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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
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Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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PRELIMINARY SCHEDULE 14A
ON SCHEDULE 14A
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COMPREHENSIVE CARE CORPORATION
(Name of Registrant as Specified in its Charter)
COMPREHENSIVE CARE CORPORATION
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ /$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
/ /$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
7 1/2% Convertible Subordinated Debentures Due April 15, 2010
2. Aggregate number of securities to which transaction applies:
$9,538,000 in principal amount of Debentures
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Estimated
solely for the purpose of calculating the filing fee, pursuant to
Rules 0-11(a)(4) and 0-11(b)(2), equal to one-fiftieth (1/50th) of one
percent of the market value of the maximum amount of Debentures to be
acquired by the Issuer (the "Transaction Value"). The average of the
bid and asked prices of the Debentures as of a trading date within the
five trading days prior to the date of this filing by the Issuer was
not known or reasonably available. The Issuer has an accumulated
capital deficit, thereby calculating this filing fee based on
one-third of the $9,538,000 outstanding principal amount of Debentures
as provided in Rule 0-11(a)(4).
4. Proposed maximum aggregate value of transaction:
$3,179,333 in principal amount of Debentures
/X/Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
$635.87
2. Form, Schedule or Registration Statement No.:
SC13E4: FILE NO. 005-19482
3. Filing Party:
COMPREHENSIVE CARE CORPORATION
4. Date Filed:
SEPTEMBER 14, 1995
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[COMPCARE LOGO]
November 14, 1996
Dear Holders of Comprehensive Care Corporation's 7 1/2% Convertible
Subordinated Debentures Due April 15, 2010:
On behalf of the Board of Directors and Management of your Company, I
respectfully request that each of you, as holders of the Company's 7 1/2%
Convertible Subordinated Debentures due April 15, 2010 (the "Securities" or
"Debentures"), currently due and payable in full on account of acceleration,
consent in writing ("Consent") to the actions described in the accompanying
Debenture Consent Solicitation Statement. The principal purpose of the
Consents is to facilitate the exchange or reinstatement of the Company's
outstanding Debentures, which have been in default since the Company failed to
make interest payments commencing October 17, 1994, under the proposals
RECOMMENDED BY MANAGEMENT to (1) rescind the existing acceleration of payments
due under the Debentures; (2) waive any Events of Default and other defaults
under the Indenture or the Debentures (other than nonpayment of any principal
or interest due) that exist at the time of the Company's payment of default
interest, and the interest payable on it (the "Default Interest Payment") on
Debentures outstanding immediately after the proposed exchange is consummated
resulting in the rescission of acceleration, if this occurs within the Consent
Solicitation Period; (3) instruct the Trustee not to pursue, during the Consent
Solicitation Period, any remedies otherwise available on account of defaults or
existing Events of Default except upon future directions given by a majority in
outstanding principal amount during the Consent Solicitation Period; and (4)
consent to the waiver of a notice provision in the Indenture under which the
Debentures were issued relating to the cancellation of sinking fund payment
obligations. The enclosed Debenture Consent Solicitation Statement explains in
more detail the reasons for, and the effects of, your Consent to the proposals
recommended by the Board of Directors and Management. Please read the
Statement carefully. Your Consent to the proposals is critical to your
Company. A Consent Card is enclosed for the purpose of giving Consent.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE PROPOSED ACTIONS AND
REQUESTS THAT THE DEBENTUREHOLDERS CONSENT TO EACH OF PROPOSALS (1), (2), (3)
AND (4).
YOUR CONSENT IS IMPORTANT. Consents of the holders of at least a majority
in principal amount of the outstanding Debentures are necessary to approve and
adopt each of Proposals (1) and (3). Consent of at least 66 2/3% in principal
amount of the outstanding Debentures is necessary to approve and adopt each of
Proposals (2) and (4).
The Board of Directors is hopeful that a rescission of acceleration of the
Securities will help position the Company for a more successful long-term
future. Please SIGN, DATE and MAIL the enclosed Consent Card as soon as
possible in the enclosed prepaid envelope. Your consent may be withdrawn as to
each of the Proposals at any time prior to the close of business on December
16, 1996 or thereafter until the Company's receipt of Consents sufficient to
approve the Proposals or any earlier termination of the Consent Solicitation
Period. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ CHRISS W. STREET
Chriss W. Street
Chairman of the Board,
President and Chief Executive Officer
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COMPREHENSIVE CARE CORPORATION
NOTICE OF DEBENTURE CONSENT SOLICITATION
TO THE DEBENTUREHOLDERS:
The Board of Directors of Comprehensive Care Corporation (the
"Company") hereby requests your consent in writing for the following purposes
as described in the accompanying Debenture Consent Solicitation Statement:
1. Proposal No. 1, to consent to rescind the acceleration, and to
notify First Trust of California, National Association, as
successor to Bank of America National Trust and Savings
Association (the "Trustee"), of a rescission of the
acceleration, of all principal and interest due under the
Company's 7 1/2% Convertible Subordinated Debentures Due April
15, 2010 (the "Debentures"), and all of the effects thereof.
2. Proposal No. 2, to consent to waive, and to notify the Trustee
of a waiver of, any Events of Default and other defaults under
the Indenture or the Debentures (other than nonpayment of any
principal or interest due) that exist at the time, if any,
when the Company's consummation of the Exchange and the
rescission of the Acceleration results in termination of the
Consent Solicitation Period.
3. Proposal No. 3, to consent to instruct the Trustee not to
pursue, during the Consent Solicitation Period, any remedy for
the existing Events of Default, whether available at law or in
equity upon anything less than future directions given by a
majority in outstanding principal amount of Debentures during
the Consent Solicitation Period.
4. Proposal No. 4, to consent to the waiver of an Event of
Default that arises under a notice provision in the Indenture
dated April 25, 1985 (the "Indenture") between the Company and
the Trustee relating to the Company's cancellation of a
sinking fund payment obligation and to waive any claim to
receive the sinking fund installment payment that purportedly
was due April 15, 1996.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND YOUR CONSENT AND
APPROVAL IN ORDER TO FACILITATE THE DEFAULT INTEREST PAYMENT DESCRIBED IN THE
ATTACHED DEBENTURE CONSENT SOLICITATION STATEMENT.
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Each registered Debentureholder is urged to SIGN, DATE and MAIL the
enclosed Consent Card as promptly as possible. Only Debentureholders, as
registered on the Registrar's List of Debentureholders, are entitled to
Consent. The broker or other nominee holding Debentures in "street name" for a
beneficial holder will seek instruction from the beneficial holder and will
Consent on behalf of a beneficial holder, if appropriately instructed.
By Order of the Board of Directors,
/s/ KERRI RUPPERT
Kerri Ruppert
Senior Vice President, Secretary/
Treasurer and Chief Financial Officer
November 14, 1996
Corona del Mar, California
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YOUR CONSENT IS IMPORTANT
TO ENSURE EVERY CONSENT BEING COUNTED, ANY REGISTERED HOLDERS ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AS PROMPTLY AS POSSIBLE AND
TO MAIL IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE TO FIRST TRUST OF
CALIFORNIA, NATIONAL ASSOCIATION, 180 E. FIFTH STREET, SUITE 200, ST. PAUL,
MINNESOTA 55101.
ANY BENEFICIAL HOLDERS (OF DEBENTURES REGISTERED IN A BROKER'S OR OTHER
NOMINEE'S NAME) SHOULD PROVIDE A COMPLETE, SIGNED AND DATED CONSENT CARD
DIRECTLY TO THE BROKER OR OTHER NOMINEE WHO ACTS AS THE REGISTERED HOLDER, AND
THE REGISTERED NOMINEE HOLDER SHOULD IN TURN COMPLETE, SIGN AND DATE A CONSENT
CARD AND SEND IT TO THE TRUSTEE AT THE ADDRESS ABOVE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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DEBENTURE CONSENT SOLICITATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
REQUIRED VOTE OR CONSENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CONSENTS AND TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CONSENTS AND TENDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
CONSENT SOLICITATION PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
REVOCABILITY OF CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
VOTING OR CONSENTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INFORMATION AND SOLICITATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INTENTIONS OF THE COMPANY IF PROPOSALS NO. 2, NO. 3 AND NO. 4 NOT APPROVED . . . . . . . . . . . . . . . . . . . . 4
BOARD OF DIRECTORS' DISCRETION AND RESERVATION OF RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
NO DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CONSENTS EXPECTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SPECIAL RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS . . . . . . . . . . . . . . . . . . . 5
EFFECTS OF REINSTATING NON-DEFAULT STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUMMARY COMPARISON OF TERMS OF DEBENTURES WITH AND WITHOUT ACCELERATION . . . . . . . . . . . . . . . . . . . . . 7
POTENTIAL EFFECTS OF SENIOR DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
POTENTIAL EFFECTS OF FAILURE TO RESCIND ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN; EXPLANATORY PARAGRAPH IN AUDITORS' REPORT . . . . . . . . . 9
PRIORITIES OF SECURITIES AND OTHER RELATED CONSIDERATIONS RELATING TO ANY FUTURE BANKRUPTCY OF THE COMPANY . . . . 9
DEBT CLAIMS VS. EQUITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
AVOIDABLE PREFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
POTENTIAL TO BE SUBJECTED TO AUTOMATIC BANKRUPTCY STAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PROHIBITIONS ON PAYMENT TO DEBENTUREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
FRAUDULENT CONVEYANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
DETERMINATION OF TERMS OF EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY . . . . . . . . . . . . . . . 14
ADDITIONAL RISK FACTORS WITH RESPECT TO HOLDERS OF DEBENTURES NOT TENDERED IN THE EXCHANGE OFFER . . . . . . . . . 15
SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
REDEMPTION; MATURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SPORADIC TRADING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CONVERSION PRICE FAR ABOVE SHARE PRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF FUTURE FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
DISPOSITION OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INVOLUNTARY BANKRUPTCY PETITION; ACCELERATION OF INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . 17
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<TABLE>
<S> <C>
THE PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PROPOSAL NO. 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PROPOSAL NO. 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PROPOSAL NO. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PROPOSAL NO. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
INTERESTS OF CERTAIN PERSONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PRINCIPAL DEBENTUREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PRO FORMA CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
POTENTIAL FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EFFECTS ON THE DEBENTUREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
EFFECTS ON THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
LIMITATIONS AND QUALIFICATIONS OF THE DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
THE PROPOSED EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
DEFAULT ON DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
AGREEMENT OF PARTICIPATING SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
DIFFERENCES BETWEEN THE EXCHANGE OFFER AND THE LETTER AGREEMENT'S CONTEMPLATED EXCHANGE . . . . . . . . . 45
PRICE OF DEBENTURES AND COMMON STOCK PRIOR TO ANNOUNCEMENT . . . . . . . . . . . . . . . . . . . . . . . . 47
EXCHANGE OFFER FUNDING REQUIREMENTS AND SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SUMMARY COMPARISON OF TERMS OF DEBENTURES AND EXCHANGE CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . 48
NO FAIRNESS OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
DESCRIPTION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
CONVERSION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
OPTIONAL REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SINKING FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SUBORDINATION OF DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
MERGER, CONSOLIDATION, OR SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
TRANSFER AND EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
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COMPREHENSIVE CARE CORPORATION
DEBENTURE CONSENT SOLICITATION STATEMENT
GENERAL
The Board of Directors hereby requests the holders of the $9,538,000
in principal amount outstanding of the 7 1/2% Convertible Subordinated
Debentures due April 15, 2010 (herein called either the "Securities" or the
"Debentures"), currently due and payable in full on account of acceleration,
issued by Comprehensive Care Corporation, a Delaware corporation (the
"Company"), (1) to notify First Trust of California, National Association,
successor to Bank of America National Trust and Savings Association (the
"Trustee"), of rescission of the acceleration of the Securities; (2) to waive
any Events of Default and other defaults under the Indenture or the Debentures
(other than nonpayment of any principal or interest due) that exist at the time
when the Company's payment of default interest, and the interest payable on it
(the "Default Interest Payment"), results in rescission of the acceleration of
the Debentures, if the same occurs within the Consent Solicitation Period; (3)
to instruct the Trustee not to pursue remedies for any defaults or continuing
Events of Default during the Consent Solicitation Period pending the
acceleration being rescinded upon anything less than directions given by a
majority in outstanding principal amount of Debentures; and (4) to consent to
the waiver of a notice provision in the Indenture dated April 25, 1985 between
the Company and the Trustee pursuant to which the Debentures were issued (the
"Indenture") relating to the cancellation of sinking fund payment obligations
and to waive the purported sinking fund payment obligation due April 15, 1996.
REGISTERED HOLDERS ARE REQUESTED to please Consent on every Proposal
by signing, dating and mailing the Consent Card, or a facsimile thereof, to the
Trustee using the pre-addressed envelope provided for your convenience. The
Trustee's address is First Trust of California, National Association, 180 E.
Fifth Street, Suite 200, St. Paul, Minnesota 55101.
BENEFICIAL HOLDERS WHOSE DEBENTURES ARE REGISTERED IN "STREET NAME"
ARE REQUESTED to please sign, date and mail the Consent Card to the broker or
other nominee holder of the Debentures, who should in turn sign, date and mail
a Consent Card to the Trustee at the above address.
These materials were first given or mailed to Securityholders on or
about November 14, 1996.
Requests for information or documents may be directed to the attention
of Kerri Ruppert, Senior Vice President, Secretary/Treasurer and Chief
Financial Officer of the Company, at the principal executive office of the
Company located at 1111 Bayside Drive, Suite 100, Corona del Mar, California
92625.
SEE "SPECIAL RISK FACTORS" COMMENCING ON PAGE 6.
REQUIRED VOTE OR CONSENT
Under the Indenture, approval of Proposals No. 1 and 3 each requires
Consent of at least a majority of the outstanding principal amount of
Debentures, and approval of Proposals No. 2 and 4 each requires Consent of the
holders of at least 66 2/3% of the outstanding principal amount of the
Debentures. Approval of each of Proposals No. 2, No. 3 and No. 4 is contingent
upon approval of Proposal No. 1.
As set forth below under "Consents Expected," the Company presently
contemplates that the Consent requested herein will be granted by the
Debentureholders as to Proposals No. 1, No. 2, No. 3 and No. 4. As set forth
below under "The Proposed Exchange," the Company also requires that any
Debentureholder tendering Debentures in the Exchange also Consent on each
Proposal.
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The Company does not presently contemplate making the default interest
payment that is due unless the Consent requested herein is granted by the
Debentureholders as to Proposals No. 1, No. 2, No. 3 and No. 4, but the Company
may elect under some circumstances to complete the Exchange without Consent on
Proposals No. 2, No. 3 and No. 4. See "Intentions of the Company If Proposals
No. 2, No. 3 and No. 4 Not Approved" below.
RECORD DATE
Debentureholders of record (excluding the Company or an Affiliate, as
defined in the Indenture) at the close of business on the date a Consent is
executed are entitled to give Consents to the actions proposed, and to bind all
successors and assigns of all or a portion of such Debentures unless and until
Consent is properly revoked. See "Revocability of Consents" below. The
Trustee, which is also the Debenture Registrar, would be available to respond
to written inquiries as to whether Consent has been given that could bind the
purchaser of a Debenture. For the Trustee's address, see "Information and
Solicitation." Also see "Consents and Transfers" below.
At November 14, 1996, an aggregate of $9,538,000 principal amount of
the Debentures were outstanding, and none of such Debentures were held by the
Company.
CONSENTS AND TRANSFERS
Any Consent signed and dated by the registered Debentureholder will
bind all beneficial owners and all transferees of either registered or
beneficial owners. A transferee, being bound until a Consent is properly
revoked by the registered Debentureholder, should consult the transferor
concerning whether there were pre-transfer Consents. If Debentures are traded
through a brokerage, the broker or its nominee can make such inquiries. In
addition, the Trustee would be available to respond to written inquiries. For
the Trustee's address, see "Information and Solicitation."
CONSENTS AND TENDERS
All Debentureholders tendering in the Exchange must Consent on
Proposals No. 1, No. 2, No. 3 and No. 4 and revoking the Consent after having
tendered Debentures will be considered a concurrent withdrawal (for the
purposes of the Exchange Offer) of the tendered Debentures. Debentures
tendered by a Debentureholder failing to Consent or revoking such Consent will
not be accepted for the Exchange. Although each Debentureholder that Consents
will be offered an exchange of cash and Common Stock for its Debentures, a
Debentureholder is not required to tender Debentures in order to Consent, and a
Consent does not indicate an intention to tender. See "The Proposed Exchange."
CONSENT SOLICITATION PERIOD
Consents will be effective as to each respective proposal if Consents
from registered holders of a sufficient principal amount of the Debentures on
such proposal have been received, and not revoked, at any time after the close
of business on December 16, 1996, or any date thereafter which is within the
60-day period immediately following the first-dated Consent received. The
Consent Solicitation Period, if not earlier terminated, shall end on or prior
to such 60th day, if it is a business day, or on the last business day prior to
such day. For example, if the earliest-dated Consent is dated November 14,
1996, the Consent Solicitation Period would end on or before January 13, 1997.
2
<PAGE> 9
REVOCABILITY OF CONSENTS
The Company will not use Consents received from the Debentureholders
unless the Consent Solicitation Period has remained open for a minimum period
of 20 business days ending December 16, 1996 (approximately 30 calendar days)
(the "Consent Solicitation Period") after the date of commencing this
solicitation. Thereafter, the Consent Solicitation Period as to all Proposals
shall end at 2:00 o'clock p.m., St. Paul, Minnesota time, on the earlier of (a)
the 60th calendar day after the first-dated Consent or (b) the first date on
which the Consents are sufficient independently to effect the respective
Proposal. The Company in its discretion may not require Consent on Proposal
No. 2, No. 3 or No. 4. See "Intentions of the Company if Proposal No.2, No. 3
and No. 4 Not Approved" below. A Consent becomes effective as to each Proposal
independently in accordance with its terms, and the Consent on such Proposal
thereafter binds all Debentureholders of the Company.
Any Consent given is revocable, at any time before it becomes
effective as to a Proposal, by the registered Debentureholder giving it (or by
any registered successor Debentureholder) as to all or any portion of the same
Debenture. If prior to the date the Consent becomes effective as to a Proposal,
the Trustee receives a written notice of revocation of a Consent, or a duly
executed Consent bearing a later date, from a registered Debentureholder, any
earlier-dated Consent will be revoked as to such Proposal.
VOTING OR CONSENTING
"Approving" on a Proposal is counted as a Consent on the Proposal.
"Disapproving" or "abstaining" on a Proposal, and brokers indicating a
"non-vote" in the customary manner, all have the same effect, and none is
counted as a Consent on such Proposal. If a preference is not indicated as to
Proposal No. 1, No. 2, No. 3 or No. 4 on a signed and dated Consent delivered
by a Debentureholder, the Consent will be counted as an APPROVE on each such
Proposal.
Only registered holders may give a Consent. The Consent Card provided
may be executed by the registered holder or pursuant to authority given by the
record holder. Beneficial holders must instruct the broker or other nominee
holder to Consent.
INFORMATION AND SOLICITATION
The Company is required to undertake to reimburse, and does reimburse,
brokerage firms and other persons representing beneficial owners of securities
for their expenses in forwarding solicitation materials to such beneficial
owners.
The Trustee will mail, or cause to be mailed, at the Company's cost
and expense, copies of this Debenture Consent Solicitation Statement (and any
other documents contemplated hereby). The Trustee, acting as Registrar, will
also collect and tabulate the Consents. The Trustee also will provide required
and optional notices to registered Debentureholders in addition to its
continuing to provide customary services as Trustee. The Trustee will not
advise Debentureholders concerning the request for Consent. Appropriate written
questions or comments may be addressed to First Trust of California National
Association, 180 E. Fifth Street, Suite 200, St. Paul, Minnesota 55101.
The Company also will mail, or cause to be mailed, at its costs and
expense, copies of such documents as are incorporated herein. Oral or written
requests may be made by telephone to Kerri Ruppert, Senior Vice President,
Secretary/Treasurer and Chief Financial Officer, at (800) 678-2273 or in
writing and addressed to Kerri Ruppert, Senior Vice President,
Secretary/Treasurer and Chief Financial Officer, at 1111 Bayside Drive, Suite
100, Corona Del Mar, California 92625 or by facsimile to (714) 719-9797.
3
<PAGE> 10
The above-described fees, costs and expenses, in addition to costs of
administrative matters related to distribution of this statement and related
documents, will be borne by the Company.
Consents may be solicited personally or by telephone, telegram or fax
by certain of the Company's directors, officers and regular employees, without
additional compensation.
INTENTIONS OF THE COMPANY IF PROPOSALS NO. 2, NO. 3 AND NO. 4 NOT APPROVED
The Company is not aware of any requirement under the Debentures or
the Indenture, or under any applicable law, or any existing circumstances that
would require that Debentureholders approve Proposals No. 2 and No. 3 in order
for rescission of the acceleration of the Debentures to take effect, unless
Proposal No. 2 is not approved and an Event of Default is declared prior to the
consummation of the Exchange and the rescission of the Acceleration or unless
Proposal No. 3 is not approved and the Trustee has pursued a remedy at law or
in equity that interferes with the Company's ability to proceed to cure, or to
obtain the waiver of, all continuing Events of Default as required for
rescission of the Acceleration. The Company could pursue certain alternatives
to Consent on Proposal No. 4 if not approved, including but not limited to
seeking an injunction or other order that nullifies the purported Event of
Default that arose from the purportedly ineffective notice given by the Company
to the Trustee (given by the Company to the Trustee) in order to eliminate or
reduce the sinking fund obligations of the Company). The Company does not
concede that such Event of Default exists.
If the Company is able to proceed without approval of Proposal No. 2
and No. 3 in the circumstances that then exist, the Company intends (at the
earliest practicable date) to consummate the payments and other things
necessary in order to consummate the Exchange and to rescind Acceleration
provided that Proposals No. 1 and No. 4 shall have been approved.
The Company also may, in lieu of Consent on Proposal No. 4, pay the
April 15, 1996, sinking fund installment, without any concession that such
sinking fund redemption Event of Default shall have existed.
