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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
Comprehensive Care Corporation
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(Name of Issuer)
Comprehensive Care Corporation
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(Name of Person(s) Filing Statement)
7 1/2% Convertible Subordinated Debentures due April 15, 2010
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(Title of Class of Securities)
204620AA6
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(CUSIP Number of Class of Securities)
Chriss W. Street, 4350 Von Karman Avenue, Suite 280, Newport Beach, CA 92660
(800) 678-2273
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
Not Applicable
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(Date Tender Offer First Published, Sent or Given to Security Holders)
Calculation of Filing Fee
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Transaction
valuation* Amount of Filing Fee
$9,538,000 $6,358.67
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* Estimated solely for the purpose of calculating the filing fee, pursuant
to Rule 0-11(a)(4) and 0-11(b)(2), for filing this Schedule 13E-4 (as
hereafter from time to time may be amended herein called the "Schedule") equal
to one-fiftieth (1/50th) of one percent of one-third of the value of the
maximum amount of Debentures to be acquired by the Issuer (the "Transaction
Value") based on the average of the bid and asked prices of the Debentures as
reported by some of the market makers in the Debentures as of a trading date
within the five trading days prior to the date of this filing by the Issuer, or
the book value of the Debentures in the event there is no such market value
known or reasonably available. The $9,538,000 maximum original principal
amount of Debentures to be exchanged represents $9,538,000 in value on the
Issuer's books. The Issuer has an accumulated capital deficit, thereby
qualifying for a two-thirds fee discount as such an Issuer, a specifically
described category of financially distressed entity listed in Rule 0-11(a)(4).
/ / Check box if any part of the fee is offset as
provided by Rule 0-11(a)(2) and identify the
filing with which the offsetting fee was
previously paid. Identify the previous filing
by registration statement number or the Form or
Schedule and the date of its filing
Amount Previously Paid:
----------------------------
Form or Registration Number:
----------------------------
Filing Party:
----------------------------
Date Filed:
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ITEM 1. SECURITY AND ISSUER
(a) Comprehensive Care Corporation, 4350 Von Karman Avenue, Suite
280, Newport Beach, California 92660 (the "Issuer").
(b) For each $1000 original principal amount (the "face
amount") of the Issuer's 7 1/2% Convertible Subordinated
Debentures due April 15, 2010 ("Debentures") in the aggregate
original principal amount outstanding at August 31, 1995 of
$9,538,000 and a waiver of the interest accrued and unpaid
since April 15, 1994 in excess of $80.00, the Issuer proposes
to exchange considerations comprised of the following: a
right to receive payment of principal of $500 in cash,
and sixteen (16) shares of authorized and previously unissued
Common Stock, par value $.01 per share ("Common Stock") of the
Issuer approximately worth $120 in defined value and a right
to receive an interest payment of $80 in cash. The combined
aggregate of the Issuer's cash and Common Stock exchangeable
per $1,000 face amount of Debentures is called the "Exchange
Consideration." The shares of Common Stock worth a defined
value of approximately $120 included in the Exchange
Consideration are herein sometimes called the "Common Shares."
If the Debentures are tendered after the record date for
payment of interest, the Exchange Consideration will be
reduced on a dollar for dollar basis for the amount of
interest paid or payable.
(c) The Debentures are traded over-the-counter, although trading in
these securities is limited and sporadic. The section headed -
"Price Range of Debentures" on pages __ through __ of the
Offering Circular is incorporated herein by this Reference.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
(a) The Issuer contemplates receiving cash proceeds that
may come from one or a combination of these potential
cash sources:
(i) The Issuer has filed a 1995 Federal income
tax return claiming a tax refund of
approximately $9.4 million.
(ii) The Issuer is the beneficiary of a $2.7
million judgment bond, and if its judgment is
successfully upheld on appeal, the Company
will receive the proceeds.
(iii) The Issuer also intends concurrently to
solicit from the holders of its Common Stock
("stockholders") stockholder approval,
pursuant to a Shareholder Approval Policy of
the New York Stock Exchange, Inc. ("NYSE"),
to the issuance of additional shares of
Common Stock or securities in an amount which
represents voting rights or value greater
than twenty percent (20%) of the amount of
Common Stock previously outstanding. Some or
all of the cash portion of the Exchange
Consideration may be comprised of the
proceeds of such transaction.
(iv) In connection with the Exchange Offer,
if the stockholders approve an issuance of
Common Stock or issuance of a derivative
security based on the value of Common Stock,
such issuance may dilute the Common Shares
presently outstanding or issuable pursuant to
the conversion of the Debentures (in some
circumstances such dilution may be lessened
because the Debentures provide for certain
market-price-based anti-dilution adjustments
which will be triggered only if a placement
price is set below market price, and only
makes an adjustment to the extent
proportionate to dilution of all outstanding
shares; provided, however, the price of the
Common Stock for purposes of conversion, as
adjusted previously, is approximately
$230.21, or $220.71 below the September 13,
1994 closing price of the Common Stock as
quoted on the NYSE Composite Tape) and,
therefore, are "out-of-the-money."
(v) The Letter Agreement requires the
representative, Mr. Jay H. Lustig, to use
best efforts to collect from Participating
Securityholders as many notices of rescission
of acceleration of Debentures as would
comprise a majority of the aggregate face
value outstanding. Mr. Lustig aggregating is
believed to have delivered on behalf of
Participating Securityholders approximately
26% (at least 23% too few) of the aggregate
face value outstanding. Mr. Lustig, to the
Issuer's knowledge, has not further exercised
any solicitation efforts.
The Debenture Trustee has described the
notices delivered to it by or on behalf of Mr.
Lustig as invalid. Therefore the Trustee has
requested that a general mailing of written
requests for Debentureholder to give notice of
rescission of acceleration be mailed by the
Trustee to Debentureholders and to include
with such notice a further notice, of record
and payment dates, that is to be distributed
concurrently with the Consent Solicitation.
Solicitations of a notice of rescission
of acceleration of the Debentures may result
in a rescission of the acceleration. If
effected, the rescission could improve the
prospects of the Issuer's completing a
registered public offering or other placement
of its Common Stock or other securities. A
rescission of acceleration also could affect
the creditor's rights of Debentureholders
relative to any other general creditors or
subordinated creditors of the Issuer.
(vi) The Trenwith Group, investment bankers, 660
Newport Center Drive, Suite 330, Newport
Beach, California 92660 have, on behalf of the
Issuer, solicited private investors with
respect to any interest they may have in a
making an investment in convertible debt,
secured or unsecured, of the Issuer. The
Issuer has and in the future may engage
investment bankers or consultants to advise
the Issuer and/or to offer, sell, or solicit
offers or other indications of interest in
the Issuer's securities, when and where
permitted by law. For purposes of the
preceding sentence, the term securities
includes debt securities, non-convertible or
convertible into Common Stock, secured or
unsecured by collateral, and subordinated or
unsubordinated.
(vii) The Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1995
describes, under the heading, "MDSA" other
potential sources of funds of the Company,
and the information on pages of the Form 10-K
within this section heading is incorporated
herein by this reference.
(viii) All new or reissued debt that the debt that
the Company is anticipating to issue will be
senior indebtedness relative to Debentures.
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ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE
The Debentures are due and payable immediately pursuant to an
acceleration thereof in February 1995. The purpose of the tender offer
is to offer the Exchange Consideration in exchange for each $1,000, or
integral multiple thereof, in original principal amount of the
outstanding Debentures.
The Issuer is a party to a letter agreement dated March 3, 1995
(the "Letter Agreement") with Mr. Jay H. Lustig, an individual acting
formally as a representative of certain holders of Debentures (therein
called the "Participating Securityholders"). The Letter Agreement is
filed as an Exhibit hereto and is incorporated herein by this
reference. The Letter Agreement provides for, among other things, the
representative permitted the Company to condition its exchange on
Participating Securityholders, whom the representative negotiated the
Letter Agreement, properly tendering and not withdrawing prior to the
consummation of the Exchange Offer (the "Exchange") $2.5 million in
principal amount. The Issuer does not condition its obligation any
particular amount of Debentures being tendered by some or all of teh
Debentureholders obtaining consents to rescind acceleration of the
Debentures.
In addition to tendering Debentures, holders are asked to execute a
form of Notice of Rescission of Acceleration, which is filed as an
Exhibit hereto, and is incorporated herein by this reference. Unless
holders of a majority of original principal amount of Debentures
outstanding approve a rescission of acceleration, the Issuer does not
anticipate holders of Senior Debt consenting to the Issuer's payment of
Exchange Consideration.
Debentures which are exchanged for Exchange Consideration will be
retired. See Item 2(a)(iv), above, which is incorporated herein by this
reference.
In connection with the proposed exchange for Debentures, the Issuer
has not taken any action with the purpose of deregistering Debentures
in accordance with the Securities Exchange Act of 1934, as amended;
provided, that, prior to the Exchange Offer the Debentures have been
held by fewer than 300 record holders. The Debentures would have been
deregistrable at any time prior to the Exchange Offer ninety (90) days
after filing with the Commission a certification that in fact there
are fewer than 300 record holders on Form 15. The Compnay may
consider deregistration of Debentures at some future time if
circumstances exist under which the Debentures will be deregistrable
after the Exchange Offer.
The Company has no present intention to retire any Debentures prior
to their original maturity date except pursuant to the Exchange Offer.
Except to the extent indicated in the preceding paragraph, the Issuer
has no plans or proposals of the type enumerated in Item 3 of Schedule
13E-4.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER
There have been no transactions in the Debentures by the Issuer or any
of its executive officers, directors, affiliates, or any associate or
subsidiary thereof, during the forty (40) business days of the Issuer
immediately preceding the filing hereof.
For this purpose, the statement does not include any persons on
account of "affiliate" status, and includes those subsidiaries and an
entities controlled, directly and indireclty, by the Issuer.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES.
The Letter Agreement dated March 3, 1995, which is filed as an
Exhibit hereto, is incorporated herein by this reference. The amount of
the Exchange Consideration was determined in the Letter Agreement based
upon negotiations between the Issuer and Mr. Jay H. Lustig, an
individual representing holders of an estimated $2.5 million portion of
the outstanding Debentures including the persons who had filed an
involuntary petition to commence a bankruptcy liquidation of the
Issuer. On March 3, 1995, the Participating Securityholders agreed
through Mr. Lustig to support the dismissal of the petition before that
petitioned-for bankruptcy case was commenced. The petition was
dismissed on March 6, 1995.
Subsequent to executing that Letter Agreement, the Issuer received
copies of notices of resession of acceleration representing 26% of
the Debentures' in outstanding principal amount, all of which
were believed sent by the Debentureholders represented by Mr. Lustig.
All of the notices were addressed to the Trustee and the Issuer and
purported to notify the Trustee to rescind acceleration of the
Debentures. The Trustee's legal counsel has described the notices as
invalid because, among other reasons, the representative should not
have directly mailed these forms of notice to, and directly received
back originally signed notices from, record holders of Debentures.
Those notices and notices subsequently received were signed by holders
of aggregately less than half of the face value of Debentures, and
therefore the notices would have been insufficient even if they had not
been invalid (a majority of the outstanding principal amount being
necessary to rescind acceleration). Mr. Jay H. Lustig, the
representative, undertook sole responsibility for obtaining notices of
rescission of acceleration pursuant to the Letter Agreement. The
Issuer knows of no current activity of Mr. Lustig in this regard.
The Letter Agreement provides that the Company will use its best efforts
to offer the Debentureholders an exchange of cash of $500 as principal
and $80 as interest and $120.00 worth of shares of Common Stock, a
number calculated based on their market value during a defined
trading period -- March 6, 1995 through May 19, 1995.
The Letter Agreement provides that the exchange will be consummated
within 180 days; provided, however, the Issuer's obligation is
conditioned upon the satisfaction of Mr. Lustig's obligations. The
Issuer is or will be soliciting pursuant to a proxy statement the
Notices of Rescission of Acceleration from Debentureholders only
because Mr. Lustig's original efforts were, among other things, invalid
and insufficient. The management attributes the Issuer's delay to the
failure of Mr. Lustig. The management of the Issuer believes that the
continuance of the acceleration of the Debentures has adversely
affected the Issuer's ability to perform its obligation, if any, to
make an exchange offer and that the time expended by the Issuer has
been
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reasonable in the circumstances. The acceleration of Debentures
constitutes a default under Senior Debt instruments.
The Debentureholders represented by Mr. Lustig agreed to consent to
a waiver of acceleration and did so.
While the acceleration and any Event of Default continue, the
Trustee also can institute a lawsuit and obtain a judgment against the
Issuer for the full face value of the Debentures plus unpaid interest
and costs.
The Letter Agreement provides for a pledge in favor of Mr. Lustig
and all of the Debentureholders of all of the shares of CareUnit,
Inc., a Delaware corporation and a wholly-owned subsidiary of the
Issuer. The management of the Issuer believes that the Issuer's
performance of the exchange offer obligation will not arise until Mr.
Lustig uses best efforts to provide proper notices of rescission of
acceleration from a majority of the face value of Debentures; provided,
that a disposition of the shares would have been permitted at any time
after approximately August 28, 1995, or 180 days from March 3, 1995, if
Mr. Lustig were to have performed substantially all of his, and to
cause all of the participating Securityholders to perform substantially
all of their, obligations on a timely basis.
Pursuant to the Letter Agreement every holder of Debentures who
tenders them for exchange is to receive interest in an amount of $80 in
cash in lieu of receiving actual interest. It is estimated that the
interest (and default interest thereon) accrued through October 15,
1995 is approximately $117 per $1,000 of face value of Debentures. To
the extent this accrual exceeds the $80 in cash amount allocated as
interest, the tender of Debentures is deemed to be a waiver of
interest.
The Debentures were issued pursuant to an Indenture dated April 25,
1985 (the "Indenture") between the Issuer and Bank of America,
National Trust and Savings Association, as Trustee (including any
successors, herein called the "Trustee"). According to the Indenture
between the Issuer and the Trustee, no payment may be made to the
holders of Debentures if any Senior Debt, as defined in the Indenture,
has matured and is unpaid or if any Senior Debt, as so defined, is in
default and if such default would permit acceleration of the Senior
Debt and if only legal action concerning the default is commenced or if
the Senior Debt holder gives notice to the Issuer of such default .
The Issuer has from time to time engaged and compensated firms for the
purpose of facilitating a placement of securities including, but not
limited to, Chriss Street & Co., an investment banking firm affiliated
with Chriss W. Street, the Chairman, Chief Executive Officer and
President of the Issuer as approved by the Board of Directors. In
addition from time to time some of the investors introduced to the
Issuer by Mr. Street have discussed follow-on investments with the
Issuer's management. Chriss Street & Co. may receive compensation in
connection with such investments if approved by the Board of Directors
in the particular instance.
Item 6 of this Schedule 13E-4 is incorporated herein by this reference.
The "Risk Factors," "Other Factors to Consider," "The Exchange Offer,"
"Interests of Certain Persons," "Principal Stockholders," "Use of
Proceeds," "Dividend Policy," "Capitalization," "Changes in
Accountants," "Description of Debentures" and "Description of Capital
Stock" portions of pages __ through __ in the Offering Circular are
incorporated herein by this reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Exchange Offer is being made by the Company in reliance upon the
exemption from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), afforded by Section 3(a)(9)
thereof. The Issuer, therefore, will not pay any commission or other
remuneration to any broker, dealer, salesman, or other person for
soliciting tenders of the Debentures. Regular employees of the Company
and its subsidiaries, who will not receive additional compensation
therefor, may solicit exchanges from holders of the Debentures.
ITEM 7. FINANCIAL INFORMATION
This reference hereby incorporates "Management's Discussion and
Analysis" and the financial statements, and the notes thereto, included
in the Issuer's Form 10-K for the fiscal year ended May 31, 1995, as
filed on September 13, 1995, with the Securities and Exchange
Commission (the "Commission") on pages __ through __ thereof.
ITEM 8. ADDITIONAL INFORMATION
The Issuer intends to conduct the Exchange Offer in accordance with
Section 3(a)(9) of the Securities Act of 1933, as amended (the
""Securities Act", in order that the Common Shares issued in the
exchange will not require Securities Act registration.
The Issuer has applied for listing on the New York Stock Exchange
("NYSE") of the Common Shares forming part of the Exchange
Consideration. The NYSE has indicated approval thereof. The Issuer
intends to obtain approval from the NYSE for listing upon notice of
issuance prior to consummation of the Exchange, if necessary, of the
Common Shares, which are issuable to tendering Debentureholders.
