UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended August 31, 1994
---------------
[ ] 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 (I.R.S. Employer Identification No.)
of incorporation or organi-
zation)
16305 Swingley Ridge Dr. Suite 100, Chesterfield, Missouri 63017
- - - ------------------------------------------------------------------
(Address of principal executive offices and Zip Code)
(314) 537-1288
--------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
Classes Outstanding at October 13,
1994
- - - -------------------------------------- ----------------------------
- - - ---
Common Stock, par value $.10 per share 21,986,916<PAGE>
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Index
Part I - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets, August 31, 1994
and May 31,1994---------------------------------------------------- 3
Condensed consolidated statements of operations for the
three months ended August 31, 1994 and 1993------------------------ 4
Condensed consolidated statements of cash flows for the
three months ended August 31, 1994 and 1993------------------------ 5
Notes to condensed consolidated financial statements--------------- 6
Item 2. - Management's discussion and analysis of
financial condition and results of operations---------------------- 9
Part II - Other Information---------------------------------------- 12
Item 1. - Legal Proceedings--------------------------------------- 12
Item 6. - Exhibits and Reports on Form 8-K------------------------ 13
Signatures--------------------------------------------------------- 14
<PAGE>
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
August 31, May 31,
1994 1994
--------- ------
(unaudited)
<S>
Assets <C> <C>
Current assets:
Cash and cash equivalents $ 275 $ 1,781
Accounts and notes receivable, less allowance for
doubtful accounts of $4,965 and $5,729 4,921 5,848
Property and equipment held for sale 7,054 6,939
Other current assets 399 508
------ ------
Total current assets 12,649 15,076
------ ------
Property and equipment, at cost 29,317 29,326
Less accumulated depreciation and amortization (13,676) (13,338)
------ ------
Net property and equipment 15,641 15,988
------ ------
Other assets 2,090 2,162
------ ------
Total assets $30,380 $33,226
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $13,548 $13,776
Current maturities of long-term debt 144 154
Income taxes payable 768 734
------ ------
Total current liabilities 14,460 14,664
------ ------
Long-term debt, excluding current maturities 10,435 10,477
Other liabilities 2,886 2,986
Commitments and contingencies (see Note 5)
Stockholders' equity:
Preferred stock, $50.00 par value; authorized 60,000 shares --- ---
Common stock, $.10 par value; authorized 30,000,000 shares,
issued 21,986,916 shares 2,199 2,199
Additional paid-in capital 37,883 37,883
Accumulated deficit (37,483) (34,983)
------ ------
Total stockholders'equity 2,599 5,099
------ ------
Total liabilities and stockholders' equity $30,380 $33,226
====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.<PAGE>
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
August 31, August 31,
1994 1993
<S> <C> <C>
Revenues and gains:
Operating revenues $8,057 $8,713
Interest income 6 5
------ ------
8,063 8,718
Costs and expenses:
Operating expenses 7,989 7,609
General and administrative expenses 1,067 852
Provision for doubtful accounts 750 711
Depreciation and amortization 461 503
Interest expense 251 339
------ ------
10,518 10,014
------ ------
Loss before income taxes (2,455) (1,296)
Provision for income taxes 45 45
------ ------
Net loss $(2,500) $(1,341)
====== ======
Loss per share:
Net loss $(0.11) $(0.06)
===== =====
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------------
August 31, August 31,
1994 1993
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,500) $(1,341)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 461 503
Provision for doubtful accounts 750 711
Loss(gain) on sale/write-down of assets (4) 24
Carrying costs incurred on property and equipment held for sale (135) (481)
Decrease in accounts and notes receivable 177 549
Decrease in other current assets and other assets 123 241
Decrease in accounts payable and accrued liabilities (228) (1,642)
Increase(decrease) in income taxes payable 34 (16)
Decrease in other liabilities (100) (216)
----- -----
Net cash used in operating activities (1,422) (1,668)
----- -----
Cash flows from investing activities:
Net proceeds from sale of property and equipment held for sale 5 3,252
Additions to property and equipment (37) (92)
----- -----
Net cash provided by (used in) investing activities (32) 3,160
----- -----
Cash flows from financing activities:
Repayment of debt (52) (1,313)
----- -----
Net cash (used in) financing activities: (52) (1,313)
------ -----
Net increase(decrease) in cash and cash equivalents (1,506) 179
Cash and cash equivalents at beginning of period 1,781 1,126
----- -----
Cash and cash equivalents at end of period $ 275 $1,305
===== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<PAGE>
Note 1 - Basis of Presentation
The condensed consolidated balance sheet as of August 31, 1994,
and the related condensed consolidated statements of operations and
cash flows for the three months ended August 31, 1994 and 1993 are
unaudited. In the opinion of management, all adjustments necessary for
a fair presentation of such financial statements have been included.
