatient/daycare
revenues. . . . . . . $178 $160 $135 $153 $175 $146 $146 $134
% of total "same store"
net operating revenues. . 13% 13% 10% 10% 10% 11% 9% 8%
</TABLE>
For units operational in both fiscal years, operating
expenses decreased less than 1%, which, combined with the increase in
inpatient and outpatient operating revenues, caused operating income
at the unit level to increase 10% from fiscal 1993. Consequently,
overall unit operating income increased to $0.8 million in fiscal 1994
from $0.7 million in fiscal 1993.
Managed Care Operations
During fiscal 1994, the number of covered lives
increased by 33%. This increase is attributable to new contracts
added during fiscal 1994. AccessCare distinguishes itself from its
competition by being the "science-based" provider of care and manages
all clinical programs based upon proven treatment technologies.
In fiscal 1994, operating revenue increased 191%
from fiscal 1993 due to the fact that fiscal 1993 consisted of only
five months. In addition, AccessCare is a start-up venture and is in
its growth stage. Operating expenses increased 134% in fiscal 1994
also as a result that fiscal 1993 consisted of only five months and
the expenses related to AccessCare's expansion and development.
Although AccessCare experienced an increase in operating revenue
during fiscal 1994, it was more than offset by the increase in total
operating expenses resulting in an increase in AccessCare's net
operating loss of 70% or $0.7 million from fiscal 1993.
Results of Operations - Fiscal 1993 (compared with Fiscal 1992)
The Company incurred a loss of approximately $11.6
million or $0.53 per share for the fiscal year ended May 31, 1993,
which was a loss of $7.0 million or $0.32 per share more than the $4.6
million or $0.21 per share loss incurred in the prior fiscal year.
The fiscal 1993 fourth quarter loss of $4.3 million or $0.20 per share
reflected a deterioration from the fourth quarter of the prior fiscal
year by $5.0 million or $0.23 per share.
Results for fiscal 1993 were impacted by a gain of
approximately $13.1 million recorded during the second quarter of the
fiscal year as a result of the sale by the Company of 2,300,000 shares
of its formerly wholly-owned subsidiary RehabCare. Prior to the sale
the Company owned a 48% interest in RehabCare which was accounted for
on the equity method. Subsequent to the sale, the Company no longer
has an interest in RehabCare and no longer reports a portion of
RehabCare's earnings in its statement of operations. Included in the
loss for fiscal 1993 is a charge of approximately $6.7 million,
attributable to restructuring the organization, of which $1.2 million
was reclassified as asset writedowns during the fourth quarter. In
fiscal 1993, the Company recorded pretax charges of approximately $4.4
million primarily associated with the write-down of property and
equipment held for sale. Of this amount, $3.4 million was a result of
revaluing certain underperforming assets that the Company had
designated for disposition and the remaining $1.0 million was
attributable to the write-down of other property and equipment to net
realizable value. During fiscal 1992, the Company recorded pretax
charges of approximately $16.0 million primarily associated with the
write-down of property and equipment held for sale. Of this amount,
approximately $9.3 million was a result of revaluing certain
underperforming assets that the Company had designated for
disposition. The remaining $6.7 million was attributable to the
write-down to net realizable value of certain hospitals.
Operating revenues declined $8.1 million or 14%
from fiscal 1992, primarily as the result of the closure of four
facilities during fiscal 1993, sale of a fifth facility, the decline
in both admissions and length of stay and the redesignation of
facilities as continuing operations.
Operating expenses increased by approximately
$12.1 million or 31%, primarily as a result of the redesignation of
facilities as continuing operations, the expenses incurred in the
development of psychiatric services at the company's freestanding
facilities and the start-up costs associated with the development of
its behavioral medicine managed care business. General and
administrative expenses declined by approximately $7.2 million or 56%
in fiscal 1993 primarily as a result of management's continued effort
to reduce corporate overhead expenses. Interest expense was reduced
by $2.1 million or 55%, primarily as the result of the paydown of
senior secured debt by approximately $11.8 million with the proceeds
of asset sales, the lowering of the prime interest rate, and the
reduction of interest expense attributable to the Financial Security
Plan (see Note 13-- "Employee Benefit Plans").
Equity in the earnings of unconsolidated
affiliates improved by approximately $.2 million during fiscal 1993,
primarily as a result of the termination of a joint venture from which
the company reported losses of $1.1 million in fiscal 1992 (see Note
7-- "Investments in Unconsolidated Affiliates").
Liquidity and Capital Resources
The Company's current assets at May 31, 1994
amounted to approximately $15.1 million and current liabilities were
approximately $14.7 million, resulting in working capital of
approximately $0.4 million and a current ratio of 1:1. Included in
current assets are four hospital facilities designated as property and
equipment held for sale with a total carrying value of $6.9 million.
Should the Company be unable to complete the sales transactions during
fiscal 1995, the Company's working capital would be materially
adversely affected. The Company is seeking to sell these four
hospital facilities during fiscal 1995. The Company's primary use of
working capital is to fund operating losses while it seeks to restore
profitability to certain of its freestanding facilities and expand its
behavioral medicine managed care business. The Company had no senior
secured debt at May 31, 1994.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedules
Years Ended May 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . 22
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 23
Consolidated Balance Sheets, May 31, 1994 and 1993 . . . . . . . . 24
Consolidated Statements of Operations, Years Ended May 31, 1994, 1993 and 1992 25
Consolidated Statements of Stockholders' Equity, Years Ended May 31, 1994, 1993 and 1992 26
Consolidated Statements of Cash Flows, Years Ended May 31, 1994, 1993 and 1992 27
Notes to Consolidated Financial Statements . . . . . . . . . . . . 28
Financial Statement Schedules:
V. Property and Equipment. . . . . . . . . . . . . . . . . . 47
VI.Accumulated Depreciation and Amortization of Property and Equipment . . 48
X. Supplementary Statements of Operations Information. . . . 49
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comprehensive Care Corporation:
We have audited the accompanying consolidated balance sheets of
Comprehensive Care Corporation (a Delaware corporation) and
subsidiaries as of May 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for the
years then ended. These consolidated financial statements and the
schedules referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
Comprehensive Care Corporation and subsidiaries as of May 31, 1994 and
1993, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
As further discussed in Note 15, the Company is negotiating a
settlement with the Internal Revenue Service (IRS) regarding
assessments of payroll taxes. Management believes that adequate
reserves have been provided for the additional taxes to be assessed by
the IRS. There can be no assurance, however, that such reserves will
be sufficient until a formal settlement is reached.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, the
Company has incurred significant recurring losses and negative cash
flows from operations which raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that
might result should the Company be unable to continue as a going
concern.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The financial statement
schedules V, VI and X for the years ended May 31, 1994 and 1993, are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
St. Louis, Missouri
August 22, 1994
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Comprehensive Care Corporation:
We have audited the accompanying statements of operations,
stockholders' equity and cash flows of Comprehensive Care Corporation
and subsidiaries (the "Company") for the year ended May 31, 1992. In
connection with our audit of the consolidated financial statements, we
also have audited the related financial statement schedules as listed
in the accompanying index. These consolidated financial statements
and related financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement
schedules based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
Comprehensive Care Corporation's operations and their cash flows for
the year ended May 31, 1992, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
As discussed in Note 15 to the consolidated financial statements,
the Company is currently undergoing a payroll tax audit by the
Internal Revenue Service ("IRS") for calendar years 1983 through 1991.
The IRS asserted that certain physicians and psychologists engaged as
independent contractors by the Company should have been treated as
employees for payroll tax purposes and has issued an assessment
claiming additional taxes due on that basis. Management believes that
its treatment of the independent contractors is consistent with IRS
guidelines and established industry practice. Management has filed a
protest to the assessment and intends to defend vigorously the claims
made by the IRS related to this issue. Also, as discussed in Note 15
to the consolidated financial statements, on August 15, 1991 the
Company, along with others, were named in a stockholder complaint
filed in District Court related to the terminated reorganization with
First Hospital Corporation. Management intends to defend vigorously
the claims related to this issue. The ultimate outcome of these
matters cannot presently be determined. Accordingly, no provision for
any liability that may result upon resolution of these matters has
been recognized in the accompanying consolidated financial statements.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, the
Company incurred significant recurring losses and has a substantial
portion of its senior secured debt due on November 15, 1992. The
potential need for additional financing to repay debt as it comes due
and finance the Company's anticipated working capital requirements
during fiscal 1993 raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG Peat Marwick llp
St. Louis, Missouri
August 27, 1992
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
May 31,
1994 1993
------ ------
A S S E T S(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . $ 1,781 $ 1,126
Accounts and notes receivable, less allowance for
doubtful accounts of $5,729 and $8,217. . . . 5,8487,702
Property and equipment held for sale . . 6,939 8,254
Other current assets . . . . . . . . . . 508 1,896
------ ------
Total current assets . . . . . . . . . . . . . . 15,076 18,978
====== ======
Property and equipment, at cost. . . . . . . . . 29,326 31,432
Less accumulated depreciation and amortization . (13,338) (13,229)
------ ------
Net property and equipment . . . . . . . . . . . 15,988 18,203
------ ------
Property and equipment held for sale . . . . . . --- 7,098
Other assets . . . . . . . . . . . . . . . . . . . . . . 2,162 2,689
------ ------
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 33,226$ 46,968
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities . . . . $ 13,776$ 15,737
Current maturities of long-term debt . . 154 2,137
Income taxes payable . . . . . . . . . . 734 666
------ ------
Total current liabilities. . . . . . . . . . . . 14,664 18,540
------ ------
Long-term debt, excluding current maturities . . 10,477 10,652
Other liabilities. . . . . . . . . . . . . . . . 2,986 4,825
Commitments and contingencies (see Note 15)
Stockholders' equity:
Preferred stock, $50.00 par value; authorized 60,000 shares. . --- ---
Common stock, $.10 par value; authorized 30,000,000 shares;
issued and outstanding 21,986,916 shares. . . 2,1992,199
Additional paid-in capital . . . . . . . 37,883 37,883
Accumulated deficit. . . . . . . . . . . (34,983) (27,131)
------ ------
Total stockholders' equity . . . . . . . . . . . 5,099 12,951
------ ------
Total liabilities and stockholders' equity . . .$ 33,226 $ 46,968
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues and gains:
Operating revenues . . . . . . . $34,277 $51,847 $59,969
Gain on sale of RehabCare stock, net . . --- 13,114 17,683
Gain on Sovran settlement, net . --- 584 ---
Interest income. . . . . . . . . 50 69 336
Equity in earnings of unconsolidated affiliates. --- 384 168
------- ------ -------
34,327 65,998 78,156
------- ------ -------
Costs and expenses:
Operating expenses . . . . . . . 31,875 50,924 38,810
General and administrative expenses. . . 5,455 5,754 12,946
Provision for doubtful accounts. 1,558 6,187 6,065
Depreciation and amortization. . 1,762 2,946 2,602
Loss on sale/write-down of assets. . . . --- 4,382 15,986
Interest expense . . . . . . . . 1,228 1,759 3,908
Other restructuring/nonrecurring expenses. . . . --- 5,452 2,152
------- ------ -------
41,878 77,404 82,469
------- ------ -------
Loss before income taxes . . . . . . . . (7,551)(11,406) (4,313)
Provision for income taxes . . . . . . . 301 194 249
------- ------ -------
Net loss . . . . . . . . . . . . . . . . . . . . $(7,852) $(11,600) $(4,562)
====== ====== =====
Net loss per share . . . . . . . . . . . $(0.36) $(0.53) $(0.21)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Common StockPaid-inAccumulated Treasury Stock Stockholder's
Shares AmountCapitalDeficitShares Amount Equity
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1991. . 21,921$2,192$38,743 $(10,969) (80)$(990) $28,976
Net loss . . . . --- --- --- (4,562) --- --- (4,562)
Shares issued from
treasury stock . --- --- (597) --- 49 602 5
Retirement of treasury stock (31) (3) (385) --- 31 388 ---
Exercise of stock options. . 17 2 20 --- --- --- 22
----- ----- ------ ----- ----- ----- ------
Balance, May 31, 1992. . 21,907 2,191 37,781 (15,531) --- --- 24,441
Net loss . . . . --- --- ---(11,600) --- --- (11,600)
Exercise of stock options. . 40 4 46 --- --- --- 50
Issuance of shares for the
purchase of Mental
Health Programs, Inc. . 40 4 56 --- --- --- 60
----- ----- ------ ----- ----- ----- ------
Balance, May 31, 1993. . 21,987 2,199 37,883 (27,131) --- --- 12,951
Net loss . . . . --- --- --- (7,852) --- --- (7,852)
----- ----- ------ ----- ----- ----- ------
Balance, May 31, 1994. . 21,987$2,199$37,883 $(34,983) --- --- $5,099
===== ===== ====== ====== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . $(7,852) $(11,600) $(4,562)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization. . . . . 1,762 2,946 2,602
Provision for doubtful accounts. . . . 1,558 6,187 6,065
Gain on sale of RehabCare stock, net . ---(13,114) (17,683)
Gain on Sovran settlement, net . . . . --- (584) ---
Loss on sale/write-down of assets. . . 36 4,382 15,986
Carrying costs incurred on property and equipment
held for sale . . . . . . . . . . . . (1,241)(1,330)(4,487)
Other restructuring/non-recurring expenses . . --- 5,452 ---
Equity in earnings of unconsolidated affiliates. . . --- (384)(168)
Decrease in refundable income taxes. . --- --- 4,650
Decrease(increase) in accounts and notes receivable. 452 2,542(3,554)
Decrease in accounts payable and accrued liabilities (2,762) (4,927)(1,719)
Increase in income taxes payable . . . 68 --- ---
Other, net . . . . . . . . . . . . . . 818 278 (6,759)
------ ------ ------
Net cash used in operating activities . . . . (7,161) (10,152)(9,629)
------ ------ ------
Cash flows from investing activities:
Proceeds from sale of property and equipment
(operating and held for sale). . . 10,357 3,489 4,700
Proceeds from the sale of RehabCare stock. . . --- 18,825 20,553
Proceeds from Sovran settlement, net . --- 584 ---
Additions to property and equipment, net . . . (383) (474) (726)
Purchase of operating entity . . . . . --- (75) (750)
Distributions from joint ventures. . . --- --- 50
------ ------ ------
Net cash provided by investing activities . 9,974 22,349 23,827
------ ------ ------
Cash flows from financing activities:
Repayment of debt. . . . . . . . . . . (2,158) (11,835) (17,071)
Bank and other (repayments)borrowings. --- (1,266) 1,266
Exercise of stock options. . . . . . . --- 50 22
Other, net . . . . . . . . . . . . . . --- --- 5
------ ------ ------
Net cash used in financing activities . . . . (2,158)(13,051) (15,778)
------ ------ ------
Net increase(decrease) in cash and cash equivalents. . 655 (854) (1,580)
Cash and cash equivalents at beginning of year . . . . 1,126 1,980 3,560
------ ------ ------
Cash and cash equivalents at end of year . . . $ 1,781$ 1,126$ 1,980
====== ====== ======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . $ 1,302$ 2,050$ 4,237
====== ====== ======
Income taxes . . . . . . . . . . . . . $ 233 $ 338 $ 135
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-- Summary of Significant Accounting Policies
The consolidated financial statements include the
accounts of Comprehensive Care Corporation (the "Company") and its
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The Company's consolidated financial statements are
presented on the basis that it is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the
normal course of business. The continuation of the Company's business
is dependent upon the resolution of operating and short-term liquidity
problems (see Note 2-- "Operating Losses and Liquidity").
