<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant / X /
Filed by a party other than the registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ X / Preliminary proxy statement / / Confidential, for Use of the Commission
Only (as Permitted by Rule 14a-6(e)(2))
</TABLE>
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Comprehensive Care Corporation
(Name of Registrant as Specified in Its Charter)
Comprehensive Care Corporation
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/ X / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
---------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
---------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
---------------------------------------------------------------------
(3) Filing party:
---------------------------------------------------------------------
(4) Date filed:
---------------------------------------------------------------------
<PAGE> 2
[COMPCARE LOGO]
September __, 1995
Dear CompCare Stockholder:
On behalf of the Board of Directors and management of your Company, I
cordially invite you to attend our Special Meeting of Stockholders on
Wednesday, October 11, 1995 at 10:00 a.m. local time, and all adjournments and
postponements thereof, at Starting Point Hospital, 350 West Bay Street, Costa
Mesa, California.
Your Board of Directors has called the Special Meeting of Stockholders
in order to give stockholders an opportunity to consider and act upon a
proposal RECOMMENDED BY MANAGEMENT to authorize your Company to issue and
reserve for future issuances shares of stock for various corporate purposes.
The principal purpose of this meeting is to adopt Proposal 1. The Company is
seeking stockholder authorization of the issuance by the Company of up to
850,000 shares of Common Stock, including one Right per share on the terms of
the Company's Shareholder Rights Plan, and up to 60,000 shares of Preferred
Stock, which may have such rights, privileges and restrictions as the Board
of Directors may determine, and any options, warrants, debentures, bonds,
notes or other instruments of indebtedness or other debt or equity
securities that carry rights or options to acquire or sell Common Stock.
Your authorization will possibly be necessary to raise funds used to consummate
the Company's offer of Cash and shares of Common Stock in exchange for
outstanding 7 1/2% Convertible Subordinated Debentures due April 15, 2010,
which have been in default since the Company failed to make a semi-annual
interest payment that was payable October 17, 1994. After the Debenture
acceleration occurred, Management has negotiated with a representative of an
estimated $2.5 million of Debentures the principal terms of an offer to
reacquire each $1,000 Debenture from its holder in exchange for $500 in cash
plus 16 shares of Common Stock in exchange for the principal amount plus $80
in cash representing the unwaived portion of the accrued interest.
The enclosed Proxy Statement explains in more detail the reasons for,
and effects of, your approval of the proposal recommended by Management.
Please read the Proxy Statement carefully, and vote at this important meeting
in person or by proxy. Issuance of the shares is critical to your Company, and
your approval of the proposed issuance or issuances within the approval
limitation is likewise crucial to the future of your Company.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE PROPOSAL FOR
APPROVING THE ISSUANCE OF SHARES AS BEING FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY'S STOCKHOLDERS AND RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION OF
THE PROPOSAL.
YOUR VOTE IS IMPORTANT. The holders of a majority of the shares of the
Company's Common Stock must vote, and a majority of those voting is necessary to
approve and adopt Proposal 1. Therefore, whether or not you plan to attend the
special meeting, please promptly complete, sign and date the enclosed proxy and
return it in the enclosed prepaid envelope. If you attend the special meeting,
you may vote in person if you wish, even though you previously have returned
your proxy card. Your prompt cooperation will be greatly appreciated.
I look forward to seeing you at the special meeting of stockholders.
Sincerely,
Chriss W. Street
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 3
COMPREHENSIVE CARE CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held Wednesday, October 11, 1995
And All Adjournments or Postponements Thereof
Notice is hereby given of the Special Meeting of the holders
("stockholders") of the Common Stock, par value $.01 per share ("Common Stock")
of Comprehensive Care Corporation (the "Company") to be held at Starting Point
Hospital, 350 West Bay Street, Costa Mesa, California on Wednesday, October 11,
1995 at 10:00 a.m. local time, and all adjournments or postponements thereof
(the "meeting"), for the following purposes:
1. To act upon a proposal (recommended by the Board of Directors)
that the Company issue from time to time up to 850,000 shares
of Common Stock and up to 60,000 shares of Preferred Stock,
which may have rights, preferences and privileges as designated
by the Board of Directors from time to time that are senior
to Common Stock, and equity or debt securities convertible,
exercisable or exchangeable for shares of Common Stock,
provided the aggregate issuances, or reserves of Common Stock
does not exceed said 850,000 shares (as customarily adjusted
proportionately, for stock splits and reclassifications of the
Commmon Stock), in various financing transactions (individually
a "Placement Transaction") to satisfy cash needs of the Company
and to support a global restructuring of the Company's
financial position by funding, if and to the extent necessary,
for example and without limitation, the Company's offer to
exchange cash and Common Stock for the outstanding $9,535,000
in original principal amount of the Company's 7 1/2%
Convertible Subordinated Debentures Due April 15, 2010
(the "Debentures"); and
2. To consider and transact such other business as may properly
come before the meeting.
Stockholders of record at the close of business on August 21, 1995 are
entitled to vote at the meeting. A list of stockholders entitled to vote at the
meeting will be available for inspection during regular business hours at
Starting Point Hospital during the ten (10) days preceding the meeting.
By Order of the Board of Directors,
Kerri Ruppert, Secretary
September __, 1995
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ACCOMPANYING POSTAGE PAID AND ADDRESSED ENVELOPE WHETHER
OR NOT YOU INTEND TO BE PRESENT AT THE MEETING. PROXIES ARE REVOCABLE AT ANY
TIME PRIOR TO THE TIME THEY ARE VOTED, AND STOCKHOLDERS WHO ARE PRESENT AT THE
MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON IF THEY SO DESIRE.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE STOCKHOLDERS
OF THE COMPANY VOTE "FOR" APPROVAL OF THE ISSUANCE OF SHARES.
<PAGE> 4
COMPREHENSIVE CARE CORPORATION
4350 Von Karman Avenue, Suite 280
Newport Beach, California 92660
(714) 798-0460
PROXY STATEMENT
The Board of Directors of Comprehensive Care Corporation (the
"Company") solicits your proxy for use at the Special Meeting of Stockholders to
be held on Wednesday, October 11, 1995 at 10:00 a.m. local time, at Starting
Point Hospital, 350 West Bay Street, Costa Mesa, California, and at all
adjournments or postponements thereof (the "meeting"). This Proxy Statement and
the accompanying form of proxy are first being mailed or given to stockholders
on or about September __, 1995. Following this mailing, certain officers and
employees of the Company may solicit proxies by mail, telephone, telecopy or in
person, without additional compensation. In addition, the Company has engaged
Continental Stock Transfer Company to assist administratively in this proxy
solicitation for a customary fee of $5,000 plus expenses. Upon request, the
Company will reimburse brokers and other persons holding shares for others for
their expenses in forwarding copies of the proxy soliciting material to the
beneficial owners of such shares. All costs of this proxy solicitation will be
paid by the Company.
When the accompanying proxy card is properly executed and dated and
returned with voting instructions with respect to the proposal to be voted upon,
the shares represented by the proxy will be voted in accordance with the
stockholder's directions by the persons named on the card as proxies of the
stockholder. If a proxy card is properly signed, dated and returned but no
specific voting instructions are given, the shares represented by the proxy card
will be voted FOR the approval of Proposal 1. All signed, dated and returned
proxy cards also confer upon the persons named as proxies discretionary
authority to vote all shares of stock represented by the proxy card on any item
of business that is properly presented for action at the meeting with regard to
any matters that the Board of Directors did not know a reasonable time before
this solicitation are to be presented at the meeting, as well as matters
incident to the conduct of the meeting.
A proxy may be revoked by the person giving it at any time before its
exercise by sending a written notice of such revocation or a later-dated proxy
to the Secretary of the Company at the above address or by attending the meeting
and submitting a ballot. Attendance at the meeting will not by itself revoke a
proxy.
