All of
our directors serve until a successor is duly elected and qualified or until the
earlier of his death, resignation or removal. Our executive officers are
appointed and serve at the discretion of our board of directors. There are no
family relationships between any of our directors or executive
officers.
Executive
Officers and Directors
The
following table sets forth information with respect to our directors and
executive officers:
Name
Age
Position
Dr. Barry W.
Karlin
54
Chairman
and Chief Executive Officer
James
Hudak
61
Chief
Administrative Officer, Vice President
Kevin
Hogge
51
Chief
Financial Officer, Vice President and Treasurer
Philip
L. Herschman
61
President,
Healthy Living Division
Jerome
E. Rhodes
51
President,
Recovery Division
James
Dredge
58
President,
Youth Division
Kathleen
Sylvia
63
Executive
Vice President of Business Development
Dr. Thomas J.
Brady
56
Chief
Medical Officer
Pamela
B. Burke
41
Vice
President, General Counsel and Secretary
Steven
Barnes
48
Director
John
Connaughton
43
Director
Chris
Gordon
36
Director
General
Barry R. McCaffrey (ret.)
66
Director
Elliot
Sainer
63
Director
The
following biographies describe the business experience of our executive officers
and directors:
Dr. Barry W. Karlin,
Chairman and Chief Executive Officer.
Dr. Karlin has served as our
chairman and chief executive officer since January 2002. From January 2002 to
June 2003, Dr. Karlin also served as our secretary, treasurer and chief
financial officer. Before our formation in January 2002, Dr. Karlin was the
chairman and chief executive officer of eGetgoing, Inc. and CRC Health
Corporation from May 2000 and November 2000, respectively, to January 2002.
Dr. Karlin also served as chairman and chief executive officer of CRC
Recovery, Inc., the general partner of The Camp Recovery Centers, L.P. from July
1995 to January 2001. From 1993 to 1995, Dr. Karlin acted as an independent
consultant providing strategic consulting services to Fortune 100 companies.
From 1992 to 1993, Dr. Karlin served as chairman and chief executive
officer of Karlin and Collins, Inc., an emerging growth high-technology company
which he founded. In 1990, Dr. Karlin joined Corporate Technology Partners,
a venture capital firm specializing in the wireless communications industry,
where he served as a general partner until 1992. From 1984 to 1990,
Dr. Karlin served as chairman and chief executive officer of Navigation
Technologies, Inc., a provider of maps for vehicle navigation. Dr. Karlin
began his career as a strategy management consultant in 1981, first with
Strategic Decisions Group and subsequently with Decision Processes, Inc.
Dr. Karlin holds Ph.D. and M.S. degrees from Stanford University in the
department of engineering economic systems, specializing in decision analysis,
and a B.S. in electrical engineering from University of Witwatersrand in South
Africa.
James Hudak, Chief
Administrative Officer.
Mr. Hudak has served as our chief
administrative officer since July 2008. From 2006 to 2008, Mr. Hudak served as
Chairman of the Board of Directors of MedAvant, Inc. From 2003 to 2006, Mr.
Hudak served as chief operating officer and then as chief executive officer of
United Behavioral Health. From 2000 to 2003, he served as Executive VP and chief
executive officer of United Health Technologies. From 1980 to 2000, Mr. Hudak
worked at Accenture (formerly Andersen consulting) where he worked as a manager
and then served as Global Managing Partner to the health services division. Mr.
Hudak holds a B.A. from Yale University and a Master of Public Policy from the
University of Michigan.
Kevin Hogge, Chief Financial
Officer, Vice President and Treasurer.
Mr. Hogge has served as our
chief financial officer since June 2003. From September 1999 to June 2003,
Mr. Hogge was the chief financial officer for Epoch Senior Living, Inc., an
assisted living and skilled nursing company. From April 1996 to January 1999, he
served as controller of the hospital division of Horizon/CMS Healthcare
Corporation, a provider of specialty healthcare services, maintaining his
position following the acquisition of this division by Regency Health Services,
Inc. and the subsequent acquisition of Regency Health Services, Inc. by Sun
Healthcare Group, Inc. From October 1992 to April 1996, Mr. Hogge worked as
vice president of planning for Tenet Healthcare Corporation, an owner and
operator of acute care hospitals and related healthcare services. Prior to
working in healthcare, Mr. Hogge was a certified public accountant with
Ernst & Whinney. Mr. Hogge holds a B.S. in accounting from
Virginia Polytechnic Institute.
Philip L. Herschman, President,
Health Living Division.
Mr. Herschman has served as the president of
our healthy living division since September 2007. From May 2002 to September
2007, Mr. Herschman served as president of our outpatient treatment
division. From August 1993 to May 2002, Mr. Herschman served as chief
executive officer of Behavioral Health Concepts, a national mental health
management company which he founded in 1993. From 1984 to 1992,
Mr. Herschman worked in operations and business development for Republic
Health Corporation, a healthcare company, where he was responsible for
implementing the company’s strategy of joint venturing its acute care hospitals
with physician groups. During this time, Mr. Herschman was also responsible
for the operations of three acute care hospitals with over 500 beds for OrNda
Health Corp. Prior to OrNda/Republic, Mr. Herschman was a regional vice
president of operations with Horizon Health Corporation, a multi-unit
psychiatric management company. Mr. Herschman holds a Ph.D. in psychology
from the University of California, Irvine and a B.A. from the University of
California, San Diego.
Jerome E. Rhodes, President,
Recovery Division.
Mr. Rhodes has served as the president of our
recovery division since September 2007. From January 2004 to September 2007,
Mr. Rhodes served as president of our residential treatment division. From
August 2003 to January 2004, he was president of our eastern division. From
September 1993 to February 2003, Mr. Rhodes served as chief executive
officer of Comprehensive Addiction Programs, Inc., a behavioral healthcare
treatment company. We acquired Comprehensive Addiction Programs, Inc. in
February 2003. From 1991 to 1993, Mr. Rhodes was the senior vice president
of operations and from 1987 to 1991 he served as the senior vice president of
acquisitions and development for Comprehensive Addiction Programs, Inc. From
1982 to 1987, Mr. Rhodes was the director of development for Beverly
Enterprises, Inc., a publicly held nursing home company. From 1980 to 1982,
Mr. Rhodes was the chief development consultant at Wilmot Bower and
Associates, an architectural and development firm specializing in healthcare
facilities. From 1978 to 1980, Mr. Rhodes was a project coordinator and
analyst with Manor Care, Inc., a publicly held nursing home company.
Mr. Rhodes holds a B.A. in business administration from Columbia Union
College.
70
James Dredge, President, Youth
Division.
Mr. Dredge has served as the President of our youth
division since October 1, 2007. From November 2006 through September 2007,
Mr. Dredge served as chief operating officer of the youth division. From
April 2004 through November 2006, Mr. Dredge served as chief operating
officer of Aspen Education Group, Inc. We acquired Aspen Education Group, Inc.
in November 2006. Mr. Dredge has spent most of his career building and
running education software companies. He previously served as President and CEO
for Academic Systems, a wholly owned subsidiary of Lightspan, Inc. He is a magna
cum laude graduate from the University of Minnesota with a Master Degree in
Public Administration from the University of Minnesota.
Kathleen Sylvia, Executive Vice
President of Business Development.
Ms. Sylvia has served as our
executive vice president of business development since June 2003. From May 1995
to June 2003, Ms. Sylvia served as our chief operating officer. From
January 1993 to May 1995, Ms. Sylvia was the executive director of The Camp
Recovery Centers, L.P. From 1988 to 1993, Ms. Sylvia was the assistant
administrator at National Medical Enterprise Hospitals and Community Psychiatric
Centers. Ms. Sylvia holds a nursing degree from the University of
California, Los Angeles, Harbor College, School of Nursing, a B.A. in sociology
and anthropology from Old Dominion University and a master of public
administration from the University of Oklahoma.