Revenue Recognition
Approximately 66%, 88% and 91% of the Company's
operating revenues were received from private sources in fiscal 1994,
1993 and 1992, respectively. The remainder is received from Medicare,
Medicaid and other governmental programs. The latter are programs
which provide for payments at rates generally less than established
billing rates. Payments are subject to audit by intermediaries
administering these programs. Revenues from these programs are
recorded under reimbursement principles applicable to each of the
programs. Although management believes estimated provisions currently
recorded properly reflect these revenues, any differences between
final settlement and these estimated provisions are reflected in
operating revenues in the year finalized.
Property and Equipment
Depreciation and amortization of property and
equipment are computed on the straight-line method over the estimated
useful lives of the related assets, principally: buildings and
improvements -- 5 to 40 years; furniture and equipment -- 3 to 12
years; leasehold improvements -- life of lease or life of asset,
whichever is less. Property and equipment is carried at estimated net
realizable value.
Property and Equipment Held for Sale
Property and equipment held for sale represents net
assets of certain freestanding facilities and other properties that
the Company intends to sell, and is carried at estimated net
realizable value. Net realizable value has been reduced by the
estimated operating and selling costs of these facilities through
their expected disposal dates.
Property and equipment held for sale, which are
expected to be sold in the next fiscal year, are shown as current
assets on the consolidated balance sheets. Gains and losses on
facilities sold are recorded as an adjustment to the remaining
property values until all facilities are sold.
Intangible Assets
Intangible assets include costs in excess of fair
value of net assets of businesses purchased (goodwill), licenses, and
similar rights. Costs in excess of net assets purchased are amortized
over 20 to 25 years. The costs of other intangible assets are
amortized over the period of benefit. The amounts in the consolidated
balance sheets are net of accumulated amortization of goodwill of
$652,000 and $536,000 at May 31, 1994 and 1993, respectively.
Deferred Contract Costs
The Company has entered into contracts with
independent general hospitals whereby it will provide services in
excess of the standard agreement. In recognition of the hospitals'
long-term commitment, the Company has paid certain amounts to them.
These amounts may be used by the hospitals for capital improvements or
as otherwise determined by the hospital. The Company is entitled to a
prorata refund in the event that the hospital terminates the contract
before its scheduled termination date; accordingly, these amounts are
charged to expense over the life of the contract.
Cash and Cash Equivalents
Cash in excess of daily requirements is invested in
short-term investments with original maturities of three months or
less. Such investments are deemed to be cash equivalents for purposes
of the consolidated statements of cash flows. Included in cash are
short-term investments of $1,294,000 and $228,000 at May 31, 1994 and
1993, respectively.
Income Taxes
Effective June 1, 1993, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 109, "Accounting for
Income Taxes" on a prospective basis. Prior to this date, the Company
accounted for income taxes under APB 11. Statement No. 109 changed
the Company's method of accounting for income taxes from the deferred
method required under APB 11 to the asset and liability method. Under
the deferred method, annual income tax expense is matched with pretax
accounting income by providing deferred taxes at current tax rates for
timing differences between the determination of net earnings for
financial reporting and tax purposes. The objective of the asset and
liability method is to establish deferred tax assets and liabilities
for the temporary differences between the financial reporting basis
and the tax basis of the Company's assets and liabilities at enacted
tax rates expected to be in effect when such amounts are realized or
settled. The change to Statement No. 109 had no cumulative effect on
the financial statements of the Company as a result of recording a
valuation allowance.
Charity Care
The Company provides charity care to patients who meet
certain criteria under its charity care policy without charge or at
amounts less than its established rates. Corporate policy allows for
charity when appropriate which must be prearranged and the patient
must meet applicable federal and/or state poverty guidelines. The
Company will not pursue collection of charity accounts. Charity
charges foregone, based upon established rates, were less than 1% of
the Company's operating revenues for fiscal 1994 and 1993.
Loss Per Share
Primary and fully diluted loss per common and common
equivalent share have been computed by dividing net loss by the
weighted average number of common shares outstanding during the
period. During fiscal 1994, 1993 and 1992, the convertible
subordinated debentures had an antidilutive impact on loss per share
and, accordingly, were excluded from the computation.
The weighted average number of common and common
equivalent shares used to calculate loss per share was 21,987,000,
21,957,000 and 21,900,000 for the years ended May 31, 1994, 1993 and
1992, respectively.
Reclassifications
Certain prior year amounts have been reclassified to
conform with the current year's presentation.
Note 2-- Operating Losses and Liquidity
The Company incurred losses before income taxes
totaling approximately $7.6 million for the year ended May 31, 1994,
which was principally a result of poor utilization of its freestanding
facilities and behavioral medicine contracts and the development and
expansion of its behavioral medicine managed care business.
In response to these continuing losses, the Company
has taken steps to bring expenses in line with revenues by reducing
staff, closure and disposition of various freestanding facilities and
other cost cutting measures. If utilization at particular facilities
continues to deteriorate such that anticipated reductions in operating
losses are not achieved, those facilities will also be considered for
closure and disposition. The Company recorded no asset writedowns
during fiscal 1994 and $4.4 million in asset write-downs during fiscal
1993 primarily related to the recognition of losses on facilities to
be sold and revaluation of facilities designated for disposition.
These amounts include the estimated future operating losses, selling
costs and carrying costs of such facilities until disposition at an
assumed future point in time. To the extent that actual costs and
time required to dispose of the facilities differ from these
estimates, adjustments to the amount written-down may be required.
Future operating losses and carrying costs of such facilities will be
charged back directly to the carrying value of the respective assets
held for sale. Because chemical dependency treatment facilities are
special purpose structures, their resale value is negatively affected
by the oversupply of beds resulting from the diminished demand for
inpatient treatment currently being experienced throughout the
industry. In the second quarter of 1993, the Company redesignated
various facilities as continuing operations and in the fourth quarter
of 1993, closed four facilities, incurring significant operating
losses. During fiscal 1994, none of the Company's remaining six
operating facilities were designated for disposition.
The Company's current assets at May 31, 1994, amounted
to approximately $15.1 million and current liabilities were
approximately $14.7 million, resulting in working capital of
approximately $0.4 million and a current ratio of 1:1. Included in
current assets are four hospital facilities and two other properties
designated as property and equipment held for sale with a total
carrying value of $6.9 million. The Company sold three facilities
during fiscal 1994 and is seeking to sell the remaining facilities and
properties during fiscal 1995. Should the Company be unable to
complete the sale transactions during fiscal 1995, the Company's
working capital would be materially adversely affected. The Company's
primary use of working capital is to fund operating losses while it
seeks to restore profitability to certain of its freestanding
facilities and expand its behavioral medicine managed care business.
Note 3-- Acquisitions and Dispositions
On July 3, 1991, RehabCare, a wholly-owned subsidiary
of the Company as of May 31, 1991, and the Company completed an
initial public offering of 2,500,000 shares of RehabCare common stock.
Of the total shares sold to the public, 1,700,000 shares were sold by
the Company and 800,000 shares were new shares issued by RehabCare.
Net proceeds to the Company totaled approximately $20.6 million, of
which approximately $11.3 million was used to pay a portion of the
Company's senior secured debt. A gain of approximately $18 million on
the sale of the RehabCare shares was recorded in the Company's
consolidated statement of operations for the first quarter of fiscal
1992. The Company's remaining 48% interest (2,300,000 shares) in
RehabCare was accounted for on the equity method (see Note 7--
"Investments in Unconsolidated Affiliates"). The Company sold its
remaining 48% interest in RehabCare to RehabCare during fiscal 1993
and a gain of approximately $13.1 million was recorded in the
Company's consolidated statement of operations for the second quarter
of 1993. Net proceeds to the Company totaled $18.8 million which were
used for the paydown of a portion of senior secured debt, short-term
borrowings, and to fund working capital.
In November 1991, the Company sold its CareUnit
Hospital of Orange which closed in February 1991. In February 1992,
the Company sold its long-term care facility in Tustin, California as
an operating facility.
In December 1992, the Company purchased Mental Health
Programs, Inc. based in Tampa, Florida, from the former owner. The
Company has changed the name to AccessCare, Inc. The terms of the
purchase included a payment of $75,000, issuance of 40,000 shares of
the Company's common stock, an employment agreement, a stock option
agreement and the assumption of bank debt from the former owner. Both
the stock option and employment agreements and the release of the
former owner as guarantor of the bank debt are contingent upon the
continued employment of the former owner with the Company. In July
1993, the Company terminated the employment agreement and is currently
in litigation with the former owner. In connection with this
acquisition, the Company recorded goodwill of approximately $829,000.
In October 1992, the Company's wholly-owned
subsidiary, Starting Point, Inc., entered into a joint operating
agreement with Century HealthCare of California to manage Newport
Harbor Psychiatric Hospital, a 68-bed adolescent psychiatric facility
and Starting Point, Orange County, a 70-bed adult psychiatric
facility. The Company has an 80% interest in this venture. This
agreement was mutually dissolved on February 28, 1993. A pretax loss
of approximately $0.1 million and $1.1 million, net of minority
interest, was included in the consolidated financial statements for
the years ended May 31, 1994 and 1993, respectively.
On April 5, 1993, the Company sold its CareUnit
Hospital of Nevada. Proceeds from the sale were utilized to reduce
the Company's senior secured debt and the remainder was used for
working capital purposes. On July 1, 1993, the Company sold its
CareUnit Hospital of Albuquerque and on October 1, 1993, sold its
CareUnit Hospital of South Florida/Tampa. Proceeds from both of these
sales were utilized to reduce the Company's senior secured debt and
the remainder was utilized for working capital purposes. On December
10, 1993, the Company sold its CareUnit Hospital of Coral Springs.
Proceeds from the sale were utilized for working capital purposes. In
April 1994, the Company sold a material portion of its publishing
business. Proceeds from the sale will be used for working capital
purposes.
Note 4-- Accounts and Notes Receivable
There were no current notes receivable as of May 31,
1994. Current notes receivable were $215,000 at May 31, 1993. The
following table summarizes changes in the Company's allowance for
doubtful accounts and contractual adjustments for the years ended May
31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Additions Charged To
Balance at Reserve for Balance at
Beginning Closed End of
of YearExpense FacilitiesRecoveries Other Year
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year ended May 31, 1994. $ 8,217$1,558 $ 76 $2,283 $ (6,405) $ 5,729
Year ended May 31, 1993. 10,882 6,187 381 3,518 (12,751) 8,217
Year ended May 31, 1992. 8,714 6,065 2,777 3,815 (10,489) 10,882
</TABLE>
During fiscal 1993, the Company fully implemented its
current write-off and reserve policy whereby all accounts past a
certain aging category or otherwise deemed by management to be
uncollectible are written-off and recorded as bad debt expense. Any
recoveries are netted against expense. Other represents the effect of
the write-off of accounts net of the change in the allowance for
contractual adjustments.
Note 5-- Property and Equipment Held for Sale
The Company has decided to dispose of certain
freestanding facilities and other assets (see Note 2-- "Operating
Losses and Liquidity"). Property and equipment held for sale,
consisting of land, building, equipment and other fixed assets with an
historical net book value of approximately $23.3 million and $38.2
million at May 31, 1994 and 1993, respectively, is carried at
estimated net realizable value of approximately $6.9 million and $15.4
million at May 31, 1994 and 1993, respectively. In fiscal 1993 and
1992, aggregate losses were recorded totaling approximately $3.7
million and $15.2 million, respectively, to reflect these assets at
estimated net realizable value and are included in loss on sale/write-
down of assets in the consolidated statements of operations.
Operating revenues and operating expenses of the facilities designated
for disposition were approximately $0.1 million and $1.3 million,
respectively, for the year ended May 31, 1994, and $0.8 million and
$2.1 million, respectively, for the year ended May 31, 1993. In
addition, $1,000,000 was reclassified to property and equipment during
fiscal 1994 to adjust property to its estimated fair market value.
A summary of the transactions affecting the carrying
value of property and equipment held for sale is as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Beginning balance. . . . . . . . . . . . . . . $15,352 $35,568 $21,496
Designation of facilities as property and equipment held for sale. . . --- 10,977 29,456
Proceeds from sale of assets . . . . . . . . . (9,806) --- (4,700)
Carrying costs incurred during phase-out period. . . . 1,241 1,3304,487
Loss on sale/write-down of facilities. . . . . --- (3,670)(15,171)
Redesignation of facilities as continuing operations . --- (28,853) ---
Reclassification to property and equipment . . 1,000 --- ---
Other costs incurred upon sale of assets . . . (848) --- ---
------- ------- -------
Ending balance . . . . $ 6,939 $15,352 $35,568
======= ======= ======
</TABLE>
Property and equipment held for sale at May 31, 1992
included certain hospitals which were proposed for inclusion in
sale/leaseback transactions and were carried at estimated net
realizable value totaling $27.8 million. In early fiscal 1993, the
Company had expected to sell certain freestanding facilities to CMP
Properties, Inc. and lease them back. The facilities expected to be
sold and leased back were carried at estimated net realizable value
which had been reduced for estimated selling costs for these
facilities. On October 28, 1992, the board of directors of the
Company terminated its plans for the public offering of shares of
common stock of its wholly owned subsidiary CMP Properties, Inc. As a
result, the proposed sale of hospitals to CMP Properties subject to
leaseback to the Company was not completed, and the properties which
were to be part of the transaction and were designated as assets held
for sale were reclassified during the second quarter as property and
equipment. In connection with this proposed transaction, the Company
advanced $1.1 million to a former consultant which was to be returned
in the event the transaction was terminated. These advances were to
be secured by the common stock of an unrelated company and were
classified as accounts receivable at May 31, 1993. The shares of
common stock pledged were purported to be in the possession of the
Company's former legal counsel as collateral for the advances, but
were not provided to the Company when the transaction was terminated.
