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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JULY 17, 1995
COMPREHENSIVE CARE CORPORATION
(Exact name of registrant as specified in Charter)
DELAWARE 0-5751 95-2594724
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
4350 VON KARMAN AVENUE, SUITE 280, NEWPORT BEACH, CALIFORNIA 92660
(Address of principal executive offices) (zip code)
(714) 798-0460
(Registrant's telephone number, including area code)
Exhibit Index on Page 4 of 4
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ITEM 5. OTHER EVENTS
On June 29, 1995, the Company entered into an amended common stock purchase
agreement with Lindner Growth Fund ("Lindner"). The agreement, among other
things, amends the original common stock purchase between the Company and
Lindner Fund, Inc. dated February 1, 1995 for the purchase of 100,000 shares of
common stock at $6.00 per share. The amended agreement allows for an
additional 15,000 shares as an adjustment in the February 1, 1995 purchase for
delay in registration of shares and without additional payment. In addition,
the amended agreement provides that Lindner will acquire an additional 135,000
shares of common stock for $6.00 per share. The Company received the proceeds
for such purchase on July 17, 1995.
On July 31, 1995, the Company entered into an agreement with an accredited
investor to acquire, through private placement, 4,167 shares of common stock of
the Company for $6.00 per share. The Company received the proceeds from such
purchase on August 14, 1995.
On August 15, 1995, the Company entered into agreements with two accredited
investors to acquire, through private placement, 10,833 and 5,000 shares,
respectively, of common stock of the Company for $6.00 per share. The Company
received the proceeds from such placements on August 16, 1995.
On August 17, 1995, the Company issued a news release and, on or about August
21, 1995, intends to mail a notice to stockholders pursuant to a requirement on
companies with stock listed on the New York Stock Exchange.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.62 Amended Common Stock Purchase Agreement dated June 29, 1995 between the Company and Lindner Growth Fund, Inc., an
accredited investor (filed herewith).
10.63 Common Stock Purchase Agreement dated July 31, 1995, between the Company and W.V.C. Limited, an accredited investor
(filed herewith).
10.64 Common Stock Purchase Agreement dated August 15, 1995, between the Company and Helen Jean Quinn an accredited
investor (filed herewith).
10.65 Common Stock Purchase Agreement dated August 15, 1995, between the Company and BLC Investments, an accredited
investor (filed herewith).
99.6 News Release dated August 17, 1995
99.7 Notice to Stockholders dated August 18, 1995
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPREHENSIVE CARE CORPORATION
(Registrant)
By: /s/ Kerri Ruppert
----------------------------------------
Kerri Ruppert, Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
August 22, 1995
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.62 Amended Common Stock Purchase Agreement dated June 29, 1995 between the Company and Lindner Growth Fund, Inc., an
accredited investor (filed herewith).
10.63 Common Stock Purchase Agreement dated July 31, 1995, between the Company and W.V.C. Limited, an accredited investor
(filed herewith).
10.64 Common Stock Purchase Agreement dated August 15, 1995, between the Company and Helen Jean Quinn an accredited
investor (filed herewith).
10.65 Common Stock Purchase Agreement dated August 15, 1995, between the Company and BLC Investments, an accredited
investor (filed herewith).
99.6 News Release dated August 17, 1995
99.7 Notice to Stockholders dated August 18, 1995
</TABLE>
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Exhibit 10.62
COMPREHENSIVE CARE CORPORATION
AMENDED
COMMON STOCK PURCHASE AGREEMENT
THIS AMENDED COMMON STOCK PURCHASE AGREEMENT ("Purchase Agreement") is
made and entered into as of the 29th day of June, 1995, by and among
COMPREHENSIVE CARE CORPORATION, a Delaware corporation (the "Company"), and the
persons whose names appear on the signature pages hereof (hereinafter
collectively called the "Purchasers").
R E C I T A L S:
A. The Company desires to obtain financing by issuance of its
authorized and previously unissued shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"); and
B. The Purchasers desire to acquire shares of the Common Stock
(such shares referred to herein individually as a "Share" and collectively as
the "Shares") on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATIONS, IT IS AGREED as
follows:
1. Issue of the Shares. Subject to the terms and conditions
hereof, the Company has authorized from time to time the issuance of an
aggregate of 250,000 Shares to the Purchasers (allocated as provided in Section
9 hereof), for an average purchase price of $5.64 in cash for each Share,
including 100,000 shares for $6.00 per share under a Common Stock Purchase
Agreement dated February 1, 1995 between the Company and Lindner Fund, Inc.;
15,000 shares as an adjustment for delay in registration of shares and without
additional payment; and 135,000 additional shares for $6.00 per share. The
Company acknowledges receipt of $600,000 of the purchase price, and the balance
of the purchase price will be payable upon the execution and delivery of this
Purchase Agreement by wire transfer in same-day or next-day funds as directed
by the Company in writing.
2. Representations and Warranties of the Company. The Company
represents and warrants that, except as set forth on a Schedule hereto:
2.1 The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, and
duly qualified to do business and in good standing as a foreign corporation in
the State of California and each state in which the nature of its business or
properties requires such qualification (except where failure as to qualify
would not
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have a material adverse effect on the Company taken as a whole), with full
power and authority, corporate and otherwise, to enter into and perform this
Purchase Agreement, and to execute and deliver the various instruments and
documents provided for herein.
2.2 The execution, delivery and performance by the
Company of this Purchase Agreement, and the making, execution and delivery by
the Company of the instruments contemplated hereby, have been duly authorized
by all necessary corporate action and will not violate any provision of law,
court order or decree, or of its Certificate of Incorporation or Bylaws, or
result in the breach of, or constitute a default under, or result in the
creation of any lien, charge or encumbrance upon any property or assets of the
Company pursuant to any agreement or instrument to which it is a party, or by
which it or its property may be bound or affected. This Purchase Agreement is
a valid and binding obligation of the Company, enforceable in accordance with
its terms.
2.3 Except as set forth in a Schedule attached hereto,
(a) there are no material lawsuits or proceedings pending, or, to the Company's
knowledge, threatened against or affecting the Company and (b) there are no
proceedings before any governmental commission, bureau or other administrative
agency pending, or, to the Company's knowledge, threatened against the Company.
2.4 The authorized capital of the Company is 12,500,000
shares of Common Stock, $0.01 par value per share, the number of which were
outstanding as of a recent date is set forth on Schedule 2.4 hereto, and 60,000
shares of Preferred Stock, $50.00 par value per share, of which no shares are
issued and outstanding. There are no shares of Common Stock reserved for
issuance for options, warrants or conversion of convertible securities, except
as listed on a Schedule hereto.
2.5 The Company's subsidiaries are as set forth in a
Schedule attached hereto.
2.6 The minute books of the Company have been properly
kept and reflect all transactions entered into by the Company which require
submission to or action by the stockholders or directors of the Company.
2.7 Any and all licenses and approvals required by the
Company for the conduct of its business have been obtained from the federal,
state, or local authorities concerned, all of which are in good standing.
2.8 The Shares of Common Stock issuable under this
Purchase Agreement have been duly authorized and, when issued against payment
therefor, will be validly issued, fully paid and nonassessable.
2.9 Except for any applicable requirements of state
securities laws (as to which no representations or warranties are made), no
governmental permit, consent, approval or authorization is required in
connection with (i) the execution and delivery of this Purchase Agreement by
the Company or (ii) the offer, sale, issuance and delivery of the Shares
contemplated hereby by the Company; provided that, all representations made to
the Company by the Purchasers in this Purchase Agreement and in any other
document or instrument delivered in
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connection herewith are assumed for purposes of this representation and
warranty to be accurate and complete.
2.10 Included in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1994 are the consolidated balance sheets of
the Company at May 31, 1994 and May 31, 1993, and the consolidated statements
of operations, cash flows and stockholders' equity for the year ended May 31,
1994, with the report thereon of Arthur Andersen LLP, independent accountants.
Included in the Company's Quarterly Reports on Form 10-Q for the quarters ended
August 31, 1994, November 30, 1994 and February 28, 1994 are the unaudited
consolidated balance sheets of the Company as of such dates, the unaudited
consolidated statements of operations for the three-month periods ended on such
dates and for the corresponding prior year periods, and the unaudited
consolidated statements of cash flows for the three-month periods ended on such
dates and for the corresponding prior year periods.
2.11 None of the Company's reports and filings with the
Securities and Exchange Commission ("SEC") contained a misstatement of a
material fact or omitted to state a material fact necessary to make the
statements contained therein, in the light of the circumstances in which they
were made or omitted, not misleading.
2.12 The Company Common Stock is traded on The New York
Stock Exchange, Inc. ("NYSE"). No assurance is made as to any future NYSE
listing of Shares of Common Stock.
2.13 The proceeds received by the Company from the Shares
will be applied to general corporate purposes.
3. Representations of Each of the Purchasers.
3.1 Investment Representations. This Purchase Agreement
is made with Purchasers by the Company in reliance upon the Purchasers'
representations to the Company, which by Purchasers' acceptance hereof,
Purchasers confirm, severally and not jointly, except as indicated herein, that
(a) Purchasers are acquiring the Shares for investment for their own account and
not for the beneficial interest of any other person, and not with a view to the
resale or distribution thereof, and that Purchasers will not distribute, sell or
otherwise dispose of the Shares except as permitted under the Securities Act of
1933, as amended (the "Act"), the General Rules and Regulations thereunder, and
all applicable State "Blue Sky" laws; (b) Purchasers have been afforded access
to information and have been informed fully concerning the Company, its
financial condition and business prospects, ; (c) Purchasers' financial
circumstances are such as to permit Purchasers to make this investment without
having a present intention or need to liquidate their investment and Purchasers
also severally acknowledge their awareness that their investment is subject to
substantial risk of loss; (d) Purchasers severally confirm further that they
have been advised that Shares have not been registered under the Act, and that,
accordingly, the Shares will be what is commonly known as "restricted
securities," and are not freely transferrable by the Purchasers except pursuant
to an exemption from registration under the Act, such as Rule 144, the substance
of which is known to the Purchasers; (e) the Purchaser is either an investment
company as defined in the Investment Company Act of 1940, a pension or profit
sharing trust, or other financial institution or institutional buyer; (f)
Purchaser is an accredited investor as defined in Rule 501(a) under Regulation D
pursuant to the Act and any applicable state securities laws;
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(g) a reasonable time prior to the sale of Shares, the Company provided to
Purchaser (A) the information contained in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994; (B) the information contained in
the Company's definitive proxy statements, Forms 10-Q and Forms 8-K filed since
May 31, 1994; (C) a brief description of the Shares, the use of the proceeds
from the offering, and any material changes in the Company's affairs not
disclosed in the documents furnished; (D) information identifying the contents
of the material exhibits to the Company's Form 10-K, and if requested in
writing, such exhibits; and (E) the opportunity to ask questions and receive
answers concerning the terms of the offering and to obtain any additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to verify other required information.
3.2 Other Representations. Each Purchasers, severally
and not jointly, represents as follows: (a) No governmental permit, consent,
approval or authorization is required in connection with (i) the execution and
delivery of this Purchase Agreement by the Purchaser or (ii) the purchase of
the Shares contemplated hereby by the Purchaser; (b) if Purchaser is an
entity, the Purchaser is duly organized and validly existing in good standing
under the laws of the state in which it is organized, and if Purchaser is an
individual, the Purchaser has capacity, and in either case with full power and
authority to enter into and perform this Purchase Agreement, and to execute and
deliver the various instruments and documents provided for herein; (c) the
execution, delivery and performance by the Purchaser of this Purchase
Agreement, and the making, execution and delivery by the Purchaser of the
instruments contemplated hereby, have been duly authorized by all necessary
corporate action and will not violate any provision of law, court order or
decree, or of its charter or bylaws, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Purchaser pursuant to any agreement or
instrument to which it is a party, or by which it or its property may be bound
or affected; and (d) this Purchase Agreement is a valid and binding obligation
of the Purchaser, enforceable in accordance with its terms.
4. Condition to Issuance; Authority to List Shares on NYSE. So
long as the Company's Common Stock continues to be listed on the NYSE, the
obligation of the Company to issue, and the Purchasers to accept, the Shares is
conditioned upon the prior occurrence of one of the following events: the
satisfaction of the NYSE shareholder approval requirement for the issuance; the
availability for the issuance of an exception to the NYSE shareholder approval
policy evidenced by NYSE approval and compliance by the Company with the
conditions to such exception; or the approval for listing of the Shares on the
NYSE. Further, the Purchaser's obligation to accept such shares when issued
shall be limited to the extent that Lindner Investments would then hold record
title to an amount of outstanding Common Stock in excess of ten percent (10%)
of the Company's then outstanding Common Stock.
5. Transfer by Each of the Purchasers. Neither the Shares to be
purchased by Purchasers, nor any interest therein, shall be sold, transferred,
assigned, or otherwise disposed of, unless the Company shall previously have
received an opinion of counsel knowledgeable in federal securities law, in form
and substance satisfactory to the Company and accompanied by such supporting
documents as the Company may reasonably request, to the effect that
registration under the Act is not required in connection with such disposition
pursuant to the Act or the General Rules and Regulations thereunder. The
certificates evidencing the Shares shall bear a conspicuous notation,
substantially as provided below, setting forth the restrictions on transfer of
the Shares:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO SECTION 4(2) OF SAID ACT OR REGULATION D
THEREUNDER AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE
DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE OFFERED FOR
SALE OR SOLD OR OTHERWISE DISPOSED OF OR ENCUMBERED EXCEPT
UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT
THE PRINCIPAL OFFICE OF THE COMPANY.
6. Registration.
6.1 (a) Incidental Registration. The Company will
notify the Purchasers of any proposed filing of a registration statement at
least thirty (30) days prior to each time that the Company proposes to file
such registration statement covering shares of its Common Stock other than (i)
a registration statement for the purpose of registering employees' stock
options or plans or employees' stock purchase or other such director or
employee plans on Form S-8 or its equivalent, or (ii) a registration statement
filed in connection with a business combination, and will include in not more
than two (2) such registration statements any Shares issued to Purchasers which
Purchasers request to have so registered, by notifying the Company not later
than ten (10) days after the receipt by Purchasers of the Company's notice. If
any Purchaser requests such registration, all of the Purchasers shall be
entitled to register such number of their Shares at that time as they shall
specify in writing to the Company, subject to reduction on a pro rata basis if
in the reasonable judgment of the Company or its underwriter or investment
banker the inclusion of more shares could reasonably be expected to threaten
the success of the registration or in the event that the proposed registration
form is inappropriate to register their Shares at that time in the reasonable
judgment of counsel to the Company.
(b) Demand Registration. If the Company has not
instituted registration procedures within the period ending forty-five (45)
days after the date of this Purchase Agreement and which afford the Purchasers
an opportunity to include their shares in such registration proceedings, the
Purchasers shall be entitled to demand a registration with the SEC of some or
all of their Shares. The demand must be made by the holders of not less than
one-half of the Shares originally issued under the Purchase Agreement. The
obligations of the Company and of the Purchasers in connection with any demand
registration shall be as set forth in Section 5.1(c) below.
(c) Terms of Registrations. The foregoing rights
and duties shall be subject to the following terms and conditions:
(i) The Company's duty to notify the
Purchasers and to include any Purchaser's Shares in any such
registration statement pursuant to an incidental registration under
Section 5.1(a) shall cease after any of the Purchasers' Common Stock
has been included in any two (2) effective registration statements,
including any pursuant to Section 5.1(b).
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(ii) The Company shall bear the cost of
any registration statement and the incremental expense of including
therein any of the Purchasers' Shares pursuant to this Section 5.1,
except that the Purchasers shall bear the following expenses ratably
applicable to each Purchaser's Common Stock: any underwriting
discount or brokerage commissions, SEC or NYSE or "Blue Sky" filing or
similar fees, securities transfer taxes, if applicable, and the
Purchaser's own legal expenses.
(iii) The Company will use its best
efforts to cause such registration statement to become effective under
the Act; provided, however, that if any securities being sold directly
by the Company are included in such registration statement, the
Company may at its discretion elect not to proceed with such
registration statement or to withdraw such registration statement
after it has been filed but before it becomes effective under the Act
without regard to whether the registration statement also includes any
of the Purchasers' Shares. In the event that any such registration is
terminated by the Company prior to effectiveness, such registration
shall not be counted as one of the two (2) registration statements
under which a Purchaser is entitled to include Shares hereunder.
(iv) If such registration statement
relates to an underwritten public offering of the Company's Common
Stock for cash and the underwriters or managing underwriters of such
proposed offering determine in good faith that the marketability of
the underwritten Company's Common Stock so requires, Purchasers'
Common Stock which has been included in the registration statement
pursuant to this section shall not be offered or sold to the public
for such period up to sixty (60) days from the effective date of the
registration statement, as such underwriters shall specify in writing.
Nothing herein shall require Purchasers to offer such securities
through any such underwriter.
6.2 The Company's obligations to Purchasers shall require
it to use its best efforts to cause any such registration statement to be
prepared in accordance with the Act and filed in an expeditious manner with due
regard for continuity of the ordinary and necessary business operations of the
Company. In connection with any requests pursuant to Section 5.1, the Company
will (i) use its best efforts to permit a lawful distribution by Purchasers in
the manner specified by Purchasers; (ii) use its best efforts to qualify or
otherwise "blue sky" the proposed offering by Purchasers in California, New
York, Missouri, and not more than two (2) additional jurisdictions agreed upon
by the holders of the majority of the shares included in the registration
statement; provided, however, if such offering is underwritten by an
underwriter, the Purchasers' Shares shall also be "blue skied" in all states
covered by the underwriting; and provided, further, that nothing herein
contained shall require the Company to qualify as a foreign corporation in a
jurisdiction in which it is not presently qualified or to become licensed as a
securities broker or dealer in any jurisdiction; (iii) use its best efforts to
obtain approval for listing the shares included in the registration statement
on the NYSE, or the other principal exchange, or the principal trading market
or quotation system upon which shares of Company Common Stock are then traded;
(iv) provide Purchasers with a reasonable number of registration statements and
prospectuses (including amendments and revisions) requested by Purchasers; and
(v) use its best efforts to have such prospectuses meet the requirements of
Section 10(a) of the Securities Act of 1933, as amended. The Company shall use
reasonable efforts to cause any effective registration statement which includes
Purchasers' Shares to remain effective for a period
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of at least ninety (90) days. Provided, however, in the event of a deferral in
the inclusion of Purchasers' Shares, as provided in Section 5.1(c)(iv), such
minimum period of ninety (90) days shall be extended by the period of such
deferral.
6.3 The Company's obligations under this Section 5 are
conditioned upon its being furnished by Purchasers with detailed descriptions
of Purchasers, their Shares to be covered in the requested registration
statement, their proposed method of distribution, and such other relevant
information and undertakings as may be required. If any Purchaser or
Purchasers do not furnish the requisite information, shares of such Purchasers
need not be included in the registration statement. However, this shall not
affect the right of the other Purchasers hereunder to have their Shares
included within the registration statement.
6.4 Anything herein to the contrary notwithstanding, if
the Company receives a request pursuant to Section 5.1 hereof and believes, in
good faith, that registration under the Act is not required in order to permit
the proposed sale or other disposition of such Shares covered by such request
either because it reasonably believes it can obtain a "no-action letter" from
the SEC permitting the proposed transactions without registration under the Act
or it is not required by reason of Rule 144(k) or otherwise, within ten (10)
days after receiving such request it will so notify Purchasers in writing and
proceed diligently with Purchasers' cooperation to seek to obtain such
"no-action letter" or opinion of counsel, as the case may be; provided,
however, that if such "no-action letter" or an opinion of counsel reasonably
satisfactory in form and substance to Purchasers and Purchasers' counsel (who
must be knowledgeable in federal securities law) is not obtained and submitted
to Purchasers within thirty (30) days from the date on which Purchaser made a
request pursuant to Section 5.1 hereof, the Company shall diligently proceed to
comply with such request in accordance with the terms hereof, without the
imposition on Purchasers of an incremental registration expense occasioned by
such delay.
6.5 In connection with any registration statement
pursuant to this Section 5, Purchasers shall severally and not jointly
indemnify and hold harmless the Company and each person (if any) who controls
the Company within the meaning of Section 15 of the Act from and against all
losses, claims, damages and liabilities to which the Company or any of them may
be subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by an omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission shall have been made in reliance upon and in conformity with written
information furnished to the Company by Purchasers or on Purchasers' behalf
specifically for use in connection with such registration statement.
Reciprocally, the Company hereby agrees to indemnify and hold harmless
Purchasers, any broker or other person who may be deemed an underwriter for
Purchasers and each person (if any) who controls the Purchasers or Purchasers'
underwriter within the meaning of Section 14 of the Act, from and against all
losses, claims, damages and liabilities to which such parties or any of them
may be subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by any omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
statement or omission shall have been made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of Purchasers
specifically for use in connection with such registration statement.
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(a) The foregoing indemnity shall include
reimbursements for any legal or other expenses incurred by the
indemnified party or any director, officer or controlling person, as
defined above, in connection with investigating or defending any such
loss, damage, claim, liability or action.
(b) Promptly after receipt by an indemnified
party under this Section 5.5 of notice of commencement of any action,
the indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 5.5, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it or him, as the case
may be, from any liability to any indemnified party otherwise than
under this Section 5.5 except to the extent that the failure to so
notify such party adversely affected the indemnifying party. In case
any such action is brought against any indemnified party and it or he
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent desired, jointly, with any other indemnifying party similarly
notified, assume the defense and control the settlement thereof, with
counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party as to its
or his election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section
5.5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable cost of investigation.
(c) The Company and the Purchasers each have the
right to make a reasonable investigation of the information contained
in any registration statement covered by this Section 5 to confirm its
accuracy, subject, however, to the obligation of each Purchaser to
keep in confidence, and not to use for purposes of effecting any
trades, any information derived until such time as the information is
filed with the SEC on a non-confidential basis.
6.6 To the extent transfers of the Shares are permitted
pursuant to Section 4 hereof, the Purchasers may transfer, assign or otherwise
dispose of their rights under this Section 5, as a whole or in part, to one or
more parties; but no such action by the Purchasers shall increase or otherwise
affect the nature or extent of the Company's obligations provided in this
Section.
7. Hypothecation of Shares. The Company expressly agrees that
any of the Purchasers may pledge, assign or otherwise hypothecate any of the
Shares acquired hereby to any other Purchaser.