BOARD OF DIRECTORS' DISCRETION AND RESERVATION OF RIGHTS
The Board of Directors reserves the right, notwithstanding
Debentureholders' approval and without further action by the Debentureholders,
to elect not to proceed with any of the proposed actions in connection with one
or more of the Proposals, if at any time prior to the Company's completion
thereof the Board of Directors, in its sole discretion, determines that the
proposed action is no longer in the best interests of the Company.
Under each of the Proposals, the Board reserves the right to delay or
defer any occurrence, action, event or record date, upon notice, for purposes
of allowing the Consent Solicitation Period to remain open for up to 60 days
from the earliest-dated Consent.
The Exchange Offer cannot be completed without rescission of
acceleration pursuant to the Consent. The Exchange Offer will remain open at
least five (5) business days after sufficient Consents have been given.
However, the Consent Solicitation Period is not terminated when sufficient
Consents have been given or at least five (5) business days later, when the
Exchange Offer expires. The Consent Solicitation Period will be open for up to
60 calendar days from and after the date of the earliest-dated Consent. The
Consent Solicitation Period will not terminate before the close of business on
such 60th calendar day unless and until the Exchange and the rescission of the
Debenture Acceleration shall have each been consummated. These, in turn,
cannot occur before all conditions to the Exchange and the rescission of the
Acceleration, including funding, are satisfied. If the Consent Solicitation
Period remains open, Consents may be given or revoked by the Debentureholders.
4
<PAGE> 11
All correspondence intended to Consent or revoke Consent should be
addressed to the Trustee in writing, signed by the record holder or a duly
authorized representative and dated. For the address of the Trustee, see
"Information and Solicitation." In order to revoke Consent, see "Revocability
of Consents" above.
NO DISSENTERS' RIGHTS
Under Delaware law, Debentureholders are not entitled to dissenters'
rights of appraisal with respect to the Proposals or the Exchange Offer.
CONSENTS EXPECTED
The rescission of the acceleration of the Debentures, and its effects,
requires Consent by a majority in principal amount of the Debentures. The
Company anticipates Consent will be given by the Participating Securityholders,
which are estimated to comprise approximately 25% of the outstanding principal
amount of Debentures. The Company has also received informal, unsolicited
indications that enough additional holders of Debentures intend to Consent in
order to effect the rescission of acceleration upon the Company's payment of
the interest due.
SPECIAL RISK FACTORS
In addition to the other information set forth herein, the following
factors should be considered carefully by the Debentureholders in deciding
whether or not to grant the Consents requested by the Company:
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Debenture Consent Solicitation Statement contains certain
forward-looking statements that are based on current expectations and involve a
number of risks and uncertainties. Factors that may materially affect
revenues, expenses or operating results include, without limitation, the
Company's success in (i) implementing its Debenture restructuring plans, (ii)
resolving issues and timely filing documents with the Securities and Exchange
Commission ("Commission") that may be requisite to the consummation of the
Debenture exchange offer and solicitation of consent to rescind acceleration
described herein, (iii) disposing of certain remaining facilities on acceptable
terms, (iv) expanding the behavioral medicine managed care and contract
management portions of the Company's business, (v) securing and retaining
certain refunds from the Internal Revenue Service ("IRS") and certain judgments
from adverse parties in legal proceedings, (vi) maintaining the listing of the
Company's Common Stock on The New York Stock Exchange, Inc. ("NYSE"), and (vii)
securing Debentureholder approval and consent to the Debenture transactions
described herein.
The forward-looking statements included herein are based on current
assumptions that the Company will be able to proceed with the proposed
Debenture exchange offer or otherwise reach a settlement with the Debenture
holders, that competitive conditions within the healthcare industry will not
change materially or adversely, that the Company will retain existing key
management personnel, that the Company's forecasts will accurately anticipate
market demand for its services, and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments that are difficult to predict accurately and are
subject to many factors that can materially affect results. Budgeting and
other management decisions are subjective in many respects and thus susceptible
to interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause the Company to alter its
budgets, which may in turn affect the Company's results. In light of the
factors that can materially affect the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
5
<PAGE> 12
EFFECTS OF REINSTATING NON-DEFAULT STATUS
The amount of interest due under the Debentures currently is, on
account of the Acceleration, equal to the full amount of the accrued interest,
which would be $208.98 approximately per $1,000 of principal amount as of
November 15, 1996. The amount of default interest due and payable, along with
the interest accrued on such default interest, in order to rescind the
acceleration (which is the amount of interest to be paid on Debentures that are
not Exchanged) will be only approximately $202.73 on each $1,000 of face value
as of November 15, 1996. The difference between the $208.98 and the $202.73 is
approximately $6.25 that will be due on April 15, 1997 (along with the balance
of the semi- annual interest payment of $37.50 per $1,000 of the outstanding
principal amount for the period from October 15, 1996 to April 15, 1997.
At present, unless there is a rescission of acceleration of the
Debentures (the "Acceleration"), the Company is unable to cure the continuing
Events of Default under the Debentures without paying all principal and
interest which is due otherwise than on account of acceleration, which the
Company estimates will aggregate approximately $11.5 million as of November 15,
1996 ($9.5 million principal and $2.0 million default interest and interest
thereon), plus the Trustee's fees and other costs necessary to complete the
Exchange, estimated at less than $0.1 million.
The Company expects to be able to cure the Events of Default, which
must be cured in order to rescind the Acceleration. After rescission of the
Acceleration, and at least while no subsequent Events of Default occur, the
Trustee will have only those certain rights specified in the Indenture, and
shall not have the right to seek immediate payments of Debenture principal.
The Indenture does not limit the Company in the amount of Senior Debt which may
be issued or in regard to dividends on stock or securities. The Trustee's and
the Debentureholders' influence over the Company, however, at present, which is
a time of continuing Events of Default, is at its greatest. The Trustee is
empowered, for instance, to sue for a judgment for the total amount owing under
the Debentures and the Indenture; and the right to seek any available remedy
against the Company gives rise to various considerations that tend to influence
the Company and its other financial and business dealings.
The Company has many practical limitations on its ability to incur
additional Senior Debt, and to make distributions, including its limited assets
and excessive liabilities. The Indenture does not impose any limit expressly
on Senior Debt or distributions. The practical implications of continuing
Events of Default include that other creditors are deterred from extending
credit. Further, with a continuing Event of Default, the Indenture prohibits
the Company from distributing anything of value to holders of Common Stock,
other than shares of capital stock. The Indenture does not restrict the
Company after rescission of the Acceleration. The renewed non-default status
would eliminate the present ability of Debentureholders to instruct the Trustee
to claim the full amount due and to seek any remedy to recover payment.
Management believes that the Company's financial strategy depends in
material part upon rescission of the Acceleration. The effect of rescinding
Acceleration is that the amount immediately due and payable of approximately
$11.5 million will no longer be immediately due, the $9.5 million of
principal amount will be due April 15, 2010 and payment of semi-annual interest
installments will resume April 15, 1997, provided that the Debentureholders
Consent and the Company shall have paid all of the interest that would have
come due in any case even if the Acceleration had not occurred (i.e., $37.50
per $1,000 of principal on October 15, 1994, April 15, 1995, October 15, 1995,
April 15, 1996, and October 15, 1996, plus interest on the overdue installments
of default interest, aggregating $202.73 of interest payable per $1,000 of
principal amount and $1,933,639 of interest payable on account of the entire
$9,538,000 of outstanding principal amount as of November 15, 1996). After the
rescission of Acceleration the Debentureholders will be entitled to payment on
April 15, 2010 of 100% of the $1,000 of principal amount and to payment in full
of semi-annual interest installments each April 15 and October 15, commencing
April 15, 1997.
6
<PAGE> 13
Holders of debt and equity securities are encouraged to read the
following Sections of this Debenture Consent Solicitation Statement and to seek
the advice of their own counsel or advisors with respect to such matters.
SUMMARY COMPARISON OF TERMS OF DEBENTURES WITH AND WITHOUT ACCELERATION
<TABLE>
<CAPTION>
ACCELERATED ACCELERATION RESCINDED
----------- ----------------------
<S> <C> <C>
PRINCIPAL . . . . While the Debentures are accelerated, $1,000 of If the acceleration is rescinded, the
principal and interest accrued on the principal principal amount will be due in full April 15,
to the date of payment is payable, along with 2010, subject to earlier redemption in the
interest on unpaid interest to the extent lawful Company's discretion.
is due and payable in cash. See "Interest"
below.
INTEREST . . . . Interest accrues at the rate of 7 1/2% per annum If the acceleration is to be rescinded, the
calculated on a 30-day month and 360 day year interest required to be paid excludes the
basis. Interest has not been paid since the portion of accrued interest due only on
payment that was made on April 15, 1994 on the account of the acceleration, comprised of
Debentures. Five semi-annual interest interest on the principal amount from and
installments are in arrears (October 15, 1994, after October 15, 1996. That amount of
April 15, 1995, October 15, 1995, April 15, approximately $6.25 per $1,000 of principal
1996, and October 15, 1996). Debentures earn amount, estimated as of November 15, 1996,
interest on default interest at 7 1/2% per will be included in the April 15, 1997 semi-
annum, to the extent permitted by law. annual interest installment of $37.50 per
Approximately $208.98 of interest in the $1,000 of principal amount, calculated at the
aggregate will have accrued on each $1,000 face rate of 7 1/2% per year for the full six-month
value to November 15, 1996. period.
MATURITY . . . . While the Debentures are accelerated, all If the acceleration is rescinded, the
principal and interest is due and payable principal amount will mature on April 15,
immediately. The Company elected to subtract 2010, subject to optional redemption at
from the Company's sinking fund obligations the 100.00% of face amount, and also subject to
$36,460,000 principal amount of Debentures acceleration in the event of notice by the
converted by Debentureholders in March 1991 and Trustee or at least 25% in principal amount of
previously cancelled, effectively removing the Debentures following the existence and
sinking fund redemption obligation. See "The continuation of an Event of Default.
Proposals--Proposal No. 4."
CONVERSION . . . Each $1,000 in principal amount is convertible Same.
into 4 whole Common shares (and the
Debentureholder will not be entitled to convert
a Debenture in a principal amount less than
$1,000) at the current conversion price of
$248.12 per share. The conversion price is
subject to adjustment to prevent dilution in
certain events. The conversion price adjustments
are made generally whenever shares are sold by
the Company at a price below the average closing
price on the NYSE during a specified period.
See "Additional Risk Factors--Conversion Price
Far Above Share Prices" below. See "Notice of
Conversion Price Adjustment" attached as
Exhibit 99.18.
</TABLE>
7
<PAGE> 14
<TABLE>
<S> <C> <C>
RANKING . . . . . Unsecured general obligations of the Company Same.
subordinate to all existing and future Senior
Debt of the Company (as defined). Secured Senior
Debt totalled approximately $2.0 million at
August 31, 1996. Payments received by
Debentureholders may be subject to claims of
Senior Debt holders or other creditors, and, if
competing creditors prevail in asserting their
claims, the payment may be forfeitable. See
"Priorities of Securities and Other
Considerations Relating to Any Future Bankruptcy
of the Company."If the acceleration is
rescinded, the ranking of the Debentures will
not be directly affected; however, the non-
default status of the Debentures may increase
the Company's debt-carrying ability and, hence,
the Company may incur greater amounts of Senior
Debt or other obligations.
REDEMPTION . . . Not applicable. Redeemable at any time in whole or in part at
the option of the Company at the principal
amount, together with accrued interest. No
sinking fund redemption payments will be due.
See "The Proposals--Proposal No. 4."
</TABLE>
POTENTIAL EFFECTS OF SENIOR DEBT
Payment of Exchange Consideration in the proposed Exchange Offer may
be subject to restrictions contained in the Indenture. The Company is
restricted from paying, directly or through paying agents, any amount in cash
or property (other than capital stock of the Company) if any Senior Debt that
has matured on or before the date on which the Company intends to make payment
is not previously paid to the extent of the full amount of principal or
interest due. As of August 31, 1996, the Company believes that it has
approximately $2.0 million of Secured Senior Debt outstanding and an additional
estimated $11.7 million in the aggregate of other liabilities (including debt
and senior equity of the subsidiaries of the Company) with priority over the
Debentures and approximately $13.6 million of obligations represented by the
Debentures themselves or that are on a parity with the Debentures. The amount,
including principal and interest, of the Company's Senior Debt that will become
due on or prior to November 30, 1996 is estimated to be approximately $500,000.
If any Senior Debt is in default and if the holder gives the Company proper
notice or institutes any proceeding related to such default, and such Senior
Debt provides for a right of acceleration on default, the holder of Senior Debt
in default must consent in advance to the payment to Debentureholders of any
cash or other property (other than capital stock of the Company) before such
payment may be made to Debentureholders. As of the date of the Offering
Circular describing the proposed Exchange Offer, no holder of Senior Debt had
given such notice or instituted such proceedings to the Company's knowledge.
No assurance can be made that a default under the Company's Senior Debt has not
or will not occur. The Company anticipates being able to make full and timely
payment to each holder of Senior Debt as such Senior Debt matures as to
principal or interest in the immediate future.
8
<PAGE> 15
POTENTIAL EFFECTS OF FAILURE TO RESCIND ACCELERATION
In the event of a failure to accomplish the proposed rescission of
acceleration of the Debentures, the Company would continue to be immediately
liable for the entire $9,538,000 principal amount plus accrued interest and
default interest from April 15, 1994, estimated at approximately $2.0 million
to November 15, 1996, plus certain other costs. In such event, the Company
believes that it probably would not be able to pay the $9,538,000 of principal
amount, plus accrued interest and costs, that would remain immediately due
under the outstanding Debentures. Generally, unpaid creditors could file to
commence a Chapter 7 liquidation. The Company believes that any protracted
bankruptcy case would have material adverse effects on the Company. See "Brief
Explanation of Chapter 11" below.
ABILITY OF THE COMPANY TO CONTINUE AS A GOING CONCERN; EXPLANATORY PARAGRAPH IN
AUDITORS' REPORT
The Company's independent auditors have included an explanatory
paragraph in their report stating that the Company's history of losses,
consolidated financial position and uncertainties resulting from the Company's
existing default in the terms of its Debentures raise substantial doubt about
its ability to continue as a going concern.
PRIORITIES OF SECURITIES AND OTHER RELATED CONSIDERATIONS RELATING TO ANY
FUTURE BANKRUPTCY OF THE COMPANY
Implementation of the rescission of acceleration will have significant
consequences for the holders of the Company's debt and equity securities in the
event of any future bankruptcy of the Company. Certain of these risks are
summarized below.
DEBT CLAIMS VS. EQUITY INTERESTS
The relative rankings of the Company's debt claims and equity
interests as of August 31, 1996, both before and after giving effect to the
rescission of acceleration for all of the outstanding Debentures (without
reflecting any other transactions) are summarized in the following table. The
relative priority of claims of holders of Debentures may worsen as a result of
the issuance of new debt or convertible securities, whether secured or
unsecured, which may, in each case, rank senior to the Debentures or on a
parity with them. In the event the Company incurs additional indebtedness that
is senior to the Debentures or issues any preferred equity evidenced by a note,
bond or similar instrument, or in the event that the Company permits or
authorizes its subsidiaries to incur any indebtedness, liability, cause of
action or claim, of any kind, to issue senior securities, or to become or agree
to be liable for other obligation whatsoever, the position of the Debentures
relative to the new indebtedness or equity will worsen. In the event the
Company, independently of its subsidiaries, incurs obligations on a parity with
the Debentures, Debentures will share on a prorated basis, in available
proceeds, thus reducing the Debentureholders' share. Rescission of
acceleration may again make it possible for the Company to pay dividends on
shares of capital stock out of current earnings, if any, so long as no Event of
Default exists and is continuing.
The following table presents the relative rankings of the Company's
debt claims and equity interests as of August 31, 1996, both before and after
giving effect to the rescission of the Acceleration of the Debentures.
9
<PAGE> 16
<TABLE>
<CAPTION>
Priority Pre-Restructuring Post-Restructuring
- -------------------------------------------------------------------------------------------------------
Type and Amount Type and Amount
Outstanding Outstanding
<S> <C> <C>
Secured Debt (a)
Parent's Secured Creditors . . . . . . . $ 2,042,000 $2,042,000
Subsidiaries' Unsecured Liabilities (b) . . $ 8,646,000 $8,646,000
Subsidiaries' Senior Equity (c) . . . . . . $ 1,040,000 $1,040,000
Parent's Unsecured Debt (b)
General Creditors . . . . . . . . . . . . $ 2,011,000 $2,011,000
Subordinated Debentures (including interest) $11,570,000 $9,806,000
Parent Shares of Common Stock Outstanding (c) 2,864,684 Shares 2,864,684 Shares
</TABLE>
____________________
(a) All "secured debt" ranks ahead of all "equity" and, to the extent of
the value of the security interest securing any such "secured debt,"
all "unsecured debt," except to the extent subordination agreements
among creditors specify otherwise. To the extent any amount of the
"secured debt" is undersecured or becomes unsecured, any such amount
will have the relative priority of other "unsecured debt." See "The
Proposed Exchange--Exchange Offering Funding Requirements and Sources."
(b) All "unsecured debt" ranks ahead of all "equity." Debentures rank pari
passu in right of payment with all "unsecured debt," which would
include trade payables and other general creditors of the Company
(except for debts which are, by their terms, subordinated to
indebtedness owed under the Debentures). The term pari passu means
that such securities rank at the same level of priority for
distributions in liquidation and/or bankruptcy, absent other
bankruptcy considerations.
(c) Preferred Stock has priority over Common Stock in right of payment of
dividends and in any distribution upon the liquidation, dissolution or
winding up of the Company. Preferred Stock may be issued with rights
determined by the Board of Directors from time to time. See "The
Proposed Exchange--Exchange Offer Funding Requirements and Sources."
10
<PAGE> 17
AVOIDABLE PREFERENCES
If a case were to be commenced by or against the Company under the
Bankruptcy Code following the consummation of the Exchange Offer, a bankruptcy
trustee or the Company, as debtor in possession, could avoid as a preference
any transfer of property made by the Company to or for the benefit of a
creditor which was made on account of an antecedent debt if such transfer (i)
was made within 90 days prior to the date of the commencement of the bankruptcy
case or, if the creditor is found to have been an "insider" (as defined in the
Bankruptcy Code), within one year prior to the date of commencement of the
bankruptcy case; (ii) was made when the Company was insolvent; and (iii)
permitted the creditor to receive more than it would have received in a
liquidation under Chapter 7 of the Bankruptcy Code had the transfer not been
made. Under the Bankruptcy Code, a debtor is presumed to be insolvent during
the 90 days preceding the date of commencement of a bankruptcy case. To
overcome this presumption, it would need to be shown that at the time the
transfers were made, the sum of the Company's debts was less than the fair
market value of all of its assets.
Under the Bankruptcy Code, all or a portion of the property
transferred, including any cash payments, to tendering holders of Debentures,
as well as any subsequent payment to non-tendering holders of Debentures, could
be found to constitute preferences if a bankruptcy case were commenced within
the applicable time period following such payments and if the other elements
discussed above are present. If, following the commencement of a bankruptcy
case within the applicable time period, such transfers were found to be
preferential transfers, transferees could be ordered to return the full value
of such transfers. In such event, transferees would have a general unsecured
claim in the Company's bankruptcy case equal to the value of the property
returned.
POTENTIAL TO BE SUBJECTED TO AUTOMATIC BANKRUPTCY STAY
In the event that the Company does not retire the Debentures or
rescind the acceleration, a majority of Debentureholders by principal amount
can request the Trustee to seek any remedies for non-payment, including
potentially the filing of a bankruptcy petition. The filing of a petition
would not affect the relative priority of creditors. Senior creditors may also
file such a petition, or institute other actions against the Company, in order
to enforce the subordination provisions of the Indenture that prevent the
Debentureholders from collecting on their debts in advance of payment to any
senior creditor.
Involuntary bankruptcy petitions do not result in an immediate Event
of Default and acceleration under the Debentures. During the period
beforehand, the Company would, absent a contrary bankruptcy court order,
continue to manage its own assets, and may incur additional debtor obligations.
A voluntary petition, or the order for relief under an involuntary petition as
described above, does result in an Event of Default and an acceleration under
the terms of the Indenture. A Chapter 11 petition is treated like a voluntary
petition under the Indenture.
The filing of a bankruptcy petition also triggers the automatic stay
provisions of the Bankruptcy Code. Section 362 of the Bankruptcy Code
provides, among other things, for an automatic stay of all attempts to collect
pre-petition claims from the debtor or otherwise interfere with its property or
business. Except as otherwise ordered by the bankruptcy court, the automatic
stay remains in full force and effect until confirmation of a plan of
reorganization.
11
<PAGE> 18
There is a substantial risk that a bankruptcy case will be protracted
and costly and disruptive to the Company's business. There can be no assurance
that a pre-packaged agreement favorable to Debentureholders will be proposed or
reached or that a plan favorable to Debentureholders will be proposed and
confirmed in the bankruptcy court. The Company believes that any protracted
bankruptcy case would have a material adverse effect on the Company including:
(a) disruption of business activities by diverting the
attention of the Company's senior management;
(b) potential for substantial diminution in the value of
the Company's assets;
(c) potential adverse impact upon the ability of the
Company to obtain the financing necessary for its
future operations;
(d) substantial increase in the cost of liquidating or
restructuring the Company, including the increase in
the expenses of professionals normally associated
with a bankruptcy case commenced without prior
agreement with the Company's major creditors;
(e) uncertainty as to the ability of the Company to
effectuate any such liquidation or restructuring and,
if it is effectuated, the timing thereof;
(f) interference and delay regarding payments to
creditors;
(g) potential for forced liquidation of some or all of
the Company's assets, erosion in value of assets in
the context of a liquidation and the "forced sale"
atmosphere that would prevail, the adverse effects on
the salability of a business that could result from
the probable departure of key employees, and the
costs attributable to the time value of money
resulting from what is likely to be a protracted
proceeding, the resulting loss to creditors and
others; and
(h) increased uncertainty among the Company's employees,
business partners and associates.
In addition, the Company believes that, because of the importance of
continuing stable relations with the health care industry, the Company is
particularly susceptible to any adverse reactions such constituencies may have
to the filing of a bankruptcy petition, particularly if the bankruptcy case is
long in duration. As a result, and for other reasons, any commencement of a
bankruptcy case could adversely affect the Company's business operations.
