<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
/ / Definitive Proxy Statement Commission Only (as Permitted by
/ / Definitive Additional Materials Rule 14a-6(e)(2)
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
COMPREHENSIVE CARE CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
COMPREHENSIVE CARE CORPORATION
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
7 1/2% Convertible Subordinated Debentures Due April 15, 2010
-----------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
$9,538,000 in original principal amount
-----------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
-----------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
$9,538,000 in original principal amount
-----------------------------------------------------------------------
Set forth the amount on which the filing fee is calculated and state how
it was determined: Estimated solely for the purpose of calculating the
filing fee, pursuant to Rule 0-11(a)(4) and 0-11(b)(2), for this filing
herein equal to one-fiftieth (1/50th) of one percent of one-third of the
value of the maximum amount of Debentures to be acquired by the Issuer
(the "Transaction Value") based on the average of the bid and asked
prices of the Debentures as reported by some of the market makers in the
Debentures as of a trading date within the five trading days prior to the
date of this filing by the Issuer, or the book value of the Debentures in
the event there is no such market value known or reasonably available.
The $9,538,000 maximum original principal amount of Debentures to be
exchanged represents $9,538,000 in value on the Issuer's books. The
Issuer has an accumulated capital deficit, thereby qualifying for a
two-thirds fee discount as such an Issuer, a specifically described
category of financially distressed entity listed in Rule 0-11(a)(4).
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
$6,358.67
-----------------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
SCHEDULE 13E-4; FILE NO. 005-19482
-----------------------------------------------------------------------
3. Filing Party:
COMPREHENSIVE CARE CORPORATION
-----------------------------------------------------------------------
4. Date Filed:
SEPTEMBER 14, 1995
-----------------------------------------------------------------------
<PAGE> 2
COMPREHENSIVE CARE CORPORATION
SOLICITATION OF CONSENT
TO THE SECURITYHOLDERS:
The Board of Directors of Comprehensive Care Corporation (the
"Company") requests your consent in writing, without a meeting, for the
following purposes:
1. Notice to Bank of America National Trust and Savings
Association of a rescission of acceleration of the Company's 7
1/2% Convertible Subordinated Debentures Due April 15, 2010
(the "Securities") as described in the accompanying Proxy
Statement ("Proposal 1").
2. Waiver of any other Events of Default under the Debentures
(other than any principal and interest due otherwise than by
acceleration) and to direct the Trustee not to pursue any
remedy under the Debentures or the Indenture upon anything
less than future directions given by a majority in outstanding
principal amount of Debentures. ("Proposal 2").
Management and the Board of Directors recommend approval to permit and
facilitate the completion of an Exchange Offer.
Only Securityholders of record are entitled to sign a Consent card,
and each record Securityholder is urged to SIGN, DATE and MAIL the enclosed
Consent card as promptly as possible in the postage prepaid envelope enclosed
to Bank of America National Trust and Savings Association, Corporate Trust
Department No. 8510, 333 South Beaudry Avenue, Los Angeles, California 90017,
Attention: Miss Sandy Chan.
By Order of the Board of Directors,
Kerri Ruppert
Secretary
September __, 1995
Newport Beach, California
--------------------------------------------------------------------------------
YOUR CONSENT IS IMPORTANT
TO ENSURE YOUR CONSENT BEING COUNTED, YOU ARE REQUESTED TO COMPLETE, SIGN AND
DATE THE ENCLOSED CONSENT CARD AS PROMPTLY AS POSSIBLE AND MAIL IT IN THE
ENCLOSED ENVELOPE.
--------------------------------------------------------------------------------
1
<PAGE> 3
COMPREHENSIVE CARE CORPORATION
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND CONSENTING
GENERAL
The Board of Directors hereby requests that the holders of 7 1/2%
Convertible Subordinated Debentures Due April 15, 2010 (the "Securities") of
Comprehensive Care Corporation (the "Company") notify Bank of America National
Trust and Savings Association (the "Trustee") of rescission of acceleration of
the Securities, waive every continuing Event of Default and instruct the Trustee
not to pursue remedies for any continuing Event of Default so that the
acceleration can be rescinded (collectively, "Consent"). Please provide your
Consent on every Proposal by signing, dating and mailing the enclosed Consent to
the Trustee using the pre-addressed envelope provided for your convenience. The
Trustee's address is Bank of America National Trust and Savings Association,
Corporate Trust Department No. 8510, 333 South Beaudry Avenue, Los Angeles,
California 90017, Attention: Miss Sandy Chan., telephone (213) 345-4652, fax:
(213) 345-7596.
These materials were first given or mailed to Securityholders on or
about September __, 1995.
Requests for information or documents may be directed to the attention
of Kerri Ruppert, Vice President, Chief Accounting Officer and Secretary, at the
principal executive office of the Company, located at 4350 Von Karman Avenue,
Suite 280, Newport Beach, California 92660.
PURPOSE OF CONSENT
In order to rescind an acceleration of the Securities, the Indenture
dated as of April 25, 1985 (the "Indenture") between the Company and Trustee
prescribes that a majority of principal amount outstanding of the Securities
must give notice to the Trustee.
RECORD DATE
Securityholders of record at the close of business on the date a
Consent is executed are entitled to give Consents to the actions
proposed, and to bind all successors and assigns until Consent is properly
revoked. At September 14, 1995, an aggregate of $9,538,000 principal
amount of the Securities was outstanding.
REVOCABILITY OF CONSENTS
The Company will not use Consents received from the Securityholders
for a minimum period (the "Consent Solicitation Period") after the date of
commencing this solicitation of 20 business days (approximately 30 calendar
days). The Consent Solicitation Period as to all Proposals shall end at 5:00
o'clock p.m. New York City time, on the later of (a) Wednesday, October 11, 1995
or (b) the first date on which the Company holds a number of Consents
sufficient to be used to effect all of the actions proposed.
Any Consent given pursuant to this solicitation is considered
revocable by the person giving it at any time before it is used by the Company.
If prior to the end of the Consent Solicitation Period, the Company or the
Trustee receives a written notice of revocation of a Consent or a duly
executed Consent bearing a later date, any earlier-dated Consent will be
revoked.
<PAGE> 4
VOTING
"Disapproving" or "abstaining" on a proposal, and brokers' indicating
a "non-vote" in any other manner, all have the same effect and none is counted
as a Consent on such proposal. If a preference is not indicated on a signed
and dated Consent delivered by any Securityholder, the Consent will be counted
as FOR Proposals 1 and 2.
An undated Consent cannot be used. Only record holders may give a
Consent. The Consent card provided may be executed by the record holder or
pursuant to authority given by the record holder's written proxy.
SOLICITATION
The Company has retained Continental Stock Transfer & Trust Co., a
full-service firm, to provide Consent or Proxy information services, limited to
assuring that Securityholders receive a Proxy Statement and other documents
incorporated or contemplated therein and other administrative assistance. The
cost of soliciting Consents or Proxies will be borne by the Company at a cost
of approximately $__________, plus reasonable out-of-pocket expenses.
The Company is required to undertake to reimburse, and does reimburse,
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Consents may be solicited personally or by telephone or telegram by
certain of the Company's directors, officers and regular employees, without
additional compensation.
2
<PAGE> 5
Proposal 1:
(*8)
MANAGEMENT RECOMMENDS A CONSENT OR VOTE FOR
Proposal 1:
NOTICE TO THE TRUSTEE FROM DEBENTUREHOLDERS
TO EFFECT A RESCISSION OF ACCELERATION
and Proposal 2:
WAIVER OF EVENTS OF DEFAULT
AND
INSTRUCTION TO THE TRUSTEE NOT TO SEEK REMEDIES
EXCEPT UPON A SUBSEQUENT INSTRUCTION BY A MAJORITY IN PRINCIPAL AMOUNT
REQUIRED VOTE
Under the Indenture, approval of each proposal requires Consent of at
least a majority of the outstanding principal amount of Debentures.
BACKGROUND
The Company has outstanding $9,538,000 in original principal amount of
Debentures. The Debentures were issued in 1985 for a price equal to 100% of the
face value. The interest cost to the Company is 7.5% of the original principal
amount per year. The Debentures currently are redeemable by the Company at
100.00% of face value.
DEFAULT ON DEBENTURES
The Company's losses in fiscal 1995 caused the Company to suspend
interest payments to the holders of the Company's Debentures. As a result, a
group of holders and purported holders declared in February 1995 an
acceleration of principal in the aggregate amount of $9,538,000 plus interest,
which became immediately due and payable. A subset of such persons filed an
involuntary petition in United States Bankruptcy Court for the Northern
District of Texas against the Company under Chapter 7 of the U.S. Bankruptcy
Code, which was dismissed with the consent of the petitioners on March 6, 1995.
PROPOSED EXCHANGE OFFER WITH HOLDERS OF DEBENTURES
On March 3, 1995 the Company entered into a letter agreement with Mr.