Such adjustments consisted only of normal recurring items. The results
of operations for the three months ended August 31, 1994, are not
necessarily indicative of the results to be expected during the balance
of the fiscal year.
The condensed consolidated financial statements do not include all
information and footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity
with generally accepted accounting principles. Notes to consolidated
financial statements included in Form 10-K for the year ended May 31,
1994, on file with the Securities and Exchange Commission, provide
additional disclosures and a further description of accounting
policies.
The Company's financial statements are presented on the basis that
it is a going concern. The Company incurred significant losses from
operations in fiscal 1994 and continues to report losses for fiscal
1995. The continuation of the Company's business is dependent upon the
resolution of operating and short-term liquidity problems. The
consolidated financial statements do not include any adjustments that
might result from an unfavorable outcome of this uncertainty.
The weighted average number of shares outstanding used to compute
loss per share were 21,987,000 for the three months ended August 31,
1994 and 1993.
NOTE 2 - OPERATING LOSSES AND LIQUIDITY
The Company's current assets at August 31, 1994 amounted to
approximately $12.6 million and current liabilities were approximately
$14.5 million, resulting in working capital deficit of approximately
$1.9 million and a current ratio of 1:.9. Included in current assets
are four hospital facilities designated as property and equipment held
for sale with a total carrying value of $7.1 million. The Company's
primary use of working capital is to fund operations while it seeks to
restore profitability to certain of its freestanding facilities and
expand its behavioral medicine managed care business.
The Company does not expect to make its next payment of interest
on its 7 1/2% Convertible Subordinated Debentures (the "Debentures")
when such payment is otherwise scheduled to be made (October 17, 1994).
Notwithstanding this development, management intends to seek to
restructure several of its obligations and commitments in order to
satisfy its payment obligations under the Indenture for the Debentures
before expiration of the applicable grace period for non-payment and
the declaration of an event of default thereunder. Management intends
that this "global restructuring" include as many of the following steps
as possible: (i) the effectuation of a 1-for-10 reverse stock split
(which will occur on October 21, 1994); (ii) completion of the proposed
settlement of the Company's payroll tax audit with the IRS (see Note 5
to the Company's Condensed Consolidated Financial Statements included
herein); (iii) restructuring of the Company's financial obligations
represented by the Debentures; and (iv) an equity capital infusion. No
assurance can be given that all of the foregoing steps will be
successfully completed.
NOTE 3 - PROPERTY AND EQUIPMENT HELD FOR SALE
The Company recorded no additional asset write-downs during the
first quarter of fiscal 1995 and fiscal 1994 in connection with the
recognition of losses and revaluation of facilities closed, sold or
designated for disposition. Future operating losses and carrying costs
of such facilities will be charged directly to the carrying value of
the respective property and equipment 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 being experienced
throughout the industry. The Company will continue to evaluate the
performance of all of its operating facilities in their respective
markets, and, if circumstances warrant, modify the number of facilities
designated for disposition.
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.
A summary of the transactions affecting the carrying value of
property and equipment held for sale for the three months ended August
31, 1994, is as follows (in thousands):
Balance as of May 31, 1994--------------------------------------$6,939
Carrying costs incurred during phase-out period----------------- 135
Other----------------------------------------------------------- (20)
-----
Balance as of August 31, 1994-----------------------------------$7,054
=====
NOTE 4 - 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. 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.
NOTE 5 - 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 attorneys' fees and costs on the grounds that such
relief is not permitted by law nor authorized by the agreements between
the parties. This case is set for a jury trial beginning February 13,
1995. 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., 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"). 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 now
reached a proposed settlement for the calendar years 1983 through 1991
with the Appeals Office pursuant to which it is proposed that the
Company pay the IRS $5 million, in full settlement of the audit. This
proposed settlement is currently under review by the IRS district
counsel. Payment terms have been proposed at 50% within 90 days of
finalization with the remainder financed over the next five years. 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. In May 1991, the Company and RehabCare 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. RehabCare settled a proposed assessment for
a payroll tax audit of calendar years 1987 and 1988 for $326,114. The
Company has established a reserve with respect to this settlement.
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.