8. Choice of Law and Venue; Jury Trial Waiver
THE VALIDITY OF THIS PURCHASE AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MISSOURI, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT
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SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN
THE STATE OF MISSOURI. THE COMPANY AND EACH PURCHASER WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH PURCHASER HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE PURCHASE AGREEMENT OR ANY OF THE
AGREEMENTS, DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND EACH PURCHASER REPRESENTS FOR
ITSELF THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A NON-JURY TRIAL BY THE COURT.
9. Notices. Any notice or demand required or desired to be given
to or served upon the Company or the Purchasers in connection herewith shall be
in writing and deemed to have been sufficiently given or served for all
purposes when delivered in person or when deposited in the United States mail
certified or registered, postage prepaid, addressed or delivered as follows:
If to the Company: Comprehensive Care Corporation
4350 Von Karman
Suite 280
Newport Beach, CA 92660
Attention: Chriss W. Street, Chairman
If to the Purchasers: Lindner Growth Fund
c/o Ryback Management
7711 Carondelet Avenue, Suite 700
St. Louis, Missouri 63105
Attention: Larry Callahan
<TABLE>
<CAPTION>
Number of
of Shares Purchased Purchasers:
<S> <C>
250,000 Lindner Growth Fund,
a series of Lindner Investments,
a Massachusetts business trust
Total: 250,000
</TABLE>
9
<PAGE> 10
or, if any other address shall at any time be designated by the Company or by
the Purchaser in writing in conformance with the provisions hereof, to such
other address.
10. Parties in Interest. All the terms and provisions of this
Purchase Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, other than purchasers of Shares
sold to the public pursuant to Section 5 hereof.
11. Section and Other Headings. Section and other headings herein
are for reference purposes only, and shall not be used in any way to govern,
limit, modify, construe or otherwise affect this Purchase Agreement.
12. Counterparts. This Purchase Agreement may be executed with
each Purchaser in one or more counterparts, each of which shall be deemed an
original, but all of which together shall be deemed but one and the same
instrument.
13. Attorneys' Fees. In the event of any suit or action arising
out of an Event of Default under this Purchase Agreement, the Purchasers shall
be entitled to reasonable attorneys' fees and costs of suit.
14. Entire Agreement. This Purchase Agreement amends, and
restates in full, the Common Stock Purchase Agreement dated February 1, 1995
between the Company and Lindner Fund, Inc., designated as the "Purchaser" or
"Purchasers" therein, which, as amended and restated herein, continues in full
force and effect and constitutes the entire agreement of the parties with
respect to the subject matter hereof, and the Purchasers are relying on no
representation, warranty or understanding not expressly contained herein.
IN WITNESS WHEREOF, the undersigned have caused this Purchase
Agreement to be executed by the undersigned persons thereunto duly authorized.
"Company"
COMPREHENSIVE CARE CORPORATION
By:
----------------------------------------------
Chriss W. Street, Chairman of the Board,
Chief Executive Officer and President
10
<PAGE> 11
"Purchasers"
LINDNER GROWTH FUND,
a series of LINDNER INVESTMENTS,
a Massachusetts business trust
By:
-----------------------------
Larry Callahan
Print Title:
--------------------
11
<PAGE> 12
SCHEDULE 2.3
TO
COMMON STOCK PURCHASE AGREEMENT
Pending or Threatened
Litigation or Governmental Proceedings
INCORPORATED BY REFERENCE TO RELEVANT DISCLOSURE IN THE
COMPREHENSIVE CARE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1995
IN THE FORM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
12
<PAGE> 13
SCHEDULE 2.4
TO
COMMON STOCK PURCHASE AGREEMENT
<TABLE>
<S> <C>
Shareholders' (Common Stock Purchase) Rights Plan *
1988 Incentive Stock Option Plan 491,130
1988 Non Statutory Stock Option Plan 200,000
Options not within a Plan 97,500
Directors' Stock Option Plan 200,000
Secured Convertible Note 333,333**
due January 1997
Private Placements (shares unissued) 472,500
Includes: Lindner (100,000+15,000+135,000);
Moriarty (150,000+22,500); RH Capital (150,000)
Option to purchase of American Mental Health Care, Inc. 44,054
Potential purchase price of American Mental Health Care, Inc. 132,162
Option issued to Physician Corporation of America 100,000
Shares issuable on Conversion of
Convertible Subordinated Debentures (approx.)** 35,000***
Shares issuable upon proposed exchange with Debentureholders 150,000***
</TABLE>
*Each share of Common Stock outstanding or issued will have one attached Right
to purchase, initially, one share of Common Stock. In the event a person
becomes an Acquiring Person, as defined in the Rights Agreement, the number of
shares purchasable with one Right will be subject to increase based on a
formula that provides generally for a purchase of $300 worth of shares of
Common Stock at a price equal to 50% of the then current market value, as
defined. **Subject to anti-dilution adjustments. ***Excludes shares issuable
upon future voluntary reductions of the conversion price in the discretion of
the Company.
2,214,508 shares, in addition to shares reserved as indicated above, were
outstanding at May 31, 1995. These shares outstanding included 2,148,414
shares represented by new certificates for post-reverse-split Common Stock and
an estimated 66,094 (subject to payment in lieu of fractional shares) of new
shares represented by unexchanged old certificates nominally representing
660,940 shares of pre-reverse split common stock. All numbers reflect the
1-for-10 reverse stock split effected in October 1994.
13
<PAGE> 14
SCHEDULE 2.5
TO
COMMON STOCK PURCHASE AGREEMENT
Subsidiaries
<TABLE>
<CAPTION>
% STOCK OWNED STATE OF INCORP.
--------------- ------------------
<S> <C> <C>
CareManor Hospital of Washington, Inc. 100% Washington
Trinity Oaks Hospital, Inc. 100% Texas
Starting Point, Inc. 100% California
CareInstitute (Non-Profit) 100% California
CareUnit Clinic of Washington, Inc. 100% Washington
CareUnit Hospital of Ohio, Inc. 100% Ohio
CareUnit, Inc. 100%(7) Delaware
AccessCare, Inc. 86.5%(8) Nevada
Newport Point, Inc.(1)(4) 80% Delaware
Access Managed Care, Inc.(2) 100% Ohio
Managed Behavioral HealthCare, Inc.(1)(3) 100% Florida
N.P.H.S., Inc.(2) 100% California
NeuroAffiliates Company(2)(6) 100% California
CareUnit, Inc.(1) 100% California
Comprehensive Care Corporation(1) 100% Nevada
CareUnit Hospital of St. Louis, Inc.(1) 100% Missouri
CareUnit Hospital of Albuquerque, Inc.(1) 100% New Mexico
CareUnit Hospital of Nevada, Inc.(1) 100% Nevada
CareUnit of Chicago, Inc.(1) 100% Illinois
GVHC, Inc.(1) 50% Minnesota
CMP Properties, Inc.(1) 100% Oregon
CompCare Health Services, Ltd.(1) 100% Canada
AccessCare of Washington, Inc.(2)(5) 100% Washington
CareUnit of Florida, Inc.(2) 100% Florida
</TABLE>
________________________________________________________________________________
(1) Inactive and in the process of dissolution.
(2) Inactive.
(3) Formerly known as Mental Health Programs, Inc.
(4) Stock interest held by Starting Point, Inc.
(5) Stock interest held by AccessCare, Inc.
(6) Unincorporated. N.P.H.S. holds this interest.
(7) The Company has agreed to pledge these shares to secure its performance of
the letter agreement dated March 3, 1995 between the Company and a
representative of debentureholders, which requires that the Company offer up to
approximately $4,775,000 in cash, plus $1,150,000 in shares of Common Stock,
plus $765,000 in cash in lieu of interest, to exchanging debentureholders,
assuming the tender of all of the outstanding debentures.
(8) Reflects a purchase by Physician Corporation of America of shares of
preferred stock representing a 13.5% fully-diluted interest in the subsidiary.
<PAGE> 15
SCHEDULE 2.6
TO
COMMON STOCK PURCHASE AGREEMENT
Although some corporate minutes are not completed and executed, the Company
believes that the necessary corporate authorizations material to this
transaction are fully effective.
15
<PAGE> 16
SCHEDULE 2.9
TO
COMMON STOCK PURCHASE AGREEMENT
The Company has submitted a listing application to the NYSE covering certain
shares issuable by the Company, and intends to amend such application to
include these shares. In connection with the application, the Company has
applied for an exception to the NYSE Shareholder Approval Policy based on the
Company's severe financial distress. The Audit Committee of the Board of
Directors of the Company approved reliance upon that exception for such other
shares and will be asked to approve reliance upon exception for issuance of the
Shares pursuant to the foregoing Purchase Agreement. Such exception is also
subject to review and approval by the NYSE, and no assurances can be made that
such approval will be forthcoming. Under such exception, one or more news
releases and notices will be required that express the Company';s reliance on
the exception because of the financial distress of the Company.
16
<PAGE> 17
SCHEDULE 2.10
TO
COMMON STOCK PURCHASE AGREEMENT
In connection with the resignation of Arthur Andersen LLP ("Andersen") from its
audit engagement with the Company, Andersen indicated that "We have advised the
Company that if Arthur Andersen LLP is requested in the future to include our
reports on the Company's 1993 and 1994 financial statements in future filings
with the Securities and Exchange Commission, we would consider undertaking an
engagement to respond to each such request based on the existing facts and
circumstances. Any such engagement would require that we (a) perform a
post-audit review based on procedures and scopes as we considered necessary in
the circumstances, and (b) determine the appropriate form of any report
reissuance at that time based on the results of those procedures." There can
be no assurances that Andersen would reissue its audit reports at this time
without additional or other qualifications or uncertainties. Also there are no
assurances made that events subsequent to the date of the most recent audited
or unaudited financial statements do not, or would not be expected to, have
material and adverse effects on the financial condition of the Company. The
Company's Form 8-K filed on or about May 22, 1995 and Form 8-K/A filed on or
about June 2, 1995 contain additional information. Also see Schedule 2.11.
17
<PAGE> 18
SCHEDULE 2.11
TO
COMMON STOCK PURCHASE AGREEMENT
The Securities and Exchange Commission ("SEC") has delivered comment letters to
the Company from time to time since early 1995 regarding the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1994, and which contains
requests that the Company amendment such report and subsequent Forms 10-Q in
conformity with such comments. The Company has responded and is attempting to
persuade the SEC that the Form 10-Q, and the financial statements therein, does
comply with applicable requirements, and that other comments are not an
appropriate basis to require amending any filings. No assurances can be made
of the outcome of the SEC comments. In the event such SEC comments are not
resolved in a manner favorable to the positions of management, the Company may
incur liability that potentially could arise in connection with SEC,
shareholder or similar claims under applicable securities laws, any of which
could have a materially adverse effect on the Company's financial condition.
Until such comments can be satisfactorily resolved, the Company may be unable
to register securities with the SEC, which could have a material and adverse
effect on the Company's financial condition. Purchasers may review and ask
questions concerning the SEC comment letters and the issues raised thereby.
Reference is made to the SEC Reports and to the Exhibits thereto, which provide
additional information relevant to an investment in the Shares.
18
<PAGE> 19
SCHEDULE 2.12
TO
COMMON STOCK PURCHASE AGREEMENT
As described in the Company's Form 10-Q for the period ended February 28, 1995,
the Company is subject to "listing watch" by the NYSE and fails to satisfy
continuing listing requirements of the NYSE. The Company has been required to
present financial plans and projections to the NYSE, and has generally not met
such projections, and may not have shown improvement in the necessary listing
standard criteria. The Company understands that continued listing of the
Common Stock on the NYSE was made subject to substantial improvement toward
meeting such requirements. No assurances can be made that the Company's Common
Stock will continue to be listed on the NYSE, or in the potential event of NYSE
delisting, that the Common Stock will be acceptable for quotation on the Nasdaq
Stock Market.
19
<PAGE> 20
RISK FACTORS
SCHEDULE
TO
COMMON STOCK PURCHASE AGREEMENT
In addition to all other factors described in the foregoing Purchase Agreement,
these Schedules, and the documents referred to therein or herein, Purchasers
should consider the following risk factors:
RISK FACTORS
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.
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 the IRS on or before July
12, 1995 and retiring of 7 1/2% Convertible Subordinated Debentures, which the
Company has agreed to use its best efforts to do before approximately July 31,
1995, also will require substantial amounts of cash. Issuance of additional
equity securities by the Company could result in substantial dilution to
then-existing stockholders. There can be no assurance that additional
financing will be available on acceptable terms, if at all. In the event of a
failure to meet these obligations on a timely basis, the Company may become
liable for substantial amounts in addition to the negotiated amounts presently
contemplated pursuant to the debenture letter agreement or IRS settlement
agreement.
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 or that the
Company has additional assets that could be disposed of in order to fund its
capital requirements.
In connection with a March 3, 1995 letter agreement with a representative of
the debentureholders, 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
20
<PAGE> 21
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 any such
pledged shares will be returned to the Company or that the Company will not be
required to perform such agreement, or otherwise satisfy its obligations to
debentureholders.
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 no assurance can be given that any such reforms will not
have a material adverse effect on the Company.
MANAGEMENT OF EXPANSION
The Company's anticipated growth and expansion into areas and
activities requiring additional 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
new facilities or management information system will be adequate to sustain
future growth.
21
<PAGE> 22
SHARES ELIGIBLE FOR FUTURE SALE
The Company contemplates issuing substantial amounts of equity through
private placements and other private transactions that have been committed to
but not completed, pending listing on NYSE, shareholder approval, or the
exercise or conversion by holders of securities, and the Company anticipates
issuances of additional equity, including without limitation to holders of
approximately $9.5 million of outstanding convertible debentures. 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.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation 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.
In addition 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. 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 may claim entitlement to tax deductions on account of
specified liability losses defined in Section 172(f) and intends to attempt to
reduce, by means of an offset against taxes due for the 1995 tax year, its
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. Section 172(f) is an area of the tax law without
substantial legal precedent. There may be substantial opposition by the IRS to
such claims, and no assurances can be made of the ability to claim such
deductions. The accountants that are engaged to prepare such tax claims are
not independent with regard to the claims and will be compensated on a
contingent basis. In the event that prior tax returns are amended in order to
utilize some of the
22
<PAGE> 23
claimed deductions, neither the Company nor the IRS will be foreclosed by the
settlement agreement from raising additional issues.
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 periods.
23
<PAGE> 1
Exhibit 10.63
COMPREHENSIVE CARE CORPORATION
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Purchase Agreement") is made
and entered into as of the 31st day of July, 1995, by and among COMPREHENSIVE
CARE CORPORATION, a Delaware corporation (the "Company"), and the persons whose
names appear on the signature pages hereof (hereinafter collectively called the
"Purchasers").
R E C I T A L S:
A. The Company desires to obtain financing by issuance of its
authorized and previously unissued shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"); and
B. The Purchasers desire to acquire shares of the Common Stock
(such shares referred to herein individually as a "Share" and collectively as
the "Shares") on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATIONS, IT IS AGREED as
follows:
1. Issue of the Shares. Subject to the terms and conditions
hereof, the Company has authorized the issuance of an aggregate of 25,000
Shares to the Purchasers (allocated as provided in Section 9 hereof) for a
purchase price of $6.00 in cash for each Share. The purchase price will be
payable upon the execution and delivery of this Purchase Agreement by wire
transfer or certified or cashier's check in same-day or next-day funds as
directed by the Company in writing.
2. Representations and Warranties of the Company. The Company
represents and warrants that, except as set forth on a Schedule or supplement
hereto:
2.1 The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, and
duly qualified to do business and in good standing as a foreign corporation in
the State of California and each state in which the nature of its business or
properties requires such qualification (except where failure as to qualify
would not have a material adverse effect on the Company taken as a whole), with
full power and authority, corporate and otherwise, to enter into and perform
this Purchase Agreement, and to execute and deliver the various instruments and
documents provided for herein.
2.2 The execution, delivery and performance by the
Company of this Purchase Agreement, and the making, execution and delivery by
the Company of the instruments contemplated hereby, have been duly authorized
by all necessary corporate action and will not violate any provision of law,
court order or decree, or of its Certificate of Incorporation or
<PAGE> 2
Bylaws, or result in the breach of, or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to any agreement or instrument to which it is a party, or
by which it or its property may be bound or affected. This Purchase Agreement
is a valid and binding obligation of the Company, enforceable in accordance
with its terms.
2.3 Except as set forth in a Schedule attached hereto,
(a) there are no material lawsuits or proceedings pending, or, to the Company's
knowledge, threatened against or affecting the Company and (b) there are no
proceedings before any governmental commission, bureau or other administrative
agency pending, or, to the Company's knowledge, threatened against the Company.
2.4 The authorized capital of the Company is 12,500,000
shares of Common Stock, $0.01 par value per share, the number of which were
outstanding as of a recent date is set forth on Schedule 2.4 hereto, and 60,000
shares of Preferred Stock, $50.00 par value per share, of which no shares are
issued and outstanding. There are no shares of Common Stock reserved for
issuance for options, warrants or conversion of convertible securities, except
as listed on a Schedule hereto.
2.5 The Company's subsidiaries are as set forth in a
Schedule attached hereto.
2.6 The minute books of the Company have been properly
kept and reflect all transactions entered into by the Company which require
submission to or action by the stockholders or directors of the Company.
2.7 Any and all licenses and approvals required by the
Company for the conduct of its business have been obtained from the federal,
state, or local authorities concerned, all of which are in good standing.
2.8 The Shares of Common Stock issuable under this
Purchase Agreement have been duly authorized and, when issued against payment
therefor, will be validly issued, fully paid and nonassessable.
2.9 Except for any applicable requirements of state
securities laws (as to which no representations or warranties are made), no
governmental permit, consent, approval or authorization is required in
connection with (i) the execution and delivery of this Purchase Agreement by
the Company or (ii) the offer, sale, issuance and delivery of the Shares
contemplated hereby by the Company; provided that, all representations made to
the Company by the Purchasers in this Purchase Agreement and in any other
document or instrument delivered in connection herewith are assumed for
purposes of this representation and warranty to be accurate and complete.
2.10 Included in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1994 are the consolidated balance sheets of
the Company at May 31, 1994 and May 31, 1993, and the consolidated statements
of operations, cash flows and stockholders' equity for the year ended May 31,
1994, with the report thereon of Arthur Andersen LLP, independent accountants.
Included in the Company's Quarterly Reports on Form 10-Q for the quarters ended
August 31, 1994, November 30, 1994 and February 28, 1994 are the unaudited
2
<PAGE> 3
consolidated balance sheets of the Company as of such dates, the unaudited
consolidated statements of operations for the three-month periods ended on such
dates and for the corresponding prior year periods, and the unaudited
consolidated statements of cash flows for the three-month periods ended on such
dates and for the corresponding prior year periods.
2.11 None of the Company's reports and filings with the
Securities and Exchange Commission ("SEC") contained a misstatement of a
material fact or omitted to state a material fact necessary to make the
statements contained therein, in the light of the circumstances in which they
were made or omitted, not misleading.
2.12 The Company Common Stock is traded on The New York
Stock Exchange, Inc. ("NYSE"). No assurance is made as to any future NYSE
listing of Shares of Common Stock.
2.13 The proceeds received by the Company from the Shares
will be applied to general corporate purposes.
3. Representations of Each of the Purchasers.
3.1 Investment Representations. This Purchase Agreement
is made with Purchasers by the Company in reliance upon the Purchasers'
representations to the Company, which by Purchasers' acceptance hereof,
Purchasers confirm, severally and not jointly, except as indicated herein, that
(a) Purchasers are acquiring the Shares for investment for their own account
and not for the beneficial interest of any other person, and not with a view to
the resale or distribution thereof, and that Purchasers will not distribute,
sell or otherwise dispose of the Shares except as permitted under the
Securities Act of 1933, as amended (the "Act"), the General Rules and
Regulations thereunder, and all applicable State "Blue Sky" laws; (b)
Purchasers have been afforded access to information and have been informed
fully concerning the Company, its financial condition and business prospects;
(c) Purchasers' financial circumstances are such as to permit Purchasers to
make this investment without having a present intention or need to liquidate
their investment and Purchasers also severally acknowledge their awareness that
their investment is subject to substantial risk of loss; (d) Purchasers
severally confirm further that they have been advised that Shares have not been
registered under the Act, and that, accordingly, the Shares will be what is
commonly known as "restricted securities," and are not freely transferrable by
the Purchasers except pursuant to an exemption from registration under the Act,
such as Rule 144, the substance of which is known to the Purchasers; (e) the
Purchaser is either a person with a preexisting business or personal
relationship with the Company or any of its officers, directors or controlling
persons or because of the business or financial experience of the Purchaser or
its professional advisers who are unaffiliated with, and not compensated by,
the Company, any affiliate or any selling agent, directly or indirectly, have
the capacity to protect their own interests in connection with the transaction;
(f) the investment of each Purchaser is equal to or exceeds $150,000, each
Purchaser is able to bear the economic risk of such person's investment, and
the investment does not exceed 10% of the Purchaser's net worth or joint net
worth with the person's spouse; (g) each Purchaser who is an entity has equity
owners all of whom are accredited investors, and each of such equity owners who
are individuals has a net worth, or a joint net worth with the person's spouse,
that exceeds $1,000,000, or an income that exceeded $200,000, or joint income
with such person's spouse that exceeded $300,000, in the last two years and
reasonably expects such income in this year to also exceed such amount; (h)
Purchaser
3
<PAGE> 4
is an accredited investor as defined in Rule 501(a) under Regulation D pursuant
to the Act and any applicable state securities laws and has reviewed and is
familiar with such standards; (i) a reasonable time prior to the sale of
Shares, the Company provided to Purchaser (A) the information contained in the
Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994;
(B) the information contained in the Company's definitive proxy statements,
Forms 10-Q and Forms 8-K filed since May 31, 1994; (C) a brief description of
the Shares, the use of the proceeds from the offering, and any material changes
in the Company's affairs not disclosed in the documents furnished; (D)
information identifying the contents of the material exhibits to the Company's
Form 10-K, and if requested in writing, such exhibits; and (E) the opportunity
to ask questions and receive answers concerning the terms of the offering and
to obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify other
required information; (j) Purchaser was not offered or sold the Shares by means
of any general solicitation or general advertising, including but not limited
to any advertisement, article, notice or communication published in any print
or broadcast media or any seminar or meeting to which attendees were invited by
any general solicitation or advertising; and (k) no Purchaser was formed for
the specific purpose of purchasing the Shares.