Dr. Thomas J. Brady, Chief
Medical Officer.
Dr. Brady has served as our chief medical officer
since October 2004. From June 1997 to October 2004, Dr. Brady held various
positions with MHN, Inc., a mental and behavioral health services company,
including acting corporate medical director from June 2003 through September
2003, and regional medical director from June 1997 to October 2004. From 1988 to
1999, Dr. Brady held various positions at St. Mary’s Medical Center in San
Francisco, including chair of the department of psychiatry and medical director
of Child and Adolescent Psychiatric Services, the Children’s Psychiatric
Inpatient Unit and the Adolescent Day Treatment Center. Dr. Brady conducted
a private practice in psychiatry from 1986 to 2004, treating thousands of
outpatient and inpatient mentally ill and addiction patients during that time.
Dr. Brady holds an M.B.A. from Golden Gate University, an M.D. from the
University of Alabama, Birmingham School of Medicine, a B.S. in biology from the
University of Alabama and a B.A. in psychology from the University of
California, Berkeley. Dr. Brady is American Society of Addiction Medicine
certified and board certified in General, Child and Adolescent and Forensic
Psychiatry.
Pamela B. Burke, Vice President,
General Counsel and Secretary.
Ms. Burke has served as our vice
president, general counsel and secretary since February 2005. Prior to joining
us in February 2005, Ms. Burke was a partner at the law firm DLA Piper
Rudnick Gray Cary US LLP, which she joined in September 1996. From September
1993 to April 1996, Ms. Burke worked for Ernst & Young in its
National Tax Office. Ms. Burke received her B.A. in government from Cornell
University and her J.D. from George Washington University.
Steven Barnes, Director.
Steven Barnes,
Director
. Mr. Barnes has served as a director since February
2006. Mr. Barnes has been associated with Bain Capital since 1988 and
has been a Managing Director since 2000. In addition to working for
Bain Capital, he also held senior operating roles of several Bain Capital
portfolio companies including chief executive officer of Dade Behring, Inc.,
president of Executone Business Systems, Inc. and president of Holson Burnes
Group, Inc. Mr. Barnes currently serves on several boards including
Ideal Standard and Clear Channel Communications, Inc. He also
volunteers on several charitable organizations, serving as a member of the board
of Make-A-Wish Foundation of Massachusetts, Project Health, Syracuse University
and Children’s Hospital Board of Trustees. Mr. Barnes received a B.S.
from Syracuse University.
John Connaughton, Director.
Mr. Connaughton has served as a director since February 2006.
Mr. Connaughton has been a Managing Director of Bain Capital Partners, LLC
since 1997 and a member of the firm since 1989. He has played a leading role in
transactions in the medical, technology and media industries. Prior to joining
Bain Capital, Mr. Connaughton was a consultant at Bain & Company,
Inc., where he worked in the consumer products and business services industries.
Mr. Connaughton currently serves as a director of Hospital Corporation of
America (HCA), M/C Communications (PriMed), Warner Chilcott (WCRX-NASDAQ),
Quintiles Transnational Corp, Sungard Data Systems, Warner Music Group
(NYSE-WMG), AMC Theatres, Clear Channel Communications Inc. and The Boston
Celtics. He also volunteers for a variety of charitable organizations, serving
as a member of Children’s Hospital Board of Overseers, The Berklee College of
Music Board of Trustees and UVa McIntire Foundation Board of Trustees.
Mr. Connaughton received a B.S. in commerce from the University of Virginia
and an M.B.A. from Harvard Business School.
Chris Gordon, Director.
Mr. Gordon has served as director since February 2006. Mr. Gordon is a
managing director of Bain Capital and joined the firm in 1997. Prior to joining
Bain Capital, Mr. Gordon was a consultant at Bain & Company, Inc.
and currently serves as a director of Hospital Corporation of America and of
Accellent, Inc. He also volunteers for a variety of charitable organizations,
currently serving on the Children’s Hospital Board of Overseers and the Boston
Public Library Foundation Board of Directors.
Mr. Gordon received an
M.B.A. from Harvard Business School where he was a Baker Scholar and graduated
magna cum laude with an A.B. in economics from Harvard College.
General Barry R. McCaffrey (ret),
Director.
General McCaffrey has served as a director since August 2002.
From March 2001 to the present, General McCaffrey has served as president of BR
McCaffrey Associates, LLC, an international consulting firm. General McCaffrey
served as the Director of the White House Office of National Drug Control Policy
from March 1996 to March 2001, and as the Bradley Distinguished Professor of
National Security Studies at the U.S. Military Academy from March 2001 to June
2005. General McCaffrey has also served as an analyst for NBC News since
September 2001. During his time at the White House, General McCaffrey was a
member of both the President’s Cabinet and the National Security Council for
drug-related issues.
General
McCaffrey also serves on the board of directors of DynCorp International, LLC,
McNeil Technologies, Global Linguist Solutions and HNTB Corporation.
General McCaffrey graduated from the U.S. Military Academy at West Point.
He holds an M.A. in civil government from American University and attended the
Harvard University National Security Program as well as the Business School
Executive Education Program.
Elliot Sainer, Director.
Mr. Sainer has served as a director since November 2006. From November 2006
through September 31, 2007, Mr. Sainer served as the president of our
youth division. From 1998 to 2006, he served as chief executive officer of
Aspen Education Group, Inc. We acquired Aspen Education Group, Inc. in
November 2006. From 1991 to 1998, Mr. Sainer was Chief Executive
Officer of College Health Enterprises.
Mr.
Sainer serves as a director of Acadia Healthcare, LLC, Knowledge Delivery
Systems, Inc. and StarPoint LLC Healthcare Group. He also serves as a
member of the board of Alzheimers Association of Greater Los Angeles and Union
Station Homeless Services.
Mr. Sainer holds an M.B.A. in
health care administration from George Washington University and a B.A. in
Political Science from the University of Pittsburgh.
Code
of Conduct
The CRC
Health Corporation Code of Business Conduct and Ethics is our code of ethics
applicable to all employees, including all officers and directors with regard to
company related activities. The code incorporates our policy to
conduct our business affairs honestly and in an ethical manner. It
also incorporates our expectations of all employees to provide accurate and
timely disclosures in our filings with the SEC. A copy of our code is
available on our website at
www.crchealth.com
under “Press Releases”, “Investor Relations,” SEC Filings.” We will
post any amendments to our code, or waivers of the code for our executive
officers, on our website at
www.crchealth.com
under “Press Releases,” “About CRC Health Group,” “Code of
Conduct.”
We
also maintain a Compliance Manual and Code of Conduct that focuses on our
responsibilities to our patients and the high standards of ethics that we
require from all employees. This Code of Conduct is compliant with the
requirements of our accrediting bodies.
Section 16(a)
Compliance
There is
no established public trading market for our common stock. We are a wholly-owned
subsidiary of CRC Health Group, Inc. which holds all of our outstanding common
stock. CRC Health Group, Inc. is a privately held corporation.
71
Audit
Committee
The audit
committee selects the independent auditors to be nominated for election by the
stockholders and reviews the independence of such auditors, approves the scope
of the annual audit activities of the independent auditors, approves the audit
fee payable to the independent auditors and reviews such audit results with the
independent auditors. The audit committee is currently composed of Steven
Barnes, Chris Gordon and Elliot Sainer. Chris Gordon serves as our “audit
committee financial expert” as defined in Item 407(d)(5) of
Regulation S-K.