NOTE 6 - SUBSEQUENT EVENT
The Company intends to effectuate a one-for-ten reverse stock
split as of the close of business on Friday, October 21, 1994, subject
to approval by the New York Stock Exchange, Inc. of the Company's
Supplemental Listing Application.<PAGE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Statistical Information
The following utilization statistics include data from all
operations including closures during the periods, joint ventures and
closed facilities:
<TABLE>
Three months ended
--------------------------------
August 31, May 31, August 31,
1994 1994 1993
--------- ------ ---------
<S> <C> <C> <C>
Patient days:
Freestanding facilities 8,564 9,792 9,587
Behavioral medicine contracts 8,580 7,954 10,050
Freestanding facilities:
Occupancy rate 27% 30% 30%
Admissions 979 1,011 954
Average length of stay (days) 9 10 10
Behavioral medicine contracts:
Average occupied beds per contract 7 7 7
Admissions 1,072 953 1,132
Average length of stay (days) 8 8 9
Total beds available at end of period:
Freestanding facilities 347 347 347
Behavioral medicine contracts 251 236 309
</TABLE>
THREE MONTHS ENDED AUGUST 31, 1994 COMPARED TO THREE MONTHS ENDED
MAY 31, 1994
The Company reported a loss of approximately $2.5 million or $0.11
per share for the quarter ended August 31, 1994, an improvement of
approximately $1.5 million or $0.08 per share from the loss reported
for the quarter ended May 31, 1994. Included in the loss for the
fourth quarter is an increase in general and administrative expenses
which is predominantly attributable to increasing the accrual for prior
years' employment taxes.
<PAGE>
<PAGE>
FREESTANDING OPERATIONS
Admissions in the first quarter of fiscal 1995 decreased to 979
from 1,011 in the fourth quarter of 1994, an overall decline of 3%.
The following table sets forth selected quarterly utilization data on a
"same store" basis:
Same Store Utilization
-----------------------
Fiscal 1995 Fiscal 1994
1st Quarter 4th Quarter
----------- -----------
Admissions 979 1,011
Average length of stay 9 10
Patient days 8,564 9,792
Net revenue per patient day for "same store" facilities decreased
approximately 3% to $646 for the first quarter of fiscal 1995 from $667
for the fourth quarter of fiscal 1994. Admissions also decreased for
the quarter from 1,011 in the fourth quarter of fiscal 1994 to 979 in
the first quarter of fiscal 1995 or by approximately 3%. The decline
in admissions combined with the decrease in length of stay resulted in
a decrease in net operating revenues for the first quarter of fiscal
1995 of $1.0 million. The Company believes that the increasing role of
HMO's, reduced benefits from employers and indemnity companies, and a
shifting to outpatient programs continue to impact and affect this
decline in utilization. The Company continues to focus its efforts
toward providing effective, lower cost outpatient, partial
hospitalization and daycare programs, obtaining psychiatric treatment
licenses for its freestanding facilities, and toward establishing and
maintaining relationships and contracts with managed care and other
organizations which pay for or broker such services.
The following table illustrates revenues in outpatient and daycare
programs offered by the "same store" facilities:
Net Outpatient/Daycare Revenues
-------------------------------
(Dollars in thousands)
Fiscal 1995 Fiscal 1994
1st Quarter 4th Quarter
----------- -----------
Facilities offering 6 6
Net outpatient/daycare revenues $2,803 $3,115
% of total "same store" net
operating revenues 51% 48%
Although operating expenses at the Company's freestanding
facilities on a "same store" basis decreased $0.3 million, the
provision for doubtful accounts increased by $0.2 million. As a
result, operating income decreased $0.9 million from the fourth quarter
of fiscal 1994.
The Company is taking steps to increase revenues, primarily
through relicensing facilities to provide psychiatric treatment, and
the continued development of its behavioral medicine managed care
business. The Company is also inplementing cost reduction measures,
including the closure of selected facilities. The Company owns six
facilities which are operating and four facilities which are closed and
currently listed for sale. The Company will continue to evaluate the
performance of these facilities in their respective markets, and, if
circumstances warrant, may increase or reduce the number of facilities
designated for disposition.
BEHAVIORAL MEDICINE CONTRACTS
During the first quarter of fiscal 1995, patient days of service
at behavioral medicine contracts declined by approximately 6% from
9,161 patient days to 8,580 patient days. Units which were operational
for both the fourth quarter of fiscal 1994 and the first quarter of
fiscal 1995 experienced an 8% decline in utilization to 8,580 patient
days. Average net revenue per patient day at these units decreased by
2% from the previous quarter resulting in a decline in overall net
inpatient operating revenues of 8% to $0.8 million. Net outpatient
revenues for programs operational for both quarters at these units
decreased 4% from approximately $389,000 in the fourth quarter of 1994
to approximately $372,000 in the first quarter of fiscal 1995.
