UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended November 30, 1994
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from _____________ to
______________
Commission File Number 0-5751
COMPREHENSIVE CARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2594724
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organi-
zation)
4350 Von Karman Avenue, Suite 280, Newport Beach, California
92660
(Address of principal executive offices and zip code)
16305 Swingley Ridge Dr., Chesterfield, Missouri 63017
(Former address of the principal executive offices and zip
code)
(714) 798-0460
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.Yes [X] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date:
Classes Outstanding at January 20, 1995
Common Stock, par value $.01 per share
2,129,419<PAGE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Index
Part I - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
November 30, 1994 and May 31, 1994 3
Condensed consolidated statements of operations for
the three and six months ended November 30, 1994 and 19934
Condensed consolidated statements of cash flows for
the six months ended November 30, 1994 and 19935
Notes to condensed consolidated financial statements6
Item 2. - Management's discussion and analysis of financial
condition and results of operations 9
Part II - Other Information 14
Item 1. - Legal Proceedings 14
Item 3. - Defaults Upon Senior Securities 15
Item 4. - Submission of Matters to a Vote of Security
Holders 15
Item 5. - Other Events 15
Item 6. - Exhibits and Reports on Form 8-K15
Signatures 17
<PAGE>
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
<CAPTION>
November 30, May 31,
1994 1994
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 388 $ 1,781
Accounts and notes receivable, less allowance for
doubtful accounts of $4,773 and $5,729. . 6,291 5,848
Property and equipment held for sale. . . . . . . 6,753 6,939
Other current assets. . . . . . . . . . . . . . . 388 508
------- -------
Total current assets . . . . . . . . . . . . . . . 13,820 15,076
------- -------
Property and equipment, at cost. . . . . . . . . . 24,236 29,326
Less accumulated depreciation and amortization . . (11,328) (13,338)
------- -------
Net property and equipment . . . . . . . . . . . . 12,908 15,988
------- -------
Other assets . . . . . 2,057 2,162
------- -------
Total assets . . . . . $28,785 $33,226
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities. . . . . $14,313 $13,776
Current maturities of long-term debt. . . . . . . 265 154
Income taxes payable. . . . . . . . . . . . . . . 794 734
------- -------
Total current liabilities. . . . . . . . . . . . . 15,372 14,664
------- --------
Long-term debt, excluding current maturities . . . 10,418 10,477
Other liabilities . . . . 2,867 2,986
Commitments and contingencies (see Note 5)
Stockholders' equity:
Preferred stock, $50.00 par value; authorized 60,000 shares . . . . --- ---
Common stock, $.01 par value; authorized 12,500,000 shares,
issued 2,096,651 shares and 2,198,692 . . 22 22
Additional paid-in capital. . . . . . . . . . . . 40,060 40,060
Accumulated deficit . . . . . . . . . . . . . . . (39,954) (34,983)
------- -------
Total stockholders' equity. . . . . . . . 128 5,099
------- -------
Total liabilities and stockholders' equity . . . . $28,785 $33,226
====== ======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.<PAGE>
<PAGE>
<TABLE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues and gains:
Operating revenues . . . . . . . . . . $7,351 $8,229$15,408 $16,942
Interest income. . . . . . . . . . . . 5 5 11 10
------ ------- ------- -------
7,356 8,234 15,419 16,952
------ ------- ------ -------
Costs and expenses:
Operating expenses . . . . . . . . . . .7,721 7,723 15,710 15,332
General and administrative expenses. . . 877 866 1,944 1,718
Provision for doubtful accounts. . . . . 433 63 1,183 774
Depreciation and amortization. . . . . . 450 383 911 886
Interest expense . . . . . . . . . . . . 274 300 525 639
----- ------ ------- -------
9,755 9,335 20,273 19,349
------ ------ ----- -------
Loss before income taxes . . . . . . . . . (2,399)(1,101) (4,854) (2,397)
Provision for income taxes . . . . . . . . 72 62 117 107
------ ------ ----- ------
Net loss $(2,471) $(1,163) $(4,971) $(2,504)
====== ====== ====== ======
Loss per share:
Net loss . . . . . . . . . . . . . . . . $(1.18)$(0.53) $(2.28) $(1.14)
====== ===== ====== =====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.<PAGE>
<PAGE>
<TABLE>
COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<CAPTION>
Six Months Ended
November 30,November 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . $(4,971) $(2,504)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . 911 886
Provision for doubtful accounts . . . . . . . . . 1,183 774
Loss on sale/write-down of assets . . . . . . . . 6 38
Carrying costs incurred on property and equipment held for sale . . (234)(816)
Decrease(increase) in accounts and notes receivable . . . 822 (161)
Decrease in other current assets and other assets 85 373
Increase(decrease) in accounts payable and accrued liabilities. . . 740(1,888)
Increase(decrease) in income taxes payable. . . . 60 (16)
Decrease in other liabilities . . . . . . . . . . (119) (478)
------- -------
Net cash used in operating activities . . . . . . (1,517) (3,792)
------- -------
Cash flows from investing activities:
Net proceeds from sale of property and equipment (operating and
held for sale) . . . . 307 6,157
Additions to property and equipment . . . . . . . (85) (171)
------ -------
Net cash provided by investing activities . . . 222 5,986
------ -------
Cash flows from financing activities:
Repayment of debt . . . . . . . . . . . . . . . . 98 2,056
------ -------
Net cash used in financing activities:. . . . . 98 2,056
------ -------
Net increase(decrease) in cash and cash equivalents. . . . (1,393) 138
Cash and cash equivalents at beginning of period . 1,781 1,126
------- -------
Cash and cash equivalents at end of period . . . . $ 388 $1,264
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<PAGE>
COMPREHENSIVE CARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The condensed consolidated balance sheet as of November 30,
1994, and the related condensed consolidated statements of
operations for the three and six month periods ended November
30, 1994 and 1993, and the statements of cash flows for the six
months ended November 30, 1994 and 1993 are unaudited. In the
opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included.
Such adjustments consisted only of normal recurring items. The
results of operations for the three months ended November 30,
1994, are not necessarily indicative of the results to be
expected during the balance of the fiscal year.
The condensed consolidated financial statements do not
include all information and footnotes necessary for a complete
presentation of financial position, results of operations and
cash flows in conformity with generally accepted accounting
principles. Notes to consolidated financial statements
included in Form 10-K for the year ended May 31, 1994, on file
with the Securities and Exchange Commission, provide additional
disclosures and a further description of accounting policies.
The Company's financial statements are presented on the
basis that it is a going concern. The Company incurred
significant losses from operations in fiscal 1994 and continues
to report losses for fiscal 1995. The continuation of the
Company's business is dependent upon the resolution of
operating and short-term liquidity problems. The consolidated
financial statements do not include any adjustments that might
result from an unfavorable outcome of this uncertainty.
The weighted average number of shares
outstanding used to compute loss per share were 2,097,000 and
2,198,000 for the three months ended November 30, 1994 and
1993, respectively; and 2,176,000 and 2,198,000 for the six
months ended November 30, 1993, respectively. The Condensed
Consolidated Financial Statements for the current period and
prior year have been adjusted to give effect for the 1-for-10
reverse stock split which occurred October 21, 1994.
Note 2 - Operating Losses and Liquidity
The Company's current assets at November 30, 1994 amounted
to approximately $13.8 million and current liabilities were
approximately $15.4 million, resulting in working capital
deficit of approximately $1.6 million and a current ratio of
1.0:.9. Included in current assets are four hospital
facilities designated as property and equipment held for sale
with a total carrying value of $9.0 million. The Company sold
one hospital facility in the second quarter of fiscal 1995 and
entered into agreements to sell an additional facility in the
third quarter and another in the fourth quarter. In addition,
in January 1995, the Company closed one of its operating
facilities due to poor performance. Accordingly, this property
was classified as property held for sale as of November 30,
1994. The Company's primary use of working capital is to fund
operations while it seeks to restore profitability to certain
of its freestanding facilities and expand its behavioral
medicine managed care business.
As part of the Company's "global restructuring", the
Company (i) implemented a 1-for-10 reverse stock split which
occurred on October 21, 1994; (ii) was successful in obtaining
the IRS District Counsel's acceptance of the proposed
settlement of the Company's payroll tax audit (see Note 5 to
the Company's Condensed Consolidated Financial Statements
included herein); and (iii) on January 5, 1995, the Company
entered into a Secured Convertible Note Purchase Agreement in
the amount of $2.0 million (see Note 6 to the Company's
Condensed Consolidated Financial Statements included herein).
However, the Company did not make its payment of interest on
its 7 1/2% Convertible Subordinated Debentures (the
"Debentures") when such payment was scheduled on October 17,
1994. Under the terms of the Indenture, an event of default
occurs if the Company defaults in the payment of interest on
the Debentures when due and payable and the default continues
for a period of more than 30 days. If an event of default
occurs and is continuing, the Trustee (by notice to the
Company), or the Holders of at least 25% in principle amount of
the $9.6 million outstanding Debentures may declare the
principle and accrued interest on all the Debentures to be due
and payable. On November 21, 1994, the Company recognized an
ad hoc committee of bondholders who purported to represent
approximately 20% of the outstanding Debentures. The company
has paid for the bondholders to retain Morris Weiss of the
Miami office of the law firm of Weil Gotshal & Manges to
represent their interests and assist with the restructuring of
the Debentures. To date, the Company has not received a notice
of default from the Trustee or bondholders.
Should the bondholders declare the principle and accrued
interest of the Debentures to be due and payable, the Company
does not have sufficient cash reserves readily available to
meet such obligations and commitments. In addition, should the
Company be unsuccessful in the restructuring of the Debentures,
the Company may be unable to meet the terms and conditions of
the settlement agreement with the IRS (see Note 5 to the
Company's Condensed Consolidated Financial Statements included
herein).
Note 3 - Property and Equipment Held for Sale
The Company recorded no additional asset write-downs during
the second quarter of fiscal 1995 and fiscal 1994 in connection
with the recognition of losses and revaluation of facilities
closed, sold or designated for disposition. Future operating
losses and carrying costs of such facilities will be charged
directly to the carrying value of the respective property and
equipment held for sale. Because chemical dependency treatment
facilities are special purpose structures, their resale value
is negatively affected by the oversupply of beds resulting from
the diminished demand for inpatient treatment being experienced
throughout the industry. In January 1995, the Company closed
one of its operating facilities due to poor performance. The
Company will continue to evaluate the performance of all of its
operating facilities in their respective markets, and, if
circumstances warrant, modify the number of facilities
designated for disposition.
Property and equipment held for sale, which are expected to
be sold in the next fiscal year, are shown as current assets on
the consolidated balance sheets. Gains and losses on
facilities sold are recorded as an adjustment to the remaining
property values until all facilities are sold.
A summary of the transactions affecting the carrying value
of property and equipment held for sale for the six months
ended November 30, 1994, is as follows (in thousands):
<TABLE>
<S> <C>
Balance as of May 31, 1994 . . . . . . . . . . $6,939
Designation of facility as property and equipment
held for sale . . . . . . . . . . . . . . . 2,385
Proceeds from the sale of assets(1). . . . . . (2,735)
Carrying costs incurred during phase-out period. . . . . 234
Other. . (70)
Balance as of November 30, 1994. . . . . . . . $6,753
</TABLE>
(1) Includes proceeds held in escrow (see Note 6 to the Company's
Condensed Consolidated Financial Statements included herein).
<PAGE>
<PAGE>
Note 4 - Income Taxes
Effective June 1, 1993, the Company adopted Financial
Accounting Standards Board ("FASB") Statement No. 109,
"Accounting for Income Taxes" on a prospective basis. Prior to
this date, the Company accounted for income taxes under APB 11.
Statement No. 109 changed the Company's method of accounting
for income taxes from the deferred method required under APB 11
to the asset and liability method. The change to Statement No.
109 had no cumulative effect on the financial statements of the
Company as a result of recording a valuation allowance.
Note 5 - Commitments and Contingencies
On October 30, 1992, the Company filed a complaint in the
United States District Court for the Eastern District of
Missouri against RehabCare Corporation ("RehabCare") seeking
damages for violations by RehabCare of the securities laws of
the United States, for common law fraud and for breach of
contract (Case No. 4-92CV002194-SNL). The Company seeks relief
of damages in the lost benefit of certain stockholder
appreciation rights in an amount in excess of $3.6 million and
punitive damages. On May 18, 1993, the District Court denied a
motion for summary judgement filed by RehabCare. On June 16,
1993, RehabCare filed a counterclaim seeking a declaratory
judgement with respect to the rights of both parties under the
stock redemption agreement, an injunction enjoining the Company
from taking action under stock redemption or restated
shareholders agreements and damages. The Company has filed a
motion with the court to strike RehabCare's request for damages
for attorney's fees and costs on the grounds that such relief
is not permitted by law nor authorized by the agreements
between the parties. This case is set for a jury trial
beginning February 13, 1995. Management believes that the
Company's allegations have merit and intends to vigorously
pursue this suit. Management further believes that should
RehabCare prevail at trial on its request for such attorneys
fees and costs, such fees and costs would not materially affect
the financial statements of the Company.
In connection with the proposed sale of hospitals to CMP
Properties, Inc., the Company advanced $1.1 million to a former
consultant which was to be returned in the event the
transaction was terminated. These advances were to be secured
by the common stock of an unrelated company. The shares of
common stock pledged were purported to be in the possession of
the Company's former legal firm as collateral for the advances,
but were not provided to the Company when the transaction was
terminated. The Company filed a complaint in the United States
District Court for the District of Oregon against the former
consultant and legal firm to recover the advances (Case No. 94-
384 HA). The former consultant has counterclaimed against the
Company for $1,688,000 for lost profits, breach of contract and
unjust enrichment. Management believes that the counterclaims
are meritless and intends to vigorously defend against them.
In July 1993, the Company terminated the employment
agreement with the former owner of Mental Health Programs
("MHP") and subsequently entered into litigation. On November
21, 1994, the Company reached an agreement with the former
owner and will pay the former owner $250,000 in installments
through September 30, 1996; forgive the obligations owing under
the indemnification agreement between the Company and the
former owner; and satisfy the terms under the stock purchase
agreement dated December 30, 1992 between the former owner and
the Company to issue 16,000 shares of the Company's common
stock. The Company has established a reserve with respect to
this settlement.
The Company reached a settlement with the Appeals Office of
the Internal Revenue Service ("IRS") on the payroll tax audit
for the calendar years 1983 through 1991 pursuant to which the
Company will pay the IRS $5 million, which will include
penalties and interest. The IRS agent conducting the audit
asserted that certain physicians and psychologists and other
staff engaged as independent contractors by the Company should
have been treated as employees for payroll tax purposes. The
settlement was reviewed and accepted by the IRS district
counsel. Payment terms have been accepted at 50% within 90
days of finalization with the remainder financed over the next
three years. A reserve has been established with respect to
this matter to cover expenses the Company expects to incur. In
May 1991, the Company and RehabCare entered into a Tax Sharing
Agreement providing for the Company to indemnify RehabCare for
any claims of income or payroll taxes due for all periods
through February 28, 1991. RehabCare has settled a proposed
assessment for a payroll tax audit of calendar years 1987 and
1988 for $326,114. The Company has established a reserve with
respect to this settlement.
The federal income tax returns of the Company for its fiscal
years ended 1984 and 1987 through 1991 were examined by the
IRS. The Company provided the IRS with satisfactory
documentary support for the majority of items questioned and
those items were deleted from the proposed assessment and
accepted as originally filed. The remaining items were agreed
to and resulted in a disallowance of approximately $229,000 in
deductions which were offset against the Company's net
operating losses available for carryover. The examination also
included the review of the Company's claim for refund of
approximately $205,000 relating to an amended return for the
fiscal year ended May 31, 1992. During completion of the
audit, the IRS noted that the Company had received excess
refunds representing its alternative minimum tax ("AMT")
liability of approximately $666,000 in 1990 and 1991 from the
carryback of net operating losses to the fiscal years ended May
31, 1988 and 1989, respectively. On March 29, 1994, the
Company agreed to the assessment of $666,000 plus interest and
received the final bill of $821,000 during the fourth quarter
of fiscal 1994. The Company has accrued for this liability,
net of refunds, in income taxes payable.
From time to time, the Company and its subsidiaries are also
parties and their property is subject to ordinary routine
litigation incidental to their business. In some pending
cases, claims exceed insurance policy limits and the Company or
a subsidiary may have exposure to liability that is not covered
by insurance. Management believes that the outcome of such
lawsuits will not have a material adverse impact on the
Company's financial statements.
Note 6 - Subsequent Events
On January 5, 1995, the Company entered into an agreement to
sell, for cash, a $2,000,000 original principal amount Secured
Convertible Note due January 9, 1997 to Lindner Bulwark Funds,
a division of Lindner Investment, a Massachusetts business
trust. The Note will be secured by first priority liens on two
of the Company's hospital properties. The Note will bear
interest at the rate of 12 1/2% per annum, payable quarterly,
and in the event of a default, a charge of 2 1/2% per annum
until the default is cured. Prior to maturity, the Note will
be redeemable, in whole or in part, at the option of the
Company at a redemption price initially of 120% of the amount
of principal redeemed, declining after January 9, 1996 to 110%
of principal. Until paid, the principal amount of the Note is
convertible into the Company's Common Stock, par value $0.01,
at the rate of $6.00 per share, (which was the reported closing
price of the Common Stock on the New York Stock Exchange
composite tape on the date of signing.) The maximum number of
shares issuable upon conversion of the Note would initially be
approximately 333,333, subject to adjustments for dilution and
recapitalization, which is under 17% of the undiluted number of
shares of Common Stock outstanding. The proceeds will be used
to pay costs of closing unprofitable operations, working
capital and other general corporate purposes.
On January 13, 1994, the Company closed its operating
facility in Ft. Worth, Texas. This facility was closed due to
its poor operating performance and limited prospects for
generating an acceptable return on investment as an operating
facility. Accordingly, this facility was classified to
property and equipment held for sale as of November 30, 1995.
The Company sold its operating facility in Lake Mary,
Florida. The transaction closed in escrow on November 22, 1994
subject to the satisfaction of several items including the
recording of a corrective deed and the buyer obtaining
Conditional Use Approval from the City of Lake Mary. The City
Commission approved the request for Conditional Use on January
5, 1995 and the funds were released from escrow to the Company
on January 17, 1995.
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Three Months Ended November 30, 1994 Compared to Three Months
Ended August 31, 1994
The Company reported a loss of approximately $2.5 million or
$1.18 per share for the quarter ended November 30, 1994, which
was comparable to the loss of approximately $2.5 million or $1.14
per share reported for the quarter ended August 31, 1994. The
loss for the second quarter of fiscal 1995 included an increase
in operating expenses due to managed care operations.
Freestanding Operations
Operating revenues for the second quarter of fiscal 1995
decreased $0.5 million from the first quarter of fiscal 1995 due
to a 7% decline in admissions and a 14% decline in net revenue
per patient day. The decline in admissions and net revenue per
patient day resulted in a decrease in net operating revenues for
the second quarter of fiscal 1995 of $0.9 million. Although
operating expenses at the Company's freestanding facilities
decreased $0.3 million and the provision for doubtful accounts
decreased by $0.1 million, it was not sufficient to offset the
decline in operating revenues. The Company believes that the
increasing role of HMO's, reduced benefits from employers and
indemnity companies, and a shifting to outpatient programs
continue to impact and affect this decline in utilization.
The Company is implementing cost reduction measures, including
the closure of selected facilities. In January 1995, the Company
closed one of its operating facilities due to poor performance.
The Company owns or manages five facilities which are currently
operating and four facilities which are closed and currently for
sale. The Company will continue to evaluate the performance of
these facilities in their respective markets, and, if
circumstances warrant, may increase the number of facilities
designated for disposition.
Behavioral Medicine Contracts
During the second quarter of fiscal 1995, patient days of
service at CareUnit contracts declined by approximately 6% from
8,580 patient days to 8,027 patient days. Units which were
operational for both the first and second quarters of fiscal 1995
experienced a 4% decline in utilization to 7,969 patient days.
Although average net revenue per patient day at these units
increased by 1% from the previous quarter, there was a decline in
overall net inpatient operating revenues of 3% to $0.8 million.
Net outpatient revenues for programs operational for both
quarters at these units increased 7% from approximately $389,000
in the first quarter of 1995 to approximately $418,000 in the
second quarter of fiscal 1995.
Operating expenses for units operational for both quarters
increased 5%, which more than offset the slight increase in
total operating revenues resulting in operating income at the
unit level decreasing by 12% from the first quarter of fiscal
1995. The increase in operating expenses is due primarily to the
write-off of startup costs related to a unit which was closed
during the second quarter of fiscal 1995 and business development
and marketing expenses incurred in the response for proposals
related to the contracts managed for the State of Idaho.
Managed Care Operations
During the first and second quarters of fiscal 1995, the
number of covered lives at AccessCare increased by 10%. This
increase is primarily attributable to new contracts added during
fiscal 1995. In the second quarter of fiscal 1995, operating
revenues increased 8% from the first quarter of fiscal 1995. [In
addition, AccessCare has executed contracts during the second
quarter of fiscal 1995 which will commence operation during the
third quarter which are expected to substantially increase
revenues.] Operating expenses also increased 8% during the
second quarter of fiscal 1995. Results of the second quarter of
fiscal 1995 include a one-time legal settlement (see Note 5 to
the Company's Condensed Consolidated Financial Statements
included herein) of $0.2 million. The increase in operating
revenues during the second quarter of fiscal 1995 combined with
the increase in operating expenses resulted in a slight increase
in AccessCare's net operating loss of 6% from the first quarter
of fiscal 1995. Excluding the one-time legal expense, operating
expenses in the second quarter of fiscal 1995 decreased 6% from
the first quarter of fiscal 1995.
Three Months Ended November 30, 1994 Compared to Three Months
Ended November 30, 1993
The Company reported a pretax loss of
approximately $2.4 million for the second quarter of fiscal 1995,
an increase of approximately $1.3 million from the pretax loss of
approximately $1.1 million reported for the second quarter of
fiscal 1994.
Operating revenues for the second quarter of fiscal 1995
declined by approximately $0.9 million from the second quarter of
fiscal 1994. This decrease is primarily due to a decline in
operating revenues in the behavioral medicine contracts and
freestanding operations which more than offset the increase in
operating revenues for managed care operations experienced in the
second quarter of fiscal 1995.
Overall operating expenses remained comparable during the
second quarter of fiscal 1995 from the second quarter of fiscal
1994. A decline in operating expenses in the behavioral medicine
contracts was offset by an increase in operating expenses related
to managed care operations expansion and development. Results of
the second quarter of fiscal 1995 also include a one-time legal
settlement (see Note 5 to the Company's Condensed Consolidated
Financial Statements included herein) of $0.2 million.
The provision for doubtful accounts increased $0.4 million in
the second quarter of fiscal 1995 compared to the second quarter
of fiscal 1994. This increase is predominately attributable to
a revaluation of the provision made during the second quarter of
1994.