Only holders of record at the close of business on August 21, 1995
("stockholders") of Common Stock, $.01 par value per share ("Common Stock") are
entitled to notice of, and to vote at, the meeting. Certain of the stockholders
have not surrendered certificates that represent shares of the Common Stock, par
value $.10 per share, as it existed prior to the October 21, 1994 One-for-Ten
Reverse Stock Split, and votes of those stockholders will only be counted at the
rate of one vote for every ten shares on the face of such old stock certificate.
Approximately 2,214,505 shares of Common Stock were outstanding on
August 21, 1995. On each proposal, stockholders of record are entitled to one
vote for each share of Common Stock.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Common Stock will constitute a quorum for the transaction
of business at the meeting. All stockholders of record present or represented by
proxy at the meeting will be counted for purposes of a quorum, whether voting
affirmatively, negatively, abstaining, withholding authority to vote or
indicating a non-vote in the customary fashion.
The New York Stock Exchange Shareholder Approval Policy requires, in
many instances, the approval of the listed company's shareholders for the
issuance of shares. In order for the approval to be effectively given, at least
a majority of the outstanding Common Stock must vote in person or by proxy; and
a majority of the shares voting must approve.
1
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
BACKGROUND AND SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Default on Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Proposed Exchange Offer With Holders of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exchange Offer Funding Requirements and Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PROPOSAL 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
No Anticipated Changes in Basic Company Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
General Positive Effects on Rights of Existing Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 5
General Negative Effects on Rights of Existing Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Terms of Other Recent Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
OTHER FACTORS TO CONSIDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Common Stock Purchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Common Stock Transfer Agent, Dividend Disbursing Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . 12
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DESCRIPTION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Conversion of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Subordination of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Amendment, Supplement and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Concerning the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Failure to Consummate Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Ability of the Company to Continue as a Going Concern; Explanatory Paragraph in Auditors' Report . . . . . . . . . . 19
History of Losses and Anticipated Future Losses; Uncertainty of Future Profitability . . . . . . . . . . . . . . . . 20
Need for Additional Funds; Uncertainty of Future Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Anti-takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
i
<PAGE> 6
<TABLE>
<S> <C>
INTERESTS OF CERTAIN PERSONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CHANGES IN ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PROPOSAL 2
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
ii
<PAGE> 7
PROPOSAL 1
MANAGEMENT RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF PROPOSAL 1.
Stockholders are being asked to vote to approve the potential issuance
or issuances of shares of Common Stock in any transaction or series of
transactions (a "Placement Transaction") which could result in the issuance of
up to 850,000 previously unissued shares of Common Stock. The rules of the New
York Stock Exchange (the "NYSE") require that, for listing of shares on the
NYSE, the Company's stockholders must approve the issuance of capital stock to
the extent that the issuance or a series of issuances of capital stock, whether
by conversion or exercise or otherwise, would exceed 20% of the then
outstanding shares of capital stock of the Company. Stockholder approval is not
generally required for the issuance of shares within the 20% limitation,
excluding certain transactions with directors, officers or affiliates.
Other than the NYSE Shareholder Approval Policy, the Company is not
aware of any requirement (and believes that no such requirement exists) under
the Delaware General Corporation Law that stockholders of the Company vote to
approve the issuance of shares of capital stock. Generally, a Board of Directors
has the corporate authority to issue capital stock if the shares are authorized
in the corporation's certificate of incorporation would facilitate listing.
The Company's Common Stock continues to be subject to NYSE "listing
watch" with regard to the Company's financial position, and no assurance is
given that the Common Stock will continue to be listed on the NYSE or, in the
event of delisting, will be eligible for listing or quotation elsewhere.
If Proposal 1 is approved by the stockholders, the Board of Directors
will have the authority to determine the terms of any Placement Transaction
within the maximum number of shares. The stockholders may not be asked to vote
on the specific terms of any Placement Transaction at a future date unless such
vote is then required by the Delaware General Corporation Law or the Company's
Certificate of Incorporation or Bylaws.
3
<PAGE> 8
may at any time alter the proposed terms of any Placement Transaction or
determine not to proceed with any such transaction. There can be no assurance
that the Exchange Offer will be successful, and the Company does not have
sufficient funding to effect an Exchange Offer on the date hereof. See "Risk
Factors."
If all of the Debentures were tendered and accepted pursuant to the
Exchange Offer, approximately 150,000 additional shares of Common Stock of the
Company would be issued and the long-term debt of the Company would be reduced
by $9,538,000, resulting in a pro forma increase in the Company's stockholders'
equity from a deficit of approximately $__________ at May 31, 1995 to a surplus
of $__________ as of that date, assuming no new debt is incurred.
There may be additional restrictions under the 1933 Act and state
securities laws against resale of Common Stock issued or issuable pursuant to a
Placement Transaction. Such shares may be issued in a Placement Transaction that
is not registered under the 1933 Act and, therefore, such shares may be subject
to resale restrictions and not resold absent registration or the availability of
an exemption from the registration requirements of the 1933 Act. The Company
intends to list the shares of Common Stock issuable in any Placement Transaction
on the NYSE, although it may be unable to do so unless the stockholders approve
Proposal 1.
The Company anticipates that shares in a Placement Transaction may be
purchased by investors only if the pricing is "at a discount" to then prevailing
market prices for freely trading shares of Common Stock. Private investors could
discount the value of Common Stock in a Placement Transaction as a result of
1933 Act restrictions, and the Company's attempts to proceed with future
registrations of securities might be costly or difficult. Past investors have
seen their investment expectations upset by the prospects raised by Arthur
Andersen's potential reexamination of past audit reports and Arthur Andersen's
withdrawal from its audit engagement with the Company. In these circumstances,
there is no assurance possible that the price and terms of a Placement
Transaction will be favorable to the Company or that any resolution is
foreseeable.
As of September 13, 1995, the closing sale price of the Common Stock
as reported on the NYSE Composite Tape was $9.50 per share. See "Market Price
Information." Any Placement Transaction could be at a price based on the market
price or at a negotiated price, and the terms would be based upon a combination
of factors that may exist. The Board of Directors can, in its exercise of
business judgment, accept or reject a transaction based on one or more factors
as it deems to be appropriate, which may include the market price of the Common
Stock, or other factors related to the Company or its business or financial
position considered by the Board of Directors.
The Company does not necessarily foresee a Placement Transaction in
the near-term future. The approval of Proposal 1 also provides authority
extending indefinitely into the future to issue shares in from time to time
in one or more transactions. The Board of Directors considers that all
reasonable funding alternatives should be pursued until the funding needs
are satisfied.
4
<PAGE> 9
The final terms of any securities to be offered in any Placement
Transaction, including the interest rates, purchase, exchange, conversion or
exercise price, redemption price and maturity date, will be established with or
pursuant to approval by the Board of Directors. No further authorization of the
stockholders of the Company will be sought with respect to the issuance of the
securities within the approvals (if any) given pursuant to this Proxy Statement.
NO ANTICIPATED CHANGES IN BASIC COMPANY STRUCTURE
The Company has no current plan or proposal regarding (a) an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries; (b) a sale or transfer of a
material amount of assets (other than properties held for sale and sales the
ordinary course); (c) any change in the present Board of Directors or management
of the Company, including but not limited to, any plan or proposal to change the
number of directors or their term, to fill any existing vacancy on the Board, or
to change any material term of any employment contract of an executive officer;
(d) any material change in the present dividend policy or indebtedness or
capitalization of the Company (except pursuant to an exchange that is a
Placement Transaction, an Exchange Offer for Debentures, or as the Board if
Directors may hereafter determine to be acceptable in the exercise of the
Board's business judgment and in the best interests of the Company and the
stockholders); (e) any other material change in the Company's corporate
structure or business; (f) a class of equity securities of the Company becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934 (the "Act"). Moreover the Debentures could be
eligible at this time for termination of registration pursuant to Section
12(g)(4) 90 days after certification that there are fewer than 300 record
holders); or (g) the suspension of the Company's obligation to file reports
pursuant to Section 15(d) of the Exchange Act.
GENERAL POSITIVE EFFECTS ON RIGHTS OF EXISTING SECURITY HOLDERS
Balance Sheet Restructuring. The Board of Directors of the Company has
determined that the Company's capital structure should be enhanced through the
issuance of Common Stock or securities exercisable or convertible for Common
Stock resulting in lower cost of capital to the Company.