The Company is currently in litigation with the former consultant and
legal firm to recover the advances and has no receivable recorded as
of May 31, 1994.
Note 6-- Property and Equipment
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
As of May 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Land and improvements. . . . . . . . . . . . . $ 4,063 $ 4,117
Buildings and improvements . . . . . . . . . . 18,192 19,209
Furniture and equipment. . . . . . . . . . . . 4,817 5,866
Leasehold improvements . . . . . . . . . . . . 1,365 1,364
Capitalized leases . . . . . . . . . . . . . . 889 876
------ ------
$29,326 $31,432
====== ======
</TABLE>
Included in property and equipment are writedowns to
net realizable value totaling $4,631,700 and $3,490,000 as of May 31,
1994 and 1993, respectively.
Note 7-- Investments in Unconsolidated Affiliates
The Company has a 50% interest in a joint venture
partnership with another corporation for the purpose of operating two
hospitals. Under the terms of the joint venture agreement, the
Company managed Crossroads Hospital and its partner managed Woodview-
Calabasas Hospital. Each of the partners in the joint venture
received a management fee for the hospital it managed. The Company is
currently in negotiation to dissolve this joint venture retroactive to
December 1991. The Company retained the hospital it managed and its
partner retained the other. The results of operations of the hospital
retained have been included in the consolidated financial statements
beginning January 1, 1992. Crossroads Hospital continued to be
managed by the Company although it was closed in August 1992, and was
subleased through the remaining term of the lease which expired in
September 1993. Woodview-Calabasas Hospital continues to be managed
by its joint-venture partner although it was closed in April 1993.
The Company has a 50% interest in a joint venture
agreement with a subsidiary of HealthOne Corporation (formerly The
Health Central System). The joint venture owned and operated Golden
Valley Health Center, a behavioral medicine facility located in a
suburb of Minneapolis, Minnesota, which was sold in fiscal 1989. The
Company serves as managing partner of the joint venture, which holds a
promissory note from the purchaser of the facility in the amount of
$2.5 million. The purchaser was forced into receivership in January
1992 and was dissolved during fiscal 1994. The Company did not
receive any proceeds from this dissolution. In fiscal 1991, the
Company recorded its respective loss as a result of the
uncollectability of the promissory note.
As of May 31, 1993, the Company no longer had any
interest in the outstanding common stock of RehabCare (a wholly-owned
subsidiary prior to its initial public offering which was completed on
July 3, 1991) which was previously carried on the equity method (see
Note 3-- "Acquisitions and Dispositions"). Earnings related to the
Company's ownership in RehabCare amounted to $384,000 and $1,224,000
for the years ended May 31, 1993 and 1992, respectively. Carrying
value, cost and market value of the Company's remaining investment in
RehabCare was $4.0, $3.1 and $19.6 million, respectively, at May 31,
1992. The condensed combined operating results of affiliates for
fiscal 1993 and 1992 include the results of RehabCare subsequent to
July 3, 1991 through the sale of the Company's remaining interest in
November 1992.
The Company reported its interest in these affiliates
on the equity method. The condensed combined operating results of
affiliates are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $ ---$11,928$47,854
Costs and expenses:
Operating, general and administrative. . . . --- 10,536 45,500
Depreciation and amortization. . . . --- 148 559
------ ------ ------
--- 10,684 46,059
------ ------ ------
Earnings before income taxes . . . . . --- 1,244 1,795
Income taxes . . . . . . . . . . . . . --- 443 1,360
------ ------ ------
Net earnings . . . . . . . . . . . . . $--- $801 $435
====== ====== ======
</TABLE>
Note 8-- Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
As of May 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Intangible assets, net . . . . . . . . $1,762 $1,877
Deferred contract costs, net . . . . . 81 142
Other. . . . . . . . . . . . . . . . . 319 670
------ ------
$2,162 $2,689
====== ======
</TABLE>
Note 9-- Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
<S>
Accounts payable and accrued liabilities consist of the following:
As of May 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Accounts payable and accrued liabilities . . . . $9,132 $10,266
Accrued salaries and wages . . . . . . 1,140 1,527
Accrued vacation . . . . . . . . . . . 576 628
Accrued legal. . . . . . . . . . . . . 353 1,034
Payable to third-party intermediaries. 1,751 852
Deferred compensation and severance. . 824 1,430
------ ------
$13,776 $15,737
====== =======
</TABLE>
Note 10-- Long-Term Debt and Short-Term Borrowings
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993
<S> (Dollars in thousands)
Senior secured debt:
Senior secured notes, bearing interest at 11.4%, payable semiannually, <C> <C>
maturing in 1995 (b)(c). . . . . . . $ --- $ 1,944
------ -------
--- 1,944
9% to 10% notes, payable in monthly installments with maturity
dates through 1995, collateralized by real and personal
property having a net book value of $4,886 . . . 41 96
7.5% convertible subordinated debentures due 2010 (a). . 9,5389,538
Capital lease obligations. . . . . . . . . . . 740 780
Bank debt, interest and principal payable in monthly installments
maturing in August 1997, collateralized by the trust of the
former owner (d) . . . . . . . . . . . 312 408
Other. . . . . . . . . . . . . . . . . . . . . --- 23
------ -------
Total long-term debt . . . . . . . . . . . . . 10,631 12,789
------ -------
Less current maturities of long-term debt. . . 154 2,137
Long-term debt, excluding current maturities . $10,477 $10,652
====== =======
</TABLE>
As of May 31, 1994, aggregate annual maturities of
long-term debt for the next five years (in accordance with stated
maturities of the respective loan agreements) are approximately
$154,000 in 1995, $614,000 in 1996, $578,000 in 1997, $488,000 in 1998
and $449,000 in 1999.
In March 1992, to fund operations, the Company
obtained approximately $1.3 million in short-term borrowings secured
by accounts and notes receivable of CareUnit, Inc., bearing interest
at 12% per annum, and due August 31, 1992. The Company paid the
principal and interest with the proceeds from the sale of RehabCare
stock.
The Company had no revolving loan or short-term
borrowings during fiscal 1994. The maximum amount outstanding on the
revolving loan and short-term borrowings was approximately $4.2
million during the years ended May 31, 1993 and 1992. The average
amount outstanding of such borrowings, based upon an average of month-
end balances for periods when the Company had such debt outstanding,
was $2.2 million and $3.2 million during the years ended May 31, 1993
and 1992, respectively. Weighted average interest rates for short-
term borrowings were 7.54% and 8.63% for the years ended May 31, 1993
and 1992, respectively.
(a)In April 1985, the Company issued $46 million in convertible
subordinated debentures. These debentures require that the Company
make semi-annual interest payments in April and October at an interest
rate of 7.5%. The debentures are due in 2010 but may be converted to
common stock of the Company at the option of the holder at a
conversion price of $25.97 per share, subject to adjustment in certain
events. The debentures are also redeemable at the option of the
Company in certain circumstances. Mandatory annual sinking fund
payments sufficient to retire 5% of the aggregate principal amount of
the debentures are required to be made on each April 15 commencing in
April 1996 to and including April 15, 2009. During fiscal 1991,
holders of approximately $36.5 million debentures voluntarily
converted their debentures into 11,667,200 shares of common stock at a
temporarily reduced conversion price.
(b)In July 1988, the Company and two subsidiaries of the Company
issued $20 million in senior secured notes to a group of insurance
companies. The notes were originally secured by three of the
Company's freestanding facilities. See also note (c) below.
Performance of the subsidiaries' obligations under the notes is
guaranteed by the Company. The notes originally provided for the
payment of interest at a fixed rate of 10.5% per annum. The notes
require principal payments in five equal annual installments beginning
on August 1, 1991, the first of which was prepaid in July 1990.
Interest on the unpaid balance was payable semi-annually commencing
February 1, 1989. From May 1990 to July 1992, the Company entered
into several amendments to the trust indenture which changed certain
restrictive covenants, collateral provisions, maturity dates and
interest rates. The Company paid $5.5 million and $1.3 million with
the proceeds of the sale of RehabCare stock on September 30, 1992 and
November 13, 1992, respectively. The remaining balance at May 31,
1993 totaled $1.9 million, of which $0.6 million was paid on July 1,
1993, $0.6 million was paid on August 1, 1993 and the remaining
balance was paid on October 1, 1993.
(c)On May 3, 1990, the Company entered into a Collateral Trust
Agreement for the benefit of the holders of the Company's senior
secured debt, that is, the banks, the insurance companies and the
revenue bondholder. Under this agreement, substantially all the
Company's assets not previously pledged were pledged as additional
collateral to secure the senior indebtedness. Substantially all the
proceeds resulting from a sale of any of the pledged assets was used
to repay senior indebtedness.
(d)On December 30, 1992, the Company assumed approximately $456,000 in
bank debt with the purchase of Mental Health Programs, Inc. (see Note
3--"Acquisition and Dispositions"). The note is secured and
guaranteed by the trust of the former owner of Mental Health Programs,
Inc. The release of collateral and guarantee are contingent upon
continued employment of the former owner with the Company. The note
is payable at $8,000 per month with the balance due on August 31,
1997. Interest is at prime plus 1.5%.
Note 11-- Lease Commitments
The Company leases certain facilities, furniture and
equipment. The facility leases contain escalation clauses based on
the Consumer Price Index and provisions for payment of real estate
taxes, insurance, maintenance and repair expenses. Total rental
expenses for all operating leases are as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Minimum rentals. . . . . . . . . . . $1,342 $1,257 $1,393
Contingent rentals . . . . . . . . . --- 15 59
------ ------ ------
Total rentals. . . . . . . . . . . . $1,342 $1,272 $1,452
====== ===== ======
</TABLE>
Assets under capital leases are capitalized using
interest rates appropriate at the inception of each lease; contingent
rents associated with capital leases in fiscal 1994, 1993 and 1992
were $61,000, $60,000 and $60,000, respectively. The net book value
of capital leases at May 31, 1994 and 1993 was $567,000 and $580,000,
respectively.
Future minimum payments, by year and in the
aggregate, under capital leases and noncancellable operating leases
with initial or remaining terms of one year or more consist of the
following at May 31, 1994:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
(Dollars in thousands)
<S> <C> <C>
1995. . . . . . . . . . . . . . . . . . $ 167 $ 719
1996. . . . . . . . . . . . . . . . . . 138 359
1997. . . . . . . . . . . . . . . . . . 132 263
1998. . . . . . . . . . . . . . . . . . 132 7
1999. . . . . . . . . . . . . . . . . . 132 ---
Later years . . . . . . . . . . . . . . 902 ---
------ ------
Total minimum lease payments. . . . . . $1,603 $1,348
=====
Less amounts representing interest. . . 863
------
Present value of net minimum lease payments . . $740
======
</TABLE>
Note 12-- Income Taxes
Provision for income taxes consist of the following:
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Current:
Federal. . . . . . . . . . . . . . . . $ --- $ --- $139
State. . . . . . . . . . . . . . . . . 301 194 110
------ ------ -----
$301 $194 $249
====== ====== =====
</TABLE>
A reconciliation between benefit from income taxes
and the amount computed by applying the statutory Federal income tax
rate (34%) to loss before income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended May 31,
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Benefit from income taxes at the statutory tax rate. . $(2,567)$(3,878) $(1,466)
State income taxes, net of federal tax benefit . . . . 199 128 73
Amortization of intangible assets. . . . . . . 38 30 23
Tax effect of net operating loss . . . . . . . 2,607 3,888 1,459
Alternative minimum tax expense in excess of regular
tax expense. . . . . . . . . . . . . . --- --- 139
Other, net . . . . 24 26 21
----- ----- -----
$301 $194 $249
====== ====== =====
</TABLE>
Deferred income taxes represent the tax effect related
to recording revenue and expense items that are reported in different
years for financial reporting purposes and income tax purposes.
Significant components of the Company's deferred tax liabilities and
assets are comprised of the following as of May 31, 1994 (Dollars in
thousands):
<TABLE>
<S> <C>
Deferred Tax Assets:
Net operating loss carryforward . $14,968
Restructuring/non-recurring costs . . . . 9,418
Bad debt expense. . . . . . . . . 568
Employee benefits and options . . 663
Other, net. . . . . . . . . . . . 2,185
------
Total Deferred Tax Assets. . . 27,802
Valuation Allowance . . . . . . . (24,404)
------
Net Deferred Tax Assets. . . . 3,398
------
Deferred Tax Liabilities:
Depreciation. . . . . . . . . . . (2,929)
Cash to accrual differences . . . (469)
------
Total Deferred Tax Liabilities . . . . (3,398)
-------
Net Deferred Tax Assets . . . . . . $ ---
======
</TABLE>
The Company is subject to alternative minimum tax
("AMT") at a 20% rate on alternative minimum taxable income which is
determined by making statutory adjustments to the Company's regular
taxable income. Net operating loss carryforwards may be used to
offset only 90% of the Company's alternative minimum taxable income.
The Company expensed federal income tax of $139,000 in 1992 and this
amount is expected to be offset against another federal income tax
liability relating to an AMT liability on earlier years (see Note 15--
"Commitments and Contingencies"). The Company will be allowed a
credit carryover of $666,000 against regular tax in the event that
regular tax expense exceeds the alternative minimum tax expense (see
Note 15-- "Commitments and Contingencies").
At May 31, 1994, the Company has net operating loss
carryforwards of approximately $67 million for financial reporting
purposes. For tax purposes, the Company has operating loss
carryforwards of approximately $39 million which expire in 2006
through 2009. All benefits from recoverable Federal income taxes paid
in prior years (tax carrybacks) were recognized as of May 31, 1990.
No further tax carrybacks are available.
Note 13-- Employee Benefit Plans
The Company had deferred compensation plans
("Financial Security Plans") for its key executives and medical
directors. Under provisions of these plans, participants elected to
defer receipt of a portion of their compensation to future periods.
Upon separation from the Company, participants received payouts of
their deferred compensation balances over periods from five to fifteen
years. Effective January 1, 1989, participants were not offered the
opportunity to defer compensation to future periods. In June 1992,
the Company terminated the plan and placed the remaining participants
on 5-year payments. The consolidated balance sheet as of May 31, 1994
reflects the present value of the obligation to the participants under
the plan of $924,000.
The Company has a 401(k) Plan, which is a defined
contribution plan qualified under Section 401(k) of the Internal
Revenue Code, for the benefit of its eligible employees. All full-
time and part-time employees who have attained the age of 21 and have
completed six consecutive months of employment are eligible to
participate in the plan. Effective June 1, 1994, eligibility was
modified to one year of employment and a minimum of twenty (20)
regular scheduled hours per week. Each participant may contribute
from 2% to 15% of his or her compensation to the plan subject to
limitations on the highly compensated employees to ensure the plan is
non-discriminatory. The Company made approximately $20,000 and $9,000
in contributions to the Plan in fiscal 1994 and 1993, respectively.