Six Months Ended November 30, 1994 Compared to Six Months Ended
November 30, 1993
The Company reported a pretax loss of
approximately $4.9 million for the first six months of fiscal
1995, an increase of approximately $2.5 million from the pretax
loss of approximately $2.4 million reported for the first six
months of fiscal 1994.
Operating revenues for the first six months of
fiscal 1995 declined by approximately $1.5 million from the first
six months of fiscal 1994. This decrease is primarily a result
of a decline in operating revenues in the behavioral medicine
contracts and freestanding operations which offset the increase
in operating revenues generated by managed care operations.
Operating expenses increased by approximately $0.4 million
from the first six months of fiscal 1994 to the first six months
of fiscal 1995. The increase in operating expenses is primarily
attributable to the freestanding operations and managed care
operations expansion and development. Results for fiscal 1995
include a one-time legal settlement related to managed care
operations (see Note 5 to the Company's Condensed Consolidated
Financial Statements included herein) of $0.2 million. In
addition, general and administrative expenses increased by
approximately $0.2 million from the first six months of fiscal
1994. The first six months of fiscal 1994 includes a credit of
approximately $345,000 as a result of the revaluation of a
provision for general and administrative expenses. Excluding the
revaluation, general and administrative expenses decreased $0.1
million during the first six months of fiscal 1995 compared to
the same six month period of fiscal 1994.
Interest expense decreased by approximately $0.1 million from
the first six months of fiscal 1994 as a result of the repayment
of debt with the proceeds from the sale of assets and the
reduction of the interest expense attributable to the Financial
Security Plan, the Company's former deferred compensation plan.
Liquidity and Capital Resources
Included in current assets are four hospital facilities
designated as property and equipment held for sale with a total
carrying value of $9.0 million. The Company sold one hospital
facility in the second quarter of fiscal 1995 and entered into
agreements to sell an additional facility in the third quarter
and another in the fourth quarter. In January 1995, the Company
closed one of its operating facilities due to poor performance.
Accordingly, this property was classified as property held for
sale as of November 30, 1994. The Company's primary use of
working capital is to fund operations while it seeks to expand
its behavioral medicine and managed care business.
As part of the Company's "global restructuring", the Company
(i) implemented a 1-for-10 reverse stock split which occurred on
October 21, 1994; (ii) was successful in obtaining the IRS
District Counsel's acceptance of the proposed settlement of the
Company's payroll tax audit (see Note 5 to the Company's
Condensed Consolidated Financial Statements included herein); and
(iii) on January 5, 1995, the Company entered into a Secured
Convertible Note Purchase Agreement in the amount of $2.0 million
(see Note 6 to the Company's Condensed Consolidated Financial
Statements included herein). However, the Company did not make
its payment of interest on its 7 1/2% Convertible Subordinated
Debentures (the "Debentures") when such payment was scheduled on
October 17, 1994. Under the terms of the Indenture, an event of
default occurs if the Company defaults in the payment of interest
on the Debentures when due and payable and the default continues
for a period of more than 30 days. If an event of default occurs
and is continuing, the Trustee (by notice to the Company), or the
Holders of at least 25% in principle amount of the $9.6 million
outstanding Debentures may declare the principle and accrued
interest on all the Debentures to be due and payable. On
November 21, 1994, the Company recognized an ad hoc committee of
bondholders who purported to represent approximately 20% of the
outstanding Debentures. The company has paid for the bondholders
to retain Morris Weiss of the Miami office of the law firm of
Weil Gotshal & Manges to represent their interests and assist
with the restructuring of the Debentures. To date, the Company
has not received a notice of default from the Trustee or
bondholders.
<PAGE>
Should the bondholders declare the principle and accrued
interest of the Debentures to be due and payable, the Company
does not have sufficient cash reserves readily available to meet
such obligations and commitments. In addition, should the Company
be unsuccessful in the restructuring of the Debentures, the
Company may be unable to meet the terms and conditions of the
settlement agreement with the IRS (see Note 5 to the Company's
Condensed Consolidated Financial Statements included herein).
<PAGE>
<PAGE>
PART II. - OTHER INFORMATION
Item 1. - Legal Proceedings
On October 30, 1992, the Company filed a complaint in the
United States District Court for the Eastern District of Missouri
against RehabCare Corporation ("RehabCare") seeking damages for
violations by RehabCare of the securities laws of the United
States, for common law fraud and for breach of contract (Case No.
4-92CV002194-SNL). The Company seeks relief of damages in the
lost benefit of certain stockholder appreciation rights in an
amount in excess of $3.6 million and punitive damages. On May
18, 1993, the District Court denied a motion for summary
judgement filed by RehabCare. On June 16, 1993, RehabCare filed
a counterclaim seeking a declaratory judgement with respect to
the rights of both parties under the stock redemption agreement,
an injunction enjoining the Company from taking action under
stock redemption or restated shareholders agreements and damages.
The Company has filed a motion with the court to strike
RehabCare's request for damages for attorney's fees and costs on
the grounds that such relief is not permitted by law nor
authorized by the agreements between the parties. This case is
set for a jury trial beginning [February 13, 1995]. Management
believes that the Company's allegations have merit and intends to
vigorously pursue this suit. Management further believes that
should RehabCare prevail at trial on its request for such
attorneys fees and costs, such fees and costs would not
materially affect the financial statements of the Company.
In connection with the proposed sale of hospitals to CMP
Properties, Inc., the Company advanced $1.1 million to a former
consultant which was to be returned in the event the transaction
was terminated. These advances were to be secured by the common
stock of an unrelated company. The shares of common stock
pledged were purported to be in the possession of the Company's
former legal firm as collateral for the advances, but were not
provided to the Company when the transaction was terminated. The
Company filed a complaint in the United States District Court for
the District of Oregon against the former consultant and legal
firm to recover the advances (Case No. 94-384 HA). The former
consultant has counterclaimed against the Company for $1,688,000
for lost profits, breach of contract and unjust enrichment.
Management believes that the counterclaims are meritless and
intends to vigorously defend against them.
In July 1993, the Company terminated the employment agreement
with the former owner of Mental Health Programs ("MHP") and
subsequently entered into litigation. On November 21, 1994, the
Company reached an agreement with the former owner and will pay
the former owner $250,000 in installments through September 30,
1996; forgive the obligations owing under the indemnification
agreement between the Company and the former owner; and satisfy
the terms under the stock purchase agreement dated December 30,
1992 between the former owner and the Company to issue 16,000
shares of the Company's common stock. The Company has
established a reserve with respect to this settlement.
Other Litigation
The Company reached a settlement with the Appeals Office of
the Internal Revenue Service ("IRS") on the payroll tax audit for
the calendar years 1983 through 1991 pursuant to which the
Company will pay the IRS $5 million, which will include penalties
and interest. The IRS agent conducting the audit asserted that
certain physicians and psychologists and other staff engaged as
independent contractors by the Company should have been treated
as employees for payroll tax purposes. The settlement was
reviewed and accepted by the IRS district counsel. Payment terms
have been accepted at 50% within 90 days of finalization with the
remainder financed over the next three years. A reserve has been
established with respect to this matter to cover expenses the
Company expects to incur. In May 1991, the Company and RehabCare
entered into a Tax Sharing Agreement providing for the Company to
indemnify RehabCare for any claims of income or payroll taxes due
for all periods through February 28, 1991. RehabCare has settled
a proposed assessment for a payroll tax audit of calendar years
1987 and 1988 for $326,114. The Company has established a
reserve with respect to this settlement.
The federal income tax returns of the Company for its fiscal
years ended 1984 and 1987 through 1991 were examined by the IRS.
The Company provided the IRS with satisfactory documentary
support for the majority of items questioned and those items were
deleted from the proposed assessment and accepted as originally
filed. The remaining items were agreed to and resulted in a
disallowance of approximately $229,000 in deductions which were
offset against the Company's net operating losses available for
carryover. The examination also included the review of the
Company's claim for refund of approximately $205,000 relating to
an amended return for the fiscal year ended May 31, 1992. During
completion of the audit, the IRS noted that the Company had
received excess refunds representing its alternative minimum tax
("AMT") liability of approximately $666,000 in 1990 and 1991 from
the carryback of net operating losses to the fiscal years ended
May 31, 1988 and 1989, respectively. On March 29, 1994, the
Company agreed to the assessment of $666,000 plus interest and
received the final bill of $821,000 during the fourth quarter of
fiscal 1994. The Company has accrued for this liability, net of
refunds, in income taxes payable.
From time to time, the Company and its subsidiaries are also
parties and their property is subject to ordinary routine
litigation incidental to their business. In some pending cases,
claims exceed insurance policy limits and the Company or a
subsidiary may have exposure to liability that is not covered by
insurance. Management believes that the outcome of such lawsuits
will not have a material adverse impact on the Company's
financial statements.
Item 3. - Defaults Upon Senior Securities
See the discussion contained in the last two paragraphs under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for
a discussion of the Company's default in the payment of interest
on its 7 1/2% Convertible Subordinated Debentures.
Item 4. - Submission of Matters to a Vote of Security Holders
The results of the Company's Annual Shareholders' Meeting were
reported in the Company's Report on Form 8-K filed on November
23, 1994.
Item 5. - Other Events
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 (the "Committee") of the NYSE
has determined to monitor the Company's progress toward returning
to original listing standards. The Company has met with and
continues to meet with the Committee on its progress to "globally
restructure" the Company (see Note 2 to the Company's Condensed
Consolidated Financial Statements included herein). The
Committee will continue to monitor the Company's progress.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
4.4 Restated Rights Agreement dated between the
Company and Continental Stock Transfer & Trust Co.
(filed herewith).
10.4 1988 Incentive Stock Option and 1988 Nonstatutory
Stock Option Plans, as amended (filed herewith).
10.54 1995 Directors Stock Option Plan (filed herewith).
10.55 Non-qualified Stock Option Agreement dated October
21, 1994 between the Company and Richard L. Powers
(filed herewith).
10.56 Employment Agreement dated January 1, 1995 between
the Company and Chriss W. Street (filed
herewith).
10.57 Secured Convertible Note Purchase Agreement dated
January 5, 1995 between the Company and Ryback
Management (filed herewith).
27 Financial Data Schedules (filed herewith).
(b) Reports on Form 8-K
1.) On November 23, 1994, the Company filed a
current report on Form 8-K to report a) results
of the Annual Shareholder's meeting which
included the election of Directors; b)
classification of the Board of Directors into
three classes; c) relocation of the Corporate
Headquarters from Missouri to California; d)
the appointment of a new member of executive
management; e) implementation of a reverse
stock split of common shares; f) ratification
of the Restated Rights Agreement and the
appointment of Continental Stock Transfer &
Trust Company as the Rights Agent; and g) non-
payment of interest on the Company's 7 1/2%
Convertible Subordinated Debentures.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
COMPREHENSIVE CARE CORPORATION
January 23, 1994By /s/ DREW Q. MILLER
Drew Q. Miller
Vice President
and Chief Financial Officer
(Principal Financial Officer)
January 23, 1994By /s/ KERRI RUPPERT
Kerri Ruppert
Vice President
and Chief Accounting Officer
(Principal Accounting Officer)
EMPLOYMENT AGREEMENT
AGREEMENT made this 21st day of December, 1994,
as of December 1, 1994, by and between CHRISS W. STREET,
residing at 2235 Pacific Drive, Corona Del Mar, California
92625 (hereinafter referred to as the "Executive") and
COMPREHENSIVE CARE CORPORATION, a Delaware corporation with
principal offices located at 16305 Swingley Ridge Road,
Chesterfield, Missouri 63017, (hereinafter referred to as the
"Company").
W I T N E S S E T H :
WHEREAS, the Company, through its wholly-owned
subsidiary corporations, is currently engaged in the business
of (i) providing treatment programs for psychiatric disorders
and chemical and drug dependence through freestanding and
leased facilities and (ii) providing various managed behavioral
health care services through contract capitation agreements;
and
WHEREAS, the Company desires to continue to
benefit from the executive talent and ability of Executive, and
to continue to engage Executive as its President and Chief
Executive Officer;
NOW, THEREFORE, it is mutually agreed by and
between the parties hereto as follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of
this Agreement, the Company hereby employs and agrees to
continue the employment of the Executive, and the Executive
hereby accepts such continued employment in his capacity as
President and Chief Executive Officer of the Company, with the
title of Chairman, President and Chief Executive Officer.
Executive shall report to the Board of Directors of the
Company.
ARTICLE II
ELECTION OF EXECUTIVE AS A DIRECTOR;
DIRECTORS LIABILITY INSURANCE AND INDEMNIFICATION
(A) Election of Executive as a Director
of the Company
Upon the execution of this Agreement and for the
full term hereof, the Company shall cause Executive to continue
to be elected as a Class II Director of the Company, and to be
further elected as Chairman of its Board of Directors. The
Company shall, during the full term of this Agreement, utilize
its best efforts to cause Executive to be re-elected to such
positions. Such best efforts shall, in the case of the
Company, include but not be limited to including Executive as
part of managements slate of Directors to be elected by
shareholders, endorsing the election of Executive as a
director, and soliciting proxies for the election of Executive.
(B) Procurement of Directors Liability
Insurance
So long as Executive shall serve as an officer
and Director of the Company, the Company shall procure and
obtain, and continue in full force and effect, at its sole cost
and expense, an officers and Directors liability insurance
policy in an amount of not less than $1 million. Such policy
of insurance shall insure against claims and liability while
acting in the capacity of an officer or director of the Company
or any subsidiary thereof, shall provide for the defense of all
such claims and shall be subject to fraud exclusions and other
usual and customary exclusions contained in such policies as
offered and written in the City of Los Angeles. Such policy
shall be obtained from a reputable insurance carrier rated A+
or better by Best.
(C) Indemnification
During the term of employment, and subsequent
thereto with respect to any claim arising out of or in
connection with his employment with the Company or any
subsidiary of the Company during the term of this Agreement,
the Company shall indemnify and hold Executive harmless from
all claims and liability, loss or damage (including but not
limited to judgments, fines and amounts paid in settlement),
asserted against Executive or incurred by Executive, including
reasonable attorneys fees and costs of investigation (the
"Indemnification"). The Indemnification provided for herein
shall be in addition to and not in substitution or diminution
of any and all rights to indemnification which Executive may be
entitled to under the laws of the State of Delaware or the
Certificate of Incorporation or By-Laws of the Company.
In furtherance of the Indemnification, the
Company shall indemnify Executive from any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including any action
by or in the right of the Company, by reason of the fact that
Executive is or was an officer or director of the Company or
any subsidiary of the Company.
All expenses, including reasonable attorneys
fees, incurred by Executive in defending any civil, criminal,
administrative or investigative action, suit or proceeding,
shall, upon request by Executive, be paid and advanced by the
Company in advance of the final disposition of such action,
suit, or proceeding; provided, however, that Executive shall
repay to the Company all amounts so advanced if it shall be
ultimately and finally determined that Executive is not
entitled to be indemnified under the laws of the State of
Delaware. All advances shall be made by the Company within 10
days after the request therefor by Executive accompanied by a
statement by Executive's counsel that the amount of advance
requested is fair and reasonable.
The Indemnification provided in this Article II
shall enure to the benefit of Executive, his heirs, executors
and administrators. The Company shall enter into a separate
Indemnification Agreement with Executive which shall
incorporate the provisions of this Article II.
ARTICLE III
DUTIES
(A) Executive shall, during the term of his
employment with the Company, and subject to the reasonable and
good faith direction and control of the Company's Board of
Directors, perform such duties and functions for the Company as
he may be called upon to perform by the Company's Board of
Directors during the term of this Agreement consistent with the
position of President and Chief Executive Officer.
(B) The Executive agrees to devote his best
efforts to the performance of his duties for the Company and to
render such services for any subsidiary corporations of the
Company.
(C) The Executive shall perform, in
conjunction with the Company's Senior Management, to the best
of his ability the following services and duties for the
Company and its subsidiary corporations (by way of example, and
not by way of limitation):
(i) Those duties attendant to the
position with the Company for which he is hired;
(ii) Financial and strategic planning to
preserve and enhance the Company's business;
(iii) Promotion of the relationships of
the Company and its subsidiary corporations with their
respective employees, customers, suppliers and others in the
business and investment community.
(D) The Company acknowledges that Executive
has substantial business and financial background and
experience, and has acted and continues to act in an advisory
capacity to various businesses as well as engaging in
investment and merchant banking through affiliated entities
(the "Non-Competitive Activities"). The Company consents to
Executive continuing to engage in the Non-Competitive
Activities for his own pecuniary benefit. The Company further
consents to Executive devoting less than his full business time
to the performance of his duties hereunder, having due regard
to the fact that it is Executive's normal practice to work
extended business hours.
ARTICLE IV
PRINCIPAL BUSINESS LOCATION OF EXECUTIVE;
ESTABLISHMENT OF CALIFORNIA OFFICE
(A) Executive shall be based in the Greater
Los Angeles/Orange County, California Area, and shall undertake
such occasional travel, within or without the United States as
is or may be reasonably necessary in the interests of the
Company. Executive shall be in attendance at the Company's
Chesterfield, Missouri principal business facilities at such
occasional and incidental times as may be reasonably necessary
to the performance of his duties hereunder, having due regard
to the ability of Executive to adequately interact with the
Company's Chesterfield, Missouri facility by telephone, telefax
and computer, and having further regard to the contemplated
objective of implementing the Company's intended business plans
and programs which may not necessarily require extended
presence in Missouri.
<PAGE>
(B) To facilitate the performance of his
duties hereunder, the Company shall, within 90 days from the
date hereof, open, furnish, equip and staff an office in Los
Angeles or Orange County, California; the site to be selected
by Executive (the "California Office"). In the alternative,
the Company shall reimburse Chriss Street and Company, the sum
of $3,000 per month for the temporary use of office facilities
and personnel.
ARTICLE V
COMPENSATION
(A) Commencing the date hereof and during
the full term of this Agreement, Executive shall receive a base
salary (the "Base Salary") at the rate of $150,000 per annum
payable in equal weekly increments.
(B) Executive may receive such other bonuses
or additional compensation as may be determined from time to
time by the Board of Directors.
(C) The Company shall deduct from
Executive's compensation all federal, state and local taxes
which it may now or may hereafter be required to deduct.
ARTICLE VI
SPECIAL SEVERANCE BENEFIT
UPON CHANGE IN CONTROL
In the event of a Change in Control of the
Company, as defined herein, the Company shall pay to Executive
a special severance benefit equal to the sum of (i) Executive's
Base Salary for the unexpired portion of the term and (ii) two
times the sum of Executive's prevailing Base Salary, provided
that following such Change in Control (i) his employment is
terminated by the Company within three years of the date of
such Change in Control or (ii) though not terminated by the
Company, within three years from the date of the Change in
Control, Executive's duties and responsibilities are materially
curtailed or diminished from those prevailing immediately
preceding the time of the Change in Control, and following such
material curtailment or diminution, Executive elects to
terminate his employment irrespective of whether or not the
term of his Agreement shall have expired.
As used herein, a Change in Control of the
Company shall mean the acquisition by any person or group as
defined in Rule 13D(3) under the General Rules and Regulations
under the Securities Exchange Act of 1934 (other than a
corporation or employee benefit plan sponsored by the
corporation) of the beneficial ownership of right to vote 20%
or more of the total number of votes of the Company's voting
securities eligible to vote in the election of Directors of the
Company.
ARTICLE VII
BENEFITS
(A) During the term hereof, (i) the Company
shall reimburse Executive for the premium cost of health and
major medical insurance for Executive and Executive's
dependents upon presentation of vouchers therefor; (ii) when
obtained by the Company, and when made generally available to
the Company's senior management, the Company shall provide
Executive with dental and eye care coverage; (iii) Executive
shall be reimbursed by the Company, upon presentation of
appropriate vouchers, for all reasonable business expenses
incurred by the Executive on behalf of the Company; (iv) the
Company shall pay to Executive an automobile allowance of $500
per month, which shall be for the purpose of partially
reimbursing Executive for the use by Executive of his personal
automobile. In addition, the Company shall pay directly or
reimburse Executive, upon presentation of vouchers therefor,
for the full cost of Executive's automobile insurance, repairs,
maintenance, gasoline charges, monthly garage cost and mobile
telephone.
(B) The Company will obtain and maintain
during the full term hereof and at its sole cost and expense a
policy of term life insurance on the life of Executive in the
amount of $500,000 payable to a beneficiary named and
designated by Executive.
(C) For each year of the term hereof,
Executive shall be entitled to paid vacation consistent with
prevailing Company vacation policy for the Company's senior
management. At Executive's option, accrued but unused vacation
shall be payable in cash.
(D) The Company shall obtain a long term
disability insurance policy for Executive's benefit. Executive
shall be provided with such disability benefit equal to 100% of
Executive's prevailing Base Salary at a premium cost at the
sole cost and expense of the Company.
ARTICLE VIII
NON-DISCLOSURE
The Executive shall not, at any time during or
after the termination of his employment hereunder except when
acting on behalf of and with the authorization of the Company,
make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other
confidential information concerning the Company's business,
finances, marketing information, managed care business, plans
and programs, psychiatric and dependency operations, and
information relating to any managed care, capitation, sales or
marketing programs of the Company (collectively referred to as
the "Proprietary Information"). For the purposes of this
Agreement, trade secrets and confidential information shall
mean information disclosed to the Executive or known by him
solely as a consequence of his employment by the Company,
whether or not pursuant to this Agreement, and not generally
known (other than as disclosed by any person in breach of any
obligation of confidentiality to the Company) in the industry,
concerning the business, finances, methods, operations,
marketing information, and information relating to the sales
and marketing of the Company. The foregoing is intended to be
confirmatory of the common law of the state of California
relating to trade secrets and confidential information.
ARTICLE IX
RESTRICTIVE COVENANT
(A) In the event of the voluntary
termination of employment with the Company by Executive,
Executive agrees that he will not, for a period of one year
following such termination, directly or indirectly enter into
or become associated with or engage in any other business
(whether as a partner, officer, director, shareholder,
employee, consultant, or otherwise), which business is
primarily involved in the business of developing, marketing,
owning or operating facilities providing psychiatric care or
drug or alcohol dependency rehabilitation or treatment, or
providing or marketing managed health care programs on a
contract or capitated basis.
(B) In furtherance of the foregoing,
Executive shall not during the aforesaid period of non-
competition, directly or indirectly, in competition with the
Company, solicit any management person who was employed by the
Company or solicit any provider, insurer or group through, from
or with which the Company transacted any managed health care
business. The foregoing shall not be deemed or construed to
prevent Executive from soliciting any consultant or advisor to
the Company for any project that Executive may participate in
which is not in violation of this Article IX.
(C) If any court shall hold that the
duration of non-competition or any other restriction contained
in this paragraph is unenforceable, it is our intention that
same shall not thereby be terminated but shall be deemed
amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable or in the
alternative such judicially substituted term may be substituted
therefor.
