Executives Lead Proxy Battle to Seize CompCare : Takeover: A shareholders group is trying to oust the board of directors of the chain of chemical dependency and psychiatric treatment centers, which lost $61 million last year.


A group of disgruntled shareholders led by two Orange County business executives and a Portland, Ore., stockbroker is waging a proxy battle for control of Comprehensive Care Corp., a struggling chain of chemical dependency and psychiatric treatment centers that lost a whopping $61 million last year.

The shareholders group--which includes former CompCare executive James Carmany of Laguna Niguel--wants to oust CompCare's entire board of directors and replace them with its own nominees.

Calling itself the Shareholders Committee to Rejuvenate CompCare, the group claims to have received the support of a majority of CompCare shareholders in a "consent solicitation" election. But CompCare management has gone to court and won a temporary restraining order barring the shareholders group from claiming control of the company and extending the voting period until Sunday. The shareholders group has filed suit in Delaware Chancery Court, seeking to have the results of the election declared valid. CompCare, which is incorporated in Delaware, has alleged in another lawsuit filed in U.S. District Court in Los Angeles that the shareholders group has violated federal securities laws and regulations in waging its proxy fight.

The dissident shareholders, who launched their bid for control of the company in early July, blame CompCare management for the company's poor financial showing, which they believe has been caused by misguided product development, ineffective marketing and overall lax management.

The company, which last year moved its headquarters from Irvine to St. Louis, has countered such criticism by arguing that the firm's problems are being tackled under the leadership of William J. Nicol, who took over as chief executive in October after B. Lee Karns resigned from that position.

The proxy fight is being orchestrated and bankrolled by Leslie T. Livingston, owner of a small Portland, Ore., investment firm. Livingston said he purchased more than 1 million shares of CompCare stock for his clients and another 40,000 shares for his firm in April, 1989, when CompCare was negotiating a possible merger with First Hospital Corp. of Norfolk, Va.

But the merger effort collapsed six months later when one of First Hospital's bankers refused to provide financing for the deal, citing CompCare's deteriorating business. CompCare's stock fell sharply after the deal fell apart.

"I had invested with the idea that First Hospital's management had the ability to run CompCare, and I didn't believe the current management could do it," Livingston said.

CompCare is asking shareholders who previously signed ballots indicating their support for the dissident group to sign new ballots canceling their earlier vote and throwing their support behind the company. The ballots must be received by Monday.

"They (the dissidents) need votes representing a simple majority of the outstanding stock. If they don't gather the requisite number of votes, we stay in power," said Marilyn MacNiven-Young, CompCare's corporate counsel.

Livingston, who said the solicitation campaign will cost him up to $450,000, acknowledges he knows little about CompCare's business. He said that is why the group would bring in Carmany, 51, a former CompCare executive vice president, to serve as chief executive. Carmany was fired from CompCare's hospital division in May, 1989, when he tried to orchestrate a buyout of the company.

Michael O'Toole, executive vice president of Burlington Air Imports Inc. in Irvine and a dissident nominee for the CompCare board, similarly said he is relying on Carmany's expertise in the health-care field.

"Operating losses have continued and I think at this point the best opportunity is a change in management to get the company back to profitability," O'Toole said.

CompCare operates three facilities in Orange County: Starting Point of Orange County in Costa Mesa and CareUnit of Orange, both chemical dependency treatment centers, and Tustin Manor, a Tustin long-term nursing home. In June, the company sold Brea Hospital Neuropsychiatric Center, once its flagship facility.

Formed in 1969, CompCare gained early publicity for treating the alcohol and drug dependency problems of celebrities. Boosted by an aggressive TV advertising campaign, the company grew rapidly.

In recent years, however, the company has struggled because of greater competition and a reluctance to adjust to changes in insurance reimbursement programs that favor such alternatives to hospitalization as outpatient and day-care services.

Carmany said he believes that the company should offer patients more individualized treatment programs priced to meet the demands of the insurance industry.