To determine what holders in each impaired class of creditors would
receive if the Company were liquidated or the least they can receive in a
Chapter 11 reorganization, one must determine the dollar amount that would be
generated from the liquidation of the Company's assets and properties in the
context of a Chapter 7 liquidation case. Secured claims and the costs and
expenses of the liquidation case would be paid in full from the liquidation
proceeds before the balance of those proceeds would be made available to pay
pre-petition unsecured claims and interests. The rule of absolute priority of
distribution would apply. Under that rule, no junior creditor would receive
any distribution until the allowed claims of all senior creditors are paid in
full, and no holder of an Interest would receive any distribution until the
allowed claims of all creditors are paid in full.
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The Company has not performed any analysis of its reorganization or
liquidation values and has not obtained an independent valuation of the
Company's assets or liabilities and there can be no assurance that the Company
would receive in liquidation the value for its assets set forth in the
Company's financial statements. The Company's financial statements do not
include any adjustments to reflect possible future effects on the
recoverability and classification of assets and liabilities that may result
from the outcome of this uncertainty as to its ability to continue as a going
concern.
PROHIBITIONS ON PAYMENT TO DEBENTUREHOLDERS
The payment of cash or property (other than capital stock of the
Company) would be prohibited pursuant to the Indenture, and the Company does
not intend to make such payment, if there exists at such time any law, rule or
order which would be violated by such payment or a law that would under the
circumstances existing at the time be violated by such payment. The Company
cannot determine at this time whether the payment to Debentureholders pursuant
to the proposed Exchange Offer described below will be permitted by law.
Certain of the laws affecting the Company's ability to make such payments are
described elsewhere herein.
Moreover, under the Bankruptcy Code, all or a portion of the property
transferred, including any cash payments, to tendering holders of Debentures,
as well as any subsequent payment to non-tendering holders of Debentures, could
be found to constitute preferences if a bankruptcy case were commenced within
the applicable time period following such payments and if the other elements
discussed above are present. If, following the commencement of a bankruptcy
case within the applicable time period, such transfers were found to be
preferential transfers, transferees could be ordered to return the full value
of such transfers. In such event, transferees would have a general unsecured
claim in the Company's bankruptcy case equal to the value of the property
returned.
FRAUDULENT CONVEYANCES
If a court in a lawsuit by or on behalf of an unpaid creditor or a
representative of creditors, such as a bankruptcy trustee, or the Company, as
debtor in possession, were to find that, at the time of consummation of the
Exchange Offer (a) the Company received less than reasonably equivalent value
in exchange for the consideration given by the Company for property surrendered
by the tendering holders of Debentures, and (b) the Company (i) was insolvent
or was rendered insolvent as a result of such transfers, (ii) had unreasonably
small remaining assets or capital for its business, or (iii) intended to incur,
or believed or reasonably should have believed it would incur, debts beyond its
ability to pay such debts as they become due, such court could determine that
all or a portion of such transfers were avoidable as a "constructive"
fraudulent transfer and require the transferees to return to the Company or its
bankruptcy trustee the consideration given. The Company believes that because
of the reduction in the Company's outstanding indebtedness which will result
from each of the other exchanges or transfers described above, a bankruptcy
court should find that the Company received reasonably equivalent value for the
consideration given by the Company. There can be no assurance, however, that a
bankruptcy court would make such a determination.
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DETERMINATION OF TERMS OF EXCHANGE OFFER
The Company is seeking the Consent as part of a voluntary arrangement
with Debentureholders. While the Trustee is empowered to pursue any remedy at
law or in equity to obtain payment of the Debentures, the Trustee has forborne
from seeking remedies. The Company believes that a voluntary resolution will
best assure that Debentureholders receive value. The Trustee's acquiescence
does not necessarily indicate any position by the Trustee with regard to the
subject of whether to sign, date, and return a Consent Card. Nothing herein
should be interpreted as a basis to infer that the Trustee or any
Debentureholder is in any way whatsoever responsible for directing or examining
the terms of the Consent and the Exchange Offer or in any way related to the
past, present or future conduct of the Company's financial or business affairs.
The Company has not performed any analysis of its liquidation or
reorganization value and has not obtained an independent valuation of the
Company's assets or liabilities and there can be no assurance whether the
Debentureholders would receive more or less in a liquidation, a reorganization,
or a voluntary arrangement. Holders of Debentures are cautioned to consult
with their own advisors. In particular, there can be no assurance regarding
the assumptions underlying the Company's determination that failure to obtain
Consent or to accomplish the Debenture Exchange, or, in the alternative, a
failure of the Company and the Debentureholders to otherwise reach a
settlement, may cause the Debentureholders to pursue an involuntary bankruptcy
of the Company and/or the Company to take alternative actions that may include
filing for voluntary protection from creditors. The Company's consolidated
financial statements do not include any adjustments to reflect possible future
effects on the recoverability and classification of assets or the amount and
classification of liabilities that may result from the outcome of the
uncertainty of the Company's ability to continue as a going concern. The
Company believes that the Debentureholders will receive less if they seek a
liquidation of the Company than if they pursue the voluntary arrangements
described in this Debenture Consent Solicitation Statement.
HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
As of August 31, 1996, the Company had a stockholders' deficiency of
$8.5 million, a working capital deficiency of approximately $22.4 million, and a
negative current ratio (a measure of liquidity comparing current assets to
current liabilities). The net loss for the 3 months ended August 31, 1996 was
$1.8 million, and the loss for the same 3-month period in fiscal 1996 was $1.3
million. The Company's cash position declined over the first quarter of fiscal
1997 from $4.4 million to $2.4 million. In October 1996, the Company received
$5.4 million related to its 1996 Federal tax refund. This is the primary source
of funds which the Company intends to utilize to pay the cash portion of the
Exchange Offer. 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 utilization of its facilities and services.
There can be no assurance that the Company will be able to achieve
profitability and positive cash flows from operations or that profitability and
positive cash flow from operations, if achieved, can be sustained on an ongoing
basis. Moreover, if achieved, the level of that profitability or that positive
cash flow cannot accurately be predicted.
The Company's lack of profitability results also in its failing to
satisfy listing standards of the NYSE. No assurance can be made that the
Common Stock will continue to trade on the NYSE or that the Company can satisfy
the comparable requirements of any other stock exchange or the Nasdaq Stock
Market.
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ADDITIONAL RISK FACTORS WITH RESPECT TO HOLDERS OF DEBENTURES NOT TENDERED IN
THE EXCHANGE OFFER
SUBORDINATION
The Debentures represent the subordinated indebtedness of the Company.
The Company may incur indebtedness which is senior to the Debentures in
unlimited amounts.
The Debentures are general unsecured obligations exclusively of the
Company. Since a substantial portion of the Company's business is conducted by
the Company's subsidiaries, the cash flow and consequent ability of the Company
to satisfy the Company's indebtedness to Debentureholders are dependent, in
part, upon the earnings of such subsidiaries and a distribution of those
earnings to the Company. The Company's subsidiaries are distinct legal entities
and have no obligation, contingent or otherwise, to make any payment on the
Debentures or to make funds therefor available. Any rights of the Company to
receive assets of any subsidiary (and the consequent right of Debentureholders
to possibly benefit from participating therein) in any liquidation or
reorganization of the subsidiary will be effectively subordinated to the
creditors of the subsidiary (including trade creditors) in any liquidation or
reorganization of the subsidiary.
REDEMPTION; MATURITY
The Indenture permits the Company, at its election, to redeem the
Debentures at 100% of the original principal amount (the "face value") at any
time before maturity. The original maturity date of the Debentures was April
15, 2010. Provided that the acceleration of Debentures is effectively
rescinded, the maturity date will once again become April 15, 2010, subject to
any future conditions affecting maturity. The Company may determine whether or
not to redeem Debentures based on interest rates that prevail at future times
or other economic factors as they affect the Company's interests. See
"Description of Debentures."
SPORADIC TRADING
The Debentures are not listed on any securities exchange or quoted on
the Nasdaq Stock Market or any other automatic quotation system. The
over-the-counter trading, if any, in the Debentures is limited and sporadic.
Presently there are fewer than 50 registered holders of Debentures. Because the
Debentures may be, after consummation of the Exchange Offer described below,
held by a more extremely limited number of holders, the trading market will
become even more limited. These events are likely to have an adverse effect on
the overall liquidity and market value of the Debentures.
CONVERSION PRICE FAR ABOVE SHARE PRICES
The Debentures are convertible into Common Stock at a price so far in
excess of the current market price of Common Stock as to be unattractive to
Debentureholders in today's market.
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF FUTURE FUNDING
The Company's negative cash flow from operations has consumed
substantial amounts of cash. Retirement of the Debentures would require
approximately $11.5 million as of November 15, 1996 including all accrued
interest, if paid in full at such date, or approximately $5.6 million in cash,
including estimated expenses necessary to consummate the Exchange, if 100% of
the outstanding principal amount were tendered pursuant to the Exchange Offer
(in addition to 228,912 shares of Common Stock).
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<PAGE> 22
Additional investment in the Company could result in impairment of the
Debentureholders' eventual receipt of payment or recovery. Issuance of
additional debt by the Company could result in substantial obligations senior
to Debentures.
The Company has received a tax refund for fiscal 1995 in the amount of
$9.4 million based on loss carrybacks under Section 172(f) of the Internal
Revenue Code (the "Code"). An additional $5.4 million refund was received on
October 5, 1996 for the Company's 1996 income tax return. However, the IRS
payment of such refunds did not follow confirmation of the validity thereof by
the IRS, and Section 172(f) is an area of tax law with little guiding legal
precedent. The Company's 1993, 1994 and 1995 federal income tax returns are
currently under audit by the IRS. Any IRS claim for return of all or any
portion thereof could have a material adverse effect on the Company's cash
flows. See "Special Risk Factors-- Tax Matters" below.
DISPOSITION OF ASSETS
The Company has been required to dispose of various properties in
order to raise working capital, and no assurance can be made that such
dispositions will not have adverse effects on the Company's financial condition
and results of operations or that the Company has sufficient additional assets
that could be disposed of in order to fund its current or future capital
requirements. A $2.0 million secured promissory note has been issued by the
Company, the collateral for which is comprised of two of the remaining
freestanding facilities of the Company.
In connection with the March 3, 1995 Letter Agreement with Mr. Jay H.
Lustig (described under "The Proposed Exchange--Background-- Agreement of
Participating Securityholders" below), the Company conditionally agreed to
pledge all of the shares of its subsidiary Comprehensive Care Integration, a
Delaware corporation ("CCI"), formerly known as CareUnit, Inc. The Company has
not nor does it recognize any obligation to have pledged such shares. The
Letter Agreement provides that "At 150 days after the date of this Agreement,
provided that the Participating Securityholders have in each material respect
performed (with opportunity to cure if a cure is possible) their obligations
required to be performed hereunder on or prior to such date, and if the Offer
has not then been consummated, the Company shall pledge (with the Trustee, or
an alternate acceptable to the Company, to act as pledgeholder on terms of a
written agreement containing standard terms reasonably acceptable to the
Participating Securityholders) all of the Shares as collateral for its
obligation to purchase the Securities pursuant to the Offer or otherwise." No
assurances can be made that the Participating Securityholders will not demand a
pledge of such shares or that the Company will not be required to perform such
agreement, or otherwise satisfy its obligations to Debentureholders. However,
the Company believes that the Letter Agreement does not require the Company to
pledge such shares on account of the failure by the Participating
Securityholders to perform their obligations in material respects, and no
pledge of the shares is contemplated by the Company in the currently proposed
Exchange.
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<PAGE> 23
INVOLUNTARY BANKRUPTCY PETITION; ACCELERATION OF INDEBTEDNESS
Despite the dismissal on March 6, 1995 of the involuntary bankruptcy
petition filed against the Company on February 24, 1995 by or on behalf of
three Debentureholders, no assurance may be made that such or other persons
whom the Company owes any debt could not file another involuntary petition in
bankruptcy court. The Company's 7 1/2% Convertible Subordinated Debentures
continue to be in default, including the payment default involving interest
accruing from April 1994 on approximately $9.5 million of outstanding face
amount, and interest on all overdue installments, and the Debentures continue
to be accelerated, and immediately payable in full. To rescind the acceleration
of the Debentures would require written consent of a majority of the principal
amount of Debentures outstanding and the cure or waiver of all existing
defaults. No assurances can be made that the holders of Debentures will consent
to rescission of the acceleration or that the defaults can be cured, or waivers
thereof obtained, or that other defaults will not occur. In addition, no
assurance can be made that the Company will successfully resolve all matters
regarding necessary funding or legal compliance. Debentureholders who filed
the earlier involuntary petition on February 24, 1995 may file another such
petition. Other creditors may also file such a petition, or institute other
actions against the Company, in order to prevent the Debentureholders from
collecting on their debts in advance of payment to themselves.
TAX MATTERS
On July 20, 1995, the Company filed its Federal income tax return for
fiscal 1995. On August 4, 1995, the Company filed Form 1139 "Corporate
Application for Tentative Refund" to carry back losses under Section 172(f)
requesting a refund to the Company in the amount of $9.4 million. On August 30,
1995, the Company also filed amended Federal tax returns for several prior years
to carry back losses under Section 172(f). The refunds claimed on the amended
returns are approximately $6.2 million for 1986; $0.4 million for 1985; $0.7
million for 1983 and $0.4 million for 1982. On September 20, 1996, the Company
filed its Federal income tax return for fiscal 1996, and subsequently filed Form
1139 "Corporate Application for Tentative Refund" to carry back losses described
in Section 172(f) requesting a refund to the Company in the amount of $5.5
million. On October 4, 1996, the Company received $5.4 million related to its
1996 Federal income tax refund. The total refunds applied for are $22.6
million, comprised of $7.7 million for amended prior years' returns, $9.4
million for fiscal year 1995, and $5.5 million for fiscal year 1996. Section
172(f) is an area of the tax law with little guiding legal precedent. On
October 21, 1996, the U.S. Tax Court rendered an opinion in Sealy Corp. v.
Commissioner, No. 18761-92, 107 T.C. No. 11, October 21, 1996, in which the
application of certain deductions claimed pursuant to Section 172(f) was denied.
The period for which that case may be appealed has not yet expired, so the
precedential value of that case is not yet certain. There may be opposition by
the Internal Revenue Service ("IRS") as to the Company's ability to obtain
benefits from refunds claimed under this section. Therefore, no assurances can
be made as to the Company's entitlement to the claimed refunds.
In October 1995, the Company received a $9.4 million refund for fiscal
1995. Of this refund, $2.4 million was recognized as a tax benefit during the
second quarter of fiscal 1996. Receipt of the fiscal 1995 Federal tax refund
does not imply IRS approval. Due to the uncertainty regarding Section 172(f),
the remaining amount, $7.0 million, is reflected on the Company's consolidated
balance sheets in unbenefited tax refunds received. In addition, during the
second quarter of fiscal 1996, the Company recorded a tax benefit of $0.2
million, which is related to prior years returns. The Company paid a
contingency fee of $1.9 million related to the 1995 refund. In the event the
IRS Appeals Office determines that the Company is not entitled to all or a
portion of the deductions under Section 172(f), this fee is reimbursable to the
Company proportionately. Of the $1.9 million, the Company expensed $0.5
million during the second quarter of fiscal 1996, which is the amount of fees
related to the tax benefit recognized by the Company. The remaining $1.4
million is reflected in the Company's financial statements as other
receivables.
In October 1996, the Company received a $5.4 million refund for fiscal
1996. Of such refund, some portion, not known at the present time, will be
recognized as a tax benefit. Receipt of the fiscal 1996 Federal tax refund
does not imply IRS approval. Due to the uncertainty regarding Section 172(f),
the unbenefited amount will be reflected on the Company's consolidated balance
sheets in unbenefited tax refunds received. The Company also paid a
contingency fee of $1.1 million related to the fiscal 1996 refund. In the
event that the IRS Appeals Office determines that the Company is not entitled
to all or
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a portion of the deductions under Section 172(f), this fee is reimbursable to
the Company proportionately. During the second quarter of fiscal 1997, the
Company will expense a certain portion of the fee paid in proportion to the
amount of the fiscal 1997 Federal tax refund that is recognized by the Company
as a tax benefit in the second quarter of fiscal 1997. The remaining amount
of fees paid will be reflected in the Company's second quarter financial
statements as other receivables.
The Company is currently under audit by the IRS related to its 1995
Federal income tax return and the amended returns for prior years. Neither the
Company nor the IRS will be foreclosed from raising other tax issues in regard
to any audits of any such returns, which could also ultimately affect the
Company's tax liability.
The Company's ability to use any NOLs may be subject to limitation in
the event that the Company issues or agrees to issue substantial amounts of
additional equity (see "Potential Federal Income Tax Consequences - Effects on
the Company"). The Company monitors the potential for "change of ownership"
and believes that presently contemplated private placements of stock and the
recent exchange of an outstanding promissory note for shares of stock will not
cause a "change of ownership;" however, no assurances can be made that future
events will not act to limit the Company's tax benefits.
The Company had a carryover of $26.8 million of NOLs into fiscal 1997.
In the event that the Company's tax refunds (as described above) are
disallowed, the disallowed amount of carrybacks of specified liability losses
would be recharacterized as NOLs. The resultant NOLs could increase the NOLs
aggregately to approximately $76.8 million. In the event that a substantial
portion of the $50.0 million aggregate tax deductions forming the basis for
the Company's tax refund claims are reclassified as NOLs, a change of ownership
(as defined above) would likely have the effect of disallowing the use of a
substantial portion of the Company's NOLs by the Company under any
circumstances during the limited carryover periods applicable thereto.
In addition, the Company may be unable to utilize some or all of its
allowable tax deductions or losses, which depend upon factors including the
availability of sufficient net income from which to deduct such losses during
limited carryback and carryover periods.
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THE PROPOSALS
PROPOSAL NO. 1
Debentureholders are asked to Consent on Proposal No. 1 in order to
rescind the acceleration of payment of principal and interest under the
Debentures, and its effects. The Company missed the October 15, 1994
semi-annual interest payment on the Debentures. An Event of Default was
declared 30 days after the missed payment due October 15, 1994. Estimated as of
November 15, 1996, the interest that will have accrued, will be $1,993,294 and
the aggregate of all principal and interest under the Debentures will be
$11,531,294.
Acceleration was declared by the Trustee on or about February 13, 1995
after the Trustee received acceleration notices purportedly from a group of
Debentureholders that were record holders of 25% of the $9,538,000 in principal
amount of Debentures outstanding. The Event of Default resulted in
acceleration of the Debentures because of the inability (prior to such notice
of Acceleration being given) of the Company to remedy the missed interest
installment payments which would have required at least 15-days' prior written
notice of the default interest payment record date. Subsequently, on account
of the Acceleration of the $9,538,000 of principal, the Company has failed to
pay all semi- annual interest installments, in addition to that first missed
payment giving rise to the Acceleration.
These events are further described under "The Proposed
Exchange--Background" below.
Section 6.02 of the Indenture (entitled, "Acceleration") provides in
part as follows: ". . . The Holders of a majority in principal amount of the
then outstanding Securities by notice to the Trustee may rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if any existing Events of Default have been cured or
waived except nonpayment of principal or interest that has become due solely
because of the acceleration."
If the Consent of the holders of more than 50% in principal amount of
the Debentures is obtained for Proposal No. 1, the Company will cause the
Acceleration to be rescinded, provided that the Company pays to
Debentureholders (except those Exchanged in the proposed Exchange) all default
interest due. Without acceleration, the interest due would be the sum of (a)
interest at the rate of 7 1/2% per year from April 14, 1994 through October 15,
1996, the immediately prior semi-annual interest payment date, on the principal
amount, plus (b) interest on all overdue installments accrued or accruing
thereafter to the date that the default interest shall be paid. The Company's
obligation to the Debentureholders will return to a non-accelerated,
non-default status. The Company will set a record date for this interest
payment. The Company will send a notice stating the amount of interest to be
paid at least 15 days before the record date. The Company will consummate the
rescission by the payment of interest to the Trustee, which will act as the
paying agent.
Following acceleration, and its effects, having been rescinded, the
Debentures (except those tendered and exchanged) will remain outstanding and
will become a long-term debt of the Company. The Company will be obligated to
make all future payments of interest when due. The scheduled maturity of all
outstanding principal as of the date of the rescission will be on April 15,
2010 (subject to the future occurrence of an Event of Default, if any, and an
acceleration of principal otherwise due at maturity of the Debentures in the
event of any future declaration thereof under the Debentures); and a
Debentureholder will until maturity be unable to demand immediately the full
payment of all principal and accrued interest on account of the Acceleration
that now exists.
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<PAGE> 26
The Company will have no obligation to redeem Debentures prior to
maturity. Debentures that are not tendered in the "Exchange" described below
will be fully subject to the risks of the Company's future as a going concern.
See "Special Risk Factors" above. Debentureholders may be able to achieve
liquidity only through the sale or other disposition of the Debentures in the
over-the-counter market, if and to the extent the Debentures are so traded, or
in a private financing or other transaction or exchange that any
Debentureholder could negotiate individually.
If the Consent to Proposal No. 1 is not granted by a sufficient
principal amount, the Debentureholders will continue to be entitled to receive
immediate payment of all principal and accrued interest due under the
Debentures. Estimated as of November 15, 1996, the aggregate of all principal
and interest due on account of the Acceleration under the $9,538,000 in
principal amount of Debentures that are presently outstanding will be an
estimated $11,531,294, or $1,208.98 per $1,000 of face value.
The purposes of the Consent on Proposal No. 1 include elimination of
the various undesirable effects on the Company of an acceleration, such as:
(a) An acceleration of indebtedness could impair the Company's
business and financial prospects.
(b) An acceleration of indebtedness could result in defaults under
other debts and obligations of the Company.
(c) An acceleration of indebtedness decreases the Company's
attractiveness to investors.
(d) An acceleration of indebtedness also creates an unfavorable
impression with the Company's vendors and clients.
If the Company fails, or is unable, to make the payments resulting
from the Debenture acceleration, all creditors of the Company, including the
Trustee or the Debentureholders, may seek any remedies available at law or in
equity, including but not limited to remedies under bankruptcy or other similar
laws governing or affecting creditors' rights. Debentures are general
unsecured obligations of the Company, independently from its subsidiaries. The
Company will pay the entire amount of interest due on all non-tendered
Debentures other than those exchanged, so that the non-accelerated status of
the Debentures will be reinstated.
