<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
COMPREHENSIVE CARE CORPORATION
(Name of Registrant as Specified in Its Charter)
Comprehensive Care Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
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(4) Date filed:
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<PAGE> 2
[COMPCARE LOGO]
September 30, 1995
Dear CompCare Stockholder:
On behalf of the Board of Directors and management of your Company, I
cordially invite you to attend our annual meeting of stockholders on Thursday,
November 9, 1995 at 10:00 a.m., Eastern Standard Time, at the offices of Ernst
& Young LLP, 787 Seventh Avenue, 21st Floor, New York, New York, and any
adjournments or postponements thereof.
I urge you to attend the meeting to give us an opportunity to meet you
personally and to answer questions you may have.
I hope that you will be able to attend the meeting in person. Whether
or not you plan to attend the meeting, please sign and return the enclosed
proxy card promptly in the return envelope provided.
I look forward to seeing you at the annual meeting of stockholders.
Sincerely,
Chriss W. Street
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
COMPREHENSIVE CARE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, NOVEMBER 9, 1995
-----------------------------------------
The annual meeting of stockholders of Comprehensive Care Corporation
(the "Company") will be held at the offices of Ernst & Young LLP, 787 Seventh
Avenue, 21st Floor, New York, New York on Thursday, November 9, 1995 at 10:00
a.m., Eastern Standard Time, and any adjournments or postponements thereof for
the following purposes:
1. To elect one Class III director to serve until the
1998 Annual Meeting of Stockholders and until his
successor is elected and qualified;
2. To act upon a proposal to adopt the Comprehensive
Care Corporation 1995 Incentive Plan in the form of
Appendix A;
3. To act upon a proposal to amend and restate the
Directors' Stock Option Plan in the form of
Appendix B;
4. To consider and transact such other business as may
properly come before the meeting or any adjournment
thereof.
Stockholders of record at the close of business on September 15, 1995
are entitled to vote at the meeting. A list of stockholders entitled to vote
at the meeting will be available for inspection at the principal office of the
Company and such offices of Ernst & Young LLP.
By Order of the Board of Directors,
Kerri Ruppert
Secretary
September 30, 1995
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ACCOMPANYING PROXY AND MAIL
IT IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF A FOLLOW-UP MAILING.
<PAGE> 4
COMPREHENSIVE CARE CORPORATION
4350 VON KARMAN AVENUE, SUITE 280
NEWPORT BEACH, CALIFORNIA 92660
(714) 798-0460
PROXY STATEMENT
The Board of Directors of Comprehensive Care Corporation (the
"Company") solicits your proxy for use at the annual meeting of stockholders to
be held on Thursday, November 9, 1995 at 10:00 a.m., Eastern Standard Time, at
the offices of Ernst & Young LLP, 787 Seventh Avenue, 21st Floor, New York, New
York, and any adjournments or postponements thereof. This proxy statement and
the accompanying form of proxy are first being mailed on or about October 4,
1995. Following this mailing, certain officers and employees of the Company may
solicit proxies by mail, telephone, telecopy or in person, without additional
compensation. In addition, the Company has engaged Continental Stock Transfer
& Trust Company to assist in this proxy solicitation for a fee of $5,000 plus
expenses. Upon request, the Company will reimburse brokers and other persons
holding shares for others for their expenses in forwarding copies of the proxy
soliciting material to the beneficial owners of such shares. All costs of
solicitation will be paid by the Company.
The shares held by each person giving a proxy in the accompanying form
will be voted at the meeting in accordance with any instructions specified in
the proxy. If no instructions are specified, the shares will be voted; FOR the
election as a class III director of the nominee specified herein; FOR the
adoption of the 1995 Incentive Stock Option Plan; and FOR the adoption of the
amendment and restatement of the Director Stock Option Plan. The person voting
the proxy may vote the proxy cumulatively for the election of one or more
director nominee as described under "Cumulative Voting Rights" below. A proxy
may be revoked by the person giving it any time before its exercise by sending
a written notice of such revocation or a later-dated proxy to the Secretary of
the Company at the above address or by attending the meeting and voting in
person. Attendance at the meeting will not by itself revoke a proxy.
Only stockholders of record at the close of business on September 15,
1995 are entitled to notice of, and to vote at, the annual meeting. As of that
date, 2,214,500 shares of common stock, $.01 par value per share ("Common
Stock"), were outstanding and held of record by stockholders. Stockholders are
entitled to one vote for each share of Common Stock held.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock will constitute a quorum for the transaction
of business at the annual meeting. Directors are elected by a plurality of the
votes present in person or by proxy and entitled to vote. Except as set forth
in the next paragraph, approval of any other matter that may properly come
before the meeting requires the affirmative vote of a majority of the shares
present in person or by proxy and entitled to vote. Abstentions will therefore
have the effect of negative votes with respect to any matter presented at the
meeting, while broker non-votes will have no effect on any matter presented. If
authority to vote for one or more nominees is withheld on a proxy card, no vote
will be cast with respect to the shares represented thereby and the outcome of
the election will not be affected.
The New York Stock Exchange ("NYSE") Shareholder Approval Policy
requires, in many instances, including approval of option plans in which
directors or officers participate, the approval of the listed company's
shareholders for the shares to be listed on NYSE. In order for the approval to
be effectively given on Proposals 2 and 3, at least a majority of the
outstanding Common Stock must cast votes in person or by proxy (counting the
total vote cast for, against, abstaining, or indicating no instruction); and a
majority of the shares voting must approve.
CUMULATIVE VOTING RIGHTS
In voting for the election of directors, stockholders are entitled to
vote cumulatively. Each stockholder is entitled to cast in each election the
number of votes equal to (i) the number of shares held of record by such
person, multiplied by (ii) the number of directors to be elected in such
election. Stockholders may (but need not) cumulate their votes in the election
of directors by indicating the distribution of their votes among the nominees
in the space provided on the enclosed proxy card. If votes are not so
distributed on the proxy as to the election of directors, the persons appointed
as proxies may exercise the right to vote the shares represented by such proxy
cumulatively in such election and may distribute the votes represented by such
proxy among one or more of the nominees (or any substitute candidates) in any
manner they see fit. In so far as only one director is to be elected as a
Class III director, there would be no effective application of the cumulative
voting provisions.
<PAGE> 5
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of Common Stock by the directors of the Company, the executive
officers named in the Summary Compensation Table included elsewhere herein and
all directors and executive officers as a group. Such information is given as
of September 15, 1995, the record date. According to rules adopted by the
Securities and Exchange Commission, a person is the "beneficial owner" of
securities if he or she has, or shares, the power to vote them or to direct
their investment. Except as otherwise noted, the indicated owners have sole
voting and investment power with respect to shares beneficially owned. An
asterisk in the percent of class column indicates beneficial ownership of less
than 1% of the outstanding Common Stock.
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
William H. Boucher 5,000 (1) *
J. Marvin Feigenbaum 5,000 (1) *
Lindner Funds (2) 586,700 20.9%
Ronald G. Hersch 15,500 (3) *
Drew Q. Miller 21,000 (4) *
Rudy R. Miller 5,000 (1) *
James R. Moriarty (5) 172,500 7.2%
W. James Nicol 5,056 (6) *
Richard C. Perry (7) 200,000 8.3%
Kerri Ruppert 19,036 (8) *
Chriss W. Street 84,060 (9) 3.7%
All executive officers and
directors as a group (8 persons) 159,652 (10) 6.8%
</TABLE>
- ----------------------
(1) Includes 5,000 shares subject to options that are presently exercisable or
exercisable within 60 days of the date of this Proxy Statement.
(2) The mailing address of Lindner Funds is c/o Ryback Management Corporation,
7711 Carondelet Avenue, Suite 700, St. Louis, Missouri 63105. Includes
approximately 336,700 shares currently reserved for issuance upon
conversion of a Secured Convertible Note dated January 9, 1995 and 250,000
shares sold under an Amended Common Stock Purchase Agreement dated June 29,
1995 that are issuable upon approval of listing on the NYSE and completion
of administerial matters. Lindner Funds, as described in its Schedule
13G, holds the shares and convertible debt in more than one fund.
(3) Includes 4,000 shares held directly and 11,500 shares subject to options
that are presently exercisable or exercisable within 60 days of the date
of this Proxy Statement.
(4) Includes 1,000 shares held directly and 20,000 shares subject to options
that are presently exercisable or exercisable within 60 days of the date
of this Proxy Statement.
(5) The mailing address of James R. Moriarty is 1111 Bagbe, Suite 1950,
Houston, Texas 77002-2546. Includes 172,500 shares sold under a Common
Stock Purchase Agreement dated April 15, 1995, as amended, that are
issuable upon approval of listing on the NYSE and completion of
administerial matters.
(6) Includes 56 shares held by Mr. Nicol's spouse as custodian for his three
minor children, all of whom reside with Mr. Nicol, and 5,000 shares
subject to options that are presently exercisable or exercisable within 60
days of the date of this Proxy Statement.
(7) Mr. Perry is President of Perry & Co., 2635 Century Parkway, N.E., Suite
1000, Atlanta, Georgia 30345.
(8) Consists of 19,036 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(9) Includes 6,560 shares held directly and 77,500 shares subject to options
that are presently exercisable or exercisable within 60 days of the date
of this Proxy Statement.
(10) Includes a total of 148,036 shares subject to outstanding options that are
presently exercisable or exercisable within 60 days of the date of this
Proxy Statement.
2
<PAGE> 6
PROPOSAL 1 - ELECTION OF A CLASS III DIRECTOR
During fiscal 1995, the size of the Board of Directors was fixed at
five members. The Board of Directors of the Company is divided into three
classes serving staggered three year terms. Directors for each class will be
elected at the Annual Meeting of Stockholders held in the year in which the
term for such class expires and will serve for three years. The term of W.
James Nicol will expire at the 1995 Annual Meeting; the terms of Rudy R. Miller
and Chriss W. Street will expire at the 1996 Annual Meeting and the terms of
William H. Boucher and J. Marvin Feigenbaum will expire at the 1997 Annual
Meeting. Directors who are employees of the Company do not receive any
compensation for serving on the Board of Directors of the Company.
Mr. Street, a Class II director, is not up for re-election; however,
under the terms of his employment agreement, the Company shall use its best
efforts for Mr. Street to continue to be elected as a Class II director of the
Company, and to be further elected as Chairman of its Board of Directors.
It is the intention of the persons named as proxies to vote their
proxies for the election as a Class II director of the person as named below,
of whom the nominee, Mr. Nicol is currently a director. Mr. Nicol has
consented to serve as the director if elected.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE ELECTION AS A DIRECTOR OF THE NOMINEE LISTED BELOW.
CLASS III: NOMINEE FOR A THREE-YEAR TERM EXPIRING IN 1998
W. JAMES NICOL (Age 52)
Mr. Nicol has served since May 1995 as Senior Vice President/Chief
Financial Officer of CareLine, Inc. From October 1990 to March 1995, Mr. Nicol
served as Senior Vice President/Chief Financial Officer and Treasurer of
Quantum Health Resources, Inc., a provider of long-term therapies and support
services for chronic disorders. From October 1989 until August 1990, he served
as President of the Company, and he served as an Executive Vice President of
the Company and in other positions from 1973 through June 1989. Mr. Nicol has
served as a director of the Company since 1988 and also served as a director
from 1985 to 1987.
THE FOLLOWING ARE INCUMBENT DIRECTORS WHOSE TERMS
ARE NOT EXPIRING AT THE 1995 ANNUAL MEETING
WILLIAM H. BOUCHER (Age 63)
Mr. Boucher is a Class I director whose term expires at the 1997
Annual Meeting. Mr. Boucher is currently a self-employed consultant providing
services to the dental, behavioral medicine and pharmaceutical industries.
From February 1994 to September 1994, he served as Vice President - Sales for
Foundation Health Pharmaceutical Services, a Health Maintenance Organization
("HMO"), and was Vice President - Sales for Diagnostek, Inc., a mail-order
pharmacy company, from June 1991 to January 1994. Mr. Boucher was also Vice
President - sales for Qual-Med, an HMO from May 1990 to June 1991 and was Vice
President - Sales and Marketing for PCS, Inc., a pharmacy processing company,
from April 1980 to September 1989. Mr. Boucher has served as a director of the
Company since January 1994.
J. MARVIN FEIGENBAUM (Age 45)
Mr. Feigenbaum is a Class I director whose term expires at the 1997
Annual Meeting. Mr. Feigenbaum has served as the Chairman and Chief Executive
Officer of Nu-Tech Bio Med, Inc. (formerly known as Applied DNA Systems, Inc.),
a chemo-sensitivity testing company, since June 1994. For the prior five years
thereto, Mr. Feigenbaum acted as an independent consultant in the medical and
health care industry generally. Mr. Feigenbaum has over 20 years experience in
the health care industry. Prior to being an independent consultant, Mr.
Feigenbaum served as Chairman
3
<PAGE> 7
and Chief Executive Officer of Temco Home Health Care Products, Inc. Mr.
Feigenbaum is a member of the Entrepreneurship Advisory Council Small Business
Research Institute at the University of Albany's School of Business. He has
served as a director of the Company since March 1994.
RUDY R. MILLER (Age 47)
Mr. Miller is a Class II director whose term expires at the 1996
Annual Meeting. Mr. Miller has served as Chairman, President and Chief
Executive Officer of Miller Management Corp., a financial consulting firm,
since 1972 and of Miller Capital Corp., a venture capital, financial services
and investor relations firm, since 1993. Mr. Miller was Chairman, President
and Chief Executive Officer of StatesWest Airlines, Inc. from 1986 to 1993.
That company petitioned for protection under Chapter 11 of the U.S. Bankruptcy
Code in December 1992 and was dismissed by the Bankruptcy Count in September
1994. Mr. Miller was also a member of the board of directors of America West
Airlines from 1982 to 1986. He has served as a director of the Company since
August 1994.
CHRISS W. STREET (Age 45)
Mr. Street is a Class II director whose term expires at the 1996
Annual Meeting. 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. In August 1994,
Mr. Street was also appointed President of the Company. Mr. Street is founder
and principal of Chriss Street & Company, a corporation 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. In February 1995, Mr. Street was elected as a director for
Micropolis Corporation, where he also serves as chairman of the compensation
committee. In addition, in August 1995, Mr. Street was elected as a director
of Nu-Tech Bio Med, Inc. where he also serves on the stock option committee
(see "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"). Mr. Street
also serves as Chairman of the Board of Directors of the Company and has been a
director since November 1993.
BOARD MEETINGS AND DIRECTORS' COMPENSATION
During the fiscal year ended May 31, 1995, the Board of Directors of
the Company held 9 meetings. In addition, the Board of Directors took actions
by written consent on 2 occasions. Each director attended more than 75% of the
meetings of the Board of Directors and the committees on which he served during
his period of service.
Prior to the 1994 Annual Meeting, non-employee directors received a
$5,000 annual retainer plus $2,250 for each Board meeting attended in person.
Directors are not compensated for attendance at committee meetings or meetings
conducted telephonically.