Expense Reduction. The Company's interest expense may be reduced;
unaffected or increased on account of the combined effect of one or more
Placement Transactions. The Company anticipates to reduce general and
administrative expenses substantially.
Financial Position. It is anticipated that, a Placement Transaction
will permit the expansion of the Company's equity capital. In the
event a Placement Transaction is completed, the effect on the Company's
indebtedness or capitalization cannot necessarily be predicted with accuracy;
however, the previous holders of Common Stock may be diluted by a Placement
Transaction.
GENERAL NEGATIVE EFFECTS ON RIGHTS OF EXISTING SECURITY HOLDERS
NYSE Listing. It is the intention of the Board of Directors to approve
superior transactions that can be structured in a manner whereby the
stockholders' approval is not required. However, if a transaction cannot be
structured in such manner, and if the stockholders do not grant approval at the
meeting, the Board of Directors reserves the right to proceed with a Placement
Transaction, including but not limited to a Placement Transaction in addition to
other transactions, or any different transaction, if the Board determines that
the importance of a transaction or series of transactions to the Company
overrides the effects anticipated from the
5
<PAGE> 10
NYSE's refusal to list such shares or the risk that the NYSE could delist the
Common Stock for refusal to abide by the NYSE shareholder approval policy.
Consequently, if the Placement Transaction is completed without approval being
received from the stockholders, the NYSE may not list the shares and potentially
may seek to delist the Company's Common Stock based upon the present financial
condition of the Company, which may not satisfy every NYSE listing criteria.
Registration Rights. Under the terms of certain agreements with the
purchasers of its securities, the Company will, at its expense, register shares
of Common Stock for sale by the holder thereof under the 1933 Act. When the
holder requests registration of the shares, the trading market for the Company's
shares of Common Stock may be adversely affected by the availability of a large
quantity of shares. See "Shares Eligible for Future Sale."
NOL Deduction. The Company had a net operating loss of approximately
$11.5 million at May 31, 1995. As a result of the "change of ownership" rules
applicable to net operating losses under the Internal Revenue Code, it is
contemplated that the net operating losses may sometime in the future become
subject to an annual limitation on the amount of the Company's taxable income
that can be sheltered by such net operating losses. This annual limitation
generally is expressed as an amount equal to the product of (x) the value of a
corporation's equity (subject to adjustments, such as reductions for certain
contributions to capital, including contributions in which debt is exchanged for
stock) and (y) a relatively low percentage, roughly equivalent to the yield on
long term tax-exempt bonds during the month in which the "ownership change"
occurs. The Company and its advisors will attempt, to the extent possible in the
circumstances, to structure the Placement Transaction in a manner whereby the
Placement Transaction will not cause the balance of the net operating loss to be
subject to such limitation. It may be necessary for this purpose to provide for
convertible securities in the placement covering a lower number of common shares
than otherwise would be normal in an offering of the type contemplated, in which
event a decrease in the conversion price below the then fair market value of the
Company's common shares may be required for the offering to be competitive.
Alternatives would be the issuance of nonconvertible debentures bearing a higher
interest rate, accompanied by warrants covering a lower number of shares, or the
issuance of nonconvertible debentures providing for the payment of interest in
common shares. There can be no assurance that a subsequent "ownership change"
may not occur by reason of future issuances or purchases of securities of the
Company.
Dilution. The exact terms of the securities to be offered in Placement
Transactions will depend upon, among other things, market conditions at the time
of the offering. No assurance is possible that the holders of Common Stock will
not be diluted by the Placement Transactions or additional shares of Common
Stock sold in the future. The potential maximum number of shares of Common Stock
that would be approved for issuance in Placement Transactions (i.e., [850,000]
shares) would be approximately 24% of the number of shares outstanding as of
August 21, 1995 on a fully-diluted basis.
TERMS OF OTHER RECENT TRANSACTIONS
Stockholders are not being asked to vote on any previous agreements or
commitments to issue, or issuances of, Common Stock or other Company securities.
The Company's previous agreements to issue Common Stock or securities
convertible into Common Stock were
6
<PAGE> 11
consummated without approval of the stockholders in accordance with the Delaware
General Corporation Law and the rules and policies of the NYSE. No ratification
or approval of those transactions is being solicited.
During 1995, the Company sold securities to various accredited private
investors (for over $4.5 million in cash aggregately). As of August 15, 1995,
there have been six investors in Common Stock or securities in these private
placements that paid for their securities in cash. The uses of cash proceeds
were to pay current expenses, fund working capital, and for other general
corporate purposes. One investor group paid in property or securities. That
investor group was comprised of American Mental Health Care, Inc. ("AMHC") and
its two shareholders, who transferred (a) a 33 1/3% voting and equity stake in
their corporation and a one-year management contract with AMHC the corporation
and (b) an option to acquire all of the AMHC capital stock. AMHC is being
managed by Comprehensive Behavioral Care, Inc., an 87.5%-owned subsidiary
formerly known as AccessCare, Inc.
The first transaction was consummated after approval of the transaction
by the Board of Directors. The Board considered such matters as it deemed
necessary after receipt by the Company's Board of Directors of reports and
information concerning the transaction from the Company's management, and
information that was supplied by others, such as financial, legal, and
accounting professionals. The first such transaction was the sale of a
$2,000,000 secured convertible note to an investment company, holding its shares
as a fiduciary for investors in the investment company. The Company agreed to
reserve for future issuance 333,333 shares (336,700 presently, after a previous
adjustment to correct for dilution) upon conversions under the two-year
$2,000,000 secured convertible note. The NYSE has not objected to the issuance
of the shares as being violative of the NYSE's listing requirements, which do
not call for prior shareholder approval of a sale of common shares except to the
extent that the issuance exceeds 20% by voting or by value of the previously
outstanding shares.
With the NYSE's permission, the Company spoke with three
representatives of the NYSE in March 1995 to discuss, among other things, the
Company's intention of availing itself of an exception to the NYSE Shareholder
Approval Policy. The exception permits the issuance of shares in excess of the
20% permitted under the normal rules if the delay in obtaining stockholder
approval would seriously jeopardize the Company's financial viability.
Compliance with such exception requires (i) specific approval by the Audit
Committee of the Company relying on the exception; (ii) the mailing of a notice
of reliance on the exception to holders of the Company's Common Stock at least
10 days in advance of the issuance of the shares that otherwise would require
approval of stockholders, and (iii) making a news release announcing the
reliance on the exception. On March 3, 1995, the first news release was issued.
The Company's Form 10-Q for the Quarterly Period Ended February 28, 1995
contained the form of written notice. Another news release was issued at 9:00
a.m. EDT, before the opening of trading on August __, 1995. After the Company's
reliance on the NYSE distress exception was announced, the Company caused the
shares to be issued. The Company had earlier agreed that all of the privately
placed shares would be issued as soon as practicable after the Company, pursuant
to instruction of the NYSE, had given notice by mail to stockholders and made
the news releases described above.
The Company agreed to issue up to an additional 442,500 shares of
Common Stock at an aggregate price of $2,505,000 among five accredited investors
in an exempt transaction.
7
<PAGE> 12
Stockholder approval of the transaction was not required under Delaware law or,
in reliance on the exception for companies facing financial distress, the NYSE
Shareholder Approval Policy. The first sale, for an aggregate of $600,000 in
cash, of 100,000 shares subsequently adjusted by written amendment to 115,000
shares, was made on February 1, 1995 to Lindner Growth Fund, an investment
company managed by Ryback Management, an investment advisor. The second sale
involving 150,000 shares, for an aggregate of $975,000 in cash, was made on
April 15, 1995 to James R. Moriarty, an accredited investor.
Lindner Growth Fund purchased 135,000 additional shares on or about
June 29, 1995 for an aggregate of $810,000 in cash. Subsequently, on or about
August 15, 1995, three accredited investors purchased 19,933 shares in
separate transactions for an aggregate of $119,598.