Payment of principal and interest under the Debentures is expressly
subordinated to the prior payment of Senior Debt of the Company that has
matured or, in certain circumstances, has the right to accelerate its maturity.
Senior Debt is defined in Section 11.02 of the Indenture to encompass generally
all debt other than trade payables to the extent that such debt does not by its
terms negate its status as Senior Debt. See "Special Risk Factors --
Priorities of Securities and Other Considerations Relating to Any Future
Bankruptcy of the Company" above and "Description of Debentures --
Subordination of Debentures" below. In any bankruptcy or similar proceeding,
the indebtedness evidenced by the Debenture may be paid or accounted for only
according to its ranking as subordinated debt. Section 11.04 of the Indenture,
"Default on Senior Debt" provides in part as follows:
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<PAGE> 27
"Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in
full, or such payment duly provided for in cash or in a manner
satisfactory to the holders of such Senior Debt, before any payment is
made by the Company or any person acting on behalf of the Company on
account of the principal or interest on the Securities.
"The Company may not pay principal of or interest on the
Securities and may not acquire any Securities for cash or property
other than capital stock of the Company if:
"(1) a default on Senior Debt occurs and is
continuing that permits holders of such Senior Debt to
accelerate its maturity, . . . ."
The Company does not know of any Senior Debt currently in default
whose holder on account thereof has a right to accelerate it and has instituted
any proceeding or given notice in writing addressed to the Company; provided,
however, no assurance can be made that such default under any Senior Debt, or
other senior claims on the Company's assets, incurred any time, before or after
this Consent Solicitation Statement, has not and will not occur.
PROPOSAL NO. 2
Debentureholders are asked to Consent to waive any unknown or future
Events of Default under the Debentures (other than nonpayment of any principal
or interest due) that exist at the time, if any, when the Company's
consummation of the Exchange and the rescission of the Acceleration results in
termination of the Consent Solicitation Period. Accomplishing a rescission of
the Acceleration is dependent on the prior cure or waiver of all Events of
Default. Section 6.02 of the Indenture quoted under Proposal No. 1 above
indicates that to effect a rescission of acceleration, all Events of Default
must have been "cured or waived."
Consent on Proposal No. 2 includes the waiver of Events of Default.
Proposal No. 2 also includes the waiver of any known or unknown defaults under
the Indenture or the Debentures. The Company is not aware of any such defaults
presently existing under the Indenture or the Debentures.
Consent on Proposal No. 2 includes the waiver of any other defaults,
including any other defaults of which the Trustee (or, under specified
conditions, the Debentureholders) may otherwise have given notice to the
Company (whether now existing or hereafter arising) that could cause a default
to become an Event of Default.
Proposal No. 2 relates not only to any known defaults, but also any
unknown defaults as well. The Company asks that the Debentureholders approve
the waiver of any other defaults in order to eliminate the possibility of a
technical breach or default becoming an Event of Default. A technical default
potentially could make the Company subject to demands or claims that the
proposed rescission of acceleration is not effective.
If the Consent of the holders of more than 66 2/3% in principal amount
of the Debentures is obtained for Proposal No. 2, the Company will not be
deemed to be in default with respect to any Event of Default or other default
which exists (whether known or unknown) or which could occur (except as to
Events of Default in payment of principal or interest, as described below).
Proposal No. 2 is not a waiver of existing or subsequent defaults in
payment of interest due on October 15, 1994; April 15, 1995; October 15, 1995;
April 15, 1996; or October 15, 1996 or thereafter; and it is not a waiver of
the interest on overdue interest. All interest will in either event be due and
payable in accordance with the terms of the Debentures, unless the Debentures
are Exchanged by the Debentureholder affected. (The Exchange automatically
involves such a waiver by Debentureholders tendering Debentures in the Exchange
Offer.)
21
<PAGE> 28
All non-tendered Debentures will entitle the Debentureholder to the
interest payment. Such interest must be paid to a paying agent for the benefit
of the Debentureholders in order to satisfy a necessary condition to the
rescission of the Debentures' Acceleration.
If Proposal No. 2 is approved by the Debentureholders, the restored
non-accelerated status of the Debentures will be maintained notwithstanding any
Events of Default or other defaults that are so waived. So long as each of the
future semi-annual interest installments until maturity of principal on April
15, 2010, the Company cannot be required to pay or redeem the outstanding
principal under the Debentures prior to April 15, 2010. Another acceleration
could occur only if the Company commits a future default that is subsequently
declared to be, and thereby becomes, an Event of Default and only if proper
notices of acceleration are delivered (while such Event of Default is
continuing) by record holders of at least 25% of the outstanding principal
amount of Debentures.
However, Proposal No. 2 shall not affect the terms of the Indenture,
which provide for, among other things, the Company to have a period of 30 days
in which to cure a nonpayment of interest due.
PROPOSAL NO. 3
Debentureholders are asked to Consent to the giving of directions to
the Trustee under the Indenture to the effect that the Trustee shall not,
during the Consent Solicitation Period, pursue any available remedy under or in
accordance with the Debentures or Indenture for ongoing Events of Default
unless directions to do so are given by the holders of not less than 50% of the
outstanding principal amount of Debentures during the Consent Solicitation
Period.
Approval of a majority in principal amount of outstanding Debentures
is necessary to effect Proposal No. 3. If Proposal No. 3 is adopted, the
Trustee continues to have the ability to pursue any remedy for the existing (or
any future) Events of Default or to choose not to do so, in each case after the
Consent Solicitation Period terminates. Instructions to the Trustee to pursue
remedies against the Company on account of the Events of Default will not be
effective to instigate the Trustee to do so prior to the termination of the
Consent Solicitation Period if the instruction is made by only 25% of the
outstanding Debentures. A 25% level of support for such action makes any such
instruction non-binding on the Trustee, and can be disregarded in the Trustee's
discretion. The Trustee's discretion can ordinarily be exercised to pursue or
not to pursue the remedy if 25% to 50% in principal amount so request. Each
Debentureholder is entitled to give notice to the Trustee addressing the
question whether the Trustee should declare an Event of Default on account of
the claimed existence and continuation of a default under the Indenture or the
Debentures. The Trustee is permitted to take the action of declaring an Event
of Default, in its discretion, or upon an instruction of 25% or more of the
outstanding principal amount of Debentures and must in every case take the
action where a majority in principal amount of the Debentures so request. Such
rights as may be exercisable by the 25% or more of the Debentures (and less
than a majority) of the principal amount of Debentures outstanding only after
the termination of the Consent Solicitation Period if sufficient Consents on
Proposal No. 3 are received. The effectiveness of a rescission of the
Acceleration pursuant to such Consent would result in the elimination of
existing Events of Default and defaults, except that may occur in the future.
Proposal No. 3 does not purport to detract from the effectiveness of any
contrary instructions given by a majority in principal amount,whose
instructions to the Trustee may be binding on the Trustee according to the
Indenture. Notwithstanding approval of Proposal No. 3, waivers of Events of
Default or other defaults and giving of consents require, generally,approval of
two-thirds of the Debentures in principal amount. Debentureholders comprising
a majority of the outstanding principal amount can give instructions to take
action or not to take action as they may see fit. The Indenture provides that
a "majority of the principal amount of Debentures outstanding is required in
order to require the Trustee to act."
22
<PAGE> 29
Proposal No. 3 will rely upon the right of the majority in principal
amount to compel the Trustee to take action by instructing the Trustee to
refrain from taking any action. The instruction makes an express exception for
taking any action that shall have been subsequently authorized by
Debentureholders holding of record a majority of the outstanding principal
amount of Debentures. If rather than a majority, merely 25% in principal
amount of Debentures give written instruction to the Trustee, the Trustee shall
not take such action as instructed, in favor of the majority's Consent on
Proposal No. 3. The majority rule is as provided in the Indenture. See
"Description of Debentures--Events of Default and Remedies."
If Proposal No. 3 is adopted, it will become more difficult for the
Debentureholders to instruct the Trustee to institute collection or other
proceedings against the Company pending completion of the Consent Solicitation
Period. Adoption of Proposal No. 3 will instruct the Trustee not to pursue any
remedy for ongoing Events of Default under the Debentures during the Consent
Solicitation Period unless a majority in principal amount of Debentures
instructs the Trustee to pursue any such remedy at such time.
PROPOSAL NO. 4
Debentureholders are asked to Consent to the waiver of the notice
required to be given by the Company to the Trustee under a provision of the
Indenture and to waive any claim to receive the sinking fund installment
payment that purportedly was due April 15, 1996. Under the terms of the
Debentures and the Indenture, scheduled sinking fund payments are reduced by
the original principal amount of Debentures that are converted by
Debentureholders, that are delivered to the Trustee for cancellation or that
otherwise are redeemed by the Company, at the Company's election.
Debentureholders converted an aggregate of $36,460,000 of Debentures in March
1991, which exceeded the Company's sinking fund obligations. The Company has
given notice to the Trustee to subtract such amounts from the sinking fund
obligations effective as to all sinking fund redemption obligations. However,
as described further below, the Company's belief that it timely provided
adequate notice to the Trustee is not free from doubt, and the Company,
therefore, is also seeking consent to the waiver of such notice provisions.
That notice provision applies only if and when the Company intends to exercise
its rights to reduce its sinking fund payment obligations under the Indenture.
The Company exercised its right to reduce and eliminate sinking fund
obligations, although the timing and sufficiency of the notice was questioned
by the Trustee as to the sinking fund installment of five percent (5%) on April
15, 1996. As a result of the surrender and cancellation in 1991 of
approximately $36 million in principal amount of Debentures, the Company was
entitled to reduce the amount, to zero, that otherwise would be payable on
specified sinking fund payment dates that would commence April 15, 1996 and
continue annually through April 15, 2009. Management believes that the Company
had given notice of its intention not to make any of the sinking fund
installment payments as early as March 1995, when the Company discussed with
the Trustee its long-range planning to reinstate the Debentures. The Company
stated that all of those Debentures not Exchanged would be paid on April 15,
2010 at the price of 100% of the principal amount. In 1995 the Company also
put that understanding into writing and delivered those necessary writings to
the Trustee when the Company shared copies of its SEC filings with the Trustee
related to the Exchange.
The Debentureholders, if sufficient Consent is given on Proposal No.
4, can only claim (subject to future acceleration of the Debentures based on
future Events of Default) the entitlement to receive payment of 100% of the
principal amount of the Debentures on the maturity date of April 15, 2010 and
in the meantime to receive all of the semi-annual interest installments each
April 15 and October 15 on outstanding principal at the rate of 7 1/2% per
year.
23
<PAGE> 30
The Consent of two-thirds in principal amount of currently outstanding
Debentures is necessary to approve this Proposal No. 4. Two- thirds approval
will also result in waiver of the payment by each Debentureholder that
Consents. Without such two-thirds approval, the Consent upon Proposal No. 4
will not be treated as binding according to this Proposal.
The Indenture requires notice by the Company to the Trustee that the
Company intends to reduce its obligation to make a sinking fund payment, or
payments. The Company has previously accepted approximately $36 million
dollars in principal amount of Debentures, all of which were surrendered in
March 1991 by the holders thereof, who at that time converted their Debentures
into Common Stock at a special conversion price. The Company, which thereafter
delivered such Debentures to the Trustee for cancellation, is entitled to
reduce its sinking fund obligations under the Indenture by the aggregate amount
of Debentures theretofore cancelled. The purpose of Proposal No. 4 is to
provide a waiver of the notice provision in the Indenture relating to the
provisions for sinking fund payments.
The consent of two-thirds of outstanding principal amount of
Debentures is necessary to waive an Event of Default under the Indenture.
The Company does not concede that it should be required to obtain a
waiver of the failure to give notice. The Company received notice from the
Trustee to the effect that the sinking fund installment was due and payable on
April 15, 1996. The Company believes the notice previously given to the
Trustee was adequate; the Company promptly cured the failure to give notice and
that such cure was timely made. The failure to give notice may be considered
an Event of Default under the Indenture nevertheless.
Although the Company had provided the Debentures to the Trustee for
cancellation and there were sufficient Debentures cancelled in order for the
Company to eliminate all of the sinking fund obligations under the Indenture
and the Debentures, the notice provision has arguably not been satisfied by the
Company. The Company believes that it satisfied the notice provision; however,
out of an abundance of caution, the Company desires to further obtain the
waiver of notice in order to assure that claims will not be made against the
Company with respect to the sinking fund provisions based on a failure to
properly give notice in a timely fashion as required. By giving Consent on
Proposal No. 4, a Debentureholder will, in effect, be confirming the Company's
interpretation.
The Trustee, whose interpretation of the notice provision is not
necessarily a definitive interpretation, informed the Company that the Company
had not provided timely notice of its intentions regarding the sinking fund
payment due April 15, 1996; however, the Trustee does not dispute the
effectiveness of notice given by the Company to eliminate the sinking fund
obligations April 15, 1997 through April 15, 2009. The Company responded to
the Trustee concerning the 1996 installment by letters dated March 27, 1996,
that it believed that it had provided adequate notice to the Trustee and that
the notice provision was not yet applicable. The notice from the Trustee and
the response letters from the Company are provided as Exhibits 99.22 and 99.23,
respectively, hereto, and are incorporated herein by reference.
The Indenture provides that a provision may be waived by two-thirds in
outstanding principal amount of Debentures. Without conceding that the notice
provision was applicable or that the time for providing such notice had passed
prior to the giving of such notice, the Company is seeking consent on Proposal
No. 4 so that, if necessary, the requirement of notice will have been waived by
the Debentureholders. The effect of such waiver of notice would be to
eliminate claims that a sinking fund payment was due at April 15, 1996. All
other conditions to the elimination of such payment obligation were met, other
than the giving of notice, which the Company believes it also has met.
24
<PAGE> 31
The Indenture, in Section 12.02 provides for all notices to be in
writing, and the Company is not aware of notice being given in writing by the
Company that the sinking fund installment and overdue interest would be paid on
April 15, 1996. The Indenture, in fact, defines the notice required to set a
redemption date as a "redemption notice." The Company believes that any oral
statements or other writings to be absolutely insufficient in order to set a
redemption date for sinking fund payments.
The trustee's Notice of Default dated June 10, 1996 (as set forth in
the second subparagraph below the first paragraph therein) as found in Exhibit
99.11 could be viewed as publishing an April 15, 1996 redemption date. By
saying that the Trustee had received notice 14 days before April 15, 1996
(which the Trustee refers to as the redemption date for a 5% sinking fund
payment), in the Company's view, the Notice of Default made clear that the
Company had not set an April 15 redemption date. Moreover, the Company did not
publish this notice. The Company requests approval on Proposal No. 4 for the
purpose of obtaining consent that the Trustee's notice was insufficient to
establish April 15, 1996 as the redemption date and that the Indenture does not
specify this date.
The Company's interpretation of the notice provision of Section 3.01
of the Indenture is that notice to reduce the sinking fund payments can be
given when it was given on March 27, 1996; and received on April 1, 1996 as the
Trustee acknowledges in said subparagraph in the June 10, 1996 Notice of
Default. Before the Company properly sets the redemption date (which is by way
of delivering a redemption notice to the Debentureholders and the Trustee) the
Company can give notice to the Trustee of the Company's intention to reduce the
sinking fund payments pursuant to Section 3.01 of the Indenture. The Trustee,
which reports that the Company gave such notice dated March 17, 1996 and that
the Trustee received such notice from the Company on April 1, 1996, states that
this is only 14 days before the redemption date. If the Indenture provides, as
the Trustee views it, that April 15, 1996 is the redemption date, then the
Company did not understand that the Indenture provided this redemption date.
The Company received notice in writing from the Trustee concerning the Section
3.01 notice on or about March 1, 1996. By that time the redemption date was
less than 50 days away (which was too late, according to the Trustee, for the
Company to notify the Trustee under Section 3.01 of the Indenture to reduce the
sinking fund obligation). The Company, in its view, could presently, in its
discretion, set a redemption date for the payment concerned by giving a
redemption notice as contemplated by Section 3.03 of the Indenture.
As more fully described in the first letter in Exhibit 99.23 (the
Company's response to the Trustee), the Company gave notice on March 27, 1996
that the Company intended to reduce the sinking fund obligations so that
principal would be due in April 2010. This letter also confirmed the previous
notices given by the Company, without conceding that any prior notices given by
the Company to the Trustee in writing were less than adequate. As more fully
described in the second letter in Exhibit 99.23, the redemption date itself is
a date that the Company may choose. The Company is required to notify the
Debentureholders of the redemption date, and the redemption date depends on the
Company's timing of this notice to Debentureholders.
Notwithstanding that a notice of redemption was not previously given
or thereafter given, on March 1, 1996, the Trustee believed that "You have
indicated that Comprehensive Care Corporation (the "Company") intends to pay
all amounts due and overdue with respect to the Securities on April 15, 1996
and, thereafter, seek rescission of the previously declared declaration of
acceleration thereon. In fact, the Company's written notices were, if
anything, in conflict with the Trustee's view of the Company's intentions. The
Company did give notice that principal would be paid April 2010. All of the
sinking fund installments were due before April 2010. This written notice was
given on or about February 6, 1996, and that was more than 50 days before April
15, 1996, which is for purposes of the Trustee's view, the relevant date,
although such date is not referred to in Section 3.01 in the Company's view.
The Trustee received such notification in the Company's Amendment No. 1 on
Schedule 13E-4/A, filed with the Commission on February 6, 1996. The Company
states therein its intention that "if Debentureholders rescind the acceleration
... with the past-due interest paid on non-tendered Debentures and waived as to
all tendered Debentures," then, "the original terms of the Debentures will be
reinstated with principle due in April 2010 ...." Thereby, the Company notified
the Trustee of its intentions to seek waivers of the interest non-payment and
rescission of the acceleration and reinstating "principal due in April 2010" by
offering all Debentureholders an exchange. The Trustee's letter
25
<PAGE> 32
dated March 1, 1996 states or implies that the time to give a notice under
Section 3.01 had passed; however, the Company did not concede that the
Indenture provides for an April 15, 1996 redemption date and even if the
Trustee were properly interpreting the Indenture, the Indenture allows 30 days
after such Notice of Default to cure the Default before it will become an Event
of Default, as provided in Section 6.01 of the Indenture. Consent on Proposal
No. 4 will, in effect be confirming and consenting to the Company's belief that
it also had acted in a timely and sufficient manner to cure the Default in its
giving of notice of reduction to the Trustee on March 27, 1996 and in each
other respect described herein, independently or in one or more combinations.
The Trustee has not conceded to the Company's belief that the
redemption date was or could ever be any date other than April 15. Company
believes that the Trustee's misinterpretation of the notice provision stems
from not accepting that the term "redemption date" in Section 3.01 of the
Indenture, is the actual payment date as set by the Company, just as it is in
regard to all voluntary or mandatory redemptions. Paragraph 6 of the Debenture
certificate, which deals only with the sinking fund, contains the phrase
"redeem 5% of the aggregate principal amount on April 15, 1996." The Company
has concluded that these provisions may contain some ambiguity; however, the
Company believes that there is no really appropriate way to define the
redemption date as being April 15. In fact, calling April 15 the redemption
date contradicts the provision, found also in paragraph 6 of Debenture
certificates, for unpaid interest to accrue from the last date of payment of
interest, and to accrue until, and to be paid on, the redemption date, which
seemingly could be sometime later than April 15. In this connection, paragraph
6 has clearly associated the redemption date and the actual payment date.
Furthermore, nowhere is April 15 called the redemption date expressly.
Management believes April 15, 1996 is measurement date for determining 5% of
the aggregate amount of outstanding Debentures that would be redeemed under one
sinking fund installment.
Ambiguities in the Indenture can be corrected with or without the
approval of the Debentureholders; providing that the Trustee agrees to these
correcting amendments and they do not prejudice the rights of a
Debentureholder. Approval of this Proposal No. 4 will be in effect to adopt
the interpretation of the Company and to confirm that the Company's
interpretation is consented to.
The Trustee is required under the Indenture to follow instruction of a
majority in principal amount, pursuant to Section 6.05 of the Indenture. The
Trustee may refuse to follow such instruction if such instruction is contrary
to law or the Indenture or would subject the Trustee to liability. The
approval of this Proposal by two thirds of the Debentures in principal amount
will also be considered an instruction to the Trustee to act consistent with
the Company's interpretations as described herein.
The Company also believes that the acceleration is a special
circumstance that defers, in effect, the sinking fund obligation. The entire
amount of principal and interest is due upon acceleration, thereby, according
to this view, superseding the sinking fund obligation, pending rescission of
acceleration. Under these circumstances, its supposed obligation to give the
notice in order to reduce the sinking fund payment was "deferred" or "tolled."
Consent on Proposal No. 4 will in effect be an adoption of this view with
respect to the sinking fund obligation during an acceleration.
The Trustee mistakenly, in the Company's view, refers in its notice of
default dated June 10, 1996 to the supposed Event of Default regarding the
payment of a sinking fund redemption payment on April 15, 1996, as a result of
a supposed failure of the Company to give notice as and when required. The
Company disagrees. As stated above, the Company was entitled to cure a failure
to give notice to the Trustee and exercise its right to reduce the sinking fund
obligation. The Company was the recipient of the Trustee's letter dated March
1, 1996, which notified the Company that it missed the date for notification
under Section 3.01 of the Indenture. When the Company receives any
notification of a Default or Event of Default, other than a non-payment of
principal when it becomes due at maturity or on a redemption date or otherwise,
it has a 30-day opportunity to cure pursuant to Section 6.01(3) of the
Indenture and the last paragraph of Section 6.01. In the Company's view, the
Default was (at that time when notice was given on March 27, 1996 of the
reduction of the sinking fund obligation) not a payment Default or Event of
Default (because payment had not come due at such time) but rather was a
Default in the giving of notice under Section 3.01, that if not cured by
appropriate notice given within 30 days could result in a
26
<PAGE> 33
payment obligation Event of Default on the redemption date. The Company
believes that the payment obligation never arose. The Company's notification
to the Trustee on March 27, 1996 cured the Default in the prior failure of
giving of notice. The Company gave such notice within 30 days. The Company
in fact is not able to commit an Event of Default in payment of principal until
the date the principal comes due by maturity, redemption or otherwise. Consent
on Proposal No. 4 will in effect be consenting to the Company's interpretation
of the opportunity to cure provided in Section 6.01 of the Indenture.