This
section discusses the principles underlying our executive compensation policies
and decisions. In this section, we address the members and role of our
compensation committee, our compensation setting process, our compensation
philosophy and policies regarding executive compensation, the components of our
executive compensation program and our compensation decisions for 2008. We
address the compensation paid or awarded during 2008 to our chief executive
officer, our chief financial officer and the three other most highly compensated
executive officers in fiscal year 2008. We refer to these five executive
officers as our named executive officers.
On
February 6, 2006, we were acquired by investments funds managed by Bain
Capital (the “Bain Merger”). We refer to Bain Capital Partners as our “Sponsor.”
As discussed in more detail below, various aspects of the compensation of our
named executive officers was negotiated and determined at the time of the Bain
Merger. There is no established public trading market for our common stock. We
are a wholly-owned subsidiary of CRC Health Group, Inc. which holds all of our
outstanding common stock. CRC Health Group, Inc. is a privately held
corporation. Our parent company’s outstanding capital stock consists of
Class A common stock and Class L common stock. All references to options
herein refer to options to purchase Class A common stock and Class L common
stock of our parent company.
The
Compensation Committee and Compensation Setting Practice
The
compensation committee operates under a written charter adopted by our Board of
Directors and has responsibility for discharging the responsibilities of the
Board of Directors relating to the compensation of our executive officers and
related duties. Compensation decisions are designed to promote our fundamental
business objectives and strategy and align the interests of management with the
interests of our stakeholders. Our chief executive officer works with senior
management to evaluate employee performance, establish business performance
targets and objectives and recommend salary levels and then presents cash and
equity compensation recommendations to the Compensation Committee for its
consideration and approval. We have not engaged a compensation consultant or
benchmarked our compensation against other companies to date but may consider
doing so in the future. The Compensation Committee reviews these proposals and
makes all final compensation decisions for the executive officers by exercising
its discretion in accepting, modifying or rejecting any management
recommendations.
The Board
of Directors created a compensation committee in January 2007. The
current members of the compensation committee are John Connaughton, Steven
Barnes and Barry Karlin.
Our
Compensation Philosophy
Compensation
decisions are designed to promote our fundamental business objectives and
strategy and align the interests of management with the interests of our
stakeholders. We believe that compensation should focus management on achieving
strong short-term (annual) performance in a manner that supports and ensures out
long-term success and profitability. We also believe that pay should be directly
linked to performance and that pay should be at competitive levels necessary to
attract and retain exceptional leadership talent. This philosophy has guided
many compensation related decisions:
•
A
substantial portion of executive officer compensation is contingent on
achievement of objective corporate, division and individual performance
objectives.
•
Our
annual incentive bonus program and equity incentive bonus program
emphasize performance-based compensation that promotes the achievement of
short-term and long-term business objectives which are aligned with our
long term strategic plan.
•
Total
compensation is higher for individuals with greater responsibility and
greater ability to influence our achievement of targeted results and
strategy; further, as position and responsibility increases, a greater
portion of the executive officer’s total compensation is performance based
pay and equity based pay, making a significant portion of their total
compensation dependent on the achievement of performance
objectives.
Components
of Executive Compensation Plan
In 2008,
the principal elements of annual compensation for our named executive officers
consisted of base salary and performance based incentive bonuses, long term
equity incentive compensation and benefits.
Base Salary
. Base pay is a
critical element of executive compensation because it provides executives with a
base level of monthly income. In determining base salaries, we consider the
executive’s qualification and experience, scope of responsibilities and future
potential, the goals and objectives established for the executive, the
executive’s past performance and competitive salary practices. Further, for our
most senior executives, we establish base salaries at a level so that a
significant portion of the total compensation that such executives can earn is
performance based pay. Dr. Barry Karlin’s base salary was determined in his
employment agreement which was negotiated at the time of the Bain Merger and is
reviewed annually by the Compensation Committee. For all of our other named
executive officers, base salary increases are at the discretion of the
Compensation Committee. Base salary is reviewed annually at the beginning of the
year and any increases are based on our overall performance and the executive’s
individual performance during the preceding year. At its February 2009 meeting,
the Compensation Committee reviewed recommendations for salary adjustments for
all executive officers and determined that because of the economic environment
and need to reduce operating expense that base salaries for our named executives
would not increase in 2009.
2008 Incentive Bonus Plan
.
Our 2008 Incentive Bonus Plan is designed to reward our employees for the
achievement of 2008 EBITDA goals related to the business. EBITDA represents
actual earnings before interest, taxes, depreciation and amortization and
certain other adjustments as agreed upon with Bain Capital. The bonus payment
for our Chief Executive Officer is governed by his employment agreement and is
wholly dependent on the achievement of certain EBITDA targets. Pursuant to his
employment agreement, our target annual incentive bonus for our Chief Executive
Officer is 100% of his base salary in the event that our actual EBITDA is 100%
of our budgeted EBITDA; he may earn an annual incentive bonus of up to a maximum
150% of his base salary in the event that our actual EBITDA is 110% of our
budgeted EBITDA but also may earn nothing in the event that financial milestones
are not achieved. The bonus plan for Kevin Hogge, Philip Herschman, Jerome
Rhodes and James Hudak is based on our overall achievement of our EBITDA targets
(target bonus assumes our actual EBITDA is 100% of budgeted EBITDA and the
maximum bonus assumes that our actual EBITDA is 110% or greater than budgeted
EBITDA) and individual contributions. These officers have a target annual
incentive bonus of 50% of base salary; they may earn a maximum annual incentive
bonus of up to 75% of base salary but may also earn nothing in the event our
financial milestones are not achieved. The bonus is paid after completion of our
annual audit and the officer must be an employee at such time to receive a bonus
payment.
72
If our
actual EBITDA is less than 90% of our budgeted EBITDA, then the bonus pool is
zero provided that the Compensation Committee may authorize bonuses in their
sole discretion. In the event that our actual EBITDA for the year is less than
100% of our budgeted EBITDA but greater than 90% then the bonus pool will be
prorated and all bonus payment amounts are in the discretion of the Compensation
Committee. Consistent with our focus on pay for performance, additional amounts
can be earned when actual EBITDA exceeds our budgeted EBITDA. Actual EBITDA was
less than 90% of budgeted EBITDA and, accordingly, bonus amounts were in the
discretion of the Compensation Committee. The Compensation Committee determined
that discretionary bonuses would be provided to reward and provide future
motivation for employees who had achieved or partially achieved their goals and
for individual performance. The Compensation Committee approved an aggregate
year end bonus pool of $1,150,000 (excluding special retention bonuses, sales
commissions etc.) to be allocated and distributed based on performance by the
CEO.
Equity Based Compensation
. We
believe that equity compensation is a critical tool in aligning the interests of
our stockholders and executive officers in building share value and in retaining
key executives. We have designed an equity plan that promotes the achievement of
both short-term and long-term business objectives which are aligned with our
strategic plan. We have elected to use stock options as the equity compensation
vehicle.