Effective as of the date of the 1994 Annual Meeting, directors no
longer received an annual retainer. Instead, non-employee directors were paid
$1,000 per month of service, with committee chairmen receiving an additional
$500 per month. Directors are required to attend at least three of the five
regular Board meetings.
In April 1995, Mr. Feigenbaum was appointed Vice Chairman and is paid
an additional $1,500 per month. Beginning on the date of the 1994 Annual
Meeting, directors also receive options to purchase shares of the Company's
Common Stock under the Directors' Stock Option Plan. Under the original
Directors' Stock Option Plan, each non-employee director was granted a stock
option to purchase 10,000 shares of the Company's Common Stock ("Initial
Grant"). Initial Grants vest annually in 25% increments beginning on the first
anniversary of the date of grant, provided the individual is still a director
on those dates. In addition, each non-employee director who at each annual
meeting of the Company's stockholders remains a non-employee director, receives
an option to purchase 2,500 shares of the Company's Common Stock ("Annual
Grant"). Annual Grants become 100% vested as of the first annual meeting of
the Company's stockholders following the date of grant, provided the individual
is still a director as of that date.
In the event that Proposal 3 is adopted, directors who are not
employees will receive an initial stock option grant of 10,000 shares and
options to purchase 5,000 shares on each anniversary of the initial grant. In
addition, the Vice Chairman shall be granted with each annual grant, options to
purchase 3,333 shares of the Company's Common Stock. Each chairman of a
committee of the Board of Directors will be granted with each annual grant,
options to purchase 8,333
4
<PAGE> 8
shares of the Company's Common Stock. Each non-employee director (other than
the chairman) who serves on a committee of the Board of Directors will be
granted with each annual grant, options to purchase 2,500 shares of the
Company's Common Stock.
Rudy R. Miller, a current director of the Company, is a principal of
The Miller Group, a public and investor relations firm. Effective January 1,
1995, the Company engaged The Miller Group to provide investor-relations
services. The terms of the engagement are for one year and provide that The
Miller Group will bill the Company at the monthly rate of $5,500 (exclusive
of out-of-pocket expenses).
BOARD COMMITTEES
Audit Committee. The audit committee of the Board of Directors
consists of Messrs. Rudy Miller, Nicol and Boucher. The committee reviews the
report of the auditors' findings following the close of the audit and
thereafter submits a report of such findings to the Board of Directors. It
also makes a recommendation to the Board of Directors on the selection of
independent public accountants for the subsequent year. During the fiscal year
the audit committee made certain recommendations pursuant to rules of the New
York Stock Exchange related to the Shareholder Approval Policy of the New York
Stock Exchange. The audit committee met 5 times during fiscal 1995.
Compensation Committee. The compensation committee of the Board of
Directors consisted of Messrs. Nicol, Boucher and Feigenbaum. The compensation
committee recommends compensation for executives and the issuance of stock
options under existing plans and the modification of any such plans. The
compensation committee met 3 times during fiscal 1995.
The entire Board serves as the nominating committee and stockholders
wishing to recommend candidates for Board membership should submit, in
accordance with the Company's Restated Bylaws, timely written notice containing
the required information including the name of the candidate and his or her
background and qualifications to the Board of Directors, c/o Secretary of the
Company, 4350 Von Karman Avenue, Suite 280, Newport Beach, California 92660.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of
the Company's Common Stock to file reports of ownership and changes in
ownership of such securities with the Securities and Exchange Commission
("SEC") and the New York Stock Exchange, Inc. Such persons are also required
by SEC regulations to furnish the Company with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of such forms
furnished to the Company or written representations that no Forms 5 were
required, Management believes that from June 1, 1994 through May 31, 1995, all
of the Company's directors, officers and 10% shareholders complied with all
applicable Section 16(a) filing requirements.
REPORT OF THE COMPENSATION COMMITTEE
REGARDING COMPENSATION OF
EXECUTIVE OFFICERS OF
COMPREHENSIVE CARE CORPORATION
The Company maintains a three-member Compensation Committee (the
"Committee") composed of non-employee directors. The Committee made
recommendations regarding all of the compensation of the Company's executives
during fiscal 1995. The Board of Directors did not materially disagree with
any such recommendations. The Committee is composed of W. James Nicol, William
H. Boucher and J. Marvin Feigenbaum.
EXECUTIVE COMPENSATION PHILOSOPHY
The Committee believes that a compensation program that enables the
Company to attract and retain outstanding executives in the health care
industry will assist the Company in meeting its long-range objectives, thereby
serving the interests of the Company's stockholders. The Company decided to
replace several of its executive officers during the fiscal year, and as a
result, the Committee found itself making compensation decisions under
difficult circumstances. For these reasons, the Committee's
compensation-related decisions in fiscal 1995 primarily involved awarding its
executives base salaries designed to compensate those executives fairly (but
5
<PAGE> 9
not handsomely relative to the executives of the Company's competitors). See
the discussion under "Base Salaries" below. The Committee does not intend to
maintain this salary-based approach in future years, intending instead that
the Company's long-term executive compensation program will have three
components: base salaries which will attract highly competent executives and
annual and long-term incentives which will tie the individual executive's
total compensation to individual performance and the financial success of the
Company. For additional information related to executive compensation, see
Fiscal 1995 CEO compensation.
BASE SALARIES
The Company's executive officers receive base salaries as compensation
for the skills, knowledge and experience that they bring to their positions.
Base salaries paid to the Company's executive officers are subjectively
established by the Committee and are not linked to Company or individual
performance objectives. Rather, they are intended to be maintained at or
slightly above the median of the range of salaries for similar positions at
public companies that are in the same lines of business as the Company and are
of similar size. Such companies include those listed in the Comparable Company
Index in the Performance Graph that appears below, but also include two other
companies that would be included in that index, but for the fact that they have
less than five years of operating history as public companies. The Committee
also considers salaries paid in the health care industry generally, but only as
a matter of establishing a general framework for its deliberations.
Over time, the Committee intends to place more emphasis on the
incentive portions of the executive's compensation package and expects that the
base salary portion will therefore gradually move closer to the average "market
rate" for executives employed at similar positions by similarly-sized health
care companies. By placing a greater portion of an executive's annual pay "at
risk," the Committee believes that compensation will be more directly related
to performance and will more closely link the financial interests of the
executives with those of the stockholders.
Executive salary increases may be made from time to time to reflect
changes in an executive's skills, knowledge and experience, as well as to keep
base salaries competitive, within the above parameters. The Company increased
the salary of one executive officer (Mr. Drew Miller) during fiscal 1995 in
connection with his promotion to Interim Chief Operating Officer of the
Company. No other salary increases were granted to any of the Company's
executive officers during fiscal 1995.
ANNUAL INCENTIVE BONUSES
In past years, annual incentive bonuses have been provided in addition
to base salaries to create total annual cash compensation. Due to the
Company's adverse financial performance, no such bonuses were awarded in or
with respect to fiscal 1995. The Committee has considered from time to time
an annual incentive plan that would increase total cash compensation for
executives based on objective improvements in the Company's results of
operations. The Committee has not yet adopted such a plan pending further
review of the Company's recent financial performance and its ongoing
examination of various strategic options for re-establishing the Company's
competitiveness in the marketplace.
LONG-TERM INCENTIVES
The Company may provide long-term incentives to its executives through
programs designed to encourage executives to acquire and hold shares of Common
Stock of the Company. In past years, this objective was achieved through
grants of stock options. The timing and number of options granted under the
Company's stock option plans is a matter within the discretion of the
Committee, which typically takes into account the Company's performance, the
executive's perceived opportunity to contribute to such performance and the
total long-term compensation previously granted to each executive. Based
primarily on the Company's performance, and also in view of the number of
options already held by the Company's executives, the Committee awarded options
and no other long-term incentives to any of the Company's executive officers
during fiscal 1995.
6
<PAGE> 10
OTHER COMPENSATION PLANS
The Company maintains several broad-based employee benefit plans,
including the Company's 401(k) Plan, in which the executive officers are
permitted to participate on the same terms as other employees.
FISCAL 1995 CEO COMPENSATION
The Company had one Chief Executive Officer during fiscal 1995.
Chriss W. Street was appointed Interim CEO on May 6, 1994 and was appointed CEO
on June 21, 1994. On August 25, 1994, Mr. Street was also appointed President
of the Company. In view of Mr. Street's prior and continuing commitment to
his investment banking firm, the Board has allowed him to divide his time
between the Company and his firm. This report discusses the principles
applicable to CEO compensation generally as well as specific considerations
relating to the compensation awarded Mr. Street.
The description of the Committee's past practice and future plans
regarding the components of executive compensation set forth in the section of
this report entitled "Executive Compensation Philosophy" as well as those
additional factors discussed herein, apply equally to CEO compensation. The
Committee evaluates the CEO's skills, knowledge and experience and subjectively
relates these factors to his or her compensation.
The Compensation Committee reviewed the current business and financial
position of the Company and the evolution of such business and financial
position over fiscal 1994 and 1995. As part of this review, and particularly
in connection with its review and recommendations concerning the compensation
for Mr. Street, the Compensation Committee gave particular consideration to the
challenges that have faced the Company and how those challenges were met under
the executive leadership of Mr. Street. The Compensation Committee further
considered the accomplishments of the Company and the Company's plan of
operations as submitted to it by senior management. The Compensation Committee
gave due weight to, and considered the preservation of value for the Company's
shareholders, as well as an overall and continuing goal of increasing
shareholder value. Among the many factors that Mr. Street had been responsible
for was the successful conclusion of the Company's settlement with the Internal
Revenue Service; the raising of debt and equity financing at times that were
critical to the Company's continued viability; and the repositioning of one of
the Company's subsidiaries to become a major participant in managed care
aspects of the health care industry. It was in the context of the foregoing
that the Compensation Committee recommended a program pursuant to which due
recognition should be given to the leadership efforts and accomplishments of
Mr. Street. At the same time, the Compensation Committee wanted there to be
some achievement of recognizable events that would contribute to additional
shareholder value. It was thus that the Compensation Committee recommended,
subject to the adoption of the Company's 1995 Incentive Plan, that Mr. Street
be awarded 100,000 shares of the Company's Common Stock, subject to vesting
over a 20 year period of time. The minimum of 5,000 shares to vest each year
was thought to be a fair measure of recognizing the past contributions made by
Mr. Street to the Company. By providing for events by which such shares may
vest at an accelerated rate by reason of increased net pre-tax profit of the
Company, the accomplishment of a meaningful acquisition event, or the increase
in the market value of the Company's securities over the market value for the
preceding year, were thought to be objective events which also tied to creating
or maintaining shareholder value. In the event that Mr. Street were to
voluntarily terminate his association with the Company, he would likewise
forfeit the remaining unvested portion of his restricted shares. This would
prevent an unintended windfall under such circumstances. The Restricted Share
Grant is consistent with the goals and objectives of senior management and the
executive compensation philosophy is herein described.
LIMITATIONS ON THE DEDUCTIBILITY OF COMPENSATION
Pursuant to the 1993 Omnibus Budget Reconciliation Act, a portion of
annual compensation payable after 1993 to any of the Company's five highest
paid executive officers would not be deductible by the Company for federal
income tax purposes to the extent such officer's overall compensation exceeds
$1.0 million per executive officer. Qualifying performance-based incentive
compensation, however, would be both deductible and excluded for purposes of
calculating the $1.0 million base. The Board of Directors has determined that
no portion of anticipated compensation payable to any executive officer in 1995
would be non- deductible. The Board of Directors will continue to address this
issue when formulating compensation arrangements for executive officers, but
believes that the deductibility of officer compensation in excess of the $1.0
million threshold is not likely to be an issue for the Company to address in
the foreseeable future.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS COMPREHENSIVE CARE CORPORATION
William H. Boucher W. James Nicol J. Marvin Feigenbaum
7
<PAGE> 11
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, recommendations and administrative decisions
regarding the compensation of the Company's executives were made by the
Compensation Committee of the Board of Directors, which is currently comprised
entirely of persons who are not officers or employees of the Company. Mr.
Nicol, who served as a director of the Company and a member of the Compensation
Committee during fiscal 1995, served as President of the Company from October
1989 until August 1990 and as an Executive Vice President of the Company and in
other positions from 1973 through June 1989.
Mr. Street is a director of the Company and serves on the stock option
committee of the board of directors of Nu-Tech Bio-Med, Inc. Mr. Feigenbaum,
the Company's Vice-Chairman and also the Chairman of the Compensation
Committee, is also the chairman of Nu-Tech Bio-Med, Inc.
During fiscal 1994, the Company and certain persons who formerly
served as directors of the Company, including Mr. Nicol (who is still a
director of the Company), were defendants in various legal actions resulting
from the terminated reorganization of First Hospital Corporation ("FHC") of
which the Company was to become an affiliate of FHC. Among other things, the
complaints alleged violations of federal and state securities laws, common law
fraud and breaches of fiduciary duty. (See the second paragraph of Note 15 of
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1993.) Under the terms
of the Company's Bylaws and individual indemnity agreements with the former
directors (including Mr. Nicol) who are parties to this litigation, the Company
bore certain costs associated with defending and settling these lawsuits.
Approximately $318,000 in legal expenses related to this litigation were
charged to the Company during fiscal 1994 and $0 in fiscal 1995. In order to
settle certain of these cases, on October 18, 1993, the Company paid $710,000
in settlement. The Company is unable to separate the amounts paid on behalf of
Mr. Nicol in connection with defending and settling this litigation from
amounts paid by the Company on its own behalf and amounts paid on behalf of the
other former directors.
8
<PAGE> 12
PERFORMANCE GRAPH
The following is a line graph comparing the Company's total
stockholder returns to those of The New York Stock Exchange Composite Index, a
Comparable Company Index (including the Company, Community Psychiatric Centers
and Ramsay Health Care Inc.) for each year in the period from June 1, 1990 and
ended May 31, 1995. Total return values were calculated based on cumulative
total return, assuming the value of the investment in the Company's Common
Stock and in each index was $100 and that all dividends were reinvested.
ASSUMES $100 INVESTED ON JUNE 1, 1990
ASSUMES DIVIDENDS REINVESTED
FIVE FISCAL YEARS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
May 1990 May 1991 May 1992 May 1993 May 1994 May 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CompCare 100.00 120.00 65.00 27.50 22.50 28.50
Comparable Co. Index 100.00 134.09 43.26 39.50 59.89 50.38
NYSE Composite 100.00 111.13 122.82 137.08 145.03 166.71
</TABLE>
9
<PAGE> 13
EXECUTIVE COMPENSATION
This section of the proxy statement discloses the compensation earned
by the Company's Chief Executive Officer and its other executive officers whose
total salary and bonus for fiscal 1995 exceeded $100,000 (together, these
persons are sometimes referred to as the "named executives").