Jay H. Lustig, a representative of holders of Debentures who had taken such
actions. The agreement provides for a consensual out-of-court resolution that
the Company's Board of Directors approved as being in the best interests of the
Company and its stockholders and other stakeholders. The holders'
representative agreed to provide notices of waiver of the interest non-payment
default, notices of rescission of the Debenture acceleration and the effects
thereof, and consent to the immediate dismissal of the involuntary Chapter 7
petition. In return, the Company agreed to provide an opportunity to holders of
Debentures to tender their Debentures to the Company pursuant to an exchange
offer ("Exchange Offer") to be made by the Company to the holders of
Debentures. The offer consideration will consist of a payment of $500 in cash
and $120 worth in shares of Common Stock at a defined value equal to an average
market price over a specified trading period per each $1,000 in original face
amount of Debentures. Tendering holders will not receive interest accrued from
and after April 15, 1994 and in lieu of calculated interest will receive an
additional $80 in cash as interest per $1,000 face amount of Debentures. If the
Exchange Offer with holders of Debentures is consummated on the terms in the
letter agreement, and assuming the tender of 100% of the outstanding
Debentures, the portion of the required offer consideration which will be
payable in cash by the Company would be approximately $5,532,000. In addition,
the agreement provides for a pledge of all of the shares of CareUnit, a
wholly-owned operating subsidiary of the Company, to secure the Company's
obligation to complete the exchange on the agreed upon terms; failure to
complete an exchange could result in a foreclosure sale of such shares.
Under the Agreement with Mr. Lustig, if the legal prerequisites to the
Exchange Offer are not completed within 180 days, the Company
would not be in compliance with the Agreement. The Agreement, however,
conditions the Company's obligations upon performance of all of the obligations
of and by Mr. Lustig. Mr. Lustig has agreed to use best efforts to obtain from
the holders of a majority interest in the Company's outstanding Debentures a
consent to, or waiver of, certain incidents of non-compliance with, and to
rescind acceleration of, the Debentures. The Company intends to make the
Exchange Offer although the representative has not substantially performed.
Although the Debentureholders represented by Mr. Lustig ("Participating
Securityholders") consented to withdrawal of the bankruptcy petition, and
submitted notices of recission of acceleration, the Participating
Securityholders did not hold a majority in principal amount of the
Debentures.
On the next regular interest payment date, October 16, 1995, at 1:00
p.m. California time, the Company intends to pay interest on the Debentures
if holders of Debentures give notice of rescission of acceleration, and to
thereby effect a concurrent rescission of the acceleration of the Debentures.
Failure to consummate the Exchange Offer may result also in the Company
considering alternatives including filing for voluntary protection under Chapter
11 of the U. S. Bankruptcy Code. In such case, the Company believes that the
recovery to its security holders would be less than that which would be achieved
under the consensual out-of-court arrangement the Company has reached with Mr.
Lustig.
EXCHANGE OFFER FUNDING REQUIREMENTS AND SOURCES
The proposed Exchange Offer will require, if accomplished, the issuance
of up to 152,608 shares of the Company's Common Stock to fund the stock portion
of the Exchange. In addition, the Company will require a maximum of $5,532,040
to pay the cash portion of the Exchange Consideration exchange. Approximately
$1,116,063, representing three semi-annual interest installments, including
default interest from the original due date, would be accrued and unpaid as of
October 15, 1995; however accrued interest will not be paid on exchanged
Debentures except to the extent of $763,040 included in Exchange Consideration.
One potential source of cash would be a private placement of securities
of the Company for cash. The Company is seeking approval of its stockholders
for issuances of up to 850,000 shares of Common Stock and 60,000 shares of
Preferred Stock, and other equity or debt securities (a "Placement
Transaction").
Payment of Exchange Consideration is subject to restrictions contained
in the Indenture. If payment in cash is impossible or prohibited by any law,
rule or order, the Company may offer, among other things, to exchange the
Debentures for capital stock or offer to issue additional shares of Common
Stock upon conversion of Debentures or other securities issued by the Company.
Such restrictions may arise because there may be Senior Debt that has matured
or is in default on account of the Debentures' acceleration and/or continuing
Events of Default, otherwise than acceleration, and such Senior Debt could
require payment in advance of the delivery of the Exchange Consideration or the
default interest payments to the tendering and non-tendering Debentureholders,
respectively.
The Company's plans with respect to the Debenture Exchange Offer
include pursuing sources of funds other than proceeds contemplated in
private Placement Transactions. These other sources may include, without
limitation, other private sales or dispositions of property or securities.
There can be no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available on acceptable
terms, the Company may be required to delay, scale back or eliminate the
Debenture Exchange Offer.
The Company has engaged in certain preliminary discussions relating to
a possible Placement Transaction. The Company expects that any Placement
Transaction will be primarily negotiated with one or more investors, and will
not necessarily be made available on equal monetary terms to all holders of
Common Stock. Although the final terms of any Placement Transaction cannot be
predicted, and no assurance can be given that any Placement Transaction will
occur, the Company expects that a Placement Transaction could involve the
exchange or issuance of Common Stock, Debentures, preferred stock, convertible
debt or other securities or cash or property.
The Company's global financial restructure was set back by
unanticipated delays that arose, in large part, because of the resistance of
the Company's then auditing firm, Arthur Andersen LLP ("Arthur Andersen"), to
the Company's requests for consent to use Arthur Andersen's 1993 and 1994 audit
reports in connection with any of the Company's registration statements under
the Securities Act of 1933 (the "1933 Act") and the termination by Arthur
Andersen of its two-year audit engagement with the Company, in the fourth
fiscal quarter of 1995. See "Changes in Accountants."
POTENTIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax aspects of the Exchange Offer to the Company. The discussion is a
summary for general information only and does not consider all aspects of
United States federal income tax that may be relevant to a Debentureholder of
the Company receiving Exchange Consideration in the Exchange Offer in light of
his or her personal circumstances. The following discussion does not describe
any tax consequences arising out of the tax laws of any state, local or foreign
jurisdiction. The discussion assumes that the Convertible Debentures are
properly classified as indebtedness for federal income tax purposes. In
addition, the discussion assumes that the Exchange Offer is consummated outside
of a reorganization under the Bankruptcy Code.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, and any such change could affect the
continuing validity of this discussion.
3
<PAGE> 6
THE EXCHANGE OFFER
Effects on Debentureholder
In the event that, as generally would be the case, the transaction is
taxable for federal income tax purposes, and tax would be due in the year of
the Exchange. Assuming that the amounted called an interest payment in the
Exchange Offer is treated as such, and that Debentures are held as a capital
asset, the exchange will result in capital gains income to the extent that the
fair market value as of the date of the Exchange of the Common Shares received
plus the amount of cash received by the Debentureholder as Exchange
Consideration exceeds the Debentureholder's tax basis in such Debentures. The
accrual or receipt of interest results in ordinary income, subject again to
being treated as an interest payment for tax purposes. Depending on whether the
taxpayer is on an accrual basis, the Debentureholder may deduct previously
accrued interest income for interest that is waived and released.
In connection with the Exchange Offer, the Company will realize gross
income from the discharge of indebtedness ("DOD Income") to the extent that the
adjusted issue price of the Debentures exceeds the fair market value of the
cash and Common Stock exchanged for the Debentures in the Exchange Offer. Such
DOD Income will be taxable except to the extent that (a) the Company is
insolvent immediately before the Exchange Offer occurs (the "Insolvency
Exclusion"). The Company would be insolvent to the extent that its liabilities
exceed the fair market value of its assets. In the event that the Exchange
occurs, then the Company will realize DOD Income to the extent described above,
subject to the exclusion of such DOD Income to the extent that the Insolvency
Exclusion applies. However, under Section 108(b) of the Code, the Company is
required to reduce certain tax attributes (including net operating loss
carryovers unless an election is made to reduce only the adjusted tax basis of
depreciable assets) to the extent of income excluded under the Insolvency
Exclusion. In the case of an affiliated group filing consolidated federal
income tax returns, such as the group of which the Company is the common parent
(the "Company Group"), the manner in which tax attributes are reduced under
Section 108(b) of the Code in connection with the Insolvency Exclusion is not
clear. One possibility is that only the tax attributes of the Company are
reduced by the DOD Income excluded under the Insolvency Exclusion. Another
possibility is that the consolidated tax attributes of all members of the
Company Group can be reduced by the DOD Income excluded under the Insolvency
Exclusion. The Company has not determined whether, or the extent to which, it
is insolvent for purposes of the Insolvency Exclusion or the Stock For Debt
Exception.