Upon
consummation of the Bain Merger, our parent company established the 2006
Executive Incentive Plan and the 2006 Management Incentive Plan. Options issued
pursuant to the 2006 Executive Incentive Plan vest based, in part, on the
passage of time and in part on the achievement of performance objectives. At the
time of the Bain Merger, state securities laws restricted our use of performance
based option plans. As a result, our parent company adopted the 2006 Management
Incentive Plan pursuant to which options vest over a five year period. In 2007,
the state securities laws were amended to allow for broader use of performance
based plans. Our parent company established the 2007 Incentive Plan in September
2007. This plan is identical to our 2006 Executive Incentive Plan. These plans
provide for the granting of either incentive stock options or nonincentive stock
options to our key employees, directors, consultants and advisors. In
determining the number of options to be granted to employees, we take into
account the individual’s position, scope of responsibility, ability to affect
profits and shareholder value and the individual’s historic and recent
performance and the value of the stock options in relation to other elements of
total compensation. All of our executive officers and generally any employee
with profit and loss responsibility received options under the 2006 Executive
Incentive Plan. All current options are granted under the 2007 Incentive Plan.
Each option is an option to purchase a unit which consists of nine shares of
Class A Stock and one share of Class L Stock. The options are exercisable
only for whole units and cannot be separately exercised for the individual
classes of stock. The grant date of the stock options is always the date of
approval of the grants.
All stock
options under our plans have the following features: the term of grant does not
exceed 10 years, the grant price is not less than the fair market value on the
date of grant, repricing of options is prohibited, unless approved by the
shareholders, vesting is generally over a five year period and options
generally will remain exercisable for three months following the participant’s
termination of service other than for cause, except that if service terminates
as a result of the participant’s death or disability, the option generally will
remain exercisable for twelve months, but in any event not beyond the expiration
of its term. In general, options granted under the Executive Plan and 2007
Incentive Plan vest and become exercisable at the rate of 10% on the one year
anniversary of the date of grant and 5% on each six-month anniversary thereafter
until 50% of the options granted are vested. An additional 25% shall vest upon
our stock price reaching a certain level during a sale event or at certain times
after an initial public offering. An additional 25% shall vest over a five year
time horizon upon our EBITDA reaching certain levels or in the event that our
stock price reaches a certain level during a sale event or at certain times
after an initial public offering. In general, options granted under the
Management Plan vest and become exercisable at the rate of 20% on the one year
anniversary of the date of grant and 10% on each six-month anniversary
thereafter until 100% of the options granted are vested.
Our
parent company does not have a formal policy requiring stock ownership by
management. However, our senior executives, including our named executive
officers, have committed significant personal capital to CRC. In connection with
the closing of the Bain Merger and the acquisition of Aspen Education Group, and
pursuant to a rollover and subscription agreement, certain members of our
management, including all of the named executive officers, converted options to
purchase stock of our predecessor company into options to purchase stock of
Holdings with an aggregate value of approximately $9.9 million.
Other Compensation
Information
. We provide employees, including our named executive
officers, with a variety of other benefits, including medical, dental and vision
plans, life insurance and holidays and vacation. These benefits are generally
provided to employees on a company-wide basis. We do not offer any retirement
plans to our directors or executive officers, other than the 401(k) plan
generally available to employees. In accordance with the terms of the our 401(k)
plan, in 2008 we matched, in cash, 25% of amounts contributed to that plan by
each plan participant, up to 6% of eligible pay. The matching contribution made
by us is subject to vesting, based on continued employment, with 25% scheduled
to vest on each of the four anniversaries of the employee’s date of
hire.
In
connection with the Aspen Acquisition, we acquired a non-qualified Insured
Security Option Plan (the “ISOP”) which was available to certain key employees
of Aspen Education Group, our youth division. This plan was available to
Mr. Elliot Sainer and Mr. James Dredge. The ISOP permits these
employees to defer on an after-tax basis a portion of their salary or bonus each
calendar year. Under the ISOP, we could make discretionary contributions to
these employee accounts, up to $6,000 per employee. Additionally, we may also
make additional discretionary contributions to these employee accounts to
simulate the pre-tax benefits of our 401(k) plan. We discontinued these
discretionary contributions for employee contributions made after the 2007 plan
year.
Accounting
and Tax Implications
The
accounting and tax treatment of particular forms of compensation do not
materially affect the Compensation Committee’s compensation decisions. However,
we evaluate the effect of such accounting and tax treatment on an ongoing basis
and will make appropriate modifications to compensation policies where
appropriate.
Compensation
Committee Report
The
following report of the Compensation Committee is included in accordance with
the rules and regulations of the Securities and Exchange Commission. It is not
incorporated by reference into any of our registration statements under the
Securities Act of 1933, as amended.
Compensation
Committee Report
The
Committee has reviewed and discussed the Compensation Discussion and Analysis
(CD&A) with management. Based upon the review and discussions, the Committee
recommended to the Board of Directors, and the Board approved, that the CD&A
be included in the Form 10-K for the year ended December 31, 2008.
Respectfully
submitted on March 27, 2009 by the members of the Compensation
Committee of the Board of Directors:
Dr. Barry
Karlin
John
Connaughton
Steven
Barnes
73
Summary
Compensation Table
The
following table summarizes the compensation paid to our Chief Executive Officer,
Chief Financial Officer and our three other most highly compensated executive
officers, whom we refer to as our “named executive officers,” for the years
ended December 31, 2008, December 31, 2007 and December 31,
2006.
Change
in
Pension
Value
and
Nonqualified
Option
Non-equity
Deferred
All
other
Salary
Bonus
Stock
Awards
Incentive
Plan
Compensation
Compensation
Total
Name and
Principal
Position
Year
($)
($)
(2)
Awards
($)
(3)
Compensation
Earnings
($)
($)
Dr. Barry W.
Karlin
2008
616,515
—
—
—
—
—
39,077
(10)
655,592
Chairman
and Chief Executive Officer
2007
595,346
—
—
—
175,000
(5)
—
38,580
(6)
808,926
2006
549,038
(1)
1,400,000
—
9,320,563
430,446
(4)
—
29,818
(7)
11,729,865
James
Hudak
2008
124,097
—
—
1,071,400
—
—
3,796
(11)
1,199,293
Chief
Administrative Office
2007
—
—
—
—
—
—
—
—
2006
—
—
—
—
—
—
—
—
Philip
L. Herschman
2008
294,855
—
—
—
—
—
2,852
(13)
297,707
President,
Healthy Living Division
2007
284,730
—
—
—
55,591
(5)
—
2,500
(8)
342,821
2006
270,961
(1)
450,000
—
2,342,409
73,431
(4)
—
2,752
(8)
3,139,554
Jerome
E. Rhodes
2008
294,855
—
—
—
27,000
(12)
—
13,308
(9)
335,163
President,
Recovery Division
2007
284,730
—
—
—
60,591
(5)
—
13,118
(9)
358,440
2006
270,961
(1)
450,000
—
2,342,409
120,849
(4)
—
13,150
(9)
3,202,152
Kevin
Hogge
2008
294,855
—
—
—
—
—
9,004
(14)
303,859
Chief
Financial Officer, Vice President and Treasurer
2007
284,730
—
—
—
55,591
(5)
—
2,500
(8)
342,821
2006
270,961
(1)
300,000
—
2,342,409
103,372
(4)
—
1,822
(8)
3,202,152
(1)
Salaries
reflect amounts earned in 2006. Salaries were negotiated at the time of
the Bain Merger and were effective as of February 6, 2006. The
salaries for our named executive officers are: (1) Dr. Barry
Karlin—$575,000, (ii) Philip Herschman—$275,000, (iv) Jerome
Rhodes—$275,000, and Kevin
Hogge—$275,000.
(2)
Amounts
listed under this column reflect one time performance bonuses made in
connection with the Bain Merger.