The offering was completed successfully. The Company received in cash
$4,504,933. Chriss Street & Co., a California corporation, is entitled to fees
aggregating $100,000 for its services in connection with the private placements.
The controlling person of Chriss Street & Co. is Chriss W. Street, the Company's
Chief Executive Officer and Director. The Company's Board of Directors approved
the payment of fees based upon its determination that the amount of the fees
charged were fully-earned and well-deserved. The Audit Committee considered and
recommended the approval of the fees based upon its Chairman's recommendation.
The Company also incurred other offering expenses, such as legal and other
consulting fees and costs.
VOTE REQUIRED
Pursuant to the Restated Bylaws of the Company and the Delaware General
Corporation Law, a proposal's approval requires an affirmative vote of a
majority of the shares present in person or represented by proxy and entitled to
vote at a meeting of stockholders. Approval of the stockholders is not required
by Delaware General Corporation Law or the Restated Bylaws of the Company.
Proposal 1 is intended to result in stockholder approval as defined in NYSE
rules so that the NYSE listing of the Common Stock may be approved. According to
the rules of the NYSE, where stockholder approval of an issuance of additional
shares is prerequisite to NYSE listing of the additional shares of an
NYSE-listed company, the minimum vote which will constitute stockholder approval
is defined as a majority of votes cast on a proposal, provided the total vote
cast on the proposal represents over 50% in interest of all of the Common Stock
entitled to vote thereon. Therefore, the approval by a majority of the votes
cast vote will have no effect unless the total vote cast on a proposal is more
than 50% in interest of all Common Stock entitled to vote thereon. Broker
non-votes or other shares that are not entitled to vote on a particular
proposal will not be treated as votes cast and, therefore, a broker non-vote
could result in too few votes cast for the vote to be deemed effective.
However, assuming the number of votes cast would be sufficient to satisfy the
definition of stockholder approval as defined in the NYSE rules, broker
non-votes or other shares not entitled to vote on a proposal would have
no effect on the outcome of voting. An abstention on a proposal or a negative
vote would be counted as a vote cast and each is treated as a negative vote.
According to NYSE rules, brokers may not vote on a proposal to approve issuance
of additional shares unless the beneficial owner provides written instructions
to the broker.
8
<PAGE> 13
MANAGEMENT RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 1.
OTHER FACTORS TO CONSIDER
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices. Lower public market
prices, then, may adversely affect the Company's ability to raise additional
capital in the capital markets at prices favorable to the Company.
Outstanding shares of Common Stock that have not been acquired in a
public offering would be "restricted securities" as defined in Rule 144 under
the 1933 Act ("Restricted Shares"). Restricted Shares will become eligible for
sale (subject to the provisions of Rule 144) in the public market on various
dates hereafter. In general, under Rule 144 as currently in effect, any person
(or persons whose shares would be aggregated) who has beneficially owned
Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of: (i)
one percent (1%) of the then outstanding shares of a company's common stock or
(ii) the average weekly trading volume during the four calendar weeks preceding
such a sale. A person who is not an affiliate, has not been an affiliate within
three months prior to the sale and has beneficially owned the Restricted Shares
for at least three years is entitled to sell such shares under Rule 144(k)
without regard to any of the limitations described above.
100,000 shares are issuable in exchange, at the option of the other
party, for certain preferred shares of a subsidiary of the Company. 336,700,
subject to anti-dilution adjustments, shares are issuable upon conversion at
$6.00 per share under a Secured Convertible Note. At least 132,162 shares are
issuable on or prior to March 31, 1996 in exchange for a business. All of these
shares will be Restricted Shares. Provided, however, the persons who purchased
the Restricted Shares were granted registration rights. Upon written demand of
such persons, the Company shall be required to use best efforts to file a
registration statement with the Securities and Exchange Commission
("Commission") to register the shares for resale pursuant to the Securities Act
of 1933, as amended (the "Securities Act"). In addition, there are
approximately 442,433 shares of Common Stock reserved for issuance that are
committed to be issued pursuant to fully-paid Common Stock Purchase Agreements
and merely pending completion of administerial acts and NYSE approval for
listing.
The Company intends to file registration statements on Form S-8, and
post-effective amendments to previously filed Forms S- 8, under the 1933 Act to
register the balance of approximately 900,000 shares of Common Stock reserved
for issuance under its 1988 Incentive Stock Option Plan ("ISO Plan") and 1988
Nonqualified Stock Option ("NSO Plan") and Directors' Plan ("Directors' Plan"),
thus permitting the immediate resale of shares issued under these plans in the
public market pursuant to a registration statement filed under the Securities
Act; although most participants may resell such securities without restriction
under the Securities Act, certain persons that are deemed to be affiliates must
resell pursuant to Rule 144. See above. There are additional employee options
to purchase 85,000 shares of Common Stock that were not issued under the ISO
Plan, the NSO Plan or the Directors' Plan. All of these will be Restricted
Shares, absent a registration for resale thereof under the Securities Act.
9
<PAGE> 14
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 12,500,000
shares of Common Stock, $.01 par value per share, and 60,000 shares of Preferred
Stock, $50.00 par value per share.
COMMON STOCK
As of August 21, 1995, there were approximately 2,214,503 shares of
Common Stock outstanding counting both shares held of record as Common Stock
and shares issuable upon surrender of certificates formerly representing the
Company's pre-October 21, 1995 Common Stock, par value $.10 per share. There
were 2,657,933 shares of Common Stock outstanding or committed, which includes
443,433 shares sold, the issuance of which is pending administerial acts and
NYSE approval for listing upon notice of issuance. There will be approximately
3,507,933 shares of Common Stock outstanding assuming the shares of Common
Stock offered by the Company in the Placement Transaction and the
previously-mentioned committed shares are issued.
Holders of Common Stock are entitled to cumulative voting rights in the
election of directors and to one vote per share on all other matters to be voted
upon by the stockholders. The Company's Restated Certificate of Incorporation
grants the Board of Directors express authority to fix the designations, powers,
preferences, rights, qualifications, limitations, restrictions, dividend rates,
and, if any, the redemption rights, liquidation rights, sinking fund provisions,
conversion rights and voting rights of any future series of Preferred Stock
which may be issued. Thus, the Board of Directors may create one or more series
of Preferred Stock which may adversely affect the holders of shares of Common
Stock. Subject to preferences that may be applicable to the holders of
outstanding shares of Preferred Stock, if any, the holders of Common Stock are
entitled to receive such lawful dividends as may be declared by the Board of
Directors. In the event of liquidation, dissolution or winding up of the
Company, and subject to the rights of the holders of outstanding shares of
Preferred Stock, if any, the holders of shares of Common Stock shall be entitled
to receive pro rata all of the remaining assets of the Company available for
distribution to its stockholders. There are no redemption or sinking fund
provisions, nor and there preemptive or conversion rights applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and shares of Common Stock to be issued pursuant to a Placement
Transaction and the Exchange Offer shall be fully paid and nonassessable.
In October 1994, the NYSE notified the Company that it was below
certain quantitative and qualitative listing criteria including those in regard
to net tangible assets available to common stock and three-year average net
income. The Listing and Compliance Committee of the NYSE has determined to
monitor the Company's progress toward returning to original and continuing
listing standards. The Company met with representatives of the NYSE during the
third quarter of fiscal 1995 and again during the first quarter of fiscal 1996
to discuss the Company's financial condition and its intention to institute a
"global" restructure. No assurance can be given that the steps of the
restructuring will be successfully completed.
COMMON STOCK PURCHASE RIGHTS
On the terms, and subject to the conditions, of the Restated and
Amended Rights Agreement dated April 19, 1988, as restated and amended on
October 21, 1994, between the Company and Continental Stock Transfer & Trust
Company, each share of Common Stock
10
<PAGE> 15
includes a right to purchase an additional share of Common Stock or shares of
any acquiring company at a formula price generally less than the prevailing
price thereof in certain defined events, such as an acquisition by a third party
of a substantial portion of the shares of Common Stock, unless in each such case
the transaction is approved by the Board of Directors excluding any directors
that are affiliated with the acquiring person.