ARTICLE X
TERM
This Agreement shall be for a term of three
years commencing January 1, 1995 and terminating on
December 31, 1998. The Company agrees to notify Executive in
writing of its intent to negotiate a renewal of this Agreement
six months prior to the expiration of the term hereof. If the
Company elects not to seek to renegotiate a renewal, or if the
Company fails to reach agreement with Executive as to the terms
of renewal, then the Company agrees to pay to Executive, upon
the expiration of this Agreement without renewal, a severance
benefit equal to 50% of the aggregate amount of Executive's
then prevailing annual Base Salary.
ARTICLE XI
DISABILITY DURING TERM
In the event that the Executive becomes totally
disabled so that he is unable or prevented from performing any
one or all of his usual duties hereunder, the Company shall
nevertheless continue to compensate him, and he shall continue
to receive his Base Salary as provided under Article V of this
Agreement for the remainder of the unexpired term. The
obligation of the Company to make the aforesaid payments shall
be modified and reduced and the Company shall receive a credit
for all disability insurance payments which Executive may
receive or to which he may become entitled; provided, however,
that the premiums for such disability insurance had been paid
by the Company or had been reimbursed to Executive by the
Company.
ARTICLE XII
RIGHTS FOLLOWING TERMINATION
The Company recognizes that Executive has agreed
to become employed by the Company and to accept a Base
Compensation which is less than that which Executive could
otherwise command in the market. In consideration therefor,
the Company agrees that in the event of the termination of this
Agreement by the Company for any reason whatsoever (with or
without cause, with the sole exception of the commission by
Executive of any criminal act against the Company involving
theft, embezzlement, misappropriation of property, or criminal
fraud) or by reason of the death or disability of Executive,
the Company shall nevertheless pay to Executive (or to
Executive's estate or representative in the case of death),
within 30 days following such termination, the full amount of
Executive's then prevailing Base Salary for the full remaining
unexpired term of this Agreement, and Executive shall not be
obligated or required to mitigate any damages. The Company
acknowledges that the foregoing constitutes reasonable
liquidated damages to be paid to Executive.
ARTICLE XIII
STOCK OPTIONS
The Option Agreement dated August 25, 1994
pursuant to which Executive has been granted options to
purchase Common Stock of the Company is herewith ratified and
confirmed.<PAGE>
ARTICLE XIV
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement
between the parties and supersedes all prior agreements between
the parties, whether oral or written.
ARTICLE XV
ARBITRATION
Any dispute arising out of the interpretation,
application and/or performance of this Agreement shall be
settled through final and binding arbitration before a single
arbitrator in the City of Los Angeles, the State of California
in accordance with the commercial rules of the American
Arbitration Association. The arbitrator shall be selected by
the Association and shall be an attorney at law experienced in
the field of corporate law. Any judgment upon any arbitration
award may be entered in any court, federal or state, having
competent jurisdiction of the parties.
ARTICLE XVI
SEVERABILITY
If any provision of this Agreement shall be held
invalid and unenforceable, the remainder of this Agreement
shall remain in full force and effect. If any provision is
held invalid or unenforceable with respect to particular
circumstances, it shall remain in full force and effect in all
other circumstances.
ARTICLE XVII
NOTICE
All notices required to be given under the terms
of this Agreement shall be in writing and shall be deemed to
have been duly given only if delivered to the addressee in
person or mailed by certified mail, return receipt requested,
as follows:
IF TO THE COMPANY: Comprehensive Care Corporation
16305 Swingley Ridge Road
Chesterfield, Missouri 63017
IF TO THE EXECUTIVE: Chriss W. Street
___________________________
___________________________
or to any such other address as the party to receive the notice
shall advise by due notice given in accordance with this
paragraph.
ARTICLE XVIII
BENEFIT
This Agreement shall inure to, and shall be
binding upon, the parties hereto, the successors and assigns of
the Company, and the heirs and personal representatives of the
Executive.
ARTICLE XIX
WAIVER
The waiver by either party of any breach or violation of
any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of construction
and validity.
ARTICLE XX
GOVERNING LAW
This Agreement has been negotiated and executed
in the State of California, and California law shall govern its
construction and validity.
ARTICLE XXI
ENTIRE AGREEMENT
This Agreement contains the entire agreement
between the parties hereto. No change, addition or amendment
shall be made hereto, except by written agreement signed by the
parties hereto.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement and affixed their hands and seals the
day and year first above written.
(Corporate Seal) COMPREHENSIVE CARE CORPORATION
By
CHRISS W. STREET (Executive)
LETTER OF AGREEMENT
This letter will confirm the agreement between
Comprehensive Care Corporation (the "Company") and The Miller
Group ("Miller") pursuant to which Miller will furnish to the
Company, management consulting and investor relation services,
as follows:
1. Miller will perform services for the Company in all
areas generally considered to be management consulting and
investor relations, including but not limited to the preparation
and dissemination of financial publicity, annual and interim
reports for stockholders and the financial community,
preparation and dissemination of information concerning the
Company's operations, and consultation with respect to the
timing and content of financial communications.
2. Information to be released by Miller will be
disseminated to general, financial and trade media, the
investment banking community, banks and statistical
organizations, all as deemed necessary or appropriate by Miller
and the Company.
3. All information to be disseminated through Miller will
be based upon material furnished by the Company and will be
released only after receipt by Miller of final approval from the
Company. The Company recognizes that Miller may have, either at
the present time or in the future, obligations imposed upon it
by the federal securities laws to verify independently certain
of the information contained in releases being made through it.
Accordingly, the Company agrees that Miller shall have the right
to make such reasonable inquiries as it shall deem necessary or
appropriate of officers and employees of the Company and its
counsel and auditors with respect to information being released
by Miller. The Company recognizes that the accuracy and
completeness of all information contained in releases ultimately
rests with the Company and agrees to indemnify and hold Miller
harmless from and against any loss and expense arising out of a
claim that any information released by Miller is inaccurate or
incomplete.
4. You acknowledge and understand that Miller, in order to
perform its services effectively under this agreement, and to
satisfy such obligations as may be imposed upon it by the
federal securities laws, requires the prompt receipt of all
material information with respect to the Company, its operations
and its prospects. Accordingly, you agree to furnish promptly
to Miller copies of all reports and other filings with the
Securities and Exchange Commission, all communications with
stockholders and all reports received from your auditors.
Furthermore, you recognize the necessity of promptly notifying
Miller of all material developments concerning the Company, its
business and prospects and to supply Miller with sufficient
information necessary for Miller to make a determination as to
its compliance with its own procedures as well as any legal
requirements.
5. The terms of this agreement shall be for a minimum of
twelve months from January 1, 1995. As compensation for the
services to be rendered hereunder, the Company will pay to
Miller a monthly fee of $5,500, payable in advance. In
addition, out-of-pocket expenses incurred by Miller in
connection with the services to be performed by it hereunder
will be payable by the Company upon submission by Miller of
monthly invoices delineating such expenses. This agreement
shall continue in effect for the full period set forth in this
paragraph five (5) and thereafter unless terminated by the
Company or Miller upon not less than 30 days written notice,
which notice may be given only after the expiration date.
6. The Company recognizes that client service officers and
other employees of Miller are necessary for the continued
servicing by Miller of its several clients. Accordingly, the
Company agrees that it will not, during the term of this
agreement and for a period of two years after its termination,
employ any client service officer, account executive or other
employee of Miller in any capacity.
7. Miller recognizes the personal nature of the services to
be performed by it and agrees that it shall not transfer or
assign to any other person, firm or corporation its
responsibilities and obligations under this agreement. In the
event that a merger, sale of assets or change of control of the
Company or Miller shall occur, this agreement shall be binding
upon the successor and assigns of such party.
AGREED AND ACCEPTED:
Please confirm that the foregoing correctly sets forth
our mutual understanding by signing and returning the copy of
this agreement provided for that purpose.
Comprehensive Care Corporation The Miller Group
Chriss W. Street Rudy R. Miller
By: By:
--------------------------- -----------------------------
Title: Chairman, Pres.&CEO Title: Chairman & CEO
Date: Date:
-------------------- --------------------
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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COMPREHENSIVE CARE CORPORATION
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
("Purchase Agreement") is made and entered into as of this 5th
day of January, 1995, by and among COMPREHENSIVE CARE
CORPORATION, a Delaware corporation (the "Company"), and the
persons whose names appear on the signature pages hereof
(hereinafter collectively called the "Purchasers").
R E C I T A L S:
A. The Company desires to obtain financing by
issuance of its Two (2) Year Secured Convertible Notes
(individually "Note" or collectively the "Notes") which are the
subject of this Purchase Agreement; and
B. The Company owns certain real property in the
County of Arapahoe, State of Colorado, and Care Unit Hospital
of Ohio, Inc., an Ohio corporation and a wholly-owned
subsidiary of the Company ("CUHO"), owns certain real property
in the County of Hamilton, State of Ohio, respectively, and in
order to induce the Purchasers to purchase the Notes, and so
that the Company and CUHO will receive financial and other
benefits from the sale of Notes, the Company shall, and shall
cause CUHO to, secure the obligations of the Company under the
Notes with the said real property which is more particularly
described elsewhere in this Purchase Agreement; and
C. The Purchasers desire to acquire the Notes on
the terms and conditions set forth herein.
A G R E E M E N T:
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATIONS,
IT IS AGREED as follows:
1. Issue of Notes. Subject to the terms and
conditions hereof, the Company has authorized the issue of:
(i) $2,000,000 aggregate
principal amount of its Notes due January 9, 1997, to
be issued substantially in the form attached hereto as
Exhibit A for delivery at the office of Ryback
Management, 7711 Carondelet Avenue, Suite 700, St.
Louis, Missouri 63105, against payment to the Company
of $2,000,000 by wire transfer in same day or next day
funds. The term "Notes" or "Note" as used herein shall
include the Notes originally issued pursuant to the
provisions of this Purchase Agreement and any
promissory notes delivered in substitution or exchange
therefor. The Notes will bear interest, be payable and
mature at the time and under the terms and conditions
specified therein. The Notes will be convertible into
shares of the Company's Common Stock at the rate of
$6.00 face value of the Notes for each share of the
Company's Common Stock, all as provided in the Notes.
(ii) The issuance of up to
400,000 shares of Common Stock (which number may be
adjusted as provided in the Notes) upon conversion of
the Notes in accordance with their terms has been
authorized and reserved for issuance by the Company.
Notwithstanding any other term or provision hereof, the
aggregate maximum amount of Notes that may be converted
will be the amount which would result in the issuance
of 400,000 shares of Common Stock upon conversion of
Notes. The limitation shall be effected in the manner
described below immediately upon and following receipt
by the Company or its conversion agent of conversion
notices resulting in aggregate conversions, aggregated
with all previous conversion notices received, that
would, except for this limitation, exceed 400,000
shares. Priority in right to convert Notes shall be
given on a first to give Notice basis. Notices of
conversion received on the same business day that in
total would exceed the limitation shall each be deemed
to be automatically reduced pro rata on the basis of
the relative amounts elected to be converted. This
400,000 shares limitation is subject to analogous
adjustments in the events and in the manners described
in this Purchase Agreement or the Notes of the numbers
of shares issuable upon conversion (related
reciprocally to conversion price adjustments) of the
Notes.
2. Representations and Warranties of the Company.
The Company represents and warrants that:
2.1 The Company is a corporation duly
organized and validly existing in good standing under the laws
of the State of Delaware, and duly qualified to do business and
in good standing as a foreign corporation in the State of
California and the State of Colorado, with full power and
authority, corporate and otherwise, to enter into and perform
this Purchase Agreement, to borrow hereunder, and to make,
execute and deliver the various instruments and documents
provided for herein; and CUHO is a corporation duly organized
and validly existing in good standing under the laws of the
State of Ohio, with full power and authority, corporate and
otherwise, to enter into and perform this Purchase Agreement,
to borrow hereunder, and to make, execute and deliver the
various instruments and documents provided for herein.
2.2 The execution, delivery and performance
by the Company of this Purchase Agreement, and the making,
execution and delivery by the Company of the instruments
contemplated hereby, have been duly authorized by all necessary
corporate action and will not violate any provision of law,
court order or decree, or of its Certificate of Incorporation
or Bylaws, or result in the breach of, or constitute a default
under, or result in the creation of any lien, charge or
encumbrance upon any property or assets of the Company pursuant
to any agreement or instrument to which it is a party, or by
which it or its property may be bound or affected. Each of
this Purchase Agreement and the Notes is a valid and binding
obligation of the Company, enforceable in accordance with its
respective terms.
2.3 Except as set forth in a Schedule
attached hereto, (a) there are no material lawsuits or
proceedings pending, or, to the Company's knowledge, threatened
against or affecting the Company and (b) there are no
proceedings before any governmental commission, bureau or other
administrative agency pending, or, to the Company's knowledge,
threatened against the Company.
2.4 The authorized capital of the Company is
12,500,000 shares of Common Stock, $0.01 par value per share,
of which approximately 2,200,000 are issued and outstanding,
and 60,000 shares of Preferred Stock, $50.00 par value per
share, of which no shares are issued and outstanding. There
are no shares of Common Stock reserved for issuance for
options, warrants or conversion of convertible securities,
except as listed on a Schedule hereto.
2.5 The Company's subsidiaries are as set
forth in a Schedule attached hereto.
2.6 The minute books of the Company have
been properly kept and reflect all transactions entered into by
the Company which require submission to or action by the
stockholders or directors of the Company.
2.7 Any and all licenses and approvals
required by the Company for the conduct of its business have
been obtained from the federal, state, or local authorities
concerned, all of which are in good standing.
2.8 The shares of Common Stock initially
issuable upon conversion of the Notes have been duly authorized
and at all times prior to such conversion will have been duly
reserved for issuance upon such conversion and, when so issued,
will be validly issued, fully paid and nonassessable.
2.9 Except for any applicable requirements
of state securities laws (as to which no representations or
warranties are made), no governmental permit, consent, approval
or authorization is required in connection with (i) the
execution and delivery of this Purchase Agreement by the
Company or (ii) the offer, sale, issuance and delivery of the
Notes contemplated hereby by the Company; provided that, all
representations made to the Company by the Purchasers in this
Purchase Agreement and in any other document or instrument
delivered in connection herewith are assumed for purposes of
this representation and warranty to be accurate and complete.
2.10 Included in the Company's Annual Report
on Form 10-K for the fiscal year ended May 31, 1994 are the
consolidated balance sheets of the Company at May 31, 1994 and
May 31, 1993, and the consolidated statements of operations,
cash flows and stockholders' equity for the year ended May 31,
1994, with the report thereon of Arthur Andersen & Co.,
independent accountants. Included in the Company's Quarterly
Reports on Form 10-Q for the quarter ended August 31, 1994 are
the unaudited consolidated balance sheets of the Company as of
such dates, the unaudited consolidated statements of operations
for the three-month periods ended on such dates and for the
corresponding prior year periods, and the unaudited
consolidated statements of cash flows for the three-month
periods ended on such dates and for the corresponding prior
year periods.
2.11 None of the Company's reports and
filings with the Securities and Exchange Commission ("SEC")
contained a misstatement of a material fact or omitted to state
a material fact necessary to make the statements contained
therein, in the light of the circumstances in which they were
made or omitted, not misleading.
2.12 The Company Common Stock is traded on
The New York Stock Exchange, Inc. ("NYSE"). No assurance is
made as to any future NYSE listing of shares of Common Stock,
whether issuable on conversion of Notes or otherwise
outstanding.
2.13 The proceeds received by the Company
from the Notes will be applied to payment in partial settlement
of outstanding federal income tax liabilities and other general
corporate purposes.
2.14 A portion of the proceeds of the sale of
Notes shall be used for the benefit of CUHO, and CUHO derives a
financial or other advantage from the sale of Notes to the
Purchasers.
3. Representations of Each of the Purchasers. This
Purchase Agreement is made with Purchasers by the Company in
reliance upon the Purchasers' representations to the Company,
which by Purchasers' acceptance hereof, Purchasers confirm,
severally and not jointly, except as indicated herein, that
(a) Purchasers are acquiring the Notes to be delivered for
their own account and not for the beneficial interest of any
other person, and not with a view to the distribution thereof,
and that Purchasers will not distribute, sell or otherwise
dispose of the Notes or any of the shares of Common Stock of
the Company issuable upon conversion of the Notes except as
permitted under the Securities Act of 1933, as amended (the
"Act"), the General Rules and Regulations thereunder, and all
applicable State "Blue Sky" laws; (b) Purchasers have been
afforded access to information and have been informed fully
concerning the Company, its financial condition and business
prospects; (c) Purchasers' financial circumstances are such as
to permit Purchasers to make this investment without having a
present intention or need to liquidate their investment and
Purchasers also severally acknowledge their awareness that
their investment is subject to substantial risk of loss;
(d) Purchasers severally confirm further that they have been
advised that neither the Notes nor the Common Stock issuable
upon the conversion thereof have been registered under the Act,
and that, accordingly, such Notes and shares of Common Stock
will be what is commonly known as "restricted securities," and
are not freely transferrable by Purchasers except pursuant to
an exemption from registration under the Act, such as Rule 144,
the substance of which has been explained to Purchasers; and
(e) that substantially the following legends shall be placed on
the Notes (and any Shares of Common Stock issuable upon
conversion thereof):
THE SECURITIES REPRESENTED BY THIS NOTE HAVE
BEEN ACQUIRED FOR INVESTMENT IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, PURSUANT TO
SECTION 4(2) OF SAID ACT AND NOT WITH A VIEW TO
OR IN CONNECTION WITH THE DISTRIBUTION THEREOF.
NEITHER THIS NOTE NOR THE SECURITIES ISSUED UPON
CONVERSION HEREOF MAY BE OFFERED FOR SALE OR
SOLD OR OTHERWISE DISPOSED OF EXCEPT UPON
COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE
PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE
AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF
THE COMPANY.
4. Transfer by Each of the Purchasers. Neither the
Notes to be purchased by Purchasers, nor any interest therein,
shall be sold, transferred, assigned, or otherwise disposed of,
unless the Company shall previously have received an opinion of
counsel knowledgeable in federal securities law, in form and
substance satisfactory to the Company and accompanied by such
supporting documents as the Company may reasonably request, to
the effect that registration under the Act is not required in
connection with such disposition pursuant to the Act or the
General Rules and Regulations thereunder. The Notes and the
certificates evidencing the shares of Common Stock issued upon
conversion of the Notes shall bear a conspicuous notation,
substantially as provided above, setting forth the restrictions
on transfer herein set forth.
5. Registration.
5.1 (a) Incidental Registration. The
Company will notify Purchasers of any proposed filing of a
registration statement at least thirty (30) days prior to each
time that the Company proposes to file such registration
statement covering shares of its Common Stock other than (i) a
registration statement for the purpose of registering
employees' stock options or plans or employees' stock purchase
or other such director or employee plans on Form S-8 or its
equivalent, or (ii) a registration statement filed in
connection with a business combination, and will include in not
more than two (2) such registration statements any Common Stock
issued to Purchasers upon conversion of the Notes which
Purchasers request to have so registered, by notifying the
Company not later than ten (10) days after the receipt by
Purchasers of the Company's notice. If any Purchaser requests
such registration, all of the Purchasers shall be entitled to
register such number of their shares of Common Stock at that
time as they shall specify in writing to the Company, subject
to reduction on a pro rata basis if in the reasonable judgment
of the Company or its underwriter or investment banker the
inclusion of more shares could reasonably be expected to
threaten the success of the registration.
(b) Demand Registration. If the
Company has not instituted registration procedures within the
period ending one hundred eighty (180) days after the date of
this Purchase Agreement and which afford the Purchasers an
opportunity to include their shares in such registration
proceedings, the Purchasers shall be entitled to demand a
registration with the SEC of some or all of their shares. The
demand must be made by the holders of not less than one-half of
the shares originally issued and/or issuable under the Notes.
The obligations of the Company and of the Purchasers in
connection with any demand registration shall be as set forth
in Section 5.1(c) below.
(c) Terms of Registrations. The
foregoing rights and duties shall be subject to the following
terms and conditions:
(i) The Company's duty to
notify the Purchasers and to include any Purchaser's
Common Stock in any such registration statement
pursuant to an incidental registration under Section
5.1(a) shall cease after any of the Purchasers' Common
Stock has been included in any two (2) effective
registration statements, including any pursuant to
Section 5.1(b).
(ii) The Company shall bear
the cost of any registration statement and the
incremental expense of including therein any of the
Purchasers' Common Stock pursuant to this Section 5.1,
except that Purchasers shall bear the following
expenses ratably applicable to each Purchaser's Common
Stock: any underwriting discount or brokerage
commissions, SEC or NYSE or "Blue Sky" filing or
similar fees, securities transfer taxes, if applicable,
and the Purchaser's own legal expenses.
(iii) The Company will use its
best efforts to cause such registration statement to
become effective under the Act; provided, however, that
if any securities being sold directly by the Company
are included in such registration statement, the
Company may at its discretion elect not to proceed with
such registration statement or to withdraw such
registration statement after it has been filed but
before it becomes effective under the Act without
regard to whether the registration statement also
includes any of Purchasers' Common Stock. In the event
that any such registration is terminated by the Company
prior to effectiveness, such registration shall not be
counted as one of the two (2) registration statements
under which a Purchaser is entitled to include shares
of Common Stock hereunder.
(iv) If such registration
statement relates to an underwritten public offering of
the Company's Common Stock for cash and the
underwriters or managing underwriters of such proposed
offering determine in good faith that the marketability
of the underwritten Company's Common Stock so requires,
Purchasers' Common Stock which has been included in the
registration statement pursuant to this section shall
not be offered or sold to the public for such period up
to sixty (60) days from the effective date of the
registration statement, as such underwriters shall
specify in writing. Nothing herein shall require
Purchasers to offer such securities through any such
underwriter.
5.2 The Company's obligations to Purchasers
shall require it to use its best efforts to cause any such
registration statement to be prepared in accordance with the
Act and filed in an expeditious manner with due regard for
continuity of the ordinary and necessary business operations of
the Company. In connection with any requests pursuant to
Section 5.1, the Company will (i) use its best efforts to
permit a lawful distribution by Purchasers in the manner
specified by Purchasers; (ii) use its best efforts to qualify
or otherwise "blue sky" the proposed offering by Purchasers in
California, New York, Missouri, and not more than two (2)
additional jurisdictions agreed upon by the holders of the
majority of the shares included in the registration statement;
provided, however, if such offering is underwritten by an
underwriter, the Purchasers' shares shall also be "blue skied"
in all states covered by the underwriting; and provided,
further, that nothing herein contained shall require the
Company to qualify as a foreign corporation in a jurisdiction
in which it is not presently qualified or to become licensed as
a securities broker or dealer in any jurisdiction; (iii) use
its best efforts to obtain approval for listing the shares
included in the registration statement on the NYSE, the other
principal exchange, or the principal trading market or
quotation system upon which shares of Company Common Stock are
then traded; (iv) provide Purchasers with a reasonable number
of registration statements and prospectuses (including
amendments and revisions) requested by Purchasers; and (v) use
its best efforts to have such prospectuses meet the
requirements of Section 10(a) of the Securities Act of 1933, as
amended. The Company shall use reasonable efforts to cause any
effective registration statement which includes Purchasers'
Common Stock to remain effective for a period of at least
ninety (90) days. Provided, however, in the event of a
deferral in the inclusion of Purchasers' Common Stock, as
provided in Section 5.1(c)(iv), such minimum period of ninety
(90) days shall be extended by the period of such deferral.
