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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended May 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 0-5751
COMPREHENSIVE CARE CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 95-2594724
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Bayside Drive, Suite 100
Corona del Mar, California 92625
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 222-2273
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- -------------------------------------- -----------------------------
Common Stock, Par Value $.01 per share New York Stock Exchange, Inc.
Common Share Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
7 1/2% Convertible Subordinated Debentures due 2010 Over-the Counter
(Title of Class)
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant at August 25, 1997, was $37,997,219 based on the closing sale
price of the Common Stock on August 25, 1997 as reported on the New York Stock
Exchange composite tape.
At August 25, 1997, the Registrant had 3,432,847 shares of Common Stock
outstanding.
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PART III
Prefatory Note:
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This Form 10K-A/2 is being filed as an amendment to the Registrant's
Form 10-K for the fiscal year 1997 filed with the Securities and Exchange
Commission on August 29, 1997, for the purpose of correcting certain
non-material numerical information required under Items 11 and 12 of Part III
filed under cover of Form 10K-A/1 on September 29, 1997.
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ITEM 11. EXECUTIVE COMPENSATION
This section discloses the compensation earned by the Company's Chief
Executive Officer and its other executive officers whose total salary and bonus
for fiscal 1997 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 1997 245,192(1) 15,947 5,837 589,919(2) 25,000 0 229,508(3)
Chairman, President and Chief 1996 207,324 0 9,225 43,780 100,000 0 1,495(11)
Executive Officer 1995 153,711 0 0 0 150,000 0 0
Stuart J. Ghertner (4) 1997 158,958(5) 21,667 27,500(6) 0 125,000 0 0
Chief Operating Officer
Ronald G. Hersch (7) 1997 97,500 0 110,688 0 0 0 789(11)
Vice President-Strategic 1996 141,000 0 30,639(8) 46,750 20,000 0 928(11)
Planning & Business Development 1995 102,635 0 0 0 21,500 0 0
Drew Q. Miller (9) 1997 37,290 0 1,016 0 0 0 257(11)
Senior Vice President and 1996 141,491 7,946 0 0 20,000 0 1,003(11)
Chief Operating Officer 1995 68,999(10) 0 0 0 20,000 0 0
Kerri Ruppert 1997 121,289 33,020 0 0 18,500 0 1,076(11)
Senior Vice President, Chief 1996 116,554 26,453 0 0 17,500 0 837(11)
Financial Officer and 1995 122,493 0 0 0 19,000 0 970(11)
Secretary/Treasurer (12)
</TABLE>
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(1) Does not include a car allowance of $16,413 paid by the Company and in
accordance with Mr. Street's employment agreement.
(2) In September 1995, the Board of Directors granted and issued to its
President and Chief Executive Officer, 100,000 Restricted Shares of its
Common Stock, $0.01 par value. The Restricted Shares are subject to
vesting at the rate of 5,000 Restricted Shares per fiscal year over a
20-year period. The vesting of the Restricted Shares is subject to
acceleration upon the occurrence of certain events of acceleration as
described below. As of May 31, 1997, 47,000 Restricted Shares were
vested and 53,000 Restricted Shares were unvested; however, the holder
has the sole voting power.
(3) Represents $227,589 of a one-time bonus for taxes payable due to the
acceleration of Restricted Shares and $1,919 in amounts contributed by
the Company to Mr. Street's 401(k) Plan account.
(4) Dr. Ghertner was employed by the Company on January 1,1997.
Accordingly, amounts shown for Dr. Ghertner only reflect compensation
that he earned from his date of hire through the end of fiscal 1997.
(5) Between August 6, 1996 through December 31, 1996, Dr. Ghertner served
as an independent consultant to the Company for which he received an
aggregate compensation of $93,000.
(6) Represents compensation expense related to the vesting of options which
were not performance related.
(7) Dr. Hersch was employed by the Company on August 17, 1995. Accordingly,
amounts shown for fiscal 1995 for Dr. Hersch only reflect compensation
that he earned from his date of hire through the end of fiscal 1995.
(8) Represents amounts paid by the Company to Dr. Hersch pertaining to his
relocation to Tampa, Florida.
(9) Mr. Miller was employed on November 1, 1994. 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.
(10) 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.
(11) Represents amounts contributed by the Company to the indicated person's
401(k) Plan account.
(12) Ms. Ruppert ceased being an Executive Officer of the Company on
September 29, 1997.
EMPLOYMENT AGREEMENTS
The Company is party to an amended and restated employment agreement
with Mr. Chriss W. Street that has a term expiring on December 31, 1998. Mr.
Street's employment agreement as amended on November 1, 1995 provides for a
salary at the rate of $250,000 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.