REGISTRATION RIGHTS
The Company has granted registration rights to certain private
investors and in certain strategic acquisition or disposition transactions. The
agreements all provide for demand registration by the investor and other
incidental registration rights. If registration rights are exercised, any
substantial number of shares that are registered at one time would be likely to
have an adverse effect on the market price of the Common Stock. See "General
Negative Effects on Rights of Existing Security Holders." The Company has not
been able to comply with registration provisions, which could result in claims
against the Company for any monetary damages suffered by the investors. See
"Terms of Other Recent Transactions."
COMMON STOCK TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The stock transfer agent, dividend disbursing agent and registrar for
the Company's Common Stock is Continental Stock Transfer & Trust Company.
PREFERRED STOCK
No shares of Preferred Stock are outstanding. Pursuant to the Company's
Restated Articles of Incorporation, the Board of Directors has the authority,
without further action by the stockholders, to issue the shares of Preferred
Stock in one or more series and to fix the rights, preferences and privileges
thereof, including voting rights, terms of redemption, redemption prices,
liquidation preferences, number of shares constituting any series or the
designation of such series, without further vote or action by the stockholders.
This provision may be deemed to have a potential anti-takeover effect and the
issuance of Preferred Stock in accordance with such provision may delay or
prevent a change of control of the Company. See "Anti-takeover Provisions."
Although it presently has no intention to do so, the Board of Directors, without
stockholder approval, could issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
either (i) prior to the date at which the person becomes an interested
stockholder, the Board of directors approves such transaction or business
combination, (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of such
transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares
11
<PAGE> 16
held by the interested stockholder) at a meeting of stockholders (and not by
written consent). A "business combination" includes a merger, asset sale or
other transaction resulting in a financial benefit to such interested
stockholder. For purposes of Section 203, "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years prior,
did own) 15% or more of the corporation's voting stock.
12
<PAGE> 17
RISK FACTORS
In addition to the other information, the following factors should be
considered carefully:
FAILURE TO CONSUMMATE EXCHANGE OFFER
If the Exchange Offer is not consummated, the Company does not
anticipate that it will likely be able to address the acceleration of
Debentures. The Debentureholders may file an involuntary petition to commence
a Chapter 7 liquidation.
The Company believes that any protracted bankruptcy case would have
material adverse effects on the Company possibly including:
(a) disruption of business activities by diverting the attention
of the Company's senior management to the bankruptcy case or
resultant disputes, and eventually terminations, of its
contracts with third parties;
(b) potential for substantial diminution in the value of the
Company's assets and its revenues, earnings and cash flow;
(c) potential adverse impact upon the ability of the Company to
obtain the financing necessary for its future operations;
(d) substantial increase in the cost of restructuring the Company,
including the increase in the expenses of professionals
normally associated with a bankruptcy case commenced without
prior agreement with the Company's major creditors;
(e) uncertainty as to the ability of the Company to effectuate any
such restructuring and, if it is effectuated, the timing
thereof;
(f) interference and delay regarding payments to holders of
Debentures and risks associated with subordinated unsecured
debt;
(g) potential for forced liquidation of some of the Company's
assets at substantially reduced values and the resulting loss
to creditors and others; and
(h) increased uncertainty and suspicions among the Company's
employees and vendors.
In addition, the Company believes that, because of the importance of
continuing stable relations with medical and health professionals and other
service and goods providers in the behavioral treatment industry, the Company is
particularly susceptible to any adverse reactions these highly sought after
constituencies may have to the filing of a bankruptcy petition affecting the
Company.
ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN; EXPLANATORY PARAGRAPH IN
AUDITORS' REPORT
The Company's independent auditors have included an explanatory
paragraph in their report stating the Consolidated Financial Statements of the
Company have been prepared assuming that the Company will continue as a going
concern and that the Company's financial condition, because of the acceleration
of the Debentures, raises substantial doubts about its ability to continue as a
going concern. If the Debentures continue to be accelerated and a judgment is
entered against the Company, the Company could be unable to continue to operate
as a going concern and it may result in the Company, as its only possible viable
alternative, seeking relief under Chapter 11 of the Bankruptcy Code regardless
of the present intentions of the Company's Management and Board of Directors to
take any other action necessary to avoid a bankruptcy case commencing.
PRIORITIES OF SECURITIES AND OTHER CONSIDERATIONS RELATING TO ANY FUTURE
BANKRUPTCY OF THE COMPANY
Implementation of the Exchange Offer will have significant
consequences for the holders of the Company's debt and equity securities in the
event of any future bankruptcy of the Company. Certain of these consequences
are summarized below. Holders of debt and equity securities are encouraged to
seek the advice of their own counsel or advisors with respect to such matters.
Relative Priorities of Debt Claims and Equity Interests
The relative rankings of the Company's debt claims and equity interests
(excluding debt of its subsidiaries) both before and after giving effect to the
Exchange for all of the outstanding Debentures (without reflecting any other
transactions) are summarized in the following table. The relative priority of
claims of holders of Debentures who do not tender such Debentures pursuant to
the Exchange Offer may worsen because new debt or convertible securities,
whether secured or unsecured may, in each case, rank senior to the Debentures.
In the event the Company incurs additional indebtedness which is senior to the
Debentures, the position of the Debentures relative to the new senior
indebtedness will worsen. The relative priority of claims of holders of
Debentures who tender them for acceptance by the Company, to the extent they
receive and retain cash, would be improving in position relative to other
creditors, and to the extent they exchange their Debentures for Common Stock
their relative position may worsen because all secured and unsecured debt ranks
ahead of equity.
13
<PAGE> 18
<TABLE>
<CAPTION>
Priority Pre-Restructuring Post-Restructuring
-------- ----------------- ------------------
Type and Amount Type and Amount
Outstanding (a) Outstanding (b)
<S> <C> <C>
Secured Debt (a)
Senior Secured Debt . . . . . . Secured Creditors Secured Creditors
($2,000,000) ($7,000,000)
Unsecured Debt (b)
Senior Debt . . . . . . . . . . Various Creditors Various Creditors
($6,362,000) ($6,362,000)
Subordinated Debt . . . . . . . Debenture
($9,538,000)
Equity (c) . . . . . . . . . . . . . . . Common Stock Common Stock
(2,656,936) (2,809,603)
</TABLE>
--------------------------
(a) All "secured debt" ranks ahead of all "equity" and, to the extent of the
value of the security interest securing any such "secured debt," all
"unsecured debt," except to the extent subordination agreements among
creditors specify otherwise. To the extent any amount of the "secured
debt" is undersecured or becomes unsecured, any such amount will have the
relative priority of other "unsecured debt."
(b) All "unsecured debt" ranks ahead of all "equity." Debentures rank pari
passu in right of payment with all unsecured debt," which would include
trade payables and other general creditors of the Company (except for
debts which are, by their terms, subordinated to indebtedness owed under
the Debentures). The term pari passu means that such securities rank at
the same level of priority for distributions in liquidation and/or
bankruptcy, absent other bankruptcy considerations. See, for example "--
Potential Reduction of Claims" below and "Preferences and Fraudulent
Conveyance Considerations."
(c) Preferred Stock has priority over Common Stock in right of payment of
dividends and in any distribution upon the liquidation, dissolution or
winding up of the Company. Preferred Stock may be issued with rights
determined by the Board of Directors from time to time.
PREFERENCE AND FRAUDULENT CONVEYANCE CONSIDERATIONS
Avoidable Preferences
If a case were to be commenced by or against the Company under the
Bankruptcy Code following the consummation of the Exchange Offer, a bankruptcy
trustee or the Company, as debtor in possession, could avoid as a preference
any transfer of property made by the Company to or for the benefit of a
creditor which was made on account of an antecedent debt if such transfer (i)
was made within 90 days prior to the date of the commencement of the bankruptcy
case or, if the creditor is found to have been an "insider" (as defined in the
Bankruptcy Code), within one year prior to the date of commencement of the
bankruptcy case; (ii) was made when the Company was insolvent; and (iii)
permitted the creditor to receive more than it would have received in a
liquidation under Chapter 7 of the Bankruptcy Code had the transfer not been
made. Under the Bankruptcy Code, a debtor is presumed to be insolvent during
the 90 days preceding the date of commencement of a bankruptcy case. To
overcome this presumption, it would need to be shown that at the time the
transfers were made, the sum of the Company's debts was less than the fair
market value of all of its assets.