The Company did not make any matching contributions to the plan in
fiscal year 1992.
Note 14-- Stockholders' Equity
The Company is authorized to issue 60,000 shares of
preferred stock with a par value of $50 per share. No preferred
shares have been issued.
The Company has a 1988 Incentive Stock Option Plan
and a 1988 Nonstatutory Stock Option Plan (the "1988 Plans"). Options
granted under the 1988 Incentive Stock Option Plan are intended to
qualify as incentive stock options ("ISOs") under Section 422 of the
Internal Revenue Code. In fiscal 1992, the 1988 Incentive Stock Option
Plan and 1988 Nonstatutory Stock Option Plan were amended to increase
the total number of shares reserved for issuance under the plans and
to expand the class of eligible persons under the nonstatutory plan to
include advisors and consultants. Options granted under the 1988
Nonstatutory Stock Option Plan do not qualify as ISOs. The maximum
number of shares subject to options are 1,500,000 and 400,000 for the
ISOs and nonstatutory options, respectively. The following table sets
forth the activity related to ISOs for the years ended May 31, 1994,
1993 and 1992:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share Aggregate
<S> <C> <C> <C>
Balance, May 31, 1991. . . . . . . . . . . .432,500$1.25-3.00 $ 800
Options exercised in fiscal 1992 . .(17,334) $1.25 (22)
Options canceled in fiscal 1992. . .(42,500) $2.125 (90)
Options issued or regranted in fiscal 1992 492,500$2.125-3.38 1,057
Options forfeited in fiscal 1992 . . (100,000) $1.25-3.00 (283)
------- ------
Balance, May 31, 1992. . . . . . . . . . . .765,166$1.25-3.38 $1,462
Options forfeited in fiscal 1993 . . (130,000) $1.25-3.38 (283)
------- ------
Balance, May 31, 1993. . . . . . . . . . . .635,166$1.25-3.00 $1,179
Options forfeited in fiscal 1994 . . (467,500) $1.25-3.00 (830)
------- ------
Balance, May 31, 1994. . . . . . . . . . . .167,666$1.25-3.00 $349
======= ======
</TABLE>
Options under the 1988 Plans to purchase 126,009 shares
and 464,123 shares were exercisable as of May 31, 1994
and 1993, respectively.
The following table sets forth the activity related to
nonstatutory options for the years ended May 31, 1994,
1993 and 1992:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share Aggregate
<S> <C> <C> <C>
Balance, May 31, 1991. . . . . . . . . . . .200,000 $1.25 $ 250
Options issued or regranted in fiscal 1992 120,000 $1.25 150
------- -----
Balance, May 31, 1992. . . . . . . . . . . .320,000 $1.25 $ 400
Options exercised in fiscal 1993 . .(40,000) $1.25 (50)
------- -----
Balance, May 31, 1993. . . . . . . . . . . .280,000 $1.25 $ 350
Options forfeited in fiscal 1994 . . (120,000) $1.25 (150)
------- -----
Balance, May 31, 1994. . . . . . . . . . . .160,000 $1.25 $200
======= =====
</TABLE>
Nonstatutory options to purchase 160,000 and 280,000
shares were exercisable as of May 31, 1994 and 1993, respectively.
The per share exercise price of options issued under
the plans is determined by the Board of Directors, but in no event is
the option exercise price so determined less than the then fair market
value (as defined in the plans) of the shares at the date of grant.
In the case of an ISO, if, on the date of the grant of such option,
the optionee is a restricted stockholder (as defined in the plans),
the option exercise price cannot be less than 110% of the fair market
value of the shares on the date of the grant.
Options vest and become exercisable at such times and
in such installments as the Board of Directors provides for in the
individual option agreement, except that an option granted to a
director may not be exercised until the expiration of one year from
the date such option is granted. Subject to the limitation with
respect to the vesting of options granted to directors, the Board of
Directors may in its sole discretion accelerate the time at which an
option or installment thereof may be exercised.
In July 1992, options not under any plan were issued
to the former Vice Chairman. Options for 1,000,000 shares were
granted at an exercise price ranging from $1.50 to $3.00. These
options were exercisable 25 percent at grant date and each year
thereafter. Options for 250,000 shares are currently exercisable at
$1.50 and expire in February 1995. The remaining 750,000 options were
forfeited. In December 1992, options not under any plan were issued
to the former owner of Mental Health Programs, Inc., as an inducement
essential to the purchase of Mental Health Programs, Inc. (see Note 3-
- - - "Acquisitions and Dispositions"). Options for 100,000 shares were
granted at an exercise price ranging from $1.50 to $3.00. These
options are exercisable 25 percent after one year from the grant date
and each year thereafter and were contingent upon the continued
employment with the Company. In July 1993, the Company terminated the
employment agreement, and as a result, the 100,000 options were
forfeited. In February 1993, options not under any plan were issued
to the Company's Chief Financial Officer. Options for 500,000 shares
were granted at an exercise price ranging from $1.00 to $2.00. These
options become exercisable 25 percent after one year from the grant
date and each year thereafter.
On April 19, 1988, the Company declared a dividend of
one common share purchase right ("Right") for each share of common
stock outstanding at May 6, 1988. Each Right entitles the holder to
purchase one share of common stock at a price of $30 per share,
subject to certain anti-dilution adjustments. The Rights are not
exercisable and are transferable only with the common stock until the
earlier of ten days following a public announcement that a person has
acquired ownership of 25% or more of the Company's common stock or the
commencement or announcement of a tender or exchange offer, the
consummation of which would result in the ownership by a person of 30%
or more of the Company's common stock. In the event that a person
acquires 25% or more of the Company's common stock or if the Company
is the surviving corporation in a merger and its common stock is not
changed or exchanged, each holder of a Right, other than the 25%
stockholder (whose Rights will be void), will thereafter have the
right to receive on exercise that number of shares of common stock
having a market value of two times the exercise price of the Right.
If the Company is acquired in a merger or more than 50% of its assets
are sold, proper provision shall be made so that each Right holder
shall have the right to receive or exercise, at the then current
exercise price of the Right, that number of shares of common stock of
the acquiring company that at the time of the transaction would have a
market value of two times the exercise price of the Right. The Rights
are redeemable at a price of $.02 per Right at any time prior to ten
days after a person has acquired 25% or more of the Company's common
stock.
<PAGE>
Note 15-- Commitments and Contingencies
On October 30, 1992, the Company filed a complaint in
the United States District Court for the Eastern District of Missouri
against RehabCare Corporation ("RehabCare") seeking damages for
violations by RehabCare of the securities laws of the United States,
for common law fraud and for breach of contract (Case No. 4-
92CV002194-SNL). The Company seeks relief of damages in the lost
benefit of certain stockholder appreciation rights in an amount in
excess of $3.6 million and punitive damages. On May 18, 1993, the
District Court denied a motion for summary judgement filed by
RehabCare. On June 16, 1993, RehabCare filed a counterclaim seeking a
declaratory judgement with respect to the rights of both parties under
the stock redemption agreement, an injunction enjoining the Company
from taking action under stock redemption or restated shareholders
agreements and damages. The Company has filed a motion with the court
to strike RehabCare's request for damages for attorney's fees and
costs on the grounds that such relief is not permitted by law nor
authorized by the agreements between the parties. This case was
scheduled for trial on May 9, 1994, but has been continued on the
court's own initiative and the new trial date has not been set.
Management believes that the Company's allegations have merit and
intends to vigorously pursue this suit. Management further believes
that should RehabCare prevail at trial on its request for such
attorneys fees and costs, such fees and costs would not materially
affect the financial statements of the Company.
In connection with the proposed sale of hospitals to
CMP Properties, Inc. (see Note 5-- "Property and Equipment for Sale"),
the Company advanced $1.1 million to a former consultant which was to
be returned in the event the transaction was terminated. These
advances were to be secured by the common stock of an unrelated
company. The shares of common stock pledged were purported to be in
the possession of the Company's former legal firm as collateral for
the advances, but were not provided to the Company when the
transaction was terminated. The Company is currently in litigation
with the former consultant and legal firm to recover the advances.
The Company is currently undergoing a payroll tax
audit by the Internal Revenue Service ("IRS") for calendar years 1983
through 1991. The IRS agent conducting the audit has asserted that
certain physicians and psychologists and other staff engaged as
independent contractors by the Company should have been treated as
employees for payroll tax purposes. On April 8, 1991, the Company
received a proposed assessment related to this assertion claiming
additional taxes and penalties due totaling approximately $19.4
million for calendar years 1983 through 1988. The Company filed a
protest with the IRS and contested the proposed assessment with the
Appeals Office of the Internal Revenue Service in St. Louis, Missouri.
The Appeals Office issued a reduced assessment in the amount of
approximately $6,300,000, plus penalties and interest of $6,500,000.
The IRS is also examining the Company's employment tax returns for the
years 1989 through 1991, and the agent conducting the examination
proposed the assessment of additional taxes for those years in the
approximate amount of $1,600,000, plus penalties and interest in an
undetermined amount. While management believes the Company has strong
arguments to support its treatment of the payments to independent
contractors to whom substantially all of the assessment relates, the
Company has submitted an offer in compromise to the IRS for the
calendar years 1983 through 1991 for $5 million. A reserve has been
established with respect to this matter to cover expenses the Company
expects to incur; however, there can be no assurance that such
reserves are adequate until a formal settlement is reached with the
IRS. The Company and RehabCare, in May 1991, entered into a Tax
Sharing Agreement providing for the Company to indemnify RehabCare for
any claims of income or payroll taxes due for all periods through
February 28, 1991. The Company has established a reserve with respect
to covering expenses the Company expects RehabCare to incur under the
Tax Sharing Agreement.
The federal income tax returns of the Company for its
fiscal years ended 1984 and 1987 through 1991, have been examined by
the IRS. The Company has provided the IRS with satisfactory
documentary support for the majority of items questioned and those
items have been deleted from the proposed assessment and accepted as
originally filed. The remaining items have been agreed to and
resulted in a disallowance of approximately $229,000 in deductions
which will be offset against the Company's net operating losses
available for carryover. The examination also included the review of
the Company's claim for refund of approximately $205,000 relating to
an amended return for the fiscal year ended May 31, 1992. During
completion of the audit, the IRS noted that the Company had received
excess refunds representing its AMT liability of approximately
$666,000 in 1990 and 1991 from the carryback of net operating losses
to the fiscal years ended May 31, 1988 and 1989, respectively. On
March 29, 1994, the Company agreed to the assessment of $666,000 plus
interest and received the final bill of $821,000 during the fourth
quarter of fiscal 1994. The Company has accrued for this liability,
net of refunds, in income taxes payable.
From time to time, the Company and its subsidiaries
are also parties and their property is subject to ordinary routine
litigation incidental to their business. In some pending cases,
claims exceed insurance policy limits and the Company or a subsidiary
may have exposure to liability that is not covered by insurance.
Management believes that the outcome of such lawsuits will not have a
material adverse impact on the Company's financial statements.
<PAGE>
PART III
Items 10 and 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
AND EXECUTIVE COMPENSATION.
The Company expects to file its definitive proxy
statement for the 1994 annual meeting of shareholders no later than
120 days after the end of the fiscal year with the Securities and
Exchange Commission. The information set forth therein under
"Election of Directors" and "Executive Compensation" is incorporated
herein by reference. Executive Officers of Comprehensive Care
Corporation and principal subsidiaries are listed on page 13 of this
Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information required is set forth under the caption
"Principal Stockholders" in the proxy statement for the 1994 annual
meeting of shareholders and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required is set forth under the caption
"Compensation Committee Interlocks and Insider Participation" in the
proxy statement for the 1994 annual meeting of shareholders and is
incorporated herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a)
1. Financial Statements
Included in Part II of this report:
Report of Independent Public Accountants
Independent Auditors' Report
Consolidated Balance Sheets, May 31, 1994 and
1993
Consolidated Statements of Operations, Years
Ended May 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders'
Equity, Years Ended May 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows, Years
Ended May 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
V. Property and Equipment
VI. Accumulated Depreciation and Amortization
of Property and Equipment
X. Supplementary Statements of Operations
Information
Other schedules are omitted, as the required
information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.
3. Exhibits
Exhibit
Number
Description and Reference
3.1 Restated Certificate of Incorporation
(1).
3.2 Restated Bylaws as amended March 24, 1994
(filed herewith).
4.1 Indenture dated April 25, 1985 between
the Company and Bank of America, NT&SA,
relating to Convertible Subordinated
Debentures (2).
4.3 Rights Agreement dated as of April 19,
1988 between the Company and Security
Pacific National Bank (3).
10.1 Standard form of CareUnit Contract (4).
10.2 Standard form of CarePsychCenter Contract (4).
10.4 Financial Security Plan for executive management and
medical directors (5)*.
10.5 Form of Stock Option Agreement (4)*.
10.6 Form of Indemnity Agreement as amended March 24, 1994
(filed herewith)*.
10.28 The Company's Employee Savings Plan as amended and restated
as of June 30, 1993 (6)*.
10.31 Agreement between the Company and Livingston & Company
dated April 1, 1991 (7).
10.32 Shareholder Agreement dated as of May 8, 1991 between
the Company and RehabCare Corporation (7).
10.33 Tax Sharing Agreement dated as of May 8,1991 between the
Company and RehabCare Corporation (7).
10.35 Agreement between Company and Livingston & Co. dated
December 21, 1991 (8).
10.36 Option Agreement with Richard W. Wolfe dated July 1, 1992 (8).*
10.37 Redemption Agreement dated September 1,1992 between
RehabCare and the (8).
10.40 1988 Incentive Stock Option and 1988 Nonstatutory Stock
Option Plans, as amended (8).*
10.46 Employment Agreement dated December 30, 1992 between
the Company and Walter E. Afield, M.D. (9).
Exhibits (continued)
Exhibit
Number Description and Reference
10.47 Non-qualified Option Agreement dated December 30, 1992
between the Company and Walter E. Afield, M.D. (9).
10.48 Non-Qualified Stock Option Agreement dated February 2, 1993,
between the Company and Fred C. Follmer (filed herewith).
11 Computation of Loss Per Share (filed herewith).
22 List of the Company's subsidiaries (filed herewith).
24.1 Consent of Arthur Andersen & Co. (filed herewith).
24.2 Consent of KPMG Peat Marwick llp (filed herewith).
____________________________________
* Management contract or compensatory plan or
arrangement with one or more directors or executive
officers.
(1) Filed as an exhibit to the Company's Form 10-Q for the
quarter ended August 31, 1986.