3.2 Other Representations. Each Purchasers, severally
and not jointly, represents as follows: (a) No governmental permit, consent,
approval or authorization is required in connection with (i) the execution and
delivery of this Purchase Agreement by the Purchaser or (ii) the purchase of
the Shares contemplated hereby by the Purchaser; (b) if Purchaser is an
entity, the Purchaser is duly organized and validly existing in good standing
under the laws of the state in which it is organized, and if Purchaser is an
individual, the Purchaser has capacity, and in either case with full power and
authority to enter into and perform this Purchase Agreement, and to execute and
deliver the various instruments and documents provided for herein; (c) the
execution, delivery and performance by the Purchaser of this Purchase
Agreement, and the making, execution and delivery by the Purchaser of the
instruments contemplated hereby, have been duly authorized by all necessary
corporate action and will not violate any provision of law, court order or
decree, or of its charter or bylaws, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Purchaser pursuant to any agreement or
instrument to which it is a party, or by which it or its property may be bound
or affected; and (d) this Purchase Agreement is a valid and binding obligation
of the Purchaser, enforceable in accordance with its terms.
4. Condition to Issuance; Authority to List Shares on NYSE. So
long as the Company's Common Stock continues to be listed on the NYSE, the
obligation of the Company to issue, and the Purchasers to accept, the Shares is
conditioned upon the prior occurrence of one of the following events: the
satisfaction of the NYSE shareholder approval requirement for the issuance; the
availability for the issuance of an exception to the NYSE shareholder approval
policy evidenced by NYSE approval and compliance by the Company with the
conditions to such exception; or the approval for listing of the Shares on the
NYSE.
5. Transfer by Each of the Purchasers. Neither the Shares to be
purchased by Purchasers, nor any interest therein, shall be sold, transferred,
assigned, or otherwise disposed of, unless the Company shall previously have
received an opinion of counsel knowledgeable in federal securities law, in form
and substance satisfactory to the Company and accompanied by such supporting
documents as the Company may reasonably request, to the effect that
registration
4
<PAGE> 5
under the Act is not required in connection with such disposition pursuant to
the Act or the General Rules and Regulations thereunder. The certificates
evidencing the Shares shall bear a conspicuous notation, substantially as
provided below, setting forth the restrictions on transfer of the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO SECTION 4(2) OF SAID ACT OR REGULATION D
THEREUNDER AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE
DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE OFFERED FOR
SALE OR SOLD OR OTHERWISE DISPOSED OF OR ENCUMBERED EXCEPT
UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT
THE PRINCIPAL OFFICE OF THE COMPANY.
6. Registration.
6.1 (a) Incidental Registration. The Company will
notify the Purchasers of any proposed filing of a registration statement at
least thirty (30) days prior to each time that the Company proposes to file
such registration statement covering shares of its Common Stock other than (i)
a registration statement for the purpose of registering employees' stock
options or plans or employees' stock purchase or other such director or
employee plans on Form S-8 or its equivalent, or (ii) a registration statement
filed in connection with a business combination, and will include in not more
than two (2) such registration statements any Shares issued to Purchasers which
Purchasers request to have so registered, by notifying the Company not later
than ten (10) days after the receipt by Purchasers of the Company's notice. If
any Purchaser requests such registration, all of the Purchasers shall be
entitled to register such number of their Shares at that time as they shall
specify in writing to the Company, subject to reduction on a pro rata basis if
in the reasonable judgment of the Company or its underwriter or investment
banker the inclusion of more shares could reasonably be expected to threaten
the success of the registration or in the event that the proposed registration
form is inappropriate to register their Shares at that time in the reasonable
judgment of counsel to the Company.
(b) Demand Registration. If the Company has not
instituted registration procedures within the period ending forty-five (45)
days after the date of this Purchase Agreement and which afford the Purchasers
an opportunity to include their shares in such registration proceedings, the
Purchasers shall be entitled to demand a registration with the SEC of some or
all of their Shares. The demand must be made by the holders of not less than
one-half of the Shares originally issued under the Purchase Agreement. The
obligations of the Company and of the Purchasers in connection with any demand
registration shall be as set forth in Section 5.1(c) below.
(c) Terms of Registrations. The foregoing rights
and duties shall be subject to the following terms and conditions:
5
<PAGE> 6
(i) The Company's duty to notify the
Purchasers and to include any Purchaser's Shares in any such
registration statement pursuant to an incidental registration under
Section 5.1(a) shall cease after any of the Purchasers' Common Stock
has been included in any two (2) effective registration statements,
including any pursuant to Section 5.1(b).
(ii) The Company shall bear the cost of
any registration statement and the incremental expense of including
therein any of the Purchasers' Shares pursuant to this Section 5.1,
except that the Purchasers shall bear the following expenses ratably
applicable to each Purchaser's Common Stock: any underwriting
discount or brokerage commissions, SEC or NYSE or "Blue Sky" filing or
similar fees, securities transfer taxes, if applicable, and the
Purchaser's own legal expenses.
(iii) The Company will use its best
efforts to cause such registration statement to become effective under
the Act; provided, however, that if any securities being sold directly
by the Company are included in such registration statement, the
Company may at its discretion elect not to proceed with such
registration statement or to withdraw such registration statement
after it has been filed but before it becomes effective under the Act
without regard to whether the registration statement also includes any
of the Purchasers' Shares. In the event that any such registration is
terminated by the Company prior to effectiveness, such registration
shall not be counted as one of the two (2) registration statements
under which a Purchaser is entitled to include Shares hereunder.
(iv) If such registration statement
relates to an underwritten public offering of the Company's Common
Stock for cash and the underwriters or managing underwriters of such
proposed offering determine in good faith that the marketability of
the underwritten Company's Common Stock so requires, Purchasers'
Common Stock which has been included in the registration statement
pursuant to this section shall not be offered or sold to the public
for such period up to sixty (60) days from the effective date of the
registration statement, as such underwriters shall specify in writing.
Nothing herein shall require Purchasers to offer such securities
through any such underwriter.
6.2 The Company's obligations to Purchasers shall require
it to use its best efforts to cause any such registration statement to be
prepared in accordance with the Act and filed in an expeditious manner with due
regard for continuity of the ordinary and necessary business operations of the
Company. In connection with any requests pursuant to Section 5.1, the Company
will (i) use its best efforts to permit a lawful distribution by Purchasers in
the manner specified by Purchasers; (ii) use its best efforts to qualify or
otherwise "blue sky" the proposed offering by Purchasers in California, New
York, and not more than two (2) additional jurisdictions agreed upon by the
holders of the majority of the shares included in the registration statement;
provided, however, if such offering is underwritten by an underwriter, the
Purchasers' Shares shall also be "blue skied" in all states covered by the
underwriting; and provided, further, that nothing herein contained shall
require the Company to qualify as a foreign corporation in a jurisdiction in
which it is not presently qualified or to become licensed as a securities
broker or dealer in any jurisdiction; (iii) use its best efforts to obtain
approval for listing the shares included in the registration statement on the
NYSE, or the other principal exchange, or the
6
<PAGE> 7
principal trading market or quotation system upon which shares of Company
Common Stock are then traded; (iv) provide Purchasers with a reasonable number
of registration statements and prospectuses (including amendments and
revisions) requested by Purchasers; and (v) use its best efforts to have such
prospectuses meet the requirements of Section 10(a) of the Securities Act of
1933, as amended. The Company shall use reasonable efforts to cause any
effective registration statement which includes Purchasers' Shares to remain
effective for a period of at least ninety (90) days. Provided, however, in the
event of a deferral in the inclusion of Purchasers' Shares, as provided in
Section 5.1(c)(iv), such minimum period of ninety (90) days shall be extended
by the period of such deferral.
6.3 The Company's obligations under this Section 5 are
conditioned upon its being furnished by Purchasers with detailed descriptions
of Purchasers, their Shares to be covered in the requested registration
statement, their proposed method of distribution, and such other relevant
information and undertakings as may be required. If any Purchaser or
Purchasers do not furnish the requisite information, shares of such Purchasers
need not be included in the registration statement. However, this shall not
affect the right of the other Purchasers hereunder to have their Shares
included within the registration statement.
6.4 Anything herein to the contrary notwithstanding, if
the Company receives a request pursuant to Section 5.1 hereof and believes, in
good faith, that registration under the Act is not required in order to permit
the proposed sale or other disposition of such Shares covered by such request
either because it reasonably believes it can obtain a "no-action letter" from
the SEC permitting the proposed transactions without registration under the Act
or it is not required by reason of Rule 144(k) or otherwise, within ten (10)
days after receiving such request it will so notify Purchasers in writing and
proceed diligently with Purchasers' cooperation to seek to obtain such
"no-action letter" or opinion of counsel, as the case may be; provided,
however, that if such "no-action letter" or an opinion of counsel reasonably
satisfactory in form and substance to Purchasers and Purchasers' counsel (who
must be knowledgeable in federal securities law) is not obtained and submitted
to Purchasers within thirty (30) days from the date on which Purchaser made a
request pursuant to Section 5.1 hereof, the Company shall diligently proceed to
comply with such request in accordance with the terms hereof, without the
imposition on Purchasers of an incremental registration expense occasioned by
such delay.
6.5 In connection with any registration statement
pursuant to this Section 5, Purchasers shall severally and not jointly
indemnify and hold harmless the Company and each person (if any) who controls
the Company within the meaning of Section 15 of the Act from and against all
losses, claims, damages and liabilities to which the Company or any of them may
be subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by an omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission shall have been made in reliance upon and in conformity with written
information furnished to the Company by Purchasers or on Purchasers' behalf
specifically for use in connection with such registration statement.
Reciprocally, the Company hereby agrees to indemnify and hold harmless
Purchasers, any broker or other person who may be deemed an underwriter for
Purchasers and each person (if any) who controls the Purchasers or Purchasers'
underwriter within the meaning of Section 14 of the Act, from and against all
losses, claims, damages and liabilities to which such parties or any of them
may be subject, actually or allegedly caused by any untrue or
7
<PAGE> 8
allegedly untrue statement of a material fact contained in any such
registration statement or related prospectus or actually or allegedly caused by
any omission to state therein a material fact actually or allegedly required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such statement or omission shall have been made in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of Purchasers specifically for use in connection with such
registration statement.
(a) The foregoing indemnity shall include
reimbursements for any legal or other expenses incurred by the
indemnified party or any director, officer or controlling person, as
defined above, in connection with investigating or defending any such
loss, damage, claim, liability or action.
(b) Promptly after receipt by an indemnified
party under this Section 5.5 of notice of commencement of any action,
the indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 5.5, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it or him, as the case
may be, from any liability to any indemnified party otherwise than
under this Section 5.5 except to the extent that the failure to so
notify such party adversely affected the indemnifying party. In case
any such action is brought against any indemnified party and it or he
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent desired, jointly, with any other indemnifying party similarly
notified, assume the defense and control the settlement thereof, with
counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party as to its
or his election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section
5.5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable cost of investigation.
(c) The Company and the Purchasers each have the
right to make a reasonable investigation of the information contained
in any registration statement covered by this Section 5 to confirm its
accuracy, subject, however, to the obligation of each Purchaser to
keep in confidence, and not to use for purposes of effecting any
trades, any information derived until such time as the information is
filed with the SEC on a non-confidential basis.
6.6 To the extent transfers of the Shares are permitted
pursuant to Section 4 hereof, the Purchasers may transfer, assign or otherwise
dispose of their rights under this Section 5, as a whole or in part, to one or
more parties; but no such action by the Purchasers shall increase or otherwise
affect the nature or extent of the Company's obligations provided in this
Section.
7. Hypothecation of Shares. The Company expressly agrees that
any of the Purchasers may pledge, assign or otherwise hypothecate any of the
Shares acquired hereby to any other Purchaser.
8
<PAGE> 9
8. Choice of Law and Venue; Jury Trial Waiver
THE VALIDITY OF THIS PURCHASE AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF CALIFORNIA. THE COMPANY AND EACH PURCHASER WAIVES, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH
PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE PURCHASE AGREEMENT OR
ANY OF THE AGREEMENTS, DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND EACH PURCHASER
REPRESENTS FOR ITSELF THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A NON-JURY TRIAL BY THE COURT.
9. Notices. Any notice or demand required or desired to be given
to or served upon the Company or the Purchasers in connection herewith shall be
in writing and deemed to have been sufficiently given or served for all
purposes when delivered in person or when deposited in the United States mail
certified or registered, postage prepaid, addressed or delivered as follows:
If to the Company: Comprehensive Care Corporation
4350 Von Karman, Suite 280
Newport Beach, CA 92660
Attention: Chriss W. Street, Chairman
If to the Purchasers: W.V.C. Limited
c/o William F. Coffin
3966 Deervalle Drive
Sherman Oaks, CA 91403
<TABLE>
<CAPTION>
Number of
of Shares Purchased Purchasers:
<S> <C>
25,000 W.V.C. Limited,
a California limited partnership
Total: 25,000
</TABLE>
9
<PAGE> 10
or, if any other address shall at any time be designated by the Company or by
the Purchaser in writing in conformance with the provisions hereof, to such
other address.
10. Parties in Interest. All the terms and provisions of this
Purchase Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, other than purchasers of Shares
sold to the public pursuant to Section 5 hereof.
11. Section and Other Headings. Section and other headings herein
are for reference purposes only, and shall not be used in any way to govern,
limit, modify, construe or otherwise affect this Purchase Agreement.
12. Counterparts. This Purchase Agreement may be executed with
each Purchaser in one or more counterparts, each of which shall be deemed an
original, but all of which together shall be deemed but one and the same
instrument.
13. Attorneys' Fees. In the event of any suit or action arising
out of an Event of Default under this Purchase Agreement, the Purchasers shall
be entitled to reasonable attorneys' fees and costs of suit.
14. Entire Agreement. This Purchase Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
the Purchasers are relying on no representation, warranty or understanding not
expressly contained herein.
IN WITNESS WHEREOF, the undersigned have caused this Purchase
Agreement to be executed by the undersigned persons thereunto duly authorized.
"Company"
COMPREHENSIVE CARE CORPORATION
By:
------------------------------------------
Chriss W. Street, Chairman of the Board,
Chief Executive Officer and
President
10
<PAGE> 11
"Purchasers"
W.V.C. LIMITED,
a California limited partnership
By:___________________, General Partner
By:
------------------------------------
William F. Coffin
Title (if any):
------------------------
11
<PAGE> 12
SCHEDULE 2.3
TO
COMMON STOCK PURCHASE AGREEMENT
Pending or Threatened
Litigation or Governmental Proceedings
INCORPORATED BY REFERENCE TO RELEVANT DISCLOSURE IN THE
COMPREHENSIVE CARE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1995
IN THE FORM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
12
<PAGE> 13
SCHEDULE 2.4
TO
COMMON STOCK PURCHASE AGREEMENT
<TABLE>
<S> <C>
Shareholders' (Common Stock Purchase) Rights Plan *
1988 Incentive Stock Option Plan 491,130
1988 Non Statutory Stock Option Plan 200,000
Options not within a Plan 97,500
Directors' Stock Option Plan 200,000
Secured Convertible Note 333,333**
due January 1997
Private Placements (shares unissued) 472,500
Includes: Lindner (100,000+15,000+135,000);
Moriarty (150,000+22,500); RH Capital (125,000);
W.V.C. Limited (25,000)
Option to purchase of American Mental Health Care, Inc. 44,054
Potential purchase price of American Mental Health Care, Inc. 132,162
Option issued to Physician Corporation of America 100,000
Shares issuable on Conversion of
Convertible Subordinated Debentures (approx.)** 35,000***
Shares issuable upon proposed exchange with Debentureholders 150,000***
</TABLE>
*Each share of Common Stock outstanding or issued will have one attached Right
to purchase, initially, one share of Common Stock. In the event a person
becomes an Acquiring Person, as defined in the Rights Agreement, the number of
shares purchasable with one Right will be subject to increase based on a
formula that provides generally for a purchase of $300 worth of shares of
Common Stock at a price equal to 50% of the then current market value, as
defined. **Subject to anti-dilution adjustments. ***Excludes shares issuable
upon future voluntary reductions of the conversion price in the discretion of
the Company.
2,214,508 shares, in addition to shares reserved as indicated above, were
outstanding at May 31, 1995. These shares outstanding included 2,148,414
shares represented by new certificates for post-reverse-split Common Stock and
an estimated 66,094 (subject to payment in lieu of fractional shares) of new
shares represented by unexchanged old certificates nominally representing
660,940 shares of pre-reverse split common stock. All numbers reflect the
1-for-10 reverse stock split effected in October 1994.
13
<PAGE> 14
SCHEDULE 2.5
TO
COMMON STOCK PURCHASE AGREEMENT
Subsidiaries
<TABLE>
<CAPTION>
% STOCK OWNED STATE OF INCORP.
--------------- -----------------
<S> <C> <C>
CareManor Hospital of Washington, Inc. 100% Washington
Trinity Oaks Hospital, Inc. 100% Texas
Starting Point, Inc. 100% California
CareInstitute (Non-Profit) 100% California
CareUnit Clinic of Washington, Inc. 100% Washington
CareUnit Hospital of Ohio, Inc. 100% Ohio
CareUnit, Inc. 100%(7) Delaware
AccessCare, Inc. 86.5%(8) Nevada
Newport Point, Inc.(1)(4) 80% Delaware
Access Managed Care, Inc.(2) 100% Ohio
Managed Behavioral HealthCare, Inc.(1)(3) 100% Florida
N.P.H.S., Inc.(2) 100% California
NeuroAffiliates Company(2)(6) 100% California
CareUnit, Inc.(1) 100% California
Comprehensive Care Corporation(1) 100% Nevada
CareUnit Hospital of St. Louis, Inc.(1) 100% Missouri
CareUnit Hospital of Albuquerque, Inc.(1) 100% New Mexico
CareUnit Hospital of Nevada, Inc.(1) 100% Nevada
CareUnit of Chicago, Inc.(1) 100% Illinois
GVHC, Inc.(1) 50% Minnesota
CMP Properties, Inc.(1) 100% Oregon
CompCare Health Services, Ltd.(1) 100% Canada
AccessCare of Washington, Inc.(2)(5) 100% Washington
CareUnit of Florida, Inc.(2) 100% Florida
</TABLE>
________________________________________________________________________________
(1) Inactive and in the process of dissolution.
(2) Inactive.
(3) Formerly known as Mental Health Programs, Inc.
(4) Stock interest held by Starting Point, Inc.
(5) Stock interest held by AccessCare, Inc.
(6) Unincorporated. N.P.H.S. holds this interest.
(7) The Company has agreed to pledge these shares to secure its performance of
the letter agreement dated March 3, 1995 between the Company and a
representative of debentureholders, which requires that the Company offer up to
approximately $4,775,000 in cash, plus $1,150,000 in shares of Common Stock,
plus $765,000 in cash in lieu of interest, to exchanging debentureholders,
assuming the tender of all of the outstanding debentures.
(8) Reflects a purchase by Physician Corporation of America of shares of
preferred stock representing a 13.5% fully-diluted interest in the subsidiary.
<PAGE> 15
SCHEDULE 2.6
TO
COMMON STOCK PURCHASE AGREEMENT
Although some corporate minutes are not completed and executed, the Company
believes that the necessary corporate authorizations material to this
transaction are fully effective.
15
<PAGE> 16
SCHEDULE 2.9
TO
COMMON STOCK PURCHASE AGREEMENT
The Company has submitted a listing application to the NYSE covering certain
shares issuable by the Company, and intends to amend such application to
include these shares. In connection with the application, the Company has
applied for an exception to the NYSE Shareholder Approval Policy based on the
Company's severe financial distress. The Audit Committee of the Board of
Directors of the Company approved reliance upon that exception for such other
shares and will be asked to approve reliance upon exception for issuance of the
Shares pursuant to the foregoing Purchase Agreement. Such exception is also
subject to review and approval by the NYSE, and no assurances can be made that
such approval will be forthcoming. Under such exception, one or more news
releases and notices will be required that express the Company';s reliance on
the exception because of the financial distress of the Company.
16
<PAGE> 17
SCHEDULE 2.10
TO
COMMON STOCK PURCHASE AGREEMENT
In connection with the resignation of Arthur Andersen LLP ("Andersen") from its
audit engagement with the Company, Andersen indicated that "We have advised the
Company that if Arthur Andersen LLP is requested in the future to include our
reports on the Company's 1993 and 1994 financial statements in future filings
with the Securities and Exchange Commission, we would consider undertaking an
engagement to respond to each such request based on the existing facts and
circumstances. Any such engagement would require that we (a) perform a
post-audit review based on procedures and scopes as we considered necessary in
the circumstances, and (b) determine the appropriate form of any report
reissuance at that time based on the results of those procedures." There can
be no assurances that Andersen would reissue its audit reports at this time
without additional or other qualifications or uncertainties. Also there are
no assurances made that events subsequent to the date of the most recent
audited or unaudited financial statements do not, or would not be expected to,
have material and adverse effects on the financial condition of the Company.
The Company's Form 8-K filed on or about May 22, 1995 and Form 8-K/A filed on
or about June 2, 1995 contain additional information. Also see Schedule 2.11.
17
<PAGE> 18
SCHEDULE 2.11
TO
COMMON STOCK PURCHASE AGREEMENT
The Securities and Exchange Commission ("SEC") has delivered comment letters to
the Company from time to time since early 1995 regarding the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1994, and which contains
requests that the Company amendment such report and subsequent Forms 10-Q in
conformity with such comments. The Company has responded and is attempting to
persuade the SEC that the Form 10-Q, and the financial statements therein, does
comply with applicable requirements, and that other comments are not an
appropriate basis to require amending any filings. No assurances can be made
of the outcome of the SEC comments. In the event such SEC comments are not
resolved in a manner favorable to the positions of management, the Company may
incur liability that potentially could arise in connection with SEC,
shareholder or similar claims under applicable securities laws, any of which
could have a materially adverse effect on the Company's financial condition.
Until such comments can be satisfactorily resolved, the Company may be unable
to register securities with the SEC, which could have a material and adverse
effect on the Company's financial condition. Purchasers may review and ask
questions concerning the SEC comment letters and the issues raised thereby.