The following table sets forth quarterly utilization data on a
"same store" basis:
Same Store Utilization
----------------------
Fiscal 1995 Fiscal 1994
1st Quarter 4th Quarter
----------- -----------
Admissions 1,072 1,053
Average length of stay 8.0 9.0
Patient days 8,580 9,161
Average occupancy rate 37% 41%
For units operational for both quarters, operating expenses
increased 2%, which combined with the decline in operating revenues
resulted in operating income at the unit level decreasing by 27% from
the fourth quarter of fiscal 1994.
MANAGED CARE OPERATIONS
During the first quarter of fiscal 1995, the number of covered
lives increased by 7%. This increase is primarily attributable to new
contracts added during fiscal 1995. 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 the first quarter of fiscal 1995, operating revenues increased
13% from the fourth quarter of fiscal 1994. Operating expenses
declined 24% in fiscal 1995 as a result of the decrease in start-up
costs which were required during fiscal 1994. The increase in
operating revenues during the first quarter of fiscal 1995 combined
with the decrease in operating expenses resulted in an improvement in
AccessCare's net operating loss of 60% or $0.6 million from the fourth
quarter of fiscal 1994.
THREE MONTHS ENDED AUGUST 31, 1994 COMPARED TO THREE MONTHS ENDED
AUGUST 31, 1993
The Company reported a pretax loss of approximately $2.5 million
for the first quarter of fiscal 1995, an increase of approximately $1.2
million from the pretax loss of approximately $1.3 million reported for
the first quarter of fiscal 1994.
Operating revenues for the first quarter of fiscal 1995 declined
by approximately $0.7 million from the first quarter of fiscal 1994.
This decrease is primarily a result of the sale of an operating entity
during fiscal 1994 and a decline in operating revenues in the
behavioral medicine contracts and freestanding operations which offset
the increase in operating revenues generated by managed care
operations.
Operating expenses increased by approximately $0.4 million from
the first quarter of fiscal 1994 to the first quarter of fiscal 1995.
The increase in operating expenses is primarily attributable to the
freestanding operations and the expenses related to managed care
operations expansion and development. General and administrative
expenses increased by approximately $0.2 million from the first quarter
of fiscal 1994. The first quarter of 1994 reflects approximately
$345,000 as a result of the revaluation of a provision for general and
administrative expenses. Excluding the revaluation, general and
administrative expenses decreased $0.1 million during the first quarter
of fiscal 1995 compared to the same quarter of fiscal 1994.
Interest expense decreased by approximately $0.1 million from the
first quarter of fiscal 1994 as a result of the repayment of debt with
the proceeds from the sale of assets and the reduction of the interest
expense attributable to the Financial Security Plan, the Company's
former deferred compensation plan.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets at August 31, 1994 amounted to
approximately $12.6 million and current liabilities were approximately
$14.5 million, resulting in working capital deficit of approximately
$1.9 million and a current ratio of 1:.9. Included in current assets
are four hospital facilities designated as property and equipment held
for sale with a total carrying value of $7.1 million. The Company's
primary use of working capital is to fund operations while it seeks to
restore profitability to certain of its freestanding facilities and
expand its behavioral medicine managed care business.
The Company does not expect to make its next payment of interest
on its 7 1/2% Convertible Subordinated Debentures (the "Debentures")
when such payment is otherwise scheduled to be made (October 17, 1994).
Notwithstanding this development, management intends to seek to
restructure several of its obligations and commitments in order to
satisfy its payment obligations under the Indenture for the Debentures
before expiration of the applicable grace period for non-payment and
the declaration of an event of default thereunder. Management intends
that this "global restructuring" include as many of the following steps
as possible: (i) the effectuation of a 1-for-10 reverse stock split
(which will occur on October 21, 1994); (ii) completion of the proposed
settlement of the Company's payroll tax audit with the IRS (see Note 5
to the Company's Condensed Consolidated Financial Statements included
herein); (iii) restructuring of the Company's financial obligations
represented by the Debentures; and (iv) an equity capital infusion. No
assurance can be given that all of the foregoing steps will be
successfully completed.
PART II - OTHER INFORMATION
ITEM 1. - 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 is set for a jury trial beginning February 13,
1995. 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., 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 now reached a proposed settlement for the
calendar years 1983 through 1991 with the Appeals Office pursuant to
which it is proposed that the Company pay the IRS $5 million, which
will include penalties and interest. This proposed settlement is
currently under review by the IRS district counsel. Payment terms have
been proposed at 50% within 90 days of finalization with the remainder
financed over the next three years. 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. In May
1991, the Company and RehabCare 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.