(2) Filed as an exhibit to the Company's Form S-3
Registration Statement No. 2-97160.
(3) Filed as an exhibit to the Company's Form 8-K dated
May 4, 1988.
(4) Filed as an exhibit to the Company's Form 10-K for the
fiscal year ended May 31, 1988.
(5) Filed as an exhibit to the Company's Form 10-K for the
fiscal year ended May 31, 1990.
(6) Filed as an exhibit to the Company's Form 10-K for the
fiscal year ended May 31, 1991.
(7) Filed as an exhibit to RehabCare Corporation's Form S-
1 Registration Statement No. 33-40467.
(8) Filed as an exhibit to the Company's Form 10-K for the
fiscal year ended May 31, 1992.
(9) Filed as an exhibit to the Company's Form 10-K for the
fiscal year ended May 31, 1993.
(b) Reports on Form 8-K
1) On March 7, 1994, the Company filed a
current report on Form 8-K to report new
members of the Board of Directors, new
members of the Compensation Committee, the
Board approval of amendment of the
Company's Certificate of Incorporation
(subject to shareholder approval) and the
tentative approval of voluntary, temporary
reduction of conversion price of
convertible debentures.
2) On May 10, 1994, the Company filed a
current report on Form 8-K reporting the
resignation of Richard C. Peters,
President and Chief Executive Officer.
3) On June 30, 1994, the Company filed a
current report on Form 8-K to report an
assessment received from the IRS relating
to the payroll tax audit for calendar
years 1983 through 1988 (see Note 15--
"Commitments and Contingencies").
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, August 25, 1994.
COMPREHENSIVE CARE CORPORATION
By /s/ CHRISS W. STREET
Chriss W. Street
Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Company and in the capacities and
on the dates so indicated.
Signature Title Date
Chairman and
Chief Executive Officer
/s/ CHRISS W. STREET
(Principal Executive Officer) August 25, 1994
Chriss W. Street
Chief Operating Officer and
Chief Financial Officer
/s/ FRED C. FOLLMER
(Principal Financial Officer) August 25, 1994
Fred C. Follmer
Vice President, Secretary and
Chief Accounting Officer
/s/ KERRI RUPPERT
(Principal Accounting Officer)August 25, 1994
Kerri Ruppert
/s/ WILLIAM H. BOUCHER DirectorAugust 25, 1994
William H. Boucher
/s/ J. MARVIN FEIGENBAUM DirectorAugust 25, 1994
J. Marvin Feigenbaum
/s/ HARVEY G. FELSEN DirectorAugust 25, 1994
Harvey G. Felsen
/s/ HOWARD S. GROTH DirectorAugust 25, 1994
Howard S. Groth
/s/ W. JAMES NICOL DirectorAugust 25, 1994
W. James Nicol
<PAGE>
COMPREHENSIVE CARE CORPORATION
Schedule V - Property and Equipment
Years Ended May 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Balance at Sales Balance at
Beginning ofAdditions and Reclassi- End of
Period at CostRetirements fications(1) Period
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1994
Land and improvements .$ 4,117 $ --- $ --- $ (54) $ 4,063
Buildings and improvements. . 19,209 82 99 (1,000) 18,192
Furniture and equipment . . . 5,866 280 1,956 627 4,817
Leasehold improvements. 1,364 3 15 13 1,365
Capitalized leases. . . 876 18 --- (5) 889
------- ------ ------ ------- -------
$31,432 $383 $2,070 $(419) $29,326
====== ====== ====== ======= =======
Year ended May 31, 1993
Land and improvements . $ --- $ --- $ --- $ 4,117 $ 4,117
Buildings and improvements. . 2,963 203 2,731 18,774 19,209
Furniture and equipment . . . 3,440 360 3,201 5,267 5,866
Leasehold improvements. 463 136 24 789 1,364
Capitalized leases. . . --- 67 --- 809 876
------- ------ ------ ------- -------
$ 6,866 $766 $5,956 $29,756 $31,432
====== ====== ====== ======= =======
Year ended May 31, 1992
Land and improvements .$ 7,525 $ --- $ --- $ (7,525) $ ---
Buildings and improvements. . 25,309 337 56 (22,627) 2,963
Furniture and equipment . . . 11,463 403 2,330 (6,096) 3,440
Leasehold improvements. 829 11 377 --- 463
Capitalized leases. . . 745 --- 745 --- ---
------- ------ ------ ------- -------
$45,871 $751 $3,508 $(36,248) $ 6,866
====== ====== ====== ======= =======
</TABLE?
(1) Includes amounts which have been reclassified from(to)
property and equipment held for sale.
See accompanying Report of Independent Public Accountants.
<PAGE>
COMPREHENSIVE CARE CORPORATION
Schedule VI - Accumulated Depreciation and Amortization
of Property and Equipment
Years Ended May 31, 1994, 1993 and 1992
</TABLE>
<TABLE>
<CAPTION>
Balance at Sales Balance at
Beginning ofAdditions and Reclassi- End of
Period at CostRetirements fications(1) Period
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1994
Buildings and improvements. . $ 7,670 $ 887 $ 95 $ 205 $ 8,667
Furniture and equipment . . . 4,470 507 1,877 311 3,411
Leasehold improvements. 792 79 14 81 938
Capitalized leases. . . 297 25 --- --- 322
------- ------ ------ ------- -------
$13,229 $1,498 $1,986 $ 597 $13,338
====== ====== ====== ======= =======
Year ended May 31, 1993
Buildings and improvements. . $ 871 $1,371 $ 869 $ 6,297 $ 7,670
Furniture and equipment . . . 1,338 926 922 3,129 4,471
Leasehold improvements. 383 82 22 349 792
Capitalized leases. . . --- --- --- 296 296
------- ------ ------ ------- -------
$2,592 $2,379 $1,813 $10,071 $13,229
====== ====== ====== ======= =======
Year ended May 31, 1992
Buildings and improvements. . $ 1,664 $1,268 $ 8 $(2,053) $ 871
Furniture and equipment . . . 8,579 982 1,246 (6,977) 1,338
Leasehold improvements. 528 66 308 97 383
Capitalized leases. . . 612 52 631 (33) ---
------- ------ ------ ------- -------
$11,383 $2,368 $2,193 $(8,966) $ 2,592
====== ====== ====== ======= =======
</TABLE>
(1) Includes amounts which have been reclassified from(to)
property and equipment held for sale.
See accompanying Report of Independent Public Accountants.
<PAGE>
COMPREHENSIVE CARE CORPORATION
Schedule X - Supplementary Statements of Operations Information
Years Ended May 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in thousands)
<S> <C> <C> <C>
Advertising costs. . . . . . . . . . . $566$2,238 $2,557
</TABLE>
See accompanying Report of Independent Public Accountants.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made on
_____________, between COMPREHENSIVE CARE CORPORATION,
a Delaware corporation (the "Company"), and
________________, an officer and/or member of the Board
of Directors of the Company.
WHEREAS, the Company desires the benefits of having
Indemnitee serve as an officer and/or director secure
in the knowledge that expenses, liability and losses
incurred by him in his good faith service to the
Company will be borne by the Company or its successors
and assigns in accordance with applicable law; and
WHEREAS, the Company desires that Indemnitee resist and
defend against what Indemnitee may consider to be
unjustified investigations, claims, actions, suits and
proceedings which have arisen or may arise in the
future as a result of Indemnitee's service to the
Company notwithstanding that conditions in the
insurance markets may make directors' and officers'
liability insurance coverage unavailable or available
only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to
memorialize and reaffirm the Company's indemnification
obligations to Indemnitee and, in addition, set forth
the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual
agreements herein contained, the parties agree as
follows:
1. Indemnification. Indemnitee shall be indemnified
and held harmless by the Company to the fullest extent
permitted by its Certificate of Incorporation, Bylaws
and applicable law, as the same exists or may hereafter
be amended, against all expenses, liability and loss
(including attorneys' fees, judgments, fines, and
amounts paid or to be paid in any settlement approved
in advance by the Company, such approval not to be
unreasonably withheld) (collectively, "Indemnifiable
Expenses") actually reasonably incurred or suffered by
Indemnitee in connection with any present or future
threatened, pending or contemplated investigation,
claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative
(collectively, "Indemnifiable Litigation"), (i) to
which Indemnitee is or was a party or is threatened to
be made a party by reason of any action or inaction in
Indemnitee's capacity as a director or officer of the
Company, or (ii) with respect to which Indemnitee is
otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer,
employee or agent of the Company, or of any subsidiary
or division, or is or was serving at the request of the
Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust
or other enterprise. Notwithstanding the foregoing,
Indemnitee shall have no right to indemnification for
expenses and the payment of profits arising from the
purchase and sale by Indemnitee of securities in
violation of Section 16(b) of the Securities and
Exchange Act of 1934, as amended.
2. Interim Expenses. The Company agrees to pay
Indemnifiable Expenses incurred by Indemnitee in
connection with any Indemnifiable Litigation in advance
of the final disposition thereof, provided that the
Company has received an undertaking by or on behalf of
Indemnitee, substantially in the form attached hereto
as Exhibit A, to repay the amount so advanced to the
extent that it is ultimately determined that Indemnitee
is not entitled to be indemnified by the Company under
this Agreement or otherwise.
3. Trust Fund.
(a) The Company may, but is not obligated to,
establish a trust (the "Trust") to fund certain of its
obligations under this Agreement and similar agreements
with other directors and/or officers (collectively,
including Indemnitee, the "Beneficiaries"). Therefore,
in such event, in addition to Indemnitee's rights under
this Indemnification Agreement and any applicable
insurance policy, Indemnitee shall also have the right
to seek indemnification payments from the Trustee of
the trust in accordance with the terms of this
Agreement and of the trust agreement.
(b) All communications or demands made by and
among the Trustee and the Beneficiaries are to be made
through the individual designated as the Beneficiaries'
Representative. As of the date of this Agreement, a
Trust has not been established, nor has a
Beneficiaries' Representative been designated. The
Beneficiaries' Representative shall be designated and
may be changed from time to time and at any time upon
agreement of two-thirds of the Beneficiaries at such
time.
4. Procedure for Making Demand. In order to
receive payment, including advance payments as set
forth in Paragraph 2, Indemnitee shall make demand upon
the Company to honor its indemnity obligations and pay
the Indemnifiable Expenses. If the Company fails to do
so within fifteen (15) days, the Indemnitee shall then
have the right and obligation to make demand under any
applicable policy of directors' and officers' liability
insurance then in effect upon the insurance company
(the "Insurance Company") issuing such policy. If
Insurance Company fails to pay the demand within
fifteen (15) days, then if a Trust shall have been
established, the Indemnitee, through the Beneficiaries'
Representative, shall then be entitled and obligated to
make demand upon the Trustee for such payment.
Indemnitee shall not be required to institute a lawsuit
or take other actions against the Company, Insurance
Company or any insurer to recover the unpaid amount
prior to the Beneficiaries' Representative making a
demand and receiving payment from the Trustee on his
behalf, but the Beneficiaries' Representative shall
deliver a certificate to the Trustee at the time of
payment of each distribution certifying that no part of
such payment has been previously received from the
Company or any insurer.
5. Failure to Indemnify.
(a) If a claim under this Agreement, or
any statute, or under any provision of the Company's
Certificate of Incorporation or Bylaws providing for
indemnification, is not paid in full by the Company,
Insurance Company or Trustee, if the Trust Fund shall
have been established, within forty-five (45) days
after a written request for payment thereof has been
received by the Company, Indemnitee may, but need not,
at any time thereafter bring an action against the
Company to recover the unpaid amount of the claim and,
if successful in whole or in part, Indemnitee shall
also be entitled to be paid for the expense (including
attorneys' fees) of bringing such action.
(b) It shall be a defense to such action
(other than an action brought to enforce a claim for
expenses incurred in connection with any action, suit
or proceeding in advance of its final disposition) that
Indemnitee has not met the standard of conduct which
make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed,
but the burden of proving such defense shall be on the
Company and Indemnitee shall be entitled to receive
interim payments of interim expenses pursuant to
Section 2 hereof unless and until such defense may be
finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the
parties' intention that if the Company contests
Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the
court to decide, and neither the failure of the Company
(including its board of directors, independent legal
counsel, or its stockholders) to have made a
determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met
the applicable standard of conduct required by
applicable law, nor an actual determination by the
Company (including its board of directors, any
committee or subgroup of the board of directors,
independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.
6. Retention of Counsel.
(a) Whether Indemnitee is seeking payment
of Indemnifiable Expenses directly from the Company or
from the Trustee, the Indemnitee or the Beneficiaries'
Representative, if the Trust Fund shall have been
established, shall have the right and obligation on
behalf of Indemnitee and other Beneficiaries, in the
case of the Beneficiaries' Representative, to (i) seek
counsel to represent Indemnitee with respect to any
matter subject to indemnification and payment
hereunder; (ii) coordinate the defense of any such
matter; and (iii) approve the fees and other expenses
of such counsel.
(b) Notwithstanding the foregoing,
Indemnitee may retain different counsel than the other
Indemnitees or Beneficiaries, or may incur expenses not
shared in common with the other Indemnitees or
Beneficiaries, in connection with any Indemnifiable
Litigation if in the reasonable judgment of Indemnitee
there may be legal defenses available to him which are
different from or additional to those available to the
other Indemnitees or Beneficiaries and, as a
consequence, an actual or potential conflict of
interest with the other Indemnitees or Beneficiaries
exists. If the Trust Fund shall have been established,
Indemnitee must obtain the prior written approval of
the Beneficiaries' Representative to retain such
counsel, which consent shall not be unreasonably
withheld. In the event that the Beneficiaries'
Representative withholds such consent, Indemnitee shall
then have the right to seek approval for such separate
counsel from the Trustee, which approval shall not be
unreasonably withheld.
(c) Nothing contained herein shall
prohibit Indemnitee from retaining other counsel at
Indemnitee's own expense.
7. Successors. This Agreement establishes
contract rights which shall be binding upon, and shall
inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
8. Contract Rights Not Exclusive. The contract
rights conferred by this Agreement shall be in addition
to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any
statute, provision of the Company's Certificate of
Incorporation or Bylaws, agreement, vote of
shareholders or disinterested directors, or otherwise.
9. Indemnitee's Obligations. The Indemnitee
shall promptly advise the Company in writing of the
institution of any investigation, claim, action, suit
or proceeding which is or may be subject to this
Agreement and keep the Company generally informed of,
and consult with the Company with respect to, the
status of any such investigation, claim, action, suit
or proceeding. Notices to the Company shall be
directed to Comprehensive Care Corporation, 16305
Swingley Ridge Drive, Suite 100, Chesterfield, Missouri
63017, Attn: President (or other such address as the
Company shall designate in writing to Indemnitee).