5.3 The Company's obligations under this
Section 5 are conditioned upon its being furnished by
Purchasers with detailed descriptions of Purchasers, their
Common Stock to be covered in the requested registration
statement, their proposed method of distribution, and such
other relevant information and undertakings as may be required.
If any Purchaser or Purchasers do not furnish the requisite
information, shares of such Purchasers need not be included in
the registration statement. However, this shall not affect the
right of the other Purchasers hereunder to have their shares
included within the registration statement.
5.4 Anything herein to the contrary
notwithstanding, if the Company receives a request pursuant to
Section 5.1 hereof and believes, in good faith, that
registration under the Act is not required in order to permit
the proposed sale or other disposition of such Common Stock
covered by such request either because it reasonably believes
it can obtain a "no-action letter" from the SEC permitting the
proposed transactions without registration under the Act or it
is not required by reason of Rule 144(k) or otherwise, within
ten (10) days after receiving such request it will so notify
Purchasers in writing and proceed diligently with Purchasers'
cooperation to seek to obtain such "no-action letter" or
opinion of counsel, as the case may be; provided, however, that
if such "no-action letter" or an opinion of counsel reasonably
satisfactory in form and substance to Purchasers and
Purchasers' counsel (who must be knowledgeable in federal
securities law) is not obtained and submitted to Purchasers
within thirty (30) days from the date on which Purchaser made a
request pursuant to Section 5.1 hereof, the Company shall
diligently proceed to comply with such request in accordance
with the terms hereof, without the imposition on Purchasers of
an incremental registration expense occasioned by such delay.
5.5 In connection with any registration
statement pursuant to this Section 5, Purchasers shall
severally and not jointly indemnify and hold harmless the
Company and each person (if any) who controls the Company
within the meaning of Section 15 of the Act from and against
all losses, claims, damages and liabilities to which the
Company or any of them may be subject, actually or allegedly
caused by any untrue or allegedly untrue statement of a
material fact contained in any such registration statement or
related prospectus or actually or allegedly caused by an
omission to state therein a material fact actually or allegedly
required to be stated therein or necessary to make the
statements therein not misleading, which statement or omission
shall have been made in reliance upon and in conformity with
written information furnished to the Company by Purchasers on
Purchasers' behalf specifically for use in connection with such
registration statement. Reciprocally, the Company hereby
agrees to indemnify and hold harmless Purchasers, any broker or
other person who may be deemed an underwriter for Purchasers
and each person (if any) who controls the Purchasers or
Purchasers' underwriter within the meaning of Section 14 of the
Act, from and against all losses, claims, damages and
liabilities to which such parties or any of them may be
subject, actually or allegedly caused by any untrue or
allegedly untrue statement of a material fact contained in any
such registration statement or related prospectus or actually
or allegedly caused by any omission to state therein a material
fact actually or allegedly required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such statement or omission shall have been made in
reliance upon and in conformity with written information
furnished to the Company by or on behalf of Purchasers
specifically for use in connection with such registration
statement.
(a) The foregoing indemnity shall
include reimbursements for any legal or other expenses
incurred by the indemnified party or any director,
officer or controlling person, as defined above, in
connection with investigating or defending any such
loss, damage, claim, liability or action.
(b) Promptly after receipt by an
indemnified party under this Section 5.5 of notice of
commencement of any action, the indemnified party will,
if a claim in respect thereof is to be made against any
indemnifying party under this Section 5.5, notify the
indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not
relieve it or him, as the case may be, from any
liability to any indemnified party otherwise than under
this Section 5.5 except to the extent that the failure
to so notify such party adversely affected the
indemnifying party. In case any such action is brought
against any indemnified party and it or he notifies the
indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate
therein, and to the extent desired, jointly, with any
other indemnifying party similarly notified, assume the
defense and control the settlement thereof, with
counsel reasonably satisfactory to such indemnified
party. After notice from the indemnifying party to
such indemnified party as to its or his election so to
assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this
Section 5.5 for any legal or other expenses
subsequently incurred by such indemnified party in
connection with the defense thereof, other than
reasonable cost of investigation.
(c) The Company and Purchasers each
have the right to make a reasonable investigation of
the information contained in any registration statement
covered by this Section 5 to confirm its accuracy,
subject, however, to the obligation of each Purchaser
to keep in confidence any information derived until
such time as the information is filed with the SEC.
5.6 To the extent transfers of the Notes or
Common Stock are permitted pursuant to Section 4 hereof,
Purchasers may transfer, assign or otherwise dispose of their
rights under this Section 5, as a whole or in part, to one or
more parties; but no such action by Purchasers shall increase
or otherwise affect the nature or extent of the Company's
obligations provided in this Section.
6. Right to Redeem; Notices to Trustee.
(a) The Company, at its option at any
time, may redeem the Notes, in whole or in part, at any
time prior to maturity for cash at a redemption price
as provided herein. From the date of the Notes to and
including the first anniversary of the date of the
Notes, the redemption price shall be an amount equal to
120% of the outstanding face amount of the Notes being
redeemed. After the first anniversary of the date of
the Notes to and including the second anniversary of
the date of the notes, the redemption price shall be an
amount equal to 110% of the outstanding face amount of
the Notes being redeemed. If the Company elects to
redeem Notes, it shall notify the holders of the Notes
in writing of the redemption date, the principal amount
of Notes to be redeemed, the redemption price and the
paying agent, if any. The Company shall give the notice
provided for in this Section at least 30 days before
the redemption date. Any partial redemption shall be
allocated among the then outstanding Notes pro rata on
the basis of the then unpaid principal amount of each
of such Notes.
(b) Once notice of redemption is
mailed, Notes called for redemption become due and
payable at 4:01 P.M. Los Angeles time on the redemption
date and at the redemption price. Upon surrender to
the Company or its paying agent, such Notes shall be
paid at the redemption price, plus accrued interest to
the redemption date.
(c) On or before the redemption date,
the Company shall deposit into a segregated trust
account or with a paying agent money sufficient to pay
the redemption price of and (unless the redemption date
is an interest payment date) accrued interest on all
Notes to be redeemed on that date other than any Notes
called for redemption on that date which have been
converted prior to the date of such deposit. The
paying agent shall return to the Company any money not
required for that purpose because of conversion of
Notes.
(d) Upon surrender of a Note that is
redeemed in part, the Company shall issue the holder of
the Note a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
7. Hypothecation of Notes. The Company expressly
agrees that any of the Purchasers may pledge, assign or
otherwise hypothecate any of the Notes acquired hereby to any
other Purchaser.
8. Security. The Notes shall be secured by a deed
of trust on certain real property, as more particularly
described in a Schedule attached hereto, located in Arapahoe
County, Colorado ("Deed of Trust") and a mortgage on certain
real property located in Hamilton County, Ohio ("Mortgage"),
each in substantially the form and substance attached as a
Schedule hereto. The priority of the Deed of Trust as a first
deed of trust on the property thereby encumbered and the
priority of the Mortgage as a first mortgage on the property
thereby encumbered shall be insured by ALTA lender's policies
of title insurance issued by Chicago Title Insurance Company
subject only to the title exceptions identified in the title
commitments attached as a Schedule hereto.
9. Relative Priorities. All Notes shall rank
equally and ratably with each other. Except to the extent of
the security provided by the Deed of Trust and the Mortgage,
the Notes shall rank on a parity with all other unsecured
general obligations of the Company.
10. Waiver of Usury Defense. The Company agrees
that it will not assert, plead (as a defense or otherwise) or
in any manner whatsoever claim (and will actively resist any
attempt to compel it to assert, plead or claim) in any action,
suit or proceeding that the interest rate on the Notes violates
present or future usury or other laws relating to the interest
payable on any debt and will not otherwise avail itself (and
will actively resist any attempt to compel it to avail itself)
of the benefits or advantages of any such laws.
11. Choice of Law and Venue; Jury Trial Waiver
THE VALIDITY OF THIS PURCHASE AGREEMENT, ITS
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS
OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
MISSOURI, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS
PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE
STATE OF MISSOURI. THE COMPANY AND EACH PURCHASER WAIVES, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO
OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH PURCHASER
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF
THE PURCHASE AGREEMENT OR THE NOTES OR ANY OF THE AGREEMENTS,
DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND
EACH PURCHASER REPRESENTS FOR ITSELF THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A NON-JURY TRIAL BY THE COURT.
12. Environmental Condition. None of the real
properties or assets subject to the Deed of Trust or the
Mortgage (the "Real Property") has ever been used by the
Company or CUHO or, to the best of the Company's or CUHO's
knowledge, by previous owners or operators in the disposal of,
or to produce, store, handle, treat, release, or transport, any
Hazardous Materials. None of Real Property has ever been
designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials
disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any
environmental protection statute has attached to any revenues
or to any real or personal property owned or operated by the
Company or CUHO. The Company and CUHO have not received a
summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental
agency concerning any action or omission by the Company or CUHO
resulting in the releasing or disposing of Hazardous Materials
into the environment. "Hazardous Materials" means all or any
of the following: (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or any other
formulation intended to define, list, or classify substances by
reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive
toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum
derived substances, natural gas, natural gas liquids, synthetic
gas, drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources; (c) any
flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or electrical equipment
which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per
million.
13. Licenses and Permits. All material licenses,
permits and consents and similar rights required from any
Federal, state or local governmental body for the ownership,
construction, use and operation of the businesses or properties
now owned or operated by the Company or CUHO at the Real
Property have been validly issued and are in full force and
effect, and each of the Company and CUHO is in compliance, in
all material respects, with all of the provisions thereof and
none of such licenses, permits or consents is the subject of
any pending or, to the best of the Company's or CUHO's
knowledge and belief, threatened proceeding for the revocation,
cancellation, suspension or non-renewal thereof.
14. Governmental Authority. No consent,
authorization, approval, or other action by, and no notice to
or filing with, any governmental authority or regulatory body
or any other Person is required (i) for the grant by the
Company and CUHO of the security interest in the Real Property
contemplated hereby or for the execution, delivery or
performance of this Purchase Agreement, the Notes and the Deed
of Trust by the Company or the execution, delivery or
performance of the Mortgage by CUHO, or (ii) for the perfection
of such security interests as are granted thereby.
15. Notices. Any notice or demand required or
desired to be given to or served upon the Company or Purchasers
in connection herewith shall be in writing and deemed to have
been sufficiently given or served for all purposes when
delivered in person or when deposited in the United States
mails, certified or registered, postage prepaid, if to the
Company, addressed or delivered as follows:
If to the Company: Comprehensive Care
Corporation
16305 Swingley
Ridge Drive, Suite 100
Chesterfield,
Missouri 63017
Attention:
Secretary
If to the Purchasers: Lindner Bulwark
Fund, Inc.
c/o Ryback
Management
7711 Carondelet
Avenue, Suite 700
St. Louis,
Missouri 63105
Attention: Larry
Callahan
Principal Amount
of Notes
Purchased Purchasers:
$ 2,000,000.00 Lindner
Bulwark Fund, Inc.
$ 2,000,000.00 Total
or, if any other address shall at any time be designated by the
Company or by the Purchaser in writing in conformance with the
provisions hereof, to such other address.<PAGE>
16. Parties in Interest. All the terms and
provisions of this Purchase Agreement shall bind and inure to
the benefit of the parties hereto and their respective
successors and assigns, other than purchasers of Common Stock
sold to the public pursuant to Section 5 hereof.
17. Section and Other Headings. Section and other
headings herein are for reference purposes only, and shall not
be used in any way to govern, limit, modify, construe or
otherwise affect this Purchase Agreement.
18. Counterparts. This Purchase Agreement may be
executed with each Purchaser in one or more counterparts, each
of which shall be deemed an original, but all of which together
shall be deemed but one and the same instrument.
19. Attorneys' Fees. In the event of any suit or
action arising out of an Event of Default under this Purchase
Agreement or the Notes issued hereunder, the Purchasers shall
be entitled to reasonable attorneys' fees and costs of suit.
IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be executed by the undersigned persons thereunto
duly authorized.
"Company"
COMPREHENSIVE CARE
CORPORATION
By:/S/ Chriss W.
Street
Chriss W.
Street,
Chairman
of the
Board,
Chief
Executive
Officer
and
President
"Purchasers"
LINDNER BULWARK
FUND, INC.
By: /S/ Larry
Callahan
Its:
Vice President
By:
Its: <PAGE>
EXHIBIT A
TO
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
INCORPORATED BY REFERENCE TO THE ATTACHED
COMPREHENSIVE CARE CORPORATION
SECURED CONVERTIBLE NOTE
<PAGE>
THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR
INVESTMENT IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION 4(2) OF
SAID ACT AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE
DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES
ISSUED UPON CONVERSION HEREOF MAY BE OFFERED FOR SALE OR SOLD
OR OTHERWISE DISPOSED OF EXCEPT UPON COMPLIANCE WITH SAID ACT
AND AS PERMITTED BY THE PURCHASE AGREEMENT, A COPY OF WHICH IS
ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE
COMPANY.
COMPREHENSIVE CARE CORPORATION
SECURED CONVERTIBLE NOTE
No.
1
St.
Louis, Missouri
January 9, 1995
FOR VALUE RECEIVED, the undersigned, COMPREHENSIVE CARE
CORPORATION, a Delaware corporation (the "Company"), hereby
promises to pay to Lindner Bulwark Funds, Inc. (the "Holder") or
order, the principal amount of Two Million and no/100ths dollars
($2,000,000), such amount to be due and payable on January 9,
1997. Interest on the unpaid principal balance from the date
hereof shall be payable quarterly commencing April 9, 1995, and
on each July 9, October 9, January 9, and April 9, thereafter, at
the rate of twelve and one-half percent (12-1/2%) per annum.
Provided, however, that upon and during the continuance of an
Event of Default under this Note, the Company shall pay an
additional finance charge at the rate of two and one-half percent
(2-1/2%) per annum.
Provided, further, that the Company shall have the right
to redeem all or a portion of the principal amount of this Note
upon thirty (30) days' written notice to the Holder effective at
any time on or prior to January 9, 1996 at a price equal to 120%
of the principal amount of the Note being redeemed, and the right
to redeem all or a portion of the principal amount of this Note
upon thirty (30) days' written notice to the Holder effective at
any time on or after the first anniversary and prior to the
second anniversary of the date of this Note at a price equal to
110% of the principal amount of the Note being redeemed.
Payments of principal and interest shall be made in
lawful money of the United States of America, at the principal
office of the Holder or at such other place as the Holder hereof
shall have designated to the Company in writing.
This Note is secured by a deed of trust of even date
herewith encumbering certain real property in the County of
Arapahoe, State of Colorado ("Deed of Trust"), and a mortgage of
even date herewith encumbering certain real property in the
County of Hamilton, State of Ohio ("Mortgage").
<PAGE>
This Note is made pursuant to a certain Secured
Convertible Note Purchase Agreement dated as of January 5, 1995
(the "Purchase Agreement") between the Company and the Purchasers
named therein, and the Holder hereof is entitled to the benefits
of the Purchase Agreement and may exercise the remedies provided
for thereby or otherwise available in respect thereof, in case of
any material breach thereof by the Company. (This Note and other
Notes identical in terms (except for name and face amount) issued
to Holder and to other Holders who are parties to said Agreement,
are hereinafter collectively called the "Notes".) In case of an
Event of Default, as defined herein, the unpaid balance of the
principal of this Note may be declared and become due and payable
in the manner provided herein.
This Note is issued subject to the following additional
terms and conditions:
1. Conversion.
(a) Subject to any limitations
expressly provided in the Purchase Agreement, any holder of this
Note will have the right at its option at any time to and
including the date on which the principal amount of and interest
on this Note is paid in full to convert, subject to the terms and
provisions hereof, all or a portion of the principal amount of
this Note, into shares of the Company's Common Stock, $.01 par
value per share, at the conversion price hereinafter provided.
(b) To convert this Note, in whole or
in part as provided herein at the Holder's election, the Holder
hereof shall surrender this Note and give written notice to the
Company of his intention to convert, stating the portion of the
Note that is to be converted and the name and address of each
person in whose name a share or shares of stock issuable upon
such conversion is to be registered. If requested by the
Company, said Holder shall also deliver to the Company a
statement of each such person in whose name shares are to be
registered that such person intends to acquire such shares for
investment and not with a view to the distribution thereof.
(c) As promptly as practical after the
surrender and giving of notice to convert as herein provided, the
Company shall (i) pay the Holder the amount of accrued and unpaid
interest on this Note to the date on which such conversion is
made or deemed made, as hereinafter provided in subparagraph 2(b)
hereof; and (ii) deliver or cause to be delivered at its office
or agency maintained for that purpose to or upon written order of
the Holder of the Note certificates representing the number of
fully paid and nonassessable shares of Common Stock of the
Company into which said Note is converted and, in the event of
partial conversion, a new Note in an aggregate principal amount
equal to the unconverted portion of said Note, dated as of the
date to which interest has been paid, and if no interest has been
paid, dated as of the date of the Note converted in part, and in
all other respects identical to the Note converted. The Company
shall have the right to imprint upon such certificates the legend
set forth in Section 3 of the Purchase Agreement.
(d) The conversion price for each share
of Common Stock issuable pursuant to the conversion of the Note
shall be six dollars ($6.00) per share payable in lawful money of
the United States of America and shall be adjusted as provided in
Section 3.6 hereof, and as provided below (hereinafter called the
"Conversion Price").<PAGE>
2. Reservation of Shares.
(a) The Company covenants and agrees
that it, concurrently with issuance of the Notes, shall have
reserved and shall at all times thereafter reserve and keep
available out of its authorized but unissued Common Stock, solely
for the purpose of issuing such shares upon the conversion of the
Notes, the full number of shares of Common Stock deliverable upon
the conversion of all Notes, subject to the aggregate limitation
provided in the Purchase Agreement. The Company covenants and
agrees that the shares of its Common Stock delivered upon
conversion of the Notes shall at the time of delivery of the
certificates for such shares of Common Stock, be validly issued
and outstanding and fully paid and nonassessable shares of Common
Stock. The Company further covenants and agrees that it will pay
when due and payable any and all Federal and state original issue
taxes which may be payable in respect of the issue of the Notes
or any shares of Common Stock upon the conversion of Notes. The
Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the transfer
and delivery of Notes or the issuance or delivery of certificates
for Common Stock upon the conversion of any Notes, all such tax
being payable by the Holder of such Notes at the time of
surrender.
(b) Each person in whose name any
certificate for shares of Common Stock is issuable upon the
exercise of this Note shall for all purposes be deemed to have
become the holder of record of the Common Stock represented
thereby on, and such certificate shall be dated, the date upon
which the Note was duly surrendered and notice of conversion was
given; provided, however, that if the date of such surrender and
notice is a date upon which the stock transfer books of the
Company are closed, such person shall be deemed to have become
the record holder of such shares on, and such certificate shall
be dated, the next prior business day on which the stock transfer
books of the Company are open.
3. Adjustments to Conversion Price.
3.1 In case the Company shall at any time or
from time to time after the date of issuance of the Notes issue
any additional shares of Common Stock (or any security
convertible into shares of Common Stock or any rights or options
to purchase shares of Common Stock as provided in Section 3.3(c)
below) for a consideration per share less than the Conversion
Price in effect immediately prior to the issuance of such
additional shares, or without consideration, then, and thereafter
successively upon each such issuance, the Conversion Price in
effect immediately prior to the issuance of such additional
shares shall forthwith be reduced to a price determined by
dividing:
(a) An amount equal to the sum of
(i) the number of shares of capital stock outstanding immediately
prior to such issuance multiplied by the then existing Conversion
Price, plus (ii) the consideration, if any, received by the
Company upon such issuance, by
(b) The total number of shares of
capital stock outstanding immediately after the issuance of such
additional shares.
3.2 The Company shall not be required to make
any adjustment of the Conversion Price in accordance with
Section 3.1 if the amount of such adjustment shall be less than
$.01, but in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment of the Conversion Price which, together with all
adjustments thereof so carried forward, shall amount to not less
than $.01.
3.3 For the purpose of adjustments under
Section 3.1, the following provisions shall also be applicable:
(a) In the case of the issuance of
additional shares of capital stock for cash, the consideration
received by the Company therefor shall be deemed to be the net
cash proceeds received for such shares without deducting any
commissions or other expenses paid or incurred by the Company for
any underwriting of, or otherwise in connection with, the
issuance of such shares.
(b) In case of the issuance (otherwise
than upon conversion of Notes or exchange of shares of capital
stock) of additional shares of capital stock for a consideration
other than cash or a consideration a part of which shall be other
than cash, the amount of the consideration shall be determined by
the Board of Directors of the Company.
(c) In the case of the issuance by the
Company after the date of issuance of the Notes, of any security
that is convertible into shares of capital stock or any rights or
options to purchase shares of Common Stock, (i) the Company shall
be deemed to have issued the maximum number of shares of capital
stock deliverable upon the exercise of such rights or options or
upon conversion of such securities and (ii) the consideration
therefor shall be deemed to be the sum of (x) the consideration
received by the Company for such convertible securities or for
such other rights or options as the case may be, without
deducting therefrom any expenses or commissions incurred or paid
by the Company for any underwriting or issuance of such
convertible security or right or option, plus (y) the
consideration or adjustment payment to be received by the Company
in connection with such conversion, plus (z) the minimum price at
which shares of capital stock are to be delivered upon the
exercise of such rights or options, or, if no minimum price is
specified and such shares are to be delivered at the option price
related to the market value of the subject shares, an option
price bearing the same relation to the market value of the
subject shares at the time such rights or options were granted,
provided that as to such options such further adjustment as shall
be necessary on the basis of the actual option price at the time
of exercise shall be made at such time if the actual option price
is less than the aforesaid assumed option price. Except as above
stated, no further adjustment of the Conversion Price shall be
made as a result of the actual issuance of the shares of capital
stock referred to in this subparagraph (c).
(d) For the purpose hereof, any
additional shares of capital stock issued as a stock dividend
shall be deemed to have been issued for no consideration.
(e) The number of shares of capital
stock at any time outstanding shall include (i) all outstanding
common stock of the Company, and (ii) the aggregate number of
shares deliverable in respect of the convertible securities,
rights and options referred to in subparagraph (c) of this
Section 3.3, provided that, with respect to shares referred to in
clause (i) of such subparagraph (c), to the extent that such
options, warrants or conversion privileges are not exercised,
such shares shall be deemed to be outstanding only until the
expiration dates of the rights, options or conversion privilege
or the prior cancellation thereof. Notwithstanding the
foregoing, there shall not be taken into account, for the purpose
of any computation made pursuant to Section 3.1, whether for the
determination of the number of shares of capital stock issued or
outstanding on or prior to any date, or otherwise: (i) any
options, warrants, or rights to purchase shares of capital stock
of the Company in existence on the date of issuance of the Notes,
(ii) any options, warrants, or rights for the purchase of shares
of capital stock hereafter granted to any employee or director of
the Company, including such grant with respect to any employees'
or directors' stock option plan or stock purchase or other such
plan or grant, provided that such options, warrants, grants and
rights hereafter granted together with all other then outstanding
options, warrants, grants and rights granted to employees do not
in the aggregate provide for the issuance of more than 20% of the
then outstanding shares of the capital stock of the Company,
(iii) the Company's Shareholder Rights Plan, or (iv) any shares
of capital stock issued upon the exercise of any such options,
warrants, or conversion rights.