Based on certain assumptions made by the Company that it considers to be
reasonable (including the assumption that the Company did not have a net
unrealized built-in loss
4
<PAGE> 7
during the first quarter of 1996, the assumption that the Company will not
have a net unrealized built-in loss at the time the Exchange Offer completed,
the assumption that the fair market value on date of issue of the Common
Stock issued pursuant to the Exchange Offer will not be less than the deferred
value of the Common Shares of $7.50 per share, and the assumption that the
Company's actual net operating losses will be available at certain levels),
the Company believes that it will not recognize significant DOD Income in
excess of available net operating losses (see the discussion below) as a
consequence of the Exchange Offer.
Section 382 of the Code provides rules limiting the utilization of a
corporation's net operating loss carryovers following a more than 50% change in
ownership of a corporation's equity by 5% shareholders and certain segregated
public groups (an "ownership change"). Upon the occurrence of an ownership
change, the amount of post-ownership change annual taxable income of the
Company Group that can be offset by the Company Group's pre-ownership change
consolidated net operating loss carryovers generally cannot exceed an amount
equal to the product of (i) the fair market value of the Company's stock
(subject to various adjustments) multiplied by (ii) the federal long-term
tax-exempt rate in effect on the date of the ownership change (the "Annual
Limitation"). In addition, in the event that the Company Group has a net
unrealized built-in loss at the time of the ownership change, the deduction of
certain built-in losses recognized during the five year recognition period
following the date of the ownership change will be subject to the Annual
Limitation. In the event of multiple ownership changes, the applicable Annual
Limitation for pre-ownership change net operating losses will be the lowest
Annual Limitation among such ownership changes.
The Company has a net operating loss carryover into fiscal and tax year
1996 of approximately $11.5 million (the "NOLs"). All of such NOLs may be
limited by Section 382 of the Code as a consequence of the occurrence of one or
more ownership changes. The Company believes that, as of the start of fical
1996, such NOLs were not subject to an annual limitation on their utilization
5
<PAGE> 8
As a consequence of the Exchange and other financial restructuring,
however, there is a substantial risk that the Company Group will undergo an
ownership change (the "Ownership Change"). In the event that the Ownership
Change occurs, it is likely that the Annual Limitation will materially reduce
the amount of annual taxable income that can be offset with NOLs. In addition,
at the time of the Subsequent Ownership Change, the Company Group may have a
net unrealized built-in loss. Accordingly, the deduction of certain material
losses and other items recognized during the five year recognition period
succeeding the Subsequent Ownership Change may be subject to such materially
reduced Annual Limitation.
EXCHANGE OF DEBENTURE CERTIFICATES
Continental Stock Transfer & Trust Co. will act as the Company's
exchange agent (the "Exchange Agent") to act for holders of Debentures in
implementing the Exchange of their certificates. Do not send Debenture
certificates to the Trustee.
BOARD OF DIRECTORS' DISCRETION AND RESERVATION OF RIGHTS
The Board of Directors reserves the right, notwithstanding
Debentureholders' approval and without further action by the Debentureholders,
to elect not to proceed with any of the proposed actions in connection with the
Exchange Offer, if at any time prior to the Company's completion thereof the
Board of Directors, in its sole discretion determines that the proposed action
is no longer in the best interests of the Company.
Under each of the Proposals, the Board reserves the right to delay or
defer any occurrence, action, event or record date, upon notice, for purposes
of allowing the Consent Solicitation Period to remain open for any legally
required period or periods of time.
The Board of Directors also retains the authority to take or to
authorize discretionary actions as may be appropriate to carry out the purposes
and intentions of the proposed actions.
NO DISSENTERS' RIGHTS
Under Delaware law, Debentureholders are not entitled to dissenter's
rights of appraisal with respect to the Proposals or an Exchange Offer.
6
<PAGE> 9
DESCRIPTION OF DEBENTURES
$46,000,000 principal amount, at a price of 100% of face amount plus
accrued interest, of the Company's 7 1/2% Convertible Subordinated Debentures
Due April 15, 2010 (the "Debentures") were issued under an Indenture dated as
of April 15, 1985 (the "Indenture") between the Company and Bank of America
National Trust and Savings Association, as trustee (the "Trustee"). At August
31, 1995, $9,538,000 in principal amount remained outstanding.
The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "1939 Act") as in effect on the date of the Indenture. The
Debentures are subject to all such terms, and persons interested in terms are
referred to the Indenture and the 1939 Act for a statement thereof. This
summary makes use of terms defined in the Indenture and does not purport to be
complete, and is qualified in its entirety by references to the Indenture and
the 1939 Act. All references to "Section," "Article" or "Paragraph" in this
section refer to the applicable Section or Article of the Indenture or the
applicable Paragraph in the form of Debenture included in the Indenture, as the
case may be.
GENERAL
The Debentures represent general unsecured obligations of the Company,
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Debentures." The Debentures are convertible
into the Company's Common Stock as described under "Conversion of Debentures."
The Debentures are issued in fully registered form only in denominations of
$1,000 or any whole multiple thereof, and will mature on April 15, 2010. The
Debentures are traded in the over-the-counter market.
The Company pays interest on the Debentures at the rate of 7 1/2% per
annum to the persons who are registered holders of Debentures at the close of
business on the April 1 or October 1 next preceding the interest payment date.
Interest is payable semiannually on April 15 and October 15 of each year.
Interest is computed on the basis of a 360-day year of twelve 30-day months.
The Company may pay principal and interest by its check and may mail interest
checks to a holder's registered address. Principal and premium, if any, will
be payable, and the Debentures may be presented for conversion, registration of
transfer and exchange, without service charge, at the office of the Trustee in
Los Angeles, California.
CONVERSION OF DEBENTURES
The holder of any Debenture will be entitled at any time prior to the
close of business on April 15, 2010, subject to prior redemption, to convert
the Debentures or portions thereof which are $1,000 or whole multiples thereof,
at the principal amount thereof, into shares of Common Stock of the Company, at
the adjusted conversion price of $230.21 per share, subject to further
adjustment as described below. On each semi-annual interest payment date,
interest will be paid to the registered holder as of the record date for
payment. Debentures that are surrendered for conversion after the record date
for the payment of interest would receive the interest payable (Paragraph 2).
No other payment or adjustment will be made on conversion of any Debenture for
interest accrued thereon or dividends on any Common Stock issued (Section
10.02). The Company will not issue fractional shares of Common Stock upon
conversion of Debentures and, in lieu thereof, will pay a cash adjustment based
upon the market price of the Common Stock on the last business day prior to the
date of conversion (Section 10.03 and Paragraph 8). In the case of Debentures
called for redemption, conversion rights will expire at the close of business
the fifth business day prior to the redemption date (Section 3.03 and Paragraph
8).
The conversion price is subject to adjustment as set forth in the
Indenture in certain events, including: the issuance of stock of the Company
as a dividend or distribution on the Common Stock; subdivisions and
combinations of the Common Stock; the issuance of stock of the Company upon
certain reclassifications of its Common Stock; the issuance to all holders of
Common Stock of certain rights or warrants entitling them to subscribe for
Common Stock at less than the current market price (as defined); the
distribution to all holders of Common Stock of debt securities or assets of the
Company or rights or warrants to purchase assets or securities of the Company
(excluding cash dividends or distributions paid out of current or retained
earnings); the issuance of shares of Common Stock (with certain exceptions) for
less consideration than the current market price; and the issuance of
securities convertible into or exchangeable for shares of Common Stock (other
than pursuant to transactions described above and with certain exceptions) for
a consideration per share of Common Stock deliverable on such conversion or
exchange that is less than the current market price of the Common Stock. No
adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% in the price then in effect; but any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. No adjustment need be
made for rights to purchase Common Stock pursuant to a Company dividend or
interest reinvestment plan. In addition, no adjustment need be made if holders
of Debentures are to participate in such transactions on a basis and with
notice that has been determined to be fair and appropriate in light of the
basis and notice on which holders of Common Stock participate in the
transaction. The Company may at any time reduce the conversion price by any
amount, provided that any such reduction must be effective for a minimum period
of 15 days. If the Company consolidates or merges into or transfers or leases
all or substantially all of its assets to any person, the Debentures will
become convertible into the kind and amount of securities, cash or other assets
which the holders of the Debentures would have owned immediately after the
transaction if the holders had converted the Debentures immediately before the
effective date of the transaction (Sections 10.06-10.18).
7
<PAGE> 10
If the Company makes a distribution resulting in an adjustment to the
conversion price and such adjustment is considered to result in an increase in
the proportionate interests of the holders of the Debentures in the assets or
earnings and profits of the Company, holders of the Debentures may be viewed as
receiving a "deemed distribution" that is taxable as a dividend under Sections
301 and 305 of the United States Internal Revenue Code of 1986, as amended (as
it exists on the date hereof (the "Code").
OPTIONAL REDEMPTION
The Company may, at its option, redeem all or part of the Debentures,
on at least 15 days' but not more than 60 days' notice to each holder of
Debentures to be redeemed at the holder's registered address, at the redemption
price (expressed as a percentage of principal amount) of 100.00%, plus accrued
interest to the redemption date.