Reference is made to the SEC Reports and to the Exhibits thereto, which provide
additional information relevant to an investment in the Shares.
18
<PAGE> 19
SCHEDULE 2.12
TO
COMMON STOCK PURCHASE AGREEMENT
As described in the Company's Form 10-Q for the period ended February 28, 1995,
the Company is subject to "listing watch" by the NYSE and fails to satisfy
continuing listing requirements of the NYSE. The Company has been required to
present financial plans and projections to the NYSE, and has generally not met
such projections, and may not have shown improvement in the necessary listing
standard criteria. The Company understands that continued listing of the
Common Stock on the NYSE was made subject to substantial improvement toward
meeting such requirements. No assurances can be made that the Company's Common
Stock will continue to be listed on the NYSE, or in the potential event of NYSE
delisting, that the Common Stock will be acceptable for quotation on the Nasdaq
Stock Market.
19
<PAGE> 20
RISK FACTORS
SCHEDULE
TO
COMMON STOCK PURCHASE AGREEMENT
In addition to all other factors described in the foregoing Purchase Agreement,
these Schedules, and the documents referred to therein or herein, Purchasers
should consider the following risk factors:
RISK FACTORS
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.
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 the IRS on or before July
12, 1995 and retiring of 7 1/2% Convertible Subordinated Debentures, which the
Company has agreed to use its best efforts to do before approximately July 31,
1995, also will require substantial amounts of cash. Issuance of additional
equity securities by the Company could result in substantial dilution to
then-existing stockholders. There can be no assurance that additional
financing will be available on acceptable terms, if at all. In the event of a
failure to meet these obligations on a timely basis, the Company may become
liable for substantial amounts in addition to the negotiated amounts presently
contemplated pursuant to the debenture letter agreement or IRS settlement
agreement.
DISPOSITION OF ASSETS
Since the date of the Company's most-recent filings with the SEC (an
"SEC Report") describing the Company's properties, the Company lease was
terminated in Grand Rapids, Michigan and the Company ceased operations in that
facility; however, the Company entered into an agreement with Longford Health
Sources, Inc, to operate a chemical dependency unit in Kent Community Hospital
in Grand Rapids, Michigan; and the Company received an early payment of $2.75
million in cash as full payment for the March 5, 1995 sale of its 136-bed
freestanding facility in Sacramento, California to SPS Health Care, Inc. for
$3.83 million, subject to an early payment discount.
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
or that the Company has additional assets that could be disposed of in order to
fund its capital requirements.
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In connection with a March 3, 1995 letter agreement with a
representative of the debentureholders, 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 any such pledged shares will be returned to the
Company or that the Company will not be required to perform such agreement, or
otherwise satisfy its obligations to debentureholders.
ENGAGEMENT OF ERNST & YOUNG; DELAYS IN SEC FILINGS
The Company engaged Ernst & Young LLP ("EY") to audit the Company's
financial statements for the year ended May 31, 1995 on or about July 5, 1995.
There can be no assurance made that the Company's fiscal 1995 financial
statements can be audited prior to the 90th day following the year end, as
required to file Form 10-K with the Securities and Exchange Commission (the
"SEC") within such period, or prior to the end of the extension period allowed
by Rule 12b-25. No assurances may be made that the audit report, when issued,
will not contain disclaimers or uncertainties as to any matters covered by the
financial statements, including but not limited to going concern qualifications
or disclaimers. Also the Company's or any of its subsidiaries' audited
financial statements may be required to be completed within such time period or
a shorter time period by various agreements. Late filing could be a default
under such or other agreements. In addition, the Company has requested Arthur
Andersen LLP ("Andersen"), the Company's former auditors, to consent to the
inclusion of its audit reports for the 1993 and 1994 fiscal years. As
indicated by Andersen in its letter addressed to the SEC, Andersen intends to
conduct a due diligence review in order to ascertain whether it believes that
its report could be reissued without modifications, or what modifications of
its report and qualifications or uncertainties therein would be necessary. No
assurance may be made that Andersen will be engaged by the Company or would
undertake or complete its due diligence in a timely manner or that the Company
will continue the engagement of Andersen in the event that the expense or time
consumed thereby is deemed unreasonable by the Company. The consent of
Andersen to use such reports, or in lieu thereof reports of another auditor
(requiring another complete audit of such periods) will be necessary in order
to file Form 10-K with the SEC within such period, or prior to the end of the
extension period allowed by Rule 12b-25. Failure to timely file a Form 10-K
may result in the unavailability of Rule 144 for resales of Common Stock,
delays in registration of shares of Common Stock under the Securities Act of
1933 (the "Act"), shareholder claims for failure to provide timely public
information, and other material adverse effects. Also the pending SEC comments
to the Company's previous SEC reports may
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result in delays in filing or the effectiveness of registration statements to
register shares of Common Stock under the Act.
INVOLUNTARY BANKRUPTCY PETITION; ACCELERATION OF INDEBTEDNESS
Despite the dismissal in March 1995 of the involuntary bankruptcy
petition filed against the Company by three purported creditors, no assurance
may be made that such or other persons whom the Company owes any debt could not
file another involuntary petition in bankruptcy court. The Company's 7 1/2
Convertible Subordinated Debentures continue to be in default, including the
payment default involving interest accruing from April 1994 on approximately
$9.5 million of outstanding face amount, and interest on default interest, and
continue to be purportedly accelerated, and immediately payable in full. To
rescind the acceleration of the Debentures would require written consent of a
majority of the Debentures and the cure of all existing defaults. No
assurances can be made that the holders of Debentures will consent to
rescission of the acceleration or that the defaults can be cured. The
Company's ability to solicit consent of Debentureholders may be subject to Rule
14a under the Exchange Act, which may require that the Company provide audited
and unaudited financial information to holders, some or all of which may not be
available until the audit of fiscal 1995 is completed. In the event that the
Company does not retire the Debentures as and when contemplated in the March 3,
1995 letter agreement, Debentureholders who filed the earlier involuntary
petition may file another such petition. Other creditors may also file such a
petition, or institute other actions against the Company, in order to prevent
the Debentureholders from collecting on their debts in advance of payment to
themselves. The acceleration of the Debentures constitutes a default under all
senior debt of the Company; and the holder of the $2 million Senior Convertible
Note due January 9, 1997 is entitled to accelerate the amount due thereunder,
and if not paid to foreclose on collateral including two hospital properties.
Previously, in January 1995, the Company's free-standing hospital facility in
Aurora, Colorado and the Care Unit Hospital of Ohio, Inc., an Ohio corporation
and a wholly-owned subsidiary of the Company, free-standing hospital facility
in Cincinnati, Ohio were given as collateral for the Company's $2 million
Secured Convertible Note due January 9, 1997 payable to Lindner Funds.
TAXES
The Company may claim entitlement to tax deductions on account of
specified liability losses defined in Section 172(f) and intends to attempt to
reduce, by means of an offset against taxes due for the 1995 tax year, its
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. Section 172(f) is an area of the tax law without
substantial legal precedent. There may be substantial opposition by the IRS to
such claims, and no assurances can be made of the ability to claim such
deductions. The accountants that are engaged to prepare such tax claims are
not independent with regard to the claims and will be compensated on a
contingent basis. In the event that prior tax returns are amended in order to
utilize some of the claimed deductions, neither the Company nor the IRS will be
foreclosed by the settlement agreement from raising additional issues.
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<PAGE> 23
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 periods.
PCA INVESTMENT IN ACCESSCARE
On or about May 23, 1995, AccessCare, Inc. ("AccessCare") sold a 13.5%
equity interest for $1 million to Physician Corporation of America ("PCA"). In
connection with that investment AccessCare and the Company granted PCA a right
of first refusal to acquire AccessCare, and the Company granted PCA a 10-year
option to purchase 100,000 shares of the Company's Common Stock in exchange
for its interest in AccessCare.
COMPCARE INVESTMENT IN AMHC
The Company agreed to issue American Mental Health Care, Inc. ("AMHC")
44,054 shares of the Company's Common Stock in return for a one-year management
contract between AccessCare and AMHC, one-third of the shares of AMHC and a
one-year option to acquire all of the shares of AMHC for an aggregate of
132,162 additional shares to be issued to shareholders of AMHC. The Company
sought such an arrangement in lieu of an immediate purchase in order to
accommodate corporate-clean up at AMHC relating to inadequate stock records and
to obtain confirmation that alleged employee stock grants were effectively
rescinded or repurchased.
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
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<PAGE> 24
the effect healthcare reforms may have on its business, and no assurance can be
given that any such reforms will not have a material adverse effect on the
Company.
MANAGEMENT OF EXPANSION
The Company's anticipated growth and expansion into areas and
activities requiring additional 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
new facilities or management information system will be adequate to sustain
future growth.
SHARES ELIGIBLE FOR FUTURE SALE
The Company contemplates issuing substantial amounts of equity through
private placements and other private transactions that have been committed to
but not completed, pending listing on NYSE, shareholder approval, or the
exercise or conversion by holders of securities, and the Company anticipates
issuances of additional equity, including without limitation to holders of
approximately $9.5 million of outstanding convertible debentures. 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.
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<PAGE> 25
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation 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.
In addition 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. 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.
INVESTOR FILING REQUIREMENTS
The Common Stock of the Company is a class of equity securities that
is registered pursuant to Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act"). Therefore, an person's direct or indirect beneficial
ownership of more than five percent of the outstanding Common Stock of the
Company will result in the applicability of filing requirements pursuant to
Regulation 13D-G. Reports of holdings on Schedule 13D or short form Schedule
13G, and amendments thereto, must be delivered by the investor to the Company,
the principal exchange on which the Common Stock is traded, and the SEC at
times required by such regulation. Additional requirements apply to
ten-percent-beneficial holders under Rule 16 under the Exchange Act relating to
short-swing profits. All filing and other requirements, whether or not stated
above, are solely the responsibility of the investor. The Company requests
that the investor consult legal counsel concerning any requirements that may
apply.
ACCREDITED INVESTORS; MANNER OF SALE
The Company's sale of Common Stock is intended to be made only to
accredited investors and without any general solicitation or advertising.
failure of the Company to comply with requirements of Section 4(2) or 4(6)
under the Act or Regulation D under the Act may have material adverse effects
on the Company's financial condition and prospects. The investors'
representations to the Company are material inducements to the Company. If the
investors are aware of any reason that any of such exemptions under the Act is
or may be unavailable, such investor should promptly inform the Company and not
purchase the Common Stock.
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<PAGE> 1
Exhibit 10.64
COMPREHENSIVE CARE CORPORATION
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Purchase Agreement") is made
and entered into as of the 15th day of August, 1995, by and among COMPREHENSIVE
CARE CORPORATION, a Delaware corporation (the "Company"), and the persons whose
names appear on the signature pages hereof (hereinafter collectively called the
"Purchasers").
R E C I T A L S:
A. The Company desires to obtain financing by issuance of its
authorized and previously unissued shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"); and
B. The Purchasers desire to acquire shares of the Common Stock
(such shares referred to herein individually as a "Share" and collectively as
the "Shares") on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATIONS, IT IS AGREED as
follows:
1. Issue of the Shares. Subject to the terms and conditions
hereof, the Company has authorized the issuance of Shares to the Purchasers
(allocated as provided in Section 9 hereof) for a purchase price of $6.00 in
cash for each Share. The purchase price will be payable upon the execution and
delivery of this Purchase Agreement by wire transfer or certified or cashier's
check in same-day or next-day funds as directed by the Company in writing.
2. Representations and Warranties of the Company. The Company
represents and warrants that, except as set forth on a Schedule or supplement
hereto:
2.1 The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, and
duly qualified to do business and in good standing as a foreign corporation in
the State of California and each state in which the nature of its business or
properties requires such qualification (except where failure as to qualify
would not have a material adverse effect on the Company taken as a whole), with
full power and authority, corporate and otherwise, to enter into and perform
this Purchase Agreement, and to execute and deliver the various instruments and
documents provided for herein.
2.2 The execution, delivery and performance by the
Company of this Purchase Agreement, and the making, execution and delivery by
the Company of the instruments contemplated hereby, have been duly authorized
by all necessary corporate action and will not violate any provision of law,
court order or decree, or of its Certificate of Incorporation or
<PAGE> 2
Bylaws, or result in the breach of, or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to any agreement or instrument to which it is a party, or
by which it or its property may be bound or affected. This Purchase Agreement
is a valid and binding obligation of the Company, enforceable in accordance
with its terms.
2.3 Except as set forth in a Schedule attached hereto,
(a) there are no material lawsuits or proceedings pending, or, to the Company's
knowledge, threatened against or affecting the Company and (b) there are no
proceedings before any governmental commission, bureau or other administrative
agency pending, or, to the Company's knowledge, threatened against the Company.
2.4 The authorized capital of the Company is 12,500,000
shares of Common Stock, $0.01 par value per share, the number of which were
outstanding as of a recent date is set forth on Schedule 2.4 hereto, and 60,000
shares of Preferred Stock, $50.00 par value per share, of which no shares are
issued and outstanding. There are no shares of Common Stock reserved for
issuance for options, warrants or conversion of convertible securities, except
as listed on a Schedule hereto.
2.5 The Company's subsidiaries are as set forth in a
Schedule attached hereto.
2.6 The minute books of the Company have been properly
kept and reflect all transactions entered into by the Company which require
submission to or action by the stockholders or directors of the Company.
2.7 Any and all licenses and approvals required by the
Company for the conduct of its business have been obtained from the federal,
state, or local authorities concerned, all of which are in good standing.
2.8 The Shares of Common Stock issuable under this
Purchase Agreement have been duly authorized and, when issued against payment
therefor, will be validly issued, fully paid and nonassessable.
2.9 Except for any applicable requirements of state
securities laws (as to which no representations or warranties are made), no
governmental permit, consent, approval or authorization is required in
connection with (i) the execution and delivery of this Purchase Agreement by
the Company or (ii) the offer, sale, issuance and delivery of the Shares
contemplated hereby by the Company; provided that, all representations made to
the Company by the Purchasers in this Purchase Agreement and in any other
document or instrument delivered in connection herewith are assumed for
purposes of this representation and warranty to be accurate and complete.
2.10 Included in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1994 are the consolidated balance sheets of
the Company at May 31, 1994 and May 31, 1993, and the consolidated statements
of operations, cash flows and stockholders' equity for the year ended May 31,
1994, with the report thereon of Arthur Andersen LLP, independent accountants.
Included in the Company's Quarterly Reports on Form 10-Q for the quarters ended
August 31, 1994, November 30, 1994 and February 28, 1994 are the unaudited
2
<PAGE> 3
consolidated balance sheets of the Company as of such dates, the unaudited
consolidated statements of operations for the three-month periods ended on such
dates and for the corresponding prior year periods, and the unaudited
consolidated statements of cash flows for the three-month periods ended on such
dates and for the corresponding prior year periods.
2.11 None of the Company's reports and filings with the
Securities and Exchange Commission ("SEC") contained a misstatement of a
material fact or omitted to state a material fact necessary to make the
statements contained therein, in the light of the circumstances in which they
were made or omitted, not misleading.
2.12 The Company Common Stock is traded on The New York
Stock Exchange, Inc. ("NYSE"). No assurance is made as to any future NYSE
listing of Shares of Common Stock.
2.13 The proceeds received by the Company from the Shares
will be applied to general corporate purposes.
3. Representations of Each of the Purchasers.
3.1 Investment Representations. This Purchase Agreement
is made with Purchasers by the Company in reliance upon the Purchasers'
representations to the Company, which by Purchasers' acceptance hereof,
Purchasers confirm, severally and not jointly, except as indicated herein, that
(a) Purchasers are acquiring the Shares for investment for their own account
and not for the beneficial interest of any other person, and not with a view to
the resale or distribution thereof, and that Purchasers will not distribute,
sell or otherwise dispose of the Shares except as permitted under the
Securities Act of 1933, as amended (the "Act"), the General Rules and
Regulations thereunder, and all applicable State "Blue Sky" laws; (b)
Purchasers have been afforded access to information and have been informed
fully concerning the Company, its financial condition and business prospects;
(c) Purchasers' financial circumstances are such as to permit Purchasers to
make this investment without having a present intention or need to liquidate
their investment and Purchasers also severally acknowledge their awareness that
their investment is subject to substantial risk of loss; (d) Purchasers
severally confirm further that they have been advised that Shares have not been
registered under the Act, and that, accordingly, the Shares will be what is
commonly known as "restricted securities," and are not freely transferrable by
the Purchasers except pursuant to an exemption from registration under the Act,
such as Rule 144, the substance of which is known to the Purchasers; (e) the
Purchaser is either a person with a preexisting business or personal
relationship with the Company or any of its officers, directors or controlling
persons or because of the business or financial experience of the Purchaser or
its professional advisers who are unaffiliated with, and not compensated by,
the Company, any affiliate or any selling agent, directly or indirectly, have
the capacity to protect their own interests in connection with the transaction;
(f) the investment of each Purchaser is equal to or exceeds $150,000, each
Purchaser is able to bear the economic risk of such person's investment, and
the investment does not exceed 10% of the Purchaser's net worth or joint net
worth with the person's spouse; (g) each Purchaser who is an individual has a
net worth, or a joint net worth with the person's spouse, that exceeds
$1,000,000, or an income that exceeded $200,000, or joint income with such
person's spouse that exceeded $300,000, in the last two years and reasonably
expects such income in this year to also exceed such amount, and each Purchaser
that is an entity has equity owners all of whom are individuals meeting said
requirements or are entities that are
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<PAGE> 4
accredited investors; (h) Purchaser is an accredited investor as defined in
Rule 501(a) under Regulation D pursuant to the Act and any applicable state or
foreign securities laws and has reviewed and is familiar with such standards;
(i) a reasonable time prior to the sale of Shares, the Company provided to
Purchaser (A) the information contained in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994; (B) the information contained in
the Company's definitive proxy statements, Forms 10-Q and Forms 8-K filed since
May 31, 1994; (C) a brief description of the Shares, the use of the proceeds
from the offering, and any material changes in the Company's affairs not
disclosed in the documents furnished; (D) information identifying the contents
of the material exhibits to the Company's Form 10-K, and if requested in
writing, such exhibits; and (E) the opportunity to ask questions and receive
answers concerning the terms of the offering and to obtain any additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to verify other required information; (j)
Purchaser was not offered or sold the Shares by means of any general
solicitation or general advertising, including but not limited to any
advertisement, article, notice or communication published in any print or
broadcast media or any seminar or meeting to which attendees were invited by
any general solicitation or advertising; (k) no Purchaser that is an entity was
formed for the specific purpose of purchasing the Shares; and (l) each
Purchaser that is a trust has total assets in excess of $5,000,000 and its
purchase of the Shares is directed by a sophisticated person with such
knowledge in financial and business matters that he or she is capable of
evaluating the merits and risks of the prospective investment.
3.2 Other Representations. Each Purchasers, severally
and not jointly, represents as follows: (a) No governmental permit, consent,
approval or authorization is required in connection with (i) the execution and
delivery of this Purchase Agreement by the Purchaser or (ii) the purchase of
the Shares contemplated hereby by the Purchaser; (b) if Purchaser is an
entity, the Purchaser is duly organized and validly existing in good standing
under the laws of the state in which it is organized, and if Purchaser is an
individual, the Purchaser has capacity, and in either case with full power and
authority to enter into and perform this Purchase Agreement, and to execute and
deliver the various instruments and documents provided for herein; (c) the
execution, delivery and performance by the Purchaser of this Purchase
Agreement, and the making, execution and delivery by the Purchaser of the
instruments contemplated hereby, have been duly authorized by all necessary
corporate action and will not violate any provision of law, court order or
decree, or of its charter or bylaws, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Purchaser pursuant to any agreement or
instrument to which it is a party, or by which it or its property may be bound
or affected; and (d) this Purchase Agreement is a valid and binding obligation
of the Purchaser, enforceable in accordance with its terms.
4. Condition to Issuance; Authority to List Shares on NYSE. So
long as the Company's Common Stock continues to be listed on the NYSE, the
obligation of the Company to issue, and the Purchasers to accept, the Shares is
conditioned upon the prior occurrence of one of the following events: the
satisfaction of the NYSE shareholder approval requirement for the issuance; the
availability for the issuance of an exception to the NYSE shareholder approval
policy evidenced by NYSE approval and compliance by the Company with the
conditions to such exception; or the approval for listing of the Shares on the
NYSE.
5. Transfer by Each of the Purchasers. Neither the Shares to be
purchased by Purchasers, nor any interest therein, shall be sold, transferred,
assigned, or otherwise disposed
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<PAGE> 5
of, unless the Company shall previously have received an opinion of counsel
knowledgeable in federal securities law, in form and substance satisfactory to
the Company and accompanied by such supporting documents as the Company may
reasonably request, to the effect that registration under the Act is not
required in connection with such disposition pursuant to the Act or the General
Rules and Regulations thereunder. The certificates evidencing the Shares shall
bear a conspicuous notation, substantially as provided below, setting forth
the restrictions on transfer of the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO SECTION 4(2) OF SAID ACT OR REGULATION D
THEREUNDER AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE
DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE OFFERED FOR
SALE OR SOLD OR OTHERWISE DISPOSED OF OR ENCUMBERED EXCEPT
UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT
THE PRINCIPAL OFFICE OF THE COMPANY.
6. Registration.
6.1 (a) Incidental Registration. The Company will
notify the Purchasers of any proposed filing of a registration statement at
least thirty (30) days prior to each time that the Company proposes to file
such registration statement covering shares of its Common Stock other than (i)
a registration statement for the purpose of registering employees' stock
options or plans or employees' stock purchase or other such director or
employee plans on Form S-8 or its equivalent, or (ii) a registration statement
filed in connection with a business combination, and will include in not more
than two (2) such registration statements any Shares issued to Purchasers which
Purchasers request to have so registered, by notifying the Company not later
than ten (10) days after the receipt by Purchasers of the Company's notice. If
any Purchaser requests such registration, all of the Purchasers shall be
entitled to register such number of their Shares at that time as they shall
specify in writing to the Company, subject to reduction on a pro rata basis if
in the reasonable judgment of the Company or its underwriter or investment
banker the inclusion of more shares could reasonably be expected to threaten
the success of the registration or in the event that the proposed registration
form is inappropriate to register their Shares at that time in the reasonable
judgment of counsel to the Company.