(3)
The
amounts included in this column reflect the compensation costs associated
with stock option awards recognized as expense in our financial statements
in accordance with SFAS 123(R). These costs relate to option awards
granted in February 2006 under the 2006 Executive Incentive Plan. Under
SFAS 123(R), the full grant date fair value of the February 2006 option
awards is recognized over a five year period. For a discussion of the
assumptions made in the valuation, please see Note 12 to our Consolidated
Financial Statements.
(4)
2006
annual incentive bonus plan which was paid in April 2007 upon completion
of our 2006 audit. Bonuses paid pursuant to the 2006 Incentive Bonus Plan
are accrued in the year earned and paid in the following
year.
(5)
2007
annual incentive bonus paid in March 2007. Bonuses paid pursuant to the
2007 Incentive Bonus Plan are accrued in the year earned and paid in the
following year.
(6)
Represents
$12,650 for premium costs on a life insurance policy for which the
beneficiaries are his family, $22,680 in medical, dental and vision
contributions, and $3,250 in company contributions pursuant to our 401(k)
Plan for 2007.
(7)
Represents
$12,500 for premium costs on a life insurance policy for which the
beneficiaries are his family, $14,123 in medical, dental and vision
contributions, and $3,195 in company contributions pursuant to our 401(k)
Plan for 2006.
(8)
Represents
company contributions pursuant to our 401(k)
Plan.
(9)
Represents
$10,400 in car allowance during 2008, 2007, and 2006. In addition,
represents $2,836, $2,718, and $2,750 in company contributions pursuant to
our 401(k) Plan for 2008, 2007, and 2006
respectively.
(10)
Represents
$12,000 for premium costs on a life insurance policy for which the
beneficiaries are his family, $23,630 in medical, dental and vision
contributions, and $3,375 in company contributions pursuant to our 401(k)
Plan for 2008.
(11)
Represents
$3,796 in medical, dental and vision
contributions.
(12)
2008
annual incentive bonus paid in March 2008. Bonuses paid pursuant to the
2008 Incentive Bonus Plan are accrued in the year earned and paid in the
following year.
(13)
Represents
$2,779 in company contributions pursuant to our 401(k) Plan for
2008.
(14)
Represents
$5,345 in medical, dental and vision contributions and $3,586 in company
contributions pursuant to our 401(k) Plan for
2008.
74
Grants
of Plan-Based Awards in 2008
The
following table contains information concerning grants of plan-based awards to
our named executive officers during 2008:
Estimated Possible Payouts Under
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
(1)
Equity
Incentive Plan Awards
(2)
All Other
Stock Awards:
All
Other Option Awards:
Number
of Shares
Number of
Securities
Exercise
or Base
Grant
Date Fair Value
Grant
Threshold
Target
Maximum
Threshold
Target
Maximum
of
Stock or Units
Underlying
Options
Price of
Option Awards
of
Stock and Option Awards
Name
Date
(2)
($)
($)
($)
(#)
(#)
(#)
(#)
(#)
($/Sh)
($)
Dr. Barry
Karlin
1/1/08
0
618,930
928,935
—
—
—
—
—
—
—
Philip
Herschman
1/1/08
0
147,428
221,141
—
—
—
—
—
—
—
Jerome
Rhodes
1/1/08
0
147,428
221,141
—
—
—
—
—
—
—
Kevin
Hogge
1/1/08
0
147,428
221,141
—
—
—
—
—
—
—
James
Hudak
1/1/08
0
147,428
221,141
—
—
—
—
—
—
—
NOTES TO
TABLE:
(1)
Amounts
reflect cash awards pursuant to our 2008 Incentive Bonus Plan to which our
named executive officers are eligible. Pursuant to our 2008
Incentive Bonus Plan, the amounts are based on the achievement of the
EBITDA targets for the period January 1, 2008 through December 31,
2008. The Target amount equals 100% of achievement of the target and the
Maximum amount assumes that our actual EBITDA exceeded 110% of budgeted
EBITDA. The threshold amount equals 90% of achievement of the target;
provided however, that they Compensation Committee, in their discretion,
may award bonuses if there is 90% or less achievement of the targets. For
the year ended December 31, 2008 Actual EBITDA was less than 90% of
budgeted EBITDA and, accordingly, bonus amounts were in the discretion of
the Compensation Committee. See the Summary Compensation Table for bonuses
received by our named executive
officers
(2)
The
grant date provided is the date that the plan year began for the 2008
Incentive Bonus Plan.
The
material terms of our stock option awards, 2008 Incentive Bonus Plan and our
employment agreement with Dr. Barry Karlin are described in Compensation
Discussion and Analysis.
75
Outstanding
Equity Awards at Fiscal Year-End 2008
The
following table sets forth certain information with respect to the value of all
unexercised options and unvested stock awards previously awarded to our named
executive officers as of December 31, 2008.
Option
Awards
(1)
Stock
Awards
Equity
Equity Incentive
Incentive Plan
Equity Incentive
Plan Awards:
Market
Awards:
Plan Awards:
Number of
Number
Value of
Number
of
Market or Payout
Number
of
Number of
Securities
of Shares
Shares
or
Unearned
Value of unearned
Securities
Securities
Underlying
or Units
Units
Shares, Units
Shares, Units or
Underlying
Underlying
Unexercised
Option
of Stock
of Stock
or Other Rights
Other
Rights
Unexercised
Unexercised
Unearned
Exercise
Option
That Have
That Have
That Have
That Have Not
Options
Options
Options
Price
Expiration
Not Vested
Not Vested
Not
Vested
Vested
Name
Exercisable(#)
Unexercisable(#)
(#)
($)
Date
(#)
($)
(#)
($)
Dr. Barry Karlin
48,231
(2)(3)
120,941
(2)
—
90.00
2/6/16
—
—
—
—
61,554
(4)
—
—
8.77
12/14/14
—
—
—
—
Philip Herschman
12,121
(2)(3)
30,393
(2)
—
90.00
2/6/16
—
—
—
—
11,079
(4)
—
—
8.77
12/14/14
—
—
—
—
Jerome Rhodes
12,121
(2)(3)
30,393
(2)
—
90.00
2/6/16
—
—
—
—
11,079
(4)
—
—
8.77
12/14/14
—
—
—
—
Kevin
Hogge
12,121
(2)(3)
30,393
(2)
—
90.00
2/6/16
—
—
—
—
11,079
(4)
—
—
8.77
12/14/14
—
—
—
—
James
Hudak
—
20,000
—
112.287
09/11/17
—
—
—
—
NOTES TO
TABLE:
(1)
All
information in this table relates to nonqualified stock options. We have
not granted any incentive stock options or stock appreciation rights. Each
option is an option to purchase one Unit consisting of 9 shares of
Class A Common Stock and one share of Class L Common
Stock.
(2)
Option
issued pursuant to the 2006 Executive Incentive Plan. The exercisable
options include all options that have vested. All unexercisable options
have not yet vested. Pursuant to such plan, options vest as follows:
(i) 50% of the option (the Tranche 1 Options) is time based and vests
over five years with 20% vesting on February 6, 2007, one year from
the date of grant, and 10% of the remaining balance vesting every 6 months
thereafter, (ii) 25% of the option is performance based and vests
based on the attainment of a certain value of the Company (the Tranche 2
Options), as discussed in the Compensation Discussion and Analysis and
(iii) the remaining 25% (the Tranche 3 Options) of the option is
performance based and vests on the attainment of certain annual goals for
the Company during the 5 year period beginning January 1, 2006, as
discussed in the Compensation Discussion and
Analysis.
(3)
Vested
options represents 50% of the Tranche 1 Options vesting based on time and
14.04% of the Tranche 3 Options vesting based on achievement of EBITDA
milestones.