A sale of Common Stock or derivative securities is contemplated
in the event that the Issuer needs funds, or anticipates such needs
into the future, including funds for, amount other things, the cash
payment portion of the Exchange Consideration.
Various documents and actions required to be delivered or taken pursuant
to the Indenture are subject to approval by Bank of America, National
Trust and Savings Association, the Trustee under the Indenture as to
proper form and substance and as to compliance with the
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Indenture. The Indenture contains terms and provisions regarding, among
other things, defaults and cures which may affect, directly and
indirectly, the Exchange Offer.
"Description of Debentures," "Risk Factors," and "The Exchange Offer --
Conditions of the Exchange Offer," in the Offering Circular are hereby
incorporated herein by reference.
The prospects of completing the exchange for Debentures may be adversely
affected if the Issuer is unsuccessful in obtaining Stockholder approval
to issue additional shares of Common Stock and derivative securities.
The consummation of the Exchange Offer is intended to follow the
rescission of the Debenture acceleration. If the Debenture acceleration
is continuing there may be a material adverse effect on possibilities to
consummate the Exchange Offer.
If the Debentures continue to be accelerated, the Issuer's Senior Debt,
as defined in the Indenture, may notify the Issuer of defaults
permitting acceleration of Senior Debt or commence suit to pursue such
claims. If the Senior Debt holders take such actions prior to the
consummation of the Exchange Offer, the Issuer and its Paying Agent or
Agents, will not be permitted to deliver the Exchange Consideration to
the tendering Debentureholders until such Senior Debt default is paid,
provided for in a manner acceptable to the Senior Debt holder, or waived
in writing by the Senior Debt holder.
Debentures are tendered by delivering a Letter of Transmittal to
Continental Stock Transfer & Trust Company (the "Exchange Agent").
The tendering Debentureholder will, in order to cause the Issuer to
accept the Debenture for Exchange, return to the Trustee a letter
submitting notice of rescission of the acceleration of the Debentures;
waiver of specified and unspecified Events of Default; waiver of all
accrued interest, and interest accruing hereafter through and including
the date of an Exchange, and interest on default interest, that would
aggregate approximately One Hundred Seventeen Dollars ($117) as
of October 15, 1995 other than that certain $80.00 interest portion of
the Exchange Consideration.
Notices of Rescission of Acceleration will be solicited by the Company
only pursuant to a Proxy Statement attached as an Exhibit hereto and
incorporated herein by this reference. In order to rescind
acceleration, there must, among other things, be approval by a majority
in outstanding principal of Debentures and payment, cure or waiver of
all continuing Events of Default. At least a majority of the
outstanding face amount of Debentures must submit such notice to the
Trustee for rescission of the acceleration of Debentures as a condition
to the Issuer's obligation to Exchange. All tendered and not withdrawn
Debentures will be deemed to have the effects described in the Proxy
Statement.
All other notices given or authorized under the Indenture that
Management and the Board of Directors of the Issuer solicit will be
solicited pursuant to a Debentureholder Proxy Statement filed as a proxy
statement and additional proxy materials on Schedule 14A under the
Securities Exchange Act of 1934.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
The Exhibit Index attached to this Schedule is incorporated herein by
this reference.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, correct and complete.
COMPREHENSIVE CARE CORPORATION
/s/ Kerri Ruppert
----------------------------------------
Kerri Ruppert
Vice President, Chief Accounting Officer
Date: September __, 1995 and Secretary/Treasurer
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EXHIBIT INDEX
Exhibit No.
99.8 (a) (i) Offering Circular and Cover Letter*
99.9 (ii) Letter of Transmittal*
99.10 (iii) Notice of Rescission of Acceleration*
99.11 (iv) Covering Letter from Trustee to Debentureholders*
99.12 (v) Covering Letter from Issuer to Debentureholders*
99.13 (vi) Proxy Statement as filed by the Issuer pursuant to the
Securities Exchange Act* incorporated by reference
99.14 (vii) The Issuer's Amendment No. 1 on Form 10-K/A for the
fiscal year ended May 31, 1995 filed on September 14,
1995 (sometimes called the "Form 10-K")* incorporated
by reference
99.15 (viii) The Issuer's Form 8-K dated _______, 1995, filed by the
Issuer, to report, under Item 4 thereof, a change in
accountants
99.16 (ix) The Issuer's Form 8-K dated _______, 1995, filed by the
Issuer, to report, under Item 4 thereof, a change in
accountants
99.17 (x) The Issuer's Form 8-K/A dated _______, 1995, filed by
the Issuer, to report, under Item 4 thereof, a change in
accountants
99.18 (xi) The Issuer's Schedule 14A Proxy Statement as filed by
the Issuer on or about September 14, 1995 with the
Commission pursuant to the Securities Exchange Act in
respect to holding a Special Meeting of holders of the
Common Stock to approve a sale and issuance of
authorized and previously unissued Common Stock;
Preferred Stock, par value $50 per share; derivative
securities whose value would be based on shares of
either class of capital stock, including for example
but without limitation, an issue of indebtedness that
is senior relative to the Debentures ("Senior Debt")
whether secured or unsecured; convertible or
non-convertible; voting or non-voting; participating
or non-participating; and with rights and privileges
agreed upon by the Company
99.19 (c) (i) Indenture dated April 25, 1985 between the Company and
Bank of America, National Trust and Savings Association,
is incorporated by reference to Exhibit 4 to the
Company's Form S-3 Registration No. 2-97160 filed April
25, 1985 regarding an aggregate $46,000,000 original
principal amount of the Debentures
99.20 (ii) Letter Agreement dated March 3, 1995 between the Issuer
and Mr. Jay H. Lustig a representative of certain
holders of Debentures
99.21 (iii) Notice of rescission of acceleration in the form
delivered by Debentureholders represented by Mr. Jay
Lustig
______________
* To be distributed to Debentureholders.
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EXHIBIT (a)(i)
[COMPREHENSIVE CARE CORPORATION LETTERHEAD]
September __, 1995
To: Holders of our Convertible Subordinated
Debentures("Debentures")
The Company is offering you the opportunity to exchange, for each
$1,000 in original principal amount of your Debentures and a waiver of interest
accrued thereon from April 15, 1994, an Exchange Consideration comprised of a
cash principal payment of $500 plus a cash interest payment of $80 and a
principal payment of sixteen (16) shares of Common Stock, par value $.01 per
share, of the Company.
If you accept the exchange, you will waive all but $80.00 in accrued
interest (including aggregately approximately $117 per $1,000 of original
principal amount of Debentures due now or to become due on or prior to October
15, 1995, with interest on default interest calculated at the same 7 1/2% rate
from the date of each missed payment) and any additional interest accruing until
the delivery of the Exchange Consideration at the consummation of the Exchange
Offer--other than to the extent of the $80 cash payment of interest per $1,000
original principal amount included in the Exchange Consideration. If you elect
to keep your Debentures you will not lose the accrual of any interest payment;
provided, however, that payment of such interest by the Company is subject to
prior satisfaction of conditions to such payment provided in the Indenture and
the Company's ability to pay such interest. Principal and interest due under
the Debentures are unsecured and are subject to the terms, restrictions and
subordinations as provided in the Indenture pursuant to which the Debentures
were issued.
The Debentures became immediately due and payable by acceleration.
After the Exchange Offer is completed, assuming the acceleration is rescinded by
action of the Debentureholders and the payment of all interest to non-tendering
Debentureholders, and the delivery of Exchange Consideration in all Debentures
properly tendered that are accepted by the Company for Exchange, the Company
intends to resume semi-annual interest payments and does not have any present
intention to redeem or otherwise retire remaining Debentures before maturity.
The Company's purpose in making the Exchange Offer is to recapitalize
or refinance the indebtedness represented by the Debentures by offering to
exchange for all of the Debentures pursuant to an Offering Circular that the
Company is giving or gave to Debenture holders on or about September __, 1995
for the first time.
You are urged to read the enclosed Offering Circular carefully. One
desired effect of the Exchange Offer is to obtain a rescission of acceleration
of the Debentures so that the Company can resume its former good status under
the Debentures. If the acceleration is not rescinded, the Company does not
anticipate that it would be permitted by holders of its Senior Debt to deliver
Exchange Consideration. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU NOTIFY THE
TRUSTEE TO RESCIND ACCELERATION. All Debentureholders are urged to deliver the
Notice of Rescission of Acceleration to the Trustee in the accompanying
envelope. The enclosed Letter of Transmittal, Notice of Guaranteed Delivery,
Letter to Brokers and Letter to Customers are for your use in tendering your
Debenture certificates to the Exchange Agent, Continental Stock Transfer & Trust
Company.
Cordially,
/s/ Kerri Ruppert
--------------------------------------------
Vice President, Chief Accounting Officer and
Secretary/Treasurer
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OFFERING CIRCULAR
COMPREHENSIVE CARE CORPORATION
OFFER TO EXCHANGE CASH AND COMMON STOCK
FOR ANY AND ALL OF ITS 7 1/2% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2010 AND A WAIVER
OF INTEREST ACCRUED THEREON
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON OCTOBER 12, 1995
Comprehensive Care Corporation (the "Company") hereby offers, upon the
terms and subject to the conditions set forth in this Offering Circular and in
the accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $500 in cash plus sixteen (16) shares of Common Stock, par
value $.01 per share ("Common Shares") as a payment of principal, plus $80 in
cash as a payment of interest (the "Exchange Consideration") for each $1,000
principal amount of its 7 1/2% Convertible Subordinated Debentures due April 15,
2010 (the "Debentures"), and the waiver by the Debentureholder of all but $80.00
of accrued interest otherwise due as of the date of the Exchange. (See "The
Exchange Offer Procedures for Tendering.")
If the Debentures are tendered after the record date for payment of
interest, the Exchange Consideration will be reduced on a dollar for dollar
basis for the amount of interest paid or payable. The Company shall have no
obligation to accept any Debentures tendered after October __, 1995, the record
date for payment by the Company of all interest accrued or accruing on the
Debentures ("Interest Record Date") unless the record holder on the record date
(who is entitled to receive the payment of interest) is also the record holder
at the time that any Exchange takes place (who is entitled to receive the
Exchange Consideration) are the same record holder; or the record holder on the
date of the Exchange delivers a Consent from the other record holder in form and
substance acceptable in the sole discretion of the Company and its legal
counsel; or the record holder on the date of consummation of the Exchange
expressly agrees to tender Debentures after the Interest Record Date for an
amount equal to the Exchange Consideration less the interest paid thereon.
The Common Shares are accepted for trading upon notice of issuance on
the New York Stock Exchange ("NYSE"). On August 31, 1995, the reported closing
price of the Common Shares on the NYSE was $8 7/8 ($8.875) per share. The
Exchange Consideration includes sixteen (16) Common Shares, valued for purposes
of the Exchange Consideration payable in Common Shares, and for calculating
payments in cash in lieu of fractional shares, as worth a defined value of $7.50
per share. The defined value represents an approximation, rounded up $.03 to
avoid fractional shares, of the weighted-average closing sale price (as a
product of the price and daily volume) of the Common Stock as reported on the
NYSE Composite Tape during the trading days during the period of March 6, 1995
through May 19, 1995. Therefore, for example, for each $1,000 in original
principal amount of Debentures tendered, the Exchange Consideration includes 16
shares of Common Stock, worth a defined value of $120.00, and no payment of cash
in lieu of a fraction of one whole share. The Company's Common Shares are
described in "Risk Factors," "Other Factors to Consider" and "Description of the
Capital Stock." See "Summary Comparison of Principal Terms of Debentures and
Exchange Consideration."
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange any and all Debentures properly tendered prior
to 5:00 p.m., New York City time on October 12, 1995, unless the Exchange Offer
is extended from time to time at the option of the Company (the "Expiration
Date"). Tenders of Debentures may be withdrawn at any time prior to 5:00 p.m.,
New York City time on the Expiration Date. See "The Exchange Offer-- Withdrawal
Rights." The Company will deliver Exchange Consideration including certificates
representing Common Shares as soon as practicable following the Expiration Date.
$9,538,000 in original principal amount ("face value") of Debentures
was outstanding as of August 31, 1995. The Debentures are traded in the
over-the-counter market, although trading in these securities is limited and
sporadic. On September 11, 1995, the reported bid price of the Debentures on
the over-the-counter market based on information from one or more brokers was
$570 per $1,000 original principal amount. The existence of a bid price does
not indicate an actual trading market exists or will exist.
The entire original principal amount of Debentures, plus interest
accrued thereon, is immediately due and payable pursuant to acceleration thereof
by holders of 25% or more of the outstanding principal amount. Interest is
unpaid on the Debentures from April 15, 1994.
The Exchange Offer is not conditioned upon any minimum principal amount
of Debentures being tendered for exchange, although the obligation of the
Company to complete the exchange is subject to the Company's ability to raise
sufficient funds, the rescission of acceleration of the Debentures, the absence
of certain actions or notices by Senior Debt holders, and certain customary
conditions, all as described under "The Exchange Offer--Conditions of the
Exchange Offer," certain of which may be waived by the Company.
THE DATE OF THIS OFFERING CIRCULAR IS SEPTEMBER __, 1995.
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<PAGE> 3
The Exchange Offer is being made by the Company in reliance upon the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The
Company, therefore, will not pay any commission or other remuneration to any
broker, dealer, salesman, or other person for soliciting tenders of the
Debentures. Regular employees of the Company and its subsidiaries, who will not
receive additional compensation therefor, may solicit Exchanges from holders of
the Debentures. This Exchange Offer is directed solely to existing
Debentureholders.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Offering Circular. If given or made, the information or representations
should not be relied upon as having been authorized by the Company. The
delivery of this Offering Circular shall not, under any circumstances, imply
that the information herein is correct as of any time subsequent to its date.
This Offering Circular does not constitute an offer to any person in
any jurisdiction in which any such offer would be unlawful, and the Company will
not accept tenders from holders of Debentures in any jurisdiction in which such
acceptance would not be in compliance with applicable securities or blue sky
laws of such jurisdiction.
This Offering Circular mentions private unregistered sales of the
Company's Common Stock and convertible debt. Such shares upon issuance are
restricted pursuant to the Securities Act and may not be resold without
registration under the Securities Act or an appropriate exemption. No offer
thereof, express or implied, is made herein.
ADDITIONAL INFORMATION
Continental Stock Transfer & Trust Company has agreed to provide
certain services as Exchange Agent in connection with the Exchange Offer. The
Trustee of the Debentures is Bank of America, National Trust and Savings
Association. Holders of Debentures who require assistance should contact the
Company, attention Kerri Ruppert, Vice President, Chief Accounting Officer and
Secretary/Treasurer, at 4350 Von Karman Avenue, Suite 280, Newport Beach,
California 92660, (800) 678-2273 or the Exchange Agent, Continental Stock
Transfer & Trust Company at 2 Broadway, 19th Floor, New York, New York 10004,
(212) 509-4000, Ext. 227, or the Trustee, Bank of America, National Trust and
Savings Association, 333 South Beaudry Avenue, 25th Floor, Los Angeles,
California 90017, (213) 345-4652, Attention: Sandy Chan.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 500 West Madison Street, Chicago, Illinois 60606 and 7 World Trade Center,
New York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Offering Circular does not contain all of the information set
forth in the Schedule 13E-4, as the same from time to time may hereafter be
amended, of which this Offering Circular is a part and which the Company has
filed with the Commission. For further information with respect to the Company
and the securities offered hereby, reference is made to the Schedule 13E-4,
including the exhibits filed as a part thereof, copies of which can be inspected
at, or obtained at prescribed rates from, the Public Reference Section of the
Commission at the address set forth above. Additional updating information with
respect to the Company may be provided in the future by means of documents
incorporated by reference herein or other appendices or supplements to this
Offering Circular.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission under the Exchange Act and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1995 including portions of the Company's
definitive Proxy Statement for the 1995 Annual Meeting of
Stockholders incorporated therein by reference;
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b. The Company's Current Reports on Form 8-K and Amendment No. 1
on Form 8-K/A filed on or about August 15, 1995 reporting under
Item 4 certain descriptions and required information regarding
the disassociation of the Company and Arthur Andersen LLP and
the engagement of Ernst & Young LLP.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Offering Circular
and prior to the filing of a post-effective amendment which indicates that all
securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference in this
Offering Circular and to be part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Offering Circular to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed to
be incorporated herein by reference, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Offering Circular.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Offering Circular is delivered, upon written or
oral request of such person, a copy of any and all of the information that has
been incorporated by reference herein (other than exhibits to the information
that is incorporated by reference unless such exhibits are specifically
incorporated by reference into the information this Offering Circular
incorporates). Such requests should be directed to Kerri Ruppert, Vice
President, Chief Accounting Officer and Secretary/Treasurer of the Company, at
(800) 678-2273.