SINKING FUND
The Company is required to redeem, through operation of a sinking
fund, 5% of the aggregate principal amount of Debentures on April 15, 1996, and
on each April 15 thereafter through April 15, 2009, at a redemption price of
100% of principal amount thereof, plus accrued interest to the redemption date.
Such sinking fund payments are calculated to retire 70% of the Debentures prior
to maturity. The Company may reduce the principal amount of Debentures to be
redeemed by subtracting 100% of the principal amount of any Debentures that
holders of the Debentures have converted on or before such April 15 or any
Debentures that the Company has delivered to the Trustee for cancellation or
that the Company has redeemed other than through operation of the sinking fund
on or before such April 15 (Paragraph 6).
SUBORDINATION OF DEBENTURES
The payment of the principal of, premium, if any, and interest on the
Debentures is subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full of all Senior Debt, as defined in the Indenture,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. Upon (i) the maturity of Senior Debt,
including by acceleration or otherwise, or (ii) any distribution of the assets
of the Company upon any dissolution, winding up, liquidation or reorganization
of the Company, the holders of Senior Debt will be entitled to receive payment
in full before the holders of Debentures are entitled to receive any payment
(Sections 11.03-11.04).
"Senior Debt" means all defined Debt (present or future) created,
incurred, assumed or guaranteed by the Company (and all renewals, extensions or
refundings thereof), unless the instrument governing such Debt expressly
provides that such Debt is not senior or superior in right of payment to the
Debentures.
"Debt" means any indebtedness, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the Company or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit, or representing
obligations of the Company as lessee under leases of real or personal property,
or representing the deferred and unpaid balance of the purchase price of any
property or interest therein, except any such balance that constitutes a trade
payable, if and to the extent such indebtedness would appear as a liability
upon a balance sheet of the Company in accordance with generally accepted
accounting principles (Section 11.02).
The principal amount of Senior Debt at August 31, 1995 was estimated
at $6 million. In addition, the claims of third parties to the assets of the
Company's subsidiaries incurring such obligations will be superior to those of
the Company as a stockholder, and, therefore the Debentures may be deemed to be
effectively subordinated to the claims of such third parties. Certain
substantial operations of the Company are conducted through such subsidiaries,
and the Debentures are effectively subordinated to repayment of the Company's
liabilities arising from those operations. The Indenture will not limit the
amount of additional indebtedness, including Senior Debt, which the Company or
any subsidiary can create, incur, assume or guarantee. As a result of these
subordination provisions, in the event of insolvency, holders of the Debentures
may recover less ratably than other creditors of the Company or its
subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is: default for 30 days in payment of interest on
the Debentures; default in payment when due of principal and premium, if any,
on the Debentures; failure by the Company for 30 days after notice to comply
with any of its other agreements in the Indenture or the Debentures; and
certain events of bankruptcy or insolvency (Section 6.01).
If any Event of Default occurs and is continuing, the Trustee, or the
holders of at least 25% in the principal amount of the Debentures then
outstanding can give notice to the Company and the Trustee in order to
accelerate and to declare all the Debentures to be due and payable immediately,
except that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, and subject to applicable law, all outstanding
Debentures become due and payable without further action or notice (Section
6.02).
8
<PAGE> 11
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest on the
Debentures or to enforce the performance of any provision of the Indenture or
the Debentures. A delay or omission by the Trustee or any Debentureholder in
exercising any right or remedy shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. (Section 6.03)
Holders of the Debentures may not enforce the Indenture or the
Debentures except as provided in the Indenture. A holder of Debentures may
enforce a remedy with respect to the Indenture or the Debentures only if the
Trustee gives notice of a continuing Event of Default, the holders of at least
25% in principal amount of then outstanding Debentures make a request to the
Trustee to pursue the remedy, such holders offer to the Trustee an indemnity
satisfactory to the Trustee against loss, liability or expense, the Trustee
does not comply with the request within 60 days after receipt of the request
and the offer of indemnity, and during such 60-day period the holders of a
majority in principal amount of then outstanding Debentures do not give the
Trustee a direction inconsistent with the request. (Section 6.06) Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Debentures may direct the Trustee regarding the time, method and
place of exercising any trust or power conferred on it (Section 6.05).
The Trustee is required, within 90 days after the occurrence of any
default which is known to the Trustee and continuing, to give the holders of
the Debentures notice of such default. The Trustee may withhold from holders
of the Debentures notice of any continuing Default or Event of Default (except
a Default or Event of Default in payment of principal or interest) if it
determines that withholding notice is in their interest (Section 7.05). The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and upon becoming aware of any Default or Event
of Default, a statement specifying such Default or Event of Default (Section
4.03).
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not consolidate or merge into, or transfer all or
substantially all of its assets to, another corporation, person or entity
unless (i) the successor is a United States corporation, (ii) it assumes all
the obligations of the Company under the Debentures and the Indenture, and
(iii) after such transaction no Event of Default exists (Article 5).
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the holders of at least two-thirds
in principal amount of such then outstanding Debentures, and any existing
default or compliance with any provision may be waived with the consent of the
holders of at least two-thirds in principal amount of the then outstanding
Debentures (Sections 9.02 and 6.04). Without the consent of any holder of the
Debentures, the Company and the Trustee may amend or supplement the Indenture
or the Debentures to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures, to provide for the assumption of the Company's obligations to
holders of the Debentures in the case of a merger or acquisition, or to make
any change that does not adversely affect the rights of any holder of the
Debentures (Section 9.01 and Paragraph 12). Without the consent of each
Debenture holder affected, the Company may not reduce the principal amount of
Debentures the holders of which must consent to an amendment of the Indenture;
reduce the rate or change the interest payment time of any Debenture; reduce
the principal of or change the fixed maturity of any Debenture; make any
Debenture payable in money other than stated in the Debenture; make any change
in the provisions concerning waiver of Defaults or Events of Default by holders
of the Debentures or rights of holders to receive payment of principal or
interest; or make any change that adversely affects conversion rights or
certain subordination rights (Section 9.02).
TRANSFER AND EXCHANGE
A holder may transfer or exchange Debentures in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required
to transfer or exchange any Debenture selected for redemption. Also, the
Registrar is not required to transfer or exchange any Debenture for a period of
15 days before a selection of Debentures to be redeemed (Section 2.06 and
Paragraph 10).
The registered holder of a Debenture may be treated as the owner of it
for all purposes.
CONCERNING THE TRUSTEE
The Trustee acts as Conversion Agent, Paying Agent and Registrar
(Section 12.10).
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign (Article 7).
9
<PAGE> 12
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee.
The Indenture provides that in case an Event of Default shall occur (which
shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any of the holders of the Debentures, unless they shall have offered to the
Trustee security and indemnity satisfactory to it (Section 7.01).
10
<PAGE> 13
RISK FACTORS
In addition to the other information, the following factors should be
considered carefully:
FAILURE TO CONSUMMATE EXCHANGE OFFER
If the Exchange Offer is not consummated, the Company does not
anticipate that it will likely be able to address the acceleration of
Debentures. The Debentureholders may file an involuntary petition to commence
a Chapter 7 liquidation.
The Company believes that any protracted bankruptcy case would have
material adverse effects on the Company possibly including:
(a) disruption of business activities by diverting the attention
of the Company's senior management to the bankruptcy case or
resultant disputes, and eventually terminations, of its
contracts with third parties;
(b) potential for substantial diminution in the value of the
Company's assets and its revenues, earnings and cash flow;
(c) potential adverse impact upon the ability of the Company to
obtain the financing necessary for its future operations;
(d) substantial increase in the cost of restructuring the Company,
including the increase in the expenses of professionals
normally associated with a bankruptcy case commenced without
prior agreement with the Company's major creditors;
(e) uncertainty as to the ability of the Company to effectuate any
such restructuring and, if it is effectuated, the timing
thereof;
(f) interference and delay regarding payments to holders of
Debentures and risks associated with subordinated unsecured
debt;
(g) potential for forced liquidation of some of the Company's
assets at substantially reduced values and the resulting loss
to creditors and others; and
(h) increased uncertainty and suspicions among the Company's
employees and vendors.
In addition, the Company believes that, because of the importance of
continuing stable relations with medical and health professionals and other
service and goods providers in the behavioral treatment industry, the Company is
particularly susceptible to any adverse reactions these highly sought after
constituencies may have to the filing of a bankruptcy petition affecting the
Company.
ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN; EXPLANATORY PARAGRAPH IN
AUDITORS' REPORT
The Company's independent auditors have included an explanatory
paragraph in their report stating the Consolidated Financial Statements of the
Company have been prepared assuming that the Company will continue as a going
concern and that the Company's financial condition, because of the acceleration
of the Debentures, raises substantial doubts about its ability to continue as a
going concern. If the Debentures continue to be accelerated and a judgment is
entered against the Company, the Company could be unable to continue to operate
as a going concern and it may result in the Company, as its only possible viable
alternative, seeking relief under Chapter 11 of the Bankruptcy Code regardless
of the present intentions of the Company's Management and Board of Directors to
take any other action necessary to avoid a bankruptcy case commencing.
PRIORITIES OF SECURITIES AND OTHER CONSIDERATIONS RELATING TO ANY FUTURE
BANKRUPTCY OF THE COMPANY
Implementation of the Exchange Offer will have significant
consequences for the holders of the Company's debt and equity securities in the
event of any future bankruptcy of the Company. Certain of these consequences
are summarized below. Holders of debt and equity securities are encouraged to
seek the advice of their own counsel or advisors with respect to such matters.
Relative Priorities of Debt Claims and Equity Interests
The relative rankings of the Company's debt claims and equity interests
(excluding debt of its subsidiaries) both before and after giving effect to the
Exchange for all of the outstanding Debentures (without reflecting any other
transactions) are summarized in the following table. The relative priority of
claims of holders of Debentures who do not tender such Debentures pursuant to
the Exchange Offer may worsen because new debt or convertible securities,
whether secured or unsecured may, in each case, rank senior to the Debentures.
In the event the Company incurs additional indebtedness which is senior to the
Debentures, the position of the Debentures relative to the new senior
indebtedness will worsen. The relative priority of claims of holders of
Debentures who tender them for acceptance by the Company, to the extent they
receive and retain cash, would be improving in position relative to other
creditors, and to the extent they exchange their Debentures for Common Stock
their relative position may worsen because all secured and unsecured debt ranks
ahead of equity.
11
<PAGE> 14
<TABLE>
<CAPTION>
Priority Pre-Restructuring Post-Restructuring
-------- ----------------- ------------------
Type and Amount Type and Amount
Outstanding (a) Outstanding (b)
<S> <C> <C>
Secured Debt (a)
Senior Secured Debt . . . . . . Secured Creditors Secured Creditors
($2,000,000) ($7,000,000)
Unsecured Debt (b)
Senior Debt . . . . . . . . . . Various Creditors Various Creditors
($6,362,000) ($6,362,000)
Subordinated Debt . . . . . . . Debenture
($9,538,000)
Equity (c) . . . . . . . . . . . . . . . Common Stock Common Stock
(2,656,936) (2,809,603)
</TABLE>
--------------------------
(a) All "secured debt" ranks ahead of all "equity" and, to the extent of the
value of the security interest securing any such "secured debt," all
"unsecured debt," except to the extent subordination agreements among
creditors specify otherwise. To the extent any amount of the "secured
debt" is undersecured or becomes unsecured, any such amount will have the
relative priority of other "unsecured debt."
(b) All "unsecured debt" ranks ahead of all "equity." Debentures rank pari
passu in right of payment with all unsecured debt," which would include
trade payables and other general creditors of the Company (except for
debts which are, by their terms, subordinated to indebtedness owed under
the Debentures). The term pari passu means that such securities rank at
the same level of priority for distributions in liquidation and/or
bankruptcy, absent other bankruptcy considerations. See, for example "--
Potential Reduction of Claims" below and "Preferences and Fraudulent
Conveyance Considerations."
(c) Preferred Stock has priority over Common Stock in right of payment of
dividends and in any distribution upon the liquidation, dissolution or
winding up of the Company. Preferred Stock may be issued with rights
determined by the Board of Directors from time to time.
PREFERENCE AND FRAUDULENT CONVEYANCE CONSIDERATIONS
Avoidable Preferences
If a case were to be commenced by or against the Company under the
Bankruptcy Code following the consummation of the Exchange Offer, a bankruptcy
trustee or the Company, as debtor in possession, could avoid as a preference
any transfer of property made by the Company to or for the benefit of a
creditor which was made on account of an antecedent debt if such transfer (i)
was made within 90 days prior to the date of the commencement of the bankruptcy
case or, if the creditor is found to have been an "insider" (as defined in the
Bankruptcy Code), within one year prior to the date of commencement of the
bankruptcy case; (ii) was made when the Company was insolvent; and (iii)
permitted the creditor to receive more than it would have received in a
liquidation under Chapter 7 of the Bankruptcy Code had the transfer not been
made. Under the Bankruptcy Code, a debtor is presumed to be insolvent during
the 90 days preceding the date of commencement of a bankruptcy case. To
overcome this presumption, it would need to be shown that at the time the
transfers were made, the sum of the Company's debts was less than the fair
market value of all of its assets.
Under the Bankruptcy Code, all or a portion of the property transferred,
including any cash payments, to tendering holders of Debentures, as well as any
subsequent payment to non-tendering holders of Debentures, could be found to
constitute preferences if a bankruptcy case were commenced within the
applicable time period following such payments and the other elements discussed
above are present. If, following the commencement of a bankruptcy case within
the applicable time period, such transfers were found to be preferential
transfers, transferees could be ordered to return the full value of such
transfers. In such event, transferees would have a general unsecured claim in
the Company's bankruptcy case equal to the value of the property returned.
Fraudulent Conveyances
If a court in a lawsuit by or on behalf of an unpaid creditor or a
representative of creditors, such as a bankruptcy trustee, or the Company, as
debtor in possession, were to find that, at the time of consummation of the
Exchange Offer (a) the Company received less than reasonably equivalent value
in exchange for the consideration given by the Company for any property
transferred by the tendering holders of Debentures, and (b) the Company (i) was
insolvent or was rendered insolvent as a result of such transfers, (ii) had
unreasonably small remaining assets or capital for its business, or (iii)
intended to incur, or believed or reasonably should have believed it would
incur, debts
12
<PAGE> 15
beyond its ability to pay such debts as they become due, such court could
determine that all or a portion of such transfers were avoidable as a
"constructive" fraudulent transfer and require the transferees to return to the
Company or its bankruptcy trustee the consideration given. The Company
believes that because of the reduction in the Company's outstanding
indebtedness which will result from each of the other exchanges or transfers
described above, a bankruptcy court should find that the Company received
reasonably equivalent value for the consideration given by the Company. There
can be no assurance, however, that a bankruptcy court would make such a
determination.
NO FAIRNESS OPINION
The Company has not advised Debentureholders to Exchange or to refrain
from Exchanging Debentures because, among other reasons, the Company has not
obtained a fairness opinion concerning the Exchange Offer from any investment
banking firm or an appraisal or any other investigation of the consequences of
an Exchange.
HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
There can be no assurance that the Company will be able to achieve
profitability and positive cash flows from operations or that profitability and
positive cash flow from operations, if achieved, can be sustained on an ongoing
basis. Moreover, if achieved, the level of that profitability or that positive
cash flow cannot accurately be predicted.
ADDITIONAL RISK FACTORS WITH RESPECT TO HOLDERS OF DEBENTURES NOT TENDERED IN
THE EXCHANGE OFFER
The Debentures represent the subordinated indebtedness of the Company.
The Company may incur indebtedness which is senior to the Debentures in
unlimited amounts.
The Indenture permits the Company, at its election, to redeem the
Debentures at 100.00% of the original principal amount (the "face value") at
any time before maturity. The original maturity date of the Debentures was
April 15, 2010. Provided that the Acceleration of Debentures is effectively
rescinded, the maturity date will once again become April 15, 2010, subject to
any future conditions affecting maturity. See "Description of Debentures."
The Debentures are not listed on any Securities Exchange or quoted on
NASDAQ. The trading, if any, in the Debentures is limited and sporadic.
Presently there are fewer than 50 registered holders of Debentures. Because
the Debentures may be, after consummation of the Exchange Offer, held by a more
extremely limited number of registered holders, the trading market will become
even more limited. These events are likely to have an adverse effect on the
overall liquidity and market value of the Debentures.
The Debentures are general unsecured obligations exclusively of the
Company. Since a substantial portion of the Company's and its consolidated
subsidiaries' is conducted through certain of such subsidiaries, the cash flow
and consequent ability of the Company to satisfy its indebtedness to
Debentureholders are dependant, in part, upon the earnings of such subsidiaries
and a distribution of those earnings to the Company. The Company's
subsidiaries are distinct legal entities and have no obligation, contingent or
otherwise, to make any payment on the Debentures or to make funds therefor
available. Any rights of the Company to receive assets of any subsidiary (and
the consequent right of Debentureholders to possibly benefit from participating
therein) in any liquidation or reorganization of the subsidiary will be
effectively subordinated to the creditors of the subsidiary (including trade
creditors) in any liquidation or reorganization of the subsidiary.