The sinking fund payment due April 15, 1996 would be an obligation to
redeem a portion of the aggregate principal amount of Debentures equal to five
percent (5%) thereof. The amount of Debentures outstanding at such date was
$9,538,000; five percent of $9,538,000 is $476,900 ($50 per $1,000 of principal
amount). However, the aggregate principal amount, as such term is used in the
sinking fund provisions of the Indenture, is not specifically defined and,
therefore, cannot be entirely free of ambiguity. Such term might refer, it may
be arguable, to the originally outstanding $46 million in principal amount of
Debentures; in that case, five percent would represent $2,300,000 in principal
amount of Debentures. Such interpretation has not been heretofore adopted by
the Trustee. The Company's Management believes that this interpretation would
distort the sinking fund provisions. However, Consent on Proposal 4 also will
be a relinquishment of any arguable claim that approximately 23% of the
principal amount ($241.14 per $1,000 of principal amount) matured at April 15,
1996 because $2,300,000 of payment obligation would be allocated among the
$9,538,000 in principal amount of Debentures.
The reverse-side of each Debenture certificate states, in the first
sentence in paragraph 6, that a sinking-fund payment is "5% of the aggregate
principal amount of Securities on April 15" of the year indicated. The Trustee
confirms the Company's position on this issue -- that the amount is 5% of
$9,538,000. See Exhibit 99.22 which sets forth the Sinking Fund Redemption
Amount, as "$476,900" in the third paragraph on page 1.
Sinking fund payments would be applied to the redemption, pro rata, of
a portion of all of the outstanding Debentures. Debentures that are redeemed
are, to the extent redeemed, cancelled and retired. Although Debentures that
are redeemed are paid the full at the rate of 100% of the portion of the
principal amount redeemed, once paid, such Debentures no longer bear interest.
Payment of principal also has tax consequences to be considered, although this
Proposal only affects the timing of the receipt of payment.
Those Debentureholders who Consent on this Proposal also are in effect
waiving their rights as Debentureholders to contest the efficacy of this
Proposal. It could be argued by any non-Consenting Debentureholder that
Proposal No. 4 requires Consent by each particular Debentureholder affected, by
claiming that Proposal No. 4 in effect is a waiver of a payment of a portion of
the principal amount. The Indenture requires each particular Debentureholder
affected to waive a payment due. Debentureholders who give Consent and
continue to hold Debentures (i.e., that do not tender their Debentures for the
Exchange) will be waiving any right to the sinking fund installment of April
15, 1996. Debentureholders who neither give Consent nor tender their
Debentures for the Exchange may have claims against the Company for the sinking
fund installment notwithstanding the adoption of Proposal No. 4, although the
Company intends to vigorously contest any such claims.
Although, arguably, by waiving the notice provision, Debentureholders
may be waiving their rights to claim the April 15, 1996 sinking fund payment,
the Company has no intention whatsoever of making such sinking fund payment in
any event, as it believes that the notice provision was completely satisfied.
Further, as to all future sinking fund obligations after 1996 and concluding in
the year 2009, the Company has, without doubt, eliminated the sinking fund
payment obligations entirely. The waiver requested in Proposal No. 4,
therefore, would only affect the April 15, 1996 sinking fund payment. The
Trustee ultimately will determine its course of action from its own
interpretation and decision concerning (a) first, whether any default or
claimed default has occurred under the Indenture and the Debentures, (b)
second, whether the default can be waived by two-thirds (and not require each
Debentureholder affected to waive or consent), and (c) third, whether Proposal
No. 2 is effective as such a waiver.
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<PAGE> 34
INTERESTS OF CERTAIN PERSONS
The directors and executive officers who served the Company since June
1, 1994 have no substantial interest, direct or indirect, by security holdings
or otherwise, in the approval or disapproval of Proposals No. 1, No. 2, No. 3
and No. 4, except as holders of Common Stock generally. The rescission of
acceleration is anticipated to affect positively the interests of the Company
generally and the interests of the holders of the Common Stock. See "Special
Risk Factors -- Priorities of Securities and Other Related Considerations
Relating to Any Future Bankruptcy of the Company," above.
PRINCIPAL DEBENTUREHOLDERS
The following table sets forth information concerning beneficial
ownership of Debentures. Such information is given as of November 1, 1996 (the
"reporting date"). At the reporting date, $9,538,000 in principal amount of
Debentures was outstanding. According to rules adopted by the Commission,
"beneficial ownership" of Debentures for this purpose is the power to vote them
or to direct their investment, and includes the right to acquire beneficial
ownership of Debentures within 60 days after the reporting date. Except as
otherwise noted, the indicated owners have sole voting and investment power
with respect to Debentures beneficially owned. An asterisk in the percent of
class column indicates beneficial ownership of less than 1% of the outstanding
Debentures.
The Company relies on the fact that neither a Schedule 13D nor a
Schedule 13G has been filed with respect to the Debentures by any beneficial
holder.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
------------------------ -------------------- --------
<S> <C> <C>
William H. Boucher 0 *
J. Marvin Feigenbaum 0 *
Stuart J. Ghertner, Ph.D. 0 *
Ronald G. Hersch, Ph.D. 0 *
Drew Q. Miller 0 *
W. James Nicol 0 *
Kerri Ruppert 0 *
Chriss W. Street 0 *
All executive officers and
directors as a group (8 persons) 0 *
</TABLE>
28
<PAGE> 35
PRINCIPAL STOCKHOLDERS
The following information is given as of November 1, 1996 (the
"reporting date") and concerns beneficial ownership of the Common Stock by all
of the directors of the Company, certain present or former executive officers
as named in the table below, and all of the directors and all of the executive
officers as a group. According to rules adopted by the Commission, "beneficial
ownership" of securities for this purpose is the power to vote them or to
direct their investment, and includes the right to acquire beneficial ownership
within 60 days. Except as otherwise noted, the indicated owners have sole
voting and investment power with respect to shares beneficially owned, and
their mailing address is the Company's principal office, such address being
1111 Bayside Drive, Suite 100, Corona del Mar, CA 92625. A total of 2,958,185
shares of Common Stock were outstanding on the reporting date, each whole share
of Common Stock outstanding entitled to one vote. An asterisk in the percent
of class column indicates beneficial ownership of less than 1% of the
outstanding Common Stock.
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William H. Boucher 17,500 (1) *
J. Marvin Feigenbaum 24,166 (2) *
Stuart J. Ghertner, Ph.D. 5,000 (3) *
Lindner Funds (4) 586,700 (4) 17.8
Ronald G. Hersch, Ph.D. 38,666 (5) 1.3
Drew Q. Miller (6) - - *
W. James Nicol 17,556 (7) *
Kerri Ruppert 42,250 (8) 1.4
Chriss W. Street 166,560 (9) 5.3
All executive officers and
directors as a group (8 persons) 311,698 (10) 9.6
- ----------------
</TABLE>
(1) Includes 17,500 shares subject to options that are presently
exercisable or exercisable within 60 days after the reporting date.
(2) Includes 24,166 shares subject to options that are presently
exercisable or exercisable within 60 days after the reporting date.
(3) Includes 5,000 shares subject to options that are presently
exercisable or exercisable within 60 days after the reporting date.
Dr. Ghertner was appointed Interim Chief Operating Officer of the
Company on August 15, 1996; and on September 3, 1996, was named
Interim President of the Company's majority-owned subsidiary,
Comprehensive Behavioral Care, Inc.
(4) The mailing address of Lindner Funds is c/o Ryback Management
Corporation, 7711 Carondelet Avenue, Suite 700, St. Louis, Missouri
63105. Includes 336,700 shares currently reserved for issuance upon
conversion of a Secured Convertible Note dated January 9, 1995 and
250,000 shares sold under an Amended Common Stock Purchase Agreement
dated June 29, 1995. Lindner Funds, as described in its Schedule 13G,
holds the shares and convertible debt in more than one fund.
(5) Includes 8,334 shares held directly and 30,332 shares subject to
options that are presently exercisable or exercisable within 60 days
after the reporting date. Dr. Hersch served as the President of
Comprehensive Behavioral Care, Inc. as of the end of the 1996 fiscal
year and until September 3, 1996. On September 3, 1996, Dr. Hersch
was named Vice President - Strategic Planning and Development for the
Company. On October 15, 1996, Dr. Hersch resigned this position and
announced his separation from the Company effective January 15, 1997.
(6) Mr. Drew Q. Miller was an executive officer of the Company as of the
end of the 1996 fiscal year. He served until July 14, 1996 as Senior
Vice President, Chief Financial Officer and Chief Operating Officer,
and served as Senior Vice President and Chief Operating Officer until
August 14, 1996, at which time he resigned as Senior Vice President
and Chief Operating Officer. Mr. Miller's mailing address is 775
Oakwood Street, Orange, California 92669.
29
<PAGE> 36
(7) Includes 56 shares held by Mr. Nicol's spouse as custodian for his
three minor children, all of whom reside with Mr. Nicol, and 17,500
shares subject to options that are presently exercisable or
exercisable within 60 days after the reporting date.
(8) Consists of 42,250 shares subject to options that are presently
exercisable or exercisable within 60 days after the reporting date.
(9) Includes 6,560 shares held directly and 60,000 shares subject to
options that are presently exercisable or exercisable within 60 days
after the reporting date. Also includes 5,000 vested shares and
95,000 restricted shares under a restricted stock agreement over which
the holder has sole voting power, the issuance of which is pending
administerial matters.
(10) Includes a total of 196,748 shares subject to outstanding options that
are presently exercisable or exercisable within 60 days after the
reporting date and 5,000 vested and 95,000 restricted shares over
which the holder has sole voting power, the issuance of which is
pending.
30
<PAGE> 37
PRO FORMA CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS
The following tables set forth (1) the pro forma consolidated balance
sheets of the Company as of August 31 and May 31, 1996, respectively, each of
which give effect to the Exchange for 100% of the outstanding Debentures and
30% of the outstanding Debentures, respectively, after adding the Company's
non-recurring gains attributable to the Exchange and deducting the Company's
estimated expenses; and (2) the pro forma consolidated statements of operations
of the Company for the three months ended August 31, 1996 and the fiscal year
ended May 31, 1996, respectively, each of which give effect, as of the
beginning of the Company's fiscal year, to the Exchange for 100% of the
outstanding Debentures and 30% of the outstanding Debentures, respectively, and
reports only in the notes thereunder, and does not include in the pro forma
consolidated statements of operations, the pro forma results of the Exchange in
terms of earnings after the effect of the non-recurring gains to be recognized
by the Company upon such Exchange.
For purposes of the presentation in the following pro forma financial
statements, an assumed value of $11.00 per share ("Assumed Value Per Share")
has been assigned to the Company's Common Stock to be issued and delivered to
Debentureholders in the Exchange. The Assumed Value Per Share is not intended
to reflect any opinion or prediction as to the actual fair market value of the
Common Stock at any particular date.
These pro forma consolidated financial statements are unaudited and 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. The audited consolidated financial
statements and notes to consolidated financial statements included in the Form
10-K/A-2 for the fiscal year ended May 31, 1996 as filed with the Securities
and Exchange Commission (the "Commission") on November 7, 1996 (the "1996 Form
10-K/A-2") and the unaudited condensed consolidated financial statements for
the three months ended August 31, 1996 included in the Form 10-Q as filed with
the Commission on October 15, 1996 (the "August 31, 1996 Form 10-Q"),
respectively, provide additional disclosures and a further description of
accounting policies.
The Company's accompanying pro forma financial statements are
presented on the basis that the Company will continue as a going concern which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has incurred significant recurring
losses and negative cash flows from operations which raises substantial doubt
about the Company's ability to continue as a going concern. The continuation
of the Company's business is dependent upon the resolution of operating and
short-term liquidity problems and the realization of the Company's plans in
regard to these matters, and the consolidated financial statements do not
include any adjustments that might result from an unfavorable outcome of this
uncertainty. See further description of such uncertainty and the Company's
plans as to such matters in "Note 2 -- Operating Losses and Liquidity," in the
Company's 1996 Form 10-K/A-2 and August 31, 1996 Form 10-Q, respectively.
31
<PAGE> 38
COMPREHENSIVE CARE CORPORATION
Pro Forma Consolidated Balance Sheets
As of August 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------------------------------------------
August 31, 1996 Adjustments 100% Adjustments 30%
--------------- ----------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . $ 2,355 $ (5,532) (1) $ (3,177) $ (2,748)(6) $ (393)
Accounts receivable, less allowance
for doubtful accounts of $947 . . . . . 3,208 -- 3,208 -- 3,208
Other receivables . . . . . . . . . . . . 1,478 -- 1,478 -- 1,478
Property and equipment held for sale . . 1,221 -- 1,221 -- 1,221
Other current assets . . . . . . . . . . 202 -- 202 -- 202
--------- -------- -------- ----------- ----------
Total current assets . . . . . . . . . . . 8,464 (5,532) 2,932 (2,748) 5,716
--------- -------- -------- ----------- ----------
Property and equipment at cost . . . . . . 10,122 -- 10,122 -- 10,122
Less accumulated depreciation and amortization (3,703) -- (3,703) -- (3,703)
--------- -------- -------- ----------- ----------
Net property and equipment . . . . . . . . 6,419 -- 6,419 -- 6,419
--------- -------- -------- ----------- ----------
Property and equipment held for sale . . . 4,716 -- 4,716 -- 4,716
Notes receivable . . . . . . . . . . . . . 2,147 -- 2,147 -- 2,147
Other assets . . . . . . . . . . . . . . . 2,610 -- 2,610 -- 2,610
--------- -------- -------- ----------- ----------
Total assets . . . . . . . . . . . . . . . $ 24,356 $ (5,532) $ 18,824 $ (2,748) $ 21,608
========= ======== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 11,556 $ (1,749) (2) $ 9,807 $ (1,561)(7) $ 9,995
Long-term debt in default . . . . . . . 9,538 (9,538) (3) -- (9,538)(8) --
Current maturities of long-term debt . . 2,374 -- 2,374 -- 2,374
Unbenefited tax refund received . . . . 7,018 -- 7,018 -- 7,018
Income taxes payable . . . . . . . . . . 390 -- 390 -- 390
--------- -------- --------- ----------- ----------
Total current liabilities . . . . . . . . . 30,876 (11,287) 19,589 (11,099) 19,777
--------- -------- --------- ----------- ----------
Long-term debt, excluding current maturities -- -- -- 6,677 (9) 6,677
Other liabilities . . . . . . . . . . . . . 877 -- 877 -- 877
Minority interest . . . . . . . . . . . . . 1,050 -- 1,050 -- 1,050
COMMITMENTS AND CONTINGENCIES
(See Note 6 to the Company's Condensed
Consolidated Financial Statements included in
its Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1996)
Stockholders' equity:
Preferred stock, $50.00 par value;
authorized 60,000 shares . . . . . . . -- -- -- -- --
Common stock, $.01 par value;
authorized 12,500,000 shares;
issued and outstanding 2,864,684 . . . 28 2 (4) 30 1 (10) 29
Additional paid-in capital . . . . . . . 44,051 2,516 (4) 46,567 755 (10) 44,806
Accumulated deficit . . . . . . . . . . (52,526) 3,237 (5) (49,289) 918 (11) (51,608)
--------- -------- --------- ----------- -----------
Total stockholders' equity (deficit) . . . (8,447) 5,755 (2,692) 1,674 (6,773)
--------- -------- --------- ----------- ----------
Total liabilities and stockholders' equity $ 24,356 $ (5,532) $ 18,824 $ (2,748) $ 21,608
========= ======== ========= =========== ==========
</TABLE>
(footnotes begin on following page)
32
<PAGE> 39
33
<PAGE> 40
- -------------------
(1) Represents payment of $4,769,000 in principal ($500 payable in cash
per $1,000 of principal amount) and $763,000 in interest ($80 payable
in cash per $1,000 of principal amount).
(2) Represents cancellation of $1,699,000 in accrued interest and $125,000
in default interest, each at the rate of 7 1/2% per year, partially
offset by the accrual of $75,000 in related filing expenses.
(3) Represents Debenture payoff of $4,769,000 in cash, the issuance of
$1,679,000 in common stock, and the realization of $3,090,000 of
cancellation of debt (non-recurring gain).
(4) Using the $11.00 Assumed Value Per Share, less the $.01 par value per
share of common stock: (a) the aggregate par value is computed by
multiplying 228,912 shares of common stock by the $.01 par value per
share; and (b) the additional paid in capital is derived by
multiplying the remaining $10.99 per share ($11.00 less $.01) by
228,912 shares.
(5) Represents non-recurring gains of $3,090,000 and $222,000 in the
exchange of Exchange Consideration for principal and total interest
and default interest, respectively, partially offset by the accrual of
$75,000 in related filing expenses.
(6) Represents payment of $1,431,000 in principal ($500 payable in cash
per $1,000 of principal amount), $1,230,000 in interest, plus $87,000
in default interest (the sum of $80 payable in cash per $1,000 of 30%
of the outstanding principal amount plus the interest on 70% of the
outstanding principal amount at the rate of 7 1/2% per year from April
15, 1994 to June 1, 1996 plus interest on default interest at the same
rate of 7 1/2%).
(7) Represents cancellation of $1,511,000 in accrued interest and $125,000
in default interest, each at the rate of 7 1/2% per year, partially
offset by the accrual of $75,000 in related filing expenses.
(8) Represents Debenture payoff of $1,431,000 in cash, $503,000 in common
stock (at the $11.00 Assumed Value Per Share), and $927,000
forgiveness of debt (non-recurring gain), and reclassification of
$6,677,000 from a long-term debt in default to a long-term debt.
(9) Reclassification of $6,677,000 unexchanged Debentures from a long-term
debt in default to a long-term debt.
(10) Additional paid-in capital of $10.99 (at the $11.00 Assumed Value Per
Share less the $0.01 par value per share) multiplied by 68,674 shares
of common stock = $754,723. Aggregate par value of 68,674 shares of
common stock multiplied by $.01 per share = $687.
(11) Represents non-recurring gains of $927,000 and $66,000 in the exchange
of Exchange Consideration for principal and total interest and default
interest, respectively, partially offset by the accrual of $75,000 in
related filing expenses.
34
<PAGE> 41
COMPREHENSIVE CARE CORPORATION
Pro Forma Consolidated Balance Sheets
As of May 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
----------------------------------------------------------------
May 31, 1996 Adjustments 100% Adjustments 30%
------------ ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . $ 4,433 $ (5,532) (1) $ (1,099) $ (2,730) (6) $ 1,703
Accounts receivable, less allowance
for doubtful accounts of $877 . . . . 2,476 -- 2,476 -- 2,476
Other receivables . . . . . . . . . . . 1,478 -- 1,478 -- 1,478
Property and equipment held for sale . 1,233 -- 1,233 -- 1,233
Other current assets . . . . . . . . . 352 -- 352 -- 352
--------- -------- -------- -------- --------
Total current assets . . . . . . . . . . 9,972 (5,532) 4,440 (2,730) 7,242
--------- -------- -------- -------- --------
Property and equipment . . . . . . . . . 9,863 -- 9,863 -- 9,863
Less accumulated depreciation and amortization (3,590) -- (3,590) -- (3,590)
--------- -------- -------- -------- --------
Net property and equipment . . . . . . . 6,273 -- 6,273 -- 6,273
--------- -------- -------- -------- --------
Property and equipment held for sale . . 6,915 -- 6,915 -- 6,915
Other assets . . . . . . . . . . . . . . 1,958 -- 1,958 -- 1,958
--------- -------- -------- -------- --------
Total assets . . . . . . . . . . . . . . $ 25,118 $ (5,532) $ 19,586 $ (2,730) $ 22,388
========= ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 10,714 $ (1,543) (2) $ 9,171 $ (1,481)(7) $ 9,233
Long-term debt in default . . . . . . 9,538 (9,538) (3) -- (9,538)(8) --
Current maturities of long-term debt . 2,464 -- 2,464 -- 2,464
Unbenefited tax refund received . . . 7,018 -- 7,018 -- 7,018
Income taxes payable . . . . . . . . . 410 -- 410 -- 410
--------- -------- -------- -------- --------
Total current liabilities . . . . . . . . 30,144 (11,081) 19,063 (11,019) 19,125
--------- -------- -------- --------- --------
Long-term debt, excluding current maturities 24 -- 24 6,677 (9) 6,701
Other liabilities . . . . . . . . . . . . 749 -- 749 -- 749
Minority interest . . . . . . . . . . . . 1,000 -- 1,000 -- 1,000
COMMITMENTS AND CONTINGENCIES
(See Note 15 to the Company's Consolidated
Financial Statements included in its Annual
Report on Form 10-K/A-2 for the fiscal year
ended May 31, 1996)
Stockholders' equity:
Preferred stock, $50.00 par value;
authorized 60,000 shares . . . . . . -- -- -- -- --
Common stock, $.01 par value;
authorized 12,500,000 shares;
issued and outstanding 2,848,685 . . 28 2 (4) 30 1 (10) 29
Additional paid-in capital . . . . . . 43,931 2,516 (4) 46,447 755 (10) 44,686
Accumulated deficit . . . . . . . . . (50,758) 3,031 (5) (47,727) 856 (11) (49,902)
--------- -------- -------- -------- ---------
Total stockholders' equity (deficit) . . (6,799) 5,549 (1,250) 1,612 (5,187)
--------- -------- -------- -------- --------
Total liabilities and stockholders' equity $ 25,118 $ (5,532) $ 19,586 $ (2,730) $ 22,388
========= ========= ======== ========= ========
</TABLE>
(footnotes begin on following page)
35
<PAGE> 42
(1) Represents payment of $4,769,000 in principal ($500 payable in cash
per $1,000 of principal amount) and $763,000 in interest ($80 payable
in cash per $1,000 of principal amount).
(2) Represents cancellation of $1,520,000 in accrued interest and $98,000
in default interest, each at the rate of 7 1/2% per year, partially
offset by the accrual of $75,000 in related filing expenses.
(3) Represents Debenture payoff of $4,769,000 in cash, the issuance of
$1,679,000 in common stock, and the realization of $3,090,000 of
cancellation of debt (non-recurring gain).