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TABLE OF CONTENTS
Page
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OFFERING SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PURPOSE OF THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY COMPARISON OF TERMS OF DEBENTURES AND EXCHANGE CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . 3
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
RECENT TRANSACTIONS IN SECURITIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PRICE RANGE OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
TERMS OF THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
THE DEBENTURE ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PROCEDURES FOR TENDERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
GUARANTEED DELIVERY PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
CONDITIONS OF THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ACCEPTANCE OF DEBENTURES FOR EXCHANGE; DELIVERY OF NEW DEBENTURES . . . . . . . . . . . . . . . . . . . . 8
WITHDRAWAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
EXCHANGE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PAYMENT OF EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
OTHER FACTORS TO CONSIDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Price Range of the Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Common Stock Purchase Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Common Stock Transfer Agent, Dividend Disbursing Agent and Registrar . . . . . . . . . . . . . . . . . . . 13
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Delaware Law and Certain Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
DESCRIPTION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Conversion of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Subordination of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Merger, Consolidation, or Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Amendment, Supplement and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Concerning the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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
Priorities of Securities and Other Considerations Relating to Any Future Bankruptcy of the Company . . . . 19
Preference and Fraudulent Conveyance Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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No Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
History of Losses and Anticipated Future Losses; Uncertainty of Future Profitability . . . . . . . . . . . 21
Additional Risk Factors With Respect to Holders of Debentures Not Tendered in the Exchange Offer . . . . . 21
Delay in Completion of the Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Need for Additional Funds; Uncertainty of Future Funding . . . . . . . . . . . . . . . . . . . . . . . . . 21
Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dependence on Reimbursement by Third-Party Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Uncertainty of Pricing; Healthcare Reform and Related Matters . . . . . . . . . . . . . . . . . . . . . . 22
Management of Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management of Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Shares Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Price Volatility in Public Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Anti-takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
INTERESTS OF CERTAIN PERSONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
CHANGES IN ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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OFFERING SUMMARY
The following is a summary of certain features of the Exchange Offer
and other matters, and all statements contained herein are qualified in their
entirety by reference to the more detailed information included elsewhere in
this Offering Circular.
PURPOSE OF THE EXCHANGE OFFER
The Debentures have been accelerated, and are currently due and payable
immediately, subject to rescission of the acceleration requiring that notice to
the Company and the Trustee be given by holders of a majority in original
principal amount of the outstanding Debentures; and that all continuing Events
of Default be appropriately covered or waived prior to the rescission becoming
effective; subject further to the rights of holders of Senior Debt according to
the subordination provisions of the Debentures to cause payments by the Company
and its Agents to be prohibited from being made in exchange for Debentures or
otherwise on account of the Debentures. The exchange offer is limited to any or
all of the outstanding Debentures, in integral multiples of $1,000. The
issuance of Common Stock and payment in cash at a discount to the face amount
would improve the Company's balance sheet, and if holders of a majority of the
Debentures notify the Trustee of rescission of acceleration of the Debentures
the Debentures will be reinstated as maturing April 15, 2010. Should the holders
of a majority in principal amount of Debentures outstanding not give notice of
rescission of acceleration of the Debentures, the Company has no present
intention to retire the remaining Debentures voluntarily prior to their original
maturity date.
THE EXCHANGE OFFER
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THE OFFERING.................. The Company is offering to exchange the Exchange Consideration, as defined below, for each $1,000
principal amount of outstanding Debentures properly tendered and accepted for exchange in the
Exchange Offer. See "The Exchange Offer--Terms of the Exchange Offer."
EXCHANGE CONSIDERATION......... The Company is offering a principal payment of $500 in cash plus 16 shares of Common Stock
representing approximately $120 worth in defined value of Common Stock (subject to payment in cash
in lieu of fractional shares) plus an interest payment of $80.00 in cash. All Debentureholders
that tender Debentures will be deemed to have waived accrued interest since April 15, 1994 (and
interest on default interest since October 15, 1994) to the extent the accrued amount exceeds the
interest payment of $80 in cash.
EFFECTS OF TENDERING DEBENTURES Tendering Debentureholders will receive Exchange Consideration for Debentures and the waiver of a
portion of the accrued interest. Also the tender of Debentures, unless properly withdrawn, will
constitute an instruction to the Trustee not to institute any remedy to collect the Debentures
prior to rescission of the acceleration. Also, as a condition to the Company's obligation to
consummate the Exchange, the acceleration must be rescinded. Rescission of acceleration will have
significant effects on tendering Debentureholders if the Exchange is not consummated and on all
non-tendering Debentureholders. See "Risk Factors."
EXPIRATION DATE............... 5:00 p.m., New York City time, on October 12, 1995, unless extended by the Company. See "The
Exchange Offer--Expiration Date; Extensions; Termination; Amendments."
WITHDRAWAL OF TENDERS......... Tenders of Debentures may be withdrawn at any time prior to the Expiration Date or at any time
after October 16, 1995. See "The Exchange Offer--Withdrawal Rights."
ACCEPTANCE OF DEBENTURES...... The Company will accept for exchange any and all Debentures which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange
Offer-- Acceptance of Debentures for Exchange."
CONDITIONS OF THE EXCHANGE
OFFER....................... The Company's obligation to consummate the Exchange Offer is not conditioned upon any minimum
principal amount of Debentures being tendered for exchange. The Exchange Offer is, however,
subject to the Company's ability to raise sufficient funds, the rescission of acceleration of the
Debenture, the absence of certain actions or notices by Senior Debt holders, and certain customary
conditions, certain of which may be waived by the Company. See "The Exchange Offer--Conditions of
the Exchange."
PROCEDURES FOR TENDERING
DEBENTURES.................. Each holder of Debentures wishing to accept the Exchange Offer must complete and sign the Letter
of Transmittal, in accordance with the instructions contained herein and therein, and forward or
hand deliver such Letter of Transmittal to the Exchange Agent at one of the addresses set forth
herein and therein. Any holder of Debentures whose Debentures are registered in the name of a
broker, dealer, commercial bank, trust company or nominee is urged to contact such registered
holder promptly if such holder wishes to accept the Exchange Offer. Holders whose certificates
representing their Debentures are not immediately available or who cannot deliver their
certificates or any other required documents to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date may tender their Debentures pursuant to the guaranteed delivery
procedure set forth herein. See "The Exchange Offer--Procedures for Tendering" and "--Guaranteed
Delivery Procedure."
NOTICES OF RESCISSION
OF ACCELERATION............ The Company's Debentures have been and are immediately due and payable. The Company requests that
all Debentureholders submit Notice of Rescission of Acceleration to the Trustee. While the
acceleration of
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Debentures is continuing, the Trustee can obtain a judgment against the Company in the amount of
the full face value of the Debentures, plus interest and costs.
SENIOR DEBT.................... The Senior Debt, as defined in the Indenture, which has matured, by acceleration or
otherwise, must be paid prior to any payment to Debentureholders. Any Senior Debt holder who
commences any legal proceeding or gives notice concerning any default that would permit the
Senior Debt to be accelerated can effectively prevent or delay payment to Debentureholders.
EFFECTS OF THE RESCISSION
OF ACCELERATION............... Rescission of acceleration may affect the rights of Debentureholders relative to other creditors.
The Company intends to consummate the Exchange Offer as promptly as legally practicable following
or concurrently with the effective rescission of acceleration.
INTEREST PAID OR PAYABLE TO
OTHER THAN THE TENDERING
RECORD HOLDER................. Debentureholders intending to tender in the Exchange Offer must properly Tender before the
Expiration Date, as the same may be extended from time to time at the Company's sole
discretion. If Debentures are tendered after the Expiration Date by a successor or
transferee of the record holder on the interest payment date, the Tendering Debentureholder
will be offered the Exchange Consideration minus the interest paid or payable to the
predecessor, unless the predecessor assigns the interest payable to the tendering record
holder, who re-assigns the same to the Company on a form acceptable to the Company and
its legal counsel.
TRADING....................... The Company's Debentures are traded in the over-the-counter market; however, trading is sporadic.
The Company's shares of Common Stock are traded on the New York Stock Exchange ("NYSE") and the
Common Shares included in the Exchange Consideration have been approved for listing on the NYSE
subject to notice of issuance.
EXCHANGE AGENT................ Continental Stock Transfer & Trust Company. See "The Exchange Offer --Exchange Agent."
FURTHER INFORMATION........... For further information, please contact the Company, attention Kerri Ruppert, Vice President,
Chief Accounting Officer and Secretary/Treasurer, at (800) 678-2273 or Continental Stock Transfer
& Trust Company, the Exchange Agent at (212) 509-4000, Ext. 227.
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SUMMARY COMPARISON OF TERMS OF DEBENTURES AND EXCHANGE CONSIDERATION
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THE DEBENTURES EXCHANGE CONSIDERATION
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INTEREST................... 7 1/2% per annum calculated on a $80.00 in cash.
30-day month and 360 day year
basis. Unpaid interest has accrued at
7 1/2% per annum since April 15, 1994,
on the face value of Debentures. While
an Event of Default is continuing, Debentures
earn interest on default interest at
7 1/2% per annum. The missed payment dates
were October 15, 1994 and April 15,
1995. Approximately $117 aggregately
thereof has accrued and will have
accrued on each $1,000 face value to
October 15, 1995.
MATURITY................... April 15, 2010, subject to Upon the Exchange that occurs if and
acceleration in the event of when the Exchange Offer is successfully completed.
notice by the Trustee or at Completion of the Exchange Offer is subject
least 25% in principal amount to a high degree of risk. See "Risk Factors."
of Debentures following the
existence and continuation of
an event of default.
Acceleration can be rescinded
if a majority in principal
of outstanding Debentures give
notice and defaults are cured
or waived.
CONVERSION OR EXCHANGE..... Convertible into Common Shares Exchangeable for $500 in cash and 16 shares of
at $230.21 per share. The Common Stock. For each $62.50 in face value,
conversion price is subject to a Debenture can be exchanged for one (1) share of
adjustment to prevent dilution Common Stock and $31.25 in cash.
in certain events.
RANKING.................... Unsecured general obligations Payments received in the Exchange Offer. by
of the Company subordinate to Debentureholders may be subject to claims of Senior
all existing and future Senior Debt or other creditors, and, if the competing
Debt of the Company (as creditors prevail in asserting their claims,
defined). Secured Senior Debt the Exchange Consideration may be forfeitable.
totalled approximately $2.0 See "Preference and Fraudulent Conveyance
million at August 31, 1995. Considerations."
REDEMPTION AT OPTION OF THE
COMPANY.................. Redeemable at any time in whole No redemption.
or in part at the option of the
Company at the principal
amount, together with accrued
interest.
</TABLE>
3
<PAGE> 10
THE COMPANY
Comprehensive Care Corporation (the "Company") was incorporated in
Delaware in 1969. The Company, directly or through subsidiaries, engages in
providing behavioral health care and substance abuse treatment on a managed-care
or contract basis. The Company owns six freestanding hospital facilities (three
of which are closed and held for sale) and leases one.
While the Company generates losses from its own operations, in fiscal
1995 it relied for its cash requirements on funds generated by its subsidiaries,
principally CareUnit, Inc., a Delaware corporation; the dispositions of
freestanding hospital facilities; $2.5 million of equity private placements and
a convertible debt private placement of $2.0 million. Such sources were
adequate to meet most of the Company's cash requirements in fiscal 1995, in
addition to cost savings measures.
At September 11, 1995, the Company's outstanding Debentures (originally
issued pursuant to a public offering of the Company), aggregated $9,538,000 in
original principal amount. In fiscal 1996, the Company is required to make a
"global restructuring" with respect to the Debentures, in accordance with an
agreement between the Company and a Debentureholder' representative. To the
extent Debentures are converted into Common Stock of the Company (as has been
the case with $36,462,000 principal amount since 1985), the subordinated debt
related thereto is retired and becomes part of stockholders' equity. Funds
generated from new financing may be necessary in order for the Exchange Offer to
be consummated or for the Debentures to be repaid all outstanding indebtedness
thereunder. The Company expects to continue to meet its obligations in
accordance with their terms, provided the acceleration of the Debentures is
rescinded by a majority in principal amount of all outstanding Debentures.
Other conditions also must be satisfied for the Company to have an obligation,
or to be able, to cause the Exchange Offer to be consummated.
RECENT TRANSACTIONS IN SECURITIES OF THE COMPANY
There have been no transactions in the Debentures by the Company or any
of its executive officers, directors, affiliates or any associate or subsidiary
thereof during the forty (40) business days of the Company immediately preceding
the date of this Offering Circular.
PRICE RANGE OF DEBENTURES
The Debentures are traded in the over-the-counter market; however there
is only sporadic trading. As of September 11, 1995, the reported bid price per
$1,000 face amount was $570 and the reported asked price was $600 according to
one broker as based only on information known to the broker. The existence of a
reported price does not imply that an active trading market exists or in the
future will exist. In the event that a substantial portion of the Debentures
are exchanged by the holders thereof, the trading, if any, may become more
sporadic.
4
<PAGE> 11
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions
set forth herein and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange the Exchange Consideration for each $1,000 principal
amount of its outstanding Debentures and a waiver of interest accrued thereon to
the extent exceeding $80 at the time of a consummation of the Exchange.
Approximately $116.72 of interest and interest on default interest has accrued
or shall have accrued to October 15, 1995.
The Exchange Consideration is comprised of a principal payment of $500
in cash plus $120 worth in defined value of Common Shares and an interest
payment of $80 in cash.
Accrued interest from April 15, 1994, the day to which interest was
paid on all Debentures, to the Expiration Date will not be paid on Debentures
exchanged, except for the interest payment of $80 in cash included in the
Exchange Consideration.
Although the Company has no present intention to do so, if it should
modify the consideration offered for the Debentures in the Exchange Offer, such
modified consideration would be paid with regard to all Debentures accepted in
the Exchange Offer. If the consideration is modified, the Exchange Offer will
remain open at least 10 business days from the date the Company first gives
notice, by public announcement or otherwise, of such modification, when required
by law. The modified consideration may provide for different alternatives,
provided that the modified consideration would be paid in regard to all
Debentures electing the alternative that was modified.
As of September 11, 1995, $9,538,000 in aggregate original principal
amount of the Debentures was outstanding. This Offering Circular, together with
the Letter of Transmittal, is being sent to all record holders of the Debentures
and is being forwarded by certain record holders to beneficial holders. The
Company is paying the costs of distribution and printing of this information.
The Company will reimburse costs of transmitting documents.
The Company reserves the right in its sole discretion to purchase or
make offers for any Debentures that remain outstanding subsequent to the
Expiration Date. The terms of any such purchases or offers could differ from
the terms of the Exchange Offer.
Tendering holders of Debentures will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Debentures pursuant
to the Exchange Offer. The Company will pay all charges and expenses, other
than certain applicable taxes, in connection with the Exchange Offer. See
"Payment of Expenses" below.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on
October 12, 1995, subject to extension by the Company by notice to the Exchange
Agent as herein provided. The Company reserves the right to so extend the
Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the time and date on which the Exchange Offer as so extended shall
expire. The Company will notify the Exchange Agent and the Trustee of any
extension by oral or written notice and will make a public announcement
thereof, each prior to 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
While it does not foresee doing so, the Company reserves the right (i)
to delay accepting any Debentures for exchange and to extend or to terminate
the Exchange Offer and not accept for exchange any Debentures if any of the
events set forth below under the caption "Conditions of the Exchange Offer"
shall have occurred and shall not have been waived by the Company, by giving
oral or written notice of such delay or termination to the Exchange Agent and
the Trustee or (ii) to amend the terms of the Exchange Offer. Any such delay
in acceptance for exchange, extension, termination or amendment will be
followed as promptly as practicable by public announcement thereof. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of such amendment, and the Company
will extend the applicable Exchange Offer for a period of five to 10 business
days, depending upon the significance of the amendment and the manner of
disclosure to holders of the Debentures, if the Exchange Offer would otherwise
expire during such five to 10 business-day period. The rights reserved by the
Company in this paragraph are in addition to the Company's rights set forth
below under the caption "Conditions of the Exchange Offer."