3.4 If at any time or from time to time the
Company shall by subdivision, consolidation or reclassification
of shares, or otherwise, change as a whole, the outstanding
shares of Common Stock into a different number or class of
shares, the outstanding shares issuable upon conversion of each
Note and the Conversion Price per share shall be proportionately
and correspondingly adjusted.
3.5 In case the Company shall declare a
dividend upon the capital stock payable otherwise than out of
earnings or earned surplus and otherwise than in capital stock,
the Conversion Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal,
in the case of a dividend in cash, to the amount thereof payable
per share of the capital stock, or in the case of any other
dividend, to the fair value thereof per share of the capital
stock as determined by the Board of Directors of the Company.
For the purposes of the foregoing, a dividend other than in cash
shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as
determined in good faith by the Board of Directors of the
Company. Such reductions shall take effect as of the date on
which a record is taken, the date as of which the holders of
capital stock of record entitled to such dividend are to be
determined.
3.6 Irrespective of any adjustments or changes
in the Conversion Price or the number of shares of Common Stock
actually issuable under the several Notes, the Notes shall
continue to express the Conversion Price per share and the number
of shares issuable thereunder as expressed in the Notes when
initially issued.
3.7 The Company shall give notice to the
Holder of any change in the Conversion Price under this Note and
the method of calculation thereof. The Company shall give the
Holder advance notice of any cash dividends, rights offerings and
other transactions directly for the benefit of holders of Common
Stock of the Company.
4. Merger.
If, prior to the payment in full or conversion in full of
the Notes, the Company shall at any time consolidate with or
merge into another corporation, the Holder of each Note will
thereafter be entitled to receive, upon the conversion thereof,
the securities or property to which a holder of the number of
shares of Common Stock then issuable upon the conversion of such
Note would have been entitled upon such consolidation or merger,
and the Company shall take such steps in connection with such
consolidation or merger as may be necessary to assure that this
Note (or a new Note issued by the succeeding company containing
exactly the same terms as this Note) shall remain in effect and
that the provisions of this Note shall thereafter be applicable,
as nearly as reasonably may be, in relation to any securities or
property thereafter issuable upon the conversion of the Notes.
A sale of all or substantially all of the assets of the Company
for a consideration (apart from the assumption of obligations)
consisting principally of securities shall be deemed a
consolidation or merger for the foregoing purposes.
5. Fractional Shares.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock upon the
conversion of Notes, but in respect of any final fraction of a
share it will make a payment in cash based on the then market
value of the Common Stock as determined by the Company's Board of
Directors.
6. Default.
"Event of Default" whenever used herein means any one of
the following events:
(a) Default in payment under this Note
or under any other loan instrument of the Company of: (i) any
installment of interest when it becomes due and the continuance
of such default for a period of fifteen (15) days after receipt
of written notice to the Company of such default, or (ii) the
principal when it becomes due;
(b) The entry of a decree or order by
any court having jurisdiction in the premises adjudging the
Company bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under the Federal
Bankruptcy Code or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee (or similar
official) of the Company or any substantial part of its property,
and the continuance of such decree or order in effect for a
period of ten (10) consecutive days;
(c) The institution by the Company of
proceedings to be adjudicated a bankrupt or insolvent, or the
consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or
answer to consent seeking reorganization or relief under the
Federal Bankruptcy Code or any other applicable federal or state
law, or the consent by it to the filing of any such petition or
to the appointment of any receiver, liquidator, assignee, trustee
(or similar official) for the Company or any substantial part of
its property, or the making by it of any assignment for the
benefit of creditors;
(d) Any default under the Deed of Trust
or the Mortgage; or
(e) The real property encumbered by the
Mortgage or the Deed of Trust is sold or transferred other than
to an entity controlling, controlled by or under common control
with the Company.
In case of the occurrence of an Event of Default
(i) written notice thereof shall be given by the Company to the
Holder of this Note and (ii) the entire unpaid principal amount
of any Note together with any interest then unpaid shall
immediately become due and payable at the option of the Holder
thereof without presentment, demand, protest, or other notice of
any kind, all of which are <PAGE>
hereby expressly waived. In such case, any such
Holder may proceed to protect and enforce his rights by a suit in equity,
action at law, or other appropriate proceedings.
In the event that an Event of Default, as defined above,
necessitates legal action, the Company agrees to pay all costs
and expenses thereof, including reasonable attorneys' fees and
costs of suit and collection.
7. No Present Right as Stockholder on account of
Holding Note. No Holder of this Note shall be entitled to vote
or receive dividends or be deemed the holder of Common Stock or
any other securities of the Company which may at any time be
issuable on the conversion hereof for any purpose, nor shall
anything contained herein be construed to confer upon the Holder
of this Note, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or
upon any matters submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock
to no par value, consolidation, merger, conveyance, or otherwise)
or to receive dividends or subscriptions rights or otherwise
until the Note shall have been converted and the Common Stock
issuable upon the conversion hereof shall have been come
deliverable as provided herein.
WITNESS the seal of the Company and the signature of its
duly authorized officers.
COMPREHENSIVE CARE CORPORATION
By:
Chriss W. Street, Chairman of the Board, Chief Executive
Officer and President
ATTEST:
Kerri Ruppert, Secretary
[SEAL]
- -------------------------------------------------------------
COMPREHENSIVE CARE CORPORATION
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Rights Agent
Rights Agreement
Dated as of April 19, 1988
Restated and Amended as of October 21, 1994
<PAGE>
RIGHTS AGREEMENT
Rights Agreement, dated as of April 19, 1988, restated
and amended as of 5:00 o'clock p.m. New York City time, October
21, 1994 (the "Effective Time"), between Comprehensive Care
Corporation, a Delaware corporation (the "Company"), and
Continental Stock Transfer & Trust Company, as Rights Agent
(the "Rights Agent").
RECITALS
A. The Board of Directors of the Company had authorized
and declared a dividend of one right (a "Right") for each Old
Common Share (as defined in Section 1(f) hereof) outstanding at
the authorized the issuance of one Right with respect to each
Old Common Share that has or shall become outstanding between
the Record Date and the earliest of (1) the Distribution Date,
(2) the Redemption Date or (3) the Final Expiration Date (as
such terms are defined in Section 1(k) hereof), each Right
initially representing the right to purchase one Old Common
Share.
B. The Board of Directors of the Company have authorized a
reclassification of each Old Common Share into one-tenth
(1/10th) of one Common Share (as defined in Section 1(f)
hereof).
C. Pursuant to the determination of the Board of Directors
to adjust the number of Rights outstanding as of the Effective
Time, each one Right Outstanding immediately prior to the
Effective Time ("Old Right") shall become one-tenth (1/10th) of
one Right; and the Purchase Price of one Common Share shall
become $300.
NOW, THEREFORE, in consideration of the premises and
the mutual agreements herein set forth, the parties hereby
agree as follows:
Section 1. Certain Definitions. For purposes of
this Rights Agreement, the following terms have the meanings
indicated:
(a) "Acquiring Person" shall mean any Person (as
such term is hereinafter defined) who or which, together with
all Affiliates and Associates (as such terms are hereinafter
defined) of such Person, shall be the Beneficial Owner (as such
term is hereinafter defined) of 25% or more of the Common
Shares of the Company then outstanding but shall not include
the Company, any Subsidiary of the Company or any employee
benefit plan of the Company or of any Subsidiary of the Company
or any entity holding shares of capital stock of the Company
for or pursuant to the terms of any such plan, in its capacity
as an agent or trustee for any such plan.
(b) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations, as in effect on the date of this
Rights Agreement, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner"
of and shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such
Person's Affiliates or Associates beneficially
owns, directly or indirectly;
(ii) which such Person or any of such
Person's Affiliates or Associates, directly or
indirectly, has (A) the right to acquire
(whether such right is exercisable immediately
or only after the passage of time) pursuant to
any agreement, arrangement or understanding,
whether or not in writing (other than customary
agreements with and between underwriters and
selling group members with respect to a bona
fide public offering of securities), or upon the
exercise of conversion rights, exchange rights,
rights (other than the Rights), warrants or
options, or otherwise; provided, however, that a
Person shall not be deemed the Beneficial Owner
of, or to beneficially own, (1) securities
tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of
such Person's Affiliates or Associates until
such tendered securities are accepted for
purchase or exchange or (2) securities which a
Person or any of such Person's Affiliates or
Associates may acquire, does acquire or may be
deemed to have the right to acquire, pursuant to
any merger or other acquisition agreement
between the Company and such Person (or one or
more of his Affiliates or Associates) if such
agreement has been approved by the Board of
Directors of the Company prior to there being an
Acquiring Person; or (B) the right to vote
pursuant to any agreement, arrangement or
understanding (whether or not in writing);
provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to
beneficially own, any security under this
clause (B) if the agreement, arrangement or
understanding to vote such security (1) arises
solely from a revocable proxy or consent given
to such Person in response to a public proxy or
consent solicitation made pursuant to, and in
accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not
also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned,
directly or indirectly, by any other Person (or
any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates
or Associates has any agreement, arrangement or
understanding (other than customary agreements
with and between underwriters and selling group
members with respect to a bona fide public
offering of securities), whether or not in
writing, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as
described in the proviso to Section 1(c)(ii)(B))
or disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in
either the State of New York or California are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean
5:00 p.m., New York City time, on such date; provided, however,
that if such date is not a Business Day it shall mean
5:00 p.m., New York City time, on the next succeeding Business
Day.
(f) "Common Shares" when used with reference to the
Company shall mean the shares of Common Stock, par value $.01
per share, of the Company as reclassified as of the Effective
Time. "Common Shares" when used with reference to any Person
other than the Company shall mean the capital stock (or equity
interest) with the greatest voting power of such other Person
or, if such Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned
Person. "Old Common Shares" shall mean the shares of Common
Stock, par value $.10 per share, as constituted at and after
the Record Date and prior to the Effective Time.
(g) "Continuing Director" shall mean (i) any member
of the Board of Directors of the Company, while such Person is
a member of the Board, who is not an Acquiring Person, or an
Affiliate or Associate or an Acquiring Person, or a
representative, nominee or designee of any Acquiring Person or
of any such Affiliate or Associate, and was a member of the
Board prior to the time that any Person becomes an Acquiring
Person or (ii) any Person who subsequently becomes a member of
the Board, while such Person is a member of the Board, who is
not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative, nominee or designee of
an Acquiring Person or of any such Affiliate or Associate, if
such Person's nomination for election or election to the Board
is recommended or approved by a majority of the Continuing
Directors.
(h) "Person" shall mean any individual, partnership,
firm, corporation or other entity, and shall include any
successor (by merger or otherwise) of such entity.
(i) "Shares Acquisition Date" shall mean the first
date of public announcement by the Company or an Acquiring
Person that an Acquiring Person has become such.
(j) "Subsidiary" of any Person shall mean any
corporation or other entity of which a majority of the voting
power of the voting equity securities or equity interests is
owned, of record or beneficially, directly or indirectly, by
such Person.
(k) The following terms shall have the meanings
defined for such terms in the Sections set forth below:
Term Section
Adjustable Shares 11(a)(ii)
common stock equivalents
Company Recitals 11(a)(iii)
current per share market price 11(d)
Current Value 11(a)(iii)
Distribution Date 3(a)
Final Expiration Date 7(a)
Purchase Price 4 Record Date Recitals
Redemption Date 7(a)
Redemption Price 23(a)
Right Recitals
Right Certificate 3(a)
Rights Agent Recitals
Spread 11(a)(iii)
Substitution Period 11(a)(iii)
Summary of Rights 3(b)
Trading Day 11(d)
Section 2. Appointment of Rights Agent. The
Company hereby appoints the Rights Agent to act as agent for
the Company and the holders of the Rights (who, in accordance
with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time
appoint such Co-Rights Agents as it may deem necessary or
desirable. In the event the Company appoints one or more co-
Rights Agents the respective duties of the Rights Agent and any
co-Rights Agent shall be as the Company shall determine.
Contemporaneously with such appointment, if any, the Company
shall notify the Rights Agent thereof.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the
Shares Acquisition Date or (ii) the tenth day after the date of
the commencement of, or first public announcement of the intent
of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding shares of
capital stock of the Company for or pursuant to the terms of
any such plan, in its capacity as an agent or trustee for any
such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating more than 30% or
more of the then outstanding Common Shares of the Company
(including any such date which is after the date of this Rights
Agreement; the earlier of (i) and (ii) being herein referred to
as the "Distribution Date"), (x) the Rights (unless earlier
terminated, redeemed or expired) will be evidenced (subject to
the provisions of paragraph (b) of this Section 3) by the
certificates for Common Shares registered in the names of the
holders thereof (which certificates for Common Shares shall
also be deemed to be Right Certificates) and not by separate
certificates, and (y) the Rights (and the right to receive
certificates therefor) will be transferable only in connection
with the transfer of the underlying Common Shares. As soon as
practicable after the Distribution Date, the Rights Agent will
send, by first-class, insured, postage-prepaid mail, to each
record holder of Common Shares as of the close of business on
the Distribution Date, at the address of such holder shown on
the records of the Company, a certificate for Rights, in
substantially the form of Exhibit A hereto (a "Right
Certificate"), evidencing one Right for each Common Share so
held. As of the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) On the Record Date or as soon as practicable
thereafter, the Company will send or cause to be sent a copy of
a Summary of Rights to Purchase Common Shares, in substantially
the form attached hereto as Exhibit B (the "Summary of
Rights"), by first-class, postage-prepaid mail, to each record
holder of Common Shares as of the close of business on the
Record Date at the address of such holder shown on the records
of the Company. With respect to certificates for Common Shares
outstanding as of the close of business on the Record Date,
until the Distribution Date (or the earlier Redemption Date or
Final Expiration Date), the Rights will be evidenced by such
certificates for Common Shares registered in the names of the
holders thereof (together with a copy of the Summary of Rights)
and the registered holders of the Common Shares shall also be
registered holders of the associated Rights. Until the
Distribution Date (or the earlier Redemption Date or Final
Expiration Date), the surrender for transfer of any certificate
for Common Shares outstanding at the close of business on the
Record Date, with or without a copy of the Summary of Rights
attached thereto, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become
outstanding (whether upon issuance out of authorized but
unissued Common Shares, issuance out of treasury or transfer or
exchange of outstanding Common Shares) after the Record Date
but prior to the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date shall be deemed
also to be certificates for Rights, and shall have impressed,
printed, stamped, written or otherwise affixed onto them the
following legend:
This certificate also evidences and entitles the
holder hereof to certain Rights as set forth in
a Rights Agreement between Comprehensive Care
Corporation and Security Pacific National Bank,
dated as of April 19, 1988 (the "Rights
Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of
which is on file at the principal executive
offices of Comprehensive Care Corporation.
Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced
by separate certificates and will no longer be
evidenced by this certificate. Comprehensive
Care Corporation will mail to the holder of this
certificate a copy of the Rights Agreement
without charge after receipt of a written
request therefor. As described in the Rights
Agreement, Rights issued to Acquiring Persons or
Associates or Affiliates thereof (as defined in
the Rights Agreement) shall become null and
void.
With respect to such certificates containing the foregoing
legend, until the Distribution Date (or the earlier Redemption
Date or Final Expiration Date), the Rights associated with the
Common Shares represented by such certificates shall be
evidenced by such certificates (together with a copy of the
Summary of Rights) and the surrender for transfer of any such
certificates shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby. In the
event that the Company purchases or acquires any Common Shares
after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed
cancelled and retired so that the Company shall not be entitled
to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. Form of Right Certificates. The Right
Certificates (and the forms of election to purchase shares,
certification and assignment to be printed on the reverse
thereof) shall be substantially the same as Exhibit A hereto
and may have such marks of identification or designation and
such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with
the provisions of this Rights Agreement, or as may be required
to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation
of any stock exchange or trading system on which the Rights may
from time to time be listed or quoted, or to conform to usage.
Subject to the terms and conditions hereof, the Right
Certificates, whenever issued, shall be dated as of the Record
Date, and shall show the date of countersignature by the Rights
Agent, and on their face shall entitle the holders thereof to
purchase such number of Common Shares as shall be set forth
therein at the price per share set forth therein (the "Purchase
Price"), but the number and kind of such shares and the
Purchase Price shall be subject to adjustment as provided
herein.
Section 5. Countersignature and Registration. The
Right Certificates shall be executed on behalf of the Company
by its Chairman of the Board of Directors, President or any
Senior Vice President, Executive Vice President or Vice
President, either manually or by facsimile signature, and shall
have affixed thereto the Company's seal or a facsimile thereof
which shall be attested by the Secretary or any Assistant
Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually
countersigned by an authorized signatory of the Rights Agent,
but it shall not be necessary for the same signatory to
countersign all of the Right Certificates hereunder. No Right
Certificate shall be valid for any purpose unless so
countersigned. In case any officer of the Company who shall
have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such
Right Certificates, nevertheless, may be countersigned by the
Rights Agent, and issued and delivered by the Company with the
same force and effect as though the person who signed such
Right Certificates had not ceased to be such officer of the
Company; and any Right Certificate may be signed on behalf of
the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer
of the Company to sign such Right Certificate, although at the
date of the execution of this Rights Agreement any such person
was not such an officer.
Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at one of its offices in New York,
New York, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names
and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by
each of the Right Certificates and the date of each of the
Right Certificates.
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates; Mutilated, Destroyed, Lost or
Stolen Right Certificates. Subject to the provisions of
Sections 11(a)(ii) and 14 hereof, at any time after the close
of business on the Distribution Date, and at or prior to the
close of business on the earlier of the Redemption Date or the
Final Expiration Date, any Right Certificate or Right
Certificates may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of
Common Shares as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or
exchange any Right Certificate shall make such request in
writing delivered to the Rights Agent, and shall surrender,
together with any required form of assignment and certificate
duly completed, the Right Certificate or Right Certificates to
be transferred, split up, combined or exchanged at the office
of the Rights Agent designated for such purpose. Thereupon the
Rights Agent shall, subject to Sections 11(a)(ii) and 14
hereof, countersign and deliver to the person entitled thereto
a Right Certificate or Right Certificates, as the case may be,
as so requested. The Company may require payment from the
holders of Right Certificates of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection
with any transfer, split up, combination or exchange of such
Right Certificates.
Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case
of loss, theft or destruction, of indemnity or security
reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to
the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right
Certificate of like tenor to the Rights Agent for
countersignature and delivery to the registered owner in lieu
of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights.
(a) The registered holder of any Right Certificate
may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with
the form of election to purchase and certification on the
reverse side thereof duly executed, to the Rights Agent at the
office of the Rights Agent designated for such purpose,
together with payment of the Purchase Price for each Common
Share as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on April 19, 1998 (the
"Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption
Date"), or (iii) the closing of any merger or other acquisition
transaction involving the Company pursuant to an agreement of
the type described in Section 1(c)(ii)(A)(2) hereof.
(b) The Purchase Price for each Common Share
pursuant to the exercise of a Right shall initially be $30,
shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in lawful money
of the United States of America in accordance with
paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase and
certification duly executed, accompanied by payment of the
Purchase Price for the shares to be purchased and an amount
equal to any applicable transfer tax required to be paid by the
holder of such Right Certificate in accordance with Section 9
hereof, by certified or cashier's check, or money order payable
to the order of the Company, the Rights Agent shall thereupon
promptly (i) requisition from any transfer agent of the Common
Shares (or make available, if the Rights Agent is the transfer
agent) certificates for the number of Common Shares to be
purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, (ii) when
appropriate, requisition from the Company the amount of cash to
be paid in lieu of issuance of fractional shares in accordance
with Section 14, (iii) promptly after receipt of such
certificates, cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, promptly
deliver such cash to or upon the order of the registered holder
of such Right Certificate.
(d) In case the registered holder of any Right
Certificate shall exercise less than all the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent
to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to the registered holder of such
Right Certificate or to his duly authorized assigns, subject to
the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Rights
Agreement to the contrary, neither the Rights Agent nor the
Company shall be obligated to undertake any action with respect
to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless the certificate
contained in the form of election to purchase set forth on the
reverse side of the Right Certificate surrendered for such
exercise shall have been duly completed and signed by the
registered holder thereof and the Company shall have been
provided with such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the
purpose of exercise, transfer, split up, combination or
exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall
be cancelled by it, and no Right Certificates shall be issued
in lieu thereof except as expressly permitted by any of the
provisions of this Rights Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Right
Certificate acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled
Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right
Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
Section 9. Reservation and Availability of Common
Shares. The Company covenants and agrees that it will cause to
be reserved and kept available out of its authorized and
unissued Common Shares, or any authorized and issued Common
Shares held in its treasury, the number of Common Shares that
will be sufficient to permit the exercise in full of all
outstanding Rights.
So long as the Common Shares issuable upon the exercise
of Rights may be listed on any national securities exchange or
traded in the over-the-counter market and quoted on the
National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ"), the Company shall use its best
efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed
on such exchange or so traded in such over-the-counter market,
upon official notice of issuance upon such exercise.
The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Common
Shares delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to
payment of the Purchase Price), be duly and validly authorized
and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will
pay when due and payable any and all Federal and state transfer
taxes and charges which may be payable in respect of the
issuance or delivery of the Right Certificates or of any Common
Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Right
Certificates to a person other than, or the issuance or
delivery of certificates for the Common Shares in a name other
than that of, the registered holder of the Right Certificate
evidencing Rights surrendered for exercise or to issue or
deliver any certificates for Common Shares in a name other than
that of the registered holder upon the exercise of any Rights
until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Common Shares Record Date. Each person
in whose name any certificate for Common Shares is issued upon
the exercise of Rights shall for all purposes be deemed to have
become the holder of record of the Common Shares represented
thereby on, and such certificate shall be dated, the date upon
which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if
the date of such surrender and payment is a date upon which the
Common Shares transfer books of the Company are closed, such
person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Common Shares transfer
books of the Company are open.
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights. The Purchase Price, the number of
shares covered by each Right and the number of Rights
outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any
time after the date of this Rights Agreement
(A) declare a dividend on the Common Shares payable in
Common Shares, (B) subdivide the outstanding Common
Shares, (C) combine the outstanding Common Shares into
a smaller number of shares or (D) issue any shares of
its capital stock in a reclassification of the Common
Shares (including any such reclassification in
connection with a consolidation or merger in which the
Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the
Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such
subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on
such date, shall be proportionately adjusted so that
the holder of any Right exercised after such time shall
be entitled to receive the aggregate number and kind of
shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time
when the Common Shares transfer books of the Company
were open, he would have owned upon such exercise and
been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. If an
event occurs which would require an adjustment under
both Section 11(a)(i) and Section 11(a)(ii), the
adjustment provided for in this Section 11(a)(i) shall
be in addition to, and shall be made prior to, the
adjustment required pursuant to, Section 11(a)(ii).