Under the Bankruptcy Code, all or a portion of the property transferred,
including any cash payments, to tendering holders of Debentures, as well as any
subsequent payment to non-tendering holders of Debentures, could be found to
constitute preferences if a bankruptcy case were commenced within the
applicable time period following such payments and the other elements discussed
above are present. If, following the commencement of a bankruptcy case within
the applicable time period, such transfers were found to be preferential
transfers, transferees could be ordered to return the full value of such
transfers. In such event, transferees would have a general unsecured claim in
the Company's bankruptcy case equal to the value of the property returned.
Fraudulent Conveyances
If a court in a lawsuit by or on behalf of an unpaid creditor or a
representative of creditors, such as a bankruptcy trustee, or the Company, as
debtor in possession, were to find that, at the time of consummation of the
Exchange Offer (a) the Company received less than reasonably equivalent value
in exchange for the consideration given by the Company for any property
transferred by the tendering holders of Debentures, and (b) the Company (i) was
insolvent or was rendered insolvent as a result of such transfers, (ii) had
unreasonably small remaining assets or capital for its business, or (iii)
intended to incur, or believed or reasonably should have believed it would
incur, debts
14
<PAGE> 19
beyond its ability to pay such debts as they become due, such court could
determine that all or a portion of such transfers were avoidable as a
"constructive" fraudulent transfer and require the transferees to return to the
Company or its bankruptcy trustee the consideration given. The Company
believes that because of the reduction in the Company's outstanding
indebtedness which will result from each of the other exchanges or transfers
described above, a bankruptcy court should find that the Company received
reasonably equivalent value for the consideration given by the Company. There
can be no assurance, however, that a bankruptcy court would make such a
determination.
NO FAIRNESS OPINION
The Company has not advised Debentureholders to Exchange or to refrain
from Exchanging Debentures because, among other reasons, the Company has not
obtained a fairness opinion concerning the Exchange Offer from any investment
banking firm or an appraisal or any other investigation of the consequences of
an Exchange.
HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
There can be no assurance that the Company will be able to achieve
profitability and positive cash flows from operations or that profitability and
positive cash flow from operations, if achieved, can be sustained on an ongoing
basis. Moreover, if achieved, the level of that profitability or that positive
cash flow cannot accurately be predicted.
ADDITIONAL RISK FACTORS WITH RESPECT TO HOLDERS OF DEBENTURES NOT TENDERED IN
THE EXCHANGE OFFER
The Debentures represent the subordinated indebtedness of the Company.
The Company may incur indebtedness which is senior to the Debentures in
unlimited amounts.
The Indenture permits the Company, at its election, to redeem the
Debentures at 100.00% of the original principal amount (the "face value") at
any time before maturity. The original maturity date of the Debentures was
April 15, 2010. Provided that the Acceleration of Debentures is effectively
rescinded, the maturity date will once again become April 15, 2010, subject to
any future conditions affecting maturity. See "Description of Debentures."
The Debentures are not listed on any Securities Exchange or quoted on
NASDAQ. The trading, if any, in the Debentures is limited and sporadic.
Presently there are fewer than 50 registered holders of Debentures. Because
the Debentures may be, after consummation of the Exchange Offer, held by a more
extremely limited number of registered holders, the trading market will become
even more limited. These events are likely to have an adverse effect on the
overall liquidity and market value of the Debentures.
The Debentures are general unsecured obligations exclusively of the
Company. Since a substantial portion of the Company's and its consolidated
subsidiaries' is conducted through certain of such subsidiaries, the cash flow
and consequent ability of the Company to satisfy its indebtedness to
Debentureholders are dependant, in part, upon the earnings of such subsidiaries
and a distribution of those earnings to the Company. The Company's
subsidiaries are distinct legal entities and have no obligation, contingent or
otherwise, to make any payment on the Debentures or to make funds therefor
available. Any rights of the Company to receive assets of any subsidiary (and
the consequent right of Debentureholders to possibly benefit from participating
therein) in any liquidation or reorganization of the subsidiary will be
effectively subordinated to the creditors of the subsidiary (including trade
creditors) in any liquidation or reorganization of the subsidiary.
DELAY IN COMPLETION OF THE EXCHANGE OFFER
A foreclosure sale of CareUnit, Inc. pursuant to the Letter Agreement,
provided the terms and conditions therein permit a future foreclosure, or the
perception by investors, or investment professionals of the possibility that
such foreclosure may or would occur, could adversely affect the market price of
the Debentures. A foreclosure sale is permitted at any time after
approximately September 1, 1995 by the terms of the Letter Agreement if the
representative, Mr. Jay H. Lustig, performed substantially all material
obligations.
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF FUTURE FUNDING
The Company's negative cash flow from operations has consumed substantial
amounts of cash. Payment of amounts due to the holders of 7 1/2% Convertible
Subordinated Debentures, which have been accelerated and have become
immediately due and payable, also may or will, unless acceleration is
rescinded, require substantial amounts of cash. The Company's $2,000,000
Secured Convertible Note Due January 9, 1997 permits acceleration by the holder
in the event of non-payment of any other debt of the Company [excluding the
Debentures]. In the event of an acceleration of such note, payment of such
note would also require substantial amounts of cash. Other indebtedness of the
Company provides upon bankruptcy for acceleration or similar rights to collect
moneys in advance of their original due date. In the event of a failure to
meet all of its obligations on a timely basis under its outstanding
indebtedness and in a manner satisfactory to creditors, the Company would
continue to be liable for at least the entire principal amount, with interest,
of such indebtedness as well as obligations to indemnify debt holders from
costs of suit and collection.
15
<PAGE> 20
Issuance or reserves of additional equity securities by the Company could
result in substantial dilution to then-existing stockholders and
Debentureholders receiving Common Stock in the Exchange Offer or on conversion
of Debentures. There can be no assurance that any financing will be available
and, if available, available on acceptable terms.
DISPOSITION OF ASSETS
The Company has been required to dispose of various properties in order to
raise working capital, and no assurance can be made that such dispositions will
not have adverse effects on the Company's financial condition and results of
operations or that the Company has sufficient additional assets that could be
disposed of in order to fund its capital requirements.
In connection with the March 3, 1995 Letter Agreement, the Company has
agreed to pledge all of the shares of its CareUnit, Inc. subsidiary. The
agreement provides that "At 150 days after the date of this Agreement, provided
that the Participating Securityholders have in each material respect performed
(with opportunity to cure if a cure is possible) their obligations required to
be performed hereunder on or prior to such date, and if the Offer has not then
been consummated, the Company shall pledge (with the Trustee, or an alternate
acceptable to the Company, to act as pledgeholder on terms of a written
agreement containing standard terms reasonably acceptable to the Participating
Securityholders) all of the Shares as collateral for its obligation to purchase
the Securities pursuant to the Offer or otherwise. Such pledge may only be
foreclosed upon following 180 days after the date hereof at the request of any
Securityholder or the Trustee if the Offer is not consummated on or prior to
such date, provided that the Participating Securityholders have in each
material respect performed (with opportunity to cure if a cure is possible)
their obligations required to be performed hereunder on or prior to such date.
... Upon consummation of the Offer, the said pledges shall be released." No
assurances can be made that if required the Company will, on a timely basis,
satisfy such obligation to consummate the Offer, or that the Company will be
able to obtain consents of third parties or to perform other additional or
incidental acts in order to consummate the Offer.
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS
The Company's ability to succeed in increasing revenues may depend in part
on the extent to which reimbursement of the cost of such treatment will be
available from government health administration authorities, private health
insurers and other organizations. Third-party payors are increasingly
challenging the price of medical products and services. As a result of
reimbursement changes and competitive pressures, the contractual obligations of
the Company have been subject to intense evaluation.