Carmany now is selling weight-control products at a company he founded with two other former CompCare executives in Mission Viejo. He complained that CompCare has been "trying to find various financial fixes" for its problems--such as the First Hospital deal--"instead of fixing the operational problems that need to be addressed."

He said CompCare should direct its marketing to employee assistance groups and managed-care organizations, which increasingly are deciding what kinds of mental health and drug abuse programs patients may use.

But Alan Henderson, CompCare's chief financial officer, said CompCare is already doing some of the things that Carmany recommends. It has developed outpatient and day-care programs at its 16 facilities and has stepped up efforts to solicit business from managed-care organizations, he said.

In addition, Henderson said, the company has been selling its less profitable facilities to reduce its debt, and cutting costs through staff reductions. He said the company also is shifting more of its resources from chemical dependency programs to areas with greater growth potential, such as the physical rehabilitation programs it operates for hospitals.

While Henderson concedes that quarterly losses continued over the company's last fiscal year ended May 31, he is encouraged by the fact that the decline in occupancy rates at CompCare's facilities had improved slightly during the last quarter of the year over the previous quarter.

He predicted that results for the first quarter of the current year "will reflect the actions we have taken in staffing reductions in our (company-operated) facilities and the continued growth in our rehabilitation business."

Nevertheless, CompCare's financial picture remains clouded.

The company was forced to negotiate a deal with its lenders last month that allowed it to refinance $12 million of debt to extend the due date by an additional year. The agreement "means we won't have to sell off assets at fire sale prices just to repay debt," Henderson said.

He said the company's bank lenders also have agreed to allow the company to use its tax refunds for working capital. Without that agreement, he said, those funds would have been required to be used to repay debt.

Henderson said the bank financing agreements are conditioned on there being no change in control of the company. "If there is (a change in control), it would constitute a technical default under all of our (senior) financing agreements," he said. The company has $30 million in senior debt.

If the shareholders group does succeed in gaining control of the company, seven top CompCare executives--including chief executive Nicol--have negotiated lucrative severance packages--or so-called golden parachute agreements--to help cushion their fall in the event they lose their jobs. Under the agreements, the executives would receive severance pay equaling one-year's salary if they are fired. The agreements could cost the company a maximum of about $7.4 million, according to CompCare proxy material.


Opposing slates of directors have emerged in the proxy fight for control of Comprehensive Care Corp.

Current CompCare Directors:

* Warren G. Elliot, attorney, Washington, D.C.

* Dr. Robert B. Hunter, retired physician, Sedro-Wooley, Wash.

* B. Lee Karns, former CompCare president, chief executive and chairman, Rancho Mirage.

* Robert L. Kasselman, self-employed businessman and former CompCare executive vice president, Corona del Mar.

* Stanley R. Nelson, CompCare chairman.

* Dr. Tom E. Nesbitt, physician, Nashville, Tenn.

* William J. Nicol, CompCare president and chief executive

Shareholders Committee proposed directors:

* James Carmany, executive vice president, RxFast Inc., Mission Viejo; former executive vice president of CompCare's hospital division.

* Harvey G. Felsen, president, Enseco Inc., Somerset, N.J.

* Howard S. Groth, owner, Stan Groth & Assocs., West Linn, Ore.

* Robert I. Miller, president, Ranier Diesel Electric, Seattle.

* Charles Moore, president, Uresco Construction Materials, Kent, Wash.

* Michael O'Toole, executive vice president, Burlington Air Imports Inc., Irvine.

* Norman L. Perry, president, Tree Products Enterprises, Lake Oswego, Ore.

Source: Proxy statements of the two groups.


(in millions)

(fiscal year Net Income ended May 31) (loss) Revenue 1986 13.1 $164.7 1987 12.0 $173.2 1988 8.9 $193.6 1989 .5 $209.9 1990 ($61.2) $143.7

Source: CompCare.

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