(ii) In the event
(A) any Acquiring Person or any
Associate or Affiliate of any Acquiring Person,
at any time after the date of this Rights
Agreement, directly or indirectly, shall merge
into the Company or otherwise combine with the
Company and the Company shall be the continuing
or surviving corporation of such merger or
combination and the Common Shares of the Company
shall remain outstanding and not changed into or
exchanged for stock or other securities of any
other Person or the Company or cash or any other
property, or
(B) any Person shall become an
Acquiring Person, then, promptly following the
first occurrence of one of the events listed in
this subparagraph (ii), proper provision shall
be made so that each holder of a Right, except
as provided below, shall thereafter have a right
to receive, upon exercise thereof in accordance
with the terms of this Rights Agreement, such
number of Common Shares as shall equal the
result obtained by (x) multiplying the then-
current Purchase Price by the then-number of
Common Shares for which a Right is then
exercisable and (y) dividing that product by 50%
of the current per share market price of the
Common Shares (determined pursuant to Section
11(d)) on the fifth day after the earlier of the
date of the occurrence of, or the date of the
first public announcement of, one of the events
listed above in this subparagraph (ii) (the
"Adjustment Shares"); provided, however, that if
the transaction that would otherwise give rise
to the foregoing adjustment is also subject to
the provisions of Section 13 hereof, then only
the provisions of Section 13 hereof shall apply
and no adjustment shall be made pursuant to this
Section 11(a)(ii). Notwithstanding the
foregoing, upon the occurrence of either of the
events listed above in this subparagraph (ii),
any Rights that are or were acquired or
beneficially owned by the Acquiring Person or
any Associate or Affiliate of the Acquiring
Person shall become void and any holder (whether
or not such holder is an Acquiring Person or an
Associate or Affiliate of an Acquiring Person)
of such Rights shall thereafter have no right to
exercise such Rights under any provision of this
Rights Agreement. The Company shall not enter
into any transaction of the kind listed in this
subparagraph (ii) if at the time of such
transaction there are any rights, warrants,
instruments or securities outstanding or any
arrangements which, as a result of the
consummation of such transaction, would
eliminate or substantially diminish the benefits
intended to be afforded by the Rights. Any
Right Certificate issued pursuant to Section 3
hereof that represents Rights beneficially owned
by an Acquiring Person or any Associate or
Affiliate thereof and any Right Certificate
issued at any time upon the transfer of any
Rights to an Acquiring Person or any Associate
or Affiliate thereof or to any nominee of such
Acquiring Person, Associate or Affiliate, and
any Right Certificate issued pursuant to
Section 6, 7(d) or 22 or this Section 11 upon
transfer, exchange, replacement or adjustment of
any other Right Certificate referred to in this
sentence, shall contain the following legend
(provided, however, that the Rights Agent shall
not be responsible for affixing such legend
unless it has actual knowledge as to the
foregoing circumstances or the Company has
notified the Rights Agent in writing thereof):
The Rights represented by this Right Certificate
were issued to a Person who was an Acquiring
Person or an Affiliate or an Associate of an
Acquiring Person or a nominee thereof. This
Right Certificate and the Rights represented
hereby have become null and void as specified in
Section 11(a)(ii) of the Rights Agreement.
(iii) In the event that there shall not be
sufficient Treasury shares or authorized but unissued
Common Shares to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be
necessary to authorize additional Common Shares for
issuance upon exercise of the Rights, provided,
however, that if the Company is unable to cause the
authorization of a sufficient number of additional
Common Shares, then, in the event the Rights become so
exercisable, the Company, with respect to each Right
and to the extent necessary and permitted by applicable
law and any agreements or instruments in effect on the
date hereof to which it is a party, shall:
(A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right
(the "Current Value"), over (2) the Purchase Price
(such excess, the "Spread") and (B) with respect to
each Right, make adequate provision to substitute for
the Adjustment Shares, upon payment of the applicable
Purchase Price, (1) cash, (2) a reduction in the
Purchase Price, (3) Common Shares or other equity
securities of the Company (including, without
limitation, shares, or units of shares, of preferred
stock which the Board of Directors of the Company has
deemed to have the same value as Common Shares) (such
shares of preferred stock, "common stock equivalent")),
(4) debt securities of the Company, (5) other assets or
(6) any combination of the foregoing having an
aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board of
Directors of the Company based upon the advice of a
nationally recognized investment banking firm selected
by the Board of Directors of the Company; provided,
however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above
within thirty (30) days following the first occurrence
of one of the events listed in subparagraph (ii) above,
then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without
requiring payment of the Purchase Price, Common Shares
(to the extent available) and then, if necessary, cash,
which in the aggregate are equal to the Spread. If the
Board of Directors of the Company shall determine in
good faith that it is unlikely that sufficient
additional Common Shares could be authorized for
issuance upon exercise in full of the Rights, the
thirty (30) day period set forth above may be extended
to the extent necessary, but not more than ninety (90)
days following the first occurrence of one of the
events listed in subparagraph (ii) above, in order that
the Company may seek stockholder approval for the
authorization of such additional shares (such period as
may be extended, the "Substitution Period"). To the
extent that the Company determines that some action
need be taken pursuant to the first and/or second
sentences of this Section 11(a)(iii), the Company
(x) shall provide that such action shall apply
uniformly to all outstanding Rights, and (y) may
suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide
the appropriate form of distribution to be made
pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating
that the exercisability of the Rights has been
temporarily suspended as well as a public announcement
at such time as the suspension is no longer in effect.
For purposes of this Section 11(a)(iii), the value of
the Common Shares shall be the current per share market
price (as determined pursuant to Section 11(d) hereof)
on the date of the first occurrence of one of the
events listed in subparagraph (ii) above and the value
of any "common stock equivalent" shall be deemed to
have the same value as the Common Shares on such date.
(b) In case the Company shall fix a record date for
the issuance of rights or warrants to all holders of Common
Shares entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase
Common Shares (or securities convertible into Common Shares) at
a price per Common Share (or having a conversion price per
Common Share, if a security convertible into Common Shares)
less than the current per share market price of the Common
Shares (as defined in Section 11(d)) on such record date, the
Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common
Shares which the aggregate offering price of the total number
of Common Shares to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be
offered) would purchase at such current market price and the
denominator of which shall be the number of Common Shares
outstanding on such record date plus the number of additional
Common Shares to be offered for subscription or purchase (or
into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be
paid in a consideration part or all of which shall be in a form
other than cash, the value of such consideration shall be as
determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement
filed with the Rights Agent. Common Shares owned by or held
for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustments
shall be made successively whenever such a record date is
fixed; and in the event that such rights or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase
Price which would then be in effect if such record date had not
been fixed.
(c) In case the Company shall fix a record date for
the making of a distribution to all holders of the Common
Shares (including any such distribution made in connection with
a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of
indebtedness, securities or assets (other than a regular
periodic cash dividend at a rate not in excess of 125% of the
rate of the last regular period cash dividend theretofore paid
or a dividend payable in Common Shares) or subscription rights
or warrants (excluding those referred to in Section 11(b)), the
Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the
numerator of which shall be the current per share market price
of the Common Shares (as defined in Section 11(d)) on such
record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets, securities or
evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Common Share
and the denominator of which shall be such current per share
market price of the Common Shares. Such adjustments shall be
made successively whenever such a record date is fixed; and in
the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder,
the "current per share market price" of the Common Shares on
any date shall be deemed to be the average of the daily closing
prices per share of such Common Shares for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately
prior to such date; provided, however, that in the event that
the current per share market price of the Common Shares is
determined during any period following the announcement by the
issuer of such Common Shares of (i) a dividend or distribution
on such Common Shares payable in such Common Shares or
securities convertible into such Common Shares or (ii) any
subdivision, combination or reclassification of such Common
Shares, and prior to the expiration of 30 Trading Days after
the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or
reclassification, then, and in each such case, the "current
market price" shall be appropriately adjusted to reflect the
current market price per Common Share equivalent. The closing
price for each day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average
of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the Common
Shares are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed
on the principal national securities exchange on which the
Common Shares are listed or admitted to trading or, if the
Common Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in
the over-the-counter market, as reported by NASDAQ or such
other system then in use, or, if on any such date the Common
Shares are not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional
market maker making a market in the Common Shares selected by
the Board of Directors of the Company. If on any such date no
such market maker is making a market in the Common Shares, the
fair value of the Common Shares on such date as determined in
good faith by the Board of Directors of the Company shall be
used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Common
Shares are listed or admitted to trading is open for the
transaction of business or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, a
Monday, Tuesday, Wednesday, Thursday or Friday on which banking
institutions in the State of New York are not authorized or
obligated by law or executive order to close. If the Common
Shares are not publicly held or not so listed or traded,
"current per share market price" shall mean the fair value per
share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a
statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price. Any adjustments which
by reason of this Section 11(e) are not required to be made
shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-
thousandth of a share as the case may be. Notwithstanding the
first sentence of this Section 11(e), any adjustment required
by this Section 11 shall be made no later than the earlier of
(i) three years from the date of the transaction which requires
such adjustment or (ii) the date of the expiration of the right
to exercise any Rights.
(f) If as a result of an adjustment made pursuant to
Section 11(a), the holder of any right thereafter exercised
shall become entitled to receive any shares of capital stock of
the Company other than Common Shares, thereafter the number of
such other shares so receivable upon exercise of any Right
shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Shares contained in
Section 11(a) through (c), inclusive, and the provisions of
Sections 7, 9, 10 and 13 hereof with respect to the Common
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company
subsequent to any adjustment made to the Purchase Price
hereunder shall evidence the right to purchase, at the adjusted
Purchase Price, the number of Common Shares purchasable from
time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(h) Unless the Company shall have exercised its
election as provided in Section 11(i), upon each adjustment of
the Purchase Price as a result of the calculations made in
Section 11(b) and (c), each Right outstanding immediately prior
to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number
of shares (calculated to the nearest ten-thousandth) obtained
by (i) multiplying (x) the number of shares covered by a Right
immediately prior to this adjustment by (y) the Purchase Price
in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase
Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of
any adjustment of the Purchase Price to adjust the number of
Rights, in substitution for any adjustment in the number of
Common Shares issuable upon the exercise of a Right. Each of
the Rights outstanding after such adjustment of the number of
Rights shall be exercised for the number of Common Shares for
which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights
(calculated to the nearest ten-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make
a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made.
This record date may be the date on which the Purchase Price is
adjusted or any day thereafter, but, if the Right Certificates
have been issued, shall be at least 10 days later than the date
of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant
to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of
Right Certificates on such record date Right Certificates
evidencing, subject to Section 14 hereof, the additional Rights
to which such holders shall be entitled as a result of such
adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if
required by the Company, new Right Certificates evidencing all
the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for
herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the names
of the holders of record of Right Certificates on the record
date specified in the public announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of Common Shares issuable upon the
exercise of the rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price
per share and the number of shares which were expressed in the
initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an
adjustment reducing the Purchase Price below the then par
value, if any, of the Common Shares issuable upon exercise of
the Rights, the Company shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that
the Company may validly and legally issue fully paid and
nonassessable Common Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall
require that an adjustment in the Purchase Price be made
effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event
the issuing to the holder of any Right exercised after such
record date the Common Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise
over and above the Common Shares and other capital stock or
securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such
adjustment; provided, however, that the Company shall deliver
to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the
Common Shares, issuance wholly for cash of any of the Common
Shares at less than the current market price, issuance wholly
for cash of Common Shares or securities which by their terms
are convertible into or exchangeable for Common Shares, stock
dividends or issuance of rights, options or warrants referred
to hereinabove in this Section 11, hereafter made by the
Company to holders of its Common Shares shall not be taxable to
such stockholders.
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares. Whenever an adjustment is made as
provided in Sections 11 and 13 hereof, the Company shall
(a) promptly prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for
such adjustment, (b) promptly file with the Rights Agent and
with each transfer agent for the Common Shares a copy of such
certificate and (c) mail a brief summary thereof to each holder
of a Right Certificate in accordance with Section 25 hereof.
The Rights Agent shall be fully protected in relying on any
such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power.
(a) Except as provided in Section 13(b) hereof, in
the event, directly or indirectly, (A) the Company shall
consolidate with, or merge with and into, any other Person,
(B) any Person shall consolidate with the Company, or merge
with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares
shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any
other property, or (C) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or
earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a
whole) to any other Person, then, and in each such case, proper
provision shall be made so that (i) each holder of a Right
(except as otherwise provided herein) shall thereafter have the
right to receive, upon the exercise thereof in accordance with
the terms of this Rights Agreement, such number of Common
Shares of such other Person (including the Company as successor
thereto or as the surviving corporation) as shall be equal to
the result obtained by (x) multiplying the then-current
Purchase Price by the then-number of Common Shares for which a
Right is then exercisable (without taking into account any
adjustment previously made pursuant to Section 11(a)(ii)) and
(y) dividing that product by 50% of the current per share
market price of the Common Shares of such other Person
(determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer;
(ii) the issuer of such Common Shares shall thereafter be
liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Rights Agreement; (iii) the term
"Company" shall thereafter be deemed to refer to such issuer;
and (iv) such issuer shall take such steps (including, but not
limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure
that the provisions hereof shall thereafter be applicable, as
nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights. The
Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such
transaction there are any rights, warrants, instruments or
securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be
afforded by the Rights. The Company shall not consummate any
such consolidation, merger, sale or transfer unless prior
thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so
providing. The provisions of this Section 13 shall similarly
apply to successive mergers or consolidations or sales or other
transfers.
(b) In the event of any merger or other acquisition
transaction involving the Company pursuant to an agreement of
the type described in Section 1(c)(ii)(A)(2), the provisions of
Section 13(a) hereof shall not be applicable to such
transaction and this Rights Agreement and the rights of holders
of Rights hereunder shall be terminated in accordance with
Section 7(a) hereof.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue
fractions of Rights or to distribute Right Certificates which
evidence fractional Rights. In lieu of such fractional Rights,
there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same
fraction of the current market value of a whole Right. For the
purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable. The
closing price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated
transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if
the Rights are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed
on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are
not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-
counter market, as reported by NASDAQ or such other system then
in use or, if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a
market in the Rights selected by the Board of Directors of the
Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date
as determined in good faith by the Board of Directors of the
Company shall be used.
(b) The Company shall not be required to issue
fractions of shares upon exercise of the Rights or to
distribute certificates which evidence fractional shares. In
lieu of fractional shares, the Company may pay to the
registered holders of Right Certificates at the time such
Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Common
Share. For purposes of this Section 14(b), the current market
value of a Common Share shall be the closing price of a Common
Share (as determined pursuant to the second sentence of
Section 11(d) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance of the
Rights expressly waives his right to receive any fractional
Rights or any fractional shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action
in respect of this Rights Agreement, except the rights of
action given to the Rights Agent under Section 18 hereof, are
vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the
registered holders of the Common Shares); and any registered
holder of any Right Certificate (or, prior to the Distribution
Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, of the Common Shares), may, in
his own behalf and for his own benefit, enforce this Rights
Agreement, and may institute and maintain any suit, action or
proceeding against the Company to enforce this Rights
Agreement, or otherwise enforce or act in respect of his right
to exercise the Rights evidenced by such Right Certificate in
the manner provided in such Right Certificate and in this
Rights Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an
adequate remedy at law for any breach of this Rights Agreement
and shall be entitled to specific performance of the
obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person
(including, without limitation, the Company) subject to this
Rights Agreement.
Section 16. Agreement of Right Holders. Every
holder of a Right by accepting the same consents and agrees
with the Company and the Rights Agent and with every other
holder of a Right that:
(a) prior to the Distribution Date, the Rights will
be transferable only in connection with the transfer of the
Common Shares;
(b) as of and after the Distribution Date, the Right
Certificates are transferable only on the registry books of the
Rights Agent if surrendered at the office of the Rights Agent
designated for such purpose, duly endorsed or accompanied by a
proper instrument of transfer with all required certifications
completed; and
(c) the Company and the Rights Agent may deem and
treat the person in whose name the Right Certificate (or, prior
to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the
associated Common Shares certificate made by anyone other than
the Company or the Rights Agent) for all purposes whatsoever,
and neither the Company nor the Rights Agent shall be affected
by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a
Stockholder. No holder, as such, of any Right Certificate
shall be entitled to vote, receive dividends or be deemed for
any purpose the holder of the Common Shares or any other
securities of the Company which may at any time be issuable on
the exercise of the Rights represented thereby, nor shall
anything contained herein or in any Right Certificate be
construed to confer upon the holder of any Right Certificate,
as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders
(except as provided in Section 24 hereof), or to receive
dividends or subscription rights, or otherwise, until the Right
or Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The
Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder in
accordance with a fee schedule to be mutually agreed upon and,
from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Rights
Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights
Agent for, and to hold it harmless against, any loss,
liability, or expense, incurred without negligence, bad faith
or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with
the acceptance and administration of this Rights Agreement,
including the costs and expenses of defending against any claim
of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or
omitted by it in connection with its administration of this
Rights Agreement in reliance upon any Right Certificate or
certificate for the Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, instruction,
direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed,
executed and, where necessary, verified or acknowledged, by the
proper person or persons.
Section 19. Merger or Consolidation or Change of
Name of Rights Agent. Any corporation into which the Rights
Agent or any successor Rights Agent may be merged or with which
it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of
the Rights Agent or any successor Rights Agent, shall be the
successor to the Rights Agent under this Rights Agreement
without the execution or filing of any paper or any further act
on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In
case at the time such successor Rights Agent shall succeed to
the agency created by this Rights Agreement, any of the Right
Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature
of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates
either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases Right
Certificates shall have the full force provided in the Right
Certificates and in this Rights Agreement.
In case at any time the name of the Rights Agent shall
be changed and at such time any of the Right Certificates shall
have been countersigned but not delivered, the Rights Agent may
adopt the countersignature under its prior name and deliver
Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right
Certificates either in its prior name or in its changed name;
and in all such cases such Right Certificates shall have the
full force provided in the Right Certificates and in this
Rights Agreement.
Section 20. Duties of Rights Agent. The Rights
Agent undertakes the duties and obligations imposed by this
Rights Agreement upon the following terms and conditions, by
all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel
selected by it (who may be legal counsel for the Company), and
the opinion of such counsel shall be full and complete
authorization and protection to the Rights Agent as to any
action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under
this Rights Agreement the Rights Agent shall deem it necessary
or desirable that any fact or matter be proved or established
by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board of
Directors, the Chief Executive Officer, the President, the
Chief Operating Officer, any Executive Vice President, Senior
Vice President or Vice President, the Treasurer, the Secretary
or any Assistant Treasurer or Assistant Secretary of the
Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of
this Rights Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only
for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by
reason of any of the statements of fact or recitals contained
in this Rights Agreement or in the Right Certificates (except
as to its countersignature thereof) or be required to verify
the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any
responsibility in respect of the validity of this Rights
Agreement or the execution and delivery hereof (except the due
execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in
this Rights Agreement or in any Right Certificate; nor shall it
be responsible for any adjustment required under the provisions
of Sections 11 or 13 hereof or responsible for the manner,
method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or
reservation of any Common Shares to be issued pursuant to this
Rights Agreement or any Right Certificate or as to whether any
Common Shares will, when so issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform,
execute, acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all such further and other
acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Rights Agreement.
(g) The Rights Agent is hereby authorized and
directed to accept instructions with respect to the performance
of its duties hereunder from any one of the Chairman of the
Board of Directors, the Chief Executive Officer, the President,
the Chief Operating Officer, any Executive Vice President,
Senior Vice President or Vice President, the Treasurer, the
Secretary or any Assistant Treasurer or Assistant Secretary of
the Company, and to apply to such officers for advice or
instructions in connection with its duties under this Rights
Agreement, and it shall not be liable for any action taken or
suffered to be taken by it in good faith in accordance with
instructions of any such officer or for any delay in acting
while waiting for these instructions. Any application by the
Rights Agent for written instructions from the Company may, at
the option of the Rights Agent, set forth in writing any action
proposed to be taken or omitted by the Rights Agent with
respect to its duties or obligations under this Rights
Agreement and the date on and/or after which such action shall
be taken or omitted. The Rights Agent shall not be liable to
the Company for any action taken or omitted in accordance with
a proposal included in any such application on or after the
date specified therein (which date shall not be less than three
business days after the date any such officer actually receives
such application, unless any such officer shall have consented
in writing to an earlier date) unless, prior to taking of any
such action (or the effective date in the case of omission),
the Rights Agent shall have received written instructions in
response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal
in any of the Rights or other securities of the Company or
become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to
the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Rights Agreement. Nothing
herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of
the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or
agents, and the Rights Agent shall not be answerable or
accountable for any act, omission, default, neglect or
misconduct of any such attorneys or agents or for any loss to
the Company resulting from any such act, omission, default,
neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
(j) At any time and from time to time after the
Distribution Date, upon the request of the Company, the Rights
Agent shall promptly deliver to the Company a list, as of the
most recent practicable date (or as of such earlier date as may
be specified by the Company), of the holders of record of
Rights.
Section 21. Change of Rights Agent. The Rights
Agent or any successor Rights Agent may resign and be
discharged from its duties under this Rights Agreement upon 30
days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares by registered or certified
mail. The Company shall promptly notify the holders of the
Right Certificates by first-class mail of any such resignation.