UNCERTAINTY OF PRICING; HEALTHCARE REFORM AND RELATED MATTERS
The levels of revenues and profitability of healthcare companies may be
affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of healthcare through various means. In the United
States, there have been, and the Company expects that there will continue to
be, a number of federal and state proposals to implement governmental controls
on the price of healthcare. It is uncertain what legislative proposals will be
adopted or what actions federal, state or private payors for healthcare goods
and services may take in response to any healthcare reform proposals or
legislation. The Company cannot predict the effect healthcare reforms may have
on its business, and assurances cannot be made that any such reforms will not
have material adverse effects on the Company.
MANAGEMENT OF EXPANSION
The Company's anticipated growth and expansion into areas and activities
requiring additional medical and administrative expertise, such as managed
care, are expected to place increased demands on the Company's resources.
These demands are expected to require the retention of current management and
the addition of new management personnel and the development of additional
expertise by existing management personnel. The failure to retain or acquire
such services or to develop such expertise could have a material adverse effect
on the prospects for the Company's success.
MANAGEMENT OF TRANSITION
The Company's prospects for success depend, to a degree, on its ability to
successfully implement its current restructuring plans. The failure of the
Company to successfully transition, or any unanticipated or significant delays
in such transition, could have a material adverse effect on the Company's
business. There can be no assurance that the Company will be able to achieve
its planned transition without disruption to its business or that the
transitioned Company resulting from the planned business transition will be
adequate to sustain future growth by the Company.
16
<PAGE> 21
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. 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. See "Shares Eligible for Future Sale."
PRICE VOLATILITY IN PUBLIC MARKET
The securities markets have from time to time experienced significant
price and volume fluctuations that may be unrelated to the operating
performance of particular companies. Trading prices of securities of companies
in the managed care sector have experienced significant volatility. The
trading of Debentures in the over-the-counter market is not active. The
Debentures are convertible into Common Stock at a price so far in excess of the
current market price of Common Stock as to be unattractive to Debentureholders
in today's market.
ANTI-TAKEOVER PROVISIONS
Each share of the Company's Common Stock includes one right on the terms,
and subject to the conditions, of the Rights Agreement between the Company and
Continental Stock Transfer & Trust Company. The Company's Restated Certificate
of Incorporation also provides for 60,000 authorized shares of Preferred Stock,
the rights, preferences, qualifications, limitations and restrictions of which
may be fixed by the Board of Directors without any further vote or action by
the stockholders, which could have the effect of diluting the Common Stock or
reducing working capital that would otherwise be available to the Company.
The Company's Restated Certificate of Incorporation also provides for a
classified board of directors, with directors divided into three classes
serving staggered terms.
In addition, the Company's stock option plans generally provide for the
acceleration of vesting of options granted under such plans in the event of
certain transactions which result in a change of control of the Company.
In addition, Section 203 of the General Corporation Law of Delaware
prohibits the Company from engaging in certain business combinations with
interested stockholders. These provisions may have the effect of delaying or
preventing a change in control of the Company without action by the
stockholders, and therefore could adversely affect the price of the Company's
Common Stock.
TAXES
The Company has claimed entitlement to a tax refund for the 1994 taxable
year of $9.4 million based on federal income tax deductions on account of
specified liability losses defined in Section 172(f) of the Internal Revenue
Code of 1986, as amended (the "Code") and expects to receive a refund of taxes
for the 1994 tax year prior to October 15, 1995. The Company's tax returns in
earlier tax years also have been amended based on federal income tax deductions
arising from carrybacks of specified liability losses defined in Section
172(f), also. The Company's obligations to the Internal Revenue Service
("IRS") for amounts currently due and payable to the IRS pursuant to a
settlement agreement relating to tax years 1987 through 1991 will not be
decreased by the tax- refund claim or claims based on amended earlier-year
returns. Section 172(f) is an area of the federal income tax law without
substantial legal precedent. There may be opposition by the IRS to such
claims, and no assurances can be made of the ability to claim such deductions
or refunds. With regard to the that prior-year tax returns that have been or
will be amended in order to utilize some of the claimed deductions, neither the
Company nor the IRS will be foreclosed.
The Company's ability to use any Net Operating Losses may be subject to
limitation in the event that the Company issues or agrees to issue substantial
amounts of additional equity.
The Company may be unable to utilize some or all of its allowable tax
deductions or losses, which depends upon factors including the availability of
sufficient net income from which to deduct such losses during limited carryback
and carryover period.
17
<PAGE> 22
INTERESTS OF CERTAIN PERSONS
The directors and executive officers who served the Company since June
1, 1994 have no substantial interest, direct or indirect, by security holdings
or otherwise, in the approval or disapproval of Proposal 1. Chriss Street & Co.,
controlled by Chriss W. Street, is an investment banker which may be entitled to
compensation if it provides services in connection with the Placement
Transaction.
18
<PAGE> 23
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning beneficial
ownership of Common Stock. Such information is given as of August 21, 1995, the
record date. At the record date, approximately 2,214,505 shares of Common Stock
were outstanding, each entitled to one vote per share. According to rules
adopted by the Securities and Exchange Commission, "beneficial ownership" of
securities for this purpose is the power to vote them or to direct their
investment. Except as otherwise noted, the indicated owners have sole voting and
investment power with respect to shares beneficially owned. An asterisk in the
percent of class column indicates beneficial ownership of less than 1% of the
outstanding Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
---------------------------------- ------------------------------ ------------------
<S> <C> <C>
William H. Boucher 5,000 (9) *
J. Marvin Feigenbaum 5,000 (9) *
Lindner Funds (1) 586,700 --
Drew Q. Miller 21,000 (10) --
Rudy R. Miller 5,000 (9) *
James R. Moriarty (2) 172,500 --
W. James Nicol 5,056 (3) *
Richard C. Perry (5) 200,000 --
Kerri Ruppert 19,036 (6) *
Chriss W. Street 84,060 (7) --
All executive officers and
directors as a group (7 persons) 144,152 (8) --
</TABLE>
(1) The mailing address of Lindner Funds is c/o Ryback Management, 7711
Carondelet Avenue, Suite 700, St. Louis, Missouri 63105. Includes
approximately 336,000 shares currently reserved for issuance upon
conversion of a Secured Convertible Note dated January 9, 1995.
(2) The mailing address of James R. Moriarty is 1111 Bagbe, Suite 1950,
Houston, Texas 77002-2546.
(3) Includes 56 shares held by Mr. Nicol's spouse as custodian for his
three minor children, all of whom reside with Mr. Nicol, and 5,000
shares subject to options that are presently exercisable or exercisable
within 60 days of the date of this Proxy Statement.
(5) Mr. Perry is President of Perry & Co., 2635 Century Parkway, N.E.,
Suite 1000, Atlanta, Georgia 30345.
(6) Consists of 19,036 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(7) Includes 6,560 shares held directly and 77,500 shares subject to
options that are presently exercisable or exercisable within 60 days of
the date of this Proxy Statement.
(8) Includes a total of 131,536 shares subject to outstanding options that
are presently exercisable or exercisable within 60 days of the date of
this Proxy Statement.
(9) Includes 5,000 shares subject to options that are presently exercisable
or exercisable within 60 days of the date of this Proxy Statement.
(10) Includes 1,000 shares held directly and 20,000 shares subject to
options that are presently exercisable or exercisable within 60 days of
the date of this Proxy Statement.
19
<PAGE> 24
USE OF PROCEEDS
The net proceeds to the Company from the issuance of all of the
850,000 shares of Common Stock offered by the Company in one or more Placement
Transactions is unknown at this time.
The Company's negative cash flow from operations has consumed
substantial amounts of cash. The Company's capital requirements will depend on
numerous factors, including the Company's obligations to raise substantial
additional funds to complete the Debenture Exchange Offer. Approximately up to
$5,750,000 in cash ($5,550,000 in cash; 152,642 shares of Common Stock; and
estimated costs of $200,000) could be necessary to retire the outstanding
balance of indebtedness under the Debentures pursuant to the Exchange Offer.