THE DEBENTURE ACCELERATION
A group of holders and purported holders of Debentures declared an
acceleration of the principal amount outstanding under the Debentures in the
aggregate amount of $9,538,000 plus interest, and such amount became immediately
due and payable as of approximately February 10, 1995. On February 24, 1995
three of such persons filed an involuntary petition in United States Bankruptcy
Court for the Northern District of Texas under Chapter 7 of the U.S. Bankruptcy
Code. The petition was dismissed without protest from the bankruptcy
5
<PAGE> 12
petitioners on March 6, 1995. The representative of this subset of the
Debentureholders agreed and consented to the dismissal of the petition before
any bankruptcy case had commenced against the Company.
Subject to certain limitations, holders of a majority in principal
amount of the outstanding Debentures may direct the Trustee regarding the time,
method and place of exercising any trust or power conferred on it. Therefore, a
majority in interest of the Debentures are entitled to direct the Trustee not to
pursue any remedy that may be requested by less than a majority of
Debentureholders. Their approval of rescission of the acceleration of the
Debentures will be a condition to the Company's offer to exchange any cash or
property (other than capital stock) to Debentureholders, solely by virtue of the
terms of the Exchange Offer and the notice given by the Company of record dates
for payments of interest due or to become due.
If the Debentureholder rescind the acceleration and restore the
Debentures to the status before having suffered Events of Default, with the past
due interest paid on non-tendered Debentures or waived as to all tendered
Debentures (except as to the $80.00 included in the Exchange Consideration), the
original terms of the Debentures will be reinstated with principal due in April
2010 and interest payable semi-annually at the rate of 7 1/2% per annum.
The Letter Agreement provides that the Company may condition the
Exchange Offer on at least $2.5 million in principal amount of Debentures being
tendered by Debentureholders represented by Mr. Jay H. Lustig. However, whether
or not any such holder of an outstanding Debenture elects to exchange such
holder's Debenture pursuant to the Exchange Offer has not been agreed upon.
Each Debentureholder will be requested to sign a Notice of Rescission
of Acceleration and forward it to the Trustee. Your Board of Directors
recommends that each of the holders of Debentures execute and return a Notice of
Rescission of Acceleration. Pursuant to the Indenture, the rescission may itself
be revoked until the conditions to rescission of acceleration are met, including
that a majority in interest has submitted notices of rescission and the
non-payment of interest accrued since April 16, 1994, and default interest, have
been cured or waived.
6
<PAGE> 13
PROCEDURES FOR TENDERING
The acceptance of the Exchange Offer by a holder of the Debentures
pursuant to one of the procedures set forth below will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
To be tendered effectively, the Debentures in integral multiples of
$1,000 face value, together with the properly completed Letter of Transmittal
(or facsimile thereof), executed by the registered holder thereof, and any other
documents required by the Letter of Transmittal, must be received by the
Exchange Agent at the address set forth below prior to 5:00 p.m., New York City
time, on the Expiration Date, except as otherwise provided below under the
caption "Guaranteed Delivery Procedures." LETTERS OF TRANSMITTAL AND DEBENTURES
SHOULD NOT BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Debentures tendered pursuant thereto
are tendered (i) by a registered holder of the Debentures who has not completed
the box entitled "Special Issuance and Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by a firm
that is a member of a registered national securities exchange or a member of the
NASD or by a commercial bank or trust company having an office in the United
States (an "Eligible Institution").
The method of delivery of Debentures and other documents to the
Exchange Agent is at the election and risk of the holder. If such delivery is by
mail it is suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent before the Expiration
Date.
The Exchange Agent will make a request to establish accounts with
respect to the Debentures at the Depository Trust Company ("DTC"), the Midwest
Securities Transfer Company ("MSTC") and the Philadelphia Depository Trust
Company ("PHILADEP" and, together with DTC and MSTC, collectively referred to
herein as the "Book-Entry Transfer Facilities") for the purpose of the Exchange
Offer promptly after the date of this Offering Circular.
Any financial institution that is a participant in any of the
Book-Entry Transfer Facilities' systems may make book-entry transfer of the
Debentures by causing DTC, MSTC or PHILADEP to transfer such Debentures into the
Exchange Agent's account in accordance with such Book-Entry Transfer Facility's
procedure for such transfer. Although delivery of Debentures may be effected
through book-entry transfer in the Exchange Agent's account at DTC, MSTC or
PHILADEP, the Letter of Transmittal (or facsimile thereof), with all required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at one of its
addresses set forth below prior to 5:00 p.m., New York City time, on the
Expiration Date, except as provided below under the caption "Guaranteed Delivery
Procedure." DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
If the Letter of Transmittal is signed by a person other than a
registered holder of any certificate(s) listed, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear on the
certificate(s).
If the Letter of Transmittal or Guaranteed Delivery Form or any
certificates or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory to the
Company of their authority to so act must be submitted.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Debentures will be resolved by
the Company, whose determination will be final and binding. The Company
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Debentures. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders must be
cured within such time as the Company shall determine. Neither the Company nor
the Exchange Agent shall be under any duty to give notification of defects in
such tenders or shall incur liabilities for failure to give such notification.
Tenders of Debentures will not be deemed to have been made until such
irregularities have been cured or waived.
Any Debentures received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering holder, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
7
<PAGE> 14
GUARANTEED DELIVERY PROCEDURE
If a holder of the Debentures desires to tender his Debentures and the
certificate(s) representing such Debentures are not immediately available, or
time will not permit such holder's certificate(s) or any other required
documents to reach the Exchange Agent before 5:00 p.m., New York City time, on
the Expiration Date, a tender may be effected if:
(a) The tender is made by or through an Eligible Institution;
(b) Prior to 5:00 p.m., New York City time, on the Expiration
Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Guaranteed
Delivery Form (by facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of
the Debentures and the principal amount of the Debentures
tendered, stating that the tender is being made thereby and
guaranteeing that, within three trading days after the
Expiration Date, the certificate(s) representing the
Debentures, accompanied by a properly completed and duly
executed Letter of Transmittal and any other documents
required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) The certificate(s) for all tendered Debentures, or a
confirmation of a book-entry transfer of such Debentures into
the Exchange Agent's applicable account at a Book-Entry
Transfer Facility as described above, as well as a properly
completed and duly executed Letter of Transmittal and all
other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three trading days after
the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or to exchange Exchange Consideration
for, any Debentures not theretofore accepted for exchange or exchanged, and may
terminate or amend the Exchange Offer as provided herein before the acceptance
of such Debentures, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to
the Exchange Offer which, in the sole judgment of the Company,
might materially impair the ability of the Company to proceed
with the Exchange Offer or have a material adverse effect on
the contemplated benefits of the Exchange Offer to the
Company; or
(b) here shall have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the sole judgment of the
Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or have a material adverse
effect on the contemplated benefits of the Exchange Offer to
the Company; or
(c) there shall not have occurred a rescission of the acceleration
of the Debentures; or
(d) the Company shall not have obtained sufficient funds to
exchange for all tendered Debentures and to pay all Senior
Debt that has theretofore matured; or
(e) the Company shall be notified in writing of a default under a
Senior Debt, as defined in the Indenture, that entitles the
holder to accelerate its maturity or otherwise becomes aware
of any circumstances that would not permit payment or delivery
of the Exchange Consideration to holders of the Debentures; or
(f) the Exchange Offer shall be required by law to remain open for
a longer period of time or to be amended.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
such conditions or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. If the Company waives or amends
the foregoing conditions, the Company will, if required by applicable law,
extend the Exchange Offer for a minimum of five business days from the date
that the Company first gives notice, by public announcement or otherwise, of
such waiver or amendment, if the Exchange Offer would otherwise expire within
such five business-day period. Any determination by the Company concerning the
events described above will be final and binding upon all parties.
ACCEPTANCE OF DEBENTURES FOR EXCHANGE; DELIVERY OF NEW DEBENTURES
Tenders will be accepted only in principal amounts of $1,000 and
integral multiples thereof.
8
<PAGE> 15
Upon the terms and subject to the conditions of the Exchange Offer,
promptly after the Expiration Date the Company will accept all Debentures
validly tendered and not withdrawn. The Company will deliver the Exchange
Consideration in exchange for Debentures promptly following acceptance of the
Debentures.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Debentures when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holder of Debentures for the purposes of receiving
Exchange Consideration from the Company. Under no circumstances will interest
be paid by the Company by reason of any delay in making such payment or
delivery.
If any tendered Debentures are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Debentures will be returned,
without expense, to the tendering holder thereof(or, in the case of Debentures
tendered by book-entry transfer, to an account maintained at such Book-Entry
Transfer Facility), as promptly as practicable after the expiration or
termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Any registered holder of Debentures who has tendered Debentures may
withdraw the tender at any time prior to 5:00 p.m., New York City time, on the
Expiration Date, and, unless previously accepted for exchange by the Company,
after 5:00 p.m., New York City time, on __________, 1995, by delivery of
written notice of withdrawal to the Exchange Agent.
To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must (a) be timely received by the Exchange
Agent at the address set forth herein, (b) specify the name of the person
having tendered the Debentures to be withdrawn, (c) indicate the Debentures to
which it relates (or if the tender was by book-entry transfer, information
sufficient to enable the Exchange Agent to identify the Debentures so tendered)
and the aggregate principal amount of Debentures to be withdrawn and (d) be (i)
signed by the holder in the same manner as the original signature on the Letter
of Transmittal (including a guarantee of signature, if required) or (ii)
accompanied by evidence satisfactory to the Company that the holder withdrawing
such tender has succeeded to beneficial ownership of such Debentures. If
certificates have been delivered or otherwise identified to the Exchange Agent,
the name of the registered holder and the serial numbers of the particular
certificate(s) evidencing the Debentures withdrawn must also be so furnished to
the Exchange Agent as aforesaid prior to the physical release of the
certificates for the withdrawn Debentures. If Debentures have been tendered
pursuant to the procedures for book-entry transfer as set forth herein, any
notice of withdrawal must also specify the name and number of the account at
DTC, MSTC or PHILADEP to be credited with the withdrawn Debentures.
Withdrawals of tenders of Debentures may not be rescinded, and any Debentures
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer; provided, however, that withdrawn Debentures may be rendered by
again following one of the procedures described herein at any time prior to
5:00 p.m., New York City time, on the Expiration Date.
All questions as to the validity (including time of receipt) of
notices of withdrawal will be determined by the Company, whose determination
will be final and binding. None of the Company, the Exchange Agent nor any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification.
EXCHANGE AGENT
Continental Stock Transfer & Trust Company has been appointed as
Exchange Agent for the Exchange Offer. Debentures, Letters of Transmittal,
and any other required documents thereunder, should be sent to the Exchange
Agent, at the addresses set forth on the back cover hereof.
Requests for additional copies of this Offering Circular or the Letter
of Transmittal or for additional information should be directed to Kerri
Ruppert, Vice President, Chief Accounting Officer and Secretary/Treasurer of
the Company, at (800) 678-2273.
LETTERS OF TRANSMITTAL AND DEBENTURES SHOULD NOT BE SENT TO THE
COMPANY.
PAYMENT OF EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for their reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Offering Circular and related
documents to the beneficial owners of the Debentures, and in handling or
forwarding tenders for their customers.
The cash expenses to be incurred in connection with the Exchange
Offer, including the fees and expenses of the Exchange Agent and printing,
accounting and legal fees, will be paid by the Company and, are estimated at
$0.2 million.
9
<PAGE> 16
The Company will pay all transfer taxes, if any, applicable to the
transfer and sale of Debentures to it or its order pursuant to the Exchange
Offer. If, however, the Exchange Consideration and/or substitute Debentures
for principal amounts not exchanged are to be delivered or paid to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Debentures tendered hereby, or if tendered certificates are
registered in the name of any person other than the person signing the Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
transfer and sale of Debentures to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
OTHER FACTORS TO CONSIDER
Price Range of the Common Shares
The Common Shares are traded on the NYSE. The following table sets
forth the range of reported high and low prices on the NYSE Composite tape for
the Common Shares for the fiscal quarters indicated.
<TABLE>
<CAPTION>
1994 HIGH LOW
-------------------------------------------- ---- ---
<S> <C> <C>
First Quarter............................... $11 1/4 $6 1/4
Second Quarter.............................. 8 3/4 6 1/4
Third Quarter............................... 12 1/2 5
Fourth Quarter.............................. 8 3/4 5
</TABLE>
<TABLE>
<CAPTION>
1995
--------------------------------------------
<S> <C> <C>
First Quarter............................... $ 8 3/4 $2 1/2
Second Quarter.............................. 7 3/4 5
Third Quarter............................... 9 3/8 5 1/4
Fourth Quarter.............................. 8 3/4 5
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------
<S> <C> <C>
First Quarter............................... $ 8 7/8 $6
</TABLE>
On September 11, 1995 the closing sales price per share of the Common Shares as
reported on the NYSE composite tape was $8 7/8 ($8.875).
(a) At August 31, 1995, there were 2,656,936 issued and
outstanding shares of Common Stock, including 442,433 fully-
paid shares issuable to satisfy private placement agreements
of the Company, the issuance of which is conditioned on their
NYSE subsequent listing approval and certain stock registrar
and other general administrative matters related to their
issuance. Shares outstanding at August 31, 1995 did not
include any other shares that were reserved for issuance but
not issued. As of July 31, 1995, the Company had 1,929
stockholders of record of Common Stock. These included 1,322
record holders of certificates representing 619,430 shares of
old Common Stock, par value $.10 per share, which entitle the
holder to a certificate representing one share of Common Stock
for every 10 old shares surrendered, plus a payment of cash in
lieu of any resultant fraction of a share of Common Stock.
(b) No cash dividend was declared during any quarter of fiscal
1995, 1994 or 1993, a result of the Company's operating losses
and restrictions contained in the Company's primary loan
agreement and 7 1/2% Convertible Subordinated Debentures due
2010. The Company does not expect to resume payment of cash
dividends in the foreseeable future.
(c) On May 16, 1994, the stockholders of the Company approved an
amendment to the Company's Certificate of Incorporation to
effect a reverse stock split of one share for each ten or
fewer shares of the Company's Common Stock, with the specific
ratio to be selected by the Board of Directors. The
stockholders also approved amendments to the Certificate of
Incorporation reducing the par value of the Company's Common
Stock to $.01 per share and reducing the number of authorized
shares of Common Stock to five times the number of shares
outstanding, reserved or otherwise committed for future
issuance but not less than 12.5 million. The reserve stock
split and amendments to the Certificate of Incorporation were
to become effective on any date selected by the Board of
Directors prior to February 16, 1995.
10
<PAGE> 17
The Board of Directors effected a one-for-ten reserve stock
split effective October 17, 1994. On the effective date of
the reverse stock split, the Certificate of Incorporation was
amended to reduce the par value of the Common Stock to $.01
per share and to reduce the number of authorized shares of
Common Stock to 12.5 million. The share figures contained in
this statement reflect the effect of the reverse stock split,
which would be to reduce the number of shares set forth by a
factor of ten, with each stockholder's proportionate ownership
interest remaining constant, subject to payment in cash in
lieu of fractional shares. The number of outstanding shares
includes the shares of the Company's Common Stock, par value
$.01 per share, receivable upon surrender of stock
certificates by all record holders of certificates that
represented the Company's Common Stock, par value $.10 per
share, before the October 21, 1994 one-for-ten reverse stock
split.
(c) In October 1994, the New York Stock Exchange, Inc. ("NYSE")
notified the Company that it was below certain quantitative
and qualitative listing criteria in regard to continued
listing of the Common Stock for trading on the NYSE.
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. Upon
completion of the Exchange Offer, assuming the prior issuance of the maximum
number of shares of Common Stock issuable in securities placement transactions
and the exchange of all outstanding Debentures on the terms of the Exchange
Offer, the Company will have approximately 3,700,000 shares of Common Stock
outstanding. Of these shares, approximately 2,350,000 shares, including shares
received by registered holders of Debentures exchanged pursuant to the Exchange
Offer, will be freely tradeable without restriction under the Securities Act of
1933, as amended (the "Act"), unless the shares, or Debentures, as the case may
be, were acquired from the Company or an underwriter for the Company or
"affiliates" of the Company as that term is used under the Act in a transaction
not involving a public offering.