(b) Demand Registration. If the Company has not
instituted registration procedures within the period ending forty-five (45)
days after the date of this Purchase Agreement and which afford the Purchasers
an opportunity to include their shares in such registration proceedings, the
Purchasers shall be entitled to demand a registration with the SEC of some or
all of their Shares. The demand must be made by the holders of not less than
one-half of the Shares originally issued under the Purchase Agreement. The
obligations of the Company and of the Purchasers in connection with any demand
registration shall be as set forth in Section 5.1(c) below.
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<PAGE> 6
(c) Terms of Registrations. The foregoing rights
and duties shall be subject to the following terms and conditions:
(i) The Company's duty to notify the
Purchasers and to include any Purchaser's Shares in any such
registration statement pursuant to an incidental registration under
Section 5.1(a) shall cease after any of the Purchasers' Common Stock
has been included in any two (2) effective registration statements,
including any pursuant to Section 5.1(b).
(ii) The Company shall bear the cost of
any registration statement and the incremental expense of including
therein any of the Purchasers' Shares pursuant to this Section 5.1,
except that the Purchasers shall bear the following expenses ratably
applicable to each Purchaser's Common Stock: any underwriting
discount or brokerage commissions, SEC or NYSE or "Blue Sky" filing or
similar fees, securities transfer taxes, if applicable, and the
Purchaser's own legal expenses.
(iii) The Company will use its best
efforts to cause such registration statement to become effective under
the Act; provided, however, that if any securities being sold directly
by the Company are included in such registration statement, the
Company may at its discretion elect not to proceed with such
registration statement or to withdraw such registration statement
after it has been filed but before it becomes effective under the Act
without regard to whether the registration statement also includes any
of the Purchasers' Shares. In the event that any such registration is
terminated by the Company prior to effectiveness, such registration
shall not be counted as one of the two (2) registration statements
under which a Purchaser is entitled to include Shares hereunder.
(iv) If such registration statement
relates to an underwritten public offering of the Company's Common
Stock for cash and the underwriters or managing underwriters of such
proposed offering determine in good faith that the marketability of
the underwritten Company's Common Stock so requires, Purchasers'
Common Stock which has been included in the registration statement
pursuant to this section shall not be offered or sold to the public
for such period up to sixty (60) days from the effective date of the
registration statement, as such underwriters shall specify in writing.
Nothing herein shall require Purchasers to offer such securities
through any such underwriter.
6.2 The Company's obligations to Purchasers shall require
it to use its best efforts to cause any such registration statement to be
prepared in accordance with the Act and filed in an expeditious manner with due
regard for continuity of the ordinary and necessary business operations of the
Company. In connection with any requests pursuant to Section 5.1, the Company
will (i) use its best efforts to permit a lawful distribution by Purchasers in
the manner specified by Purchasers; (ii) use its best efforts to qualify or
otherwise "blue sky" the proposed offering by Purchasers in California, New
York, and not more than two (2) additional jurisdictions agreed upon by the
holders of the majority of the shares included in the registration statement;
provided, however, if such offering is underwritten by an underwriter, the
Purchasers' Shares shall also be "blue skied" in all states covered by the
underwriting; and provided, further, that nothing herein contained shall
require the Company to qualify as a foreign corporation in a
6
<PAGE> 7
jurisdiction in which it is not presently qualified or to become licensed as a
securities broker or dealer in any jurisdiction; (iii) use its best efforts to
obtain approval for listing the shares included in the registration statement
on the NYSE, or the other principal exchange, or the principal trading market
or quotation system upon which shares of Company Common Stock are then traded;
(iv) provide Purchasers with a reasonable number of registration statements and
prospectuses (including amendments and revisions) requested by Purchasers; and
(v) use its best efforts to have such prospectuses meet the requirements of
Section 10(a) of the Securities Act of 1933, as amended. The Company shall use
reasonable efforts to cause any effective registration statement which includes
Purchasers' Shares to remain effective for a period of at least ninety (90)
days. Provided, however, in the event of a deferral in the inclusion of
Purchasers' Shares, as provided in Section 5.1(c)(iv), such minimum period of
ninety (90) days shall be extended by the period of such deferral.
6.3 The Company's obligations under this Section 5 are
conditioned upon its being furnished by Purchasers with detailed descriptions
of Purchasers, their Shares to be covered in the requested registration
statement, their proposed method of distribution, and such other relevant
information and undertakings as may be required. If any Purchaser or
Purchasers do not furnish the requisite information, shares of such Purchasers
need not be included in the registration statement. However, this shall not
affect the right of the other Purchasers hereunder to have their Shares
included within the registration statement.
6.4 Anything herein to the contrary notwithstanding, if
the Company receives a request pursuant to Section 5.1 hereof and believes, in
good faith, that registration under the Act is not required in order to permit
the proposed sale or other disposition of such Shares covered by such request
either because it reasonably believes it can obtain a "no-action letter" from
the SEC permitting the proposed transactions without registration under the Act
or it is not required by reason of Rule 144(k) or otherwise, within ten (10)
days after receiving such request it will so notify Purchasers in writing and
proceed diligently with Purchasers' cooperation to seek to obtain such
"no-action letter" or opinion of counsel, as the case may be; provided,
however, that if such "no-action letter" or an opinion of counsel reasonably
satisfactory in form and substance to Purchasers and Purchasers' counsel (who
must be knowledgeable in federal securities law) is not obtained and submitted
to Purchasers within thirty (30) days from the date on which Purchaser made a
request pursuant to Section 5.1 hereof, the Company shall diligently proceed to
comply with such request in accordance with the terms hereof, without the
imposition on Purchasers of an incremental registration expense occasioned by
such delay.
6.5 In connection with any registration statement
pursuant to this Section 5, Purchasers shall severally and not jointly
indemnify and hold harmless the Company and each person (if any) who controls
the Company within the meaning of Section 15 of the Act from and against all
losses, claims, damages and liabilities to which the Company or any of them may
be subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by an omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission shall have been made in reliance upon and in conformity with written
information furnished to the Company by Purchasers or on Purchasers' behalf
specifically for use in connection with such registration statement.
Reciprocally, the Company hereby agrees to indemnify and hold harmless
Purchasers, any broker or other person who may be deemed an underwriter for
Purchasers and
7
<PAGE> 8
each person (if any) who controls the Purchasers or Purchasers' underwriter
within the meaning of Section 14 of the Act, from and against all losses,
claims, damages and liabilities to which such parties or any of them may be
subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by any omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
statement or omission shall have been made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of Purchasers
specifically for use in connection with such registration statement.
(a) The foregoing indemnity shall include
reimbursements for any legal or other expenses incurred by the
indemnified party or any director, officer or controlling person, as
defined above, in connection with investigating or defending any such
loss, damage, claim, liability or action.
(b) Promptly after receipt by an indemnified
party under this Section 5.5 of notice of commencement of any action,
the indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 5.5, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it or him, as the case
may be, from any liability to any indemnified party otherwise than
under this Section 5.5 except to the extent that the failure to so
notify such party adversely affected the indemnifying party. In case
any such action is brought against any indemnified party and it or he
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent desired, jointly, with any other indemnifying party similarly
notified, assume the defense and control the settlement thereof, with
counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party as to its
or his election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section
5.5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable cost of investigation.
(c) The Company and the Purchasers each have the
right to make a reasonable investigation of the information contained
in any registration statement covered by this Section 5 to confirm its
accuracy, subject, however, to the obligation of each Purchaser to
keep in confidence, and not to use for purposes of effecting any
trades, any information derived until such time as the information is
filed with the SEC on a non-confidential basis.
6.6 To the extent transfers of the Shares are permitted
pursuant to Section 4 hereof, the Purchasers may transfer, assign or otherwise
dispose of their rights under this Section 5, as a whole or in part, to one or
more parties; but no such action by the Purchasers shall increase or otherwise
affect the nature or extent of the Company's obligations provided in this
Section.
7. Hypothecation of Shares. The Company expressly agrees that
any of the Purchasers may pledge, assign or otherwise hypothecate any of the
Shares acquired hereby to any other Purchaser.
8
<PAGE> 9
8. Choice of Law and Venue; Jury Trial Waiver
THE VALIDITY OF THIS PURCHASE AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF CALIFORNIA. THE COMPANY AND EACH PURCHASER WAIVES, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH
PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE PURCHASE AGREEMENT OR
ANY OF THE AGREEMENTS, DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND EACH PURCHASER
REPRESENTS FOR ITSELF THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A NON-JURY TRIAL BY THE COURT.
9. Notices. Any notice or demand required or desired to be given
to or served upon the Company or the Purchasers in connection herewith shall be
in writing and deemed to have been sufficiently given or served for all
purposes when delivered in person or when deposited in the United States mail
certified or registered, postage prepaid, addressed or delivered as follows:
If to the Company: Comprehensive Care Corporation
4350 Von Karman, Suite 280
Newport Beach, CA 92660
Attention: Chriss W. Street, Chairman
If to the Purchasers: Helen Jean Quinn, Trustee
The Quinn Family Trust
2531 Bayshore
Newport Beach, CA 92663-5606
Number of
of Shares Purchased Purchasers:
10,833 Helen Jean Quinn
9
<PAGE> 10
or, if any other address shall at any time be designated by the Company or by
the Purchaser in writing in conformance with the provisions hereof, to such
other address.
10. Parties in Interest. All the terms and provisions of this
Purchase Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, other than purchasers of Shares
sold to the public pursuant to Section 5 hereof.
11. Section and Other Headings. Section and other headings herein
are for reference purposes only, and shall not be used in any way to govern,
limit, modify, construe or otherwise affect this Purchase Agreement.
12. Counterparts. This Purchase Agreement may be executed with
each Purchaser in one or more counterparts, each of which shall be deemed an
original, but all of which together shall be deemed but one and the same
instrument.
13. Attorneys' Fees. In the event of any suit or action arising
out of an Event of Default under this Purchase Agreement, the Purchasers shall
be entitled to reasonable attorneys' fees and costs of suit.
14. Entire Agreement. This Purchase Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
the Purchasers are relying on no representation, warranty or understanding not
expressly contained herein.
IN WITNESS WHEREOF, the undersigned have caused this Purchase
Agreement to be executed by the undersigned persons thereunto duly authorized.
"Company"
COMPREHENSIVE CARE CORPORATION
By:
----------------------------------------------
Chriss W. Street, Chairman of the Board,
Chief Executive Officer and President
10
<PAGE> 11
"Purchasers"
-------------------------------------------------
Helen Jean Quinn
11
<PAGE> 12
SCHEDULE 2.3
TO
COMMON STOCK PURCHASE AGREEMENT
Pending or Threatened
Litigation or Governmental Proceedings
INCORPORATED BY REFERENCE TO RELEVANT DISCLOSURE IN THE
COMPREHENSIVE CARE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1995
IN THE FORM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
12
<PAGE> 13
SCHEDULE 2.4
TO
COMMON STOCK PURCHASE AGREEMENT
<TABLE>
<S> <C>
Shareholders' (Common Stock Purchase) Rights Plan *
1988 Incentive Stock Option Plan 491,130
1988 Non Statutory Stock Option Plan 200,000
Options not within a Plan 97,500
Directors' Stock Option Plan 200,000
Secured Convertible Note 333,333**
due January 1997
Private Placements (shares unissued) 472,500
Includes: Lindner (100,000+15,000+135,000);
Moriarty (150,000+22,500); Quinn Trust (10,833); Others (up to 130,000);
W.V.C. Limited (4,167); B.L.C. Investments (5,000)
Option to purchase of American Mental Health Care, Inc. 44,054
Potential purchase price of American Mental Health Care, Inc. 132,162
Option issued to Physician Corporation of America 100,000
Shares issuable on Conversion of
Convertible Subordinated Debentures (approx.)** 35,000***
Shares issuable upon proposed exchange with Debentureholders 150,000***
</TABLE>
*Each share of Common Stock outstanding or issued will have one attached Right
to purchase, initially, one share of Common Stock. In the event a person
becomes an Acquiring Person, as defined in the Rights Agreement, the number of
shares purchasable with one Right will be subject to increase based on a
formula that provides generally for a purchase of $300 worth of shares of
Common Stock at a price equal to 50% of the then current market value, as
defined. **Subject to anti-dilution adjustments. ***Excludes shares issuable
upon future voluntary reductions of the conversion price in the discretion of
the Company.
2,214,508 shares, in addition to shares reserved as indicated above, were
outstanding at May 31, 1995. These shares outstanding included 2,148,414
shares represented by new certificates for post-reverse-split Common Stock and
an estimated 66,094 (subject to payment in lieu of fractional shares) of new
shares represented by unexchanged old certificates nominally representing
660,940 shares of pre-reverse split common stock. All numbers reflect the
1-for-10 reverse stock split effected in October 1994.
13
<PAGE> 14
SCHEDULE 2.5
TO
COMMON STOCK PURCHASE AGREEMENT
Subsidiaries
<TABLE>
<CAPTION>
% STOCK OWNED STATE OF INCORP.
---------------------------- ----------------------------
<S> <C> <C>
CareManor Hospital of Washington, Inc. 100% Washington
Trinity Oaks Hospital, Inc. 100% Texas
Starting Point, Inc. 100% California
CareInstitute (Non-Profit) 100% California
CareUnit Clinic of Washington, Inc. 100% Washington
CareUnit Hospital of Ohio, Inc. 100% Ohio
CareUnit, Inc. 100%(7) Delaware
Comprehensive Behavioral Care, Inc.,
formerly called AccessCare, Inc. 86.5%(8) Nevada
Newport Point, Inc.(1)(4) 80% Delaware
Access Managed Care, Inc.(2) 100% Ohio
Managed Behavioral HealthCare, Inc.(1)(3) 100% Florida
N.P.H.S., Inc.(2) 100% California
NeuroAffiliates Company(2)(6) 100% California
CareUnit, Inc.(1) 100% California
Comprehensive Care Corporation(1) 100% Nevada
CareUnit Hospital of St. Louis, Inc.(1) 100% Missouri
CareUnit Hospital of Albuquerque, Inc.(1) 100% New Mexico
CareUnit Hospital of Nevada, Inc.(1) 100% Nevada
CareUnit of Chicago, Inc.(1) 100% Illinois
GVHC, Inc.(1) 50% Minnesota
CMP Properties, Inc.(1) 100% Oregon
CompCare Health Services, Ltd.(1) 100% Canada
AccessCare of Washington, Inc.(2)(5) 100% Washington
CareUnit of Florida, Inc.(2) 100% Florida
</TABLE>
- --------------------------------------------------------------------------------
(1) Inactive and in the process of dissolution.
(2) Inactive.
(3) Formerly known as Mental Health Programs, Inc.
(4) Stock interest held by Starting Point, Inc.
(5) Stock interest held by AccessCare, Inc.
(6) Unincorporated. N.P.H.S. holds this interest.
(7) The Company has agreed to pledge these shares to secure its performance of
the letter agreement dated March 3, 1995 between the Company and a
representative of debentureholders, which requires that the Company offer up to
approximately $4,775,000 in cash, plus $1,150,000 in shares of Common Stock,
plus $765,000 in cash in lieu of interest, to exchanging debentureholders,
assuming the tender of all of the outstanding debentures. The Company may
issue additional shares of Common Stock or securities related to Common Stock
in order to retire the debentures. Any such transactions may be dilutive to
the Purchaser. (8) Reflects a purchase by Physician Corporation of America of
shares of preferred stock representing a 13.5% fully-diluted interest in the
subsidiary.
14
<PAGE> 15
SCHEDULE 2.6
TO
COMMON STOCK PURCHASE AGREEMENT
Although some corporate minutes are not completed and executed, the Company
believes that the necessary corporate authorizations material to this
transaction are fully effective.
15
<PAGE> 16
SCHEDULE 2.9
TO
COMMON STOCK PURCHASE AGREEMENT
The Company has submitted a listing application to the NYSE covering certain
shares issuable by the Company, and intends to amend such application to
include these shares. In connection with the application, the Company has
applied for an exception to the NYSE Shareholder Approval Policy based on the
Company's severe financial distress. The Audit Committee of the Board of
Directors of the Company approved reliance upon that exception for such other
shares and will be asked to approve reliance upon exception for issuance of the
Shares pursuant to the foregoing Purchase Agreement. Such exception is also
subject to review and approval by the NYSE, and no assurances can be made that
such approval will be forthcoming. Under such exception, one or more news
releases and notices will be required that express the Company';s reliance on
the exception because of the financial distress of the Company.
16
<PAGE> 17
SCHEDULE 2.10
TO
COMMON STOCK PURCHASE AGREEMENT
In connection with the resignation of Arthur Andersen LLP ("Andersen") from its
audit engagement with the Company, Andersen indicated that "We have advised the
Company that if Arthur Andersen LLP is requested in the future to include our
reports on the Company's 1993 and 1994 financial statements in future filings
with the Securities and Exchange Commission, we would consider undertaking an
engagement to respond to each such request based on the existing facts and
circumstances. Any such engagement would require that we (a) perform a
post-audit review based on procedures and scopes as we considered necessary in
the circumstances, and (b) determine the appropriate form of any report
reissuance at that time based on the results of those procedures." There can
be no assurances that Andersen would reissue its audit reports at this time
without additional or other qualifications or uncertainties. Also there are no
assurances made that events subsequent to the date of the most recent audited
or unaudited financial statements do not, or would not be expected to, have
material and adverse effects on the financial condition of the Company. The
Company's Form 8-K filed on or about May 22, 1995 and Form 8-K/A filed on or
about June 2, 1995 contain additional information. Also see Schedule 2.11.
17
<PAGE> 18
SCHEDULE 2.11
TO
COMMON STOCK PURCHASE AGREEMENT
The Securities and Exchange Commission ("SEC") has delivered comment letters to
the Company from time to time since early 1995 regarding the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1994, and which contains
requests that the Company amendment such report and subsequent Forms 10-Q in
conformity with such comments. The Company has responded and is attempting to
persuade the SEC that the Form 10-Q, and the financial statements therein, does
comply with applicable requirements, and that other comments are not an
appropriate basis to require amending any filings. No assurances can be made
of the outcome of the SEC comments. In the event such SEC comments are not
resolved in a manner favorable to the positions of management, the Company may
incur liability that potentially could arise in connection with SEC,
shareholder or similar claims under applicable securities laws, any of which
could have a materially adverse effect on the Company's financial condition.
Until such comments can be satisfactorily resolved, the Company may be unable
to register securities with the SEC, which could have a material and adverse
effect on the Company's financial condition. Purchasers may review and ask
questions concerning the SEC comment letters and the issues raised thereby.
Reference is made to the SEC Reports and to the Exhibits thereto, which provide
additional information relevant to an investment in the Shares.
18
<PAGE> 19
SCHEDULE 2.12
TO
COMMON STOCK PURCHASE AGREEMENT
As described in the Company's Form 10-Q for the period ended February 28, 1995,
the Company is subject to "listing watch" by the NYSE and fails to satisfy
continuing listing requirements of the NYSE. The Company has been required to
present financial plans and projections to the NYSE, and has generally not met
such projections, and may not have shown improvement in the necessary listing
standard criteria. The Company understands that continued listing of the
Common Stock on the NYSE was made subject to substantial improvement toward
meeting such requirements. No assurances can be made that the Company's Common
Stock will continue to be listed on the NYSE, or in the potential event of NYSE
delisting, that the Common Stock will be acceptable for quotation on the Nasdaq
Stock Market.
19
<PAGE> 20
RISK FACTORS
SCHEDULE
TO
COMMON STOCK PURCHASE AGREEMENT
In addition to all other factors described in the foregoing Purchase Agreement,
these Schedules, and the documents referred to therein or herein, Purchasers
should consider the following risk factors:
RISK FACTORS
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.
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 the IRS on or before July
12, 1995 and retiring of 7 1/2% Convertible Subordinated Debentures, which the
Company has agreed to use its best efforts to do before approximately July 31,
1995, also will require substantial amounts of cash. Issuance of additional
equity securities by the Company could result in substantial dilution to
then-existing stockholders. There can be no assurance that additional
financing will be available on acceptable terms, if at all. In the event of a
failure to meet these obligations on a timely basis, the Company may become
liable for substantial amounts in addition to the negotiated amounts presently
contemplated pursuant to the debenture letter agreement or IRS settlement
agreement.
DISPOSITION OF ASSETS
Since the date of the Company's most-recent filings with the SEC (an
"SEC Report") describing the Company's properties, the Company lease was
terminated in Grand Rapids, Michigan and the Company ceased operations in that
facility; however, the Company entered into an agreement with Longford Health
Sources, Inc, to operate a chemical dependency unit in Kent Community Hospital
in Grand Rapids, Michigan; and the Company received an early payment of $2.75
million in cash as full payment for the March 5, 1995 sale of its 136-bed
freestanding facility in Sacramento, California to SPS Health Care, Inc. for
$3.83 million, subject to an early payment discount.
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
or that the Company has additional assets that could be disposed of in order to
fund its capital requirements.
20
<PAGE> 21
In connection with a March 3, 1995 letter agreement with a
representative of the debentureholders, 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 any such pledged shares will be returned to the
Company or that the Company will not be required to perform such agreement, or
otherwise satisfy its obligations to debentureholders.
ENGAGEMENT OF ERNST & YOUNG; DELAYS IN SEC FILINGS
The Company engaged Ernst & Young LLP ("EY") to audit the Company's
financial statements for the year ended May 31, 1995 on or about July 5, 1995.