Notice shall be deemed received three days after the
date postmarked if sent by certified or registered
mail, properly addressed. In addition, Indemnitee
shall give the Company such information and cooperation
as it may reasonably require and as shall be within
Indemnitee's power.
10. Severability. Should any provision of this
Agreement, or any clause thereof, be held to be
invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement
shall remain fully enforceable and binding on the
parties.
11. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be
binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether of not
similar) nor shall such waiver constitute a continuing
waiver.
12. Choice of Law. The validity,
interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the parties have executed
this Agreement as of the day and year first written
above.
COMPREHENSIVE CARE CORPORATION
By:_________________________________________
INDEMNITEE
_________________________________________
<PAGE>
EXHIBIT A
UNDERTAKING AGREEMENT
THIS UNDERTAKING AGREEMENT (this "Agreement") is
made on _____________, between COMPREHENSIVE CARE
CORPORATION, a Delaware corporation (the "Company") and
________________, a member of the board of directors or
an officer of the Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in
investigations, claims, actions, suits or proceedings
which have arisen or may arise in the future as a
result of Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay
any and all expenses (including, but not limited to,
attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's
behalf in defending or investigating any such suits or
claims and that such payment be made in advance of the
final disposition of such investigations, claims,
actions, suits or proceedings to the extent that
Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such
payments but, in accordance with Section 145 of the
General Corporation Law of the State of Delaware, the
Company may make such payments only if it receives an
undertaking to repay from Indemnitee; and
WHEREAS, Indemnitee is willing to give such an
undertaking;
NOW, THEREFORE, in consideration of the mutual
promises contained herein, the parties agree as
follows:
1. In regard to any payments made by the Company
to Indemnitee pursuant to the terms of the
Indemnification Agreement dated March 7, 1994, between
the Company and Indemnitee, Indemnitee hereby
undertakes and agrees to repay to the Company any and
all amounts so paid promptly and in any event within
thirty (30) days after the disposition, including any
appeals, of any litigation or threatened litigation on
account of which payments were made, but only to the
extent that Indemnitee is ultimately found not to be
entitled to be indemnified by the Company under the
Bylaws of the Company and Section 145 of the General
Corporation Law of the State of Delaware, or other
applicable law.
2. This Agreement shall not affect in any manner
rights which Indemnitee may have against the Company,
any insurer or any other person to seek indemnification
for or reimbursement of any expenses referred to herein
or any judgment which may be rendered in any litigation
or proceeding.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Undertaking Agreement to be executed on the date first
above written.
COMPREHENSIVE CARE CORPORATION
By:_________________________________________
INDEMNITEE
_________________________________________
NEITHER THIS OPTION AGREEMENT NOR THE SHARES ISSUABLE
BY COMPREHENSIVE CARE CORPORATION (THE "COMPANY) UPON
EXERCISE HEREOF, HAVE BEEN OR WILL BE REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE, AND THIS OPTION IS BEING
ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS ARISING THEREUNDER, AND MAY
NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH ALL
APPLICABLE STATE AND FEDERAL SECURITIES LAWS AND UPON
FURNISHING THE COMPANY AN OPINION OF COUNSEL, THAT THE
PROPOSED TRANSFER WOULD BE IN COMPLIANCE WITH ALL
APPLICABLE STATE AND FEDERAL SECURITIES LAWS. ANY
DOCUMENTS EVIDENCING THIS SECURITY, INCLUDING STOCK
CERTIFICATES EVIDENCING THE UNDERLYING SHARES, WILL
CONTAIN A SIMILAR LEGEND. THE COMPANY SHALL PLACE
NOTATIONS WITH RESPECT TO THESE RESTRICTIONS ON ITS
SECURITIES RECORDS AND SHALL INFORM THE TRANSFER AGENT,
OF SUCH RESTRICTIONS.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement ("Agreement") is made
effective as of February 2, 1993 ("Option Grant Date"),
by and between Comprehensive Care Corporation, a
Delaware corporation, ("Company") and Fred C. Follmer
("Optionee").
In consideration of the foregoing and of the
mutual covenants set forth herein and other good and
valuable consideration, the parties hereto agree as set
forth below.
1. The Option. Optionee may, at
Optionee's option and on the terms and conditions set
forth herein, purchase all or any part of an aggregate
of 500,000 shares of common stock at the price per
share of $1.00, $1.50, $2.00 and $2.00, vesting at the
rate of twenty-five percent, at the end of the first
year and at the end of each year thereafter at the rate
of twenty-five percent ("Option") pursuant to Exhibit
A.
2. Vesting and Exercisability of Option.
Subject to the limitations set forth herein, the option
granted shall vest and be exercisable in accordance
with the following rules:
A. General. Subject to the other
provisions of this Section 2, Option shall vest and
become exercisable at such times and in such
installments as set forth in Section 1. Unless
otherwise provided in this Section 2, the Option may be
exercised when the installments accrue and at any time
thereafter until, and including, the day before the
Termination Date (as defined below). Option shall
remain exercisable until the Termination Date,
notwithstanding the subsequent grant of additional
options with different start or termination dates.
Optionee acknowledges that Optionee has no right
whatsoever to exercise the Option granted hereunder
with respect to any share covered by an installment
until such installment accrues as provided in Section
1.
B. Termination of Option. All
installments of the Option shall expire and terminate
on February 1, 2003 ("Termination Date").
C. Termination of Employment. In
the event that the employment of the Optionee is
terminated for any reason, any installments under the
option held by such Optionee which have not accrued as
of the employment termination date shall expire and
become unexercisable as of the employment termination
date. In the event that Optionee's employment with the
Company is terminated "for cause", then the option
granted hereunder to such terminated Optionee, whether
vested or not, shall expire and become unexercisable as
of the effective date of the termination of employment
of the Optionee. All accrued installments as of the
employment termination date shall remain exercisable
for three (3) months following the employment
termination date.
3. Exercise of Option. The Option may be
exercised in accordance with this Section as to all or
any portion of the Shares covered by an accrued
installment of the Option from time to time during the
applicable option period, except that the Option shall
not be exercisable with respect to fractions of a
Share. The Option may be exercised, in whole or in
part, by giving written notice of exercise to the
Company, which notice shall specify the number of
Shares to be purchased and shall be accompanied by
payment in full of the purchase price in accordance
with Section 4. The Option shall be deemed exercised
when such written notice of exercise has been received
by the Company. No Shares shall be issued until full
payment has been made and the Optionee has satisfied
such other conditions as may be required by applicable
law, rules, or regulations, or as may be adopted or
imposed by the Company. Until the issuance of stock
certificates, no right to vote or receive dividends or
any other rights as a stockholder shall exist with
respect to optioned Shares notwithstanding the exercise
of the Option. No adjustment will be made for a
dividend or other rights for which the record date is
prior to the date the stock certificate is issued.
4. Payment of Option Exercise Price.
Except as otherwise provided in this Section, the
entire option exercise price shall be paid at the time
the option is exercised by cashier's check or such
other means as deemed acceptable by the Company.
5. Option Not Transferable. The Option
granted under this Agreement may not be sold, pledged,
hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner.
6. Restrictions on Issuance of Shares.
A. No Shares shall be issued or
delivered upon exercise unless and until there shall
have been compliance with all applicable requirements
of the Securities Act of 1933, all applicable listing
requirements of any national securities exchange on
which Shares are then listed, and any other requirement
of law or of any regulatory body having jurisdiction
over such issuance and delivery. The inability of the
Company to obtain any required permits, authorizations,
or approvals necessary for the lawful issuance and sale
of any Shares hereunder on terms deemed reasonable by
the Company shall relieve the Company of any liability
in respect of the nonissuance or sale of such Shares as
to which such requisite permits, authorizations, or
approvals shall not have been obtained.
B. As a condition to the granting or
exercise of the Option, the Company may require the
person receiving or exercising such option to make any
representation and/or warranty to the Company as may be
required under any applicable law or regulation,
including but not limited to a representation that the
Option and/or Shares are being acquired only for
investment and without any present intention to sell or
distribute each Option and/or Shares if such
representation is required under the Securities Act of
1933 or any other applicable law, rule, or regulation.
7. Taxes. On the Exercise Date, the
Optionee must pay to the Company the amount of the
federal, state and local tax withholding obligation
arising from the exercise of the Option;
A. in cash equal to the minimum
withholding;
B. if the Exercise Price for the
Option Shares is paid by a broker, dealer or other
"creditor" (as defined by Regulation T issued by the
Board of Governors of the Federal Reserve System) with
the Optionee making a Tax Withholding Election to have
such broker, dealer or other "creditor" deliver to the
Company cash in the amount of tax withholding due after
the Optionee has delivered to the Company instructions
acceptable to the Company regarding the delivery of the
number of Option Shares being exercised to such broker,
dealer or other "creditor".
8. Legends on Option and Stock
Certificates. Each certificate representing Shares
acquired upon exercise of the option shall be endorsed
with all legends, if any, required by applicable
federal and state securities laws to be placed on the
certificate. The determination of which legends, if
any, shall be placed upon said Shares shall be made by
the Company in its sole discretion and such decision
shall be final and binding.
9. Certain Representations and
Warranties. Executive expressly acknowledges,
represents and agrees:
A. Optionee understands that the
option is not issued under the Company's existing stock
option plans.
B. That the Shares are not now
registered under applicable securities laws or listed
on any national securities exchange, and that the
Company may require, as a condition to the granting or
exercise of the Option, that the person receiving or
exercising the option must make such representations or
warranties to the Company as may be required under
applicable law or regulation, including but not limited
to a representation that the Option and/or Shares are
being acquired only for investment and without any
present intention to sell or distribute such Option or
Shares.
C. That Optionee understands that
the existence and execution of this Agreement is not
sufficient by itself to cause any exercise of the
Option.
D. That Optionee is a person subject
to the provisions of Section 16 of the Securities
Exchange Act of 1934, and Optionee has been advised to
consult with a competent federal securities law advisor
as to the reporting obligations or potential liability
for short swing profits under Section 16 with respect
to the granting, investing and exercise of the Option.
E. Nothing in this Agreement shall
be construed to create any contract of employment
between the Company and the Optionee or confer upon
Optionee any right to continue in the employment of the
Company. The Company shall have the right to deal with
Optionee in the same manner as if this Agreement did
not exist including without limitation the hiring,
discharge, compensation and conditions of employment of
Optionee.
10. Agreement Binding on Successors. The
terms of this Agreement shall be binding upon the
executors, administrators, heir and successors of
Optionee and Optionee may not transfer or assign this
Agreement, except in compliance with all applicable
state and federal securities laws and upon furnishing
the Company an opinion of counsel to that effect.
11. Governing Law. This Agreement shall
be governed by, interpreted under, and construed and
enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of
the State of Missouri applicable to agreements made and
to be performed wholly within the State of Missouri.
12. Necessary Acts. Executive agrees to
perform all acts and execute and deliver any documents
that may be reasonably necessary to carry out the
provisions of this Agreement, including but not limited
to all acts and documents related to compliance with
federal and/or state securities laws.
13. Invalid Provisions. In the event
that any provision of this Agreement is found to be
invalid or otherwise unenforceable under any applicable
law, such invalidity or unenforceability shall not be
construed as rendering any other provisions contained
herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the
same extent as though the invalid and unenforceable
provision was not contained herein.
14. Notice. Any notice or other
communication required or permitted to be given
pursuant to the Agreement must be in writing and may be
given by registered or certified mail, and if given by
registered or certified mail, shall be determined to
have been given and received when a registered or
certified letter containing such notice, properly
addressed with postage prepaid, is deposited in the
United States mails; and if given otherwise than by
registered or certified mail, it shall be deemed to
have been given when delivered to and received by the
party to whom addressed. Notice shall be given to
Optionee at his most recent address shown in the
Company's records. Notice to the Company shall be
addressed to the Company at the address of the
Company's principal executive offices, to the attention
of the Secretary of the Company.
<PAGE>
IN WITNESS WHEREOF, the Company and Optionee
have executed this Agreement effective as the date
first written above.
COMPREHENSIVE CARE CORPORATION
By _____________________________________
Its __________________________
OPTIONEE
_______________________________
Fred C. Follmer
EXHIBIT A
Date Exercisable Number of Shares and Price
Year One 2/2/94 125,000 at $1.00 per share
Year Two 2/2/95 125,000 at $1.50 per share
Year Three 2/2/96 125,000 at $2.00 per share
Year Four 2/2/97 125,000 at $2.00 per share
COMPREHENSIVE CARE CORPORATION
Exhibit 11 - Calculation of Loss Per Share
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------
1994 1993 1992 1991 1990
==== ==== ==== ==== ====
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Primary and Fully Diluted:
Loss applicable to common stock:
Loss before extraordinary item (a) $(7,852) $(11,600) $(4,562) $(27,500) $(59,308)
Extraordinary item - gain on
debenture conversion --- --- --- 11,465 ---
------ ------ ----- ------ ------
Net loss $(7,852) $(11,600) $(4,562) $(16,035) $(59,308)
===== ====== ===== ====== ======
Average number of shares of common stock
and common stock equivalents outstanding 21,987 21,957 21,900 12,118 10,172
===== ====== ===== ====== ======
Loss per common and common equivalent share:
Loss before extraordinary item $(0.36) $(0.53) $(0.21) $(2.27) $(5.83)
Extraordinary item - gain on debenture
conversion --- --- --- .95 ---
----- ----- ----- ----- -----
Net loss $(0.36) $(0.53) $(0.21) $(1.32) $(5.83)
==== ==== ==== ==== ====
</TABLE>
EXHIBIT 22
COMPREHENSIVE CARE CORPORATION
Schedule of Subsidiaries
STATE OF
SUBSIDIARY NAME INCORPORATION
=============== =============
N.P.H.S., Inc. California
CareManor Hospital of Washington, Inc. Washington
Trinity Oaks Hospital, Inc. Texas
Terracina Convalescent Hospital & Home, Inc. California
CareUnit, Inc. California
Starting Point Incorporated California
CareUnit Hospital of Albuquerque, Inc. New Mexico
Comprehensive Care Corporation Nevada
CareUnit Clinic of Washington, Inc. Washington
CareUnit Hospital of Ohio, Inc. Ohio
Comprehensive Care Corporation (Canada) Ltd. Canada
CareUnit of Chicago, Inc. Illinois
CareUnit, Inc. Delaware
CMP Properties, Inc. Oregon
CareUnit of Florida, Inc. Florida
CareUnit Hospital of Nevada, Inc. Nevada
AccessCare, Inc. Nevada
AccessCare of Florida, Inc. Florida
AccessCare of Washington, Inc. Washington
CareInstitute California
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent
to the incorporation of our report included in this Form
10-K into the Company's previously filed Post-Effective
Amendment No. 3 to the S-8 Registration Statement File
No. 33-6520 and the S-8 Registration Statement File No.