(4) Using the $11.00 Assumed Value Per Share, less the $.01 par value per
share of common stock: (a) the aggregate par value is computed by
multiplying 228,912 shares of common stock by the $.01 par value per
share; and (b) the additional paid in capital is derived by
multiplying the remaining $10.99 per share ($11.00 less $.01) by
228,912 shares.
(5) Represents non-recurring gains of $3,090,000 and $16,000 in the
exchange of Exchange Consideration for principal and total interest
and default interest, respectively, partially offset by the accrual of
$75,000 in related filing expenses.
(6) Represents payment of $1,431,000 in principal ($500 payable in cash
per $1,000 of principal amount), $1,230,000 in interest, plus $69,000
in default interest (the sum of $80 payable in cash per $1,000 of 30%
of the outstanding principal amount plus the interest on 70% of the
outstanding principal amount at the rate of 7 1/2% per year from April
15, 1994 to June 1, 1995 plus interest on default interest at the same
rate of 7 1/2%).
(7) Represents cancellation of $1,458,000 in accrued interest and $98,000
in default interest, each at the rate of 7 1/2% per year, partially
offset by the accrual of $75,000 in related filing expenses.
(8) Represents Debenture payoff of $1,431,000 in cash, $503,000 in common
stock (at the $11.00 Assumed Value Per Share), and $927,000
forgiveness of debt (non-recurring gain), and reclassification of
$6,677,000 from a long-term debt in default to a long-term debt.
(9) Reclassification of $6,677,000 unexchanged Debentures from a long-term
debt in default to a long-term debt.
(10) Additional paid-in capital of $10.99 (at the $11.00 Assumed Value Per
Share less the $0.01 par value per share) multiplied by 68,674 shares
of common stock = $754,727. Aggregate par value of 68,674 shares of
common stock multiplied by $.01 per share = $687.
(11) Represents non-recurring gains of $927,000 and $4,000 in the exchange
of Exchange Consideration for principal and total interest and default
interest, respectively, partially offset by the accrual of $75,000 in
related filing expenses.
36
<PAGE> 43
COMPREHENSIVE CARE CORPORATION
Pro Forma Consolidated Statements of Operations
Three Months Ended August 31, 1996
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
---------------------------------------------
August 31, 1996 Adjustments 100% Adjustments 30%
--------------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Operating revenues . . . . . . . . . . . $ 8,993 $ -- $ 8,993 $ -- $ 8,993
Costs and expenses:
Direct healthcare operating expenses . . 8,169 -- 8,169 -- 8,169
General and administrative expenses . . . 1,654 75 (1) 1,729 75 (1) 1,729
Restructuring expenses . . . . . . . . . 195 -- 195 -- 195
Provision for doubtful accounts . . . . . 47 -- 47 -- 47
Depreciation and amortization . . . . . . 162 -- 162 -- 162
-------- ------ -------- ------- -------
Total Costs and Expenses . . . . . . . . . 10,227 75 10,302 75 10,302
-------- ------ -------- ------- -------
Loss from operations . . . . . . . . . . . (1,234) (75) (1,309) (75) (1,309)
-------- ------ -------- ------- -------
Gain on sale of assets . . . . . . . . . 6 -- 6 -- 6
Loss on sale of assets . . . . . . . . . (250) -- (250) -- (250)
Interest income . . . . . . . . . . . . . 45 -- 45 -- 45
Interest expense . . . . . . . . . . . . (336) 206 (2) (130) 81 (3) (255)
-------- ------ -------- ------- -------
Loss before income taxes . . . . . . . . . (1,769) 131 (1,638) 6 (1,763)
Provision (benefit) for income taxes . . (1) -- (1) -- (1)
-------- ------ -------- ------- -------
Loss before extraordinary item . . . . . $ (1,768) $ 131 $ (1,637) $ 6 $(1,762)
======== ===== ======== ======= =======
Loss per common share:
Loss before extraordinary item . . . . . $ (0.62) $ 0.05 $ (0.57) $ -- $ (0.62)
======== ====== ======== ======= =======
</TABLE>
____________________________
(1) Represents legal, accounting, printing, distribution and filing fees
related to the Exchange.
(2) Represents $179,000 of Debenture interest accruing at 7 1/2% on
$9,538,000 of principal amount and $27,000 of default interest which
is calculated at an interest rate of 7 1/2% of unpaid interest and
would not have accrued assuming the Exchange occurred effective June
1, 1996.
(3) Represents $54,000 of Debenture interest accruing at 7 1/2% on
$9,538,000 of principal amount and $27,000 of default interest which
is calculated at an interest rate of 7 1/2% of unpaid interest and
would not have accrued assuming the Exchange occurred effective June
1, 1996.
The Pro Forma Consolidated Statements of Operations do not reflect the
non-recurring gain resulting from the Debenture Exchange, which is estimated to
be approximately $3,312,000 and $994,000, respectively, before taxes, on a 100%
or 30% Exchange of the outstanding $9,538,000 in principal amount of
Debentures.
37
<PAGE> 44
Assuming 100% of the Debentures are exchanged, the portion of the gain
attributable to unpaid principal and interest is $3,090,000 and $222,000,
respectively. The principal gain is computed by subtracting from the
$9,538,000 of outstanding principal, $4,769,000 of cash ($500 per $1,000 of
outstanding principal) and the issuance of $1,679,000 of common stock (16
shares per $1,000 of outstanding principal multiplied by the $11.00 Assumed
Value Per Share). The interest gain is computed by multiplying 7 1/2% by the
$9,538,000 of principal amount outstanding for the period from April 15, 1994
to August 31, 1996 plus interest at 7 1/2% on the unpaid default interest
amount for the period from October 15, 1994 to August 31, 1996 based on an
increasing default balance as additional payments became due less $80 per
$1,000 of $9,538,000 (100% of outstanding principal amount) for an amount of
$763,000 of cash and the issuance of $839,000 of common stock (8 shares per
$1,000 of the outstanding principal amount exchanged multiplied by the $11.00
Assumed Value Per Share).
Assuming 30% of the Debentures are exchanged, the portion of the gain
attributable to unpaid principal and interest is $927,000 and $66,000,
respectively. The principal gain is computed by subtracting from the 30% of
the $9,538,000 of outstanding principal equaling $2,861,000, $1,431,000 of cash
($500 per $1,000 of 30% of the outstanding principal) and the issuance of
$504,000 of common stock (16 shares per $1,000 of 30% of the outstanding
principal multiplied by the $11.00 Assumed Value Per Share). The interest gain
is computed by multiplying 7 1/2% by 30% of the $9,538,000 principal amount
outstanding for the period of April 15, 1994 to August 31, 1996 plus interest
of 7 1/2% on the unpaid default interest amount for the period from October 15,
1994 to August 31, 1996 due under the exchanged 30% of the $9,538,000 principal
amount outstanding, based on an increasing default balance as additional
payments became due, less $80 per $1,000 of $2,861,000 (30% of outstanding
principal), for an amount of $229,000 of cash and the issuance of $252,000 of
common stock (8 shares per $1,000 of principal amount exchanged multiplied by
the $11.00 Assumed Value Per Share).
The total of default interest installments overdue on the $9,538,000
principal amount outstanding was $357,675 from October 15, 1994 to April 15,
1995; $715,350.00 from April 15, 1995 to October 15, 1995; $1,073,025 from
October 15, 1995 to April 15, 1996; and $1,430,700 from April 15, 1996 through
August 31, 1996.
38
<PAGE> 45
COMPREHENSIVE CARE CORPORATION
Pro Forma Consolidated Statements of Operations
Fiscal Year Ended May 31, 1996
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
---------------------------------------------
May 31, 1996 Adjustments 100% Adjustments 30%
------------ ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Operating revenues . . . . . . . . . . . $ 32,488 $ -- $ 32,488 $ -- $32,488
Costs and expenses:
Direct healthcare operating expenses . . 29,208 -- 29,208 -- 29,208
General and administrative expenses . . . 7,632 75 (1) 7,707 75 (1) 7,707
Provision for doubtful accounts . . . . . 934 -- 934 -- 934
Depreciation and amortization . . . . . . 2,099 -- 2,099 -- 2,099
Restructuring expenses . . . . . . . . . 94 -- 94 -- 94
Equity in loss of unconsolidated affiliates 191 -- 191 -- 191
-------- ------ -------- ------- -------
Total Costs and Expenses . . . . . . . . . 40,158 75 40,233 75 40,233
-------- ------ -------- ------- -------
Loss from operations . . . . . . . . . . . (7,670) (75) (7,745) (75) (7,745)
-------- ------ -------- ------- -------
Gain on sale of assets . . . . . . . . . 1,336 -- 1,336 -- 1,336
Loss on sale of assets . . . . . . . . . (82) -- (82) -- (82)
Interest income . . . . . . . . . . . . . 210 -- 210 -- 210
Interest expense . . . . . . . . . . . . (1,374) 791 (2) (583) 290 (3) (1,084)
Non-operating gain . . . . . . . . . . . 860 -- 860 -- 860
-------- ------ -------- ------- -------
Loss before income taxes . . . . . . . . . (6,720) 716 (6,004) 215 (6,505)
Provision (benefit) for income taxes . . (2,478) -- (2,478) -- (2,478)
-------- ------ -------- ------- -------
Loss before extraordinary item . . . . . $ (4,242) $ 716 $ (3,526) $ 215 $(4,027)
======== ===== ======== ======= =======
Loss per common share:
Loss before extraordinary item . . . . . $ (1.60) $ 0.27 $ (1.33) $ 0.08 $ (1.52)
======== ====== ======== ======= =======
</TABLE>
____________________________
(1) Represents legal, accounting, printing, distribution and filing fees
related to the Exchange.
(2) Represents $715,000 of Debenture interest accruing at 7 1/2% on
$9,538,000 of principal amount and $76,000 of default interest which
is calculated at an interest rate of 7 1/2% of unpaid interest and
would not have accrued assuming the Exchange occurred effective June
1, 1995.
(3) Represents $214,000 of Debenture interest accruing at 7 1/2% on
$9,538,000 of principal amount and $76,000 of default interest which
is calculated at an interest rate of 7 1/2% of unpaid interest and
would not have accrued assuming the Exchange occurred effective June
1, 1995.
The Pro Forma Consolidated Statements of Operations do not reflect the
non-recurring gain resulting from the Debenture Exchange, which is estimated to
be approximately $3,106,000 and $932,000, respectively, before taxes, on a 100%
or 30% Exchange of the outstanding $9,538,000 in principal amount of
Debentures.
39
<PAGE> 46
Assuming 100% of the Debentures are exchanged, the portion of the gain
attributable to unpaid principal and interest is $3,090,000 and $16,000,
respectively. The principal gain is computed by subtracting from the
$9,538,000 of outstanding principal, $4,769,000 of cash ($500 per $1,000 of
outstanding principal) and the issuance of $1,679,000 of common stock (16
shares per $1,000 of outstanding principal multiplied by the $11.00 Assumed
Value Per Share). The interest gain is computed by multiplying 7 1/2% by the
$9,538,000 principal amount outstanding for the period from April 15, 1994 to
May 31, 1996 plus interest at 7 1/2% on the unpaid default interest amount for
the period from October 15, 1994 to May 31, 1996 based on an increasing default
balance as additional payments became due less $80 per $1,000 of $9,538,000
(100% of outstanding principal amount) for an amount of $763,000 of cash and
the issuance of $839,000 of common stock (8 shares per $1,000 of the
outstanding principal amount exchanged multiplied by the $11.00 Assumed Value
Per Share).
Assuming 30% of the Debentures are exchanged, the portion of the gain
attributable to unpaid principal and interest is $927,000 and $5,000,
respectively. The principal gain is computed by subtracting from the 30% of
the $9,538,000 of outstanding principal equaling $2,861,00, $1,431,000 of cash
($500 per $1,000 of 30% of the outstanding principal) and the issuance of
$504,000 of common stock (16 shares per $1,000 of 30% of the outstanding
principal multiplied by the $11.00 Assumed Value Per Share). The interest gain
is computed by multiplying 7 1/2% by 30% of the $9,538,000 principal amount
outstanding for the period of April 15, 1994 to May 31, 1996 plus interest of 7
1/2% on the unpaid default interest amount for the period from October 15, 1994
to May 31, 1996 due under the exchanged 30% of the $9,538,000 principal amount
outstanding, based on an increasing default balance as additional payments
became due, less $80 per $1,000 of $2,861,000 (30% of outstanding principal),
for an amount of $229,000 of cash and the issuance of $252,000 of common stock
(8 shares per $1,000 of principal amount exchanged multiplied by the $11.00
Assumed Value Per Share).
The total of default interest installments overdue on the $9,538,000
principal amount outstanding was $357,675 from October 15, 1994 to April 15,
1995; $715,350.00 from April 15, 1995 to October 15, 1995; $1,073,025 from
October 15, 1995 to April 15, 1996; and $1,430,700 from April 15, 1996 through
May 31, 1996.
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<PAGE> 47
POTENTIAL FEDERAL INCOME TAX CONSEQUENCES
The discussion under the heading "Potential Federal Income Tax
Consequences" in the Offering Circular expresses the Company's understanding as
to all material federal income tax consequences of the Exchange to the
Debentureholder that participates by tendering Debentures for Exchange to the
Company. Debentureholders should consult the Offering Circular for that
information in connection with deciding whether to tender in the Exchange Offer
or to the extent that an understanding of the Company's potential federal
income tax consequences arising from the Exchange may be relevant. Consent on
the Proposals will be necessary in order to allow the Company to consummate the
Exchange. The potential federal income tax consequences of the Exchange are as
set forth in the Offering Circular under the heading "Potential Federal Income
Tax Consequences."
EFFECTS ON THE DEBENTUREHOLDERS
For federal income tax purposes, none of the Proposals would make any
material difference to the Debentureholder regarding the tax consequences of
holding Debentures.
EFFECTS ON THE COMPANY
For federal income tax purposes, none of the Proposals would make any
material difference to the Company regarding the tax consequences of being the
issuer of Debentures.
LIMITATIONS AND QUALIFICATIONS OF THE DISCUSSION
The foregoing discussion contains information regarding federal income
tax consequences of the Proposals to a typical taxpayer who does not
participate in the Exchange. The discussion does not describe any tax
consequences arising out of the tax laws of any state, local or foreign
jurisdiction.
The summary is based upon the Internal Revenue Code, existing and
proposed regulations thereunder, and current administrative rulings and court
decisions. All of the foregoing are subject to change, which change may be
retroactive, and any such change could affect the continuing validity of this
discussion.
EACH DEBENTUREHOLDER IS URGED TO SEEK HIS, HER OR ITS OWN TAX ADVICE.
All Debentureholders are urged to consult their own tax advisors concerning the
federal, state, local and foreign tax consequences of the Proposals to them in
their particular circumstances.
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<PAGE> 48
THE PROPOSED EXCHANGE
The references herein to the Exchange Offer, or the like, are not
intended to imply or indicate that any offer of exchange is made in this
Debenture Consent Solicitation Statement expressly or impliedly. The Exchange
Offer only will be made pursuant to the accompanying Offering Circular,
Schedule 13E-4, Letter of Transmittal and the documents referred to therein
(collectively, "Exchange Offer Documents"). The Company desires the Exchange
Offer to be an offer to its Debentureholders to surrender for exchange each
$1,000 in outstanding principal amount of Debentures, and accrued and unpaid
interest to the exchange date, which at November 15, 1996 will aggregate
$208.98 of interest per $1,000 in outstanding principal amount, for an Exchange
Consideration aggregately of $580 in cash and 24 shares of Common Stock, which
will be comprised of $500 in cash and 16 shares Common Stock, as principal,
plus $80 in cash and 8 shares of Common Stock, as interest (the "Exchange
Offer"). Unless the Consents requested herein are granted by the
Debentureholders holding the necessary aggregate principal amount of Debentures
to effect rescission of acceleration of the Debentures, the Company will not
have any obligation to effect the Exchange and pay Exchange Consideration. The
Company does not presently contemplate completion of the Exchange unless the
Debenture acceleration is rescinded and the Company's funding is adequate to
pay Exchange Consideration to all tendering Debentureholders and default
interest, and interest thereon, to all non-tendering Debentureholders, because
the Company does not expect to be able to make the payment of $9,538,000
principal plus $1,993,294 interest, as of November 15, 1996, that would be
required in order to retire the Debentures. The Indenture also requires the
Company to satisfy the Company's financial commitments that are senior to the
Debentures and have become due. A rescission of acceleration of the Debentures
would effect a reinstatement of the Debentures to their original
non-accelerated terms, and that should result in an immediate improvement in
the Company's working capital deficit. There may be potentially some relative
improvement in the Company's debt-carrying ability.
The Debentureholders may wish to consider the opportunity that the
Company is providing to the Debentureholders to exchange their Debentures for
Exchange Consideration. However, should the Company's financial position after
rescission of acceleration and until the original maturity date of the
Debentures improve to such extent as Debentures can be paid in full on
maturity, the Debentureholders may wish to continue holding Debentures, as well
as giving Consent. Giving Consent will not effectively tender your Debentures.
The manner of tendering Debentures is described in the Exchange Offer
Documents.
The Company cannot purchase any Debentures, otherwise than in an
exchange pursuant to the Exchange Offer, until the expiration of at least ten
business days after the termination of the Exchange Offer, and has no intention
presently to do so thereafter.
A registered Debentureholder's right to Consent will continue despite
tendering Debentures in the Exchange Offer, until such tendered Debentures are
accepted by the Company in the Exchange. A registered Debentureholder who
tenders Debentures in the Exchange Offer will also thereafter be able to revoke
a previous Consent. On the date or dates that Debentures are exchanged for
Exchange Consideration (the "Exchange Date"), the Debentures accepted for
payment will become the Company's, and such aggregate number of Debentures
shall be excluded thereafter from voting and from the calculation of the
percentage required for Consent.
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<PAGE> 49
It is each beneficial and record Debentureholder's right to elect not
to tender such holder's Debentures. Nevertheless, there can be no assurance
that the aggregate market value of the Debentures (plus the default interest
paid) after a rescission of acceleration will be as great as the aggregate
market value of the Debentures while they continue to be immediately due and
payable. Debentureholders are urged, in addition to Consenting, to carefully
consider the Exchange Offer. After the Exchange Offer, the trading in the
Debentures may become more thin and sporadic, which could adversely affect the
liquidity of an investment in the Debentures.
A rescission of acceleration of the Debentures will not alter the
rights, pursuant to the Indenture, of Debentureholders to accelerate the
Debentures following any future Event of Default by the Company. In
anticipation that rescission of acceleration will be accomplished, the Company
is concurrently making the Exchange Offer. Concurrently with the Debenture
Consent Solicitation, therefore, each Debentureholder will find it necessary to
decide whether or not to tender Debentures based on either the current
acceleration or the possibility that a rescission of acceleration will be
effected, which may have the significant effect of reinstating the Debentures'
original maturity date of April 15, 2010. In doing so, each Debentureholder
should consider the information set forth in the Exchange Offer Documents
pertaining to the Exchange Offer and not only the information set forth herein.
The Exchange Offer is being made by the Company in reliance upon the
exemption from the registration requirements of the Securities Act afforded by
Section 3(a)(9) of the Securities Act. The Company, therefore, will not pay any
commission or other remuneration to any broker, dealer, salesman or other
person for soliciting Debentureholders to give Consents or to exchange
Debentures. Directors, officers and regular employees of the Company, who will
not receive additional compensation therefor, may solicit Debentureholders to
give Consents and/or to exchange Debentures.
BACKGROUND
The Debentures were issued by the Company on April 25, 1985. On
October 17, 1994, the Company failed to make an interest payment as described
in the next paragraph. On or about February 10, 1995, an acceleration of all
principal and interest due under the Debentures was declared. Thereafter, on
February 24, 1995, an involuntary bankruptcy petition was filed against the
Company. The petition was dismissed on March 6, 1995 with the consent of the
petitioners.
The Company has missed five semi-annual interest payments, due October
15, 1994, April 15, 1995, October 15, 1995, April 15, 1996, and October 15,
1996. It is estimated that the interest (and default interest thereon) accrued
through November 15, 1996 will aggregate $1,993,294.
Except for the effects of acceleration of the Debentures, the maturity
date of the Debentures would be April 15, 2010, and interest would be payable
semi-annually on each April 15 and October 15. See "Default on Debentures"
below. The Company has outstanding $9,538,000 in principal amount of
Debentures. The Debentures were issued for a price equal to 100% of the
aggregate original principal amount of $46.0 million. Since that time,
$36,462,000 aggregate principal amount of Debentures have been converted by
their holders into Common Stock. No sinking fund obligations under the
Debentures apply to the Company on account of the cancellation of such
Debentures. See "The Proposals-- Proposal No. 4" above. The interest cost to
the Company under the Debentures is 7 1/2% of the outstanding principal amount
per year and, while a nonpayment continues, includes interest at the annual
rate of 7 1/2% on the overdue amounts. If the Exchange is accomplished, the
reduction of the Debenture's debt service requirement would decrease the
Company's future cash flow requirement. The Debentures currently are
redeemable, in whole or in part, by the Company at 100% of face value.
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<PAGE> 50
DEFAULT ON DEBENTURES
The Company's losses in fiscal 1995 caused the Company to suspend
interest payments to the holders of the Company's Debentures. As a result, the
Company notified the Trustee that the Company was proposing a default interest
payment date. After the default interest payment date was announced, but prior
to payment, a group of Debentureholders and others purporting to hold an
aggregate of 25% of the principal amount of the Debentures then outstanding
declared on or about February 10, 1995 an acceleration of the principal in the
aggregate amount of $9,538,000 plus interest and default interest accrued from
April 15, 1994, which thereby became immediately due and payable. A subset of
such persons filed an involuntary petition on February 24, 1995 in United
States Bankruptcy Court for the Northern District of Texas against the Company
under Chapter 7 of the U.S. Bankruptcy Code, which was dismissed, with the
consent of the petitioners, on March 6, 1995 following the execution of the
Letter Agreement described below.
AGREEMENT OF PARTICIPATING SECURITYHOLDERS
On March 3, 1995 the Company entered into a letter agreement
(sometimes herein called the "Letter Agreement") with Mr. Jay H. Lustig, an
individual who was representing certain holders of Debentures ("Participating
Securityholders") owning or purporting to own approximately 25% in outstanding
principal amount of Debentures who had taken the action to accelerate
Debentures and filed an involuntary petition for bankruptcy of the Company on
February 24, 1995. For the reasons set forth below, the Company believes that
it is not bound by the Letter Agreement. The Exchange is being made by the
Company voluntarily and includes certain of the concepts of the Letter
Agreement as a framework for the currently proposed Exchange. Some of the
terms of the proposed Exchange Offer are different from the Letter Agreement.