The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to
each transfer agent of the Common Shares by registered or
certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the
resigning, removed, or incapacitated Rights Agent shall remit
to the Company, or to any successor Rights Agent designated by
the Company, all books, records, funds, certificates or other
documents or instruments of any kind then in its possession
which were acquired by such resigning, removed or incapacitated
Rights Agent in connection with its services as Rights Agent
hereunder, and shall thereafter be discharged from all duties
and obligations hereunder. Following notice of such removal,
resignation or incapacity, the Company shall appoint a
successor to such Rights Agent. If the Company shall fail to
make such appointment within a period of 30 days after giving
notice of such removal or after it has been notified in writing
of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit his Right
Certificate for inspection by the Company), then the registered
holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of
any state of the United States so long as such corporation is
authorized to do business as a banking institution in the State
of California, in good standing, having an office or an
affiliate with an office in the State of New York which is
authorized under such laws to exercise corporate trust powers
and is subject to supervision or examination by Federal or
state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50
million. After appointment, the successor Rights Agent shall
be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent
any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date
of any such appointment the Company shall file notice thereof
in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares, and mail a notice thereof in
writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent
or the appointment of the successor Rights Agent, as the case
may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Rights Agreement
or of the Rights to the contrary, the Company may, at its
option, issue new Right Certificates evidencing Rights in such
form as may be approved by its Board of Directors to reflect
any adjustment or change in the Purchase Price and the number
or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance
with the provisions of this Rights Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at
its option, at any time prior to the close of business on the
tenth day following the Shares Acquisition Date, redeem all but
not less than all of the then outstanding Rights at a
redemption price of $.02 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"), provided,
however, if the Board of Directors of the Company authorizes
redemption of the Rights after the time a person becomes an
Acquiring Person, then there must be Continuing Directors then
in office and such authorization shall require the concurrence
of a majority of such Continuing Directors. Notwithstanding
anything contained in this Rights Agreement to the contrary,
the Rights shall not be exercisable following a transaction or
event described in Section 11(a)(ii) prior to the expiration of
the Company's right of redemption hereunder.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the Rights,
and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the
Redemption Price. Within ten (10) days after the action of the
Board of Directors ordering the redemption of the Rights, the
Company shall give notice of such redemption to the holders of
the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the transfer agent
for the Common Shares. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption
will state the method by which the payment of the Redemption
Price will be made. Neither the Company nor any of its
Affiliates or Associates may redeem, acquire or purchase for
value any Rights at any time in any manner other than that
specifically set forth in this Section 23, and other than in
connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Notice of Certain Events. In case the
Company shall propose (a) to pay any dividend payable in stock
of any class to the holders of Common Shares or to make any
other distribution to the holders of Common Shares (other than
a regular periodic cash dividend at a rate not in excess of
125% of the rate of the last regular periodic cash dividend
theretofore paid) or (b) to offer to the holder of Common
Shares rights or warrants to subscribe for or to purchase any
additional Common Shares or shares of stock of any class or any
other securities, rights or options, or (c) to effect any
reclassification of its Common Shares (other than a
reclassification involving only the subdivision of outstanding
Common Shares), or (d) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to
permit one or more of its subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than 50%
of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to, any other Person (other
than pursuant to a merger or other acquisition agreement of the
type described in Section 1(c)(ii)(A)(2) hereof), or (e) to
effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to the
Rights Agent and to each holder of a Right Certificate, in
accordance with Section 25 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of
such stock dividend, distribution of rights or warrants, or the
date on which such reclassification, consolidation, merger,
sale, transfer, liquidation, dissolution, or winding up is to
take place and the date of participation therein by the holders
of the Common Shares, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by
clause (a) or (b) above at least ten (10) days prior to the
record date for determining holders of the Common Shares for
purposes of such action, and in the case of any such other
action, at least ten (10) days prior to the date of the taking
of such proposed action or the date of participation therein by
the holders of the Common Shares, whichever shall be the
earlier.
In case any event set forth in Section 11(a)(ii) of
this Rights Agreement shall occur, then, in any such case, the
Company shall as soon as practicable thereafter give to the
Rights Agent and to each holder of a Right Certificate, in
accordance with Section 25 hereof, a notice of the occurrence
of such event, which notice shall describe the event and the
consequences of the event to holders of Rights under Section
11(a)(ii) hereof.
Section 25. Notices. Notices or demands authorized
by this Rights Agreement to be given or made by the Rights
Agent or by the holder of any Right Certificate to or on the
Company shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address
is filed in writing with the Rights Agent) as follows:
Comprehensive Care Corporation
16305 Swingley Ridge Drive, Suite 100
Chesterfield, Missouri 63017
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or
demand authorized by this Rights Agreement to be given or made
by the Company or by the holder of any Right Certificate to or
on the Rights Agent shall be sufficiently given or made if sent
by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Attention: Compliance Department
Notices or demands authorized by this Rights Agreement to be
given or made by the Company or the Rights Agent to the holder
of any Right Certificate shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry
books of the Company.
Section 26. Supplements and Amendments. The Company
and the Rights Agent may from time to time supplement or amend
this Rights Agreement without the approval of any holders of
Right Certificates (i) to cure any ambiguity or to correct or
supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein,
(ii) to shorten or lengthen any time period hereunder,
including specifically any time period relating to when the
Rights may be redeemed (which shortening or lengthening,
following the Shares Acquisition Date, shall be effective only
if there are Continuing Directors and shall require the
concurrence of a majority of such Continuing Directors) or
(iii) so long as the interests of the holders of the Right
Certificates (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person) are not adversely affected
thereby, to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Rights
Agent may deem necessary or desirable, including but not
limited to extending the Final Expiration Date. Upon the
delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment
is in compliance with the terms of this Section 26, the Rights
Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Rights Agreement to
the contrary, no supplement or amendment shall be made which
changes the Redemption Price, the Purchase Price or the number
of Common Shares for which a Right is exercisable. Prior to
the Distribution Date, the interests of the holders of Rights
shall be deemed coincident with the interests of the holders of
Common Shares.
Section 27. Successors. All the covenants and
provisions of this Rights Agreement by or for the benefit of
the Company or the Rights Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 28. Benefits of this Rights Agreement.
Nothing in this Rights Agreement shall be construed to give to
any person or corporation other than the Company, the Rights
Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any
legal or equitable right, remedy or claim under this Rights
Agreement; but this Rights Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares).
Section 29. Severability. If any term, provision,
covenant or restriction of this Rights Agreement is held by a
court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Rights Agreement
shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 30. Governing Law. This Rights Agreement
and each Right Certificate issued hereunder shall be deemed to
be a contract made under the laws of the State of Delaware and
for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts
to be made and performed entirely within such State.
Section 31. Counterparts. This Rights Agreement may
be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute
but one and the same instrument.
Section 32. Descriptive Heading. Descriptive
headings of the several Sections of this Rights Agreement are
inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Rights Agreement to be duly executed and their respective
corporate seals to be hereunto affixed, all dated as of the day
and year first above written and restated and amended as set
forth herein as of the Effective Time.
COMPREHENSIVE CARE CORPORATION
By:
Chriss W. Street,
Chairman, President and
Chief Executive Officer
By:
Kerri Ruppert,
Secretary
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By:
William F. Seegraber,
Vice President<PAGE>
Exhibit A
[Form of Right Certificate]
Certificate No. R- ________ Rights
NOT EXERCISABLE AFTER APRIL 19, 1998 OR EARLIER
IF NOTICE OF REDEMPTION IS GIVEN OR IF THE
COMPANY IS MERGED OR ACQUIRED PURSUANT TO AN
AGREEMENT OF THE TYPE DESCRIBED IN
SECTION 1(c)(ii)(A)(2) OF THE RIGHTS AGREEMENT.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE
OPTION OF THE COMPANY, AT $.02 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER
CERTAIN CIRCUMSTANCES (SPECIFIED IN
SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT),
RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS
OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED
BY THIS CERTIFICATE WERE ISSUED TO A PERSON WHO
WAS AN ACQUIRING PERSON OR AN ASSOCIATE OR
AFFILIATE OF AN ACQUIRING PERSON OR A NOMINEE
THEREOF. THIS RIGHT CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY HAVE BECOME NULL AND VOID AS
SPECIFIED IN SECTION 11(a)(ii) OF THE RIGHTS
AGREEMENT.]
Right Certificate
COMPREHENSIVE CARE CORPORATION
This certifies that ________________________, or
registered assigns, is the registered owner of the number of
Rights set forth above, each of which entitles the owner
thereof, subject to the terms, provisions and conditions of the
Rights Agreement dated as of April 19, 1988 (the "Rights
Agreement") between Comprehensive Care Corporation, a Delaware
corporation (the "Company"), and Security Pacific National
Bank, a national banking association, as Rights Agent (the
"Rights Agent"), to purchase from the Company at any time after
the Distribution Date and prior to 5:00 P.M. (New York City
time) on April 19, 1998, at the offices of the Rights Agent, or
its successors as Rights Agent, designated for such purpose,
one fully paid, nonassessable common share (the "Common
Shares") of the Company, at a purchase price of $____ per
share (the "Purchase Price"), upon presentation and surrender
of this Right Certificate with the Form of Election to Purchase
and certification duly executed. The number of Rights
evidenced by this Right Certificate (and the number of shares
which may be purchased upon exercise thereof) set forth above,
and the Purchase Price set forth above, are the number and
Purchase Price as of 5:00 p.m. New York City time,
__________________, 199_ based on the Common Shares as
constituted at such date. Capitalized terms used in this Right
Certificate without definition shall have the meanings ascribed
to them in the Rights Agreement.
As provided in the Rights Agreement, the
Purchase Price and the number of Common Shares which may be
purchased upon the exercise of the Rights evidenced by this
Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the
terms, provisions and conditions of the Rights Agreement, which
terms, provisions and conditions are hereby incorporated herein
by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and
immunities hereunder of the Rights Agent, the Company and the
holders of the Right Certificates. Copies of the Rights
Agreement are on file at the principal offices of the Company
and the Rights Agent.
This Right Certificate, with or without other
Right Certificates, upon surrender at the offices of the Rights
Agent designated for such purpose, may be exchanged for another
Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like
aggregate number of Common Shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall
have entitled such holder to purchase. If this Right
Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole
Rights not exercised.
Subject to the provisions of the Rights
Agreement, the Rights evidenced by this Right Certificate may
be redeemed by the Company at its option at a redemption price
of $.02 per Right at any time prior to ten (10) days after the
Shares Acquisition Date. Under certain circumstances set forth
in the Rights Agreement, the decision to redeem shall require
the concurrence of a majority of the Continuing Directors.
No fractional Common Shares will be issued upon
the exercise of any Right or Rights evidenced hereby, but in
lieu thereof a cash payment will be made, as provided in the
Rights Agreement.
No holder of this Right Certificate, as such,
shall be entitled to vote or receive dividends or be deemed for
any purpose the holder of the Common Shares or of any other
securities of the Company which may at any time be issuable on
the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder
hereof, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate
action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights
Agreement.
The Company and the Rights Agent may from time
to time supplement or amend the Rights Agreement without the
approval of any holders of Right Certificates, to cure any
ambiguity, to correct or supplement any provision contained
therein which may be defective or inconsistent with any other
provisions therein, to shorten or lengthen any time period
thereunder, including any time period relating to when the
Rights may be redeemed (which shortening or lengthening,
following the Shares Acquisition Date, shall be effective only
if there are Continuing Directors and shall required the
concurrence of a majority of such Continuing Directors), or, so
long as the interests of the holders of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person) are not adversely affected thereby, to
make any other provisions in regard to matters or questions
arising thereunder which the Company and the Rights Agent may
deem necessary or desirable, including but not limited to
extending the Final Expiration Date.
If any term, provision, covenant or restriction
of the Rights Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions,
covenants and restrictions of the Rights Agreement shall remain
in full force and effect and shall in no way be affected,
impaired or invalidated.
This Right Certificate shall not be valid or
obligatory for any purpose until it shall have been
countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper
officers of the Company and its corporate seal. Dated as of
_______________, 19____.
Attest:
COMPREHENSIVE CARE CORPORATION
By By
Title: Title:
Countersigned:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By Date:
Authorized Officer
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate and the Rights evidenced thereby,
together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint
Attorney, to transfer the within Right Certificate on the books
of the within-named Company, with full power of substitution.
Dated: , 19
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant
in a Securities Transfer Association recognized signature
program.<PAGE>
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right
Certificate [ ] are [ ] are not beneficially owned by an
Acquiring Person or an Affiliate or an Associate thereof; and
(2) after due inquiry and to the best
knowledge of the undersigned, the undersigned [ ] did [ ] did
not acquire the Rights evidenced by this Right Certificate from
any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.
Dated: , 19
Signature
NOTICE
The signature in the foregoing Form of
Assignment must conform to the name as written upon the face of
this Right Certificate in every particular, without alteration
or enlargement or any change whatsoever.
In the event the certification set forth above
in the Form of Assignment is not completed, the Company will
deem the beneficial owner of the Rights evidenced by this Right
Certificate to be an Acquiring Person or an Affiliate or
Associate hereof and, in the case of an Assignment, will affix
a legend to that effect on any Right Certificates issued in
exchange for this Right Certificate.
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
the Right Certificate.)
To COMPREHENSIVE CARE CORPORATION:
The undersigned hereby irrevocably elects to
exercise _________________ Rights represented by this Right
Certificate to purchase the Common Shares issuable upon the
exercise of such Rights and requests that certificates for such
shares be issued in the name of:
Please insert social security
or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced
by this Right Certificate, a new Right Certificate for the
balance remaining of such Rights shall be registered in the
name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: , 19
Signature
Signature Guaranteed:
Signatures must be guaranteed by a participant
in a Securities Transfer Association recognized signature
program.<PAGE>
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right
Certificate [ ] are [ ] are not beneficially owned by an
Acquiring Person or an Affiliate or an Associate thereof; and
(2) after due inquiry and to the best
knowledge of the undersigned, the undersigned [ ] did [ ] did
not acquire the Rights evidenced by this Right Certificate from
any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.
Dated: , 19
Signature
---------------------------------------------
NOTICE
The signature in the foregoing Form of Election
to Purchase must conform to the name as written upon the face
of this Right Certificate in every particular, without
alteration or enlargement or any change whatsoever.
In the event the certification set forth above
in the Form of Election to Purchase is not completed, the
Company will deem the beneficial owner of the Rights evidenced
by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate hereof and, in the case of an
Assignment, will affix a legend to that effect on any Right
Certificates issued in exchange for this Right Certificate.
<PAGE>
Exhibit B
SUMMARY OF RIGHTS TO PURCHASE COMMON SHARES
On April 19, 1988 the Board of Directors of
Comprehensive Care Corporation (the "Company") declared a
dividend of one Right ("Old Right") for each share of Common
Stock, $.10 par value (the "Old Common Shares"), of the Company
outstanding at the close of business on May 6, 1988 (the
"Record Date"). Each Old Right entitled the registered holder
to purchase from the Company one Old Common Share at a price of
$30 per share. At 5:00 p.m. New York City time on October 21,
1994 (the "Effective Time"), each one Old Common Share was
reclassified into and became one-tenth (1/10th) of one share of
Common Stock, par value $.01 per share ("Common Share"). Each
Right entitles the registered holder to purchase from the
Company one Common Share at a price of $300 per share (the
"Purchase Price"), subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and Continental Stock
Transfer & Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) ten (10) days
following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person")
acquired, or obtained the right to acquire, beneficial
ownership of 25% or more of the Common Shares or (ii) ten (10)
days following the commencement or announcement of an intention
to make a tender offer or exchange offer the consummation of
which would result in the beneficial ownership by a person or
group of 30% or more of the Common Shares (the earlier of (i)
and (ii) being called the "Distribution Date"), the Rights will
be evidenced, with respect to any of the Common Share
certificates outstanding as of the Record Date, by such Common
Share certificate with a copy of this Summary of Rights
attached thereto. The Rights Agreement provides that, until
the Distribution Date, the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Common
Share certificates issued after the close of business on the
Record Date upon transfer or new issuance of the Common Shares
will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption
or expiration of the Rights), the surrender for transfer of any
certificates for Common Shares, even without a copy of this
Summary of Rights attached thereto, will also constitute the
transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of the close of
business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution
Date. The Rights will expire on April 19, 1998 (the "Final
Expiration Date"), unless earlier redeemed by the Company as
described below.
The Purchase Price payable, and the number of Common
Shares or other securities or property issuable, upon exercise
of the Rights are subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of the Common
Shares, (ii) upon the grant to holders of the Common Shares of
certain rights or warrants to subscribe for or purchase Common
Shares or convertible securities at less than the current
market price of the Common Shares or (iii) upon the
distribution to holders of the Common Shares of evidences of
indebtedness, securities or assets (excluding regular periodic
cash dividends at a rate not in excess of 125% of the rate of
the last cash dividend theretofore paid or dividends payable in
Common Shares) or of subscription rights or warrants (other
than those referred to above).
In the event that a person were to acquire 25% or more
of the Common Shares or if the Company were the surviving
corporation in a merger and its Common Shares were not changed
or exchanged, each holder of a Right, other than Rights that
are or were acquired or beneficially owned by the 25%
stockholder (which Rights will thereafter be void), will
thereafter have the right to receive upon exercise that number
of Common Shares having a market value of two times the
exercise price of the Right. In the event that the Company
were acquired in a merger or other business combination
transaction or more than 50% of its assets or earning power
were sold, proper provision shall be made so that each holder
of a Right shall thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the
Right, that number of shares of common stock of the acquiring
company which at the time of such transaction would have a
market value of two times the exercise price of the Right.
With certain exceptions, no adjustment in the Purchase
Price will be required until cumulative adjustments require an
adjustment of at least 1% in such Purchase Price. No
fractional shares will be issued and in lieu thereof, a payment
in cash will be made based on the market price of the Common
Shares on the last trading date prior to the date of exercise.
The Rights may be redeemed in whole, but not in part,
at a price of $.02 per Right (the "Redemption Price") by the
Board of Directors at any time until ten (10) days following
the public announcement that a person has become an Acquiring
Person. Under certain circumstances set forth in the Rights
Agreement, the decision to redeem shall require the concurrence
of a majority of the Continuing Directors (as defined below).
Immediately upon the action of the Board of Directors of the
Company electing to redeem the Rights, the Company shall make
announcement thereof, and upon such election, the right to
exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The term "Continuing Directors" means any member of the
Board of Directors who was a member of the Board prior to the
time that any Person becomes an Acquiring Person, and any
person who is subsequently elected to the Board if such person
is recommended or approved by a majority of the Continuing
Directors. Continuing Directors do not include an Acquiring
Person, or an affiliate or associate of an Acquiring Person, or
any representative of the foregoing entities.
Until a Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company
beyond those as an existing stockholder, including, without
limitation, the right to vote or to receive dividends.
The Company and the Rights Agent may amend or
supplement the Rights Agreement without the approval of any
holders of Right Certificates to cure any ambiguity, to correct
or supplement any provision contained therein which may be
defective or inconsistent with any other provisions therein, to
shorten or lengthen any time period under the Rights Agreement,
including any time period relating to when the Rights may be
redeemed (so long as, under certain circumstances, a majority
of Continuing Directors approve such shortening or lengthening)
or so long as the interests of the holder of Right Certificates
(other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person) are not adversely affected thereby, and to
make any other provisions in regard to matters or questions
arising thereunder which the Company and the Rights Agent may
deem necessary or desirable, including but not limited to
extending the Final Expiration Date.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Current
Report on Form 8-K. A copy of the Rights Agreement is
available free of charge from the Company. This summary
description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights
Agreement, which is hereby incorporated herein by reference.
<PAGE>
APPOINTMENT OF
CONTINENTAL STOCK TRANSFER AND TRUST COMPANY
BY
COMPREHENSIVE CARE CORPORATION
The undersigned Comprehensive Care Corporation, a
Delaware corporation ("Company") hereby appoints Continental
Stock Transfer & Trust Company as successor Rights Agent under
the terms and subject to the conditions of the attached Rights
Agreement between Comprehensive Care Corporation and
Continental Stock Transfer & Trust Company, dated as of
April 19, 1988 and Restated and Amended as of October 21, 1994.
COMPREHENSIVE CARE CORPORATION
By:
Kerri Ruppert
Secretary
ACCEPTANCE OF APPOINTMENT
The undersigned Continental Stock Transfer & Trust
Company hereby accepts the appointment as successor Rights
Agent under the terms and subject to the condition of the
attached Rights Agreement between Comprehensive Care
Corporation and Continental Stock Transfer & Trust Company,
dated as of April 19, 1988 and Restated and Amended as of
October 21, 1994.
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
William F. Seegraber
Vice President
CONSENT TO APPOINTMENT
OF
SUCCESSOR RIGHTS AGENT
The undersigned Bank of America, National Trust and
Savings Association, as successor by merger to Security Pacific
National Bank, a national association, hereby consents to the
appointment by Comprehensive Care Corporation, a Delaware
corporation, of Continental Stock Transfer & Trust Company as
successor Rights Agent under the terms and subject to the
conditions of the attached Rights Agreement between
Comprehensive Care Corporation and Continental Stock Transfer &
Trust Company, dated as of April 19, 1988 and Restated and
Amended as of October 21, 1994.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION
By:
---------------------------------
Jeffrey E. Seadschlag
Vice President
and Assistant Secretary
COMPREHENSIVE CARE CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made by COMPREHENSIVE CARE
CORPORATION (the "Company") to_______________________ (the
"Optionee").
Upon and subject to the Terms and Conditions attached
hereto and incorporated herein by reference, the Company hereby
awards as of the Grant Date to Optionee a non-qualified stock
option (the "Option"), as described below, to purchase the
Option Shares.
A. Grant Date:
B. Type of Option: Non-Qualified Stock Option.
Plan (under which Option is granted):
Comprehensive Care Corporation Directors' Stock
Option Plan.
C. Option Shares: All or any part of __________
shares of the Company's common stock (the
"Common Stock").
Exercise Price: $______ per share which is the
Fair Market Value, as defined in the Plan, of a
share of Common Stock determined as of the Grant
Date.
Option Period: The Option may be exercised, to
the extent vested, during the Option Period
which commences on the Grant Date and ends no
later than the close of business on the tenth
anniversary of the Grant Date. Note that other
restrictions to exercising the Option, as
described in the attached Terms and Conditions,
may apply.
Vesting Schedule: An Option will vest in 25%
increments on each Vesting Date, provided the
Optionee is still a Director on the Vesting
Date. For purposes of this Option, the term
"Vesting Date," shall mean each of the next four
annual meetings of the Company's stockholders
held after the Grant Date. [what if a Director
is appointed mid year? should each vesting
period be at least 12 months? or should the
first vesting period just be shorter?]
IN WITNESS WHEREOF, the Company has executed and sealed
this Agreement as of the Grant Date set forth above.
COMPREHENSIVE CARE CORPORATION
By:
Title: <PAGE>
TERMS AND CONDITIONS TO THE
NON-QUALIFIED STOCK OPTION AGREEMENT
UNDER THE COMPREHENSIVE CARE CORPORATION
DIRECTORS' STOCK OPTION PLAN
1. Exercise of Option. Subject to the provisions
provided herein or in the Agreement made pursuant to the
Comprehensive Care Corporation Directors' Stock Option Plan:
(a) the Option may be exercised with respect to
all or any portion of the Option Shares at any time during
the Option Period by the delivery to the Company, at its
principal place of business, of (i) a written notice of
exercise in substantially the form attached hereto as
Exhibit 1, which shall be actually delivered to the Company
no earlier than thirty (30) days and no later than ten (10)
days prior to the date upon which Optionee desires to
exercise all or any portion of the Option and (ii) payment
to the Company of the Exercise Price multiplied by the
number of shares being purchased (the "Purchase Price") in
the manner provided in Subsection (b). Upon acceptance of
such notice and receipt of payment in full of the Purchase
Price, the Company shall cause to be issued a certificate
representing the Option Shares purchased.
(b) The Purchase Price shall be paid in full upon
the exercise of an Option and no Option Shares shall be
issued or delivered until full payment therefor has been
made. Payment of the Purchase Price for all Option Shares
purchased pursuant to the exercise of an Option shall be
made in cash or, alternatively, as follows:
(i) by delivery to the Company of a
number of shares of Common Stock which have been
owned by the Optionee for at least six months prior
to the date of the Option's exercise, having a Fair
Market Value, as determined under the Plan, on the
date of exercise either equal to the Purchase Price
or in combination with cash to equal the Purchase
Price; or
(ii) by receipt of the Purchase Price in
cash from a broker, dealer or other "creditor" as
defined by Regulation T issued by the Board of
Governors of the Federal Reserve System following
delivery by the Optionee to the Committee (defined
in the Plan) of instructions in a form acceptable to
the Committee regarding delivery to such broker,
dealer or other creditor of that number of Option
Shares with respect to which the Option is
exercised.