(4)
Rollover
options are fully vested. To the extent that outstanding options were not
cancelled in the Bain Merger, such options converted into fully vested
options to purchase equity units in our parent company. Each rollover
option is an option to purchase one Unit consisting of 9 shares of
Class A Common Stock and 1 share of Class L Common
Stock.
Option
Exercises and Stock Vested in 2008
The
following table sets forth information about stock options exercised by the
named executives in fiscal year 2008 and stock awards that vested or were paid
in fiscal year 2008 to the named executives.
Option
Awards
Stock
Awards
Number of Shares
Value Realized
Number of Shares
Value Realized
Acquired on Exercise
on Exercise
Acquired on Vesting
on Vesting
Name
(#)
($)
(#)
($)
Dr. Barry
Karlin
—
—
—
—
Philip
Herschman
—
—
—
—
Jerome
Rhodes
—
—
—
—
Kevin
Hogge
—
—
—
—
James
Hudak
—
—
—
—
Pension
Benefits
None of
the Named Executive Officers receive nonqualified deferred compensation
benefits.
Potential
Payments Upon Termination or a Change in Control
Employment
Agreement
Pursuant
to our employment agreement with Dr. Karlin, in the event of
Dr. Karlin’s termination without cause or his resignation for good reason
(both defined in his employment agreement), we must pay Dr. Karlin a lump
sum equal to his base salary for a period of 36 months and provided further that
if Dr. Karlin signs a general release of all claims, we shall also pay to
Dr. Karlin for a period of 18 months all premiums due for COBRA premiums
for Dr. Karlin and his insured dependents, all premiums relating to our
group disability plan and all premiums relating to his life insurance policy, an
aggregate amount of approximately $1.912 million calculated as of December 31,
2008. In the event of a termination due to death, disability or cause or if
Dr. Karlin resigns without good reason, we must pay Dr. Karlin any
base salary earned but not paid through the date of termination, any vacation
time accrued but not used through the date of termination, any bonus
compensation earned but unpaid on the date of termination and any business
expenses incurred but un-reimbursed on the date of termination.
We have
no employment agreements with Kevin Hogge, James Hudak, Philip Herschman or
Jerome Rhodes.
76
2008
Incentive Bonus Plan
An
employee is only eligible to receive a bonus pursuant to the 2008 Annual
Incentive Bonus plan if such employee is an employee of CRC or a subsidiary of
CRC at the time of completion of our annual audit (typically in early
April).
Stock
Options
In
general, option grants under the Executive Plan and 2007 Incentive Plan
stipulate that in the event of a change in control of our parent company in
which Bain Capital achieves liquidity, up to 100% of the options will vest;
provided however, that options that did not vest in years prior to the change of
control because of the failure to attain the EBITDA targets do not vest upon the
change of control unless the stock price reaches $360 per unit in a change of
control transaction. In general, option grants under the Management Plan
stipulate that in the event of a change in control of our parent company in
which Bain Capital achieves liquidity, up to 100% of the options will vest. In
the event of a change of control in which Bain Capital does not achieve
liquidation, options issued to our executive officers will fully vest in the
event that there is a termination or constructive termination of employment of
the executive within 12 months after the change in control.
The
successor entity may assume or continue in effect options outstanding under the
Executive Plan or Management Plan or substitute substantially equivalent options
for the successor’s stock. Any options which are not assumed or continued in
connection with a change in control or exercised prior to the change in control
will terminate effective as of the time of the change in control. The Executive
Plan and Management Plan also authorize the administrator to treat as satisfied
any vesting condition in the event of a change of control.
Restrictions
Upon Termination or a Change of Control
During
the course of employment and for a period of 18 months following the end of
employment, Dr. Karlin may not participate in any other chemical or alcohol
dependency business or any behavioral health business in a field in which we
have plans to become engaged. For the same period, Dr. Karlin may also not
solicit any of our employees, customers, referral sources or
suppliers.
Director
Compensation
None of
our directors except General Barry McCaffrey and Elliot Sainer receive
compensation for serving as a director. The members of our board of directors
are not separately compensated for their services as directors, other than
reimbursement for out-of-pocket expenses incurred in connection with rendering
such services.
Effective
September 30, 2007, Elliot Sainer retired as President of our youth
division. As a result of Mr. Sainer’s retirement, the employment provisions
of the employment agreement between the Company and Elliot Sainer terminated as
of September 30, 2007. Mr. Sainer will receive $0.7 million in payment
to be paid over the 18 month period following his termination as defined in his
employment agreement. Of the 166,284 options for Class A common shares and
18,476 options for Class L common shares held by Mr. Sainer during his
employment, 116,399 options for Class A common shares and 12,933 options
for Class L common shares were cancelled, which had an aggregate weighted
average fair value of $769,525. Mr. Sainer will continue to serve as a
member of the Board of Directors of the Company. Additionally, as of the
effective date of his retirement, the Company retained Mr. Sainer in the
capacity as a consultant. The following table contains compensation
received by General Barry McCaffrey and Elliot Sainer during the year ended
December 31, 2008 for serving as a director of, and providing consulting
services to, CRC and Holdings.
Change in
Pension
Value
and Nonqualified
Non-Equity
Deferred
Fees Earned or
Stock
Incentive
Plan
Compensation
All
Other
Paid in Cash
Awards
Option Awards
Compensation
Earnings
Compensation
Total
Name
($)
($)
($)
($)
($)
($)
($)
General Barry McCaffrey
120,000
—
—
—
—
—
120,000
Elliot
Sainer
60,000
—
—
—
—
467,244
60,000
NOTES TO
TABLE:
(1)
General
McCaffrey receives a salary of $10,000 per month for consulting services
rendered to us. He does not receive cash payments for attendance at board
meetings.
(2)
Following
his retirement as President of our youth division, Elliot Sainer received
a consulting fee of $5,000 per month for consulting services rendered to
us. Items under “All Other Compensation” consist of payments made to Mr.
Sainer in 2008 pursuant to his Employment Agreement as well as $12,791 in
life and disability insurance benefits. He does not receive cash payments
for attendance at board meetings.
Compensation
Committee Interlocks and Insider Participation
Our
Compensation Committee is currently comprised of Messrs. Connaughton, Barnes and
Karlin. Dr. Barry Karlin is the chief executive officer of CRC and the
Group. Messrs. Connaughton and Barnes have not been at any time an officer or
employee of CRC or an affiliate of CRC. During 2008, we had no compensation
committee “interlocks”—meaning that it was not the case that an executive
officer of ours served as a director or member of the compensation committee of
another entity and an executive officer of the other entity served as a director
or member of our Compensation Committee.
All of
our outstanding common stock is held by our parent company. Our parent company’s
outstanding capital stock consists of Class A common shares and Class L
common shares.
The table
below sets forth, as of March 1, 2008, the number and percentage of shares
of our parent company’s common stock beneficially owned by (i) each person
known by us to beneficially own more than 5% of the outstanding shares of common
stock of our parent company, (ii) each of our directors, (iii) each of
our named executive officers and (iv) all our directors and executive
officers as a group.
Notwithstanding
the beneficial ownership of common stock presented below, our stockholders
agreement governs the stockholders exercise of their voting rights with respect
to election of directors and certain other material events. The parties to our
stockholders agreement have agreed to vote their shares to elect the board of
directors as set forth therein. In addition, our stockholders agreement governs
certain stockholders’ exercise of voting rights with respect to effecting a
change of control transaction. See “Certain Relationships and Related Party
Transactions.”