TABLE I - SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
============================================================================================================================
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------------------------------------------------
Securities
Other Restricted Underlying Long-Term All
Annual Stock Options/ Incentive Other
FISCAL Salary Bonus Compensation Awards SARs Payouts Compensation
NAME AND POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chriss W. Street (1) 1995 153,711(2) 0 0 0 150,000 0 0
Chairman and Chief 1994 10,424 0 0 0 0 0 0
Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------
Ronald G. Hersch (3) 1995 102,635 0 0 0 21,500 0 0
President and Chief
Executive Officer of Comprehensive
Behavioral Care, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Drew Q. Miller (4) 1995 68,999(5) 0 0 0 20,000 0 0
Chief Operating Officer and
Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------------------------
Kerri Ruppert 1995 122,493(6) 0 0 0 19,000 0 970(7)
Vice President, Chief 1994 116,273 0 0 0 0 0 549(7)
Accounting Officer and 1993 99,751 0 0 0 0 0 87(7)
Secretary/Treasurer
============================================================================================================================
</TABLE>
(1) Mr. Street was named Interim Chief Executive Officer of the Company
effective May 10, 1994 following the resignation of his predecessor,
and was appointed Chief Executive Officer of the Company on June
21, 1994. Accordingly, amounts shown for fiscal 1994 for Mr. Street
only reflect compensation that he earned from May 6, 1994 through the
end of fiscal 1994.
(2) Does not include car allowances of $3,500 paid by the Company and in
accordance with Mr. Streets' employment agreement.
(3) Dr. Hersch was employed as president of the Company's subsidiary,
Comprehensive Behavioral Care, Inc. on August 17, 1995. Accordingly,
amounts shown for Dr. Hersch only reflect compensation that he earned
from his date of hire through the end of fiscal 1995.
(4) Mr. Miller was employed on November 1, 1994 as Chief Financial Officer
following the resignation of his predecessor. Accordingly, amounts
shown for fiscal 1995 for Mr. Miller only reflect compensation that he
earned from November 1, 1994 to the end of fiscal 1995.
(5) Does not include amounts paid by the Company for the purchase of
certain assets of Alternative Psychiatric Centers, Inc. ("APC") from
Mr. Miller, President and sole shareholder of APC. Such purchase
price was $50,000 and included the assumption by the Company of
certain operating leases.
(6) Includes vacation payout in the amount of $7,910.
(7) Represents amounts contributed by the Company to the indicated
person's 401(k) Plan account.
10
<PAGE> 14
TABLE II - OPTIONS HELD AT MAY 31, 1995
The tables below present information regarding the number of
unexercised options held by the Company's named executives at May 31, 1995. None
of the Company's named executives exercised options for any shares of the
Company's Common Stock in fiscal 1995, nor were any stock appreciation rights
granted or held by such persons during fiscal 1995.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER GRANT DATE
NAME GRANTED (1) FISCAL YEAR SHARE EXPIRATION DATE PRESENT VALUE (2)
- ---- ----------- ------------ --------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Chriss W. Street(3)................. 40,000 14% $ 6.25 3/7/99 $ 5.346
20,000 7 8.00 3/7/99 4.654
20,000 7 10.00 3/7/99 4.013
20,000 7 12.00 3/7/99 3.492
25,000 9 7.50 8/25/04 6.773
12,500 4 10.00 8/25/04 6.289
12,500 4 12.00 8/25/04 5.961
Ronald G. Hersch(4)................. 5,000 2 6.25 10/31/04 7.096
6,500 3 7.50 8/25/04 6.773
5,000 2 10.00 8/25/04 6.289
5,000 2 15.00 8/25/04 5.541
Drew Q. Miller(5)................... 20,000 7 6.25 2/01/98 4.798
Kerri Ruppert(6).................... 2,500 1 7.50 8/25/04 6.773
15,000 5 6.25 10/31/04 7.096
1,500 1 7.79 5/5/05 6.878
-------
210,500
</TABLE>
(1) The number of options granted have been adjusted for the ten-for-one
reverse stock split which was effective October 21, 1995.
(2) Black-Scholes option pricing method has been used to calculate present
value as of date of grant. The present value as of the date of grant,
calculated using the Black-Scholes method, is based on assumptions about
future interest rates, stock price volatility and dividend yield. There is
no assurance that these assumptions will prove to be true in the future.
The actual value, if any, that may be realized by each individual will
depend upon the market price of the common stock on the date of exercise.
(3) Includes 50,000 options granted under a Non-qualified Stock Option
Agreement dated August 25, 1994 and 100,000 options granted under the 1988
Incentive Stock Option Plan (the "ISO Plan").
(4) Includes 15,000 options granted under a Non-qualified Stock Option
Agreement dated August 25, 1994 and 6,500 options granted under the
ISO Plan.
(5) Includes 20,000 options granted under the ISO Plan.
(6) Includes 19,000 options granted under the ISO Plan.
11
<PAGE> 15
AGGREGATED FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END (1) AT FISCAL YEAR-END (2)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------------------- -------------------------
<S> <C> <C>
Chris W. Street (3) 65,000/20,000 $121,250/$15,000
Ronald G. Hersch 1,500/20,000 1,501/18,750
Drew Q. Miller 0/20,000 0/42,500
Kerri Ruppert 5,500/15,000 4,565/37,500
</TABLE>
(1) The numbers of options granted prior to October 21, 1994 have been adjusted
for the ten-for-one reverse stock split which was effective October 21,
1994.
(2) Calculated on the basis of the closing sale price per share for the
Company's Common Stock on the New York Stock Exchange of $8.75 on September
18, 1995. Value was calculated on the basis of the difference between the
option exercise price and $8.75 multiplied by the number of shares of
common stock underlying the respective options.
(3) Exercisable options includes options for 40,000 shares granted in the
Company's 1988 Incentive Stock Option Plan at $6.25 per share and
vesting on March 7, 1995 and options not within a plan for 25,000 shares
at $7.50 per share and vesting August 24, 1994. Unexercisable options
includes options for 20,000 shares in the Company's 1988 Incentive Stock
Option Plan at $8.00 per share and vesting on March 7, 1996.
12
<PAGE> 16
TABLE III - NEW PLAN BENEFITS TABLE
The following table describes the amounts granted in fiscal 1995 under the
plans or which would have been granted under the plans, described in Proposals
2 and 3, as if each of such proposals had been adopted and been in effect in
fiscal 1995.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
INCENTIVE PLAN RESTATED DIRECTORS' PLAN
-------------------------------- ---------------------------------------
NAME AND POSITION Dollar Value($) Number of Units Dollar Value ($)(3) Number of Units
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chriss W. Street 874,000 100,000 0 0
Chief Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------------
Rudy R. Miller 0 0 0 23,333
Director and Chairman of the
Audit Committee
- ----------------------------------------------------------------------------------------------------------------------------------
J. Marvin Feigenbaum 0 0 0 26,667
Vice Chairman and Chairman of the
Compensation Committee
- ----------------------------------------------------------------------------------------------------------------------------------
William Boucher 0 0 0 20,000
Director and Member of the
Compensation and Audit Committee
- ----------------------------------------------------------------------------------------------------------------------------------
W. James Nicol 0 0 0 20,000
Director and Member of the
Compensation and Audit Committees
- ----------------------------------------------------------------------------------------------------------------------------------
Executive Group 874,000 (1) 100,000 (1) 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Non-Executive Director Group 0 (2) 0 (2) 0 90,000
- ----------------------------------------------------------------------------------------------------------------------------------
Non-Executive Officer Employee Group 0 (2) 0 (2) 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the reported $8.75 closing price of the Common Stock on the NYSE
Composite Tape on September 18, 1995.
(2) Not presently determinable.
(3) To be granted at 100% of fair market value.
13
<PAGE> 17
CONTRACTS WITH EXECUTIVES
The Company is party to an amended and restated employment agreement
with Mr. Street that has an initial term through December 31, 1998. Mr. Street's
employment agreement provides for a salary at the rate of $150,000 per annum. In
addition, Mr. Street is provided with health insurance and other benefits and a
policy of life insurance. He also receives an auto allowance of $500 per month
and reimbursement for expenses incurred on behalf of the Company and in
connection with the performance of his duties. The agreement obligates the
Company to use its best efforts to cause Mr. Street to continue to be elected as
a Class II director, and as Chairman of its Board of Directors. The agreement
provides that the Company procure Directors and Officers Liability Insurance in
an amount not less than $1.0 million. Mr. Street's employment agreement provides
that in the event of a change of control of the Company as defined, Mr. Street
will be paid for the remainder of the unexpired term of his agreement plus two
times the sum of Mr. Street's then prevailing base salary.
Furthermore, in connection with the Company's indemnification program
for executive officers and directors, Messrs. Street, Feigenbaum, Rudy Miller,
Boucher, Nicol, Drew Miller, and Ms. Ruppert, as well as two former directors
and one former executive officer, are entitled to indemnification and are
beneficiaries of the directors and officers indemnification trust (as described
below). The Company's Directors and Officers Trust Agreement dated February 27,
1995 (the "Trust Agreement") provides for the establishment of a trust (the
"Trust") with a minimum three-year term to provide a source for certain payments
required to be made under the indemnification agreements (each an
"Indemnification Agreement"), between the Company and certain of its Officers
and members of the Board of Directors of the Company (each an "Indemnitee")
granted for the purpose of indemnifying them to the maximum extent permitted by
law and such Indemnification Agreements from and against any investigation,
claim, action, suit or proceeding against them or involving them relating to or
arising from acts taken or refrained from being taken in any capacity on behalf
of the Company or while serving in an official capacity.
The Company considers it desirable to provide each Indemnitee with
specified assurances that the Company can and will honor the Company's
obligations under the Indemnification Agreements, including a policy of
insurance to provide for directors and officers liability coverage and in
transfer of $250,000 cash to the Trustee in an amount intended to provide for
future insurance deductibles. For the converting of their Insurance Policy or
Policies, which are held by the Company, the Trust Fund is held by a Trustee
separate and apart from other assets of the Company. The Trust is irrevocable
by the Company, but automatically shall terminate when all assets of the Trust
Fund have been distributed. Termination of the Trust shall not relieve the
Company of its remaining liabilities and obligations under each Indemnification
Agreement. The capitalized terms below have the meanings given to them in the
Trust Agreement.
Upon written demand for payment by the person designated in the Trust
Agreement as Beneficiary Representative accompanied by a "Notice of
Qualification" (as defined below), the Trustee shall pay the person designated
in the Trust Agreement to administer the payments to the amounts of
Indemnitees ("Underwriter") an amount not greater than the balance, if any, of
the specified bookkeeping account ("Account") recorded by the Trustee for each
Indemnitee. A "Notice of Qualification" is a written statement by the
Beneficiary Representative which (i) states the date and action on which the
policyholder is obligated to Indemnitee(s) under the terms of the
Indemnification Agreement, (ii) certifies that, pursuant to the terms of the
Indemnification Agreement, the Indemnitees are entitled to payment thereunder
as a result of the investigation, claim, action, suit or proceeding, and (iii)
states the amount of the payment to which the Underwriter is entitled. Upon the
receipt of a demand pursuant to subsection (a), above, the Trustee promptly
shall inform the Company of such receipt by courier delivery to the Company of
written notice thereof. Subject to any contrary order issued by a court of
competent jurisdiction, a payment made pursuant to this Section may be made
without the approval or direction of the Company, and shall be made despite any
direction to the contrary by the Company. Prior to the time, amounts are to be
paid to the Underwriter or his designee from the Trust Fund as described above,
Indemnitees have no preferred claim or beneficial ownership interest in trust
funds, and their rights are merely unsecured contractual rights.
As soon as practicable after all Accounts have filed a demand for and
received payment in the manner described above, or, if earlier, upon the
expiration of three (3) calendar years from the date the Trust Agreement is
entered into, the Trustee shall pay to the Company all amounts then held in the
Trust Fund; provided that, if any payment from the Trust to the Beneficiary
Representative or the Underwriter or his designee who has filed a demand in the
manner described above is being contested or litigated, and payment from the
Trust is delayed under the terms of this Agreement or at the direction of a
court of competent jurisdiction beyond the expiration of the three (3) year
period specified above, payment to the Company shall be delayed until the
proper disposition of the payment to the Indemnitee has been determined. If the
Company and the Beneficiary Representative each certify to the Trustee that the
Company's obligations to make lump sum payments under the Indemnification
Agreement have been satisfied or are no longer required to be maintained by the
Trust, the Trustee shall repay to the Company all monies then held in the Trust
Fund.
See "TABLE II - OPTIONS HELD AT MAY 31, 1995." See the description of
the Restricted Shares granted, subject to stockholder approval of Proposal 2,
to Mr. Street as described in Proposal 2.
EXECUTIVE TERMINATION AGREEMENTS
On May 6, 1994, Richard C. Peters resigned from his position as
President and Chief Executive Officer of the Company. The Company paid him
$40,000 in severance costs over a 90-day period and continued his health
insurance coverage during that time.
See "TABLE II - OPTIONS HELD AT MAY 31, 1995." See the description of
the Restricted Shares granted, subject to stockholder approval of Proposal 2,
to Mr. Street as described in Proposal 2.
CERTAIN TRANSACTIONS
The Company has from time to time engaged and compensated firms for the
purpose of facilitating a placement of securities. During fiscal 1995, the
Company's Board of Directors approved the payment to Chriss Street & Co., an
investment banking firm affiliated and controlled by Chriss W. Street, the
Company's Chairman and Chief Executive Officer, of fees aggregating $100,000
based upon its determination that the amount of the investment banking fees
charged were reasonable and on terms at least as favorable as the terms
available from other professionals rendering such services. The Audit Committee
reviewed the fees submitted by Chriss Street & Company and the Chairman
recommended approval of the fees based upon an independent investment banking
firm's opinion that the fees were standard market rate for the transaction.
On February 1, 1995, the Company purchased certain assets of Alternative
Psychiatric Centers, Inc. ("APC"), a behavioral medicine contract management
company based in Southern California from Drew O. Miller, who joined the Company
and is currently Chief Financial Officer and Chief Operating Officer. APC had
two operating locations with three contract units offering inpatient and partial
hospitalization services. The addition of these APC contracts contributed 11% of
CareUnit's total operating revenues during fiscal 1995 although these contracts
were owned by the Company for only four months during fiscal 1995.
PROPOSAL 2 - ADOPTION OF THE COMPREHENSIVE CARE CORPORATION
1995 INCENTIVE PLAN
On September 22,1995, the Board of Directors adopted, subject to
shareholder approval, the 1995 Incentive Plan (the "Plan") for use
in connection with the issuance of stock, options and other stock purchase
rights to executive officers and other key employees and consultants who render
significant services to the Company and its subsidiaries.
The adoption of the Incentive Plan was prompted by the desire to provide
the Board with sufficient flexibility regarding the forms of incentive
compensation which the Company will have at its disposal in rewarding executive
officers, key employees and consultants who render significant services to the
Company. In adopting the Plan, it was determined that the existing employee
stock option plans did not afford sufficient flexibility in fashioning incentive
compensation for those individuals to whom the Company would look as
contributing to the growth of the Company. The Board of Directors intends to
offer key personnel equity ownership in the Company through the grant of stock
options and other rights pursuant to the Incentive Plan to enable the Company to
attract and retain qualified personnel without unnecessarily depleting the
Company's cash reserves. Management believes that, in view of the anticipated
expansion of the Company's operations over the next several years, the Company
will be faced with an increasing demand for additional qualified personnel. In
order to attract and retain such personnel, the Company will require a wide
array of compensation alternatives. The Incentive Plan is designed to augment
the Company's existing compensation programs and is intended to enable the
Company to offer executives, key employees and consultants a personal interest
in the Company's growth and success through awards of shares of Common Stock,
Stock Appreciation Rights or rights to acquire shares of Common Stock.