The remaining 1,350,000, approximately, outstanding shares would be
"restricted securities" as defined in Rule 144 under the 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 two maximum amounts: (i) one percent
(1%) of the then outstanding shares of the 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. In meeting the two-year and
three-year holding periods as described above, a holder of the Restricted
Shares is not entitled to count the holding period of an affiliate of the
Company who held the Restricted Shares except in cases of a bona fide pledge,
gifts or the like.
In addition there are approximately 900,000 shares of Common Stock
reserved for issuance under outstanding employee options under the plans and
options under the plans relating to 240,000 of such shares have bene granted
and have not expired.
The Company intends to file registration statements on Form S-8, or
post-effective amendments to previously filed Forms S-8, under the Act to
register approximately 900,000 shares of Common Stock reserved for issuance
under its 1988 Incentive Stock Option Plan ("ISO Plan") and 1988 Nonqualified
Stock Option Plan ("NSO Plan") and Directors' Plan ("Directors Plan"), thus
permitting the immediate resale of shares issued under these plans in the
public market without restriction under the Act, subject to short-swing profit
restrictions.
11
<PAGE> 18
<TABLE>
<CAPTION>
When Restrictions Shares Eligible
Lapse for Future Sale Comment
--------------------------- --------------- -------
<S> <C> <C>
Upon the Exchange. Up to approximately 152,608 Freely tradeable.
shares of Common Stock that may
be exchanged as a portion of the
Exchange Consideration for
Debentures
Upon filing registration Up to approximately 900,000 Freely tradeable.
statements on Form S-8 shares of Common Stock issuable
under the 1988 ISO Plan, the 1988
NSO Plan or the 1994 Directors'
Plan
When Restricted Shares have been All Restricted Shares Saleable under Rule 144, subject
held for two years or more. to certain numeric restrictions
When Restricted Shares have been All Restricted Shares held by Saleable under Rule 144(k) by
held three years or more. non-affiliates non-affiliates without numeric
restriction
</TABLE>
12
<PAGE> 19
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 (the "Common Stock"), and
60,000 shares of Preferred Stock, $50.00 par value per share.
COMMON STOCK
At August 31, 1995, there were 2,656,936 issued and outstanding shares
of Common Stock, including 442,433 fully-paid shares issuable to satisfy
private placement agreements of the Company, the issuance of which is
conditioned on their NYSE subsequent listing approval and certain stock
registrar and other general administrative matters related to their issuance.
As of July 31, 1995, the Company had 1,929 stockholders of record of Common
Stock. These included 1,322 record holders of certificates representing
619,430 shares of old Common Stock, par value $.10 per share, which entitle the
holder to a certificate representing one share of Common Stock for every 10 old
shares surrendered, plus a payment of cash in lieu of any resultant fraction of
a share of Common Stock.
Holders of Common Stock are entitled to one vote per share on all
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. The
holders of Common Stock are entitled to cumulative voting rights in the
election of directors, and one vote per share in all other matters. There are
no redemption or sinking fund provisions applicable to the Common Stock. There
are no 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 this offering shall be fully paid and
nonassessable.
In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified
the Company that it was below certain quantitative and qualitative listing
criterion 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 continuing
listing standards. Management anticipates success in "global restructuring"
(see Note 2 to the Company's Consolidated Financial Statements included herein)
will be necessary to satisfy the Committee of the Company's progress. 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 intention to issue shares without seeking approval of
shareholders. 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 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. The private placement 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 "Other Factors to Consider--Shares Eligible for
Future Sale." 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.
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.
13
<PAGE> 20
PREFERRED STOCK
No shares of Preferred Stock are outstanding. 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. 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.
The Company's Restated Articles of Incorporation includes a provision
that allows the Board of Directors to issue Preferred Stock in one or more
series with such voting rights and other provisions as the Board of Directors
may determine. 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.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law, and 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 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.
The Company's Restated Certificate of Incorporation includes a
provision that allows the Board of Directors to issue Preferred Stock in one or
more series with such voting rights and other provisions as the Board of
Directors may determine. This provisions may be deemed to have a potential
anti-takeover effect and the issuance of Preferred Stock in accordance with
such provisions may delay or prevent a change of control of the Company. See
"Preferred Stock."
14
<PAGE> 21
DESCRIPTION OF DEBENTURES
$46,000,000 principal amount, at a price of 100% of face amount plus
accrued interest, of the Company's 7 1/2% Convertible Subordinated Debentures
Due April 15, 2010 (the "Debentures") were issued under an Indenture dated as
of April 15, 1985 (the "Indenture") between the Company and Bank of America
National Trust and Savings Association, as trustee (the "Trustee"). At August
31, 1995, $9,538,000 in principal amount remained outstanding.
The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "1939 Act") as in effect on the date of the Indenture. The
Debentures are subject to all such terms, and persons interested in terms are
referred to the Indenture and the 1939 Act for a statement thereof. This
summary makes use of terms defined in the Indenture and does not purport to be
complete, and is qualified in its entirety by references to the Indenture and
the 1939 Act. All references to "Section," "Article" or "Paragraph" in this
section refer to the applicable Section or Article of the Indenture or the
applicable Paragraph in the form of Debenture included in the Indenture, as the
case may be.
GENERAL
The Debentures represent general unsecured obligations of the Company,
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Debentures." The Debentures are convertible
into the Company's Common Stock as described under "Conversion of Debentures."
The Debentures are issued in fully registered form only in denominations of
$1,000 or any whole multiple thereof, and will mature on April 15, 2010. The
Debentures are traded in the over-the-counter market.
The Company pays interest on the Debentures at the rate of 7 1/2% per
annum to the persons who are registered holders of Debentures at the close of
business on the April 1 or October 1 next preceding the interest payment date.
Interest is payable semiannually on April 15 and October 15 of each year.
Interest is computed on the basis of a 360-day year of twelve 30-day months.
The Company may pay principal and interest by its check and may mail interest
checks to a holder's registered address. Principal and premium, if any, will
be payable, and the Debentures may be presented for conversion, registration of
transfer and exchange, without service charge, at the office of the Trustee in
Los Angeles, California.
CONVERSION OF DEBENTURES
The holder of any Debenture will be entitled at any time prior to the
close of business on April 15, 2010, subject to prior redemption, to convert
the Debentures or portions thereof which are $1,000 or whole multiples thereof,
at the principal amount thereof, into shares of Common Stock of the Company, at
the adjusted conversion price of $230.21 per share, subject to further
adjustment as described below. On each semi-annual interest payment date,
interest will be paid to the registered holder as of the record date for
payment. Debentures that are surrendered for conversion after the record date
for the payment of interest would receive the interest payable (Paragraph 2).
No other payment or adjustment will be made on conversion of any Debenture for
interest accrued thereon or dividends on any Common Stock issued (Section
10.02). The Company will not issue fractional shares of Common Stock upon
conversion of Debentures and, in lieu thereof, will pay a cash adjustment based
upon the market price of the Common Stock on the last business day prior to the
date of conversion (Section 10.03 and Paragraph 8). In the case of Debentures
called for redemption, conversion rights will expire at the close of business
the fifth business day prior to the redemption date (Section 3.03 and Paragraph
8).
The conversion price is subject to adjustment as set forth in the
Indenture in certain events, including: the issuance of stock of the Company
as a dividend or distribution on the Common Stock; subdivisions and
combinations of the Common Stock; the issuance of stock of the Company upon
certain reclassifications of its Common Stock; the issuance to all holders of
Common Stock of certain rights or warrants entitling them to subscribe for
Common Stock at less than the current market price (as defined); the
distribution to all holders of Common Stock of debt securities or assets of the
Company or rights or warrants to purchase assets or securities of the Company
(excluding cash dividends or distributions paid out of current or retained
earnings); the issuance of shares of Common Stock (with certain exceptions) for
less consideration than the current market price; and the issuance of
securities convertible into or exchangeable for shares of Common Stock (other
than pursuant to transactions described above and with certain exceptions) for
a consideration per share of Common Stock deliverable on such conversion or
exchange that is less than the current market price of the Common Stock. No
adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% in the price then in effect; but any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. No adjustment need be
made for rights to purchase Common Stock pursuant to a Company dividend or
interest reinvestment plan. In addition, no adjustment need be made if holders
of Debentures are to participate in such transactions on a basis and with
notice that has been determined to be fair and appropriate in light of the
basis and notice on which holders of Common Stock participate in the
transaction. The Company may at any time reduce the conversion price by any
amount, provided that any such reduction must be effective for a minimum period
of 15 days. If the Company consolidates or merges into or transfers or leases
all or substantially all of its assets to any person, the Debentures will
become convertible into the kind and amount of securities, cash or other assets
which the holders of the Debentures would have owned immediately after the
transaction if the holders had converted the Debentures immediately before the
effective date of the transaction (Sections 10.06-10.18).
15
<PAGE> 22
If the Company makes a distribution resulting in an adjustment to the
conversion price and such adjustment is considered to result in an increase in
the proportionate interests of the holders of the Debentures in the assets or
earnings and profits of the Company, holders of the Debentures may be viewed as
receiving a "deemed distribution" that is taxable as a dividend under Sections
301 and 305 of the United States Internal Revenue Code of 1986, as amended (as
it exists on the date hereof (the "Code").
OPTIONAL REDEMPTION
The Company may, at its option, redeem all or part of the Debentures,
on at least 15 days' but not more than 60 days' notice to each holder of
Debentures to be redeemed at the holder's registered address, at the redemption
price (expressed as a percentage of principal amount) of 100.00%, plus accrued
interest to the redemption date.
SINKING FUND
The Company is required to redeem, through operation of a sinking
fund, 5% of the aggregate principal amount of Debentures on April 15, 1996, and
on each April 15 thereafter through April 15, 2009, at a redemption price of
100% of principal amount thereof, plus accrued interest to the redemption date.
Such sinking fund payments are calculated to retire 70% of the Debentures prior
to maturity. The Company may reduce the principal amount of Debentures to be
redeemed by subtracting 100% of the principal amount of any Debentures that
holders of the Debentures have converted on or before such April 15 or any
Debentures that the Company has delivered to the Trustee for cancellation or
that the Company has redeemed other than through operation of the sinking fund
on or before such April 15 (Paragraph 6).
SUBORDINATION OF DEBENTURES
The payment of the principal of, premium, if any, and interest on the
Debentures is subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full of all Senior Debt, as defined in the Indenture,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. Upon (i) the maturity of Senior Debt,
including by acceleration or otherwise, or (ii) any distribution of the assets
of the Company upon any dissolution, winding up, liquidation or reorganization
of the Company, the holders of Senior Debt will be entitled to receive payment
in full before the holders of Debentures are entitled to receive any payment
(Sections 11.03-11.04).
"Senior Debt" means all defined Debt (present or future) created,
incurred, assumed or guaranteed by the Company (and all renewals, extensions or
refundings thereof), unless the instrument governing such Debt expressly
provides that such Debt is not senior or superior in right of payment to the
Debentures.
"Debt" means any indebtedness, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the Company or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit, or representing
obligations of the Company as lessee under leases of real or personal property,
or representing the deferred and unpaid balance of the purchase price of any
property or interest therein, except any such balance that constitutes a trade
payable, if and to the extent such indebtedness would appear as a liability
upon a balance sheet of the Company in accordance with generally accepted
accounting principles (Section 11.02).
The principal amount of Senior Debt at August 31, 1995 was estimated
at $6 million. In addition, the claims of third parties to the assets of the
Company's subsidiaries incurring such obligations will be superior to those of
the Company as a stockholder, and, therefore the Debentures may be deemed to be
effectively subordinated to the claims of such third parties. Certain
substantial operations of the Company are conducted through such subsidiaries,
and the Debentures are effectively subordinated to repayment of the Company's
liabilities arising from those operations. The Indenture will not limit the
amount of additional indebtedness, including Senior Debt, which the Company or
any subsidiary can create, incur, assume or guarantee. As a result of these
subordination provisions, in the event of insolvency, holders of the Debentures
may recover less ratably than other creditors of the Company or its
subsidiaries.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is: default for 30 days in payment of interest on
the Debentures; default in payment when due of principal and premium, if any,
on the Debentures; failure by the Company for 30 days after notice to comply
with any of its other agreements in the Indenture or the Debentures; and
certain events of bankruptcy or insolvency (Section 6.01).
If any Event of Default occurs and is continuing, the Trustee, or the
holders of at least 25% in the principal amount of the Debentures then
outstanding can give notice to the Company and the Trustee in order to
accelerate and to declare all the Debentures to be due and payable immediately,
except that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, and subject to applicable law, all outstanding
Debentures become due and payable without further action or notice (Section
6.02).
16
<PAGE> 23
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal or interest
on the Debentures or to enforce the performance of any provision of the
Indenture or the Debentures. A delay or omission by the Trustee or any
Debentureholder in exercising any right or remedy shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default.
(Section 6.03)
Holders of the Debentures may not enforce the Indenture or the
Debentures except as provided in the Indenture. A holder of Debentures may
enforce a remedy with respect to the Indenture or the Debentures only if the
Trustee gives notice of a continuing Event of Default, the holders of at least
25% in principal amount of then outstanding Debentures make a request to the
Trustee to pursue the remedy, such holders offer to the Trustee an indemnity
satisfactory to the Trustee against loss, liability or expense, the Trustee
does not comply with the request within 60 days after receipt of the request
and the offer of indemnity, and during such 60-day period the holders of a
majority in principal amount of then outstanding Debentures do not give the
Trustee a direction inconsistent with the request. (Section 6.06) Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Debentures may direct the Trustee regarding the time, method and
place of exercising any trust or power conferred on it (Section 6.05).
The Trustee is required, within 90 days after the occurrence of any
default which is known to the Trustee and continuing, to give the holders of
the Debentures notice of such default. The Trustee may withhold from holders
of the Debentures notice of any continuing Default or Event of Default (except
a Default or Event of Default in payment of principal or interest) if it
determines that withholding notice is in their interest (Section 7.05). The
Company is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and upon becoming aware of any Default or Event
of Default, a statement specifying such Default or Event of Default (Section
4.03).
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not consolidate or merge into, or transfer all or
substantially all of its assets to, another corporation, person or entity
unless (i) the successor is a United States corporation, (ii) it assumes all
the obligations of the Company under the Debentures and the Indenture, and
(iii) after such transaction no Event of Default exists (Article 5).
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the holders of at least two-thirds
in principal amount of such then outstanding Debentures, and any existing
default or compliance with any provision may be waived with the consent of the
holders of at least two-thirds in principal amount of the then outstanding
Debentures (Sections 9.02 and 6.04). Without the consent of any holder of the
Debentures, the Company and the Trustee may amend or supplement the Indenture
or the Debentures to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures, to provide for the assumption of the Company's obligations to
holders of the Debentures in the case of a merger or acquisition, or to make
any change that does not adversely affect the rights of any holder of the
Debentures (Section 9.01 and Paragraph 12). Without the consent of each
Debenture holder affected, the Company may not reduce the principal amount of
Debentures the holders of which must consent to an amendment of the Indenture;
reduce the rate or change the interest payment time of any Debenture; reduce
the principal of or change the fixed maturity of any Debenture; make any
Debenture payable in money other than stated in the Debenture; make any change
in the provisions concerning waiver of Defaults or Events of Default by holders
of the Debentures or rights of holders to receive payment of principal or
interest; or make any change that adversely affects conversion rights or
certain subordination rights (Section 9.02).
TRANSFER AND EXCHANGE
A holder may transfer or exchange Debentures in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required
to transfer or exchange any Debenture selected for redemption. Also, the
Registrar is not required to transfer or exchange any Debenture for a period of
15 days before a selection of Debentures to be redeemed (Section 2.06 and
Paragraph 10).
The registered holder of a Debenture may be treated as the owner of it
for all purposes.
CONCERNING THE TRUSTEE
The Trustee acts as Conversion Agent, Paying Agent and Registrar
(Section 12.10).
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign (Article 7).
17
<PAGE> 24
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee.
The Indenture provides that in case an Event of Default shall occur (which
shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any of the holders of the Debentures, unless they shall have offered to the
Trustee security and indemnity satisfactory to it (Section 7.01).
18
<PAGE> 25
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.