The
amounts and percentages of shares beneficially owned are reported on the basis
of SEC regulations governing the determination of beneficial ownership of
securities. Under SEC rules, a person is deemed to be a “beneficial owner” of a
security if that person has or shares voting power or investment power, which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days. Securities
that can be so acquired are deemed to be outstanding for purposes of computing
such person’s ownership percentage, but not for purposes of computing any other
person’s percentage. Under these rules, more than one person may be deemed to be
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic
interest.
78
Except as
described in the agreements mentioned above or as otherwise indicated in a
footnote, each of the beneficial owners listed has, to our knowledge, sole
voting and investment power with respect to the indicated shares of common
stock. Unless otherwise indicated in a footnote, the address for each individual
listed below is c/o CRC Health Corporation, 20400 Stevens Creek Boulevard, Suite
600, Cupertino, California 95014.
Shares
of
Percent of
Shares
of
Percent of
Class A
Class A
Class L
Class L
Common
Common
Common
Common
Name
and Address
Stock
Stock
Stock
Stock
Bain Capital Partners VIII, L.P.
and Related Funds
(1)
32,547,498
95.0
%
3,616,388
95.0
%
Dr. Barry W.
Karlin
(2)
1,064,202
2.7
%
118,243
2.7
%
James
Hudak
—
*
—
*
Philip L. Herschman
(3)
227,943
*
25,326
*
Jerome E. Rhodes
(4)
227,943
*
25,326
*
Kevin Hogge
(5)
227,943
*
25,326
*
Barry R. McCaffrey
(6)
4,502
*
500
*
Elliot Sainer
(7)
64,764
*
7,195
*
Steven Barnes
(8)
—
—
—
—
John Connaughton
(8)
—
—
—
—
Chris Gordon
(8)
—
—
—
—
All
directors and executive officers as a group
2,004,485
5.8
%
222,274
5.7
%
*
indicates
less than 1% of common stock
(1)
Represents
shares owned by the following groups of investment funds affiliated with
Bain Capital Partners, LLC: (i) 27,861,389.88 shares of Class A
common stock and 3,095,709.94 shares of Class L common stock owned by Bain
Capital Fund VIII, LLC, a Delaware limited liability company (“BCF VIII”),
whose sole member is Bain Capital Fund VIII, L.P., a Cayman Islands
exempted limited partnership (“BCF VIII Cayman”), whose sole general
partner is Bain Capital Partners VIII, L.P., a Cayman Islands exempted
limited partnership (“BCP VIII”), whose sole general partner is Bain
Capital Investors, LLC, a Delaware limited liability company (“BCI”);
(ii) 3,666,862.04 shares of Class A common stock and 407,429.12
shares of Class L common stock owned by Bain Capital VIII Coinvestment
Fund, LLC, a Delaware limited liability company (“BC VIII Coinvest”),
whose sole member is Bain Capital VIII Coinvestment Fund, L.P., a Cayman
Islands exempted limited partnership (“BC VIII Coinvest Cayman”), whose
sole general partner is BCP VIII; (iii) 10,287.59 shares of
Class A common stock and 1,143.08 shares of Class L common stock
owned by BCIP Associates-G (`BCIP-G”), whose managing partner is BCI;
(iv) 787,645.94 shares of Class A common stock and 69,256.98
shares of Class L common stock owned by BCIP Associates III, LLC, a
Delaware limited liability company (“BCIP IIP”), whose sole member is BCIP
Associates III, a Cayman Islands partnership (“BCIP III Cayman”), whose
managing partner is BCI; (v) 118,584 shares of Class A common
stock and 31,435.32 shares of Class L common stock owned by BCIP T
Associates III, LLC a Delaware limited liability company (“BCIP T III”),
whose sole member is BCIP Trust Associates III, a Cayman Islands
partnership (“BCIP T III Cayman”), whose managing partner is BCI;
(vi) 65,975.32 shares of Class A common stock and 9,482.95
shares of Class L common stock owned by BCIP Associates III-B, LLC, a
Delaware limited liability company (`BCIP III-B”), whose sole member is
BCIP Associates III-B, a Cayman Islands partnership (“BCIP III-B Cayman”),
whose managing partner is BCI and (vii) 36,754 shares of Class A
common stock and 1,931.37 shares of Class L common stock owned by BCIP T
Associates III-B, LLC, a Delaware limited liability company (“BCIP T
III-B” and together with BCF VIII, BC VIII Coinvest, BCIP-G, BCIP III,
BCIP T III and BCIP III-B, the “Bain Funds”), whose sole member is BCIP
Trust Associates III-B, a Cayman Islands partnership (“BCIP T III-B
Cayman”), whose sole general partner is
BCI.
BCF VIII
Cayman, BCP VIII and BCI, by virtue of the relationships described above, may be
deemed to beneficially own the shares held by BCF VIII. BCF VIII Cayman, BCP
VIII and BCI disclaim beneficial ownership of such shares except to the extent
of their pecuniary interest therein.
BCF VIII
Coinvest Cayman, BCP VIII and BCI, by virtue of the relationships described
above, may be deemed to beneficially own the shares held by BCP VIII Coinvest.
BCF VIII Coinvest Cayman, BCP VIII and BCI disclaim beneficial ownership of such
shares except to the extent of their pecuniary interest therein.
BCI, by
virtue of the relationships described above, may be deemed to beneficially own
the shares held by BCIP-G. BCI disclaims beneficial ownership of such shares
except to the extent of their pecuniary interest therein.
BCIP III
Cayman and BCI, by virtue of the relationships described above, may be deemed to
beneficially own the shares held by BCIP III. BCIP III Cayman and BCI disclaim
beneficial ownership of such shares except to the extent of their pecuniary
interest therein.
BCIP T III
Cayman and BCI, by virtue of the relationships described above, may be deemed to
beneficially own the shares held by BCIP T III. BCIP T III Cayman and BCI
disclaim
beneficial
ownership of such shares except to the extent of their pecuniary interest
therein.
BCIP III-B
Cayman and BCI, by virtue of the relationships described above, may be deemed to
beneficially own the shares held by BCIP III-B. BCIP III-B Cayman and BCI
disclaim
beneficial
ownership of such shares except to the extent of their pecuniary interest
therein.
BCIP T
III-B Cayman and BCI, by virtue of the relationships described above, may be
deemed to beneficially own the shares held by BCIP T III-B. BCIP T II1-B Cayman
and BCI disclaim beneficial ownership of such shares except to the extent of
their pecuniary interest therein.
(2)
Represents
options to purchase 118,243 Units consisting of 1,064,202 shares of
Class A common stock issuable pursuant to options exercisable within
60 days and 118,243 shares of Class L common stock issuable pursuant to
options exercisable within 60 days.
(3)
Represents
options to purchase 25,326 Units consisting of 227,943 shares of
Class A common stock issuable pursuant to options exercisable within
60 days and 25,326 shares of Class L common stock issuable pursuant to
options exercisable within 60 days.
(4)
Represents
options to purchase 25,326 Units consisting of 227,943 shares of
Class A common stock issuable pursuant to options exercisable within
60 days and 25,326 shares of Class L common stock issuable pursuant to
options exercisable within 60 days.
(5)
Represents
options to purchase 25,326 Units consisting of 227,943 shares of
Class A common stock issuable pursuant to options exercisable within
60 days and 25,326 shares of Class L common stock issuable pursuant to
options exercisable within 60 days.
79
(6)
Represents
options to purchase 500 Units consisting of 4,502 shares of Class A
common stock issuable pursuant to options exercisable within 60 days and
500 shares of Class L common stock issuable pursuant to options
exercisable within 60 days.