The Incentive Plan is intended to attract and retain key executive
management personnel whose performance is expected to have a substantial impact
on the Company's long-term profit and growth potential by encouraging and
assisting those persons to acquire equity
14
<PAGE> 18
in the Company. It is contemplated that only those executive management
employees (generally the Chairman of the Board, Vice-Chairman, Chief Executive
Officer, Chief Operating Officer, Chief Accounting Officer, President and Vice
Presidents of the Company and of the Company's subsidiaries, and those persons
responsible for senior executive functions and who perform services of special
importance to the Company) will be eligible to participate under the Incentive
Plan. A total of 450,000 shares of Common Stock will be reserved for issuance
under the Incentive Plan. It is anticipated that awards made under the Incentive
Plan will be subject to three-year vesting periods, although the vesting periods
of individual grants are subject to the discretion of the Administrator. No
person may be issued stock or options to purchase stock, in the aggregate
exceeding 200,000 shares in any one calendar year (as defined below).
Unless otherwise indicated, the Incentive Plan is to be administered by
the Board of Directors or a committee of the Board, if one is appointed for this
purpose (the Board or such committee, as the case may be, shall be referred to
in the following description as the "Administrator"). In the event the
Administrator is a committee of the Board of Directors, none of the members of
such committee shall be an officer or other full time employee of the Company.
It is the intention of the Company that each member of the committee shall be a
"disinterested person" as that term is defined and interpreted pursuant to Rule
16b-3(c)(2) or any successor rule thereto promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Subject to the specific
provisions of the Incentive Plan, the Administrator will have the discretion to
determine the recipients of the awards, the nature of the awards to be granted,
the dates such awards will be granted, the terms and conditions of awards and
the interpretation of the Incentive Plan. The Incentive Plan generally provides
that, unless the Administrator determines otherwise, each option or right
granted under the Plan shall become exercisable in full upon certain "change of
control" events as described in the Incentive Plan. If any change is made in the
stock subject to the Incentive Plan, or subject to any right or option granted
under the Incentive Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Administrator will make appropriate
adjustments to such plans and the classes, number of shares and price per share
of stock subject to outstanding rights or options. Generally, the Incentive Plan
may be amended by action of the Board of Directors, except that any amendment
which would increase the total number of shares subject to such plan, extend the
duration of such plan, materially increase the benefits accruing to participants
under such plan, or would change the category of persons who can be eligible for
awards under such plan, if said amendments affect eligible officers and
directors, must be approved by stockholders. The Incentive Plan permits awards
to be made thereunder until September 1, 2005.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Incentive Plan.
The Incentive Plan provides four types of awards: stock options,
incentive stock rights, stock appreciation rights (including limited stock
appreciation rights) and restricted stock purchase agreements, as described
below.
Stock Options. Options granted under the Incentive Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs"). ISOs may be granted at an option price of not less than 100% of
the fair market value of the Common Stock on the date of grant, except that an
ISO granted to any person who owns capital stock representing more than 10% of
the total combined voting power of all classes of Common Stock of the Company
("10% stockholder") must be granted at an exercise price of at least 110% of the
fair market value of the Common Stock on the date of the grant. The exercise
price of the non-ISOs may not be less than 65% of the fair market value of the
Common Stock on the date of grant. Unless the Administrator determines
otherwise, no ISO or non-ISO may be exercisable earlier than one year from the
date of grant. ISOs may not be granted to persons who are not employees of the
Company. ISOs granted to persons other than 10% stockholders may be exercisable
for a period of up to ten years from the date of grant; ISOs granted to 10%
stockholders may be exercisable for a period of up to five years from the date
of grant. No individual may be granted ISOs that become exercisable in any
calendar year for Common Stock having a fair market value at the time of grant
in excess of $100,000. Non-ISOs may be exercisable for a period of up to 13
years from the date of grant.
Payment for shares of Common Stock purchased pursuant to exercise of
stock options shall be paid in full in cash, by certified check or, at the
discretion of the Administrator, (i) by promissory note combined with cash, (ii)
by shares of Common Stock having a fair market value equal to the total exercise
price or (iii) by a combination of (i) and (ii) above. The provision that
permits the delivery of already owned shares of stock as payment for the
exercise of an option may permit "pyramiding." In general, pyramiding enables a
holder to start with as little as one share of common stock and, by using the
shares of common stock acquired in successive, simultaneous exercises of the
option, to exercise the entire option, regardless of the number of shares
covered thereby, with no additional cash or investment other than the original
share of common stock used to exercise the option. In such circumstances, the
Company would likely be required to recognize additional compensation expense
pursuant to generally accepted accounting principles.
15
<PAGE> 19
Upon termination of employment or consulting services, an optionee will
be entitled to exercise the vested portion of an option for a period of up to
three months after the date of termination, except that if the reason for
termination was a discharge for cause, the option shall expire immediately, and
if the reason for termination was for death or permanent disability of the
optionee, the vested portion of the option shall remain exercisable for a period
of twelve months thereafter.
Incentive Stock Rights. Incentive stock rights consist of incentive
stock units equivalent to one share of Common Stock in consideration for
services performed for the Company. If the employment or consulting services of
the holder with the Company terminate prior to the end of the incentive period
relating to the units awarded, the rights shall thereupon be null and void,
except that if termination is caused by death or permanent disability, the
holder or his/her heirs, as the case may be, shall be entitled to receive a pro
rata portion of the shares represented by the units, based upon that portion of
the incentive period which shall have elapsed prior to the death or disability.
Stock Appreciation Rights. SARs may be granted to recipients of options
under the Incentive Plan. SARs may be granted simultaneously with, or subsequent
to, the grant of a related option and may be exercised to the extent that the
related option is exercisable, except that no general SAR (as hereinafter
defined) may be exercised within a period of six months of the date of grant of
such SAR and no SAR granted with respect to an ISO may be exercised unless the
fair market value of the Common Stock on the date of exercise exceeds the
exercise price of the ISO. A holder may be granted general SARs ("general SARs")
or limited SARs ("limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to general SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transactions: (i) the approval of the Board of
Directors of a consolidation or merger in which the Company is not the surviving
corporation, the sale of all or substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board; (iii) the acquisition of
beneficial ownership by any person or other entity (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
representing 25% or more of the voting power of the Company's outstanding
securities; or (iv) if during any period of two years or less, individuals who
at the beginning of such period constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new director is approved by at least a majority of the directors then still
in office or such approved directors.
The exercise of any portion of either the related option or the tandem
SARs will cause a corresponding reduction in the number of shares remaining
subject to the option or the tandem SARs, thus maintaining a balance between
outstanding options and tandem SARs.
Restricted Stock Purchase Agreements. Restricted stock purchase
agreements provide for the sale by the Company of shares of Common Stock at
prices to be determined by the Board, which shares shall be subject to
restrictions on disposition for a stated period during which the purchaser must
continue employment with the Company in order to retain the shares. Payment can
be made in cash, a promissory note or a combination of both. If termination of
employment occurs for any reason within six months after the date of purchase,
or for any reason other than death or by retirement with the consent of the
Company after the six-month period but prior to the time that the restrictions
on disposition lapse, the Company shall have the option to reacquire the shares
at the original purchase price.
Restricted shares awarded under the Incentive Plan will be subject to a
period of time designated by the Administrator (the "restricted period") during
which the recipient must continue to render services to the Company before the
restricted shares will become vested. The Administrator may also impose other
restrictions, terms and conditions that must be fulfilled before the restricted
shares may vest.
Upon the grant of restricted shares, stock certificates registered in
the name of the recipient will be issued and such shares will constitute issued
and outstanding shares of Common Stock for all corporate purposes. The holder
will have the right to vote the restricted shares and to receive all regular
cash dividends (and such other distributions as the Administrator may
designate), if any, which are paid or distributed on the restricted shares, and
generally to exercise all other rights as a holder of Common Stock, except that,
until the end of the restricted period: (i) the holder will not be entitled to
take possession of the stock certificates representing the restricted shares and
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(ii) the holder will not be entitled to sell, transfer or otherwise dispose of
the restricted shares. A breach of any restrictions, terms or conditions
established by the Administrator with respect to any restricted shares will
cause a forfeiture of such restricted shares.
Upon expiration of the applicable restricted period and the satisfaction
of any other applicable conditions, all or part of the restricted shares and any
dividends or other distributions not distributed to the holder (the "retained
distributions") thereon will become vested. Any restricted shares and any
retained distributions thereon which do not so vest will be forfeited to the
Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Incentive Plan), or dies, then, unless otherwise determined by
the Administrator at the time of the grant, the restricted period will thereupon
be deemed to have expired as to each award of restricted shares. Unless the
Administrator determines otherwise, if a holder's employment terminates prior to
the expiration of the applicable restricted period for any reason other than as
set forth above, all restricted shares and any retained distributions thereon
will be forfeited.
In September 1995, and subject to the adoption of the Incentive Plan,
the Board of Directors granted and issued to its President, Mr. Chriss W.
Street, 100,000 restricted shares of its Common Stock, $.01 par value (the
"Restricted Shares"). The Restricted Shares are subject to vesting at the rate
of 5,000 shares per year (the "Annual Vested Shares") over a 20-year period
commencing December 31, 1995 and continuing at the rate of 5,000 Annual Vested
Shares per year on December 31 of each successive year for 19 years thereafter.
The vesting of the Restricted Shares is subject to acceleration upon the
occurrence of certain events of acceleration as described below. With respect to
all Restricted Shares which may become vested, the Company is to pay to Mr.
Street, a bonus equivalent to the amount of the combined federal and applicable
state and city income taxes associated with the Restricted Shares that have
become vested. The grant of the Restricted Shares to Mr. Street was in
furtherance of the desire of the Company to provide an incentive to Mr. Street
to maximize the business of the Company, and maximize the value of the Company
for all of its shareholders.
While the Restricted Shares have been issued and Mr. Street is entitled
to vote said shares, all Restricted Shares are held in escrow until their
vesting and said shares may not be sold, assigned, transferred or hypothecated
until the time they have become vested.
In addition to the vesting of the Annual Vested Shares, an additional
number of Restricted Shares shall vest as follows: (i) for each fiscal year of
the Company, 1,000 additional Restricted Shares shall vest for each $1,000,000
of net pre-tax profit of the Company as reported for that year; (ii) in the
event the Company effects a merger, acquisition, corporate combination or
purchase of assets (an "Acquisition Event") 1,000 additional Restricted Shares
shall vest for each $1,000,000 of Acquisition Event value paid for the Company;
and (iii) as of December 31st of each year, for each 1% of increase of market
value of the Company's voting securities above 110% of the market value as of
December 31st of the preceding year, 1,000 additional Restricted Shares shall
vest.
Provision is made for the acceleration of the vesting of the Restricted
Shares upon the occurrence of (a) the approval by the stockholders of the
Company of an Approved Transaction, as defined; (b) a Control Purchase, as
defined; (c) a Board change; or (d) the failure by the Company to renew Mr.
Street's employment agreement on the conclusion of its term on December 31, 1998
or any subsequent or renewed term, on terms identical to those in the employment
agreement then prevailing. Upon the death or total disability of Mr. Street
prior to the complete vesting of the Restricted Shares, all Restricted Shares
not theretofore vested shall become vested.
No other executive officer has yet been awarded options or benefits
under the Incentive Plan.
SUMMARY OF FEDERAL TAX CONSEQUENCES
The Company believes the following is a brief summary of the tax effects
under the Code that may accrue to participants in the Incentive Plan. State
and local income taxes, which may vary from locality to locality, are not
discussed.
Incentive Options. No taxable income is recognized by an optionee or the
Company upon either the grant or exercise of an incentive stock option. When an
optionee sells or otherwise disposes of the shares acquired upon the exercise of
an incentive stock option, the entire gain or loss realized will be treated as
long-term capital gain if the disposition occurs more than one year after the
option was exercised and more than two years after the date of grant of the
option. If, however, the disposition occurs before the one-year and two-year
periods have elapsed (a "disqualifying disposition"), any gain realized will
be taxed as ordinary income in an amount equal to the difference between the
option price and either the fair market value of the shares at the time of
exercise or the sale price, whichever
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is less, and the balance, if any, will be treated as capital gain. Any loss
realized upon a disqualifying disposition will be treated as a capital loss.
Special rules may apply in specific circumstances, such as the use of
already-owned stock to exercise an incentive stock option. The Company will be
entitled to a deduction for federal income tax purposes only to the extent that
an optionee recognizes ordinary income upon a disqualifying disposition of
shares. The difference between the option price and the fair market value of the
shares acquired at the time of exercise of an incentive stock option will be an
item of tax preference to an optionee for purposes of computing the alternative
minimum tax under Section 55 of the Internal Revenue Code.
Nonqualified Options. No taxable income is recognized by an optionee
upon the grant of a non-ISO where the exercise price is not substantially below
the fair market value of the underlying Common Stock on the date of grant. The
Company may issue non-ISOs with an exercise price as low as 65% of the fair
market value of the underlying Common Stock on the date of grant. The Company
believes that no taxable income will be recognized by an optionee upon the grant
of a non-ISO with an exercise price of 65% or more of the fair market value of
the underlying Common Stock on the date of grant. Upon exercise of any non-ISO,
however, the purchaser will recognize ordinary income in the amount by which the
fair market value of the shares purchased exceeds, on the date of exercise, the
purchase price paid for such shares. The Company is entitled to a tax deduction
in an amount equal to the ordinary income recognized by the optionee.
Restricted Shares. The receipt of restricted shares will not result in a
taxable event to the participant or the Company until the Company's repurchase
rights with respect to such shares expire, unless the participant makes an
election under Section 83(b) of the Internal Revenue Code to be taxed as of the
date of purchase. If a Section 83(b) election is made, the participant will
recognize ordinary income in an amount equal to the excess of the fair market
value of such shares on the date of purchase over the amount paid for such
shares. The election must be filed with the Internal Revenue Service not later
than 30 days after the date of purchase. If no Section 83(b) election is made, a
taxable event will occur on each date on which the participant's ownership
rights vest (i.e., when the Company's repurchase rights expire) as to the number
of shares that vest on that date, and the holding period for long-term capital
gain purposes will not commence until the date on which the shares vest. The
participant will recognize ordinary income on each date on which shares vest in
an amount equal to the excess of the fair market value of such shares on that
date over the amount paid for such shares. However, if the participant is
subject to Section 16(b) of the Exchange Act, and if no Section 83(b) election
was made at the time of purchase, the recognition date for ordinary income for
shares that vest within six months of purchase will be subject to deferral to
the date six months after the date of purchase. The Company is entitled to a tax
deduction in an amount equal to the ordinary income recognized by the
participant.
Stock Appreciation Rights. No taxable income is recognized by a holder
upon the grant of a Stock Appreciation Right. Upon exercise for cash or Common
Stock, the holder will recognize ordinary income in the amount of the cash
received or the fair market value of the Common Stock received. The Company
will be entitled to a tax deduction equal to the amount of ordinary income
recognized by the holder.