19
<PAGE> 26
<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
20
<PAGE> 27
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.
21
<PAGE> 28
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.
22
<PAGE> 29
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.
INTERESTS OF CERTAIN PERSONS
The directors and executive officers who served the Company since June 1,
1994 have no substantial interest, direct or indirect, by security holdings or
otherwise, in the approval or disapproval of Rescission of Acceleration, except
as holders of Common Stock generally.
23
<PAGE> 30
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning beneficial
ownership of Common Stock. Such information is given as of August 21, 1995,
the record date. At the record date, 2,214,503 shares of Common Stock were
outstanding; entitled to one vote per share. According to rules adopted by the
Securities and Exchange Commission, "beneficial ownership" of securities for
this purpose is the power to vote them or to direct their investment. Except
as otherwise noted, the indicated owners have sole voting and investment power
with respect to shares beneficially owned. An asterisk in the percent of class
column indicates beneficial ownership of less than 1% of the outstanding Common
Stock.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
------------------------------- -------------------- --------
<S> <C> <C>
William H. Boucher 5,000 (9) *
J. Marvin Feigenbaum 5,000 (9) *
Lindner Funds (1) 586,700 20.9
Drew Q. Miller 21,000 (10) *
Rudy R. Miller 5,000 (9) *
James R. Moriarty (2) 172,500 7.2
W. James Nicol 5,056 (3) *
Richard C. Perry(5) 200,000 8.3
Kerri Ruppert 19,036 (6) *
Chriss W. Street 84,060 (7) 3.7
All executive officers and
directors as a group (7 persons) 144,152 (8) 6.1
</TABLE>
_________________
(1) The mailing address of Lindner Funds is c/o Ryback Management
Corporation, 7711 Carondelet Avenue, Suite 700, St. Louis, Missouri
63105. Includes approximately 336,700 shares currently reserved for
issuance upon conversion of a Secured Convertible Note dated January
9, 1995. Lindner Funds, as described in its Schedule 13G, holds the
shares and convertible debt in more than one fund.
(2) The mailing address of James R. Moriarty is 1111 Bagbe, Suite 1950,
Houston, Texas 77002-2546.
(3) Includes 56 shares held by Mr. Nicol's spouse as custodian for his
three minor children, all of whom reside with Mr. Nicol, and 5,000
shares subject to options that are presently exercisable or
exercisable within 60 days of the date of this Proxy Statement.
(5) Mr. Perry is President of Perry & Co., 2635 Century Parkway, N.E.,
Suite 1000, Atlanta, Georgia 30345.
(6) Consists of 19,036 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(7) Includes 6,560 shares held directly and 77,500 shares subject to
options that are presently exercisable or exercisable within 60 days
of the date of this Proxy Statement.
(8) Includes a total of 131,536 shares subject to outstanding options that
are presently exercisable or exercisable within 60 days of the date of
this Proxy Statement.
(9) Includes 5,000 shares subject to options that are presently
exercisable or exercisable within 60 days of the date of this Proxy
Statement.
(10) Includes 1,000 shares held directly and 20,000 shares subject to
options that are presently exercisable or exercisable within 60 days
of the date of this Proxy Statement.
24
<PAGE> 31
USE OF PROCEEDS
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 ($5,550,000 in cash and estimated
costs of $200,000) could be used to retire the outstanding balance of
indebtedness under the Debentures.
There can be no assurance of successful completion of the Debenture
exchange offer.
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.
25
<PAGE> 32
CAPITALIZATION
At [*7] shares reserved for issuance. Each share of Common Stock also
includes one attached common share purchase right issued under the Company's
shareholder rights plan.
The following table sets forth the capitalization of the Company as of
August 31, 1995 and as adjusted to give effect to the exchange for all of the
outstanding Debentures (assuming $5 million additional indebtedness is
incurred) and after deducting estimated expenses payable by the Company.
<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 . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,823 $ 3,285
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 5,077 10,077
Stockholders' equity:
Preferred Stock, $50 par value, 60,000 shares authorized,
no shares outstanding . . . . . . . . . . . . . . . . . . . -- --
Common Stock, $.01 par value, 12,500,000 shares authorized,
2,214,503 shares outstanding before the Exchange (1) . . . . 25 27
Additional paid-in capital . . . . . . . . . . . . . . . . . . 42,558 47,676
Retained earnings (deficit) . . . . . . . . . . . . . . . . . (46,516) (46,516)
Total stockholders' equity (deficit) . . . . . . . . . . (3,933) 1,187
Total capitalization . . . . . . . . . . . . . . . . . . . . . . $ 13,967 $ 14,549
=========== ===========
</TABLE>
-----------------
(1) Excludes approximately 887,200 shares of Common Stock reserved but
unissued under the Company's stock option plans and 85,000 shares under
other employee options. 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 maximum number of shares of Common Stock
which are issuable upon conversion or exchange of the Debentures.
Includes an aggregate of approximately 779,200 shares issuable upon notice
of NYSE listing approval for the shares that were sold in private
placement transactions in calendar year 1995. In other transactions, the
Company intends to issue up to 272,216 shares in connection with
acquisition or strategic transactions commenced in fiscal year 1995, and
16,000 shares issued in connection with a prior-year's transaction.
26
<PAGE> 33
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.
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.
27
<PAGE> 34
COMPREHENSIVE CARE CORPORATION
THE EXCHANGE AGENT: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By Mail: By Hand:
CONTINENTAL STOCK TRANSFER & CONTINENTAL STOCK TRANSFER
TRUST COMPANY & TRUST COMPANY
2 BROADWAY 2 BROADWAY, 19TH FLOOR
NEW YORK, NEW YORK 10004 Confirm by Telephone: NEW YORK, NEW YORK 10004
(212) 509-4000 Ext. 227
REQUESTS FOR ADDITIONAL INFORMATION SHOULD BE DIRECTED TO
KERRI RUPPERT, SECRETARY, COMPREHENSIVE CARE CORPORATION
4350 VON KARMAN AVENUE, SUITE 280, NEWPORT BEACH, CALIFORNIA 92660
AT (800) 678-2273
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................
Offering Summary.......................................
Selected Financial Data................................
The Company............................................
Ratios of Earnings to Fixed Charges....................
Recent Transactions in the Company's
Securities...........................................
Price Range of Common Shares and
Debentures.............................................
The Exchange Offer.....................................
Description of Debentures..............................
Description of Capital Stock...........................
</TABLE>
--------------------------------------------------------------------------------
28
<PAGE> 1
EXHIBIT (a)(ii)
LETTER OF TRANSMITTAL
FOR
COMPREHENSIVE CARE CORPORATION
OFFER TO EXCHANGE THE EXCHANGE CONSIDERATION
FOR ANY AND ALL OF ITS
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________,
1995 UNLESS THE EXCHANGE OFFER IS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF
DEBENTURES MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION
DATE.
TO: CONTINENTAL STOCK TRANSFER & TRUST COMPANY, EXCHANGE AGENT
By Mail: By Hand:
CONTINENTAL STOCK TRANSFER & CONTINENTAL STOCK TRANSFER
TRUST COMPANY & TRUST COMPANY
2 BROADWAY 2 BROADWAY, 19TH FLOOR
NEW YORK, NEW YORK 10004 Confirm by Telephone: NEW YORK, NEW YORK 10004
(212) 509-4000 Ext. 227
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION
VIA TELEGRAM, TELEX OR FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE CONSIDERATION FOR
THEIR DEBENTURES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW)THEIR DEBENTURES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
By execution hereof, the undersigned acknowledges receipt of the
offering circular dated )__________, 1995 (the "Offering Circular"), of
Comprehensive Care Corporation, a Delaware corporation (the "Company"), which,
together with this Letter of Transmittal and the instructions hereto (the
"Letter of Transmittal"), constitute the Company's offer (the "Exchange Offer")
to exchange, as principal, $500 in cash plus $120 in defined value of Common
Stock, subject to payment of cash in lieu of any fractional shares, and, as
interest, $80 in cash (the "Exchange Consideration"), for each $1,000 of
original principal amount of its outstanding 7 1/2% Convertible Subordinated
Debentures, due April 15, 2010 (the "Debentures"), upon the terms and subject
to the conditions set forth in the Offering Circular.
This Letter of Transmittal is to be used by Holders (as defined below)
if: (i) certificates representing Debentures are to be physically delivered to
the Exchange Agent herewith by Holders; (ii) tender of Debentures is to be made
by book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in the Offering Circular
under "The Exchange Offer -- Procedures for Tendering" by any financial
institution that is a participant in DTC and whose name appears on a security
position listing as the owner of Debentures (such participants, acting on
behalf of Holders are referred to herein, together with such Holders, as
"Acting Holders"); or (iii) tender of Debentures is to be made according to the
guaranteed delivery procedures set forth in the Offering Circular under "The
Exchange Offer -- Guaranteed Delivery Procedure." Delivery of documents to DTC
does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person:
(i) in whose name Debentures are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder; or (ii) whose Debentures are held of record by DTC who
desires to deliver such Debentures by book-entry transfer at DTC.
1
<PAGE> 2
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Debentures must
complete this letter in its entirety.
All capitalized terms used herein and not defined shall have the
meaning ascribed to them in the Offering Circular.
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Offering Circular, this Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Exchange Agent. See Instruction 8 herein.
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR
DEBENTURES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS ENTIRETY.
2
<PAGE> 3
List below the Debentures to which this Letter of Transmittal relates.
If the space provided below is inadequate, list the certificate numbers and
principal amounts on a separately executed schedule and affix the schedule to
this Letter of Transmittal. Tenders of Debentures will be accepted only in
principal amounts equal to $1,000 or integral multiples thereof.
--------------------------------------------------------------------------------
DESCRIPTION OF DEBENTURES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CERTIFICATE AGGREGATE
NUMBER(S)* PRINCIPAL
(ATTACH SIGNED AMOUNT
NAME(S) AND ADDRESS(ES) OF HOLDER(S) LIST IF TENDERED (IF LESS
(PLEASE FILL IN, IF BLANK) NECESSARY) THAN ALL)**
------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C>
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
-------------------- --------------------
---------------------------------------------------------------------------------------------- --------------------
TOTAL PRINCIPAL AMOUNT OF DEBENTURES TENDERED
--------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Need not be completed by Holders who wish to tender with respect to all
Debentures listed. See Instruction 2.
--------------------------------------------------------------------------------
3
<PAGE> 4
/ / CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED BY DTC TO THE
EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
-----------------------------------------
DTC Book-Entry Account No.:
--------------------------------------------
If Holders desire to tender Debentures pursuant to the Exchange Offer and (i)
certificates representing such Debentures are not lost but are not immediately
available, (ii) time will not permit this Letter of Transmittal, certificates
representing such Debentures or other required documents to reach the Exchange
Agent prior to the Expiration Date or (iii) the procedures for book-entry
transfer cannot be completed prior to the Expiration Date, then such Holders
may effect a tender of such Debentures in accordance with the guaranteed
delivery procedures set forth in the Offering Circular under "The Exchange
Offer -- Guaranteed Delivery Procedures."
/ / CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Holder(s) of Debentures:
-----------------------------------
Window Ticket No. (if any):
----------------------------------------------
Date of Execution of
Notice of Guaranteed Delivery:
-------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------
--------------------------------------------------------------------------
If Delivered by Book-Entry Transfer:
Name of Tendering Institution:
-------------------------------------------
DTC Book-Entry Account No.:
----------------------------------------------
4
<PAGE> 5
Subject to the terms of the Exchange Offer, the undersigned hereby
tenders to the Company the principal amount of Debentures indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Debentures tendered in accordance with this Letter of Transmittal,
the undersigned sells, assigns and transfers to the Company all right, title
and interest in and to the Debentures tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company and as Trustee under the Indenture for the Debentures and
the New Debentures) with respect to the tendered Debentures with full power of
substitution to deliver certificates for such Debentures for cancellation in
accordance with the Indenture for the Debentures, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Debentures
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim, when the same are acquired by the
Company.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment and transfer of the Debentures tendered
hereby.
For purposes of the Exchange Offer, the Company shall be deemed to
have accepted validly tendered Debentures when the Company has given oral or
written notice thereof to the Exchange Agent. If any tendered Debentures are
not accepted for exchange pursuant to the Exchange Offer for any reason,
certificates for any such unaccepted Debentures will be returned (except as
noted below with respect to tenders through DTC), without expense, to the
undersigned at the address shown below or at a different address shown below or
at a different address as may be indicated under "Special Issuance
Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation under this Letter of Transmittal shall be
binding upon the undersigned's heirs, personal representatives, successors and
assigns.
The undersigned understands that tenders of Debentures pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Offering Circular and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
5
<PAGE> 6
Unless otherwise indicated under "Special Issuance Instructions," in
exchange for the Debentures accepted for exchange, please pay the cash portion
of the Exchange Consideration by check made payable in the name(s) of the
undersigned (or in the case of Debentures tendered by DTC, to DTC) and, issue
the certificates representing the Common Shares, in the name(s) of the
undersigned (or in the case of Debentures tendered by DTC, by credit to the
account at DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the Exchange Consideration in exchange for the
Debentures accepted for exchange and any certificates for Debentures not
tendered or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signatures, unless, in
either event, tender is being made through DTC. In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please pay and issue the Exchange Consideration due in exchange for
the Debentures accepted for exchange and return any Debentures not tendered or
not exchanged in the name(s) of, and send said certificates to, the person(s)
so indicated. The undersigned recognizes that the Company has no obligation
pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Debentures from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the
Debentures so tendered.
6
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF
DEBENTURES REGARDLESS OF WHETHER DEBENTURES ARE BEING PHYSICALLY
DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Debentures
exactly as their name(s) appear(s) on certificate(s) for Debentures or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as the owner of Debentures, or by person(s)
authorized to become registered Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Company of such person's authority to so act. See Instruction 3 herein.
If the signature appearing below is not of the registered Holder(s) of
the Debentures, then the registered Holder(s) must sign a valid proxy.
X Date:
-------------------------------------- --------------------------------
X Date:
-------------------------------------- --------------------------------
Signature(s) of Holder(s) or
Authorized Signatory
Name(s): Address:
------------------------------- -----------------------------
------------------------------- -----------------------------
(Please Print) (Including Zip Code)
Capacity: Area Code and Telephone No.:
------------------------------ ---------
Social Security No.:
-------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
SIGNATURE GUARANTEE (SEE INSTRUCTION 3 HEREIN)
CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION
--------------------------------------------------------------------------------
(Name of Eligible Institution Guaranteeing Signatures)
--------------------------------------------------------------------------------
(Address (including zip code) and Telephone Number (including area code) of
Firm)
--------------------------------------------------------------------------------
(Authorized Signature)
--------------------------------------------------------------------------------
(Printed Name)
--------------------------------------------------------------------------------
(Title)
Date:
-----------------
7
<PAGE> 8
--------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for the Common Shares issued pursuant to
the Exchange Offer or for any principal amount of Debentures not tendered for
exchange are to be issued in the name of someone other than the person or
persons whose signature(s) appear(s) within this Letter of Transmittal or issued
to an address different from that shown in the box entitled "Description of
Debentures" within this Letter of Transmittal, or if Debentures tendered by
book-entry transfer that are not accepted for purchase are to be credited to an
account maintained at DTC.
Name:
--------------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------------
(Please Print)
-------------------------------------------------------------------------------
Zip Code
-------------------------------------------------------------------------------
Taxpayer Identification or
Social Security Number
(See Substitute Form W-9 herein)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 4 HEREIN)
To be completed ONLY if certificates for the Common Shares issued pursuant to
the Exchange Offer or for any principal amount of Debentures not tendered for
exchange are to be sent to someone other than the person or persons whose
signature(s) appear(s) within this Letter of Transmittal or issued to an address
different from that shown in the box entitled "Description of Debentures" within
this Letter of Transmittal.
Name:
--------------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------------
(Please Print)
-------------------------------------------------------------------------------
Zip Code
-------------------------------------------------------------------------------
Taxpayer Identification or
Social Security Number
(See Substitute Form W-9 herein)
-------------------------------------------------------------------------------
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER AND THE SOLICITATION
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND DEBENTURES. The
certificates for the tendered Debentures (or a confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of all Debentures delivered
electronically), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof and any other documents required by
this Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of the tendered Debentures, this Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder and, except as otherwise provided below, the delivery will be
deemed made only when actually received by the Exchange Agent. Instead of
delivery by mail, it is recommended that the Holder use an overnight or hand
delivery service. In all cases, sufficient time should be allowed to assure
timely delivery. No Letter of Transmittal or Debentures should be sent to the
Company.