There can be no assurance made that the Company's fiscal 1995 financial
statements can be audited prior to the 90th day following the year end, as
required to file Form 10-K with the Securities and Exchange Commission (the
"SEC") within such period, or prior to the end of the extension period allowed
by Rule 12b-25. No assurances may be made that the audit report, when issued,
will not contain disclaimers or uncertainties as to any matters covered by the
financial statements, including but not limited to going concern qualifications
or disclaimers. Also the Company's or any of its subsidiaries' audited
financial statements may be required to be completed within such time period or
a shorter time period by various agreements. Late filing could be a default
under such or other agreements. In addition, the Company has requested Arthur
Andersen LLP ("Andersen"), the Company's former auditors, to consent to the
inclusion of its audit reports for the 1993 and 1994 fiscal years. As
indicated by Andersen in its letter addressed to the SEC, Andersen intends to
conduct a due diligence review in order to ascertain whether it believes that
its report could be reissued without modifications, or what modifications of
its report and qualifications or uncertainties therein would be necessary. No
assurance may be made that Andersen will be engaged by the Company or would
undertake or complete its due diligence in a timely manner or that the Company
will continue the engagement of Andersen in the event that the expense or time
consumed thereby is deemed unreasonable by the Company. The consent of
Andersen to use such reports, or in lieu thereof reports of another auditor
(requiring another complete audit of such periods) will be necessary in order
to file Form 10-K with the SEC within such period, or prior to the end of the
extension period allowed by Rule 12b-25. Failure to timely file a Form 10-K
may result in the unavailability of Rule 144 for resales of Common Stock,
delays in registration of shares of Common Stock under the Securities Act of
1933 (the "Act"), shareholder claims for failure to provide timely public
information, and other material adverse effects. Also the pending SEC comments
to the Company's previous SEC reports may
21
<PAGE> 22
result in delays in filing or the effectiveness of registration statements to
register shares of Common Stock under the Act.
INVOLUNTARY BANKRUPTCY PETITION; ACCELERATION OF INDEBTEDNESS
Despite the dismissal in March 1995 of the involuntary bankruptcy
petition filed against the Company by three purported creditors, no assurance
may be made that such or other persons whom the Company owes any debt could not
file another involuntary petition in bankruptcy court. The Company's 7 1/2
Convertible Subordinated Debentures continue to be in default, including the
payment default involving interest accruing from April 1994 on approximately
$9.5 million of outstanding face amount, and interest on default interest, and
continue to be purportedly accelerated, and immediately payable in full. To
rescind the acceleration of the Debentures would require written consent of a
majority of the Debentures and the cure of all existing defaults. No
assurances can be made that the holders of Debentures will consent to
rescission of the acceleration or that the defaults can be cured. The
Company's ability to solicit consent of Debentureholders may be subject to Rule
14a under the Exchange Act, which may require that the Company provide audited
and unaudited financial information to holders, some or all of which may not be
available until the audit of fiscal 1995 is completed. In the event that the
Company does not retire the Debentures as and when contemplated in the March 3,
1995 letter agreement, Debentureholders who filed the earlier involuntary
petition may file another such petition. Other creditors may also file such a
petition, or institute other actions against the Company, in order to prevent
the Debentureholders from collecting on their debts in advance of payment to
themselves. The acceleration of the Debentures constitutes a default under all
senior debt of the Company; and the holder of the $2 million Senior Convertible
Note due January 9, 1997 is entitled to accelerate the amount due thereunder,
and if not paid to foreclose on collateral including two hospital properties.
Previously, in January 1995, the Company's free-standing hospital facility in
Aurora, Colorado and the Care Unit Hospital of Ohio, Inc., an Ohio corporation
and a wholly-owned subsidiary of the Company, free-standing hospital facility
in Cincinnati, Ohio were given as collateral for the Company's $2 million
Secured Convertible Note due January 9, 1997 payable to Lindner Funds.
TAXES
The Company may claim entitlement to tax deductions on account of
specified liability losses defined in Section 172(f) and intends to attempt to
reduce, by means of an offset against taxes due for the 1995 tax year, its
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. Section 172(f) is an area of the tax law without
substantial legal precedent. There may be substantial opposition by the IRS to
such claims, and no assurances can be made of the ability to claim such
deductions. The accountants that are engaged to prepare such tax claims are
not independent with regard to the claims and will be compensated on a
contingent basis. In the event that prior tax returns are amended in order to
utilize some of the claimed deductions, neither the Company nor the IRS will be
foreclosed by the settlement agreement from raising additional issues.
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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 periods.
PCA INVESTMENT IN ACCESSCARE
On or about May 23, 1995, AccessCare, Inc. ("AccessCare") sold a 13.5%
equity interest for $1 million to Physician Corporation of America ("PCA"). In
connection with that investment AccessCare and the Company granted PCA a right
of first refusal to acquire AccessCare, and the Company granted PCA a 10-year
option to purchase 100,000 shares of the Company's Common Stock in exchange
for its interest in AccessCare.
COMPCARE INVESTMENT IN AMHC
The Company agreed to issue American Mental Health Care, Inc. ("AMHC")
44,054 shares of the Company's Common Stock in return for a one-year management
contract between AccessCare and AMHC, one-third of the shares of AMHC and a
one-year option to acquire all of the shares of AMHC for an aggregate of
132,162 additional shares to be issued to shareholders of AMHC. The Company
sought such an arrangement in lieu of an immediate purchase in order to
accommodate corporate-clean up at AMHC relating to inadequate stock records and
to obtain confirmation that alleged employee stock grants were effectively
rescinded or repurchased.
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
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<PAGE> 24
the effect healthcare reforms may have on its business, and no assurance can be
given that any such reforms will not have a material adverse effect on the
Company.
MANAGEMENT OF EXPANSION
The Company's anticipated growth and expansion into areas and
activities requiring additional 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
new facilities or management information system will be adequate to sustain
future growth.
SHARES ELIGIBLE FOR FUTURE SALE
The Company contemplates issuing substantial amounts of equity through
private placements and other private transactions that have been committed to
but not completed, pending listing on NYSE, shareholder approval, or the
exercise or conversion by holders of securities, and the Company anticipates
issuances of additional equity, including without limitation to holders of
approximately $9.5 million of outstanding convertible debentures. 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.
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<PAGE> 25
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation 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.
In addition 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. 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.
INVESTOR FILING REQUIREMENTS
The Common Stock of the Company is a class of equity securities that
is registered pursuant to Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act"). Therefore, an person's direct or indirect beneficial
ownership of more than five percent of the outstanding Common Stock of the
Company will result in the applicability of filing requirements pursuant to
Regulation 13D-G. Reports of holdings on Schedule 13D or short form Schedule
13G, and amendments thereto, must be delivered by the investor to the Company,
the principal exchange on which the Common Stock is traded, and the SEC at
times required by such regulation. Additional requirements apply to
ten-percent-beneficial holders under Rule 16 under the Exchange Act relating to
short-swing profits. All filing and other requirements, whether or not stated
above, are solely the responsibility of the investor. The Company requests
that the investor consult legal counsel concerning any requirements that may
apply.
ACCREDITED INVESTORS; MANNER OF SALE
The Company's sale of Common Stock is intended to be made only to
accredited investors and without any general solicitation or advertising.
failure of the Company to comply with requirements of Section 4(2) or 4(6)
under the Act or Regulation D under the Act may have material adverse effects
on the Company's financial condition and prospects. The investors'
representations to the Company are material inducements to the Company. If the
investors are aware of any reason that any of such exemptions under the Act is
or may be unavailable, such investor should promptly inform the Company and not
purchase the Common Stock.
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<PAGE> 1
Exhibit 10.65
COMPREHENSIVE CARE CORPORATION
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Purchase Agreement") is made
and entered into as of the 15th day of August, 1995, by and among COMPREHENSIVE
CARE CORPORATION, a Delaware corporation (the "Company"), and the persons whose
names appear on the signature pages hereof (hereinafter collectively called the
"Purchasers").
R E C I T A L S:
A. The Company desires to obtain financing by issuance of its
authorized and previously unissued shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"); and
B. The Purchasers desire to acquire shares of the Common Stock
(such shares referred to herein individually as a "Share" and collectively as
the "Shares") on the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATIONS, IT IS AGREED as
follows:
1. Issue of the Shares. Subject to the terms and conditions
hereof, the Company has authorized the issuance of Shares to the Purchasers
(allocated as provided in Section 9 hereof) for a purchase price of $6.00 in
cash for each Share. The purchase price will be payable upon the execution and
delivery of this Purchase Agreement by wire transfer or certified or cashier's
check in same-day or next-day funds as directed by the Company in writing.
2. Representations and Warranties of the Company. The Company
represents and warrants that, except as set forth on a Schedule or supplement
hereto:
2.1 The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, and
duly qualified to do business and in good standing as a foreign corporation in
the State of California and each state in which the nature of its business or
properties requires such qualification (except where failure as to qualify
would not have a material adverse effect on the Company taken as a whole), with
full power and authority, corporate and otherwise, to enter into and perform
this Purchase Agreement, and to execute and deliver the various instruments and
documents provided for herein.
2.2 The execution, delivery and performance by the
Company of this Purchase Agreement, and the making, execution and delivery by
the Company of the instruments contemplated hereby, have been duly authorized
by all necessary corporate action and will not violate any provision of law,
court order or decree, or of its Certificate of Incorporation or
<PAGE> 2
Bylaws, or result in the breach of, or constitute a default under, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
the Company pursuant to any agreement or instrument to which it is a party, or
by which it or its property may be bound or affected. This Purchase Agreement
is a valid and binding obligation of the Company, enforceable in accordance
with its terms.
2.3 Except as set forth in a Schedule attached hereto,
(a) there are no material lawsuits or proceedings pending, or, to the Company's
knowledge, threatened against or affecting the Company and (b) there are no
proceedings before any governmental commission, bureau or other administrative
agency pending, or, to the Company's knowledge, threatened against the Company.
2.4 The authorized capital of the Company is 12,500,000
shares of Common Stock, $0.01 par value per share, the number of which were
outstanding as of a recent date is set forth on Schedule 2.4 hereto, and 60,000
shares of Preferred Stock, $50.00 par value per share, of which no shares are
issued and outstanding. There are no shares of Common Stock reserved for
issuance for options, warrants or conversion of convertible securities, except
as listed on a Schedule hereto.
2.5 The Company's subsidiaries are as set forth in a
Schedule attached hereto.
2.6 The minute books of the Company have been properly
kept and reflect all transactions entered into by the Company which require
submission to or action by the stockholders or directors of the Company.
2.7 Any and all licenses and approvals required by the
Company for the conduct of its business have been obtained from the federal,
state, or local authorities concerned, all of which are in good standing.
2.8 The Shares of Common Stock issuable under this
Purchase Agreement have been duly authorized and, when issued against payment
therefor, will be validly issued, fully paid and nonassessable.
2.9 Except for any applicable requirements of state
securities laws (as to which no representations or warranties are made), no
governmental permit, consent, approval or authorization is required in
connection with (i) the execution and delivery of this Purchase Agreement by
the Company or (ii) the offer, sale, issuance and delivery of the Shares
contemplated hereby by the Company; provided that, all representations made to
the Company by the Purchasers in this Purchase Agreement and in any other
document or instrument delivered in connection herewith are assumed for
purposes of this representation and warranty to be accurate and complete.
2.10 Included in the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1994 are the consolidated balance sheets of
the Company at May 31, 1994 and May 31, 1993, and the consolidated statements
of operations, cash flows and stockholders' equity for the year ended May 31,
1994, with the report thereon of Arthur Andersen LLP, independent accountants.
Included in the Company's Quarterly Reports on Form 10-Q for the quarters ended
August 31, 1994, November 30, 1994 and February 28, 1994 are the unaudited
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<PAGE> 3
consolidated balance sheets of the Company as of such dates, the unaudited
consolidated statements of operations for the three-month periods ended on such
dates and for the corresponding prior year periods, and the unaudited
consolidated statements of cash flows for the three-month periods ended on such
dates and for the corresponding prior year periods.
2.11 None of the Company's reports and filings with the
Securities and Exchange Commission ("SEC") contained a misstatement of a
material fact or omitted to state a material fact necessary to make the
statements contained therein, in the light of the circumstances in which they
were made or omitted, not misleading.
2.12 The Company Common Stock is traded on The New York
Stock Exchange, Inc. ("NYSE"). No assurance is made as to any future NYSE
listing of Shares of Common Stock.
2.13 The proceeds received by the Company from the Shares
will be applied to general corporate purposes.
3. Representations of Each of the Purchasers.
3.1 Investment Representations. This Purchase Agreement
is made with Purchasers by the Company in reliance upon the Purchasers'
representations to the Company, which by Purchasers' acceptance hereof,
Purchasers confirm, severally and not jointly, except as indicated herein, that
(a) Purchasers are acquiring the Shares for investment for their own account
and not for the beneficial interest of any other person, and not with a view to
the resale or distribution thereof, and that Purchasers will not distribute,
sell or otherwise dispose of the Shares except as permitted under the
Securities Act of 1933, as amended (the "Act"), the General Rules and
Regulations thereunder, and all applicable State "Blue Sky" laws; (b)
Purchasers have been afforded access to information and have been informed
fully concerning the Company, its financial condition and business prospects;
(c) Purchasers' financial circumstances are such as to permit Purchasers to
make this investment without having a present intention or need to liquidate
their investment and Purchasers also severally acknowledge their awareness that
their investment is subject to substantial risk of loss; (d) Purchasers
severally confirm further that they have been advised that Shares have not been
registered under the Act, and that, accordingly, the Shares will be what is
commonly known as "restricted securities," and are not freely transferrable by
the Purchasers except pursuant to an exemption from registration under the Act,
such as Rule 144, the substance of which is known to the Purchasers; (e) the
Purchaser is either a person with a preexisting business or personal
relationship with the Company or any of its officers, directors or controlling
persons or because of the business or financial experience of the Purchaser or
its professional advisers who are unaffiliated with, and not compensated by,
the Company, any affiliate or any selling agent, directly or indirectly, have
the capacity to protect their own interests in connection with the transaction;
(f) the investment of each Purchaser is equal to or exceeds $150,000, each
Purchaser is able to bear the economic risk of such person's investment, and
the investment does not exceed 10% of the Purchaser's net worth or joint net
worth with the person's spouse; (g) each Purchaser who is an individual has a
net worth, or a joint net worth with the person's spouse, that exceeds
$1,000,000, or an income that exceeded $200,000, or joint income with such
person's spouse that exceeded $300,000, in the last two years and reasonably
expects such income in this year to also exceed such amount, and each Purchaser
that is an entity has equity owners all of whom are individuals meeting said
requirements or are entities that are
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<PAGE> 4
accredited investors; (h) Purchaser is an accredited investor as defined in
Rule 501(a) under Regulation D pursuant to the Act and any applicable state or
foreign securities laws and has reviewed and is familiar with such standards;
(i) a reasonable time prior to the sale of Shares, the Company provided to
Purchaser (A) the information contained in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1994; (B) the information contained in
the Company's definitive proxy statements, Forms 10-Q and Forms 8-K filed since
May 31, 1994; (C) a brief description of the Shares, the use of the proceeds
from the offering, and any material changes in the Company's affairs not
disclosed in the documents furnished; (D) information identifying the contents
of the material exhibits to the Company's Form 10-K, and if requested in
writing, such exhibits; and (E) the opportunity to ask questions and receive
answers concerning the terms of the offering and to obtain any additional
information which the Company possesses or can acquire without unreasonable
effort or expense that is necessary to verify other required information; (j)
Purchaser was not offered or sold the Shares by means of any general
solicitation or general advertising, including but not limited to any
advertisement, article, notice or communication published in any print or
broadcast media or any seminar or meeting to which attendees were invited by
any general solicitation or advertising; (k) no Purchaser that is an entity was
formed for the specific purpose of purchasing the Shares; and (l) each
Purchaser that is a trust has total assets in excess of $5,000,000 and its
purchase of the Shares is directed by a sophisticated person with such
knowledge in financial and business matters that he or she is capable of
evaluating the merits and risks of the prospective investment.
3.2 Other Representations. Each Purchasers, severally
and not jointly, represents as follows: (a) No governmental permit, consent,
approval or authorization is required in connection with (i) the execution and
delivery of this Purchase Agreement by the Purchaser or (ii) the purchase of
the Shares contemplated hereby by the Purchaser; (b) if Purchaser is an
entity, the Purchaser is duly organized and validly existing in good standing
under the laws of the state in which it is organized, and if Purchaser is an
individual, the Purchaser has capacity, and in either case with full power and
authority to enter into and perform this Purchase Agreement, and to execute and
deliver the various instruments and documents provided for herein; (c) the
execution, delivery and performance by the Purchaser of this Purchase
Agreement, and the making, execution and delivery by the Purchaser of the
instruments contemplated hereby, have been duly authorized by all necessary
corporate action and will not violate any provision of law, court order or
decree, or of its charter or bylaws, or result in the breach of, or constitute
a default under, or result in the creation of any lien, charge or encumbrance
upon any property or assets of the Purchaser pursuant to any agreement or
instrument to which it is a party, or by which it or its property may be bound
or affected; and (d) this Purchase Agreement is a valid and binding obligation
of the Purchaser, enforceable in accordance with its terms.
4. Condition to Issuance; Authority to List Shares on NYSE. So
long as the Company's Common Stock continues to be listed on the NYSE, the
obligation of the Company to issue, and the Purchasers to accept, the Shares is
conditioned upon the prior occurrence of one of the following events: the
satisfaction of the NYSE shareholder approval requirement for the issuance; the
availability for the issuance of an exception to the NYSE shareholder approval
policy evidenced by NYSE approval and compliance by the Company with the
conditions to such exception; or the approval for listing of the Shares on the
NYSE.
5. Transfer by Each of the Purchasers. Neither the Shares to be
purchased by Purchasers, nor any interest therein, shall be sold, transferred,
assigned, or otherwise disposed
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<PAGE> 5
of, unless the Company shall previously have received an opinion of counsel
knowledgeable in federal securities law, in form and substance satisfactory to
the Company and accompanied by such supporting documents as the Company may
reasonably request, to the effect that registration under the Act is not
required in connection with such disposition pursuant to the Act or the General
Rules and Regulations thereunder. The certificates evidencing the Shares shall
bear a conspicuous notation, substantially as provided below, setting forth
the restrictions on transfer of the Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO SECTION 4(2) OF SAID ACT OR REGULATION D
THEREUNDER AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE
DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE OFFERED FOR
SALE OR SOLD OR OTHERWISE DISPOSED OF OR ENCUMBERED EXCEPT
UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE PURCHASE
AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT
THE PRINCIPAL OFFICE OF THE COMPANY.
6. Registration.
6.1 (a) Incidental Registration. The Company will
notify the Purchasers of any proposed filing of a registration statement at
least thirty (30) days prior to each time that the Company proposes to file
such registration statement covering shares of its Common Stock other than (i)
a registration statement for the purpose of registering employees' stock
options or plans or employees' stock purchase or other such director or
employee plans on Form S-8 or its equivalent, or (ii) a registration statement
filed in connection with a business combination, and will include in not more
than two (2) such registration statements any Shares issued to Purchasers which
Purchasers request to have so registered, by notifying the Company not later
than ten (10) days after the receipt by Purchasers of the Company's notice. If
any Purchaser requests such registration, all of the Purchasers shall be
entitled to register such number of their Shares at that time as they shall
specify in writing to the Company, subject to reduction on a pro rata basis if
in the reasonable judgment of the Company or its underwriter or investment
banker the inclusion of more shares could reasonably be expected to threaten
the success of the registration or in the event that the proposed registration
form is inappropriate to register their Shares at that time in the reasonable
judgment of counsel to the Company.
(b) Demand Registration. If the Company has not
instituted registration procedures within the period ending forty-five (45)
days after the date of this Purchase Agreement and which afford the Purchasers
an opportunity to include their shares in such registration proceedings, the
Purchasers shall be entitled to demand a registration with the SEC of some or
all of their Shares. The demand must be made by the holders of not less than
one-half of the Shares originally issued under the Purchase Agreement. The
obligations of the Company and of the Purchasers in connection with any demand
registration shall be as set forth in Section 5.1(c) below.
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<PAGE> 6
(c) Terms of Registrations. The foregoing rights
and duties shall be subject to the following terms and conditions:
(i) The Company's duty to notify the
Purchasers and to include any Purchaser's Shares in any such
registration statement pursuant to an incidental registration under
Section 5.1(a) shall cease after any of the Purchasers' Common Stock
has been included in any two (2) effective registration statements,
including any pursuant to Section 5.1(b).
(ii) The Company shall bear the cost of
any registration statement and the incremental expense of including
therein any of the Purchasers' Shares pursuant to this Section 5.1,
except that the Purchasers shall bear the following expenses ratably
applicable to each Purchaser's Common Stock: any underwriting
discount or brokerage commissions, SEC or NYSE or "Blue Sky" filing or
similar fees, securities transfer taxes, if applicable, and the
Purchaser's own legal expenses.
(iii) The Company will use its best
efforts to cause such registration statement to become effective under
the Act; provided, however, that if any securities being sold directly
by the Company are included in such registration statement, the
Company may at its discretion elect not to proceed with such
registration statement or to withdraw such registration statement
after it has been filed but before it becomes effective under the Act
without regard to whether the registration statement also includes any
of the Purchasers' Shares. In the event that any such registration is
terminated by the Company prior to effectiveness, such registration
shall not be counted as one of the two (2) registration statements
under which a Purchaser is entitled to include Shares hereunder.
(iv) If such registration statement
relates to an underwritten public offering of the Company's Common
Stock for cash and the underwriters or managing underwriters of such
proposed offering determine in good faith that the marketability of
the underwritten Company's Common Stock so requires, Purchasers'
Common Stock which has been included in the registration statement
pursuant to this section shall not be offered or sold to the public
for such period up to sixty (60) days from the effective date of the
registration statement, as such underwriters shall specify in writing.
Nothing herein shall require Purchasers to offer such securities
through any such underwriter.
6.2 The Company's obligations to Purchasers shall require
it to use its best efforts to cause any such registration statement to be
prepared in accordance with the Act and filed in an expeditious manner with due
regard for continuity of the ordinary and necessary business operations of the
Company. In connection with any requests pursuant to Section 5.1, the Company
will (i) use its best efforts to permit a lawful distribution by Purchasers in
the manner specified by Purchasers; (ii) use its best efforts to qualify or
otherwise "blue sky" the proposed offering by Purchasers in California, New
York, and not more than two (2) additional jurisdictions agreed upon by the
holders of the majority of the shares included in the registration statement;
provided, however, if such offering is underwritten by an underwriter, the
Purchasers' Shares shall also be "blue skied" in all states covered by the
underwriting; and provided, further, that nothing herein contained shall
require the Company to qualify as a foreign corporation in a
6
<PAGE> 7
jurisdiction in which it is not presently qualified or to become licensed as a
securities broker or dealer in any jurisdiction; (iii) use its best efforts to
obtain approval for listing the shares included in the registration statement
on the NYSE, or the other principal exchange, or the principal trading market
or quotation system upon which shares of Company Common Stock are then traded;
(iv) provide Purchasers with a reasonable number of registration statements and
prospectuses (including amendments and revisions) requested by Purchasers; and
(v) use its best efforts to have such prospectuses meet the requirements of
Section 10(a) of the Securities Act of 1933, as amended. The Company shall use
reasonable efforts to cause any effective registration statement which includes
Purchasers' Shares to remain effective for a period of at least ninety (90)
days. Provided, however, in the event of a deferral in the inclusion of
Purchasers' Shares, as provided in Section 5.1(c)(iv), such minimum period of
ninety (90) days shall be extended by the period of such deferral.