DELAY IN COMPLETION OF THE EXCHANGE OFFER
A foreclosure sale of CareUnit, Inc. pursuant to the Letter Agreement,
provided the terms and conditions therein permit a future foreclosure, or the
perception by investors, or investment professionals of the possibility that
such foreclosure may or would occur, could adversely affect the market price of
the Debentures. A foreclosure sale is permitted at any time after
approximately September 1, 1995 by the terms of the Letter Agreement if the
representative, Mr. Jay H. Lustig, performed substantially all material
obligations.
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF FUTURE FUNDING
The Company's negative cash flow from operations has consumed substantial
amounts of cash. Payment of amounts due to the holders of 7 1/2% Convertible
Subordinated Debentures, which have been accelerated and have become
immediately due and payable, also may or will, unless acceleration is
rescinded, require substantial amounts of cash. The Company's $2,000,000
Secured Convertible Note Due January 9, 1997 permits acceleration by the holder
in the event of non-payment of any other debt of the Company [excluding the
Debentures]. In the event of an acceleration of such note, payment of such
note would also require substantial amounts of cash. Other indebtedness of the
Company provides upon bankruptcy for acceleration or similar rights to collect
moneys in advance of their original due date. In the event of a failure to
meet all of its obligations on a timely basis under its outstanding
indebtedness and in a manner satisfactory to creditors, the Company would
continue to be liable for at least the entire principal amount, with interest,
of such indebtedness as well as obligations to indemnify debt holders from
costs of suit and collection.
13
<PAGE> 16
Issuance or reserves of additional equity securities by the Company could
result in substantial dilution to then-existing stockholders and
Debentureholders receiving Common Stock in the Exchange Offer or on conversion
of Debentures. There can be no assurance that any financing will be available
and, if available, available on acceptable terms.
DISPOSITION OF ASSETS
The Company has been required to dispose of various properties in order to
raise working capital, and no assurance can be made that such dispositions will
not have adverse effects on the Company's financial condition and results of
operations or that the Company has sufficient additional assets that could be
disposed of in order to fund its capital requirements.
In connection with the March 3, 1995 Letter Agreement, the Company has
agreed to pledge all of the shares of its CareUnit, Inc. subsidiary. The
agreement provides that "At 150 days after the date of this Agreement, provided
that the Participating Securityholders have in each material respect performed
(with opportunity to cure if a cure is possible) their obligations required to
be performed hereunder on or prior to such date, and if the Offer has not then
been consummated, the Company shall pledge (with the Trustee, or an alternate
acceptable to the Company, to act as pledgeholder on terms of a written
agreement containing standard terms reasonably acceptable to the Participating
Securityholders) all of the Shares as collateral for its obligation to purchase
the Securities pursuant to the Offer or otherwise. Such pledge may only be
foreclosed upon following 180 days after the date hereof at the request of any
Securityholder or the Trustee if the Offer is not consummated on or prior to
such date, provided that the Participating Securityholders have in each
material respect performed (with opportunity to cure if a cure is possible)
their obligations required to be performed hereunder on or prior to such date.
... Upon consummation of the Offer, the said pledges shall be released." No
assurances can be made that if required the Company will, on a timely basis,
satisfy such obligation to consummate the Offer, or that the Company will be
able to obtain consents of third parties or to perform other additional or
incidental acts in order to consummate the Offer.
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS
The Company's ability to succeed in increasing revenues may depend in part
on the extent to which reimbursement of the cost of such treatment will be
available from government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price of medical products and services. As a result of
reimbursement changes and competitive pressures, the contractual obligations of
the Company have been subject to intense evaluation.
UNCERTAINTY OF PRICING; HEALTHCARE REFORM AND RELATED MATTERS
The levels of revenues and profitability of healthcare companies may be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of healthcare through various means. In the United
States, there have been, and the Company expects that there will continue to
be, a number of federal and state proposals to implement governmental controls
on the price of healthcare. It is uncertain what legislative proposals will be
adopted or what actions federal, state or private payors for healthcare goods
and services may take in response to any healthcare reform proposals or
legislation. The Company cannot predict the effect healthcare reforms may have
on its business, and assurances cannot be made that any such reforms will not
have material adverse effects on the Company.
MANAGEMENT OF EXPANSION
The Company's anticipated growth and expansion into areas and activities
requiring additional medical and administrative expertise, such as managed
care, are expected to place increased demands on the Company's resources.
These demands are expected to require the retention of current management and
the addition of new management personnel and the development of additional
expertise by existing management personnel. The failure to retain or acquire
such services or to develop such expertise could have a material adverse effect
on the prospects for the Company's success.
MANAGEMENT OF TRANSITION
The Company's prospects for success depend, to a degree, on its ability to
successfully implement its current restructuring plans. The failure of the
Company to successfully transition, or any unanticipated or significant delays
in such transition, could have a material adverse effect on the Company's
business. There can be no assurance that the Company will be able to achieve
its planned transition without disruption to its business or that the
transitioned Company resulting from the planned business transition will be
adequate to sustain future growth by the Company.
14
<PAGE> 17
SHARES ELIGIBLE FOR FUTURE SALE
The Company contemplates issuing substantial amounts of equity through
private placements and other private transactions including 442,433 shares, the
issuance of which has been committed to but not completed, and is pending
listing on NYSE, 850,000 shares of Common Stock; 60,000 shares of Preferred
Stock, and other equity and debt securities for which the Company is or may be
currently seeking shareholder approval, and an aggregate of approximately
793,862 issuable upon the exercise or conversion by holders of outstanding
securities. Issuance or these shares, registration thereof pursuant to
registration rights or otherwise, and additional sales of these shares could
adversely affect the trading prices of the Common Stock.
PRICE VOLATILITY IN PUBLIC MARKET
The securities markets have from time to time experienced significant
price and volume fluctuations that may be unrelated to the operating
performance of particular companies. Trading prices of securities of companies
in the managed care sector have experienced significant volatility. The
trading of Debentures in the over-the-counter market is not active. The
Debentures are convertible into Common Stock at a price so far in excess of the
current market price of Common Stock as to be unattractive to Debentureholders
in today's market.
ANTI-TAKEOVER PROVISIONS
Each share of the Company's Common Stock includes one right on the terms,
and subject to the conditions, of the Rights Agreement between the Company and
Continental Stock Transfer & Trust Company. The Company's Restated Certificate
of Incorporation also provides for 60,000 authorized shares of Preferred Stock,
the rights, preferences, qualifications, limitations and restrictions of which
may be fixed by the Board of Directors without any further vote or action by
the stockholders, which could have the effect of diluting the Common Stock or
reducing working capital that would otherwise be available to the Company.
The Company's Restated Certificate of Incorporation also provides for a
classified board of directors, with directors divided into three classes
serving staggered terms.
In addition, the Company's stock option plans generally provide for the
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company.
In addition, Section 203 of the General Corporation Law of Delaware
prohibits the Company from engaging in certain business combinations with
interested stockholders. These provisions may have the effect of delaying or
preventing a change in control of the Company without action by the
stockholders, and therefore could adversely affect the price of the Company's
Common Stock.
TAXES
The Company has claimed entitlement to a tax refund for the 1994 taxable
year of $9.4 million based on federal income tax deductions on account of
specified liability losses defined in Section 172(f) of the Internal Revenue
Code of 1986, as amended (the "Code") and expects to receive a refund of taxes
for the 1994 tax year prior to October 15, 1995. The Company's tax returns in
earlier tax years also have been amended based on federal income tax deductions
arising from carrybacks of specified liability losses defined in Section
172(f), also. The Company's obligations to the Internal Revenue Service
("IRS") for amounts currently due and payable to the IRS pursuant to a
settlement agreement relating to tax years 1987 through 1991 will not be
decreased by the tax- refund claim or claims based on amended earlier-year
returns. Section 172(f) is an area of the federal income tax law without
substantial legal precedent. There may be opposition by the IRS to such
claims, and no assurances can be made of the ability to claim such deductions
or refunds. With regard to the that prior-year tax returns that have been or
will be amended in order to utilize some of the claimed deductions, neither the
Company nor the IRS will be foreclosed.
The Company's ability to use any Net Operating Losses may be subject to
limitation in the event that the Company issues or agrees to issue substantial
amounts of additional equity.
The Company may be unable to utilize some or all of its allowable tax
deductions or losses, which depends upon factors including the availability of
sufficient net income from which to deduct such losses during limited carryback
and carryover period.
INTERESTS OF CERTAIN PERSONS
The directors and executive officers who served the Company since June 1,
1994 have no substantial interest, direct or indirect, by security holdings or
otherwise, in the approval or disapproval of Rescission of Acceleration or the
Waiver of Events of Default and Instruction not to Pursue Remedies, except
as holders of Common Stock generally.