Holders who wish to tender their Debentures and (i) whose Debentures are
not immediately available or (ii) who cannot deliver their Debentures, this
Letter of Transmittal or any other documents required hereby to the Exchange
Agent prior to the Expiration Date must tender their Debentures and follow the
guaranteed delivery procedures set forth in the Offering Circular. Pursuant to
such procedures: (i) such tender must be made by or through an Eligible
Institution; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Debentures, the
certificate number or numbers of such Debentures and the principal amount of
Debentures tendered, stating that the tender is being made thereby and
guaranteeing that, within five business days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the certificate(s)
representing the Debentures (or a confirmation of electronic delivery of
book-entry delivery into the Exchange Agent's account at DTC) and any required
documents will be deposited by the Eligible Institution with the Exchange Agent;
and (iii) such properly completed and executed Letter of Transmittal (or
facsimile hereof), as well as all other documents required by this Letter of
Transmittal and the certificate(s) representing all tendered Debentures in
proper form for transfer (or a confirmation of electronic mail delivery of
book-entry delivery into the Exchange Agent's account at DTC), must be received
by the Exchange Agent within five business days after the Expiration Date, all
as provided in the Offering Circular under the caption "Guaranteed Delivery
Procedures." Any Holder of Debentures who wishes to tender his Debentures
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New York City time, on the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Debentures will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all
Debentures not properly tendered or any Debentures the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any irregularities or conditions of
tender as to particular Debentures. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in this Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Debentures must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Debentures, nor shall
any of them incur any liability for failure to give such notification. Tenders
of Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Debentures received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering Holders of Debentures, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
9
<PAGE> 10
2. PARTIAL TENDERS. Tenders of Debentures will be accepted in all
denominations of $1,000 and integral multiples in excess thereof. If less than
the entire principal amount of any Debentures is tendered, the tendering Holder
should fill in the principal amount tendered in the third column of the chart
entitled "Description of Debentures." The entire principal amount of Debentures
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Debentures is not
tendered, Debentures for the principal amount of Debentures not tendered and a
certificate or certificates representing New Debentures issued in exchange of
any Debentures accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal or unless tender is made through DTC, promptly after the
Debentures are accepted for exchange.
3. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or
facsimile hereof) is signed by the registered Holder(s) of the Debentures
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Debentures without alteration, enlargement or any change
whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Debentures tendered and the certificate(s) for Common
Shares issued in exchange therefor is to be issued (or any untendered principal
amount of Debentures is to be reissued) to the registered Holder, such Holder
need not and should not endorse any tendered Debentures, nor provide a separate
bond power. In any other case, such holder must either properly endorse the
Debentures tendered or transmit a properly completed separate bond power with
this Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Debentures listed, such Debentures
must be endorsed or accompanied by appropriate bond powers signed as the name of
the registered Holder(s) appears on the Debentures.
If this Letter of Transmittal (or facsimile hereof) or any Debentures or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Debentures or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Debentures tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
DTC whose name appears on a security position listing as the owner of
Debentures) who has not completed the box set forth herein entitled "Special
Issuance Instructions" or the box entitled "Special Delivery Instructions" or
(ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Debentures
or substitute Debentures for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal (or in the case of tender of the
Debentures through DTC, if different from DTC). In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Debentures pursuant to the Exchange Offer. If,
however, certificates representing New Debentures or Debentures for principal
amounts not tendered or accepted for exchange are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
Holder of the Debentures tendered hereby, or if tendered Debentures are
registered in the name of any person other than the person signing this Letter
of Transmittal, or if a transfer tax is imposed for any reason other than the
10
<PAGE> 11
exchange of Debentures pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered Holder or any other
person) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with this Letter
of Transmittal, the amount of such transfer taxes will be billed directly to
such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Debentures listed in this Letter of
Transmittal.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case of
any Debentures tendered.
7. MUTILATED, LOST, STOLEN OR DESTROYED DEBENTURES. Any tendering
Holder whose Debentures have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated herein for further
instruction.
8. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Offering Circular or
this Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Offering Circular or to Kerri Ruppert, Vice President, Chief
Accounting Officer and Secretary/Treasurer, 4350 Von Karman Avenue, Suite 280,
Newport Beach, California 92660, (800) 678-2273.
(DO NOT WRITE IN SPACE BELOW)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CERTIFICATE SURRENDERED Debentures TENDERED Debentures ACCEPTED
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Delivery Prepared by Checked by Date
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
IMPORTANT TAX INFORMATION
Under federal income tax laws, a Holder whose tendered Debentures are
accepted pursuant to the Exchange Offer is required to provide the Exchange
Agent (as payer) with such Holder's correct Taxpayer Identification Number
("TIN") or Substitute Form W-9 below or otherwise establish a basis for
exemption from backup withholding. If such Holder is an individual, the TIN is
his social security number. If the Exchange Agent is not provided with the
correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and
payments made with respect to Debentures purchased pursuant to the Exchange
Offer may be subject to backup withholding.
Certain Holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Exchange Agent a properly completed U.S. Treasury Form W-8, signed under
penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can
be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the Holder or other payee. Backup withholding is
not an additional federal income tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
11
<PAGE> 12
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to the
Exchange Offer, the Holder is required to provide the Exchange Agent with
either: (i) the Holder's correct TIN by completing the form below, certifying
that the TIN provided on Substitute Form W-9 is correct (or that such Holder is
awaiting a TIN) and that (A) the Holder has not been notified by the Internal
Revenue Service that the Holder is subject to backup withholding as a result of
failure to report all interest or dividends or (B) the Internal Revenue Service
has notified the Holder that the Holder is no longer subject to backup
withholding; or (ii) an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered Holder of
the Debentures. If the Debentures are held in more than one name or are held
not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
12
<PAGE> 13
--------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
------------------------------
Social Security Number
OR
------------------------------
Employer Identification Number
--------------------------------------------------
PART 2 -- CERTIFICATION -- Under Penalties of
PAYER'S REQUEST FOR TAXPAYER Perjury, I certify that:
IDENTIFICATION NUMBER (TIN)
DEPARTMENT OF THE TREASURY (1) The number shown on this form is my correct
INTERNAL REVENUE SERVICE Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(2) I am not subject to backup withholding because
(a) I am exempt from backup withholding or (b)
I have not been notified by the Internal
Revenue Service ("IRS") that I am currently
subject to backup withholding as a result of
failure to report all interest or dividends,
or (c) the IRS has notified me that I am no
longer subject to backup withholding.
PART 3
Awaiting TIN / /
--------------------------------------------------
CERTIFICATE INSTRUCTIONS -- You must cross out
item (2) in Part 2 above if you have been notified
by the IRS that you are subject to backup
withholding because of underreporting interest or
dividends on your tax return. However, if after
being notified by the IRS that you were subject to
backup withholding you received another
notification from the IRS stating that you are no
longer subject to backup withholding, do not cross
out item (2).
------------------------------------------
SIGNATURE
------------------------------------------
DATE
--------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF NEW DEBENTURES PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number within 60 days, 31
percent of all reportable payments made to me thereafter will be withheld until
I provide a number.
------------------------------------------ -----------------------
Signature Date
13
<PAGE> 14
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: By Hand:
CONTINENTAL STOCK TRANSFER & CONTINENTAL STOCK TRANSFER
TRUST COMPANY & TRUST COMPANY
2 BROADWAY 2 BROADWAY, 19th FLOOR
NEW YORK, NEW YORK 10004 Confirm by Telephone: NEW YORK, NEW YORK 10004
(212) 509-4000 Ext. 227
</TABLE>
14
<PAGE> 1
Exhibit (a)(iii)
NOTICE OF RESCISSION OF ACCELERATION
THIS NOTICE OF RESCISSION OF ACCELERATION IS SOLICITED BY THE MANAGEMENT AND
BOARD OF DIRECTORS OF COMPREHENSIVE CARE CORPORATION.
September ___, 1995
Bank of America National Trust and Savings Association
Corporate Trust Administration #8510
333 South Beaudry Avenue, 25th Floor
Los Angeles, California 90017
Re: Comprehensive Care Corporation 7-1/2%
Convertible Subordinated Debentures Due
April 15, 2010 (herein called the "Securities")
Dear Ladies and Gentlemen:
This Notice of Rescission of Acceleration is delivered pursuant to Section
6.02 of that certain Indenture dated as of April 25, 1985 (the "Indenture")
between Comprehensive Care Corporation, a Delaware corporation (the "Company"),
and Bank of America National Trust and Savings Association (the "Trustee")
governing the Securities, as defined in the Indenture. Capitalized terms not
otherwise defined herein are used as defined in the Indenture. The undersigned
Holder hereby notify the Trustee that the Holder elects to rescind both the
acceleration of the Securities (Pursuant to the written notices delivered to the
Trustee and the Company by the Holders of more than 25% in principal amount of
the then outstanding Securities there was a declaration of the principal and
interest of the Debentures to be due and payable immediately) and also the
consequences of such acceleration, such rescission to be effective immediately
upon (1) the Company's cure of the Event of Default referenced in the Trustee's
notice dated November 22, 1994, to the Holders, (2) the Company's cure of the
Event of Default referenced in the Trustee's notice dated May 23, 1995, to the
Holders, and (3) the Trustee's receipt of Notices of Rescission of Acceleration
from Holders of a majority in principal amount of the outstanding Securities.
This Notice of Rescission of Acceleration shall remain in effect, and be
binding on successors and assigns, to and including ____________, 1995, unless
the Trustee is notified in writing prior thereto that the undersigned Holder has
rescinded this Notice of Rescission of Acceleration.
1
<PAGE> 2
Executed by the undersigned as of the date set forth above. (Please fill
in the date on the first page on this Notice of Rescission of Acceleration.)
NAME OF HOLDER AS LISTED IN THE
TRUSTEE'S SECURITIES REGISTER
(Please Print):
--------------------------------------------------------
Holder's Tax ID No.:
------------------------------------
Security No. (if available)
-----------------------------
SIGNATURE LINES FOR HOLDER:
--------------------------------------------------------
Name (please print):
------------------------------------
Title (if applicable):
----------------------------------
--------------------------------------------------------
Name (please print):
------------------------------------
Title (if applicable):
----------------------------------
2
<PAGE> 1
EXHIBIT (a)(iv)
FOURTH NOTICE
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
(THE "SECURITIES")
THIS FOURTH NOTICE IS HEREBY given to the Holders of the above-referenced
Securities, as provided for under the Indenture dated as of April 25, 1985 (the
"Indenture") between Comprehensive Care Corporation, a Delaware corporation (the
"Company"), and Bank of America National Trust and Savings Association (the
"Trustee"), that, as more fully described below, the Company has delivered to
the Trustee, and has requested the Trustee to mail to the Holders, both (1) the
enclosed notice from the Company setting October __, 1995, as the special record
date for the interest payments on the Securities which the Company failed to
make on October 17, 1994, and on April 17, 1995, and also setting October 16,
1995 as the payment date for such interest payments on the Securities and
interest on the interest from the date of the missed payment, and which is also
the payment date for the next semi- annual interest payment (the "Company
Notice"), and (2) the enclosed Notice of Rescission of Acceleration.
Capitalized terms not otherwise defined herein shall have the same meanings as
set forth in the Indenture.
As the Holders are aware, on November 22, 1994, the Trustee notified the
Holders by mail (the "First Notice") that an Event of Default had occurred under
the Indenture in that the Company had failed to make its interest payment on the
Securities which was due and payable on October 17, 1994, and had continued to
fail to make such missed interest payment for a period of 30 days. On February
13, 1995, the Trustee notified the Holders by mail (the "Second Notice") that
(1) the Holders of at least 25% in principal amount of the then outstanding
Securities had, pursuant to Section 6.02 of the Indenture, by written notice to
the Company and the Trustee declared the principal of and accrued interest on
all the Securities to be immediately due and payable, and (2) the Company had
delivered to the Trustee, and had requested the Trustee to mail to the Holders,
both a notice from the Company and a Notice of Rescission of Acceleration. In
order to rescind the acceleration of the Securities pursuant to Section 6.02 of
the Indenture, the Holders of at least a majority in principal amount of the
then outstanding Securities had to execute and return to the Trustee such Notice
of Rescission of Acceleration by 1:00 p.m., Los Angeles, California time on
February 28, 1995. The requisite number of Holders did not so execute and
return to the Trustee such Notice of Rescission of Acceleration. As the Holders
are aware, on May 23, 1995, the Trustee notified the Holders by mail (the "Third
Notice") that another Event of Default had occurred under the Indenture in that
the Company had failed to make its interest payment on the Securities which was
due and payable on April 17, 1995, and had continued to fail to make such missed
interest payment for a period of 30 days.
Section 6.02 of the Indenture provides that "[t]he Holders of a majority
in principal amount of the then outstanding Securities by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if any existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration." The Trustee has not as of this date
been notified of any judgment or decree with which a rescission of the
acceleration of the Securities would conflict; and as of this date the only
existing Events of Default of which the Trustee has been notified is the failure
of the Company to make the interest payments on the Securities which became due
and payable on October 17, 1994, and on April 17, 1995.
The Company has delivered to the Trustee, and has requested the Trustee
to mail to the Holders, both (1) the enclosed Company Notice setting October __,
1995, as the special record date for the interest payments on the Securities
which the Company failed to make on October 17, 1994, and on April 17, 1995, and
also setting October 16, 1995, as the payment date for such interest payments on
the Securities which the Company failed to make on October 17, 1994, and on
April 17, 1995, and (2) the enclosed Notice of Rescission of Acceleration.
Please note that, as set forth in the Company Notice, the Company's payment of
the missed October 17, 1994 interest payment (together with interest thereon
from and
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<PAGE> 2
including October 15, 1994, and to but not including October 16, 1995) and of
the missed April 17, 1995 interest payment (together with interest thereon from
and including April 15, 1995, and to but not including October 16, 1995) is
expressly conditioned, subject to waiver by the Company of such condition, upon
the effective rescission of the acceleration of the Securities by Holders of a
majority in principal amount of the currently outstanding Securities executing
and returning to the Trustee the enclosed Notice of Rescission of Acceleration
on or before 5:00 p.m., Los Angeles, California time on or before October __,
1995. The Company has expressly reserved its right to postpone the record and
payment dates for interest if required by law.
If a Holder wants the principal of and accrued interest on all the
Securities to remain immediately due and payable, a Holder does not need to do
anything. If a Holder wants to rescind the acceleration of the principal of and
interest on the Securities, a Holder must execute the enclosed Notice of
Rescission of Acceleration and return that executed Notice of Rescission of
Acceleration to the Trustee at the address for the Trustee set forth in the
following paragraph. An executed Notice of Rescission of Acceleration must be
received by the Trustee by no later than 5:00 p.m., Los Angeles, California
time, on October __, 1995, or a subsequent date established by the Company in
connection with the postponement of the payment date.
The Company has informed the Trustee that the Company [has mailed or will
be mailing on September __, 1995,] to the Holders an offer by the Company to
exchange for the currently outstanding Securities with cash and common stock of
the Company. The Company has further informed the Trustee that such offer by
the Company is being made pursuant to the March 3, 1995, agreement between the
Company and an ad hoc committee of Holders.
The Trustee will continue with its duties under the Indenture and will
monitor developments in this matter and intends to communicate with the Holders
of the Securities as it deems appropriate as it learns of developments
concerning this matter. Any directions or inquiries regarding this matter
should be directed to Ms. Sandy Chan, Trust Officer, Bank of America National
Trust and Savings Association, Corporate Trust Administration, Department #8510,
333 South Beaudry Avenue, 25th Floor, Los Angeles, California 90017, telephone:
(213) 345-4652.
NOTE: IF YOU ARE A NOMINEE OR A DEPOSITORY AND NOT A BENEFICIAL HOLDER, PLEASE
FORWARD COPIES OF THIS NOTICE IMMEDIATELY TO YOUR CLIENTS WHO ARE
BENEFICIAL HOLDERS OF THE SECURITIES.