RehabCare has settled a proposed assessment for a payroll tax audit of
calendar years 1987 and 1988 for $326,114. The Company has established
a reserve with respect to this settlement.
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 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.49 Non-qualified Stock Option Agreement dated August
25, 1994 between the Company and Chriss W. Street
(filed herewith).
10.50 Non-qualified Stock Option Agreement dated August
25, 1994 between the Company and Ronald G.
Hersch (filed herewith).
27 Financial Data Schedules (filed herewith).
(b) Reports on Form 8-K
1.) On September 13, 1994, the Company filed a current
report on Form 8-K to report the appointment of Mr.
Rudy R. Miller as a director.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
COMPREHENSIVE CARE CORPORATION
October 14, 1994 By /s/ FRED C. FOLLMER
--------------------------
Fred C. Follmer
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
October 14, 1994 By /s/ KERRI RUPPERT
--------------------------
Kerri Ruppert
Vice President
and Chief Accounting Officer
<PAGE>
COMPREHENSIVE CARE CORPORATION
EXHIBIT INDEX
FIRST QUARTER ENDED AUGUST 31, 1994
Sequentially
Numbered
Exhibit No. Description Page
- - - ----------- ----------- ------------
10.49 Non-qualified Stock Option Agreement dated
August 25, 1994 between the Company and
Chriss W. Street (filed herewith).
10.50 Non-qualified Stock Option Agreement dated
August 25, 1994 between the Company
and Ronald G. Hersch (filed herewith).
27 Financial Data Schedules (filed herewith).
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
August 25, 1994 ("Option Grant Date"), by and between
Comprehensive Care Corporation, a Delaware corporation,
("Company") and Chriss W. Street ("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 $0.75, $1.00, and $1.50, vesting at the rate of
one-half at the grant date, one-fourth at the end of the second
year and one-fourth at the end of third year ("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 August 24, 2004 ("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 SUCCESSORTS. 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.
IN WITNESS WHEREOF, the Company and Optionee have executed
this Agreement effective as the date first written above.
COMPREHENSIVE CARE CORPORATION
By /s/ Kerri Ruppert
--------------------------------------------
Its Vice President/Secretary
--------------------------------------------
OPTIONEE /s Chriss W. Street
--------------------------------------------
Chriss W. Street
<PAGE>
EXHIBIT A
Date Exercisable Number of Shares and Price
--------------------- --------------------------
Year One 8/25/94 250,000 at $0.75 per share
Year Two 8/25/96 125,000 at $1.00 per share
Year Three 8/25/97 125,000 at $1.50 per share
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
August 25, 1994 ("Option Grant Date"), by and between
Comprehensive Care Corporation, a Delaware corporation,
("Company") and Ronald G. Hersch ("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 150,000 shares of common stock at the
price per share of $0.75, $1.00, and $1.50, vesting at the rate of
one-third at the end of the first year and at the end of each year
thereafter at the rate of one third ("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 August 24, 2004 ("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.
IN WITNESS WHEREOF, the Company and Optionee have executed
this Agreement effective as the date first written above.
COMPREHENSIVE CARE CORPORATION
By /S/ Kerri Ruppert
--------------------------------------
Its Vice President/Secretary
OPTIONEE /s/ Ronald G. Hersch
--------------------------------------
Ronald G. Hersch
<PAGE>
<PAGE>
EXHIBIT A
Date Exercisable Number of Shares and Price
------------------ --------------------------
Year One 8/25/95 50,000 at $0.75 per share
Year Two 8/25/96 50,000 at $1.00 per share
Year Three 8/25/97 50,000 at $1.50 per share
<TABLE> <S> <C>
<CAPTION>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> AUG-31-1994
<CASH> 275
<SECURITIES> 0
<RECEIVABLES> 4,921
<ALLOWANCES> 4,965
<INVENTORY> 0
<CURRENT-ASSETS> 12,649
<PP&E> 29,317
<DEPRECIATION> 13,676
<TOTAL-ASSETS> 30,380
<CURRENT-LIABILITIES> 14,460
<BONDS> 10,579
<COMMON> 2,199
0
0
<OTHER-SE> 250
<TOTAL-LIABILITY-AND-EQUITY> 30,380
<SALES> 8,057
<TOTAL-REVENUES> 8,063
<CGS> 0
<TOTAL-COSTS> 7,989
<OTHER-EXPENSES> 1,528
<LOSS-PROVISION> 750
<INTEREST-EXPENSE> 251
<INCOME-PRETAX> 2,455
<INCOME-TAX> 45
<INCOME-CONTINUING> 2,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,500
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