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During fiscal 1997, certain objective non-discretionary conditions for
acceleration related to the vesting of 37,000 Restricted Shares granted to the
CEO were achieved. Based on increases in the fair market value of the Company's
Common Stock, the Company provided for compensation expenses of $0.5 million
for the acceleration of 37,000 Restricted Shares; to be earned in the fiscal
year ended May 31, 1997. In addition, the estimated bonus payments for income
taxes as provided for in the employment agreement were approximately $0.2
million during fiscal 1997.
The Company entered into an employment agreement with Dr. Stuart J.
Ghertner effective January 1, 1997, and which had a term expiring on December
31, 1998. Dr. Ghertner's employment agreement provided for a salary at the rate
of $175,000 per annum. In conjunction with this employment agreement, the
Company granted options to purchase 120,000 shares of Common Stock. The vesting
of 100,000 options was subject to certain performance-related criteria related
to quarterly revenues from operations and net earnings before taxes. In the
event Dr. Ghertner is terminated for cause or resigns without good reason as
defined, any unvested options would be forfeited. Effective September 21, 1997,
Dr. Ghertner resigned as an officer of the Company and all unvested performance
based options will lapse and terminate.
Furthermore, in connection with the Company's indemnification program
for executive officers and directors, Messrs. Street, Boucher, Feigenbaum,
Ghertner, McCarthy, Nicol and Pantuliano and Ms. Kerri Ruppert (Chief Financial
Officer of the Company during the Company's last fiscal year), as well as
three former directors and three former executive officers, 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 each 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 the
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 ("Underwriter") to administer the payments to the amounts
of Indemnitees 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, 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
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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.
EXECUTIVE TERMINATION AGREEMENTS
For information related to the termination benefits for Mr. Street, see
the description of the amended and restated employment agreement and Restricted
Shares with Mr. Street under "Contracts with Executives".
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TABLE II - OPTIONS HELD AT MAY 31, 1997
The following tables present information regarding the number of
unexercised options held by the Company's named executives at May 31, 1997.
Three of the Company's named executives exercised options for 79,832 shares of
the Company's Common Stock in fiscal 1997. No stock appreciation rights were
granted or held by such persons during fiscal 1997.
OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PRESENT
NAME GRANTED FISCAL YEAR SHARE DATE VALUE(1)
- ---- ------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Chriss W. Street(2) 25,000 7% $ 7.875 8/25/06 $3.66
Stuart J. Ghertner(3) 5,000 1 7.875 8/25/06 3.66
120,000 35 11.375 1/01/07 5.88
Kerri Ruppert(4) 18,500 5 7.875 8/23/06 3.66
-------
168,500
=======
</TABLE>
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(1) Black-Scholes option pricing method has been used to calculate present
value as of date of grant. The present value as of the date of grant,
calculated using the Black-Scholes method, is based on assumptions
about future interest rates, stock price volatility and dividend yield.
There is no assurance that these assumptions will prove to be true in
the future. The actual value, if any, that may be realized by each
individual will depend upon the market price of the common stock on the
date of exercise.
(2) Includes 25,000 options under a restricted stock grant under the 1988
Incentive Stock Option Plan ("ISO Plan") and Non-statutory Plan ("NSO
Plan").
(3) Includes 5,000 options granted under the NSO Plan and 120,000 options,
of which 100,000 are performance-based, granted under the 1995
Incentive Plan. Effective September 12, 1997, Dr. Ghertner resigned
as an officer of the Company for personal reasons. Accordingly, all
100,000 performance-based options will expire and not be exercisable.
(4) Includes 18,500 options granted under the ISO/NSO Plans. Ms. Ruppert
ceased as an Executive Officer on September 29, 1997.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND AGGREGATED FISCAL YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END (1) FISCAL YEAR-END (2)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Chriss W. Street (3) 0 0 152,000/73,000 $921,625/$331,500
Stuart J. Ghertner 5,000 35,625 20,000/100,000 52,500/262,500
Ronald G. Hersch 34,832 295,684 0/0 0/0
Drew Q. Miller 40,000 133,200 0/0 0/0
Kerri Ruppert 0 0 51,500/5,000 323,565/38,750
</TABLE>
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(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 $14.00 on May
31, 1997. Value was calculated on the basis of the difference between
the option exercise price and $14.00 multiplied by the number of shares
of Common Stock underlying the respective options.