33-27213.
/S/ ARTHUR ANDERSEN & CO
- - --------------------------------------------------
ARTHUR ANDERSEN & CO.
St. Louis, Missouri
August 26, 1994
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Comprehensive Care Corporation:
We consent to the incorporation by reference in the Post-
Effective Amendment No. 3 to the Registration Statement
(No. 33-6520) on Form S-8 and in the Registration
Statement (No.33-27213) on Form S-8 of Comprehensive Care
Corporation of our report dated August 27, 1992, relating
to the consolidated statement of operations, stockholders
equity and cash flows and related schedules of
Comprehensive Care Corporation and subsidiaries for the
year ended May 31, 1992, which report appears in the May
31, 1994 annual report on form 10-K of Comprehensive Care
Corporation.
Our report dated August 27, 1992 contains two separate
explanatory paragraphs which state:
As discussed in Note 15 to the consolidated
financial statements, the Company is currently undergoing
a payroll tax audit by the Internal Revenue Service
("IRS") for calendar years 1983 through 1991. The IRS
asserted that certain physicians and psychologists
engaged as independent contractors by the Company should
have been treated as employees for payroll tax purposes
and has issued an assessment claiming additional taxes
due on that basis. Management believes that its
treatment of the independent contractors is consistent
with IRS guidelines and established industry practice.
Management has filed a protest to the assessment and
intends to defend vigorously the claims made by the IRS
related to this issue. Also, as discussed in Note 15 to
the consolidated financial statements, on August 15, 1991
the Company, along with others, were named in a
stockholder complaint filed in District Court related to
the terminated reorganization with First Hospital
Corporation. Management intends to defend vigorously the
claims related to this issue. The ultimate outcome of
these matters cannot presently by determined.
Accordingly, no provision for any liability that may
result upon resolution of these matters has been
recognized in the accompanying consolidated financial
statements.
<PAGE>
The accompanying consolidated financial statements have
been prepared assuming that the Company will continue as
a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company incurred
significant recurring losses and has a substantial
portion of its senior secured debt due on November 15,
1992. The potential need for additional financing to
repay debt as it comes due and finance the Company's
anticipated working capital requirements during fiscal
1993 raises substantial doubt about the Company's ability
to continue as a going concern. Management's plans in
regard to these matters are described in Note 2. The
consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/S/ KPMG Peat Marwick
- - --------------------------------------------
KPMG Peat Marwick
St. Louis, Missouri
August 26, 1994
COMPREHENSIVE CARE CORPORATION
(a Delaware corporation)
RESTATED BYLAWS
Adopted March 24, 1994
As Amended January 18, 1994
ARTICLE I
OFFICES
Section 1.01 Registered office. The registered
office of Comprehensive Care Corporation (hereinafter called
the "Corporation") in the State of Delaware shall be at 229
South State Street, City of Dover, County of Kent, and the
name of the registered agent in charge thereof shall be The
Prentice-Hall Corporation Systems, Inc.
Section 1.02 Principal Office. The principal
office for the transaction of the business of the Corporation
shall be at 16305 Swingley Ridge Drive, Suite 100,
Chesterfield, Missouri 63017. The Board of Directors
(hereinafter called the "Board") is hereby granted full power
and authority to change said principal office from one
location to another.
Section 1.03 Other Offices. The Corporation may
also have an office or offices at such other place or places,
either within or without the State of Delaware, as the Board
may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 Annual Meetings. Annual meetings
of the stockholders of the Corporation for the purpose of
electing directors and for the transaction of such other
proper business as may come before such meetings may be held
at such time, date and place as the Board shall determine by
resolution.
Section 2.02 Special Meetings. Special meetings
of the Corporation's stockholders for the transaction of any
proper business may be called at any time by the Board, the
Chairman of the Board, the Vice Chairman, or by the
President.
Section 2.03 Place of Meetings. All meetings of
the stockholders shall be held at such places, within or
without the State of Delaware, as may from time to time be
designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of
notice thereof.
Section 2.04 Notice of Meetings. Except as
otherwise required by law, notice of each meeting of the
stockholders, whether annual or special, shall be given not
less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of record entitled to
vote at such meeting by delivering a typewritten or printed
notice thereof to him personally, or by depositing such
notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address
furnished by him to the Secretary of the Corporation for such
purpose or, if he shall not have furnished to the Secretary
his address for such purpose, then at his post office address
last known to the Secretary, or by transmitting a notice
thereof to him at such address by telegraph, cable,
telecopier or wireless. Except as otherwise expressly
required by law, no publication of any notice of a meeting of
the stockholders shall be required. Every notice of a
meeting of the stockholders shall state the place, date and
hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the
meeting is called. Notice of any meeting of stockholders
shall not be required to be given to any stockholder who
shall have waived such notice and such notice shall be deemed
waived by any stockholder who shall attend such meeting in
person or by proxy, except a stockholder who shall attend
such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
Except as otherwise expressly required by law, notice of any
adjourned meeting of the stockholders need not be given if
the time and place thereof are announced at the meeting at
which the adjournment is taken. Whenever notice is required
to be given to any stockholder to whom (i) notice of two (2)
consecutive annual meetings, and all notices of meetings or
of the taking of action by written consent at a meeting to
such person between such two (2) consecutive annual meetings,
or (ii) all, and at least two (2) payments (if sent by First
Class Mail) of dividends or interest on securities during a
twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the
Corporation and have been returned undeliverable, the giving
of such notice to such person shall not be required. Any
action or meeting which shall be taken or held without notice
to such person shall have the same force and effect as if
such notice had been duly given. If any person shall deliver
to the Corporation a written notice setting forth his then
current address, the requirement that notice be given to such
person shall be reinstated.
Section 2.05 Notice of Stockholder Business at
Annual Meeting. At an annual meeting of the stockholders,
only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought
before an annual meeting business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or
at the direction of the Board, (b) otherwise properly brought
before the meeting by or at the direction of the Board, or
(c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an
annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal
executive offices of the Corporation, not less than sixty
(60) days nor more than ninety (90) days prior to the
meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later
than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the business
desired to be brought before the annual meeting and the
reasons for conducting such business at the annual meeting,
(b) the name and address, as they appear on the books of the
Corporation, of the stockholder proposing such business, (c)
the class and number of shares of stock of the Corporation
which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section
2.05. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business
was not properly brought before the meeting and in accordance
with the provisions of this Section 2.05, and if he should so
determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
Section 2.06 Notice of Stockholder Nominees for
Director. Only persons who are nominated in accordance with
the procedures set forth in this Section 2.06 shall be
eligible for election as directors. Nominations of persons
for election to the Board of the Corporation may be made at
a meeting of stockholders by or at the direction of the Board
or by any stockholder of the Corporation entitled to vote for
the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.06. Such
nominations, other than those made by or at the direction of
the Board, shall be made pursuant to timely notice in writing
to the Secretary of the Corporation. To be timely, a
stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than
ninety (90) days prior to the meeting; provided, however,
that in the event that less than seventy (70) days, notice or
prior public disclosure of the date of the meeting is given
or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of
business on the tenth (10th) day following the day on which
such notice of the date of the meeting was mailed or such
public disclosure was made. Such stockholder's notice shall
set forth (a) as to each person whom the stockholder proposes
to nominate for election or reelection as a director, (i) the
name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by such person and
(iv) any other information relating to such person that is
required to be disclosed in solicitations of proxies for
reelection of directors, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including without limitation such
person's written consent to being named in the proxy
statement as a nominee and to serving as a director if
elected) ; and (b) as to the stockholder giving the notice
(i) the name and address, as they appear on the books of the
Corporation, of such stockholder, and (ii) the class and
number of shares of stock of the Corporation which are
beneficially owned by such stockholder. At the request of
the Board any person nominated by the Board for election as
a director shall furnish to the Secretary of the Corporation
that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. The
chairman of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the
Bylaws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be
disregarded.
Section 2.07 Quorum. Except in the case of any meeting
for the election of directors summarily ordered as provided
by law, the holders of record of a majority in voting
interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any
meeting of the stockholders of the Corporation or any
adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting
interest of the stockholders present in person or by proxy
and entitled to vote thereat or, in the absence therefrom of
all the stockholders, any officer entitled to preside at, or
to act as secretary of, such meeting may adjourn such meeting
from tune to time. At any such adjourned meeting at which a
quorum is present any business may be transacted which might
have been transacted at the meeting as originally called.
Section 2.08 Voting.
(a) Each stockholder shall, at each
meeting of the stockholders, be entitled to vote in person or
by each share or fractional share of the stock of the proxy
Corporation having voting rights on the matter in question
and which shall have been held by him and registered in his
name on the books of the Corporation:
(i) On the date fixed pursuant
to Section 6.05 of the Bylaws as the record date for the
determination of stockholders entitled to notice of and to
vote at such meeting, or
(ii) If no such record date shall
have been so fixed, then (a) at the close of business on the
day next preceding the day on which notice of the of the
meeting shall be given or (b) if notice of the meeting shall
be waived, at the close of business on the day next preceding
the day on which the meeting shall be held.
(b) Shares of its own stock belonging
to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors
in such other corporation is held, directly or indirectly, by
the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes. Persons holding stock of the
Corporation in a fiduciary capacity shall be entitled to vote
such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books
of the Corporation he shall have expressly empowered the
pledgee to vote thereon, in which case only the pledgee, or
his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two
(2) or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by
entirety or otherwise, or with respect to which two (2) or
more persons have the same fiduciary relationship, shall be
voted in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Any such voting rights may be
exercised by the stockholder entitled thereto in person or by
his proxy appointed by an instrument in writing, subscribed
by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after
three (3) years from its date unless said proxy shall provide
for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not
have the effect of revoking the same unless he shall in
writing so notify the secretary of the meeting prior to the
voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of
Incorporation, in the Bylaws or by law, shall be decided by
the vote of a majority in voting interest of the stockholders
present in person or by proxy and entitled to vote thereat
and thereon, a quorum being present. The vote at any meeting
of the stockholders on any question need not be by ballot,
unless so directed by the chairman of the meeting. On a vote
by ballot each ballot shall be signed by the stockholder
voting, or by his proxy, if there be such proxy, and it shall
state the number of shares voted.
Section 2.09 List of Stockholders. The Secretary of the
Corporation shall prepare and make, at least ten (10) days
before every meeting of the stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name
of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of
at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time
and place of the meeting during the entire duration thereof,
and may be inspected by any stockholder who is present.
Section 2.10 Judges. If at any meeting of the
stockholders a vote by written ballot shall be taken on any
question, the chairman of such meeting may appoint a judge or
judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute
the duties of a judge at such meeting with strict
impartiality and according to the best of his ability. Such
judges shall decide upon the qualification of the voters and
shall report the number of shares represented at the meeting
and entitled to vote on such question, shall conduct and
accept the votes, and, when the voting is completed, shall
ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in
writing and subscribed and delivered by them to the Secretary
of the Corporation. The judges need not be stockholders of
the Corporation, and any officer of the Corporation may be a
judge on any question other than a vote for or against a
proposal in which he shall have a material interest.
Section 2.11 Stockholder Action By Written Consent
Without A Meeting.
(a) Any action which may be taken at
any annual or special meeting of stockholders may be taken
without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize
or take that action at a meeting at which all shares entitled
to vote on that action were present and voted. All such
consents shall be filed with the Secretary of the Corporation
and shall be maintained in the corporate records. Any
stockholder giving a written consent, or the stockholder's
proxy holders, or a transferee of the shares or a personal
representative of the stockholder or their respective proxy
holders, may revoke the consent by a writing received by the
Secretary before written consents of the number of shares
required to authorize the proposed action have been filed
with the Secretary of the Corporation.
(b) If, in the case of an action taken
pursuant to Section 2.11(a), the consents of all stockholders
entitled to vote have not been solicited in writing, or if
the unanimous written consent of all such stockholders shall
not have been received, the Secretary of the Corporation
shall give prompt notice of the corporate action approved by
the stockholders without a meeting. This notice shall be
given in the manner specified in Section 2.04. In the case of
the approval of any (i) amendment to the Certificate of
Incorporation of the Corporation; (ii) election to
voluntarily wind up and dissolve the Corporation; or (iii)
distribution in dissolution other than in accordance with the
rights of holders of outstanding preferred stock as set forth
in the Certificate of Incorporation of the Corporation, the
notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval.
(c) Cumulative voting shall apply to any
proposed election of directors by written consent of
stockholders to fill vacancies and/or newly created
directorships in the Board of Directors of the Corporation,
so that each stockholder shall be entitled to cast by written
consent as many votes as shall equal the number of votes
which (except for this provision and Article FOURTH, Section
1 of the Restated Certificate of Incorporation of the
Corporation) he would be entitled to cast for the election of
directors with respect to his shares of stock multiplied by
the number of vacancies and/or newly created directorships in
the Board of Directors to be filled, and he may cast by
written consent all of such votes for a single such director
or may distribute them among the number of directors to be
voted for, or any two or more of them, as he may see fit.
For purposes of this Section 2.11, when action relating to
the election of directors is taken by stockholders by written
consent, stockholders taking such action by written consent
shall be referred to as having "cast vote(s)" for the
election of such director(s).
Section 2.12 Record Date For Stockholder Notice, Voting
and Giving Consents.
(a) For purposes of determining the
stockholders entitled to notice of or to vote at any meeting
or any adjournment thereof, the Board may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board,
and which record date shall not be more than sixty (60) days
or less than ten (10) days before the date of any such
meeting, and only stockholders of record on the date so fixed
are entitled to notice and to vote, notwithstanding any
transfer of any shares on the books of the Corporation after
the record date, except as otherwise provided in the General
Corporation Law of the State of Delaware. If the Board does
not so fix a record date, the record date for determining
stockholders entitled to notice of or to vote at the meeting
of stockholders shall be at the close of business on the
business day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that
the Board may fix a new record date for the adjourned
meeting.
(b) In order that the Corporation may
determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board may fix a
record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted
by the Board, and which date shall not be more than ten (10)
days after the date upon which the resolution fixing the
record date is adopted by the Board. Any stockholder of
record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice
to the Secretary, request the Board to fix a record date.
The Board shall promptly, but in all events within ten (10)
days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date
has been fixed by the Board within ten (10) days of the date
on which such a request is receive, the record date for
determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by
the Board is required by applicable law, shall be the first
date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or any officer
or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be
by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board and
prior action by the Board is required by applicable law, the
record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at
the close of business on the date on which the Board adopts
the resolution taking such prior action.