See "Differences Between the Exchange Offer and the Letter Agreement's
Contemplated Exchange" below.
The Letter Agreement provided for a consensual out-of-court resolution
that the Company's Board of Directors approved as being in the best interests
of the Company and its stockholders and other stakeholders. Pursuant to the
Letter Agreement, the holders' representative agreed to provide notices of
waiver of the interest non-payment default, notices of rescission of the
Debenture acceleration and the effects thereof, and consent to the immediate
dismissal of the involuntary Chapter 7 petition filed on February 24, 1995 from
holders of $2.5 million in outstanding principal amount of Debentures by March
31, 1995 and to use best efforts to provide waivers of the interest default and
notice of rescission of acceleration from the additional amount necessary to
constitute a majority of outstanding principal amount of Debentures. In return,
the Company agreed to provide an opportunity within 180 days to holders of
Debentures to tender their Debentures to the Company pursuant to an exchange
offer to be made by the Company to the holders of Debentures. The exchange
offer consideration was to consist of a payment of $500 in cash; $120 worth in
shares of Common Stock at a defined value equal to an average market price
calculated based on every round-lot trade over a specified trading period; and
an $80 portion, in cash, of the accrued and unpaid interest. The balance of
accrued interest and default interest in excess of such $80 was required to be
waived by the record holder at the record date for interest payment.
In addition, the Letter Agreement provided for a pledge by the Company
after 150 days of all of the shares of CCI, formerly known as CareUnit, Inc., a
wholly-owned operating subsidiary of the Company, to secure the Company's
obligation to complete the exchange on the agreed upon terms or otherwise to
purchase Debentures, provided that the holder's representative and the
Participating Securityholders had in each material respect performed their
obligations required to be performed.
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<PAGE> 51
Under the Letter Agreement, one of the material objectives was to
obtain from the holders of a majority interest in the Company's outstanding
Debentures a consent to, or waiver of, certain incidents of non-compliance
with, and to rescind acceleration of, the Debentures. The Company believes the
continuing acceleration results in material part from non-performance of
material obligations by the Participating Securityholders. Although the Letter
Agreement is not binding upon the Company, in its view, the currently proposed
Exchange Offer is being made by the Company voluntarily and includes certain of
the concepts of the Letter Agreement as a framework for the proposed Exchange.
The Company believes that the Exchange Offer as presently contemplated will
substantially comply with all material terms of the Letter Agreement in any
case.
The Debentureholders represented by Mr. Lustig consented to withdrawal
of the bankruptcy petition, and the Company was advised by Mr. Lustig that each
of them submitted notices of rescission of acceleration. Such Participating
Securityholders did not hold a majority in principal amount of the Debentures.
Management believes that the Participating Securityholders nevertheless did not
use best efforts to solicit or to cause the Trustee to solicit notices of
rescission of acceleration from other Debentureholders as necessary in order
that notices of rescission of acceleration would be given by a majority in
principal amount of the Debentures.
DIFFERENCES BETWEEN THE EXCHANGE OFFER AND THE LETTER AGREEMENT'S
CONTEMPLATED EXCHANGE
The Exchange Consideration includes a precise number of shares of
Common Stock that was calculated as closely as practicable based on a formula
from the Letter Agreement. The Letter Agreement provided for a number of
shares of Common Stock calculated based on the reported prices on the NYSE
Composite Tape during a defined trading period -- March 6, 1995 through May 19,
1995. The Exchange Consideration is based on the same trading period. The
Exchange Consideration was calculated based on the weighted average closing
price, although the Letter Agreement specified that the price "averaging"
calculation was to have been based on the average price of each and every
round-lot trade (100 shares or more). The information necessary for the
specified calculation, as the Company experienced, is obtainable only within a
short time following the trading day involved. When the Company's request for
the specified dates was received by one of the few appropriate sources for such
data, such data was no longer available for the beginning half of the trading
period. The $7.50 defined worth per share is an approximation of $7.47, which
was the "weighted average" trading price during the specified period (price
times volume reported on the NYSE Composite Tape). The actually calculated
value of $7.47 would have produced fractional shares. The $7.47 amount was
calculated based on the daily closing prices over the same trading period, with
the weighted daily closing prices for daily composite volume to follow the
framework of the Letter Agreement by making trading volume a factor. This
method is believed to approximate the Letter Agreement method as well as
reasonably possible throughout the specified trading period. The Company was
unable to utilize the individual round-lot trading prices to know the results
of such a calculation, but believes the results would not be materially
different from $7.50.
The Letter Agreement provided that the previously proposed exchange
would be consummated within 180 days; provided, however, that the Company
promised to use "best efforts" and its obligation to consummate the exchange
was expressly conditioned upon the satisfaction of Participating
Securityholders' obligations. Management of the Company believes that the
continuance of the nonpayment of the Debentures by approximately one year
beyond such 180 days contemplated in the Letter Agreement makes its offer of an
additional eight (8) shares of Common Stock per $1,000 principal amount
exchanged, as interest, comparable in attractiveness to the offer contemplated
by the Letter Agreement and reasonable in the circumstances, although no
assurance is given as to the actual amount of value that should be given to one
share of Common Stock or the proceeds thereof at any particular date, and no
assurance is given that the additional shares compensate financially for the
time value of the money not received previously.
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<PAGE> 52
The Letter Agreement provided for an agreement by the Company in favor
of all of the Debentureholders not to pledge the shares of CCI (formerly known
as CareUnit, Inc.) after the date of the Letter Agreement in order for the
Company to be prepared to satisfy a future obligation, as of approximately July
29, 1995, to pledge those shares under the Letter Agreement. The Company was
willing and ready to do so, but only if the Participating Securityholders had
performed all of their material obligations under the Letter Agreement (with
opportunity for cure if cure was possible). The Company has not pledged the
shares to any person, and has no intention of doing so. Such pledge would have
been to secure "the Company's obligation to purchase the Debentures on and
subject to the terms and conditions of the Letter Agreement or otherwise."
Management of the Company believes that the Company's obligations to perform
the pledge of CCI shares did not arise because Participating Securityholders
did not use best efforts to provide notices of rescission of acceleration
signed by a majority of the outstanding principal amount of Debentures. The
Letter Agreement also provided that a disposition of the shares for the benefit
of satisfying the Debentures would have been permitted at any time after
approximately August 28, 1995, which was 180 days after March 3, 1995. No
pledge of the CCI shares is contemplated by the Company because in its view the
particular provision of the Letter Agreement related thereto is not binding
upon the Company because of the failure on the part of the other parties
thereto to perform under the conditions thereof. The Company's management
determined that making such a pledge would materially impair the Company's
business and financial prospects.
Pursuant to the Letter Agreement, every holder of Debentures who
tendered them for exchange was to receive interest in an amount of $80 in cash
in lieu of receiving the full actual amount of the interest. The Exchange
Offer interest payment as contemplated today differs by including an additional
eight (8) shares of Common Stock. To the extent the accrual exceeded the
designated $80 in cash as interest, the tender of Debentures was to constitute
a waiver of excess accrued interest. At November 15, 1996, $208.98 of interest
will have accrued per $1,000 of principal amount. The Company believes that
increasing the interest payment with shares of Common Stock should provide
Debentureholders an Exchange Offer that offers comparable incentive taking into
account the original framework of the Letter Agreement and conserves the
Company's cash funds for future needs.
Because of the failure, in the Company's judgment, of the
Participating Securityholders to use best efforts to deliver the rescissions of
the acceleration and waiver of defaults by the registered owners of a majority
in principal amount of the Debentures, the Company is seeking the Consent of
Debentureholders through this solicitation. The Letter Agreement did not
contemplate a Company solicitation similar to this Statement, or the Company's
resulting costs, expenses and time consumed.
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<PAGE> 53
PRICE OF DEBENTURES AND COMMON STOCK PRIOR TO ANNOUNCEMENT
As of March 2, 1995, the date preceding the public announcement of the
intention to make the Exchange Offer, the bid price for Debentures per each
$1,000 principal amount was $360 and the asked price was $390. Debenture
prices were reported to the Company informally, directly from brokers in the
over-the-counter market, and such reports are not intended to indicate that
active trading exists.
As of March 2, 1995, the NYSE Composite Tape reported that the
Company's Common Stock high sales price was $6, low sales price was $5 5/8, and
closing sales price was $5 3/4.
As of November 4, 1996, the bid and asked prices for the Debentures
were $470.20 and $472.70, respectively, as reported by Merrill Lynch & Co.,
Inc., based only on the trading records of such broker. The Debentures are not
quoted on any automated quotation system. The low and high sales prices for the
Company's Common Stock on November 4, 1996 were $11 3/8 and $11 3/4,
respectively, as reported on the NYSE Composite tape, and the closing sales
price was $11 1/2.
EXCHANGE OFFER FUNDING REQUIREMENTS AND SOURCES
The proposed Exchange Offer will require, if accomplished at all, the
issuance of up to 228,912 shares of the Company's Common Stock to fund the
stock portion of the Exchange. Principal of $500 in cash and sixteen (16)
shares of Common Stock will be a designated principal portion of the Exchange
Consideration. Accrued interest to the extent of $80 in cash plus eight (8)
shares of Common Stock per $1,000 principal amount of Debentures will be a
designated interest portion of the Exchange Consideration.
Assuming that a majority in principal amount of Debentures consent to
give notice of rescission of acceleration, then the acceleration will be
rescinded if and only if the Company pays the interest due on the Debentures
that are not tendered. The interest includes five semi-annual interest
installments (interest from approximately April 15, 1994 to October 15, 1996)
plus interest on defaulted interest payments accrued or accruing and unpaid to
the date that the interest is paid (the "Interest Payment Date"). At November
15, 1996, the aggregate interest due will be approximately $2.0 million.
Debentures that are accepted in the Exchange will become the property
of the Company, along with all rights or claims thereunder, and a
Debentureholder who surrenders a Debenture will immediately become the holder
of a right to receive the Exchange Consideration. Assuming that 100% of the
principal amount of Debentures are exchanged, the Company will require a
maximum of $5,532,040 to pay the cash portion of the Exchange Consideration.
At August 31, 1996, the Company had approximately $2.4 million in
short-term cash equivalent investments. An additional $5.4 million was
received by the Company on October 5, 1996, the Company's 1996 Federal income
tax refund. The Company estimates that $5.6 million would be sufficient to
exchange approximately 100% of the outstanding principal amount of the
Debentures, including estimated expenses. The Company also anticipates
utilizing one or more of the following potential sources of cash to provide
funds for its additional cash needs.
o The Company's freestanding hospital facility in Jacksonville,
Florida is under a contract for sale, and the transaction is
scheduled to be completed during the second or third quarter
of fiscal 1997. The sale proceeds are expected to be
$1.3 million.
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<PAGE> 54
o The Company filed its fiscal 1995 Federal tax return, and a
Form 1139 "Corporate Application for Tentative Refund" in the
amount of $9.4 million. The Company received the full refund
claim for fiscal 1995 in October 1995. In September 1996, the
Company filed its fiscal 1996 Federal tax return and also filed
a Form 1139. These 1996 filings indicate a refund to the
Company in the amount of $5.5 million. In October 1996, the
Company received a $5.4 million refund for fiscal 1996. The
Company has also filed amended Federal tax returns for prior
years to claim refunds for an additional $7.7 million. These
refund claims have been made under Section 172(f) of the
Internal Revenue Code, an area of the tax law with little
guiding legal precedent, and there may be substantial
opposition by the IRS to the Company's refund claims. The
Company is currently under audit by the IRS regarding its 1995
Federal tax return and the amended returns for prior years.
Accordingly, no assurances can be made to the Company's
entitlement to such refunds or the timing of the receipt
thereof.
o The Company has received a firm commitment from a mutual fund
to purchase directly from the Company in a private placement
at least $5.0 million of face amount of 15% fully secured
promissory notes due no earlier than 15 months from the date
of issue, such commitment to remain open until at least August
1997.
o In connection with the sale of a hospital facility in the
first quarter of fiscal 1997, the Company took back a note on
the property with provisions that allow the buyer a discount
if the note is redeemed in the first six months. In the event
the buyer exercises this option, the proceeds to the Company
would be $1.55 million; however, no assurance can be made when
such proceeds might be received.
These potential needs for and sources of additional cash are subject
to variation due to business and economic influences outside the Company's
control. There can be no assurance that during fiscal 1997 the Company will
complete the transactions required to fund its working capital deficit.
Further, the rescission of acceleration will not occur until after the Exchange
has been funded fully.
SUMMARY COMPARISON OF TERMS OF DEBENTURES AND EXCHANGE CONSIDERATION
<TABLE>
<CAPTION>
THE DEBENTURES EXCHANGE CONSIDERATION
-------------- ----------------------
<S> <C> <C>
PRINCIPAL While the Debentures are accelerated, $1,000 of The Exchange Consideration includes, as
principal and interest accrued on the principal principal, for each $1,000 in principal amount
to the date of payment is payable, along with exchanged, $500 in cash plus 16 shares of
interest on unpaid interest to the extent lawful Common Stock. As of November 4, 1996, the
is due and payable in cash. See "Interest" reported closing price of the Common Stock on
below. If the acceleration is rescinded, the the NYSE was $11 1/2. The rights of holders
principal amount will be due in full April 15, of Common Stock are junior to the rights of
2010, subject to earlier redemption in the Debentureholders and all other creditors. See
Company's discretion. No sinking fund payments "Ranking" below.
will be due. See "The Proposals--Proposal
No. 4."
</TABLE>
48
<PAGE> 55
<TABLE>
<S> <C> <C>
INTEREST Interest accrues at the rate of 7 1/2% per annum The Exchange Consideration includes, as
calculated on a 30-day month and 360 day year interest, for each $1,000 in principal amount
basis. Interest has not been paid since the exchanged, $80 in cash plus eight (8) shares
payment that was made on April 15, 1994 on the of Common Stock. No additional payment of
Debentures. Five semi-annual interest Exchange Consideration will be due on account
installments are in arrears (October 15, 1994, of interest accruing or accrued or any other
April 15, 1995, October 15, 1995, April 15, 1996 claim under such Debentures. As of November
and October 15, 1996). Debentures earn interest 4, 1996, the reported closing price of the
on default interest at 7 1/2% per annum, to the Common Stock on the NYSE was $11 1/2.
extent permitted by law. Approximately $208.98
of interest in the aggregate will have accrued
on each $1,000 face value to November 15, 1996.
If the acceleration is to be rescinded, the
interest required to be paid prior to rescission
of acceleration includes all accrued interest
except interest accruing on the principal amount
from and after October 15, 1996.
MATURITY While the Debentures are accelerated, all Upon the Exchange being completed, the
principal and interest is due and payable tendering Debentureholders will receive
immediately. If the acceleration is rescinded, Exchange Consideration, and the Debentures
the principal amount will mature on April 15, tendered and exchanged will be cancelled.
2010, subject to optional redemption at 100.00% Completion of the Exchange Offer is subject to
of face amount, and also subject to acceleration a high degree of risk. See "Special Risk
in the event of notice by the Trustee or at Factors."
least 25% in principal amount of Debentures
following the existence and continuation of an
Event of Default. The Company elected to
subtract from the Company's sinking fund
obligations the $36,460,000 principal amount of
Debentures converted by Debentureholders in
March 1991 and previously cancelled, effectively
removing the sinking fund redemption obligation.
See "the Proposals--Proposal No. 4."
</TABLE>
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<PAGE> 56
<TABLE>
<S> <C> <C>
CONVERSION OR Each $1,000 in principal amount is convertible See "Principal" above.
EXCHANGE into 4 whole Common shares (and a
Debentureholder will not be entitled to convert
a Debenture in a principal amount less than
$1,000) at the current conversion price of
$248.12 per share. The conversion price is
subject to adjustment to prevent dilution in
certain events. The conversion price adjustments
are made generally whenever shares are sold by
the Company at a price below the average closing
price on the NYSE during a specified period.
See "Additional Risk Factors--Conversion Price
Far Above Share Prices." See the "Notice of
Conversion Price Adjustment" attached as
Exhibit 99.18 hereto. See "Principal" above.
RANKING Unsecured general obligations of the Company Payments received in the Exchange Offer by
subordinate to all existing and future Senior Debentureholders may be subject to claims of
Debt of the Company (as defined). Secured Senior Senior Debt holders or other creditors, and,
Debt totalled approximately $2.0 million at if competing creditors prevail in asserting
August 31, 1996. their claims, the Exchange Consideration may
be forfeitable. See "Priorities of Securities
and Other Considerations Relating to Any
Future Bankruptcy of the Company." Shares of
Common Stock received in the Exchange
constitute "equity" securities, which by their
nature are subordinate to all indebtedness of
the Company.
REDEMPTION AT Redeemable at any time in whole or in part at No redemption.
OPTION OF THE the option of the Company at the principal
COMPANY amount, together with accrued interest.
</TABLE>
NO FAIRNESS OPINION
The Company has not advised Debentureholders to exchange or to refrain
from exchanging Debentures because, among other reasons, the Company has not
obtained a fairness opinion concerning the Exchange Offer from any investment
banking firm or an appraisal or any other investigation of the consequences of
an Exchange.
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<PAGE> 57
DESCRIPTION OF DEBENTURES
$46,000,000 principal amount, at a price of 100% of face amount plus
accrued interest, of the Company's 7 1/2% Convertible Subordinated Debentures
Due April 15, 2010 (the "Debentures") were issued under an Indenture dated as
of April 15, 1985 (the "Indenture") between the Company and Bank of America
National Trust and Savings Association, as trustee (the "Trustee"). In March
1991, over $36 million in principal amount of Debentures were converted by
their holders into shares of the Company's common stock, as then classified.
As of the date hereof, $9,538,000 in principal amount remained outstanding.
The terms of the Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939 (the "1939 Act") as in effect on the date of the Indenture. The Debentures
are subject to all such terms, and persons interested in those terms are
referred to the Indenture and the 1939 Act for a statement thereof. This
summary makes use of certain terms defined in the Indenture or the 1939 Act and
does not purport to be complete, and is qualified in its entirety by references
to the Indenture and the 1939 Act. All references to "Section," "Article" or
"Paragraph" in this section refer to the applicable Section or Article of the
Indenture or the applicable Paragraph in the form of Debenture included in the
Indenture, as the case may be.
GENERAL
The Debentures represent general unsecured obligations of the Company,
subordinate in right of payment to certain other obligations of the Company as
described under "Subordination of Debentures." The Debentures are convertible
into the Company's Common Stock as described under "Conversion of Debentures."
The Debentures are issued in fully registered form only in denominations of
$1,000 or any whole multiple thereof, and will mature on April 15, 2010. The
Debentures are traded in the over-the-counter market. Such trading is
sporadic. The bid and asked prices of Debentures are not quoted on any
automated quotation service. Bid quotations vary from broker-dealer to
broker-dealer.
The Company pays interest on the Debentures at the rate of 7 1/2% per
annum to the persons who are registered holders of Debentures at the close of
business on the April 1 or October 1 next preceding the interest payment date.
Interest is payable semiannually on April 15 and October 15 of each year.
Interest is computed on the basis of a 360-day year of twelve 30-day months.
The Company may pay principal and interest by its check and may mail interest
checks to a holder's registered address. Principal and premium, if any, will be
payable, and the Debentures may be presented for conversion, registration of
transfer and exchange, without service charge, at the office of the Trustee.
The Trustee's office for this purpose is 180 E. Fifth Street, Suite 200, St.
Paul, Minnesota 55101.
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CONVERSION OF DEBENTURES
The holder of any Debenture will be entitled at any time prior to the
close of business on April 15, 2010, subject to prior redemption, to convert
the Debentures or portions thereof which are $1,000 or whole multiples thereof,
at the principal amount thereof, into shares of Common Stock of the Company, at
the adjusted conversion price of $248.12 per share, subject to further
adjustment as described below. On each semi-annual interest payment date,
interest will be paid to the registered holder as of the record date for
payment. Debentures that are surrendered for conversion after the record date
for the payment of interest would receive the interest payable (Paragraph 2).
No other payment or adjustment will be made on conversion of any Debenture for
interest accrued thereon or dividends on any Common Stock issued (Section
10.02). The Company will not issue fractional shares of Common Stock upon
conversion of Debentures and, in lieu thereof, will pay a cash adjustment based
upon the market price of the Common Stock on the last business day prior to the
date of conversion (Section 10.03 and Paragraph 8). In the case of Debentures
called for redemption, conversion rights will expire at the close of business
the fifth business day prior to the redemption date (Section 3.03 and Paragraph
8).
The conversion price, which, as adjusted, was $248.12 per share as of
November 14, 1996, is subject to adjustment as set forth in the Indenture in
certain events, including: the issuance of stock of the Company as a dividend
or distribution on the Common Stock; subdivisions and combinations of the
Common Stock; the issuance of stock of the Company upon certain
reclassifications of its Common Stock; the issuance to all holders of Common
Stock of certain rights or warrants entitling them to subscribe for Common
Stock at less than the current market price (as defined); the distribution to
all holders of Common Stock of debt securities or assets of the Company or
rights or warrants to purchase assets or securities of the Company (excluding
cash dividends or distributions paid out of current or retained earnings); the
issuance of shares of Common Stock (with certain exceptions) for less
consideration than the current market price; and the issuance of securities
convertible into or exchangeable for shares of Common Stock (other than
pursuant to transactions described above and with certain exceptions) for a
consideration per share of Common Stock deliverable on such conversion or
exchange that is less than the current market price (as defined) of the Common
Stock. No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the price then in effect;
but any adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment. No adjustment need
be made for rights to purchase Common Stock pursuant to a Company dividend or
interest reinvestment plan. In addition, no adjustment need be made if holders
of Debentures are to participate in such transactions on a basis and with
notice that has been determined to be fair and appropriate in light of the
basis and notice on which holders of Common Stock participate in the
transaction. The Company may at any time reduce the conversion price by any
amount, provided that any such reduction must be effective for a minimum period
of 15 days. In March 1991, the Company temporarily reduced the conversion price
pursuant to such provision. If the Company consolidates or merges into or
transfers or leases all or substantially all of its assets to any person, the
Debentures will become convertible into the kind and amount of securities, cash
or other assets which the holders of the Debentures would have owned
immediately after the transaction if the holders had converted the Debentures
immediately before the effective date of the transaction (Sections
10.06-10.18).