(3) Exercisable options includes options for 40,000, 25,000, 20,000 and
20,000 shares granted in the Company's 1988 Incentive Stock Option and
Non-statutory Plans at $6.25, $7.875, $8.00 and $10.00 per share,
respectively. Such options vest on March 7, 1995 and 1996,
respectively. Exercisable options also include 47,000 shares issued
under a Restricted Stock Grant in the 1995 Incentive Plan at $8.50 per
share. Unexercisable options include options for 20,000 shares in the
Company's 1988 Incentive Stock Option Plan at $12.00 per share and
vesting on March 7, 1998. Unexercisable options also include 53,000
shares issued under a Restricted Stock Grant in the 1995 Incentive Plan
at $8.50 per share and vesting over the next nineteen years.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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
October 3, 1997. 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
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<S> <C> <C>
William H. Boucher 20,000(1) *
J. Marvin Feigenbaum 26,666(2) *
Stuart J. Ghertner, Ph.D. 20,000(3) *
Lindner Funds (4) 593,820 17.3%
Ronald G. Hersch, Ph.D. 2,500(5) *
Drew Q. Miller 0(6) *
W. James Nicol 21,397(7) *
A. Richard Pantuliano 0(8) *
John A. McCarthy, Jr. (8) 0 *
Kerri Ruppert 56,500(9) 1.6%
Carol Pollack (11) 0 *
Chriss W. Street 211,560(10) 6.2%
All executive officers and
directors as a group (6 persons) 361,123(12) 10.5%
</TABLE>
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(1) Includes 20,000 shares subject to options that are presently exercisable
or exercisable within 60 days of the date of this Proxy Statement.
(2) Includes 26,666 shares subject to options that are presently exercisable
or exercisable within 60 days of the date of this Proxy Statement.
(3) Includes 20,000 shares subject to options that are presently exercisable
or exercisable within 60 days of the date of this Proxy Statement. Dr.
Ghertner was appointed Interim Chief Operating Officer of the Company on
August 15, 1996; and on September 3, 1996, was named Interim President
of the Company's majority
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owned subsidiary, Comprehensive Behavioral Care, Inc. ("Comprehensive
Behavioral"). On January 1, 1997, Dr. Ghertner was named Chief Operating
Officer of the Company and President of Comprehensive Behavioral. Dr.
Ghertner tendered his resignation effective September 12, 1997.
Dr. Ghertner's mailing address is 25 Pheasant Ridge Drive, Henderson,
Nevada 89014.
(4) The mailing address of Lindner Funds is c/o Ryback Management
Corporation, 7711 Carondelet Avenue, Suite 700, St. Louis, Missouri
63105. Includes approximately 343,820 shares as the result of
the conversion of 41,160 shares of Preferred Stock and 250,000
shares sold under an Amended Common Stock Purchase Agreement dated June
29, 1995. Lindner Funds, as described in its Amendment No. 3 to
Schedule 13G dated June 23, 1997, holds the shares and convertible
debt in more than one fund.
(5) On September 3, 1996, Dr. Hersch was named Vice President - Strategic
Planning & Business Development for the Company. On October 15, 1996,
Dr. Hersch resigned from the Company as an officer and from all
positions effective January 15, 1997. Inclusion of Dr. Hersch on this
table is only by reason of inclusion in the Summary Compensation Table.
Dr. Hersch's mailing address is 324 Brightwaters Blvd., St. Petersburg,
Florida 33704.
(6) Mr. Drew Miller was an executive officer of the Company until August 14,
1996; at which time he resigned as Senior Vice President and Chief
Operating Officer. Inclusion of Mr. Miller on this table is only by
reason of inclusion in the Summary Compensation Table. Mr. Miller's
mailing address is 10071 High Cliff Drive, Santa Ana, California 92705.
(7) Includes 564 shares held by Mr. Nicol's spouse as custodian for their
three children, and 20,833 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(8) Includes 2,500 shares subject to options that are presently exercisable
or exercisable within 60 days of the date of this Proxy Statement.
(9) Consists of 56,500 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement. Ms. Ruppert ceased to be an Executive Officer on September
29, 1997.
(10) Includes 6,560 shares held directly and 105,000 shares subject to
options that are presently exercisable or exercisable within 60 days of
the date of this Proxy Statement. Also includes 47,000 vested shares and
53,000 Restricted Shares under a Restricted Stock Agreement over which
the holder has the sole voting power.
(11) Ms. Pollack was appointed as Interim Chief Financial Officer of the
Company on September 30, 1997.
(12) Includes a total of 304,499 shares subject to outstanding options that
are presently exercisable or exercisable within 60 days of the date of
this Proxy Statement, and 53,000 shares of restricted stock over which
the holder has sole voting power.
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, October 3, 1997.
COMPREHENSIVE CARE CORPORATION
By: /s/ CHRISS W. STREET
-----------------------------
Chriss W. Street
(Principal Executive Officer)
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