TAX WITHHOLDING
Under the Plan, the Company has the power to withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy Federal,
state and local tax withholding requirements with respect to any options
granted or exercised, any stock appreciation rights exercised and any
restricted stock granted under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE ADOPTION OF THE COMPREHENSIVE CARE CORPORATION 1995 INCENTIVE PLAN.
PROPOSAL 3 - AMENDMENT AND RESTATEMENT OF
THE DIRECTORS' STOCK OPTION PLAN
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
At the November 14, 1994 Annual Meeting, the stockholders of the
Company adopted a Directors' Stock Option Plan (the "Directors' Plan"), which
authorized the reservation of 200,000 shares of the Company's Common Stock for
option grants to non-employee directors. Pursuant to the Directors' Plan, each
non-employee director was to receive an Initial Grant of 10,000 options and an
Annual Grant of 2,500 options. The purpose of the Directors' Plan had been to
give the Company increased flexibility in providing equity-based incentive
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compensation to its non-employee directors, to promote the acquisition of
Common Stock by the Company's non-employee directors, upon whose judgment and
ability the Company relies to attain its long-term growth and development, and
to provide a means to attract and retain well-qualified directors.
THE AMENDED AND RESTATED PLAN
On September 22, 1995, the Board of Directors of the Company determined,
subject to stockholder approval, to amend and restate the Directors' Stock
Option Plan (hereinafter called, as so amended and restated, the "Plan"). The
principal amendments that take effect under the Plan would be to increase the
number of shares of Common Stock under the Plan from 200,000 to 250,000 shares,
increase the number of options to be awarded annually to all non-employee
directors from 2,500 shares to 5,000 shares; and provide for an annual grant of
Special Service Options to the Vice Chairman of the Board (3,333) and to each
committee chairman (8,333) and committee member (2,500). It was believed that
consistent with the underlying purpose of the Plan that the increase in the
number of Annual Grant options would provide an adequate and fair means for
compensating non-employee directors. In addition, provision for Special Service
Options would take into account the additional time that a non-employee director
would devote in serving as a Vice Chairman, committee chairman or committee
member. The amended and restated Plan would continue to provide that each
non-employee director will automatically be granted an option to purchase 10,000
shares upon joining the Board of Directors (the "Initial Grant") and options to
purchase 5,000 shares on each anniversary of the initial date of service or date
of approval, as the case may be (the "Annual Grant"). In addition to the Initial
Grant and the Annual Grant, the Plan provides that there shall be granted and
awarded one or more options (the "Special Service Option") contemporaneous with
each Annual Grant, as follows: (i) options to purchase 3,333 shares of Common
Stock to the individual occupying the position of Vice Chairman of the Board of
Directors, (ii) options to purchase 8,333 shares of Common Stock to each
chairman of each committee of the Board of Directors, and (iii) options to
purchase 2,500 shares of Common Stock to each non-employee director who serves
on a committee of the Board of Directors (other than the chairman of the
committee).
As provided under the original Directors' Plan, the exercise price for
options granted under the Plan continues to be 100% of the fair market value of
the Common Stock on the date of grant. Until otherwise provided in the Plan,
the exercise price of options granted under the Plan must be paid at the time
of exercise, either in cash, by delivery of shares of Common Stock of the
Company or by a combination of each. The term of each option is ten years from
the date of grant, unless terminated sooner as provided in the Plan. The Plan
is administered by a committee of the Board of Directors composed of not fewer
than one but not more than three directors who are not entitled to participate
in the Plan (the "Committee"). The Committee has no discretion to determine
which non-employee director will receive options or the number of shares
subject to the option, the term of the option or the exercisability of the
option. However, the Committee will make all administrative determinations and
interpretations of the Plan. Options granted under the Plan do not qualify for
incentive stock option treatment.
SUMMARY OF FEDERAL TAX CONSEQUENCES
Options granted to non-employee directors will be treated as a non-ISO
for Federal income tax purposes. As such, no taxable income is recognized by an
optionee upon the grant of a non-ISO. Upon exercise, however, the purchaser
will recognize ordinary income in the amount by which the fair market value of
the shares purchased exceeds, on the date of exercise, the purchase price paid
for such shares. The Company is entitled to a tax deduction in an amount equal
to the ordinary income recognized by the optionee.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THE ADOPTION OF THE AMENDMENT AND RESTATEMENT
TO THE COMPREHENSIVE CARE CORPORATION
DIRECTOR STOCK OPTION PLAN.
INDEPENDENT AUDITORS
On July 5, 1995, Ernst & Young LLP were engaged as the independent
auditors for the Company. Ernst & Young LLP have performed the audit of the
consolidated financial statements of the Company and subsidiaries for the year
ended May 31, 1995, and have been selected to perform the audit for the year
ending May 31, 1996. Representatives of this firm are expected to be present at
the stockholders' meeting and will have the opportunity to make a statement if
they desire to do so. Representatives of this firm also will be available to
respond to questions from stockholders.
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Arthur Andersen LLP ("Arthur Andersen") had been the principal
independent public accountants of the financial statements for the Company. On
May 22, 1995, that firm advised the Company that the Company did not meet Arthur
Andersen's client profile. In connection with the audits of the fiscal years
ended May 31, 1993 and May 31, 1994, and the subsequent interim period through
the date of resignation (the "Period"), there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure or audit scope or procedures, which disagreements if not
resolved to their satisfaction would have caused them to make reference in
connection with their audit reports to the subject matter of the disagreement.
The audit reports of Arthur Andersen on the consolidated financial
statements of the Company and subsidiaries as of and for the fiscal years ended
May 31, 1993 and 1994 did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles, other than that such auditors' reports contained two
explanatory paragraphs that stated that:
"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 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."
The uncertainty with respect to the Internal Revenue Service assessment
had been resolved by the Company pursuant to a settlement agreement with the
Internal Revenue Service entered into during the quarterly period ended November
30, 1994.
Arthur Andersen advised the Company that Arthur Andersen might permit
(without commitment) its 1993 and 1994 audit reports to be used in the Company's
filings with the Securities and Exchange Commission, but the appropriate form
that such audit reports may take, if reissued at a future time, would depend
upon the results of post-audit review procedures that Arthur Andersen would
perform as it considers necessary in the circumstances. Auditors' reports must
be included in certain 1933 and 1934 Act filings with the Securities and
Exchange Commission, and a consent to use such report must be included in all
1933 Act filings. Arthur Andersen has given permission for the use of its 1993
and 1994 audit reports as filed in the Company's Form 10-K Annual Report, as
amended, for the year ended May 31, 1995.
ANNUAL REPORT
The 1995 Annual Report to Stockholders, including consolidated financial
statements for the fiscal year ended May 31, 1995 and the Company's annual
report on Form 10-K (without exhibits thereto), has been mailed with this proxy
statement. The Company will provide copies of exhibits to the annual report on
Form 10-K, but will charge a reasonable fee per page to any requesting
stockholder. Stockholders may make such request in writing to the Secretary of
the Company, 4350 Von Karman Avenue, Suite 280, Newport Beach, California 92660.
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OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the annual meeting. However, if any other business properly comes before the
meeting, the persons named in the accompanying form of proxy will vote or
refrain from voting thereon in accordance with their judgment pursuant to the
discretionary authority given them in the proxy.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholder proposals to be submitted for inclusion in the 1996 proxy
materials and consideration at the 1996 Annual Meeting of stockholders must be
received by the Company not later than June 10, 1996. Such proposals should be
directed to the Secretary of the Company, 4350 Von Karman Avenue, Suite 280,
Newport Beach, California 92660.
By Order of the Board of Directors,
Kerri Ruppert
Secretary
September 30, 1995
Newport Beach, California
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APPENDIX A
COMPREHENSIVE CARE CORPORATION 1995 INCENTIVE PLAN
<PAGE> 26
COMPREHENSIVE CARE CORPORATION
1995 INCENTIVE PLAN
<PAGE> 27
COMPREHENSIVE CARE CORPORATION
1995 INCENTIVE PLAN
1. PURPOSE
The purpose of the 1995 Incentive Plan (the "Plan") of Comprehensive
Care Corporation (the "Company") is to provide an incentive to key management
employees and consultants whose present and potential contributions to the
Company and its Subsidiaries (as such term is defined in Section 2 below) are or
will be important to the success of the Company by affording them an opportunity
to acquire a proprietary interest in the Company. It is intended that this
purpose will be effected through (a) the granting of incentive stock rights,
stock options, stock appreciation rights and limited stock appreciation rights
and (b) the sale of shares of Common Stock, $.01 par value per share, of the
Company ("Common Stock"), pursuant to restricted stock purchase agreements
(collectively, such rights, options and shares are referred to herein as
"Awards"). Stock options may be granted under the Plan which qualify as
"Incentive Stock Options" under Section 422A of the Internal Revenue Code of
1986, as it may be hereafter amended (the "Code"). Such options are sometimes
referred to as an "ISO" or collectively as "ISOs".
2. ELIGIBILITY
Awards may be made or granted to key Management employees and
consultants who are deemed to render significant services to the Company or its
Subsidiaries and who are deemed to have the potential to contribute to the
future success of the Company (such eligible persons being referred to herein as
"Eligible Participants"). The term "Management employees" includes executive
officers who are employees of the Company or of a Subsidiary, as well as other
employees of the Company and its Subsidiaries. A director of the Company or of
any Subsidiary who is not also an employee of the Company or of one of its
Subsidiaries will not be eligible to receive any Awards under the Plan. No ISO
shall be granted to any person who is not an employee of the Company or a
Subsidiary at the time of grant. No ISO shall be granted to an employee who, at
the time of option is granted, owns stock possessing more than 10% of the total
combined voting power of all classes of capital stock of the employer
corporation (as such term is used in the Code) or any Parent or Subsidiary of
the employer corporation, provided, however, that an ISO may be granted to such
an employee, if at the time such ISO is granted, the option price is at least
110% of the fair market value of stock subject to the ISO on the date of grant
(as determined pursuant to Subsection 8(a) hereof) and such ISO is by its terms
not exercisable after the expiration of five years from the date such option is
granted. The terms "Subsidiary" and "Parent" as used herein shall have the
meanings given them in Section 425 of the Code. Awards may be made to employees
or consultants who hold or have held options, rights or shares under this Plan
or any other plans of the Company.
3. STOCK SUBJECT TO THE PLAN
The shares that may be issued upon exercise of options and rights and
which may be sold under the Plan shall not exceed in the aggregate of 450,000
shares of Common Stock, as adjusted to give effect to the anti-dilution
provisions contained in Section 12 hereof. Such shares may be authorized and
unissued shares, or shares purchased by the Company and reserved for issuance
under the Plan. If a stock option or incentive stock right for any reason
expires or is terminated without having been exercised in full, or if shares
issued pursuant to restricted stock purchase agreements are repurchased by the
Company in accordance with the terms thereof, those shares relating to an
unexercised stock option or incentive stock rights or shares which have been
repurchased shall again become available for grant and/or sale under the Plan.
4. AWARDS UNDER THE PLAN
Awards under the Plan may be of five types. They are "incentive stock
rights", "stock options", "stock appreciation rights", "limited stock
appreciation rights", and "restricted stock purchases". "Incentive stock rights"
are composed of incentive stock units which give the holder the right to
receive, without payment of cash or property to the Company, shares of Common
Stock, subject to the terms, conditions and restrictions described in Section 7
hereof. An option, including an ISO, is a right to purchase Common Stock in
accordance with Section 8 hereof. A "stock appreciation right" is a right given
to a holder of a stock option to receive, upon surrender of all or a portion of
his stock option, without payment of cash or property to the Company, a number
of shares of Common Stock of the Company
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and/or cash, determined pursuant to a formula in accordance with Section 9
hereof. A "limited stock appreciation right" is a stock appreciation right which
is exercisable only upon the terms, conditions and restrictions set forth in
Section 10 hereof. A "restricted stock purchase" is the purchase, at a price
determined by the Board of Directors or Committee (as hereinafter defined), of
Common Stock, which is nontransferable and subject to substantial risk of
forfeiture until specific conditions based on continuing employment or
achievement of preestablished performance objectives are met. All references to
"cash" herein shall mean "cash or certified check".
5. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors or by a
committee (the "Option Committee") of not less than two directors of the Company
appointed by the Board of Directors of the Company (the "Board of Directors")
for such term as the Board of Directors may determine. The Board of Directors
may, from time to time, remove members from, or add members to, the Option
Committee. The administrator of the Plan shall hereinafter be referred to as the
"Plan Administrator". In the event that the Plan Administrator is an Option
Committee of the Board of Directors, none of the members of such Option
Committee shall be an officer or other full-time employee of the Company. It is
the intention of the Company that each member of the Option Committee shall be a
"disinterested person" as that term is defined and interpreted pursuant to Rule
16b-3(c)(2) or any successor rule thereto promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Action by the Option
Committee shall require the affirmative vote of a majority of all its members.
In the event that the Plan Administrator is the Board of Directors, and a member
of the Board of Directors may be eligible, subject to the restrictions in
Section 2, to participate in or receive or hold options under the Plan, no
member of the Board of Directors or the Option Committee shall vote with respect
to the granting of options hereunder to himself or herself, as the case may be,
and, if state corporate law does not permit a committee to grant options to
directors, then any option granted under the Plan to a director for his or her
services as such shall be approved by the full Board of Directors.
With respect to grants made under the Plan to officers and directors of
the Company who are subject to Section 16 of the Exchange Act, the Plan
Administrator shall be constituted at all times so as to meet the requirements
of Rule 16b-3 so long as any of the Company's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Exchange Act.
(b) Subject to the terms and conditions of the Plan, the Plan
Administrator shall have the power:
(i) To determine from time to time the Awards to be granted to
eligible persons under the Plan and to prescribe the terms and
provisions (which need not be identical) of Awards granted under the
Plan to such persons;
(ii) To construe and interpret the Plan and grants thereunder
and in its discretion have the authority: (A) to determine, upon review
of relevant information, the fair market value of the Common Stock; (B)
to determine the exercise price per share of stock options to be
granted; (C) to determine the eligible participants to whom, and time
or times at which, options shall be granted and the number of shares to
be issuable upon exercise of each stock option; (D) to construe and
interpret the Plan; (E) to prescribe, amend and rescind rules and
regulations relating to the Plan; (F) to determine the terms and
provisions of each grant (which need not be identical); and (G) to make
all other determinations necessary to or advisable for the
administration of the Plan. Notwithstanding the foregoing, in the event
any employee of the Company or any of its Subsidiaries granted an
option under the Plan is, at the time of such grant, a member of the
Board of Directors of the Company, the grant of such grant shall, in
the event the Board of Directors at the time such option is granted is
not deemed to satisfy the requirement of Rule 16b-3(b)(2)(i) or (ii)
promulgated under the Act, be subject to the approval of an auxiliary
committee consisting of not less than two persons who qualify as
"disinterested persons" within the meaning of Rule 16b-3(d)(3)
promulgated under the Act. All decisions and determinations by the
Option Committee in the exercise of this power shall be final and
binding upon the Company and the Optionees; and
(iii) Generally, to exercise such powers and to perform such acts
as are deemed necessary or expedient to promote the best interests of
the Company with respect to the Plan.