6.3 The Company's obligations under this Section 5 are
conditioned upon its being furnished by Purchasers with detailed descriptions
of Purchasers, their Shares to be covered in the requested registration
statement, their proposed method of distribution, and such other relevant
information and undertakings as may be required. If any Purchaser or
Purchasers do not furnish the requisite information, shares of such Purchasers
need not be included in the registration statement. However, this shall not
affect the right of the other Purchasers hereunder to have their Shares
included within the registration statement.
6.4 Anything herein to the contrary notwithstanding, if
the Company receives a request pursuant to Section 5.1 hereof and believes, in
good faith, that registration under the Act is not required in order to permit
the proposed sale or other disposition of such Shares covered by such request
either because it reasonably believes it can obtain a "no-action letter" from
the SEC permitting the proposed transactions without registration under the Act
or it is not required by reason of Rule 144(k) or otherwise, within ten (10)
days after receiving such request it will so notify Purchasers in writing and
proceed diligently with Purchasers' cooperation to seek to obtain such
"no-action letter" or opinion of counsel, as the case may be; provided,
however, that if such "no-action letter" or an opinion of counsel reasonably
satisfactory in form and substance to Purchasers and Purchasers' counsel (who
must be knowledgeable in federal securities law) is not obtained and submitted
to Purchasers within thirty (30) days from the date on which Purchaser made a
request pursuant to Section 5.1 hereof, the Company shall diligently proceed to
comply with such request in accordance with the terms hereof, without the
imposition on Purchasers of an incremental registration expense occasioned by
such delay.
6.5 In connection with any registration statement
pursuant to this Section 5, Purchasers shall severally and not jointly
indemnify and hold harmless the Company and each person (if any) who controls
the Company within the meaning of Section 15 of the Act from and against all
losses, claims, damages and liabilities to which the Company or any of them may
be subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by an omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, which statement or
omission shall have been made in reliance upon and in conformity with written
information furnished to the Company by Purchasers or on Purchasers' behalf
specifically for use in connection with such registration statement.
Reciprocally, the Company hereby agrees to indemnify and hold harmless
Purchasers, any broker or other person who may be deemed an underwriter for
Purchasers and
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<PAGE> 8
each person (if any) who controls the Purchasers or Purchasers' underwriter
within the meaning of Section 14 of the Act, from and against all losses,
claims, damages and liabilities to which such parties or any of them may be
subject, actually or allegedly caused by any untrue or allegedly untrue
statement of a material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by any omission to state
therein a material fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
statement or omission shall have been made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of Purchasers
specifically for use in connection with such registration statement.
(a) The foregoing indemnity shall include
reimbursements for any legal or other expenses incurred by the
indemnified party or any director, officer or controlling person, as
defined above, in connection with investigating or defending any such
loss, damage, claim, liability or action.
(b) Promptly after receipt by an indemnified
party under this Section 5.5 of notice of commencement of any action,
the indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 5.5, notify the
indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it or him, as the case
may be, from any liability to any indemnified party otherwise than
under this Section 5.5 except to the extent that the failure to so
notify such party adversely affected the indemnifying party. In case
any such action is brought against any indemnified party and it or he
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent desired, jointly, with any other indemnifying party similarly
notified, assume the defense and control the settlement thereof, with
counsel reasonably satisfactory to such indemnified party. After
notice from the indemnifying party to such indemnified party as to its
or his election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section
5.5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable cost of investigation.
(c) The Company and the Purchasers each have the
right to make a reasonable investigation of the information contained
in any registration statement covered by this Section 5 to confirm its
accuracy, subject, however, to the obligation of each Purchaser to
keep in confidence, and not to use for purposes of effecting any
trades, any information derived until such time as the information is
filed with the SEC on a non-confidential basis.
6.6 To the extent transfers of the Shares are permitted
pursuant to Section 4 hereof, the Purchasers may transfer, assign or otherwise
dispose of their rights under this Section 5, as a whole or in part, to one or
more parties; but no such action by the Purchasers shall increase or otherwise
affect the nature or extent of the Company's obligations provided in this
Section.
7. Hypothecation of Shares. The Company expressly agrees that
any of the Purchasers may pledge, assign or otherwise hypothecate any of the
Shares acquired hereby to any other Purchaser.
8
<PAGE> 9
8. Choice of Law and Venue; Jury Trial Waiver
THE VALIDITY OF THIS PURCHASE AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE STATE OF CALIFORNIA. THE COMPANY AND EACH PURCHASER WAIVES, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH
PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE PURCHASE AGREEMENT OR
ANY OF THE AGREEMENTS, DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND EACH PURCHASER
REPRESENTS FOR ITSELF THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A NON-JURY TRIAL BY THE COURT.
9. Notices. Any notice or demand required or desired to be given
to or served upon the Company or the Purchasers in connection herewith shall be
in writing and deemed to have been sufficiently given or served for all
purposes when delivered in person or when deposited in the United States mail
certified or registered, postage prepaid, addressed or delivered as follows:
If to the Company: Comprehensive Care Corporation
4350 Von Karman, Suite 280
Newport Beach, CA 92660
Attention: Chriss W. Street, Chairman
If to the Purchasers: Christopher K. Wyncoop
B.L.C. Investments
2361 Campus Drive, Suite 214
Irvine, CA 92715-1424
Number of
of Shares Purchased Purchasers:
5,000 B.L.C. Investments
9
<PAGE> 10
or, if any other address shall at any time be designated by the Company or by
the Purchaser in writing in conformance with the provisions hereof, to such
other address.
10. Parties in Interest. All the terms and provisions of this
Purchase Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, other than purchasers of Shares
sold to the public pursuant to Section 5 hereof.
11. Section and Other Headings. Section and other headings herein
are for reference purposes only, and shall not be used in any way to govern,
limit, modify, construe or otherwise affect this Purchase Agreement.
12. Counterparts. This Purchase Agreement may be executed with
each Purchaser in one or more counterparts, each of which shall be deemed an
original, but all of which together shall be deemed but one and the same
instrument.
13. Attorneys' Fees. In the event of any suit or action arising
out of an Event of Default under this Purchase Agreement, the Purchasers shall
be entitled to reasonable attorneys' fees and costs of suit.
14. Entire Agreement. This Purchase Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof, and
the Purchasers are relying on no representation, warranty or understanding not
expressly contained herein.
IN WITNESS WHEREOF, the undersigned have caused this Purchase
Agreement to be executed by the undersigned persons thereunto duly authorized.
"Company"
COMPREHENSIVE CARE CORPORATION
By:
------------------------------------------------
Chriss W. Street, Chairman of the Board,
Chief Executive Officer and President
10
<PAGE> 11
"Purchasers"
B.L.C. INVESTMENTS
By:
------------------------------------------------
Christopher K. Wyncoop
Title:
---------------------------------------------
11
<PAGE> 12
SCHEDULE 2.3
TO
COMMON STOCK PURCHASE AGREEMENT
Pending or Threatened
Litigation or Governmental Proceedings
INCORPORATED BY REFERENCE TO RELEVANT DISCLOSURE IN THE
COMPREHENSIVE CARE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 28, 1995
IN THE FORM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
12
<PAGE> 13
SCHEDULE 2.4
TO
COMMON STOCK PURCHASE AGREEMENT
<TABLE>
<S> <C>
Shareholders' (Common Stock Purchase) Rights Plan *
1988 Incentive Stock Option Plan 491,130
1988 Non Statutory Stock Option Plan 200,000
Options not within a Plan 97,500
Directors' Stock Option Plan 200,000
Secured Convertible Note 333,333**
due January 1997
Private Placements (shares unissued) 472,500
Includes: Lindner (100,000+15,000+135,000);
Moriarty (150,000+22,500); Quinn Trust (10,833); Others (up to 130,000);
W.V.C. Limited (4,167); B.L.C. Investments (5,000)
Option to purchase of American Mental Health Care, Inc. 44,054
Potential purchase price of American Mental Health Care, Inc. 132,162
Option issued to Physician Corporation of America 100,000
Shares issuable on Conversion of
Convertible Subordinated Debentures (approx.)** 35,000***
Shares issuable upon proposed exchange with Debentureholders 150,000***
</TABLE>
*Each share of Common Stock outstanding or issued will have one attached Right
to purchase, initially, one share of Common Stock. In the event a person
becomes an Acquiring Person, as defined in the Rights Agreement, the number of
shares purchasable with one Right will be subject to increase based on a
formula that provides generally for a purchase of $300 worth of shares of
Common Stock at a price equal to 50% of the then current market value, as
defined. **Subject to anti-dilution adjustments. ***Excludes shares issuable
upon future voluntary reductions of the conversion price in the discretion of
the Company.
2,214,508 shares, in addition to shares reserved as indicated above, were
outstanding at May 31, 1995. These shares outstanding included 2,148,414
shares represented by new certificates for post-reverse-split Common Stock and
an estimated 66,094 (subject to payment in lieu of fractional shares) of new
shares represented by unexchanged old certificates nominally representing
660,940 shares of pre-reverse split common stock. All numbers reflect the
1-for-10 reverse stock split effected in October 1994.
13
<PAGE> 14
SCHEDULE 2.5
TO
COMMON STOCK PURCHASE AGREEMENT
Subsidiaries
<TABLE>
<CAPTION>
% STOCK OWNED STATE OF INCORP.
---------------------------- ----------------------------
<S> <C> <C>
CareManor Hospital of Washington, Inc. 100% Washington
Trinity Oaks Hospital, Inc. 100% Texas
Starting Point, Inc. 100% California
CareInstitute (Non-Profit) 100% California
CareUnit Clinic of Washington, Inc. 100% Washington
CareUnit Hospital of Ohio, Inc. 100% Ohio
CareUnit, Inc. 100%(7) Delaware
Comprehensive Behavioral Care, Inc.,
formerly called AccessCare, Inc. 86.5%(8) Nevada
Newport Point, Inc.(1)(4) 80% Delaware
Access Managed Care, Inc.(2) 100% Ohio
Managed Behavioral HealthCare, Inc.(1)(3) 100% Florida
N.P.H.S., Inc.(2) 100% California
NeuroAffiliates Company(2)(6) 100% California
CareUnit, Inc.(1) 100% California
Comprehensive Care Corporation(1) 100% Nevada
CareUnit Hospital of St. Louis, Inc.(1) 100% Missouri
CareUnit Hospital of Albuquerque, Inc.(1) 100% New Mexico
CareUnit Hospital of Nevada, Inc.(1) 100% Nevada
CareUnit of Chicago, Inc.(1) 100% Illinois
GVHC, Inc.(1) 50% Minnesota
CMP Properties, Inc.(1) 100% Oregon
CompCare Health Services, Ltd.(1) 100% Canada
AccessCare of Washington, Inc.(2)(5) 100% Washington
CareUnit of Florida, Inc.(2) 100% Florida
</TABLE>
- --------------------------------------------------------------------------------
(1) Inactive and in the process of dissolution.
(2) Inactive.
(3) Formerly known as Mental Health Programs, Inc.
(4) Stock interest held by Starting Point, Inc.
(5) Stock interest held by AccessCare, Inc.
(6) Unincorporated. N.P.H.S. holds this interest.
(7) The Company has agreed to pledge these shares to secure its performance of
the letter agreement dated March 3, 1995 between the Company and a
representative of debentureholders, which requires that the Company offer up to
approximately $4,775,000 in cash, plus $1,150,000 in shares of Common Stock,
plus $765,000 in cash in lieu of interest, to exchanging debentureholders,
assuming the tender of all of the outstanding debentures. The Company may
issue additional shares of Common Stock or securities related to Common Stock
in order to retire the debentures. Any such transactions may be dilutive to
the Purchaser. (8) Reflects a purchase by Physician Corporation of America of
shares of preferred stock representing a 13.5% fully-diluted interest in the
subsidiary.
14
<PAGE> 15
SCHEDULE 2.6
TO
COMMON STOCK PURCHASE AGREEMENT
Although some corporate minutes are not completed and executed, the Company
believes that the necessary corporate authorizations material to this
transaction are fully effective.
15
<PAGE> 16
SCHEDULE 2.9
TO
COMMON STOCK PURCHASE AGREEMENT
The Company has submitted a listing application to the NYSE covering certain
shares issuable by the Company, and intends to amend such application to
include these shares. In connection with the application, the Company has
applied for an exception to the NYSE Shareholder Approval Policy based on the
Company's severe financial distress. The Audit Committee of the Board of
Directors of the Company approved reliance upon that exception for such other
shares and will be asked to approve reliance upon exception for issuance of the
Shares pursuant to the foregoing Purchase Agreement. Such exception is also
subject to review and approval by the NYSE, and no assurances can be made that
such approval will be forthcoming. Under such exception, one or more news
releases and notices will be required that express the Company';s reliance on
the exception because of the financial distress of the Company.
16
<PAGE> 17
SCHEDULE 2.10
TO
COMMON STOCK PURCHASE AGREEMENT
In connection with the resignation of Arthur Andersen LLP ("Andersen") from its
audit engagement with the Company, Andersen indicated that "We have advised the
Company that if Arthur Andersen LLP is requested in the future to include our
reports on the Company's 1993 and 1994 financial statements in future filings
with the Securities and Exchange Commission, we would consider undertaking an
engagement to respond to each such request based on the existing facts and
circumstances. Any such engagement would require that we (a) perform a
post-audit review based on procedures and scopes as we considered necessary in
the circumstances, and (b) determine the appropriate form of any report
reissuance at that time based on the results of those procedures." There can
be no assurances that Andersen would reissue its audit reports at this time
without additional or other qualifications or uncertainties. Also there are
no assurances made that events subsequent to the date of the most recent
audited or unaudited financial statements do not, or would not be expected to,
have material and adverse effects on the financial condition of the Company.
The Company's Form 8-K filed on or about May 22, 1995 and Form 8-K/A filed on
or about June 2, 1995 contain additional information. Also see Schedule 2.11.
17
<PAGE> 18
SCHEDULE 2.11
TO
COMMON STOCK PURCHASE AGREEMENT
The Securities and Exchange Commission ("SEC") has delivered comment letters to
the Company from time to time since early 1995 regarding the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1994, and which contains
requests that the Company amendment such report and subsequent Forms 10-Q in
conformity with such comments. The Company has responded and is attempting to
persuade the SEC that the Form 10-Q, and the financial statements therein, does
comply with applicable requirements, and that other comments are not an
appropriate basis to require amending any filings. No assurances can be made
of the outcome of the SEC comments. In the event such SEC comments are not
resolved in a manner favorable to the positions of management, the Company may
incur liability that potentially could arise in connection with SEC,
shareholder or similar claims under applicable securities laws, any of which
could have a materially adverse effect on the Company's financial condition.
Until such comments can be satisfactorily resolved, the Company may be unable
to register securities with the SEC, which could have a material and adverse
effect on the Company's financial condition. Purchasers may review and ask
questions concerning the SEC comment letters and the issues raised thereby.
Reference is made to the SEC Reports and to the Exhibits thereto, which provide
additional information relevant to an investment in the Shares.
18
<PAGE> 19
SCHEDULE 2.12
TO
COMMON STOCK PURCHASE AGREEMENT
As described in the Company's Form 10-Q for the period ended February 28, 1995,
the Company is subject to "listing watch" by the NYSE and fails to satisfy
continuing listing requirements of the NYSE. The Company has been required to
present financial plans and projections to the NYSE, and has generally not met
such projections, and may not have shown improvement in the necessary listing
standard criteria. The Company understands that continued listing of the
Common Stock on the NYSE was made subject to substantial improvement toward
meeting such requirements. No assurances can be made that the Company's Common
Stock will continue to be listed on the NYSE, or in the potential event of NYSE
delisting, that the Common Stock will be acceptable for quotation on the Nasdaq
Stock Market.
19
<PAGE> 20
RISK FACTORS
SCHEDULE
TO
COMMON STOCK PURCHASE AGREEMENT
In addition to all other factors described in the foregoing Purchase Agreement,
these Schedules, and the documents referred to therein or herein, Purchasers
should consider the following risk factors:
RISK FACTORS
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.
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 the IRS on or before July
12, 1995 and retiring of 7 1/2% Convertible Subordinated Debentures, which the
Company has agreed to use its best efforts to do before approximately July 31,
1995, also will require substantial amounts of cash. Issuance of additional
equity securities by the Company could result in substantial dilution to
then-existing stockholders. There can be no assurance that additional
financing will be available on acceptable terms, if at all. In the event of a
failure to meet these obligations on a timely basis, the Company may become
liable for substantial amounts in addition to the negotiated amounts presently
contemplated pursuant to the debenture letter agreement or IRS settlement
agreement.
DISPOSITION OF ASSETS
Since the date of the Company's most-recent filings with the SEC (an
"SEC Report") describing the Company's properties, the Company lease was
terminated in Grand Rapids, Michigan and the Company ceased operations in that
facility; however, the Company entered into an agreement with Longford Health
Sources, Inc, to operate a chemical dependency unit in Kent Community Hospital
in Grand Rapids, Michigan; and the Company received an early payment of $2.75
million in cash as full payment for the March 5, 1995 sale of its 136-bed
freestanding facility in Sacramento, California to SPS Health Care, Inc. for
$3.83 million, subject to an early payment discount.
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
or that the Company has additional assets that could be disposed of in order to
fund its capital requirements.
20
<PAGE> 21
In connection with a March 3, 1995 letter agreement with a
representative of the debentureholders, 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 any
such pledged shares will be returned to the Company or that the Company will not
be required to perform such agreement, or otherwise satisfy its obligations to
debentureholders.
ENGAGEMENT OF ERNST & YOUNG; DELAYS IN SEC FILINGS
The Company engaged Ernst & Young LLP ("EY") to audit the Company's
financial statements for the year ended May 31, 1995 on or about July 5, 1995.
There can be no assurance made that the Company's fiscal 1995 financial
statements can be audited prior to the 90th day following the year end, as
required to file Form 10-K with the Securities and Exchange Commission (the
"SEC") within such period, or prior to the end of the extension period allowed
by Rule 12b-25. No assurances may be made that the audit report, when issued,
will not contain disclaimers or uncertainties as to any matters covered by the
financial statements, including but not limited to going concern qualifications
or disclaimers. Also the Company's or any of its subsidiaries' audited
financial statements may be required to be completed within such time period or
a shorter time period by various agreements. Late filing could be a default
under such or other agreements. In addition, the Company has requested Arthur
Andersen LLP ("Andersen"), the Company's former auditors, to consent to the
inclusion of its audit reports for the 1993 and 1994 fiscal years. As
indicated by Andersen in its letter addressed to the SEC, Andersen intends to
conduct a due diligence review in order to ascertain whether it believes that
its report could be reissued without modifications, or what modifications of
its report and qualifications or uncertainties therein would be necessary. No
assurance may be made that Andersen will be engaged by the Company or would
undertake or complete its due diligence in a timely manner or that the Company
will continue the engagement of Andersen in the event that the expense or time
consumed thereby is deemed unreasonable by the Company. The consent of
Andersen to use such reports, or in lieu thereof reports of another auditor
(requiring another complete audit of such periods) will be necessary in order
to file Form 10-K with the SEC within such period, or prior to the end of the
extension period allowed by Rule 12b-25. Failure to timely file a Form 10-K
may result in the unavailability of Rule 144 for resales of Common Stock,
delays in registration of shares of Common Stock under the Securities Act of
1933 (the "Act"), shareholder claims for failure to provide timely public
information, and other material adverse effects. Also the pending SEC comments
to the Company's previous SEC reports may
21
<PAGE> 22
result in delays in filing or the effectiveness of registration statements to
register shares of Common Stock under the Act.
INVOLUNTARY BANKRUPTCY PETITION; ACCELERATION OF INDEBTEDNESS
Despite the dismissal in March 1995 of the involuntary bankruptcy
petition filed against the Company by three purported creditors, no assurance
may be made that such or other persons whom the Company owes any debt could not
file another involuntary petition in bankruptcy court. The Company's 7 1/2
Convertible Subordinated Debentures continue to be in default, including the
payment default involving interest accruing from April 1994 on approximately
$9.5 million of outstanding face amount, and interest on default interest, and
continue to be purportedly accelerated, and immediately payable in full. To
rescind the acceleration of the Debentures would require written consent of a
majority of the Debentures and the cure of all existing defaults. No
assurances can be made that the holders of Debentures will consent to
rescission of the acceleration or that the defaults can be cured. The
Company's ability to solicit consent of Debentureholders may be subject to Rule
14a under the Exchange Act, which may require that the Company provide audited
and unaudited financial information to holders, some or all of which may not be
available until the audit of fiscal 1995 is completed. In the event that the
Company does not retire the Debentures as and when contemplated in the March 3,
1995 letter agreement, Debentureholders who filed the earlier involuntary
petition may file another such petition. Other creditors may also file such a
petition, or institute other actions against the Company, in order to prevent
the Debentureholders from collecting on their debts in advance of payment to
themselves. The acceleration of the Debentures constitutes a default under all
senior debt of the Company; and the holder of the $2 million Senior Convertible
Note due January 9, 1997 is entitled to accelerate the amount due thereunder,
and if not paid to foreclose on collateral including two hospital properties.
Previously, in January 1995, the Company's free-standing hospital facility in
Aurora, Colorado and the Care Unit Hospital of Ohio, Inc., an Ohio corporation
and a wholly-owned subsidiary of the Company, free-standing hospital facility
in Cincinnati, Ohio were given as collateral for the Company's $2 million
Secured Convertible Note due January 9, 1997 payable to Lindner Funds.