Otherwise the principal balance outstanding under the Debentures at September
15, 1995 was $9,538,000; and there can be no assurance of successful completion
of the Exchange Offer.
The Company reserves the right to change the anticipated use of
proceeds in the event that the Exchange Offer is not consummated, or, if
consummated, the amount in cash that the Company is required to disburse in
such Exchange Offer is less than the net proceeds to the Company from the sale
of Common Stock in a Placement Transaction. In any such event, the Company's
alternative uses of proceeds are expected to include (i) completion of an
exchange offer for Debentures on modified or supplemented terms, (ii) purchases
of Debentures on privately negotiated terms, (iii) payments on account of
default interest and other costs or expenses due or purportedly due under the
terms of the Debentures in the event acceleration of Debentures is rescinded
otherwise that pursuant to an Exchange Offer, (iv) other resolutions of
inter-creditor or debtor-creditor issues, or (v) any one or more of the
below-described uses for remaining proceeds.
Any remaining proceeds will be used to increase working capital, to
finance the expansion of the Company's business and for other general corporate
purposes. The Company may use any remaining net proceeds of a Placement
Transaction to acquire strategic businesses or services, although no specific
acquisitions are planned as of the date of this Proxy Statement. Pending such
uses, the Company intends to invest the net proceeds from a Placement
Transaction in short-term, interest-bearing instruments, including government
obligations and money market instruments.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
finance future growth. The Company does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. While the Debentures are due and
unpaid, payments of dividends is prohibited.
CAPITALIZATION
Each share of Common Stock also includes one attached common share
purchase right issued under the Company's shareholder rights plan.
20
<PAGE> 25
The following table sets forth the capitalization of the Company as of
August 31, 1995 and as adjusted to give effect to the sale of the maximum
850,000 shares of Common Stock that may be offered by the Company pursuant to
Proposal 1, at an assumed offering price of $____ per share and after deducting
estimated offering expenses payable by the Company, and the application of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
May 31, 1995
-----------------------------
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt and
notes payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,285 $
-----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 14,615 -----------
Stockholders' equity:
Preferred Stock, $50 par value, 60,000 shares authorized,
no shares outstanding . . . . . . . . . . . . . . . . . . . -- --
Common Stock, $.01 par value, 12,500,000 shares authorized,
_________ shares outstanding (1) . . . . . . . . . . . . . . 25
Additional paid-in capital . . . . . . . . . . . . . . . . . . 42,558 -----------
Retained earnings (deficit) . . . . . . . . . . . . . . . . . (46,516)
Total stockholders' equity (deficit) . . . . . . . . . . (3,933)
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $ 13,967 $
========= ===========
</TABLE>
(1) Excludes _______ shares of Common Stock reserved but unissued under the
Company's stock option plans. At May 31, 1995, there were options
outstanding to purchase 236,167 shares of Common Stock under the plans. The
Company also reserved for issuance that number of shares of Common Stock
which are issuable upon conversion of the Debentures.
CHANGES IN ACCOUNTANTS
Arthur Andersen LLP ("Arthur Andersen") had been the principal
independent auditors of the financial statements for the Company. On May 22,
1995, that firm advised the Company that the Company did not meet Arthur
Andersen's client profile. In connection with the audits of the fiscal years
ended May 31, 1993 and May 31, 1994, and the subsequent interim period through
the date of resignation (the "Period"), there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure or audit scope or procedures, which disagreements if not
resolved to their satisfaction would have caused them to make reference in
connection with their audit reports to the subject matter of the disagreement.
The audit reports of Arthur Andersen on the consolidated financial
statements of the Company and subsidiaries as of and for the fiscal years ended
May 31, 1993 and 1994 did not contain any adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles, other than that such auditor's reports contained two
separate paragraphs that stated that:
As further discussed in Note 15, the Company is negotiating a
settlement with the Internal Revenue Service (IRS) regarding
assessments of payroll taxes. Management believes that adequate
reserves have been provided for the additional taxes to be assessed by
the IRS. There can be no assurance, however, that such reserves will
be sufficient until a formal settlement is reached.
21
<PAGE> 26
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has incurred significant recurring losses and negative cash
flows from operations which raises substantial doubt about the
Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that
might result should the Company be unable to continue as a going
concern.
The uncertainty with respect to the Internal Revenue Service
assessment had been resolved by the Company pursuant to a settlement agreement
with the Internal Revenue Service entered into during the quarterly period
ended November 30, 1994.
Arthur Andersen advised the Company that Arthur Andersen might permit
(without commitment) its 1993 and 1994 audit reports to be used in the
Company's filings with the Securities and Exchange Commission, but the
appropriate form that such audit reports may take if reissued at a future time,
would depend upon the results of post-audit review procedures that Arthur
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.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Ernst & Young LLP, independent public accountants,
are expected to be present at the meeting, will have the opportunity to make a
statement if they desire to do so, and are expected to be available to respond
to appropriate questions from stockholders.
PROPOSAL 2
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the meeting. However, if any other business properly comes before the meeting,
the persons named in the accompanying proxy card will vote or refrain from
voting thereon in accordance with their judgment pursuant to the discretionary
authority given them as proxies.
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
Stockholder proposals for inclusion in the proxy statement for the 1995
annual meeting of stockholders scheduled to be held November 9, 1995 should have
been received by June 10, 1995 by Kerri Ruppert, the Secretary of the Company,
at the principal executive offices of the Company, whose mailing address is 4350
Von Karman, Suite 280, Newport Beach, California 92660.
By Order of the Board of Directors,
Kerri Ruppert, Secretary
September __, 1995
Newport Beach, California
22
<PAGE> 27
COMPREHENSIVE CARE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS ON OCTOBER 11, 1995
AND ALL ADJOURNMENTS OR POSTPONEMENTS THEREOF
The undersigned hereby appoints Chriss W. Street and Kerri Ruppert, or
either of them, proxies, with power of substitution to vote the shares of common
stock of Comprehensive Care Corporation which the undersigned is entitled to
vote at the special meeting of stockholders on October 11, 1995, and any
adjournments or postponements thereof, as follows:
1. Proposal 1: To act upon a proposal (recommended by the
Board of Directors) that the Company issue from
time to time up to 850,000 shares of Common Stock and
up to 60,000 shares of Preferred Stock, which may
have rights, preferences and privileges as designated
by the Board of Directors from time to time that are
senior to Common Stock, and equity or debt
securities convertible, exercisable or exchangeable
for shares of Common Stock, provided the aggregate
issuances, or reserves of Common Stock does not
exceed said 850,000 shares (as customarily adjusted
proportionately, for stock splits and
reclassifications of the Commmon Stock), in various
financing transactions (individually a "Placement
Transaction") to satisfy cash needs of the Company
and to support a global restructuring of the
Company's financial position by funding, if and to
the extent necessary, for example and without
limitation, the Company's offer to exchange cash and
Common Stock for the outstanding $9,535,000 in
original principal amount of the Company's 7 1/2%
Convertible Subordinated Debentures Due April 15,
2010 (the "Debentures"); and
/ / APPROVE / / DISAPPROVE / / ABSTAIN
2. With discretionary power in the transaction of such other business as
may properly come before the meeting.
This proxy, properly executed, will be voted as directed hereon. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1. THE PROXIES MAY VOTE
IN THEIR DISCRETION AS TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
Dated: , 1995
-------------------- ------------------------------------------
Signature
------------------------------------------
Signature (if held jointly)
Title or authority (if applicable)
NOTE: Please sign exactly as name appears
hereon. If shares are registered in more
than one name, the signature of all
persons are required. A corporation should
sign in its full corporate name by a duly
authorized officer, stating his or her
title. Trustees, guardians, executors and
administrators should sign in their
official capacity, giving their full title
as such. If a partnership, please sign in
the partnership name by an authorized
person.
Please mark, sign, date and return this proxy promptly, using the enclosed
envelope. No postage is required if mailed in the United States of America.
23