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6. DURATION OF THE PLAN
The Plan shall become effective upon the approval of the requisite vote
of the stockholders of the Company. The Plan shall remain in effect for a term
of ten (10) years from September 1, 1995 unless sooner terminated under Section
20 hereof. Notwithstanding any of the foregoing to the contrary, the Plan
Administrator shall have the authority to amend the Plan pursuant to Section 20
hereof; provided, however, that Awards already made shall remain in full force
and effect as if the Plan had not been amended or terminated.
7. INCENTIVE STOCK RIGHTS
The Plan Administrator, in its discretion, may grant to Eligible
Participants incentive stock rights composed of incentive stock units. Incentive
stock rights shall be granted pursuant to incentive stock rights agreements in
such form, and not inconsistent with the Plan, as the Plan Administrator shall
approve from time to time and shall include substantially the following terms
and conditions as determined by the Plan Administrator:
(a) Incentive Stock Units. An incentive stock rights agreement
shall specify the number of incentive stock units to which it pertains.
Each incentive stock unit shall be equivalent to one share of Common
Stock. Each incentive stock unit shall entitle the holder thereof to
receive, without payment of cash or property to the Company, one share
of Common Stock in consideration for services performed for the Company
or any Subsidiary by the Eligible Participant, subject to the lapse of
the incentive periods (as hereinafter defined).
(b) Incentive Period. The holder of incentive stock rights shall
be entitled to receive shares of Common Stock only after the lapse of
such incentive periods, and in such manner, as shall be fixed in the
discretion of the Plan Administrator at the time of the grant of such
incentive stock rights. (Such period or periods so fixed is or are
herein referred to as an "incentive period".) To the extent the holder
of incentive stock rights receives shares of Common Stock on the lapse
of an incentive period, an equivalent number of incentive stock units
subject to such rights shall be deemed to have been discharged.
(c) Termination by Reason of Death or Disability. In the event
that the recipient of incentive stock rights ceases to be and employee
or consultant of the Company or any of its Subsidiaries during an
incentive period due to death or permanent disability (as determined by
the Plan Administrator), the holder of incentive stock rights or, in
the case of the death of the holder, the personal representatives,
heirs or legatees of such holder, shall be entitled to receive a number
of shares equal to an amount determined by multiplying the total number
of incentive stock units applicable to such incentive period by a
fraction, the numerator of which shall be the number of full calendar
months between the date of grant of the incentive stock rights and the
date of such termination and the denominator of which shall be the
number of full calendar months between the date of grant and the date
such incentive period for such units would, but for such termination,
have lapsed. For purposes of this Subsection 7(c), this shall
constitute a lapse of the incentive period with respect to the number
of incentive stock units equal to the number of shares issued. Units
upon which the incentive period do not lapse pursuant to the foregoing
sentence shall terminate and be null and void on the date on which the
recipient cases to be employed by or act as a consultant to the Company
or any of its Subsidiaries.
(d) Termination for Any Other Reason. In the event that the
employment or retention as a consultant by the Company of the recipient
to whom incentive stock rights have been issued under the Plan
terminates for any reason (including dismissal by the Company with or
without cause), other than death or permanent disability, such rights
as to which the incentive period has not lapsed shall terminate and be
null and void on termination of the relationship.
(e) Issuance of Shares. Upon the lapse of an incentive period,
the Company shall deliver to the holder of the related incentive stock
unit a certificate or certificates representing the number of shares of
Common Stock equal to the number of incentive stock units with respect
to which an incentive period has lapsed. The Company shall pay all
applicable transfer or issue taxes.
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8. OPTIONS
Options shall be evidenced by stock option agreements in such form, and
not inconsistent with the Plan, as the Plan Administrator shall approve from
time to time, which agreements shall contain in substance the following terms
and conditions:
(a) Option Price; Number of Shares. The option price, which shall
be approved by the Plan Administrator, shall in no event be less than
one hundred percent (100%), in the case of ISOs, and sixty-five percent
(65%), in the case of other options, of the fair market value of the
Common Stock at the time the option is granted. The fair market value
of the Common Stock, for the purpose of the Plan, shall mean: (i) if
the Common Stock is traded on a national securities exchange or on the
NASDAQ National Market System ("NMS"), the per share closing price of
the Common Stock on the principal securities exchange on which they are
listed or on NMS, as the case may be, on the date of grant (or if there
is no closing price for such date of grant, then the last preceding
business day on which there was a closing price); or (ii) if the Common
Stock is traded in the over-the-counter market and quotation are
published on the NASDAQ quotation system (but not on NMS), the mean
between the per share closing bid and asked prices of the Common Stock
on the date of grant as reported by NASDAQ (or if there are no closing
bid and asked prices for such date of grant, then the last preceding
business day on which there were closing bid and asked prices); or
(iii) if the Common Stock is traded in the over-the-counter market but
bid and asked quotations are not published on NASDAQ, the mean between
the closing bid and asked prices per share for the Common Stock as
furnished by a broker-dealer which regularly furnishes price quotations
for the Common Stock.
The option agreement shall specify the total number of shares to
which it pertains and whether such options are ISOs or are not ISOs.
With respect to ISOs granted under the Plan, the aggregate fair market
value (determined at the time an ISO is granted) of the shares of
Common Stock with respect to which ISOs are exercisable for the first
time by such employee during any calendar year shall not exceed
$100,000 under all plans of the employer corporation or its Parents or
Subsidiaries.
(b) Waiting Period and Exercise Dates. At the time an option is
granted, the Plan Administrator will determine the terms and conditions
to be satisfied before shares may be purchased, including the dates on
which shares subject to the option may first be purchased. (The period
from the date of grant of an option until the date on which such option
may first be exercised is referred to herein as the "waiting period")
At the time an option is granted, the Plan Administrator shall fix the
period within which it may be exercised which shall not be less than
six (6) months nor, for an ISO, more than ten (10) years from the date
of grant or for a non-ISO for more than thirteen (13) years from the
date of grant. (Any of such periods is referred to herein as the
"exercise price.")
(c) Form and Time of Payment. Stock purchased pursuant to an
option agreement shall be paid for at the time of purchase either in
cash or by certified check or, in the discretion of the Plan
Administrator, as set forth in the stock option agreement (i) in a
combination of cash and a promissory note, (ii) through the delivery of
shares of Common Stock, or (iii) in a combination of the methods
described above. Upon receipt of payment, the Company shall, without
transfer or issue tax to the option holder or other person entitled to
exercise the options, deliver to the option holder (or such other
person) a certificate or certificates for the shares so purchased.
(d) Effect of Termination or Death. In the event that an option
holder ceases to be an employee or consultant of the Company or of any
of its Subsidiaries for any reason other than permanent disability (as
determined by the Plan Administrator) and death, any option, including
any unexercised portion thereof, which was otherwise exercisable on the
date of termination, shall expire unless exercised within a period of
three months from the date on which the option holder ceased to be so
employed, but in no event after the expiration of the exercise period;
provided, however, that, if the Plan Administrator shall determine that
an option holder shall have been discharged for cause, options granted
and not yet exercised shall terminate immediately and be null and void
as of the date of discharge. In the event of the death of an option
holder during this three month period, the option shall be exercisable
by his or her personal representatives, heirs or legatees to the same
extent that the option holder could have exercised the option if he or
she had not died, for the three months from the date of death, but in
no event after the expiration of the exercise period. In the event of
the permanent disability of an option holder while an employee or
consultant of the Company or of any Subsidiary, any option granted to
such employee or consultant shall be exercisable for twelve (12) months
after the date of permanent disability, but in no event after the
expiration of the exercise period. In the event of the death of an
option holder
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<PAGE> 31
while an employee or consultant of the Company or any of its
Subsidiaries, or during the twelve (12) month period after the date of
permanent disability of the option holder, that portion of the option
which had become exercisable on the date of death shall be exercisable
by his or her personal representatives, heirs or legatees at any time
prior to the expiration of one (1) year from the date of the death of
the option holder, but in no event after the expiration of the exercise
period. Except as the Plan Administrator shall provide otherwise, in
the event an option holder ceases to be an employee or consultant of
the Company or of any Subsidiary for any reason, including death, prior
to the lapse of the waiting period, his or her option shall terminate
and be null and void.
(e) Other Provisions. Each option granted under the Plan may
contain such other terms, provisions, and conditions not inconsistent
with the Plan as may be determined by the Plan Administrator.
9. STOCK APPRECIATION RIGHTS
The Plan Administrator may grant, in its discretion, stock appreciation
rights to Eligible Participants who are granted stock options under the Plan.
Such rights shall be granted pursuant to a stock appreciation rights agreement
in such for, and not inconsistent with the Plan, as the Plan Administrator shall
approve from time to time (and which may be incorporated in the stock option
agreement governing the terms of the related option) and shall include
substantially the following terms and conditions as the Plan Administrator shall
determine:
(a) Grant. Each right shall relate to a specific option granted
under the Plan and shall be granted to the option holder either
concurrently with the grant of such option, or at such later time as
determined by the Plan Administrator.
(b) Exercise. A stock appreciation right shall entitle an option
holder to receive, without payment of cash or property to the Company,
a number of shares of Common Stock, cash, or a combination thereof in
the amount determined pursuant to Subsection 9(c) below. The Plan
Administrator shall determine whether such payment shall be made in
Common Stock, cash, or a combination thereof. Unless otherwise
determine by the Plan Administrator, a right shall be exercisable to no
greater extent nor upon any more favorable conditions than its related
option is exercisable under Subsection 8(b) hereof. An option holder
wishing to exercise a right in accordance with this Subsection 9(b)
shall give written notice of such exercise to the Company, which notice
shall state that the holder of the right elects to exercise the right
and the number of shares in respect of which the right is being
exercised. The effective date of exercise of a right shall be the date
on which the Company shall have received such notice. Upon receipt of
such notice, the Company shall: (i) deliver to the option holder or
other person entitled to exercise the right, a certificate or
certificates representing such shares; and/or (ii) pay cash. The
Company shall pay all applicable transfer or issue taxes.
Notwithstanding the provisions of this section, no stock appreciation
right may be exercised within a period of six months of the date of
grant of such stock appreciation right and no stock appreciation right
granted with respect to an ISO may be exercised unless the fair market
value of the Common Stock on the date of exercise exceeds the exercise
price of an ISO.
(c) Number of Shares or Amount of Cash. The number of shares
which shall be issued pursuant to the exercise of a stock appreciation
right shall be determined by dividing (i) that portion, as elected by
the option holder, of the total number of shares which the option
holder is eligible to purchase pursuant to Subsection 8(b) hereof (and
as adjusted pursuant to Section 12 hereof), multiplied by the amount
(if any) by which the fair market value (as determined in accordance
with Subsection 8(a) hereof) of a share of Common Stock on the exercise
date exceeds the option exercise price of the related option; by (ii)
the fair market value of a share of Common Stock on the exercise date.
In lieu of issuing shares of Common Stock on the exercise of a right,
the Plan Administrator may elect to pay the cash equivalent of the fair
market value on the exercise date of any or all the shares which would
otherwise be issuable on exercise of the right. No fractional shares
shall be issued under this Subsection 9(c). In lieu of the fractional
shares, the option holder shall be entitled to receive a cash
adjustment equal to the same fraction of the fair market value per
share of Common Stock on the date of exercise.
(d) Effect of Exercise. Upon the exercise of stock appreciations
rights, the related option shall be considered to have been exercised
to the extent of the number of shares of Common Stock with respect to
which such stock appreciation rights are exercised, and shall be
considered to have been exercised to that extent for purposes of
determining the number of shares of Common Stock available for the
grant of options under the Plan. Upon the exercise or termination of
the related option, the stock appreciation rights with respect to such
related option shall be considered to have been exercised or terminated
to the extent of the number of shares of Common Stock with respect to
which the related option was so exercised or terminated.
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<PAGE> 32
(e) Effect of Termination or Death. In the event that an option
holder ceases to be an employee or consultant of the Company or any of
its Subsidiaries for any reason, his stock appreciation rights shall be
exercisable only to the extent and upon the conditions that its related
option is exercisable under Subsection 8(d).
10. LIMITED STOCK APPRECIATION RIGHTS
The Plan Administrator may grant, in its discretion, limited sock
appreciation rights ("Limited Rights") to the holder of any option with respect
to all or a portion of the shares subject to such option. Such Limited Rights
shall be granted pursuant to an agreement in such form, and not inconsistent
with the Plan, as the Plan Administrator shall approve from time to time (and
which may be incorporated in the stock option agreements governing the terms of
the related option) and shall include substantially the following terms and
conditions as the Plan Administrator shall determine:
(a) Grants. A Limited Right may be granted concurrently with the
grant of the related option or at such later time as determined by the
Plan Administrator.
(b) Exercise. Unless otherwise determined by the Plan
Administrator, a Limited Right may be exercised only during the period
(a) beginning on the first day following any one of (i) the date of
approval by the stockholders of the Company of an Approved Transaction
(as defined in Subsection 10(e) below), (ii) the date of a Control
Purchase (as defined in Subsection 10(e) below), or (iii) the date of a
Board Change (as defined in Subsection 10(e) below); and (b) ending on
the thirtieth day (or such other date specified in the stock option
agreement) following such date (such period herein referred to as the
"Limited Right Exercise Period"). Each Limited Right shall be
exercisable during the Limited Right Exercise Period only to the extent
the related option is then exercisable, and in no event after the
termination of the related option. Limited Rights granted under the
Plan shall be exercisable in whole or in part by notice to the Company.
Such notice shall state that the holder of the Limited Rights elects to
exercise the Limited Rights and the number of shares in respect of
which the Limited Rights are being exercised. The effective date of
exercise of a Limited Right shall be deemed to be the date on which the
Company shall have received such notice.
(c) Amount Paid Upon Exercise. Upon the exercise of Limited
Rights, the holder shall receive in cash an amount equal to the excess
of the fair market value (as determined pursuant to Subsection 8(a)
above) on the date of exercise of such Limited Rights of each share of
Common Stock with respect to which such Limited Right shall have been
exercised over the exercise price per share of Common Stock subject to
the related option.
(d) Effect of Exercise. Upon the exercise of Limited Rights, the
related option shall be considered to have been exercised to the extent
of the number of shares of Common Stock with respect to which such
Limited Rights are exercised, and shall be considered to have been
exercised to that extent for purposes of determining the number of
shares of Common Stock available for the grant of options under the
Plan. Upon the exercise of termination of the related option, the
Limited Rights with respect to such related option shall be considered
to have been exercised or terminated to the extent of the number of
shares of Common Stock with respect to which the related option was so
exercised or terminated.
(e) Definitions. For purposes of this Section 10:
(i) An "Approved Transaction" shall mean (A) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of
Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions)
of all, or substantially all, of the assets of the Company, or (c) the
adoption of any plan or proposal for the liquidation or dissolution of
the Company.