TAXES
The Company may claim entitlement to tax deductions on account of
specified liability losses defined in Section 172(f) and intends to attempt to
reduce, by means of an offset against taxes due for the 1995 tax year, its
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. Section 172(f) is an area of the tax law without
substantial legal precedent. There may be substantial opposition by the IRS to
such claims, and no assurances can be made of the ability to claim such
deductions. The accountants that are engaged to prepare such tax claims are
not independent with regard to the claims and will be compensated on a
contingent basis. In the event that prior tax returns are amended in order to
utilize some of the claimed deductions, neither the Company nor the IRS will be
foreclosed by the settlement agreement from raising additional issues.
22
<PAGE> 23
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 periods.
PCA INVESTMENT IN ACCESSCARE
On or about May 23, 1995, AccessCare, Inc. ("AccessCare") sold a 13.5%
equity interest for $1 million to Physician Corporation of America ("PCA"). In
connection with that investment AccessCare and the Company granted PCA a right
of first refusal to acquire AccessCare, and the Company granted PCA a 10-year
option to purchase 100,000 shares of the Company's Common Stock in exchange
for its interest in AccessCare.
COMPCARE INVESTMENT IN AMHC
The Company agreed to issue American Mental Health Care, Inc. ("AMHC")
44,054 shares of the Company's Common Stock in return for a one-year management
contract between AccessCare and AMHC, one-third of the shares of AMHC and a
one-year option to acquire all of the shares of AMHC for an aggregate of
132,162 additional shares to be issued to shareholders of AMHC. The Company
sought such an arrangement in lieu of an immediate purchase in order to
accommodate corporate-clean up at AMHC relating to inadequate stock records and
to obtain confirmation that alleged employee stock grants were effectively
rescinded or repurchased.
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
23
<PAGE> 24
the effect healthcare reforms may have on its business, and no assurance can be
given that any such reforms will not have a material adverse effect on the
Company.
MANAGEMENT OF EXPANSION
The Company's anticipated growth and expansion into areas and
activities requiring additional 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
new facilities or management information system will be adequate to sustain
future growth.
SHARES ELIGIBLE FOR FUTURE SALE
The Company contemplates issuing substantial amounts of equity through
private placements and other private transactions that have been committed to
but not completed, pending listing on NYSE, shareholder approval, or the
exercise or conversion by holders of securities, and the Company anticipates
issuances of additional equity, including without limitation to holders of
approximately $9.5 million of outstanding convertible debentures. 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.
24
<PAGE> 25
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation 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.
In addition 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. 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.
INVESTOR FILING REQUIREMENTS
The Common Stock of the Company is a class of equity securities that
is registered pursuant to Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act"). Therefore, an person's direct or indirect beneficial
ownership of more than five percent of the outstanding Common Stock of the
Company will result in the applicability of filing requirements pursuant to
Regulation 13D-G. Reports of holdings on Schedule 13D or short form Schedule
13G, and amendments thereto, must be delivered by the investor to the Company,
the principal exchange on which the Common Stock is traded, and the SEC at
times required by such regulation. Additional requirements apply to
ten-percent-beneficial holders under Rule 16 under the Exchange Act relating to
short-swing profits. All filing and other requirements, whether or not stated
above, are solely the responsibility of the investor. The Company requests
that the investor consult legal counsel concerning any requirements that may
apply.
ACCREDITED INVESTORS; MANNER OF SALE
The Company's sale of Common Stock is intended to be made only to
accredited investors and without any general solicitation or advertising.
failure of the Company to comply with requirements of Section 4(2) or 4(6)
under the Act or Regulation D under the Act may have material adverse effects
on the Company's financial condition and prospects. The investors'
representations to the Company are material inducements to the Company. If the
investors are aware of any reason that any of such exemptions under the Act is
or may be unavailable, such investor should promptly inform the Company and not
purchase the Common Stock.
25
<PAGE> 1
Exhibit 99.6
FOR IMMEDIATE RELEASE Contacts:
Chriss W. Street
Chairman & President
(714) 644-9425
Rudy R. Miller
The Miller Group
(602) 225-0505
COMPREHENSIVE CARE CORP. ANNOUNCES
INTENTION TO RELY ON EXEMPTION FROM
NYSE SHAREHOLDER APPROVAL POLICY
FOR STOCK ISSUANCES
NEWPORT BEACH, CALIFORNIA, AUGUST 17, 1995 (NYSE: CMP):
Chriss W. Street, Chairman of the Board, President and Chief Executive
Officer of Comprehensive Care Corporation ("CompCare") proudly announced that
"CompCare has completed certain private sales of Common Stock and convertible
debt in preparation for an exchange offer to retire CompCare's Subordinated
Debentures and to help fund the global restructuring following the December
1994 settlement of IRS tax obligations." Since January 1, 1995, and as of
August 15, 1995, CompCare has issued or agreed to issue an aggregate of 502,554
shares of Common Stock and has reserved for issuance in the future
approximately 789,932 shares of Common Stock (and an indeterminate number for
specific anti-dilution provisions) related to privately negotiated transactions
approved by the Board of Directors but not submitted to stockholders. The
transactions include 442,500 shares sold for $2.5 million in cash and
convertible debt sold for $2 million under which 336,700 shares are reserved
for conversion. Each of these underlying transactions have been previously
announced publicly and described in periodic reports filed with the Securities
and Exchange Commission.
Of the above-mentioned shares, issuances of 442,500 shares and
reserves of approximately 336,700 shares (subject to anti- dilution provisions)
had been separately considered and passed upon by the Audit Committee of the
Board of Directors. An issuance of CompCare Common Stock, to the extent
issuances in any transaction or a series of related transactions would exceed
20% of the number of shares previously outstanding, would normally require
approval of CompCare's stockholders pursuant to the Shareholder Approval Policy
of the New York Stock Exchange (the "Exchange"). CompCare's Audit Committee
determined that the expected delay which could result from seeking its
shareholders' prior approval of such issuances would seriously jeopardize the
financial viability of CompCare. Because of that determination, the Audit
Committee, pursuant to an exception provided in the Exchange's Shareholder
Approval Policy for such a situation, expressly approved CompCare's omitting to
seek the stockholder approval that otherwise would have been required under
that policy of the Exchange. The Exchange has accepted CompCare's application
of the exception.
<PAGE> 2
CompCare's Chairman, Chriss W. Street, said, "CompCare's private sales
of Common Stock and other securities representing a right to acquire Common
Stock have provided immediate cash resources and helped to further CompCare's
plan of operations in fiscal 1995."
This announcement of the private placement transactions is provided in
accordance with rules of the Exchange pursuant to an exception from the
shareholder approval policy of the Exchange. Reliance on the exception has
been approved by CompCare's Audit Committee of the Board of Directors. Also,
in order to comply further with the exception, CompCare will be mailing to all
stockholders a letter notifying them of CompCare's intention to issue the
shares without seeking stockholder approval. Ten days after such notice is
mailed, CompCare will proceed to issue certificates for the shares or to
reserve the shares for issuance, as appropriate. The shares to be issued or
reserved in reliance on the exception to the Exchange's policy approved by the
Audit Committee are as follows:
1. On January 9, 1995, CompCare sold a two-year $2,000,000
convertible secured note bearing interest at 12 1/2% per annum, and a
default rate of interest of 15% per annum, convertible in whole or in
part into Common Stock at an initial conversion price of $6.00 per
share (initially up to 333,333 shares and a maximum of 400,000
shares), subject to anti- dilution adjustments. Anti-dilution
adjustments have been required, resulting in an adjusted conversion
price currently of $5.94 (so that the note is convertible currently
into up to 336,700 shares).
2. On February 1, 1995, CompCare agreed to issue 100,000 shares
for $6.00 per share in cash. CompCare has subsequently adjusted the
number of shares in this transaction to 115,000 shares at a price of
approximately $5.21 each, as described further below.
3. On April 15, 1995, CompCare agreed to issue 150,000 shares for
$6.50 per share in cash. CompCare has subsequently adjusted the
number of shares in this transaction to 172,500 shares at a price of
approximately $5.65 each, as described further below.
4. On or about July 15, 1995, CompCare received an agreement to
purchase an additional 135,000 shares for $6.00 per share in cash from
Lindner Investments.
5. On or about August 15, 1995, CompCare agreed to issue an
additional 20,000 shares for $6.00 per share in cash.
On or about March 3, 1995 CompCare had publicly announced an intention
to issue up to 650,000 shares in transactions approved by the Board of
Directors but not submitted to shareholders. Today's announcement includes the
shares anticipated in the previous announcement. CompCare originally had
agreed to issue or reserve, initially, an aggregate of only 583,333 shares in
such private placements, and the revised aggregate includes a 40,367 shares, or
15%, adjustment upward in the number of shares in two transactions in
consideration of delays not contemplated in the investors' original agreement
to purchase shares requiring investors to defer making any requests to register
their shares. CompCare's adjustment upward by 15% in the number of shares
results in an approximately 13% lower effective per share price to those
private investors. 37,500 additional shares have been reserved for these
adjustments. Consequently an anti-dilution adjustment required by the
$2,000,000 convertible note referred to
2
<PAGE> 3
above resulted in an additional 3,367 shares being reserved for issuance upon
conversion thereof. CompCare's Board of Directors determined to provide the
additional shares as a reasonable discount for delays for future registration
of the shares and CompCare's prospective difficulty in satisfying registration
rights agreements with the investors.
The anticipated registration delays arose in large part because of the
resistance of Arthur Andersen LLP ("Andersen") to CompCare's requests for
consent to use Andersen's 1993 and 1994 audit reports in connection with any
CompCare registration statements under the Securities Act of 1933 and the
termination by Andersen of its two-year audit engagement with CompCare.
Andersen has advised CompCare that Andersen might permit (without commitment)
its 1993 and 1994 audit reports to be used in CompCare's filings with the
Securities and Exchange Commission, and the appropriate form that such audit
reports may take if reissued at a future time, depending upon the results of
post-audit review procedures that Andersen would perform as it considers
necessary in the circumstances. Auditors' reports must be included in all 1933
and 1934 Act filings with the Securities and Exchange Commission, and a consent
to use such report must be included in all 1933 Act filings. The Board felt
that the private investors could have had a reasonable belief that CompCare's
attempts to proceed with future registrations of their shares might be costly
or difficult, and their investment expectations may have been upset by the
prospects raised by Andersen's potential reexamination of past audit reports
and Andersen's withdrawal from its audit engagement.
CompCare's Common Stock continues to be subject to "listing watch"
with regard to its financial position and no assurance is to be inferred from
this announcement that the Common Stock will continue to be listed on the
Exchange or will in the event of delisting be eligible for listing or quotation
elsewhere.
At May 31, 1995, CompCare had 2,701,062 shares issued and outstanding
or committed to be issued within 10 days following this announcement; 887,200
shares reserved under stock option plans approved by the shareholders of
CompCare on or before November 14, 1994; and approximately 967,059 additional
shares reserved for issuance, including all other shares reserved in the
transactions described above. Each share of Common Stock also includes one
attached common share purchase right issued under CompCare's shareholder rights
plan.
The securities issued or to be issued in the transactions referred to
above have not been registered and are not required to be registered under the
Securities Act of 1933 pursuant to exemptions therefrom. The securities may
not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements under the Securities
Act of 1933.
Comprehensive Care Corporation provides cost effective health care
management services for specific "disease states" on a contractual or at-risk
("managed care") basis throughout the United States.
3
<PAGE> 1
Exhibit 99.7
COMPREHENSIVE CARE CORP. ANNOUNCES
INTENTION TO RELY ON EXEMPTION FROM
NYSE SHAREHOLDER APPROVAL POLICY
FOR STOCK ISSUANCES
TO ALL SHAREHOLDERS OF COMPREHENSIVE CARE CORPORATION (NYSE: CMP)
NEWPORT BEACH, CALIFORNIA, AUGUST 18, 1995:
Chriss W. Street, Chairman of the Board, President and Chief
Executive Officer of Comprehensive Care Corporation ("CompCare") proudly
announced that "CompCare has completed certain private sales of Common Stock
and convertible debt in preparation for an exchange offer to retire CompCare's
Subordinated Debentures and to help fund the global restructuring following the
December 1994 settlement of IRS tax obligations." Since January 1, 1995, and
as of August 15, 1995, CompCare has issued or agreed to issue an aggregate of
502,554 shares of Common Stock and has reserved for issuance in the future
approximately 789,932 shares of Common Stock (and an indeterminate number for
specific anti-dilution provisions) related to privately negotiated transactions
approved by the Board of Directors but not submitted to stockholders. The
transactions include 442,500 shares sold for $2.5 million in cash and
convertible debt sold for $2 million under which 336,700 shares are reserved
for conversion. Each of these underlying transactions have been previously
announced publicly and described in periodic reports filed with the Securities
and Exchange Commission.
Of the above-mentioned shares, 442,500 shares and reserves of
approximately 336,700 additional shares (subject to anti- dilution provisions)
had been separately considered and passed upon by the Audit Committee of the
Board of Directors. An issuance of CompCare Common Stock, to the extent
issuances in any transaction or a series of related transactions would exceed
20% of the number of shares previously outstanding, would normally require
approval of CompCare's stockholders pursuant to the Shareholder Approval Policy
of the New York Stock Exchange (the "Exchange"). CompCare's Audit Committee
determined that the expected delay which could result from seeking its
shareholders' prior approval of such issuances would seriously jeopardize the
financial viability of CompCare. Because of that determination, the Audit
Committee, pursuant to an exception provided in the Exchange's Shareholder
Approval Policy for such a situation, expressly approved CompCare's omitting to
seek the stockholder approval that otherwise would have been required under
that policy of the Exchange. The Exchange has accepted CompCare's application
of the exception.
This announcement of the private placement transactions is provided in
accordance with rules of the Exchange pursuant to an exception from the
shareholder approval policy of the Exchange. Reliance on the exception has
been approved by CompCare's Audit Committee of the Board of Directors. Ten
days after this notice is mailed, CompCare will proceed to issue certificates
for the shares or to reserve the shares for issuance, as appropriate. The
shares to be issued or reserved in reliance on the exception to the Exchange's
policy approved by the Audit Committee are as follows:
1. On January 9, 1995, CompCare sold a two-year $2 million
convertible secured note bearing interest at 12 1/2% per annum, and a
default rate of interest of 15% per
<PAGE> 2
annum, convertible in whole or in part into Common Stock at an initial
conversion price of $6.00 per share (initially up to 333,333 shares and
a maximum of 400,000 shares), subject to anti-dilution adjustments.
Anti-dilution adjustments have been required, resulting in an adjusted
conversion price currently of $5.94 (so that the note is convertible
currently into up to 336,700 shares).
2. On February 1, 1995, CompCare agreed to issue 100,000 shares
for $6.00 per share in cash. CompCare has subsequently adjusted the
number of shares in this transaction to 115,000 shares at a price of
approximately $5.21 each, as described further below.
3. On April 15, 1995, CompCare agreed to issue 150,000 shares for
$6.50 per share in cash. CompCare has subsequently adjusted the
number of shares in this transaction to 172,500 shares at a price of
approximately $5.65 each, as described further below.
4. On or about July 15, 1995, CompCare received an agreement to
purchase an additional 135,000 shares for $6.00 per share in cash from
Lindner Investments.
5. On or about August 15, 1995, CompCare agreed to issue an
additional 20,000 shares for $6.00 per share in cash.
On or about March 3, 1995 CompCare had publicly announced an intention
to issue up to 650,000 shares in transactions approved by the Board of
Directors but not submitted to shareholders. Today's announcement includes the
shares anticipated in the previous announcement. CompCare originally had
agreed to issue or reserve, initially, an aggregate of only 583,333 shares in
such private placements, and the revised aggregate includes a 40,367 share, or
15%, adjustment upward in the number of shares in two transactions in
consideration of delays not contemplated in the investors' original agreement
to purchase shares requiring investors to defer making any requests to register
their shares. CompCare's adjustment upward by 15% in the number of shares
results in an approximately 13% lower effective per share price to those
private investors. 37,500 additional shares have been reserved for these
adjustments. Consequently an anti-dilution adjustment required by the
$2,000,000 convertible note referred to above resulted in an additional 3,367
shares being reserved for issuance upon conversion thereof. CompCare's Board
of Directors determined to provide the additional shares as a reasonable
discount for delays for future registration of the shares and CompCare's
prospective difficulty in satisfying registration rights agreements with the
investors.
The anticipated registration delays arose in large part because of the
resistance of Arthur Andersen LLP ("Andersen") to CompCare's requests for
consent to use Andersen's 1993 and 1994 audit reports in connection with any
CompCare registration statements under the Securities Act of 1933 and the
termination by Andersen of its two-year audit engagement with CompCare.
Andersen has advised CompCare that Andersen might permit (without commitment)
its 1993 and 1994 audit reports to be used in CompCare's filings with the
Securities and Exchange Commission, and the appropriate form that such audit
reports may take if reissued at a future time, depending upon the results of
post-audit review procedures that Andersen would perform as it considers
necessary in the circumstances. Auditors' reports must be included in all 1933
and 1934 Act filings with the Securities and Exchange Commission, and a consent
to use such report must be included in all 1933 Act filings. The Board felt
that the private investors could have had
2
<PAGE> 3
a reasonable belief that CompCare's attempts to proceed with future
registrations of their shares might be costly or difficult, and their
investment expectations may have been upset by the prospects raised by
Andersen's potential reexamination of past audit reports and Andersen's
withdrawal from its audit engagement.
CompCare's Common Stock continues to be subject to "listing watch"
with regard to its financial position and no assurance is to be inferred from
this announcement that the Common Stock will continue to be listed on the
Exchange or will in the event of delisting be eligible for listing or quotation
elsewhere.
In separate transactions approved by the Board of Directors, but not
submitted to shareholders, CompCare has issued or reserved shares of Common
stock otherwise than pursuant to the exception to the Exchange's policy
approved by the Audit Committee:
1. In August 1994 and October 1994, CompCare granted options to
purchase an aggregate of 85,000 shares of Common Stock at prices
ranging from $7.50 to $15.00 per share to three individuals, one of
whom was chairman of the board of directors and an interim officer and
employee (who thereupon accepted the office of President and CEO) of
CompCare and the other two of whom became new employees of a
subsidiary at that time (one of whom became the subsidiary's President
and the other became a vice president). Also, CompCare amended a
similar option granted in July 1992 that was held by a former officer
of CompCare, and the amendment had the effect of reducing the number
of shares purchasable to 12,500 shares, extending the option's term by
six months and reducing its exercise price from $15.00 to $7.50 per
share. Each of these options was granted as an inducement essential to
the grantee's entering into an employment contract with CompCare or a
subsidiary and in reliance on an applicable exception to the
Exchange's requirement of shareholder approval for grants to officers
and directors.
2. As of December 29, 1994, CompCare agreed to issue 16,000
shares of Common Stock to the former owner of the predecessor of the
business conducted by Comprehensive Behavioral Care, Inc., formerly
known as AccessCare, Inc., a majority-owned subsidiary of CompCare.
CompCare subsequently issued a new stock certificate representing an
aggregate of those 16,000 shares. The shares were issued as part of
the consideration due under an agreement to settle pending litigation
against CompCare and Comprehensive Behavioral Care, Inc., which were
claimed by the former employee under a 1992 option agreement that was
in effect at the time of his involuntary termination.
3. Effective April 1, 1995, CompCare agreed to issue up to
176,216 shares of CompCare's Common Stock, 132,162 of which
constitutes the purchase price for CompCare to acquire all of the
stock of American Mental Health Care, Inc. ("AMH"). Such transaction
may be terminated by CompCare at the end of a one-year period in which
Comprehensive Behavioral Care, Inc. will manage AMH, retain contract
revenues and pay contract claims. The shares of CompCare Common Stock
referred to above will be payable in four annual installments.
Pursuant to such agreement, CompCare intends to issue initially 44,054
shares to AMH in return for one-third of the outstanding stock of AMH,
and CompCare has reserved an additional aggregate of 132,162 shares
for the remaining three installments that will be payable to the
shareholders of AMH in the event that CompCare elects to proceed with
the acquisition of the remaining outstanding shares
3
<PAGE> 4
of AMH. CompCare may exercise the option to acquire all of the stock
of AMH not already owned by CompCare after one year, in which event it
is agreed that CompCare will reacquire the 44,054 shares of CompCare
issued to AMH in the first installment. The amounts of the final two
installments will be subject also to reduction if AMH's revenue
performance does not satisfy agreed-upon requirements.
4. As of May 24, 1995, Comprehensive Behavioral Care, Inc.,
formerly known as AccessCare, Inc., sold a minority preferred stock
interest to Physician Corporation of America ("PCA") representing 13
1/2% of the voting power. In connection with that private placement,
CompCare granted to PCA a 10-year option which provides PCA the right
to exchange the preferred shares (purchased for $1,000,000) for up to
100,000 shares of CompCare Common Stock. The sale was made pursuant
to a letter of intent entered into on March 30, 1995.
5. On March 3, 1995, CompCare entered into an agreement in
principle with a representative of holders of 7 1/2% Convertible
Subordinated Debentures (the "Debentures") to use best efforts to
undertake to make an exchange offer to all holders of Debentures
within 180 days thereof. Such exchange would contemplate an issuance
of shares of Common Stock, plus cash consideration, in exchange for
surrender of outstanding Debentures at the election of the holders
thereof. CompCare has agreed to pledge all of its equity interest in
CompCare's CareUnit, Inc. subsidiary in order to secure its obligation
to purchase the Debentures pursuant to such an offer or otherwise.
The ability of CompCare to make or to complete such offer will be
subject to financing the cash portion of the exchange and otherwise
obtaining all necessary consents and making necessary filings. No
assurance is possible as to CompCare's ability to complete such
exchange. The foregoing is not an offer or a solicitation of offers
to exchange any Debenture, and any such offer can only be made
pursuant to a formal offer of exchange.
At May 31, 1995, CompCare had 2,701,062 shares issued and outstanding
or committed to be issued within 10 days following this announcement; 887,200
shares reserved under stock option plans approved by the shareholders of
CompCare on or before November 14, 1994; and approximately 967,059 additional
shares reserved for issuance, including all other shares reserved in the
transactions described above. Each share of Common Stock also includes one
attached common share purchase right issued under CompCare's shareholder rights
plan.
The securities issued or to be issued in the transactions referred to
above have not been registered and are not required to be registered under the
Securities Act of 1933 pursuant to exemptions therefrom. The securities may
not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements under the Securities
Act of 1933.
Comprehensive Care Corporation provides cost effective health care
management services for specific "disease states" on a contractual or at-risk
("managed care") basis throughout the United States.
4