(7)
Represents
options to purchase 7,195 Units consisting of 64,764 shares of
Class A common stock issuable pursuant to options exercisable within
60 days and 7,195 shares of Class L common stock issuable pursuant to
options exercisable within 60 days.
(8)
Mr. Barnes,
Mr. Connaughton and Mr. Gordon are each a managing director of
Bain Capital Partners, LLC. They disclaim any beneficial ownership of any
shares beneficially owned by any entity affiliated with Bain Capital
Partners, LLC in which they do not have a pecuniary interest.
Mr. Barnes, Mr. Connaughton and Mr. Gordon each have an
address c/o Bain Capital Partners, LLC, 111 Huntington Avenue, Boston,
Massachusetts 02199.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table summarizes the securities authorized for issuance as of December
31, 2007 under our 2006 Executive Incentive Plan, our 2006 Management Incentive
Plan, and our 2007 Incentive Plan, the number of shares of our Class A
common stock and Class L common stock issuable upon the exercise of outstanding
options, the weighted average exercise price of such options and the number of
additional shares of our common stock still authorized for issuance under such
plans. Each of the 2006 Executive Incentive Plan, our 2006 Management Incentive
Plan and our 2007 Incentive Plan have been approved by our
shareholders.
(a)
(b)
(c)
Plan
Category
Number of securities
to be
issued
upon exercise of
outstanding
options,
warrants and
rights
Weighted-average
exercise price
of outstanding
options,
warrants and rights
Number of securities remaining
available for future
issuance
under
equity compensation
plans
(excluding securities
reflected in
column (a))
Class A
common
stock
Class L
common
stock
Class A
common
stock
Class
L
common
stock
Class A
common
stock
Class
L
common
stock
2006
Executive Incentive Plan
5,416,016
(1)
601,778
(1)
$
0.88
$
66.71
(2)
(2)
2006
Management Incentive Plan
481,874
53,541
$
1.22
$
83.67
(2)
(2)
2007
Incentive Plan
681,891
75,770
$
1.58
$
88.10
(2)
(2)
Equity
compensation plans not approved by security holders
—
—
—
—
—
—
(1)
This
amount consists of 1,090,518 shares of Class A common stock and
121,168 shares of Class L common stock that were issued in connection with
rolled over options at the time of the Bain Merger and Aspen Acquisition.
It also includes 4,325,498 shares of Class A common stock and 480,610
shares of Class L common stock issued pursuant to the 2006 Executive
Incentive Plan.
(2)
The
number of securities remaining available for future issuance under either
the 2007 Incentive Plan, 2006 Executive Incentive Plan or the 2006
Management Incentive Plan is an aggregate of 244,790 shares of
Class A common stock and 27,196 shares of Class L common
stock.
Pursuant
to our Code, all employees and directors (including our named executive
officers) who have, or whose immediate family members have, any financial
interests in other entities where such involvement is or may appear to cause a
conflict of interest situation are required to report to us the conflict. If the
conflict involves a director or executive officer or is considered material, the
situation will be reviewed by the Audit Committee. The Audit Committee will
determine whether a conflict exists or will exist, and if so, what action should
be taken to resolve the conflict or potential conflict.
Arrangements
with Our Investors
On
February 6, 2006, investment funds managed by Bain Capital Partners, LLC
and certain members of our management entered into a stockholders agreement
related to the purchase of shares of capital stock of Holdings. The stockholders
agreement contains agreements among the parties with respect to the election of
our directors and the directors of our direct parent company, restrictions on
the issuance or transfer of shares, including tag-along rights and drag-along
rights, other special corporate governance provisions (including the right to
approve various corporate actions), registration rights (including customary
indemnification provisions) and call options. Three of our directors, Steven
Barnes, John Connaughton and Chris Gordon hold the position of managing director
or principal with Bain Capital Partners, LLC.
Rollover
of Certain Management Equity Interests
In
connection with the closing of the Bain Merger on February 6, 2006, and
pursuant to a rollover and subscription agreement, certain members of our
management converted options to purchase stock of our predecessor company into
options to purchase stock of Holdings with an aggregate value of approximately
$9.1 million. Dr. Barry W. Karlin, Jerome E. Rhodes, Kevin Hogge,
Philip L. Herschman, Kathleen Sylvia, Dr. Thomas J. Brady and Pamela
B. Burke converted options with a value of $5.0 million, $0.9 million, $0.9
million, $0.9 million, $0.5 million, $185,000 and $125,000,
respectively.
In
connection with the closing of the Aspen Acquisition on November 17, 2006
and pursuant to a rollover and subscription agreement, certain employees of
Aspen Education Group, Inc. converted options to purchase stock of Aspen
Education Group, Inc. into options to purchase stock of the Group with an
aggregate value of approximately $1.8 million. Mr. Elliot Sainer converted
options with a value of $0.6 million.
80
Management
Agreement
Upon the
consummation of the Bain Merger, we and our parent companies entered into a
management agreement with an affiliate of Bain Capital Partners, LLC pursuant to
which such entity or its affiliates will provide management services. Pursuant
to such agreement, an affiliate of Bain Capital Partners, LLC will receive an
aggregate annual management fee of $2.0 million, and reimbursement for
out-of-pocket expenses incurred in connection with the Transactions prior to the
closing of the Transactions and in connection with the provision of services
pursuant to the agreement. In addition, pursuant to such agreement, an affiliate
of Bain Capital Partners, LLC also received aggregate transaction fees of
approximately $7.2 million in connection with services provided by such entity
related to the Transactions. The management agreement has a five year, evergreen
term, however, in certain circumstances, such as an initial public offering or
change of control of Holdings, we may terminate the management agreement and buy
out our remaining obligations under the agreement to Bain Capital Partners, LLC
and its affiliates. In addition, the management agreement provides that an
affiliate of Bain Capital Partners, LLC may receive fees in connection with
certain subsequent financing and acquisition transactions. In connection with
the Aspen Acquisition and the related amending and restating of our then
existing senior secured credit facility, an affiliate of Bain Capital Partners,
LLC received aggregate transaction fees of $3,200,000. The management agreement
includes customary indemnification provisions in favor of Bain Capital Partners,
LLC and its affiliates.
Director
Independence
CRC is a
privately held corporation. None of our directors meet the standards for
“independent directors” of a national stock exchange.
For the
fiscal years ended December 31, 2008 and December 31, 2007,
Deloitte & Touche LLP, and its affiliates, the Company’s independent
registered public accounting firm and principal accountant, billed the fees set
forth below (in thousands).
Year
Ended
Year
Ended
December 31,
December 31,
2008
2007
Audit Fees
(1)
$
1,577
$
2,146
Audit-Related Fees
(2)
—
30
Tax Fees
(3)
—
—
All Other Fees
(4)
—
—
Total
Fees
$
1,577
$
2,176
(1)
Audit
Fees billed in the fiscal years ended December 31, 2008 and 2007
represented fees for the following services: the audit of the Company’s
annual financial statements, reviews of the Company’s quarterly financial
statements, and other services normally provided in connection with
statutory and regulatory filings. The 2007 amounts have been revised from
amounts previously reported.
(2)
Audit-Related
Fees billed in the fiscal years ended December 31, 2007 represented fees
for the following services: due diligence related to mergers and
acquisitions and financial accounting and reporting
consultations.
(3)
The
Company did not incur any Tax Fees for the years ended December 31, 2008
and 2007 with its principal independent registered accounting
firm.
(4)
The
Company did not incur any “All Other Fees” in the fiscal years ended
December 31, 2008 and 2007 with its principal independent registered
accounting firm.
The audit
committee was formed in May 2006. All audit and non-audit services performed
after such date have been pre-approved by the audit committee.
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