(ii) A "Control Purchase" shall mean circumstances in which
any person (as such term is defined in Sections 13(d)(3) and 14(d)(2)
of the Exchange Act), corporation or other entity (other than the
Company or any employee benefit plan
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<PAGE> 33
sponsored by the Company or any Subsidiary) (A) shall purchase any
Common Stock (or securities convertible into the Company's Common
Stock) for cash, securities or any other consideration pursuant to a
tender offer or exchange offer, without the prior consent of the Board
of Directors, or (B) shall become the "beneficial owner" (as such term
is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing twenty-five
percent (25%) or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights
occurring under special circumstances) having the right to vote in the
election of directors (calculated as provided in paragraph (d) of such
Rule 13d-3 in the case of rights to acquire the Company's securities).
(iii) A "Board Change" shall mean circumstances in which,
during any period of two consecutive years or less, individuals who at
the beginning of such period constitute the entire Board shall cease
for any reason to constitute a majority thereof unless the election, or
the nomination for election by the Company's stockholders, of each new
director was approved by a vote of at least a majority of the directors
then still in office.
11. RESTRICTED STOCK PURCHASES
The Plan Administrator may authorize, in its discretion, the issuance
of restricted shares of Common Stock to Eligible Participants pursuant to
restricted share agreements in such form, and not inconsistent with the Plan, as
the Plan Administrator shall approve from time to time. Any amount of restricted
shares issued shall be subject to the following terms:
(a) Restricted Period and Price. The Plan Administrator shall
prescribe restrictions, terms and conditions, including but not limited
to the period ("restricted period") during which the holder must
continue to render services to the Company in order to retain the
restricted shares. The Plan Administrator shall determine the price, if
any, to be paid by the holder for the restricted shares. Upon
forfeiture of any restricted shares, any amount paid by the holder
shall be repaid in full by the Company.
(b) Issuance of Restricted Shares. Restricted shares, when
issued, will be represented by a stock certificate or certificates
registered in the name of the holder to whom such restricted shares
shall have been awarded. During the restricted period, certificates
representing the restricted shares and any securities constituting
retained distributions (as defined below in Subsection 10(c)) shall
bear a restrictive legend to the effect that ownership of the
restricted shares, and the enjoyment of all rights appurtenant thereto,
are subject to the restrictions, terms and conditions provided in the
Plan and the applicable shares agreement. Such certificates shall be
deposited by such holder with the Company, together with stock powers
or other instruments of assignment, each endorsed in blank, which will
permit transfer to the Company of all or any portion of the restricted
shares and any retained distributions that shall be forfeited or that
shall not become vested in accordance with the Plan and the applicable
restricted shares agreement.
(c) Rights With Respect to Restricted Shares. Restricted shares
shall constitute issued and outstanding shares of Common Stock for all
corporate purposes. The holder will have the right to vote such
restricted shares, to receive and retain all regular cash dividends,
and such other distributions as the Plan Administrator may in its sole
discretion designate, pay, or distribute on such restricted shares and
to exercise all other rights, powers and privileges of a holder of
Common Stock with respect to such restricted shares, with the exception
that (i) the holder will not be entitled to delivery of the stock
certificate or certificates representing such restricted shares until
the restricted period shall have expired and unless all other vesting
requirements with respect thereto shall have been fulfilled; (ii) the
Company will retain custody of the stock certificate or certificates
representing the restricted shares during the restricted period; (iii)
other than regular cash dividends and such other distributions as the
Board may in its sole discretion designate, the Company will retain
custody of all distributions ("retained distributions") made or
declared with respect to the restricted shares (and such retained
distributions will be subject to the same restrictions, terms and
conditions as are applicable to the restricted shares) until such time,
if ever, as the restricted shares with respect to which such retained
distributions shall have been made, paid or declared shall have become
vested, and such retained distributions shall not bear interest or be
segregated in separate accounts; (iv) the holder may not sell, assign,
transfer, pledge, exchange, encumber or dispose of the restricted
shares or any retained distributions during the restricted period; and
(v) a breach of any restrictions, terms or conditions provided in the
Plan or established by the Board with respect to any restricted shares
or retained distributions will cause a forfeiture of such restricted
shares and any retained distributions with respect thereto.
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<PAGE> 34
(d) Completion of Restricted Period. On the last day of the
restricted period with respect to each Award of restricted shares, and
the satisfaction of any other applicable restrictions, terms and
conditions (i) all or part of such restricted shares shall become
vested and (ii) any retained distributions with respect to such
restricted shares shall become vested. Unless the Plan Administrator
determines otherwise, any such restricted shares and retained
distributions that shall not have become vested upon the termination of
employment of the holder shall be forfeited to the Company and the
holder shall not thereafter have any rights (including dividend and
voting rights) with respect to such restricted shares and retained
distributions that shall have been so forfeited, provided, however,
that if the holder shall die, become totally disabled or is terminated
by the Company without cause during a restricted period with respect to
any restricted shares, then, unless the restricted share agreement
relating to such shares provided otherwise, the restricted period
applicable to each Award of restricted shares to such holder shall be
deemed to have expired and all such restricted shares and retained
distributions shall become vested.
12. RECAPITALIZATION
In the event that dividends are payable in Common Stock or in the event
there are splits, subdivisions or combinations of shares of Common Stock, the
number of shares available under the Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares delivered upon the
exercise thereafter of any stock option, stock appreciation right or limited
stock appreciation right, upon distribution pursuant to incentive stock rights
theretofore granted or upon sale pursuant to restricted stock purchase
agreements theretofore entered into, and the price per share with respect
thereto, shall be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price (where applicable).
13. ACCELERATION
Notwithstanding any contrary waiting period in any stock option
agreement, any incentive period in any incentive stock rights agreements or any
Restricted Period with respect to any shares issued pursuant to any restricted
stock purchase agreement, or in the Plan, but subject to any determination by
the Plan Administrator to provide otherwise at the time such Award is granted or
subsequent thereto, each outstanding option granted under the Plan shall become
exercisable in full for the aggregate number of shares covered thereby, and each
share issuable upon lapse of an incentive period or issued pursuant to a
restricted stock purchase agreement shall vest unconditionally on the first day
following the occurrence of any of the following: (a) the approval by the
stockholders of the Company of an Approved Transaction; (b) a Control Purchase;
or (c) a Board Change.
14. CONTINUATION OF RELATIONSHIP: LEAVE OF ABSENCE.
(a) Nothing in the Plan or any Award made hereunder shall interfere
with or limit in any way the right of the Company or of any Subsidiary to
terminate any Eligible Participant's employment at any time, nor confer upon any
Eligible Participant any right to continue any such relation with the Company or
Subsidiary.
(b) For purposes of the Plan, a transfer of an employee from the
Company to a Subsidiary or vice versa, or from one Subsidiary to another, or a
leave of absence duly authorized by the Company shall not be deemed a
termination of employment or a break in an incentive, waiting, exercise or
Restricted Period, as the case may be. In the case of any employee on an
approved leave of absence, the Plan Administrator may make such provisions with
respect to continuance of incentive stock rights, options or shares previously
granted while on leave from the employ of the Company or a Subsidiary as it may
deem equitable.
15. GENERAL RESTRICTION
Each Award made under the Plan shall be subject to the requirement
that, if at any time the Plan Administrator shall determine, in its sole and
subjective discretion, that the registration qualification or listing of the
shares subject to such Award upon a securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting or
exercise of such Award, the Company shall not be required to issue such shares
unless such registration, qualification, listing, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Plan
Administrator. Nothing in the Plan or any agreement or grant hereunder shall
obligate the Company to effect any such registration, qualification or listing.
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<PAGE> 35
16. RIGHTS AS A STOCKHOLDER
The holder of a stock option, incentive stock right, stock appreciation
right or limited stock appreciation right shall have no rights as a stockholder
with respect to any shares covered by the stock option, incentive stock right,
stock appreciation right or limited stock appreciation right, as the case may
be, until the date of issuance of a stock certificate to him for such shares
related to the exercise or discharge thereof. No adjustment shall be made for
the dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
17. NON-ASSIGNABILITY OF INCENTIVE STOCK RIGHTS, STOCK OPTIONS, STOCK
APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS
No incentive stock right, stock option, stock appreciation right or
limited stock appreciation right shall be assignable or transferable by an
Eligible Participant except by will or by the laws of descent and distribution
and during the lifetime of an Eligible Participant may only be exercised by him.
Notwithstanding the foregoing, to the extent permitted by applicable law and
Rule 16b-3, the Plan Administrator may permit a recipient of an Award to (i)
designate in writing during the Participant's lifetime a beneficiary to receive
and exercise the Award in the event of such Participant's death or (ii) transfer
an Award granted hereunder.
18. WITHHOLDING TAXES
Whenever under the Plan shares are to be issued in satisfaction of
stock options, incentive stock rights, stock appreciation rights or limited
stock appreciation rights granted thereunder, or pursuant to restricted stock
purchases, the Company shall have the right to require the Eligible Participant
to remit to the Company an amount sufficient to satisfy federal, state and local
withholding tax requirements prior to the delivery of any certificates for such
shares or at such later time as when the Company any determine that such taxes
are due. Whenever under the Plan payments are to be made in cash, such payment
shall be net of an amount sufficient to satisfy federal, state and local
withholding tax requirements.
19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor any
provision of the Plan shall be construed as creating any limitations on the
power of the Plan Administrator to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either generally applicable or applicable only in
specific cases.
20. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN
The Plan Administrator may at any time amend, alter, suspend or
discontinue the Plan, but no amendment, alteration, suspension or discontinuance
shall be made which would impair the rights of any recipient of a stock option,
incentive stock right, stock appreciation right or limited stock appreciation
right under any agreement theretofore entered into hereunder, without his
consent, or which, without the requisite vote of the stockholders of the Company
approving such action, would:
(a) except as is provided in Section 12 of the Plan, increase the
total number of shares of Common Stock reserved for the purposes of the
Plan; or
(b) extend the duration of the Plan; or
(c) materially increase the benefits accruing to participants
under the Plan; or
(d) change the category of persons who can be Eligible
Participants under the Plan.
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<PAGE> 36
Without limiting the foregoing, the Plan Administrator may, any time or
from time to time, authorize the Company, with the consent of the respective
recipients, to issue new options or rights in exchange for the surrender and
cancellation of any or all outstanding options or rights.
21. LIMITATIONS ON EXERCISE
Notwithstanding anything to the contrary contained in the Plan, any
agreement evidencing any Award hereunder may contain such provisions as the
Board of Directors deems appropriate to ensure that the penalty provisions of
Section 4999 of the Code, or any successor thereto, will not apply to any stock
or cash received by the holder from the Company.
22. LIMITATIONS ON AWARDS
Notwithstanding anything to the contrary contained in the plan, no
Eligible Participant may be granted aggregate Awards in any calendar year that
consist of stock or the right to purchase stock that exceeds 200,000 shares.
23. GOVERNING LAW
The Plan shall be governed by, and construed in accordance with, the
laws of the State of Delaware.
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APPENDIX B
COMPREHENSIVE CARE CORPORATION
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<PAGE> 38
COMPREHENSIVE CARE CORPORATION
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2 THE STOCK OPTION PLAN . . . . . . . . . . . . . . . . . . . . . 3
2.1 The Purpose of the Plan . . . . . . . . . . . . . . . . 3
2.2 Stock Subject to the Plan . . . . . . . . . . . . . . . 3
2.3 Administration of the Plan . . . . . . . . . . . . . . . 3
2.4 Eligibility . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3 TERMS AND CONDITIONS OF OPTIONS . . . . . . . . . . . . . . . . 3
3.1 Number of Option Shares . . . . . . . . . . . . . . . . 3
3.2 Type of Option . . . . . . . . . . . . . . . . . . . . . 4
3.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . 4
3.4 Option Term . . . . . . . . . . . . . . . . . . . . . . 4
3.5 Exercisability . . . . . . . . . . . . . . . . . . . . . 4
3.6 Payment . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 Nonassignability . . . . . . . . . . . . . . . . . . . . 5
3.8 Option Agreement . . . . . . . . . . . . . . . . . . . . 5
SECTION 4 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Changes in Capitalization; Merger; Liquidation . . . . . 5
4.2 Right to Remove Director . . . . . . . . . . . . . . . . 6
4.3 Restrictions on Delivery and Sale of Shares; Legends . . 6
4.4 Non-alienation of Benefits . . . . . . . . . . . . . . . 6
4.5 Termination and Amendment of the Plan . . . . . . . . . 6
4.6 Stockholder Approval . . . . . . . . . . . . . . . . . . 6
4.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . 6
4.8 Effective Date of Plan . . . . . . . . . . . . . . . . . 6
</TABLE>
<PAGE> 40
COMPREHENSIVE CARE CORPORATION
AMENDED AND RESTATED
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun
shall be deemed to include the feminine, and the singular to include the
plural, unless the context clearly indicates otherwise, and the following
capitalized words and phrases are used herein with the meaning thereafter
ascribed:
(a) "Administrator" means the Director Plan Committee
established and provided for in Section 2.3 hereof.
(b) "Board of Directors" means the board of directors of
the Company.
(c) "Change in Control" means any event that pursuant to
the Company's Certificate of Incorporation, as amended from time to time,
requires the affirmative vote of the holders of not less than eighty percent
(80%) of the Voting Stock (as defined therein); provided, however, that no
event shall constitute a Change of Control if approved by the Board of
Directors a majority of whom are present Directors and new Directors. For
purposes of the preceding sentence, the term "present Directors" means
individuals who as of the date this Plan is adopted were members of the Board
of Directors and the term "new Directors" means any Director whose election by
the Board of Directors in the event of vacancy or whose nomination for election
was approved by a vote of at least three-fourths of the Directors then still in
office who are present Directors and new Directors; provided that any Director
initially elected to the Board of Directors solely to avoid or settle a
threatened or actual proxy contest shall in no event be deemed to be a new
Director.
(d) "Chairman" means the individual designated as
Chairman of a committee of the Board of Directors.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Committee" means any committee of the Board of
Directors established by resolution of, the Board of Directors.
(g) "Company" means Comprehensive Care Corporation, a
Delaware corporation.
(h) "Director" means any individual who is a member of
the Board.
(i) "Effective Date" means the date the Plan is approved
by the stockholders of the Company.
(j) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" with regard to a date means the
closing price of the Stock on the last trading date prior to that date as
reported by the New York Stock Exchange (or, if applicable, as reported by any
other national securities exchange selected by the Plan Administrator on which
the shares of Stock are then actively traded).
(l) "Option" means a non-qualified stock option granted
under the Plan to buy shares of Stock.
(m) "Participant" means an individual who, pursuant to
Plan Section 2.4, is eligible to participate in the Plan.
(n) "Plan" means the Comprehensive Care Corporation
Non-Employee Directors' Stock Option Plan.
(o) "Stock" means the Company's common stock, $.01 par
value.
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<PAGE> 41
(p) "Non-Employee Director" means a director who is not a
regular full-time employee of the Company or any subsidiary of the Company.
(q) "Vice-Chairman" means the individual then occupying
the position of Vice-Chairman of the Board of Directors, having been designated
as such by Resolution of the Board of Directors.