2. Exercise Price. The exercise price for each Option
Share shall be the Fair Market Value (defined in the Plan) of a
share of Common Stock as of the Grant Date, subject to
adjustment as set forth in Section 6 below (the "Exercise
Price").
3. Term and Termination of Option. Except as otherwise
provided in the Plan, the term of the Option (the "Option
Period") shall commence on the Grant Date and terminate on the
tenth anniversary of the Grant Date.
4. Rights as Shareholder. Until the stock certificates
reflecting the Option Shares accruing to the Optionee upon
exercise of the Option are issued to the Optionee, the Optionee
shall have no rights as a shareholder with respect to such
Option Shares. The Company shall make no adjustment for any
dividends or distributions or other rights on or with respect
to Option Shares for which the record date is prior to the
issuance of that stock certificate, except as the Plan, the
Agreement or these Terms and Conditions otherwise provide.
5. Restriction on Transfer of Option. The Option
evidenced hereby is nontransferable other than by will or the
laws of descent and distribution, and, shall be exercisable
during the lifetime of the Optionee only by the Optionee (or in
the event of his disability, by his personal representative)
and after his death, only by his personal representative.
6. Changes in Capitalization; Merger; Liquidation.
(a) The number of Option Shares and the Exercise
Price shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock
resulting from a subdivision or combination of shares or the
payment of a stock dividend in shares of Common Stock to
holders of outstanding shares of Common Stock or any other
increase or decrease in the number of shares of Common Stock
outstanding effected without receipt of consideration by the
Company.
(b) In the event of or anticipation of a merger,
consolidation or other reorganization of the Company or
tender offer for shares of Stock, the Committee may make
such adjustments with respect to the Option and take such
other action as it deems necessary or appropriate to reflect
such merger, consolidation, reorganization or tender offer,
including without limitation, the substitution of new
Options, the termination or adjustment of outstanding Option
shares, the acceleration of the Option or the removal of
restrictions on outstanding Option shares. Any adjustment
pursuant to this Section may provide, in the Committee's
discretion, for the elimination without payment therefor of
any fractional shares that might otherwise become subject to
the Option, but shall not otherwise diminish the then value
of the Option.
(c) The existence of the Plan and the Agreement
shall not affect in any way the right or power of the
Company to make or authorize any adjustment,
reclassification, reorganization or other change in its
capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities
having preferences or priorities as to the Common Stock or
the rights thereof, the dissolution or liquidation of the
Company, any sale or transfer of all or any part of its
business or assets, or any other corporate act or
proceeding.
7. Special Limitation on Exercise. Any exercise of the
Option is subject to the condition that if at any time the
Committee, in its discretion, shall determine that the listing,
registration or qualification of the shares covered by the
Option upon any securities exchange or under any state or
federal law is necessary or desirable as a condition of or in
connection with the delivery of shares thereunder, the delivery
of any or all shares pursuant to the Option may be withheld
unless and until such listing, registration or qualification
shall have been effected. The Optionee shall deliver to the
Company, prior to the exercise of the Option, such information,
representations and warranties as the Company may reasonably
request in order for the Company to be able to satisfy itself
that the Option Shares are being acquired in accordance with
the terms of an applicable exemption from the securities
registration requirements of applicable federal and state
securities laws.
8. Legend on Stock Certificates. Certificates
evidencing the Option Shares, to the extent appropriate at the
time, shall have noted conspicuously on the certificates a
legend intended to give all persons full notice of the
existence of the conditions, restrictions, rights and
obligations set forth in the Agreement, these Terms and
Conditions and the Plan.
9. Governing Laws. This Agreement shall be construed,
administered and enforced according to the laws of the State of
California; provided, however, no Option may be exercised
except, in the reasonable judgment of the Board of Directors,
in compliance with exemptions under applicable state securities
laws of the state in which the Optionee resides, and/or any
other applicable securities laws.
10. Successors. The Agreement and these Terms and
Conditions shall be binding upon and inure to the benefit of
the heirs, legal representatives, successors and permitted
assigns of the parties.
11. Notice. Except as otherwise specified herein, all
notices and other communications under the Agreement shall be
in writing and shall be deemed to have been given if personally
delivered or if sent by registered or certified United States
mail, return receipt requested, postage prepaid, addressed to
the proposed recipient at the last known address of the
recipient. Any party may designate any other address to which
notices shall be sent by giving notice of the address to the
other parties in the same manner as provided herein.
12. Severability. In the event that any one or more of
the provisions or portion thereof contained in the Agreement
and these Terms and Conditions shall for any reason be held to
be invalid, illegal or unenforceable in any respect, the same
shall not invalidate or otherwise affect any other provisions
of the Agreement and these Terms and Conditions, and the
Agreement and these Terms and Conditions shall be construed as
if the invalid, illegal or unenforceable provision or portion
thereof had never been contained herein.
13. Entire Agreement. Subject to the terms and
conditions of the Plan, the Agreement and these Terms and
Conditions express the entire understanding and agreement of
the parties.
14. Violation. Any transfer, pledge, sale, assignment,
or hypothecation of the Option or any portion thereof shall be
a violation of the terms of the Agreement and these Terms and
Conditions and shall be void and without effect.
15. Headings. Paragraph headings used herein are for
convenience of reference only and shall not be considered in
construing the Agreement or these Terms and Conditions.
16. Specific Performance. In the event of any actual or
threatened default in, or breach of, any of the terms,
conditions and provisions of the Agreement and these Terms and
Conditions, the party or parties who are thereby aggrieved
shall have the right to specific performance and injunction in
addition to any and all other rights and remedies at law or in
equity, and all such rights and remedies shall be cumulative.
17. Right to Remove Director. Neither the establishment
of the Plan nor the award of Option Shares hereunder shall be
construed as giving the Optionee the right to continued
directorship.
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE OF
STOCK OPTION TO PURCHASE
COMMON STOCK OF
COMPREHENSIVE CARE CORPORATION
Name
Address
Date
Comprehensive Care Corporation
Re: Exercise of the Non-Qualified Stock Option
Gentlemen:
Subject to acceptance hereof in writing by Comprehensive
Care Corporation (the "Company") pursuant to the provisions of
the Comprehensive Care Corporation Directors' Stock Option Plan
(the "Plan"), I hereby give at least ten days but not more than
thirty days prior notice of my election to exercise options
granted to me to purchase ______________ shares of Common Stock
of the Company under the Non-Qualified Stock Option Agreement
(the "Agreement") pursuant to the Plan dated as of
____________. The purchase shall take place as of __________,
199__ (the "Exercise Date").
On or before the Exercise Date, I will pay the applicable
purchase price as follows:
[ ] by delivery of cash or a certified check for
$___________ for the full purchase price payable to
the order of Comprehensive Care Corporation.
[ ] by delivery of a certified check for $___________
representing a portion of the purchase price with
the balance to consist of shares of Common Stock
that I have owned for at least six months and that
are represented by a stock certificate I will
surrender to the Company with my endorsement. If
the number of shares of Common Stock represented by
such stock certificate exceed the number to be
applied against the purchase price, I understand
that a new stock certificate will be issued to me
reflecting the excess number of shares.
[ ] by delivery of a stock certificate representing
shares of Common Stock that I have owned for at
least six months which I will surrender to the
Company with my endorsement as payment of the
purchase price. If the number of shares of Common
Stock represented by such certificate exceed the
number to be applied against the purchase price, I
understand that a new certificate will be issued to
me reflecting the excess number of shares.
[ ] by delivery of the purchase price by
________________, a broker, dealer or other
"creditor" as defined by Regulation T issued by the
Board of Governors of the Federal Reserve System. I
hereby authorize the Company to issue a stock
certificate in number of shares indicated above in
the name of said broker, dealer or other creditor or
its nominee pursuant to instructions received by the
Company and to deliver said stock certificate
directly to that broker, dealer or other creditor
(or to such other party specified in the
instructions received by the Company from the
broker, dealer or other creditor) upon receipt of
the purchase price.
The required federal, state and local income tax withholding
obligations, if any, on the exercise of the Agreement shall
also be paid in cash or by certified check on or before the
Exercise Date.
As soon as the stock certificate is registered in my name,
please deliver it to me at the above address.
If the Common Stock being acquired is not registered for
issuance to and resale by the Optionee pursuant to an effective
registration statement on Form S-8 (or successor form) filed
under the Securities Act of 1933, as amended (the "1933 Act"),
I hereby represent, warrant, covenant, and agree with the
Company as follows:
The shares of the Common Stock being acquired by me
will be acquired for my own account for investment and not
with a view to any further distribution thereof;
I understand that the Common Stock will be issued
and sold to me without registration under the 1933 Act and
of applicable state laws and I must hold the shares
indefinitely unless such shares are subsequently registered
under such laws or an exemption from registration is
available;
The Company will be under no obligation to register
the Common Stock or to comply with any exemption available
for sale of the Common Stock without registration or filing
or to act in any manner so as to make Rule 144 available
with respect to the Common Stock;
I have had the opportunity to ask questions of and
receive answers from the Company and any person acting on
its behalf and to obtain all material information reasonably
available with respect to the Company and its affairs. I
have received all information and data with respect to the
Company which I have requested and which I have deemed
relevant in connection with the evaluation of the merits and
risks of my investment in the Company;
I have such knowledge and experience in financial
and business matters that I am capable of evaluating the
merits and risks of the purchase of the Common Stock
hereunder and I am able to bear the economic risk of such
purchase;
I understand that the certificates representing the
shares being purchased by me in accordance with this notice
shall bear a legend referring to the foregoing covenants,
representations and warranties and restrictions on transfer,
and I agree that a legend to that effect may be placed on
any certificate which may be issued to me as a substitute
for the certificates being acquired by me in accordance with
this notice; and
I understand that mailing or delivery of this notice to you
constitutes an irrevocable exercise of the Option as to the
number of shares set forth above, creating a binding, legal
obligation on my part to purchase the shares.
Very truly yours,
AGREED TO AND ACCEPTED:
Comprehensive Care Corporation
By:
Title:
Number of Shares
Exercised:
Number of Shares
Remaining: Date:
NEITHER THIS OPTION AGREEMENT NOR THE SHARES ISSUABLE BY
COMPREHENSIVE CARE CORPORATION (THE "COMPANY") UPON EXERCISE
HEREOF, HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE,
AND THIS OPTION IS BEING ISSUED IN RELIANCE UPON EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS ARISING THEREUNDER, AND MAY
NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE STATE AND
FEDERAL SECURITIES LAWS AND UPON FURNISHING THE COMPANY AN
OPINION OF COUNSEL, THAT THE PROPOSED TRANSFER WOULD BE IN
COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES
LAWS. ANY DOCUMENTS EVIDENCING THIS SECURITY, INCLUDING STOCK
CERTIFICATES EVIDENCING THE UNDERLYING SHARES, WILL CONTAIN A
SIMILAR LEGEND. THE COMPANY SHALL PLACE NOTATIONS WITH RESPECT
TO THESE RESTRICTIONS ON ITS SECURITIES RECORDS AND SHALL
INFORM THE TRANSFER AGENT, OF SUCH RESTRICTIONS.
NON-QUALIFIED STOCK OPTION AGREEMENT
This Option Agreement ("Agreement") is made effective as of
October 11, 1994 ("Option Grant Date"), by and between
Comprehensive Care Corporation, a Delaware corporation,
("Company") and Richard L. Powers ("Optionee") and is
contingent upon Optionee commencing employment with the
Company.
In consideration of the foregoing and of the mutual
covenants set forth herein and other good and valuable
consideration, the parties hereto agree as set forth below.
1. The Option. Optionee may, at Optionee's option and
on the terms and conditions set forth herein, purchase all or
any part of an aggregate of 200,000 shares of common stock at
the price per share of $0.75, $1.00, and $1.50, vesting at the
rate of 75,000 at first anniversary of the grant date provided
that the specified amount of new sales (as defined in Exhibit
B) is attained; 75,000 at the end of the second anniversary of
the grant date provided that the specified amount of new sales
(as defined in Exhibit B) is attained; and 50,000 at the third
anniversary of the grant date provided that the specified
amount of new sales (as defined in Exhibit B) is attained; and
pursuant to Exhibit A.
2. Vesting and Exercisability of Option. Subject to
the limitations set forth herein, the option granted shall vest
and be exercisable in accordance with the following rules:
A. General. Subject to the other provisions of
this Section 2, Option shall vest and become exercisable at
such times and in such installments as set forth in Section 1.
Unless otherwise provided in this Section 2, the Option may be
exercised when the installments accrue and at any time
thereafter until, and including, the day before the Termination
Date (as defined below). Option shall remain exercisable until
the Termination Date, notwithstanding the subsequent grant of
additional options with
Page Two
different start or termination dates. Optionee acknowledges
that Optionee has no right
whatsoever to exercise the Option granted hereunder with
respect to any share covered by an installment until such
installment accrues as provided in Section 1.
B. Termination of Option. All installments of
the Option shall expire and terminate on October 11, 2004
("Termination Date").
C. Termination of Employment. In the event that
the employment of the Optionee is terminated for any reason,
any installments under the option held by such Optionee which
have not accrued as of the employment termination date shall
expire and become unexercisable as of the employment
termination date. In the event that Optionee's employment with
the Company is terminated "for cause", then the option granted
hereunder to such terminated Optionee, whether vested or not,
shall expire and become unexercisable as of the effective date
of the termination of employment of the Optionee. All accrued
installments as of the employment termination date shall remain
exercisable for three (3) months following the employment
termination date.
3. Exercise of Option. The Option may be exercised in
accordance with this Section as to all or any portion of the
Shares covered by an accrued installment of the Option from
time to time during the applicable option period, except that
the Option shall not be exercisable with respect to fractions
of a Share. The Option may be exercised, in whole or in part,
by giving written notice of exercise to the Company, which
notice shall specify the number of Shares to be purchased and
shall be accompanied by payment in full of the purchase price
in accordance with Section 4. The Option shall be deemed
exercised when such written notice of exercise has been
received by the Company. No Shares shall be issued until full
payment has been made and the Optionee has satisfied such other
conditions as may be required by applicable law, rules, or
regulations, or as may be adopted or imposed by the Company.
Until the issuance of stock certificates, no right to vote or
receive dividends or any other rights as a stockholder shall
exist with respect to optioned Shares notwithstanding the
exercise of the Option. No adjustment will be made for a
dividend or other rights for which the record date is prior to
the date the stock certificate is issued.
4. Payment of Option Exercise Price. Except as
otherwise provided in this Section, the entire option exercise
price shall be paid at the time the option is exercised by
cashier's check or such other means as deemed acceptable by the
Company.
5. Option Not Transferable. The Option granted under
this Agreement may not be sold, pledged, hypothecated,
assigned, encumbered, gifted or otherwise transferred or
alienated in any manner.
6. Restrictions on Issuance of Shares.
A. No Shares shall be issued or delivered upon
exercise unless and until there shall have been compliance with
all applicable requirements of the Securities Act
Page Three
of 1933, all applicable listing requirements of any national
securities exchange on which Shares are then listed, and any
other requirement of law or of any regulatory
body having jurisdiction over such issuance and delivery. The
inability of the Company to obtain any required permits,
authorizations, or approvals necessary for the lawful
issuance and sale of any Shares hereunder on terms deemed
reasonable by the Company shall relieve the Company of any
liability in respect of the nonissuance or sale of such Shares
as to which such requisite permits, authorizations, or
approvals shall not have been obtained.
B. As a condition to the granting or exercise of
the Option, the Company may require the person receiving or
exercising such option to make any representation and/or
warranty to the Company as may be required under any applicable
law or regulation, including but not limited to a
representation that the Option and/or Shares are being acquired
only for investment and without any present intention to sell
or distribute each Option and/or Shares if such representation
is required under the Securities Act of 1933 or any other
applicable law, rule, or regulation.
7. Taxes. On the Exercise Date, the Optionee must pay
to the Company the amount of the federal, state and local tax
withholding obligation arising from the exercise of the Option;
A. in cash equal to the minimum withholding;
B. if the Exercise Price for the Option Shares
is paid by a broker, dealer or other "creditor" (as defined by
Regulation T issued by the Board of Governors of the Federal
Reserve System) with the Optionee making a Tax Withholding
Election to have such broker, dealer or other "creditor"
deliver to the Company cash in the amount of tax withholding
due after the Optionee has delivered to the Company
instructions acceptable to the Company regarding the delivery
of the number of Option Shares being exercised to such broker,
dealer or other "creditor".
8. Legends on Option and Stock Certificates. Each
certificate representing Shares acquired upon exercise of the
option shall be endorsed with all legends, if any, required by
applicable federal and state securities laws to be placed on
the certificate. The determination of which legends, if any,
shall be placed upon said Shares shall be made by the Company
in its sole discretion and such decision shall be final and
binding.
9. Certain Representations and Warranties. Executive
expressly acknowledges, represents and agrees:
A. Optionee understands that the option is not
issued under the Company's existing stock option plans.
B. That the Shares are not now registered under
applicable securities laws or listed on any national securities
exchange, and that the Company may require,
Page Four
as a condition to the granting or exercise of the Option, that
the person receiving or exercising the option must make such
representations or warranties to the Company as may be required
under applicable law or regulation, including but not limited
to a
representation that the Option and/or Shares are being acquired
only for investment and without any present intention to sell
or distribute such Option or Shares.
C. That Optionee understands that the existence
and execution of this Agreement is not sufficient by itself to
cause any exercise of the Option.
D. That Optionee is a person subject to the
provisions of Section 16 of the Securities Exchange Act of
1934, and Optionee has been advised to consult with a competent
federal securities law advisor as to the reporting obligations
or potential liability for short swing profits under Section 16
with respect to the granting, investing and exercise of the
Option.
E. Nothing in this Agreement shall be construed
to create any contract of employment between the Company and
the Optionee or confer upon Optionee any right to continue in
the employment of the Company. The Company shall have the
right to deal with Optionee in the same manner as if this
Agreement did not exist including without limitation the
hiring, discharge, compensation and conditions of employment of
Optionee.
10. Agreement Binding on Successors. The terms of this
Agreement shall be binding upon the executors, administrators,
heir and successors of Optionee and Optionee may not transfer
or assign this Agreement, except in compliance with all
applicable state and federal securities laws and upon
furnishing the Company an opinion of counsel to that effect.
11. Governing Law. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance
with the internal laws, and not the laws pertaining to
conflicts or choice of laws, of the State of Missouri
applicable to agreements made and to be performed wholly within
the State of Missouri.
12. Necessary Acts. Executive agrees to perform all
acts and execute and deliver any documents that may be
reasonably necessary to carry out the provisions of this
Agreement, including but not limited to all acts and documents
related to compliance with federal and/or state securities
laws.
13. Invalid Provisions. In the event that any
provision of this Agreement is found to be invalid or otherwise
unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all
such other provisions shall be given full force and effect to
the same extent as though the invalid and unenforceable
provision was not contained herein.
Page Five
14. Notice. Any notice or other communication required
or permitted to be given pursuant to the Agreement must be in
writing and may be given by registered or certified mail, and
if given by registered or certified mail, shall be determined
to have been given and received when a registered or certified
letter containing such notice, properly addressed with postage
prepaid, is deposited in the United States mails; and if given
otherwise than by registered or certified mail, it shall be
deemed to have been
given when delivered to and received by the party to whom
addressed. Notice shall be given to Optionee at his most
recent address shown in the Company's records. Notice to the
Company shall be addressed to the Company at the address of the
Company's principal executive offices, to the attention of the
Secretary of the Company.
IN WITNESS WHEREOF, the Company and Optionee have executed
this Agreement effective as the date first written above.
COMPREHENSIVE CARE CORPORATION
By
-----------------------------------------
Kerri Ruppert
Its Vice President and Secretary
OPTIONEE
------------------------------------------
Richard L. Powers
<PAGE>
EXHIBIT A
Date Exercisable Number of Shares and
Price
Year One vests 10/11/95 contingent upon 75,000 at $0.75
per share
the attainment of $5 million in New Sales(1)
during the period 10/11/94 through 10/10/95. If
120% of New Sales goal is achieved, then option
vesting date will accelerate to such date that
120% is attained. If 50% or more of New Sales goal
($5 million) is achieved, then the options shall
vest upon a prorated basis. If less than 50% of
New Sales goal is achieved, then no options shall
vest. Any unvested options shall be forfeited.
Year Two vests 10/11/96 contingent upon 75,000 at $1.00
per share
the attainment of $7 million in New Sales(1)
during the period 10/11/95 through 10/10/96. If
120% of New Sales goal is achieved, then option
vesting date will accelerate to such date that
120% is attained. If 50% or more of New Sales goal
($7 million) is achieved, then the options shall
vest upon a prorated basis. If less than 50% of
New Sales goal is achieved, then no options shall
vest. Any unvested options shall be forfeited.
Year Three vests 10/11/97 contingent upon 50,000 at $1.50
per share
the attainment of $10 million in New Sales(1)
during the period 10/11/96 through 10/10/97. If
120% of New Sales goal is achieved, then option
vesting date will accelerate to such date that
120% is attained. If 50% or more of New Sales goal
($10 million) is achieved, then the options shall
vest upon a prorated basis. If less than 50% of
New Sales goal is achieved, then no options shall
vest. Any unvested options shall be forfeited.
(1) in accordance with Exhibit B.
Option Agreement - Powers
Page Seven
EXHIBIT B
1. Sales. The definition of a "New Sale" in the context
of this non-qualified stock option agreement is defined as
an annualized premium received for a contract during the
first year of the contract where such contract has been
obtained through the personal efforts of the Optionee.
Personal efforts encompass the solicitation and subsequent
discussions with a contract, culminating with a signed and
implemented contract with a payor organization with whom
AccessCare, Inc. has no prior relationship within the
geographic area covered by the contract. The President of
AccessCare, Inc. shall have the ultimate decision making
authority concerning the acceptability of a contract under
the term, "New Sale".
2. General. The Options as stated in the non-qualified
option agreement vest contingent upon the attainment of New
Sales in each of the option years as depicted in Exhibit A.
To obtain the total vesting of the option shares, the entire
sales goal, as defined above, must be achieved.
If one hundred and twenty percent (120%) of New Sales is
achieved, then the option vesting date will accelerate to
such date in which the one hundred and twenty percent (120%)
is achieved.
If less than one hundred percent (100%) but at least fifty
percent (50%) of the total amount of New Sales is achieved,
the amount of options that will vest will be calculated on a
prorated basis. As a result, if seventy-five percent (75%)
of the New Sales goal is achieved, then seventy-five (75%)
of the stock options for that year will be vested.
If less than fifty percent (50%) of the New Sales is
achieved, then no options shall vest for that year. For
each year, any unvested portion of the stock options will be
forfeited.