15
<PAGE> 18
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning beneficial
ownership of Common Stock. Such information is given as of August 21, 1995,
the record date. At the record date, 2,214,503 shares of Common Stock were
outstanding; entitled to one vote per share. According to rules adopted by the
Securities and Exchange Commission, "beneficial ownership" of securities for
this purpose is 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>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
------------------------------- -------------------- --------
<S> <C> <C>
William H. Boucher 5,000 (9) *
J. Marvin Feigenbaum 5,000 (9) *
Lindner Funds (1) 586,700 20.9
Drew Q. Miller 21,000 (10) *
Rudy R. Miller 5,000 (9) *
James R. Moriarty (2) 172,500 7.2
W. James Nicol 5,056 (3) *
Richard C. Perry(5) 200,000 8.3
Kerri Ruppert 19,036 (6) *
Chriss W. Street 84,060 (7) 3.7
All executive officers and
directors as a group (7 persons) 144,152 (8) 6.1
</TABLE>
_________________
(1) The mailing address of Lindner Funds is c/o Ryback Management
Corporation, 7711 Carondelet Avenue, Suite 700, St. Louis, Missouri
63105. Includes approximately 336,700 shares currently reserved for
issuance upon conversion of a Secured Convertible Note dated January
9, 1995. Lindner Funds, as described in its Schedule 13G, holds the
shares and convertible debt in more than one fund.
(2) The mailing address of James R. Moriarty is 1111 Bagbe, Suite 1950,
Houston, Texas 77002-2546.
(3) Includes 56 shares held by Mr. Nicol's spouse as custodian for his
three minor children, all of whom reside with Mr. Nicol, and 5,000
shares subject to options that are presently exercisable or
exercisable within 60 days of the date of this Proxy Statement.
(5) Mr. Perry is President of Perry & Co., 2635 Century Parkway, N.E.,
Suite 1000, Atlanta, Georgia 30345.
(6) Consists of 19,036 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(7) Includes 6,560 shares held directly and 77,500 shares subject to
options that are presently exercisable or exercisable within 60 days
of the date of this Proxy Statement.
(8) Includes a total of 131,536 shares subject to outstanding options that
are presently exercisable or exercisable within 60 days of the date of
this Proxy Statement.
(9) Includes 5,000 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(10) Includes 1,000 shares held directly and 20,000 shares subject to
options that are presently exercisable or exercisable within 60 days
of the date of this Proxy Statement.
16
<PAGE> 19
INCORPORATION BY REFERENCE
PROVIDED HEREWITH, FOR THE PURPOSE OF PROVIDING DEBENTUREHOLDERS
INFORMATION REGARDING THE DEBENTURES, THE EXCHANGE OFFER, THE RESCISSION OF
ACCELERATION, RISK FACTORS, AND OTHER FACTORS, IS THE COMPANY'S OFFERING
CIRCULAR RELATED TO THE DEBENTURE EXCHANGE OFFER. PROVIDED HEREWITH, FOR THE
PURPOSE OF PROVIDING DEBENTUREHOLDERS WITH SUBSTANTIALLY THE FINANCIAL
INFORMATION THAT ITEM 13 OF SCHEDULE 14A UNDER THE SECURITIES EXCHANGE ACT
IDENTIFIES, IS THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS RELATED TO THE
FISCAL YEAR ENDED MAY 31, 1995. ONLY THE FINANCIAL STATEMENTS, NOTES THERETO,
AND OTHER SELECTED FINANCIAL INFORMATION AND THE MANAGEMENT'S DISCUSSION AND
ANALYSIS OF THE ANNUAL REPORT ARE INCORPORATED HEREIN.
MANAGEMENT RECOMMENDS A CONSENT OR VOTE FOR PROPOSALS 1 AND 2.
BY ORDER OF THE BOARD OF DIRECTORS
Kerri Ruppert
Secretary
September __, 1995
Chesterfield, Missouri
17
<PAGE> 20
[FORM OF FRONT OF CARD]
COMPREHENSIVE CARE CORPORATION
CONSENT
CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The Board of
Directors of Comprehensive Care Corporation RECOMMENDS CONSENT on every
proposal.
Debentureholders should not send any Debenture Certificates with this Consent
card. Debentureholders are urged to mark, sign, date and mail promptly this
Consent card in the envelope provided. Consents must be received at the
address of the Trustee by 5:00 p.m. Los Angeles time, on October 11, 1995,
unless the deadline is extended without further notice.
THIS CONSENT CARD IS INTENDED TO OBTAIN CONSENT; AND THIS CARD SHALL BE DEEMED
TO INDICATE A CONSENT IF NOT INDICATED TO THE CONTRARY.
EACH CONSENT MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each sign. If signing
as executor, administrator, attorney, trustee, or guardian, give title as such.
If a corporation, sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person. Please do not forget to
sign and date this Consent card.
18
<PAGE> 21
[FORM OF BACK OF CARD]
PLEASE INDICATE APPROVAL BELOW to AS RECOMMENDED BY MANAGEMENT AND THE BOARD OF
DIRECTORS
PROPOSAL 1: / / APPROVE / / DISAPPROVE / / ABSTAIN
Proposal 1. To give notice to Bank of America National Trust and Savings
Association (the "Trustee") to rescind the acceleration of the
Securities, which consent would be in the form of the Notice of
Rescission, a form of which has been provided to me, or in
modified form approved by the agents and attorneys in fact named
herein.
PROPOSAL 2: / / APPROVE / / DISAPPROVE / / ABSTAIN
Proposal 2. To waive as to the undersigned's Debentures all Events of Default
under the Debentures (other than the payment of interest,
subject to my further right to waive interest by tendering
Debentures) and to instruct the Trustee to forebear from effecting
any remedy for the Events of Default until completion of
an Exchange Offer on the instruction of holders of a majority of
Debentures in outstanding principal amount.
SIGNATURE(S)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Date: , 1995
---------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Chriss W. Street, Drew Q. Miller, Kerri Ruppert, or any of them, with power
of substitution to each, are hereby authorized as agents and
attorneys-in-fact to give notice or direction to the Trustee which the
undersigned would be entitled to give if personally present on all proposals
unless indicated to the contrary unless a "Disapprove" or "Abstain" is
indicated. The attorneys-in-fact are authorized to act in their discretion.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE RESCISSION OF
ACCELERATION AND "FOR" APPROVAL OF WAIVER OF EVENTS OF DEFAULT. THIS PROXY
WILL BE VOTED AS YOU DIRECT; IN THE ABSENCE OF SUCH DIRECTION, IT WILL BE
VOTED "FOR" THE FOREGOING PROPOSAL.
19
<PAGE> 22
Exhibit (a)(iii)
NOTICE OF RESCISSION OF ACCELERATION
THIS NOTICE OF RESCISSION OF ACCELERATION IS SOLICITED BY THE MANAGEMENT AND
BOARD OF DIRECTORS OF COMPREHENSIVE CARE CORPORATION.
September ___, 1995
Bank of America National Trust and Savings Association
Corporate Trust Administration #8510
333 South Beaudry Avenue, 25th Floor
Los Angeles, California 90017
Re: Comprehensive Care Corporation 7-1/2%
Convertible Subordinated Debentures Due
April 15, 2010 (herein called the "Securities")
Dear Ladies and Gentlemen:
This Notice of Rescission of Acceleration is delivered pursuant to Section
6.02 of that certain Indenture dated as of April 25, 1985 (the "Indenture")
between Comprehensive Care Corporation, a Delaware corporation (the "Company"),
and Bank of America National Trust and Savings Association (the "Trustee")
governing the Securities, as defined in the Indenture. Capitalized terms not
otherwise defined herein are used as defined in the Indenture. The undersigned
Holder hereby notify the Trustee that the Holder elects to rescind both the
acceleration of the Securities (Pursuant to the written notices delivered to the
Trustee and the Company by the Holders of more than 25% in principal amount of
the then outstanding Securities there was a declaration of the principal and
interest of the Debentures to be due and payable immediately) and also the
consequences of such acceleration, such rescission to be effective immediately
upon (1) the Company's cure of the Event of Default referenced in the Trustee's
notice dated November 22, 1994, to the Holders, (2) the Company's cure of the
Event of Default referenced in the Trustee's notice dated May 23, 1995, to the
Holders, and (3) the Trustee's receipt of Notices of Rescission of Acceleration
from Holders of a majority in principal amount of the outstanding Securities.
This Notice of Rescission of Acceleration shall remain in effect, and be
binding on successors and assigns, to and including ____________, 1995, unless
the Trustee is notified in writing prior thereto that the undersigned Holder has
rescinded this Notice of Rescission of Acceleration.
1
<PAGE> 23
Executed by the undersigned as of the date set forth above. (Please fill
in the date on the first page on this Notice of Rescission of Acceleration.)