SECTION 2 THE STOCK OPTION PLAN
2.1 The Purpose of the Plan. The Plan is intended to (a) provide
incentive to non-employee Directors of the Company to stimulate their efforts
toward the continued success of the Company and to manage the business of the
Company in a manner that will provide for the long-term growth and
profitability of the Company; (b) encourage stock ownership by non-employee
Directors by providing them with a means to acquire a proprietary interest in
the Company; and (c) provide a means of obtaining and rewarding non-employee
Directors.
2.2 Stock Subject to the Plan. Subject to adjustment in
accordance with Section 7.1, 250,000 shares of Stock (the "Maximum Plan
Shares") are hereby reserved exclusively for issuance pursuant to Options. At
no time shall the aggregate of (a) shares of Stock issuable pursuant to
outstanding Options; and (b) shares of Stock issued pursuant to Options exceed
the Maximum Plan Shares; for this purpose, the outstanding Options and shares
of stock issued in respect of Options shall be computed consistent with Rule
16b-3(a)(1) as promulgated under the Exchange Act. If an Option expires or
terminates for any reason without being exercised in full, the unpurchased
shares subject to such Option shall again be available for purposes of the
Plan.
2.3 Administration of the Plan. The Director Plan shall be
administered by a committee of the Board of Directors of the Company (the
"Director Plan Committee") which shall at all times consist of not less than
one (1) but not more than three (3) directors of the Company who are not
entitled to participate in the Director Plan, to be appointed by the Board of
Directors and to serve at the pleasure of the Board of Directors. It is the
intention of the Company that each member of the Director Plan Committee shall
be a "disinterested person" as that term is defined and interpreted pursuant to
Rule 16b-3(c)(2) or any successor rule thereto promulgated under the Securities
Exchange Act of 1934, as amended (the "Act").
Grant of options under the Director Plan to non-employee Directors and
the amount and nature of the awards to be granted shall be automatic as
described in Section 3 hereof. However, all questions of interpretation of the
Director Plan or of any options issued under it shall be determined by the
Committee and such determination shall be final and binding upon all persons
having an interest in the Director Plan. A majority of the Committee's members
shall constitute a quorum, and all determinations shall be made by a majority
of such quorum. Any determination reduced to writing and signed by all of the
members of the Committee shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held.
2.4 Eligibility. Any member of the Board of Directors who is a
non-employee Director of the Company shall be a Participant.
SECTION 3 TERMS AND CONDITIONS OF OPTIONS
3.1 Number of Option Shares. A Participant shall be granted
Options as follows:
(a) Each individual who is serving as a non-employee
Director as of the Plan's Effective Date, will be granted, as of the
Plan's Effective Date, an option to purchase 10,000 shares of Stock.
(b) Each individual who first becomes a non-employee
Director on or after Effective Date, whether through election at an
annual meeting of the Company's stockholders or through appointment by
the Board, will be granted, at the time of such election or
appointment, an Option to purchase 10,000 shares of Stock.
3
<PAGE> 42
(c) Commencing with the 1994 annual meeting of the
Company's stockholders, each individual who at that time remains as a
non-employee Director will receive an additional grant of an Option to
purchase 5,000 shares of Stock (the "Annual Grant").
(d) In addition to the Initial Grant and Annual Grant to
non-employee Directors provided for in Paragraphs 5(a)(i) and 5(a)(ii) hereof,
there shall be granted and awarded to the Vice-Chairman of the Board of
Directors, each Chairman of each Committee of the Board of Directors, and each
non-employee Director who serves on a Committee of the Board of Directors an
option to purchase shares of Common Stock (the "Special Service Option") as
follows:
(i) Contemporaneously with each Annual Grant, there
shall be granted and awarded to the individual occupying the position of
Vice-Chairman of the Board of Directors options to purchase 3,333 shares of
Common Stock.
(ii) Contemporaneously with each Annual Grant, there
shall be granted and awarded to each Chairman of each Committee of the Board of
Directors options to purchase 8,333 shares of Common Stock.
(iii) Contemporaneously with each Annual Grant,
there shall be granted and awarded to each Non-Employee Director who serves on
a Committee of the Board of Directors (other than the Chairman of the
Committee) options to purchase 2,500 shares of Common Stock.
(iv) In the event, a non-employee director is
Chairman of more than one Committee or serves on more than one Committee, such
individual shall receive a Special Service Option in each separate capacity.
3.2 Type of Option. Options shall be non-qualified stock options.
3.3 Exercise Price. The Exercise Price for a share of Stock
subject to a Option shall be the Fair Market Value (determined as of the date
of grant) of a share of Stock.
3.4 Option Term. Each Option, once exercisable, shall remain
exercisable until the tenth anniversary of the date of grant. Notwithstanding
the foregoing:
(a) Except as provided in Subsection (b) hereof, should a
Participant cease to be a Director for any reason (other than death)
while holding an Option granted pursuant to this Plan, then such
Participant shall have a six-month period following the date of such
cessation of Board membership in which to exercise such Option for any
or all of the shares of Stock for which the Option has become
exercisable at the time the Participant ceases to be a Director.
(b) Should a Participant die while serving as a Director
or during the six-month period following the date of the Participant's
cessation of Board service (as described in Subparagraph (a) above),
then the Option may be subsequently exercised, for any or all of the
shares of Stock for which the Option is exercisable at the time of the
Optionee's death, by the personal representative of the Optionee's
estate or by the person or persons to whom the Option is transferred
pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. Any such exercise, however, must occur
within 12 months after the date of the Optionee's death.
(c) In no event shall any grant of Option pursuant to the
Plan remain exercisable after the tenth anniversary of the Option's
date of grant. Upon the expiration of the applicable exercise period
in accordance with Subparagraphs (a) and (b) above or (if earlier)
upon the expiration of the ten year option term, the Option shall
terminate and cease to be exercisable.
3.5 Exercisability. Each Option may be exercised for that
percentage of shares of Stock subject to the Option as to which the Option has
become vested, reduced by that number of shares of Stock subject to the Option
which have been previously exercised.
4
<PAGE> 43
(a) With respect to Options granted pursuant to Plan
Sections 3.1(a) and (b), the Option shall vest in 25% increments on
each "Vesting Date," provided the Participant is still a Director on
the Vesting Date. For purposes of this Subsection (a), the term
Vesting Date shall mean each one year anniversary of the date of
grant.
(b) With respect to Options granted pursuant to Plan
Sections 3.1(c)and (d), the Option shall become 100% vested as of the
first annual meeting of the Company's stockholders held after the date
of grant, provided the Participant is still a Director on that date.
3.6 Payment. Payment for all shares of Stock purchased pursuant
to the exercise of an Option shall be made in any form or manner authorized by
the Committee in the Stock Option Agreement, including, but not limited to, (i)
cash, (ii) by delivery to the Company of a number of shares of Stock which have
been owned by the holder for at least six months prior to the date of exercise
having an aggregate Fair Market Value of not less than the product of the
Exercise Price multiplied by the number of shares the Participant intends to
purchase upon exercise of the Option on the date of delivery; or (iii) in a
cashless exercise through a broker. The holder of an Option, as such, shall
have none of the rights of a stockholder.
3.7 Nonassignability. An option shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the person to whom the option is granted only by such
person or by his guardian or legal representative. Notwithstanding the
foregoing, to the extent permitted by applicable law and Rule 16b-3, the
Director Plan Committee may permit a recipient of an option granted hereunder
to (i) designate in writing during the optionee's lifetime a beneficiary to
receive and exercise the optionee's options in the event of such optionee's
death or (ii) transfer an option granted hereunder. In the event of the death
of an Optionee while a Non-Employee Director, an option may be exercised by the
representative of the estate of such Optionee within twelve (12) months
following the date of death, but not later than the Expiration Date.
3.8 Option Agreement. Each Option shall be evidenced by a Stock
Option Agreement which shall incorporate the terms of the Plan.
SECTION 4 GENERAL PROVISIONS
4.1 Changes in Capitalization; Merger; Liquidation.
(a) The number of shares of Stock reserved for the grant
of Options; the number of shares of Stock reserved for issuance upon the
exercise or payment, as applicable, of each outstanding Option; and the
Exercise Price of each outstanding Option shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Stock resulting from
a subdivision or combination of shares or the payment of a stock dividend in
shares of Stock to holders of outstanding shares of Stock or any other increase
or decrease in the number of shares of Stock outstanding effected without
receipt of consideration by the Company.
(b) In the event of or anticipation of a merger,
consolidation or other reorganization of the Company or tender offer for shares
of Stock, the Plan Administrator may make such adjustments with respect to
awards and take such other action as it deems necessary or appropriate to
reflect such merger, consolidation, reorganization or tender offer, including
without limitation, the substitution of new awards, the termination or
adjustment of outstanding awards, the acceleration of awards or the removal of
restrictions on outstanding awards. Any adjustment pursuant to this Section
4.1 may provide, in the Plan Administrator's discretion, for the elimination
without payment therefor of any fractional shares that might otherwise become
subject to any Option, but shall not otherwise diminish the then value of the
Option.
(c) The existence of the Plan and the Options granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization
or other change in its capital or business structure, any merger or
consolidation of the Company, any issue of debt or equity securities having
preferences or priorities as to the Stock or the rights thereof, the
dissolution or liquidation of the Company, any sale or transfer of all or any
part of its business or assets, or any other corporate act or proceeding.
5
<PAGE> 44
4.2 Right to Remove Director, Committee Chairman or Committee
Member. Nothing in the Plan or in any Stock Option Agreement shall confer upon
any Participant the right to continue as a member of the Board of Directors,
chairman of any committee or member of any committee, or affect the right of
the Company to terminate a Participant's directorship at any time.
4.3 Restrictions on Delivery and Sale of Shares; Legends. Each
Option is subject to the condition that if at any time the Plan Administrator,
in its discretion, shall determine that the listing, registration or
qualification of the shares covered by such Option upon any securities exchange
or under any state or federal law is necessary or desirable as a condition of
or in connection with the granting of such Option or the purchase or delivery
of shares thereunder, the delivery of any or all shares pursuant to such Option
may be withheld unless and until such listing, registration or qualification
shall have been effected. If a registration statement is not in effect under
the Securities Act of 1933 or any applicable state securities laws with respect
to the shares of Stock purchasable or otherwise deliverable under Options then
outstanding, the Participant shall, as a condition of exercise of any Option or
as a condition to any other delivery of Stock pursuant to an Option, represent,
in writing, that the shares received pursuant to the Option are being acquired
for investment and not with a view to distribution and agree that the shares
will not be disposed of except pursuant to an effective registration statement,
unless the Company shall have received an opinion of counsel that such
disposition is exempt from such requirement under the Securities Act of 1933
and any applicable state securities laws. The Company may include on
certificates representing shares delivered pursuant to an Option such legends
referring to the foregoing representations or restrictions or any other
applicable restrictions on resale as the Company, in its discretion, shall deem
appropriate.
4.4 Non-alienation of Benefits. Other than as specifically
provided with regard to the death of a Participant, or otherwise provided in
Section 3.7 hereof, no benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge; and any attempt to do so shall be void. No such benefit shall, prior
to receipt by the Participant, be in any manner liable for or subject to the
debts, contracts, liabilities, engagements or torts of the Participant.
4.5 Termination and Amendment of the Plan. The Board of Directors
at any time may amend or terminate the Plan without stockholder approval;
provided, however, that the Board of Directors may condition any amendment on
the approval of stockholders of the Company if such approval is necessary or
advisable with respect to tax, securities or other applicable laws.
Notwithstanding the foregoing, in no event shall the Board of Directors amend
the provisions of the Plan that relate to Options more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, or the rules thereunder. No termination,
modification or amendment of the Plan, without the consent of a Participant who
has been awarded an Option shall adversely affect the rights of that
Participant under such Option.
4.6 Stockholder Approval. The amended and restated Plan shall be
submitted to the stockholders of the Company for their approval at the next
annual meeting to the Company's stockholders after the adoption of the Plan by
the Board of Directors of the Company.
4.7 Choice of Law. The laws of the State of California shall
govern the Plan, to the extent not preempted by federal law.
4.8 Effective Date of Plan. The Plan shall become effective on
the Effective Date.
COMPREHENSIVE CARE CORPORATION
By: /s/ Chriss W. Street
--------------------------------------------------
Title: Chairman, President and Chief Executive Officer
-----------------------------------------------
ATTEST:
/s/ Kerri Ruppert
- -----------------
Secretary
[CORPORATE SEAL]
6
<PAGE> 45
COMPREHENSIVE CARE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS ON NOVEMBER 9, 1995
The undersigned hereby appoints Chriss W. Street and Kerri Ruppert, or
either of them, proxies, with power of substitution, to vote the shares of
common stock of Comprehensive Care Corporation which the undersigned is entitled
to vote at the annual meeting of stockholders on November 9, 1995, and any
adjournment thereof, as follows:
<TABLE>
<S> <C> <C>
1. Proposal 1: Election of Director:
/ / FOR the election as director the following:
Class III: Nominee for a 3-year term expiring in 1998:
W. James Nicol
/ / WITHHOLD AUTHORITY to elect the nominee listed above.
(Instructions: TO WITHHOLD AUTHORITY TO VOTE FOR ANY PARTICULAR NOMINEE, DRAW A LINE THROUGH HIS NAME ABOVE. To
cumulate your votes (you are entitled to as many votes as equals the number of shares you hold, multiplied by the
number of directors to be elected), indicate on the line below, the name(s) of the nominee(s) and the number of
votes to be cast in his, her or their favor. You may cast all your votes for a single nominee, or you may
distribute them among any two or more of them, as you see fit. Unless you indicate otherwise in the space below,
the designated proxies are authorized to distribute your votes in their discretion so as to elect by cumulative
voting the maximum number of the above nominees, whose names are not lined out. Insofar as only one director is to
be elected as a Class III director, there would be no effective application of cumulative voting
provision.)
</TABLE>
(Continued and to be signed and dated on the other side.)
(Continued from other side)
<TABLE>
<S> <C> <C>
2. Proposal 2: Proposal to adopt the Comprehensive Care Corporation 1995 Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal 3: Proposal to amend and restate the Comprehensive Care Corporation Directors' Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. With discretionary power in the transaction of such other business as may properly come before the
meeting.
</TABLE>
THIS PROXY, PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREON. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEE IN PROPOSAL 1, FOR
PROPOSAL 2, AND FOR PROPOSAL 3. THE PROXIES MAY VOTE IN THEIR DISCRETION AS TO
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING.
Dated: , 1995. --------------------------------
Signature
--------------------------------
Signature (if held jointly)
Title or authority (if
applicable)
NOTE: Please sign exactly as
name appears hereon. If shares
are registered in more than one
name, the signature of all
persons are required. A
corporation should sign in its
full corporate name by a duly
authorized officer, stating his
or her title. Trustees,
guardians, executors and
administrators should sign in
their official capacity, giving
their full title as such. If a
partnership, please sign in the
partnership name by an
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY,
USING THE ENCLOSED ENVELOPE.
NO POSTAGE REQUIRED IF MAILED IN THE UNITED STATES OF AMERICA.