Dated: September __, 1995
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Trustee
<PAGE> 1
EXHIBIT (a)(v)
[COMPREHENSIVE CARE LETTERHEAD]
To: Holders of Comprehensive Care Corporation 7 1/2% Convertible
Subordinated Debentures Due April 15, 2010 (the "Securities")
NOTICE IS HEREBY given, pursuant to Section 2.12 of that certain Indenture
dated as of April 25, 1985 (the "Indenture"), between Comprehensive Care
Corporation (the "Company") and Bank of America National Trust and Savings
Association (the "Trustee"), that the Company intends to pay on a business day
during the period from October 9, 1995 through October 16, 1995 (the "Payment
Date"), the aggregate amount of three interest payments, and default interest
on each missed payment, calculated as follows: (1) the interest payment on the
Securities in the aggregate amount of $____________________ ($__________ per
each $1,000 of principal amount of a Security) which was due and payable by the
Company on October 17, 1994, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including October 15, 1994,
and to but not including the Payment Date, as applicable) in the aggregate
amount of $____________________ ($__________ per each $1,000 of principal
amount of a Security) if such payment is made on October 16, 1995, plus
$____________________ ($__________ per each $1,000 of principal amount of a
Security) for each day (based on a 30-day month)after October 15, 1995 that
such payment is made; and (2) the interest payment on the Securities in the
aggregate amount of $____________________ ($__________ per each $1,000 of
principal amount of a Security) which was due and payable by the Company on
April 17, 1995, together with interest on such missed interest payment (at the
rate of 7 1/2% per annum from and including April 15, 1995, and to but not
including the Payment Date, as applicable) in the aggregate amount of
$____________________ ($__________ per each $1,000 of principal amount of a
Security) if such payment is made on October 9, 1995, $____________________
($__________ per each $1,000 of principal amount of a Security) if such payment
is made on October 10, 1995, $____________________ ($__________ per each $1,000
of principal amount of a Security) if such payment is made on October 11, 1995,
$____________________ ($__________ per each $1,000 of principal amount of a
Security) if such payment is made on October 12, 1995 (insert for October 13
and October 16). Such payment by the Company will be made to Holders in whose
name a Security is registered as of October __, 1995. Such payment by the
Company is conditioned upon the effective rescission of the acceleration of the
Securities by Holders of a majority in principal amount of the outstanding
Securities executing and delivering to the Trustee the enclosed Notice of
Rescission of Acceleration by no later than 5:00 p.m., Los Angeles, California
time, on October __, 1995. The enclosed Offering Circular contains significant
information relating to the Debentures and the Notice of Rescission of
Acceleration, which you should review and become familiar with.
Dated: September __, 1995
COMPREHENSIVE CARE CORPORATION, a Delaware
corporation
By:
----------------------------------------------
Its:
-----------------------------------------
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<PAGE> 1
EXHIBIT (a)(vi)
[COMP-CARE LOGO]
September __, 1995
Dear Holder of Comprehensive Care Corporation 7 1/2% Convertible Subordinated
Debentures Due April 15, 2010 (the "Securities"):
The Board of Directors of Comprehensive Care Corporation solicits
holders of its 7 1/2% Convertible Subordinated Debentures Due April 15, 2010
(collectively called the "Securities") for the following purposes:
(1) To give notice to Bank of America National Trust and Savings
Association (the "Trustee") to rescind the acceleration of the Securities
("Proposal 1"), which consent would be binding upon those holders of the
Debentures who tender their Debentures in exchange pursuant to the Company's
Exchange Offer, as described below; and
(2) To waive all of the Events of Default under the Debentures and to
instruct the Trustee to forebear from effective any remedy for the Events of
Default to permit completion of an Exchange Offer.
Proposal 1 and Proposal 2, and the possible advantages and
disadvantages, are described in the enclosed Proxy Statement. Proposal 1 and
Proposal 2 are recommended by your Board of Directors. A card (the "Consent")
is enclosed for the purpose of giving such a notice to the Trustee.
The rescission of the acceleration and its consequences will be
effective only if a majority of the Company's outstanding Securities give
notice of rescission to the Trustee, if the rescission would not conflict with
any judgment or decree, and if any existing Events of Default have been cured
or waived.
The Board of Directors recommends Proposal 1 and Proposal 2 because it
believes that Comp-Care's Securityholders would receive less by pursuing
immediate acceleration of the Securities as compared with rescission of the
acceleration. An acceleration can impair the Company's business and financial
prospects, due to acceleration of the Securities themselves and the indirect
effect of such acceleration, which would cause defaults under other debts and
obligations of the Company, thereby decreasing the Securities' attractiveness to
many investors. An acceleration of indebtedness also creates an unfavorable
impression with the Company's vendors and clients. These factors could be
expected to depress the realizable value of the Securities.
As a condition of the proposed rescission, the Company will pay the
entire amount of interest due on all non-tendered Debentures, and the Securities
will be reinstated; subject only to the Company's acceptance of properly
tendered Debentures in the Exchange Offer described in the Offering Circular
that has been, is being, or will be sent to all Debentureholders.
A reinstatement of the Securities should result in an immediate
improvement in the Company's business and financial condition, and thus an
improvement in its debt-carrying ability.
<PAGE> 1
EXHIBIT (c)(ii)
COMPREHENSIVE CARE CORPORATION
4350 Von Karman
Suite 280
Newport Beach, CA 92660
Tel: 714-798-0460
Fax: 714-752-0585
March 3, 1995
HAND DELIVERED
Mr. Jay H. Lustig
Individually and as representative of
the Participating Securityholders (defined below)
Re: Proposed Rescission of Acceleration of Securities
Dear Mr. Lustig:
Based on the various discussions that we have had among or between
Comprehensive Care Corporation (the "Company"), the Trustee of its 7-1/2%
Convertible Subordinated Debentures Due April 15, 2010 (the "Securities"), and
you as a representative of certain holders, and individually as a holder, of
certain Securities which we understand aggregate $4.653 million in original
principal amount (the "Participating Securityholders"), certain of whom were
Securityholders who gave notice of acceleration in February, 1995, and our
understanding of the type of transaction that is feasible for rescission of
acceleration and of interest to us, we outline the basis for this proposed
rescission relative to the proposed agreement to pay cash and issue shares to
Participating Securityholders, and permitted assigns (collectively, the
"Consideration"). In this regard, we propose the principal terms of an
agreement (the "Agreement") to be as set out in this letter as follows:
1. Voting of Securities; "Lock-Up." Upon the dismissal of the
involuntary Chapter 7 petition filed against the Company, the Participating
Securityholders will give notices of rescission of acceleration reasonably
acceptable and at times as determined by the Trustee and the Company, will vote
in favor of each related proposal to be made to all of the Securityholders of
the Company, including without limitation a proposed supplemental indenture if
necessary, and will tender their Securities for exchange for cash and shares as
described herein (the "Offer"). Furthermore the Participating Securityholders
will neither submit any notice or demand of acceleration, nor pursue any
remedies available under the Indenture nor join or participate in any
Securities Exchange Act of 1934 Rule 13(d) group or participate against the
Board or management in any proxy or other solicitation of any of the Securities
or Common Stock of the Company, and the Participating Securityholders agree
that they will give the Company any information they receive about anyone
trying to form such a group. Jay H. Lustig represents that he is authorized to
execute and deliver this Agreement on behalf of and to bind at least $2.5
million in original principal amount of the Securities and further represents
that he shall cause the holders of at least $2.5 million of the outstanding
principal amount of Securities to rescind acceleration and waive the interest
payment defaults, substantially as provided in the attached Notice of
Rescission of Acceleration on or before March 31, 1995, and use his best
efforts to cause holders of an additional amount of Securities necessary to
aggregately comprise more than 50% of the outstanding principal amount of
Securities to rescind such acceleration and waive such interest payment
defaults substantially as provided in such notice.
2. Rights Non-Assignable. Until the earlier of the expiration of
this Agreement or the completion of the exchange of Securities contemplated
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herein, nothing contained in this Agreement will permit any Participating
Securityholder to at any time sell or dispose of in any manner the rights or
obligations of the said Participating Securityholder under this Agreement.
However, the Participating Securityholders may transfer their Securities
provided that the recipient, and each subsequent transferee, is irrevocably
bound hereby and so agrees in writing. Until the earlier of the expiration of
this Agreement or the completion of the exchange of Securities contemplated
herein, each Participating Securityholder shall notify the Company of any
private or public sale, and agrees to placement of an appropriate legend on the
Securities bound hereby.
3. Standstill. Until the earlier of the expiration of this
Agreement or the completion of the exchange of Securities contemplated herein,
if any Participating Securityholders, directly or indirectly, acquires
beneficial or record ownership of any Securities or other equity securities of
the Company or interest, such Securities will become and remain subject to this
Agreement.
4. The Offer. The Offer shall incorporate the following features
and specifications upon first being given to Securityholders, subject to
requirements of law:
/ / The Offer shall be made pursuant to Section 3(a)(9) of the
Securities Act of 1933 for up to 100% of the Securities.
Shares issuable pursuant to the Offer are intended to be
freely tradeable under the Securities Act of 1933.
/ / The Board of the Company shall use best efforts to complete
this transaction within 120 days, but shall have a reasonable
period of additional time, ending not later than 180 days
after the date hereof, in order to consummate legal requisites
to the Offer.
/ / The Company shall not, during the term of this Agreement,
pledge or otherwise
dispose of, or issue or commit to issue any additional, capital stock, or any
interest therein, or securities convertible into shares of such stock, of
CareUnit, Inc., a Delaware corporation ("Care Unit"), 100% of whose outstanding
shares (the "Shares") are held beneficially and of record by the Company free
of any other liens or claims. 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. From day 150 through day 180 after the
date hereof, or the earlier consummation of the Offer, the tendered (or all
Participating Securityholders' Securities if the Offer has not been commenced
without fault of the Participating Securityholders) Securities of the
Participating Securityholders shall accrue and be paid upon purchase thereof
additional interest at the rate of 7-1/2% per annum on the original principal
amount). Upon consummation of the Offer, the said pledges shall be released.
The Company represents that Care Unit is the subsidiary generating operating
profits under the CareUnit name, and all of its other subsidiaries with similar
names are substantially inactive.
/ / The Participating Securityholders shall support the proposed
Offer and shall not speak or write publicly against the
proposed Offer. In addition, the Participating
Securityholders will not solicit or support any solicitation
of proxies or consents inconsistent with the purposes or
spirit of this Agreement.
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<PAGE> 3
/ / The Offer shall allow the Securityholders to participate
pro-rata to the amounts tendered, up to 100% of the amount of
Securities outstanding, provided that all tendering
Securityholders also give notice of rescission of acceleration
and consent to any proposals reasonably made by the Company
that are incidental to the Offer.
/ / The tendering Securityholders shall receive, net to the
Securityholder, for each $1,000.00 of original principal
amount tendered, $500.00 in cash, plus $120.00 in shares of
Common Stock of the Company (based on a fair value of the
Common Stock equalling the average round-lot traded price
reported on the NYSE Composite Tape for all trading days
during the 75 calendar days commencing with and as of March 6,
1995). Additionally, for each $1,000.00 of original principal
amount, tendering Securityholders will receive $80 in cash
(approximately 1 year's interest) representing the amount
agreed upon to represent all interest owing and accrued to the
payment date, in return for which they will waive all other
obligations including all default interest accrued from April
15, 1994 which was due as of October 17, 1994, and all
interest (or interest on interest) accruing from and after
October 15, 1994 through the date on which the Offer is
consummated.
/ / The Offer and the Company's completion of an exchange as
described herein are subject to all relevant conditions
provided in the Indenture relating to the Securities dated as
of April 25, 1985 between the Company and the Trustee, as
defined therein, and receipt of all reasonably necessary
governmental, and third-party, consents, filings, or approvals
necessary to consummate the Offer.
/ / The Company may condition the Offer upon a minimum of tendered
Securities of $2.5 million from the Participating
Securityholders.
5. Costs. The Company shall pay legal fees of Weil, Gotshal &
Manges incurred by the accelerating Participating Securityholders from January
1, 1995 to date in the amount of between $35,000 and $40,000. Otherwise, the
parties each will bear their own respective costs.
6. Release. Upon dismissal of the involuntary Chapter 7 case,
referred to further below, the Company shall release each Participating
Securityholder and its officers, employees, agents, representatives, attorneys,
and advisors from any and all claims and causes of action arising or occurring
prior to the date hereof, including without limitation any and all claims or
causes of action arising out of or related to the delivery of the notice of
acceleration of the Securities or the filing of an involuntary Chapter 7
petition against the Company, provided that the effectiveness of the release
shall be conditioned upon and subject only to the execution and delivery by
each respectively released Participating Securityholder of the notice of
rescission of acceleration described in paragraph 1 hereof and each
Participating Securityholder using its best efforts to achieve consummation of
the transactions contemplated herein.
7. News Release. Upon the execution by you and return to us of
this Agreement, the Company shall prepare the news release. Each news release
concerning this Agreement or the Offer shall be in form and substance and at
times reasonably determined by the Company after reasonable notice to you and
reasonable prior consultation with you, with your reasonable cooperation, as
representative of the Participating Securityholders.
8. Bankruptcy Petition. The Participating Securityholders that
are petitioning creditors in the involuntary Chapter 7 bankruptcy petition
filed against the Company shall support and cause their attorneys to execute
and indicate consent to the Order Dismissing Involuntary Petition (the "Order")
attached hereto. The Participating Securityholders that are petitioning
creditors shall support entry of the Order and dismissal of the involuntary
petition at the hearing scheduled for March 7, 1995. If such order is not
entered by the court prior to or on March 8, 1995, the Company thereafter shall
have the option to terminate this Agreement upon written notice and, prior to
such termination, to require additional reasonable cooperation of the
Participating Securityholders for the purpose contemplated in this paragraph.
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<PAGE> 4
9. Survival. If the Offer is consummated, the terms and
provisions of this Agreement shall survive the consummation of the Offer.
If the foregoing meets with your approval, so signify by signing and
returning the enclosed duplicate copy of this letter, whereupon this letter
shall constitute the final agreement between the parties in accordance with the
terms and provisions set forth above. This offer will expire if not accepted
on March 3, 1995. We shall look forward to receiving your prompt acceptance.
Very truly yours,
COMPREHENSIVE CARE CORPORATION
By: /s/ Chriss W. Street
----------------------------------
Chriss W. Street, Chairman of the
Board, Chief Executive Officer and
President
AGREED AND CONFIRMED:
By: /s/ Jay H. Lustig Dated: March 3, 1995
-----------------------------
Jay H. Lustig
APPROVED AS TO FORM:
WEIL, GOTSHAL & MANGES
By: /s/ Martin A. Sosland
-----------------------------
Martin A. Sosland
4
<PAGE> 1
EXHIBIT (c)(iii)
NOTICE OF RESCISSION OF ACCELERATION
___________, 1995
Bank of America National Trust and Savings Association
Corporate Trust Administration #8510
333 South Beaudry Avenue, 25th Floor
Los Angeles, California 90017
Re: Comprehensive Care Corporation 7- 1/2%
Convertible Subordinated Debentures Due
April 15, 2010 (the "Securities")
Dear Ladies and Gentlemen:
This Notice of Rescission of Acceleration is delivered pursuant to
Section 6.02 of that certain Indenture dated as of April 25, 1985 (the
"Indenture") between Comprehensive Care Corporation, a Delaware corporation
(the "Company"), and Bank of America National Trust and Savings Association
(the "Trustee") governing the Securities. Capitalized terms not otherwise
defined herein are used as defined in the Indenture. The undersigned Holder
hereby elects to rescind both the acceleration of the Securities which occurred
pursuant to the written notices of Holders delivered to the Trustee and the
Company and also the consequences of such acceleration, such rescission to be
effective immediately upon (1) the cure or waiver of the Event of Default
referenced in the Trustee's notice dated November 22, 1994 to the Holders, and
(2) the Trustee's receipt of Notices of Rescission of Acceleration from Holders
of a majority in principal amount of the outstanding Securities.
The undersigned Holder further waives the said Event of Default and
agrees that the interest payment that was due on October 17, 1994 (and interest
on such interest) and the interest payment that will become due on April 15,
1995 (and interest on such interest) shall carry forward and be payable on or
about October 15, 1995 in addition to the regularly scheduled payment, unless
otherwise agreed by the undersigned Holder and the Company.
The Notice of Rescission of Acceleration shall remain in effect unless
the Trustee is notified in writing prior to effectiveness of such rescission
that the undersigned Holder has rescinded this Notice of Rescission of
Acceleration.
1