NAME OF HOLDER AS LISTED IN THE
TRUSTEE'S SECURITIES REGISTER
(Please Print):
--------------------------------------------------------
Holder's Tax ID No.:
------------------------------------
Security No. (if available)
-----------------------------
SIGNATURE LINES FOR HOLDER:
--------------------------------------------------------
Name (please print):
------------------------------------
Title (if applicable):
----------------------------------
--------------------------------------------------------
Name (please print):
------------------------------------
Title (if applicable):
----------------------------------
2
<PAGE> 24
EXHIBIT (a)(iv)
FOURTH NOTICE
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
(THE "SECURITIES")
THIS FOURTH NOTICE IS HEREBY given to the Holders of the above-referenced
Securities, as provided for under the Indenture dated as of April 25, 1985 (the
"Indenture") between Comprehensive Care Corporation, a Delaware corporation (the
"Company"), and Bank of America National Trust and Savings Association (the
"Trustee"), that, as more fully described below, the Company has delivered to
the Trustee, and has requested the Trustee to mail to the Holders, both (1) the
enclosed notice from the Company setting October __, 1995, as the special record
date for the interest payments on the Securities which the Company failed to
make on October 17, 1994, and on April 17, 1995, and also setting October 16,
1995 as the payment date for such interest payments on the Securities and
interest on the interest from the date of the missed payment, and which is also
the payment date for the next semi- annual interest payment (the "Company
Notice"), and (2) the enclosed Notice of Rescission of Acceleration.
Capitalized terms not otherwise defined herein shall have the same meanings as
set forth in the Indenture.
As the Holders are aware, on November 22, 1994, the Trustee notified the
Holders by mail (the "First Notice") that an Event of Default had occurred under
the Indenture in that the Company had failed to make its interest payment on the
Securities which was due and payable on October 17, 1994, and had continued to
fail to make such missed interest payment for a period of 30 days. On February
13, 1995, the Trustee notified the Holders by mail (the "Second Notice") that
(1) the Holders of at least 25% in principal amount of the then outstanding
Securities had, pursuant to Section 6.02 of the Indenture, by written notice to
the Company and the Trustee declared the principal of and accrued interest on
all the Securities to be immediately due and payable, and (2) the Company had
delivered to the Trustee, and had requested the Trustee to mail to the Holders,
both a notice from the Company and a Notice of Rescission of Acceleration. In
order to rescind the acceleration of the Securities pursuant to Section 6.02 of
the Indenture, the Holders of at least a majority in principal amount of the
then outstanding Securities had to execute and return to the Trustee such Notice
of Rescission of Acceleration by 1:00 p.m., Los Angeles, California time on
February 28, 1995. The requisite number of Holders did not so execute and
return to the Trustee such Notice of Rescission of Acceleration. As the Holders
are aware, on May 23, 1995, the Trustee notified the Holders by mail (the "Third
Notice") that another Event of Default had occurred under the Indenture in that
the Company had failed to make its interest payment on the Securities which was
due and payable on April 17, 1995, and had continued to fail to make such missed
interest payment for a period of 30 days.
Section 6.02 of the Indenture provides that "[t]he Holders of a majority
in principal amount of the then outstanding Securities by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if any existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration." The Trustee has not as of this date
been notified of any judgment or decree with which a rescission of the
acceleration of the Securities would conflict; and as of this date the only
existing Events of Default of which the Trustee has been notified is the failure
of the Company to make the interest payments on the Securities which became due
and payable on October 17, 1994, and on April 17, 1995.
The Company has delivered to the Trustee, and has requested the Trustee
to mail to the Holders, both (1) the enclosed Company Notice setting October __,
1995, as the special record date for the interest payments on the Securities
which the Company failed to make on October 17, 1994, and on April 17, 1995, and
also setting October 16, 1995, as the payment date for such interest payments on
the Securities which the Company failed to make on October 17, 1994, and on
April 17, 1995, and (2) the enclosed Notice of Rescission of Acceleration.
Please note that, as set forth in the Company Notice, the Company's payment of
the missed October 17, 1994 interest payment (together with interest thereon
from and
1
<PAGE> 25
including October 15, 1994, and to but not including October 16, 1995) and of
the missed April 17, 1995 interest payment (together with interest thereon from
and including April 15, 1995, and to but not including October 16, 1995) is
expressly conditioned, subject to waiver by the Company of such condition, upon
the effective rescission of the acceleration of the Securities by Holders of a
majority in principal amount of the currently outstanding Securities executing
and returning to the Trustee the enclosed Notice of Rescission of Acceleration
on or before 5:00 p.m., Los Angeles, California time on or before October __,
1995. The Company has expressly reserved its right to postpone the record and
payment dates for interest if required by law.
If a Holder wants the principal of and accrued interest on all the
Securities to remain immediately due and payable, a Holder does not need to do
anything. If a Holder wants to rescind the acceleration of the principal of and
interest on the Securities, a Holder must execute the enclosed Notice of
Rescission of Acceleration and return that executed Notice of Rescission of
Acceleration to the Trustee at the address for the Trustee set forth in the
following paragraph. An executed Notice of Rescission of Acceleration must be
received by the Trustee by no later than 5:00 p.m., Los Angeles, California
time, on October __, 1995, or a subsequent date established by the Company in
connection with the postponement of the payment date.
The Company has informed the Trustee that the Company [has mailed or will
be mailing on September __, 1995,] to the Holders an offer by the Company to
exchange for the currently outstanding Securities with cash and common stock of
the Company. The Company has further informed the Trustee that such offer by
the Company is being made pursuant to the March 3, 1995, agreement between the
Company and an ad hoc committee of Holders.
The Trustee will continue with its duties under the Indenture and will
monitor developments in this matter and intends to communicate with the Holders
of the Securities as it deems appropriate as it learns of developments
concerning this matter. Any directions or inquiries regarding this matter
should be directed to Ms. Sandy Chan, Trust Officer, Bank of America National
Trust and Savings Association, Corporate Trust Administration, Department #8510,
333 South Beaudry Avenue, 25th Floor, Los Angeles, California 90017, telephone:
(213) 345-4652.
NOTE: IF YOU ARE A NOMINEE OR A DEPOSITORY AND NOT A BENEFICIAL HOLDER, PLEASE
FORWARD COPIES OF THIS NOTICE IMMEDIATELY TO YOUR CLIENTS WHO ARE
BENEFICIAL HOLDERS OF THE SECURITIES.
Dated: September __, 1995
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Trustee
<PAGE> 26
EXHIBIT (a)(v)
[COMPREHENSIVE CARE LETTERHEAD]
To: Holders of Comprehensive Care Corporation 7 1/2% Convertible
Subordinated Debentures Due April 15, 2010 (the "Securities")
NOTICE IS HEREBY given, pursuant to Section 2.12 of that certain
Indenture dated as of April 25, 1985 (the "Indenture"), between Comprehensive
Care Corporation (the "Company") and Bank of America National Trust and Savings
Association (the "Trustee"), that the Company intends to pay on a business day
during the period from October 9, 1995 through October 16, 1995 (the "Payment
Date"), the aggregate amount of three interest payments, and default interest
on each missed payment, calculated as follows: (1) the interest payment on the
Securities in the aggregate amount of $____________________ ($__________ per
each $1,000 of principal amount of a Security) which was due and payable by the
Company on October 17, 1994, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including October 15, 1994,
and to but not including the Payment Date, as applicable) in the aggregate
amount of $____________________ ($__________ per each $1,000 of principal
amount of a Security) if such payment is made on October 16, 1995, plus
$____________________ ($__________ per each $1,000 of principal amount of a
Security) for each day (based on a 30-day month) after October 15, 1995 that
such payment is made; and (2) the interest payment on the Securities in the
aggregate amount of $____________________ ($__________ per each $1,000 of
principal amount of a Security) which was due and payable by the Company on
April 17, 1995, together with interest on such missed interest payment (at the
rate of 7 1/2% per annum from and including April 15, 1995, and to but not
including the Payment Date, as applicable) in the aggregate amount of
$____________________ ($__________ per each $1,000 of principal amount of a
Security) if such payment is made on October 16, 1995, $____________________
($__________ per each $1,000 of principal amount of a Security) plus
$____________________ ($__________ per each $1,000 of principal amount of a
Security) for each day after October 15, 1995, that such payment is made.
Such payment by the Company will be made to Holders in whose name a Security is
registered as of October __, 1995. Such payment by the Company is conditioned
upon the effective rescission of the acceleration of the Securities by Holders
of a majority in principal amount of the outstanding Securities executing and
delivering to the Trustee the enclosed Notice of Rescission of Acceleration by
no later than 5:00 p.m., Los Angeles, California time, on October __, 1995.
The enclosed Offering Circular and Proxy Statement and other materials contain
significant information relating to the Exchange Offer for Debentures and the
Notice of Rescission of Acceleration, which you should review and become
familiar with.
Dated: September __, 1995
COMPREHENSIVE CARE CORPORATION, a Delaware
corporation
By:
----------------------------------------------
Its:
-----------------------------------------
1