(c) In the event of the delivery to the
Corporation of a written consent or consents purporting to
authorize or take corporate action and/or related revocations
(each such written consent or related revocation is referred
to in this Section 2.12 as a "Consent"), the Secretary of the
Corporation shall provide for safekeeping of such Consent and
shall immediately appoint duly qualified and objective
inspectors to conduct, as promptly as practical, such
reasonable ministerial review as they deem necessary or
appropriate for the purpose of ascertaining the sufficiency
and validity of such Consent and all matters incident
thereto, including, without limitation, whether holders of
shares having the requisite voting power to authorize or take
the action specified in the Consent have given consent. if
after such investigation the Secretary shall determine that
the Consent is valid, that fact shall be certified on the
records of the Corporation kept for the purpose of recording
the proceedings of meetings of stockholders, and the Consent
shall be filed in such records, at which time the Consent
shall become effective as stockholder action.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 Powers. The business and affairs of the
Corporation shall be carried on by or under the direction of
the Board of Directors, which shall have all the power
authorized by the laws of the State of Delaware, subject to
such limitations as may be provided by the Certificate of
Incorporation or these Bylaws.
Section 3.02 Number, Election and Qualification. The
number of directors shall be not less than three (3) and not
more than eleven (11), the exact number within such minimum
and maximum limits to be fixed and determined from time to
time by resolution of a majority at the annual meeting of
stockholders, directors shall be elected by a plurality of
the shares of stock present in person or represented by proxy
at the meeting and entitled to vote on the election of
directors. Each director shall serve until the election and
qualification of his or her successor or until his or her
earlier death, resignation, retirement, disqualification or
removal as provided in the Certificate of Incorporation or
these Bylaws. In the case of an increase in the number of
directors between elections by the stockholders, the
additional directorships shall be considered vacancies and
shall be filled in the manner prescribed in Article V of
these Bylaws. Directors need not be stockholders.
Section 3.03 Compensation. The Board of Directors, or
a committee thereof, may from time to time by resolution
authorize the payment of fees or other compensation to the
directors for services as such to the Corporation, including,
but not limited to, fees for attendance at all meetings of
the Board of Directors or any committee thereof, and
determine the amount of such fees and compensation. No
compensation shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
thereof.
Section 3.04 Notices, Meetings and Quorum. Except as
otherwise expressly provided in these Bylaws, the Certificate
of Incorporation or the laws of the State of Delaware,
meetings of the Board of Directors, both regular and special,
may be held either in or outside of the State of Delaware.
At all meetings of the Board of Directors, a majority of the
fixed number of directors shall constitute a quorum for the
transaction of business. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting, without notice or an
announcement at such meeting, until a quorum shall be
present.
The Board of Directors shall, at the close
of each annual meeting of stockholders and without further
notice other than these Bylaws, if a quorum of directors is
then present or as soon thereafter as may be convenient, hold
a regular meeting for the election of officers and the
transaction of any other business.
The Board of Directors may from time to
time provide for the holding of regular meetings with or
without notice and may fix the times and places at which such
meetings are to be held. Meetings other than regular
meetings may be called at any time by the Chairman of the
Board of Directors, the Chief Executive Officer or the
President, and may and must be called by the Secretary or an
Assistant Secretary upon the written request of at least one-
half (1/2) of the members of the Board of Directors.
Notice of each meeting other than a regular
meeting (unless required by the Board of Directors), shall be
given to each director (i) by mailing the same to each
director at his or her residence or business address at least
five (5) days before the meeting; (ii) by sending the same by
overnight courier to each director at his or her residence or
business address at least three (3) days before the meeting;
(iii) by facsimile transmission at his or her business
facsimile number and telephonic confirmation of receipt at
least two (2) days before the meeting; or (iv) by delivering
the same personally or by telephone or telegraph at least two
(2) days before the meeting.
Notwithstanding the preceding sentence, in
the case of exigency, the Chairman of the Board of Directors,
the Chief Executive Officer, the President or the Secretary
shall be authorized to prescribe a shorter notice to be given
personally or by telephone, telegraph, cable, facsimile
transmission or wireless to all or any one or more of the
directors at their respective residences or place of
business.
Notice of any meeting shall state the time
and place of such meeting, but need not state the purposes
thereof unless otherwise required by the laws of the State of
Delaware, the Certificate of Incorporation or the Board of
Directors.
Section 3.05 Committees.
(a) General Provisions. The Board of
Directors may, by resolution adopted by a majority of the
whole Board of Directors, designate one or more
committees. Each committee shall consist of two or more
directors and the Board of Directors shall elect the
members thereof to serve at the pleasure of the Board of
Directors and may designate each of such members to act as
chairperson. The Board of Directors may at any time
change the membership of any such committee, fill
vacancies in it, designate alternate members to replace
any absent or disqualified members at any meeting of any
such committee, or dissolve it. Each such committee shall
have the powers and perform such duties, not inconsistent
with law, as may be assigned to it by the Board of
Directors, and shall keep regular minutes of its meetings
and report the same to the Board of Directors when
required. Each committee may determine its rules of
procedure and the notice to be given of its meeting. A
majority of the members of each committee shall constitute
a quorum.
(b) Executive Committee. The Board of
Directors shall, by resolution adopted by a majority of
the whole Board of Directors, provide for an Executive
Committee. Subject to such limitations as may be imposed
by the laws of the State of Delaware, during the intervals
between the meeting of the Board of Directors, the
Executive Committee shall possess and may exercise any or
all of the power of the Board of Directors in the
management or direction of the business and affairs of the
Corporation, including the full power and authority to
declare dividends, of any kind whatsoever, to authorize
the issuance of capital stock, of any class or series, of
the Corporation and to adopt a certificate of ownership
and merger pursuant to Section 253 of the General
Corporation Law of the State of Delaware, as it may be
amended from time to time.
Section 3.06 Conference Telephone Meetings. Except as
may be otherwise prescribed by the laws of the State of
Delaware, the Certificate of Incorporation or these Bylaws,
any one or more members of the Board of Directors or any
committee thereof may participate in a meeting by means of a
conference telephone or similar communication equipment by
means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
Section 3.07 Action Without Meeting. Except as may be
otherwise prescribed by the laws of the State of Delaware,
the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board
of Directors or any committee thereof may be taken without a
meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
Section 3.08 Directors Elected by Preferred
Stockholders. Notwithstanding anything in these Bylaws to
the contrary, whenever the holders of any one or more classes
or series of preferred stock issued by the Corporation shall
have the right, voting separately by class or series, to
elect directors at an annual or special meeting of
stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be
governed by the terms of the Certificate of Incorporation or
the resolutions or the resolutions of the Board of Directors
creating such class or series, as the case may be, applicable
thereto.
ARTICLE IV
OFFICERS
Section 4.01 Titles and Election. The officers of the
Corporation shall be the Chairman of the Board of Directors,
the Chief Executive Officer, the President, the Treasurer,
one or more Vice Presidents and the Secretary. The officers
of the Corporation, in the absence of earlier resignations or
removals, shall be elected at the first meeting of the Board
of Directors following each annual meeting of stockholders.
Each officer shall hold office at the pleasure of the Board
of Directors except as may otherwise be approved by the Board
of Directors, or until his or her earlier resignation,
removal under these Bylaws or other termination of his
employment. Any person may hold more than one office if the
duties can be consistently performed by the same person.
The Board of Directors, in its discretion,
may also at any time elect or appoint Assistant Secretaries
and Assistant Treasurers and such other officers as it may
deem advisable, each of whom shall hold office at the
pleasure of the Board of Directors, except as may otherwise
be approved by the Board of Directors, or until his or her
resignation, removal or other termination of employment, and
shall have such authority and shall perform such duties as
may be prescribed or determined from time to time by the
Board of Directors or, in the case of officers other than the
Chairman of the Board, if not prescribed or determined by the
Board of Directors, as the Chairman of the Board, the Chief
Executive Officer, the President or then senior executive
officer may prescribe or determine.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01 Execution of Contracts. The Board, except
as in the Bylaws otherwise provided, may authorize any
officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on
behalf of the Corporation, and such authority may be general
or confined to specific instances; and unless so authorized
by the Board or by the Bylaws, no officer, agent or employee
shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to
render it liable for any purpose or in any amount.
Section 5.02 Checks, Drafts, Etc. All checks, drafts or
other orders for payment of money, notes or other evidence of
indebtedness, issued in the name of or payable to the
Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be
determined by resolution of the Board. Each such officer,
assistant, agent or attorney shall give such bond, if any, as
the Board may require.
Section 5.03 Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to
the credit of the Corporation in such banks, trust companies
or other depositories as the Board may select, or as may be
selected by any officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation
to whom such power shall have been delegated by the Board.
For the purpose of deposit and for the purpose of collection
for the account of the Corporation, the Chairman, Vice
Chairman, President, any Vice President or the Treasurer (or
any other officer or officers, assistant or assistants, agent
or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may
endorse, assign and deliver checks, drafts and other orders
for the payment of money which are payable to the order of
the Corporation.
Section 5.04 General and Special Bank Accounts. The
Board may from time to time authorize the opening and keeping
of general and special bank accounts with such banks, trust
companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the
Corporation to whom such power shall have been delegated by
the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may
deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01 Certificates for Stock. Every owner of
stock of the Corporation shall be entitled to have a
certificate or certificates, to be in such form as the Board
shall prescribe, certifying the number and class of shares of
the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the
order in which they shall be issued and shall be signed in
the name of the Corporation by the Chairman, Vice Chairman,
President or a Vice President, and by the Secretary or an
Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any of or all of the signatures on the
certificates may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose
facsimile signature has been placed upon, any such
certificate, shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, such
certificate may nevertheless be issued by the Corporation
with the same effect as though the person who signed such
certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or
registrar at the date of issue. A record shall be kept of
the respective names of the persons, firms or corporations
owning the stock represented by such certificates, the number
and class of shares represented by such certificates,
respectively, and the respective dates thereof, and in case
of cancellation, the respective dates of cancellation. Every
certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or
certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been
so canceled, except in cases provide for in Section 6.04
hereof.
Section 6.02 Transfers of Stock. Transfers of shares of
stock of the Corporation shall be made only on the books of
the Corporation by the registered holder thereof, or by his
or her attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a
transfer clerk or a transfer agent appointed as provided in
Section 6.03 hereof, and upon surrender of the certificate or
certificates for such shares properly endorsed and the
payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall
be deemed the owner thereof for all purposes as regards the
Corporation. Whenever any transfer of shares shall be made
for collateral security, and not absolutely, such fact shall
be so expressed in the entry of transfer if, when the
certificate or certificates shall be presented to the
Corporation for transfer, both the transferror and the
transferee request the Corporation to do so.
Section 6.03 Regulations. The Board may make such rules
and regulations as it may deem expedient, not inconsistent
with the Bylaws, concerning the issue, transfer and
registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or
officers to appoint, one (1) or more transfer clerks or one
(1) of more transfer agents and one (1) or more registrars,
and may require all certificates for stock to bear the
signature or signatures of any of them.
Section 6.04 Lost, Stolen, Destroyed, and Mutilated
Certificates. In any case of loss, theft, destruction, or
mutilation of any certificate of stock, another may be issued
in its place upon proof of such loss, theft, destruction, or
mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may
direct; provided, however, that a new certificate may be
issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
Section 6.05 Record Date for Purposes Other Than Notice
and Voting. For purposes of determining the stockholders
entitled to receive payment of any dividend or other
distribution or allotment of any rights or entitled to
exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful
action (other than action by stockholders by written consent
without a meeting), the Board may fix a record date which
record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which shall
not be more than sixty (60) days before any such action, and
in that case only stockholders of record on the date so fixed
are entitled to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the
books of the Corporation after the record date so fixed,
except as otherwise provided in the General Corporation Law
of the State of Delaware. If the Board does not so fix a
record date, the record date for determining stockholders for
any such purpose shall be at the close of business on the day
on which the Board adopts the resolution relating thereto.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification of Directors and Officers.
The Corporation shall, to the fullest extent permitted by
law, indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without
limitation an action by or in the right of the Corporation)
by reason of the fact that he is or was a director or officer
of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any
criminal action or proceeding, that he had reasonable cause
to believe that his conduct was unlawful.
Section 7.02 Advance of Expenses. Costs and expenses
(including attorneys' fees) incurred by or on behalf of a
director, officer, employee or agent in defending or
investigating any action, suit, proceeding or investigation
shall be paid by the Corporation in advance of the final
disposition of such matter, if such director, officer,
employee or agent shall undertake in writing to repay any
such advances in the event that it is ultimately determined
that he is not entitled to indemnification. Notwithstanding
the foregoing, no advance shall be made by the Corporation if
a determination is reasonably and promptly made by the Board
of Directors by a majority vote of a quorum of disinterested
directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs)
by independent legal counsel, that, based upon the facts
known to the Board or counsel at the time such determination
is made, (a) the director, officer, employee or agent acted
in bad faith or deliberately breached his duty to the
Corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is
more likely than not that it will ultimately be determined
that such director, officer, employee or agent is not
entitled to indemnification.
Section 7.03 Insurance. The Corporation may purchase
and maintain insurance on behalf of any person who is or was
a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or as
a member of any committee or similar body against any
liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article
or applicable law.
Section 7.04 Non-Exclusivity. The right of indemnity
and advancement of expenses provided herein shall not be
exclusive, and the Corporation may provide indemnification or
advancement of expenses to any person, by agreement or
otherwise, on such terms and conditions as the Board of
Directors may approve. Any agreement for indemnification of
or advancement of expenses to any director, officer, employee
or other person may provide to any rights of indemnification
or advancement of expenses which are broader or otherwise
different from those set forth herein.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Seal. The Board shall provide a corporate
seal, which shall be in the form of a circle and shall bear
the name of the Corporation and words and figures showing
that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
Section 8.02 Waiver of Notices. Whenever notice is
required to be given by these Bylaws or the Certificate of
Incorporation or by law, the person entitled to said notice
may waive such notice in writing, either before or after the
time stated therein, and such waiver shall be deemed
equivalent to notice.
Section 8.03 Amendments. Except as otherwise provided
in the Bylaws, the Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made (i) by the
Board, by vote of a majority of the number of directors then
in office as directors, acting at any meeting of the Board,
or (ii) by the vote of the holders of a majority of the total
voting power of all outstanding shares of voting stock of the
Corporation, at any annual meeting of stockholders, without
previous notice, or at any special meeting of stockholders,
provided that notice of such proposed amendment,
modification, repeal or adoption is given in the notice of
special meeting. Except as otherwise provided in these
Bylaws, any Bylaws made or altered by the stockholders may be
altered or repealed by either the Board or the stockholders.