If the Company makes a distribution resulting in an adjustment to the
conversion price and such adjustment is considered to result in an increase in
the proportionate interests of the holders of the Debentures in the assets or
earnings and profits of the Company, holders of the Debentures may be viewed as
receiving a "deemed distribution" that is taxable as a dividend under Sections
301 and 305 of the Code (as it exists on the date hereof).
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<PAGE> 59
OPTIONAL REDEMPTION
The Company may, at its option, redeem all or part of the Debentures,
on at least 15 days' but not more than 60 days' notice to each holder of
Debentures to be redeemed at the holder's registered address, at the redemption
price (expressed as a percentage of principal amount) of 100%, plus accrued
interest to the redemption date.
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<PAGE> 60
SINKING FUND
Subject to certain conditions, the Company is required to redeem,
through operation of a sinking fund, 5% of the aggregate principal amount of
Debentures on April 15, 1996, and on each April 15 thereafter through April 15,
2009, at a redemption price of 100% of principal amount thereof, plus accrued
interest to the redemption date. Such sinking fund payments are calculated to
retire prior to maturity 70% of the Debentures outstanding on April 15, 1996.
Provided, however, the Company may reduce the principal amount of Debentures to
be redeemed by subtracting 100% of the principal amount of any Debentures that
holders of the Debentures have converted on or before such April 15 or any
Debentures that the Company has delivered to the Trustee for cancellation or
that the Company has redeemed other than through operation of the sinking fund
on or before such April 15. Approximately $36 million in principal amount of
Debentures was converted by Debentureholders in 1991, which the Company has
elected to utilize to extinguish the sinking fund obligations at April 15, 1996
and in all subsequent years (Paragraph 6). See "The Proposals--Proposal No.
4."
SUBORDINATION OF DEBENTURES
The payment of the principal of, premium, if any, and interest on the
Debentures is subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full of all Senior Debt, as defined in the Indenture,
whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed or guaranteed. Upon (i) the maturity of Senior Debt,
including by acceleration or otherwise, or (ii) any distribution of the assets
of the Company upon any dissolution, winding up, liquidation or reorganization
of the Company, the holders of Senior Debt will be entitled to receive payment
in full before the holders of Debentures are entitled to receive any payment
(Sections 11.03-11.04).
"Senior Debt" means all defined Debt (present or future) created,
incurred, assumed or guaranteed by the Company (and all renewals, extensions or
refundings thereof), unless the instrument governing such Debt expressly
provides that such Debt is not senior or superior in right of payment to the
Debentures. Provided also that Senior Debt shall not include any defined Debt
of the Company to any of its subsidiaries (Section 11.02). The principal
amount of Senior Debt at August 31, 1996 was estimated at $2.0 million.
"Debt" means any indebtedness, contingent or otherwise, in respect of
borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the Company or only to a portion thereof), or evidenced by bonds,
notes, debentures or similar instruments or letters of credit, or representing
obligations of the Company as lessee under leases of real or personal property,
or representing the deferred and unpaid balance of the purchase price of any
property or interest therein, except any such balance that constitutes a trade
payable, if and to the extent such indebtedness would appear as a liability
upon a balance sheet of the Company prepared on a consolidated basis in
accordance with generally accepted accounting principles (Section 11.02).
In addition, the claims of third parties to the assets of the
Company's subsidiaries incurring such obligations will be superior to those of
the Company as a stockholder, and, therefore the Debentures may be deemed to be
effectively subordinated to the claims of such third parties. Certain
substantial operations of the Company are conducted through such subsidiaries,
and the Debentures are effectively subordinated to repayment of the Company's
liabilities arising from those operations.
The Indenture does not limit the amount of additional indebtedness,
including Senior Debt, which the Company or any subsidiary can create, incur,
assume or guarantee.
As a result of these subordination provisions, in the event of
insolvency, holders of the Debentures may recover less ratably than other
creditors of the Company or its subsidiaries.
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<PAGE> 61
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is: default for 30 days in payment of interest on
the Debentures; default in payment when due of principal and premium, if any,
on the Debentures; failure by the Company, continuing for 30 days after notice
and opportunity to cure, to comply with any of its other agreements in the
Indenture or the Debentures; and certain events of bankruptcy or insolvency
(Section 6.01).
If any Event of Default occurs and is continuing, the Trustee, or the
holders of at least 25% in the principal amount of the Debentures then
outstanding can give notice to the Company and the Trustee in order to
accelerate and to declare all the Debentures to be due and payable immediately,
except that in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, and subject to applicable law, all outstanding
Debentures become due and payable without further action or notice (Section
6.02).
If an Event of Default occurs and is continuing, the Trustee may
pursue any remedy available at law or in equity to collect the payment of
principal or interest on the Debentures or to enforce the performance of any
provision of the Indenture or the Debentures. A delay or omission by the
Trustee or any Debentureholder in exercising any right or remedy shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default (Section 6.03).
Holders of the Debentures may not enforce the Indenture or the
Debentures except as provided in the Indenture. A holder of Debentures may
enforce a remedy with respect to the Indenture or the Debentures only if the
Trustee gives notice of a continuing Event of Default, the holders of at least
25% in principal amount of then outstanding Debentures make a request to the
Trustee to pursue the remedy, such holders offer to the Trustee an indemnity
satisfactory to the Trustee against loss, liability or expense, the Trustee
does not comply with the request within 60 days after receipt of the request
and the offer of indemnity, and during such 60-day period the holders of a
majority in principal amount of then outstanding Debentures do not give the
Trustee a direction inconsistent with the request (Section 6.06). Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Debentures may direct the Trustee regarding the time, method and
place of exercising any trust or power conferred on it (Section 6.05).
The Trustee is required, within 90 days after the occurrence of any
Event of Default which is known to the Trustee and continuing, to give the
holders of the Debentures notice of such Event of Default. The Trustee may
withhold from holders of the Debentures notice of any continuing Default or
Event of Default (except a Default or Event of Default in payment of principal
or interest) if it determines that withholding notice is in their interest
(Section 7.05). The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and upon becoming aware of
any Default or Event of Default, a statement specifying such Default or Event
of Default (Section 4.03).
55
<PAGE> 62
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Company may not consolidate or merge into, or transfer all or
substantially all of its assets to, another corporation, person or entity
unless (i) the successor is a United States corporation, (ii) it assumes all of
the obligations of the Company under the Debentures and the Indenture, and
(iii) after such transaction no Event of Default exists (Article 5).
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the holders of at least two-thirds
in principal amount of such then outstanding Debentures, and any existing
default or non-compliance with any provision may be waived with the consent of
the holders of at least two-thirds in principal amount of the then outstanding
Debentures (Sections 9.02 and 6.04). Without the consent of any holder of the
Debentures, the Company and the Trustee may amend or supplement the Indenture
or the Debentures to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Debentures in addition to or in place of certificated
Debentures, to provide for the assumption of the Company's obligations to
holders of the Debentures in the case of a merger or acquisition, or to make
any change that does not adversely affect the rights of any holder of the
Debentures (Section 9.01 and Paragraph 12). Without the consent of each
Debentureholder affected, the Company may not reduce the principal amount of
Debentures, the holders of which must consent to in order to amend the
Indenture; reduce the rate or change the interest payment time of any
Debenture; reduce the principal of or change the fixed maturity of any
Debenture; make any Debenture payable in money other than that stated in the
Debenture, i.e., U.S. dollars; make any change in the provisions concerning
waiver of Defaults or Events of Default by holders of the Debentures or rights
of holders to receive payment of principal or interest; or make any change that
adversely affects conversion rights or adversely affects Debentureholders under
the Indenture's and the Debenture's subordination provisions (Section 9.02).
TRANSFER AND EXCHANGE
A holder may transfer or exchange Debentures in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required to
transfer or exchange any Debenture selected for redemption. Also, the Registrar
is not required to transfer or exchange any Debenture for a period of 15 days
before a selection of Debentures to be redeemed (Section 2.06 and Paragraph
10).
The registered holder of a Debenture may be treated as the owner of
the Debenture for all purposes.
CONCERNING THE TRUSTEE
The Trustee acts as Debenture Conversion Agent, Paying Agent and
Registrar (Section 12.10).
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign (Article 7).
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<PAGE> 63
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee.
The Indenture provides that in case an Event of Default shall occur (which
shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
of the holders of the Debentures, unless they shall have offered to the Trustee
security and indemnity satisfactory to it (Section 7.01).
INCORPORATION BY REFERENCE
PROVIDED HEREWITH, FOR THE PURPOSE OF PROVIDING DEBENTUREHOLDERS WITH
SUBSTANTIALLY THE FINANCIAL INFORMATION THAT ITEM 13 OF SCHEDULE 14A UNDER THE
SECURITIES EXCHANGE ACT IDENTIFIES, ARE (1) THE COMPANY'S SCHEDULE 13E-4, AS
AMENDED, INCLUDING THE OFFERING CIRCULAR THAT COMPRISES A PORTION THEREOF, AS
FILED WITH THE COMMISSION ON NOVEMBER 8, 1996; (2) CERTAIN PORTIONS OF THE
COMPANY'S ANNUAL REPORT ON FORM 10- K, AS FILED WITH THE COMMISSION ON AUGUST
29, 1996; FORM 10-K/A-1, AS FILED WITH THE COMMISSION ON SEPTEMBER 27, 1996; AND
FORM 10-K/A-2, AS FILED WITH THE COMMISSION NOVEMBER 7, 1996, RELATED TO THE
FISCAL YEAR ENDED MAY 31, 1996 (AS AMENDED, THE "1996 FORM 10-K"); (3) CERTAIN
PORTIONS OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q, AS FILED WITH THE
COMMISSION ON OCTOBER 15, 1996 (THE "AUGUST 31, 1996 FORM 10-Q"); (4) THE
COMPANY'S CURRENT REPORTS ON FORM 8-K DATED JULY 15, AUGUST 14, SEPTEMBER 6,
OCTOBER 5, AND OCTOBER 22, 1996. REGARDING THE COMPANY'S 1996 FORM 10-K AND
AUGUST 31, 1996 FORM 10-Q, ONLY AUDITORS' REPORTS, FINANCIAL STATEMENTS AND
THE NOTES THERETO, OTHER SELECTED FINANCIAL INFORMATION, THE MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
RISK FACTORS, AND LEGAL PROCEEDINGS ARE INCORPORATED HEREIN BY THIS REFERENCE.
A COPY OF ANY DOCUMENT INCORPORATED BY REFERENCE IN THIS DEBENTURE
CONSENT SOLICITATION STATEMENT BUT NOT DELIVERED TO DEBENTUREHOLDERS WILL BE
PROVIDED WITHOUT CHARGE, TO EACH PERSON TO WHOM A DEBENTURE CONSENT
SOLICITATION STATEMENT IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF SUCH
PERSON, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS
DAY OF RECEIPT OF SUCH REQUEST. SUCH A REQUEST IS TO BE DIRECTED AS DESCRIBED
UNDER THE HEADING "INFORMATION AND SOLICITATION." THIS INCLUDES INFORMATION
SUBSEQUENTLY FILED, UP TO THE DATE OF RESPONDING TO THE REQUEST, AND EXHIBITS
TO THE INFORMATION INCORPORATED BY REFERENCE THAT ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO THE INFORMATION THAT THIS DEBENTURE CONSENT SOLICITATION
STATEMENT INCORPORATES.
MANAGEMENT REQUESTS A CONSENT FOR PROPOSALS NO. 1, 2, 3 AND 4.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ KERRI RUPPERT
Kerri Ruppert
Senior Vice President,
Secretary/Treasurer and
Chief Financial Officer
November 14, 1996
Corona del Mar, California
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<PAGE> 64
[FORM OF FRONT OF CARD]
COMPREHENSIVE CARE CORPORATION
CONSENT
THIS CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF COMPREHENSIVE
CARE CORPORATION (the "Company"). The Board of Directors of Comprehensive Care
Corporation RECOMMENDS CONSENT on every proposal.
Debentureholders are urged to mark, sign, date and mail promptly this Consent
Card in the envelope provided. Consents must be received at the address of the
Trustee by 5:00 p.m. St. Paul , Minnesota time, on or before December 23, 1996,
unless the deadline is extended without further notice. If not otherwise
terminated, the Consent Solicitation Period terminates 60 days after the
earliest-dated Consent.
THIS CONSENT CARD IS INTENDED TO OBTAIN CONSENT; AND THIS CARD SHALL BE DEEMED
TO INDICATE A CONSENT TO EACH PROPOSAL IF NOT INDICATED TO THE CONTRARY AS TO
EACH PROPOSAL.
EACH CONSENT MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each sign. If signing as
executor, administrator, attorney, trustee, or guardian, give title as such. If
a corporation, sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person. Please do not forget to
sign and date this Consent Card.
Please return this Consent Card promptly, using the enclosed envelope. No
postage is required if mailed in the United States of America.
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<PAGE> 65
[FORM OF BACK OF CARD]
PLEASE SIGN, DATE AND INDICATE APPROVAL BELOW.
PROPOSAL 1: / / APPROVE / / DISAPPROVE / / ABSTAIN
Proposal 1. To consent to rescind the acceleration, and hereby to notify
First Trust of California, National Association, successor to
Bank of America National Trust and Savings Association (the
"Trustee"), pursuant to Section 6.02 of the Indenture dated
April 25, 1985 (the "Indenture") between the Company and the
Trustee, of a rescission of the acceleration of all principal
and interest due under the Company's 7 1/2% Convertible
Subordinated Debentures Due April 15, 2010 (the "Debentures").
PROPOSAL 2: / / APPROVE / / DISAPPROVE / / ABSTAIN
Proposal 2. To consent to waive, and hereby to waive and to notify the
Trustee of a waiver of, any other Events of Default and any
other defaults (known or unknown) under the Debentures (other
than any nonpayment of principal and interest due) that exist
at the time, if any, when the Company's consummation of the
Exchange and the rescission of the Acceleration results in
termination of the Consent Solicitation Period.
PROPOSAL 3: / / APPROVE / / DISAPPROVE / / ABSTAIN
Proposal 3. To consent to instructions, and hereby to instruct the
Trustee, not to pursue during the Consent Solicitation Period
any remedy under the Debentures or the Indenture upon anything
less than future directions given by a majority in outstanding
principal amount of Debentures during the Consent Solicitation
Period.
PROPOSAL 4: / / APPROVE / / DISAPPROVE / / ABSTAIN
Proposal 4. To consent to the waiver of notice provisions required under
the Indenture requiring notice from the Company with respect
to the Company's cancellation of a sinking fund payment
obligation and to waive any claim to receive the sinking fund
installment payment that purportedly was due April 15, 1996.
SIGNATURE(S)
___________________________________________________
Signature
___________________________________________________
Signature (if held jointly)
Title or authority (if applicable)
Date: ____________________________, 1996
THIS WRITTEN CONSENT IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
COMPANY. MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMENDS A CONSENT TO
"APPROVE" EACH OF PROPOSALS NO. 1, NO. 2, NO. 3 AND NO. 4 IN ORDER TO
FACILITATE RESCISSION OF ACCELERATION OF THE DEBENTURES. THIS CONSENT CARD
WILL BE COUNTED AS YOU DIRECT; IN THE ABSENCE OF SUCH DIRECTION, IT WILL BE
DEEMED TO INDICATE CONSENT TO "APPROVE" EACH OF THE FOREGOING PROPOSALS.
60
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ----------------------------------
<S> <C>
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Arthur Andersen LLP.
99.11 Notices of Default to the Debentureholders from
the Trustee dated November 22, 1994; February 13,
1995; May 23, 1995; November 24, 1995; and June
10, 1996.
99.12 Form of Notice to Debentureholders of Interest
Payment Record Date.
99.13 News Release describing Debenture Exchange Offer.
99.15 Script for explanation of the Debenture Exchange
Offer.
99.18 Notice to Debentureholders of Conversion Price
Adjustment.
99.19 Indenture dated April 25, 1985 between the Issuer and
Bank of America National Trust and Savings
Association, is incorporated by reference to the
referenced exhibit of Exhibit 4 to the Issuer's Form
S-3 Registration No. 2-97160 filed April 25, 1985
regarding an aggregate $46,000,000 original principal
amount of the Debentures (incorporated herein by
reference).*
99.20 Letter Agreement dated March 3, 1995 between the
Company and Mr. Jay H. Lustig, individually and as
representative of Participating Securityholders.
99.21 Letter dated March 21, 1996 from Mr. Jay H. Lustig
to Mr. Marvin Feigenbaum, a director of the
Company.
99.22 Letter dated March 1, 1996 from the Trustee to the
Company.
99.23 Letters dated March 27, 1996 from the Company to
the Trustee.
99.24 No-Action Letters regarding the Section 3(a)(9)
exemption under the Securities Act of 1933 for an
exchange of securities as filed as Exhibit 99.24
with Amendment No. 4 of this Schedule, filed with
the Commission on October 7, 1996, and
incorporated herein by this reference.
99.25 Mutual Fund's Firm Commitment dated August 8,
1996.
99.26 The Company's Schedule 13E-4, as amended,
originally filed with the Securities and Exchange
Commission on September 14, 1995 (the "Exchange
Offer Statement"), (File No. 5-14982), as amended
through Amendment No. 5 filed with the Commission
on November 8, 1996, incorporated herein by
reference.
</TABLE>
61
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Schedule 14A and Schedule
13E-4/A-5 of our report dated August 27, 1996 with respect to the consolidated
financial statements of Comprehensive Care Corporation and subsidiaries included
in Comprehensive Care Corporation's Annual Report (Form 10-K), for the year
ended May 31, 1996, as amended, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Orange County, California
November 4, 1996
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Schedule 14A and Schedule 13E-4 of our report dated August
22, 1994, included in Comprehensive Care Corporation's Annual Report (Form
10-K) for the year ended May 31, 1996, as amended. It should be noted that we
have not audited any financial statements of the Company subsequent to May 31,
1994, or performed any audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
November 7, 1996
<PAGE> 1
EXHIBIT 99.11
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
NOTICE IS HEREBY given to the holders of the above-referenced Debentures, as
provided for under the Indenture dated as of April 25, 1985 between
Comprehensive Care Corporation, a Delaware Corporation (the "Company"), and
Bank of America National Trust and Savings Association (the "Trustee"), that
the Company failed to make its interest payment on the Debentures which was due
and payable on October 17, 1994. Pursuant to Section 6.01 of the Indenture,
the Company is in default under the Indenture effective as of November 17,
1994.
Pursuant to Section 6.02 of the Indenture, based on this default by the
Company, the Trustee by notice to the Company, or the holders of at least 25%
in principal amount of the outstanding Debentures by notice to the Company and
the Trustee, may declare the principal of and accrued interest on all the
Debentures to be due and payable. The Trustee wishes to further inform the
holders of the Debentures that, pursuant to Section 6.05 of the Indenture, the
holders of not less than a majority of the $9,538,000 aggregate principal
amount of outstanding Debentures have the right to direct the Trustee's actions
concerning this default by the Company, subject to the conditions contained in
the Indenture. If the Trustee does not receive directions from the requisite
number of holders of the Debentures, the Trustee will formulate a course of
action to take concerning this default by the Company. The Trustee has not as
of this date declared the principal of and accrued interest on all the
Debentures to be due and payable, and the Trustee is continuing to consider
whether such a notice of acceleration would presently be in the best interest
of the holders of the Debentures.
The Trustee will continue with its duties under the Indenture and will monitor
developments in this matter and intends to communicate with the holders of the
Debentures as it deems appropriate as it learns of developments concerning this
matter. Any directions or inquiries regarding this matter should be directed
to Ms. Sandy Chan, Associate Administrator, Bank of America National Trust and
Savings Association, Corporate Trust Administration, Department #8510, 333
South Beaudry Avenue, 25th Floor, Los Angeles, California 90017, telephone:
(213) 345-46452.
NOTE: If you are a nominee or a depository and not a beneficial holder,
please forward copies of this notice immediately to your clients who
are beneficial holders of the Debentures.
Dated: November 22, 1994
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Trustee
<PAGE> 2
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% OF CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
(THE "SECURITIES")
NOTICE IS HEREBY given to the Holders of the above-referenced Securities, as
provided for under the Indenture dated as of April 25, 1985 (the "Indenture")
between Comprehensive Care Corporation, a Delaware corporation (the "Company"),
and Bank of America National Trust and Savings Association (the "Trustee"),
that (1) as more fully described below, the Holders of at least 25% in
principal amount of the currently outstanding Securities have by written notice
to the Company and the Trustee declared the principal of and accrued interest
on all the Securities to be due and payable, and (2) as more fully described
below, the Company has delivered to the Trustee, and has requested the Trustee
to mail to the Holders, both (a) the enclosed notice from the Company setting
February 28, 1995, as the special record date and also as the payment date for
the interest payment on the Securities which the Company failed to make on
October 17, 1994 (the "Company Notice"), and (b) the enclosed Notice of
Rescission of Acceleration. Capitalized terms not otherwise defined herein
shall have the same meanings as set forth in the Indenture.
As the Holders are aware, on November 23, 1994, the Trustee notified the
Holders by mail that an Event of Default had occurred under the Indenture in
that the Company had failed to make its interest payment on the Securities
which was due and payable on October 17, 1994, and had continued to fail to
make such missed interest payment for a period of 30 days.
The Trustee has received written notices dated February 6 and 9, 1995, from
twenty-one (21) Holders of the Securities declaring the principal of and
accrued interest on all the Securities to be due and payable (the "Written
Notices"). The Trustee understands that the Company has also received the
Written Notices. The aggregate principal amount of the outstanding Securities
registered in the names of the twenty-one (21) Holders who sent the Written
Notices is $3,017,000. The aggregate principal amount of all currently
outstanding Securities is $9,538,000. Thus, the aggregate principal amount of
the outstanding Securities registered in the names of the twenty-one (21)
Holders who sent the Written Notices is approximately 31.63% of the aggregate
principal amount of all currently outstanding Securities. Pursuant to Section
6.02 of the Indenture, upon receipt by the Company and the Trustee of the
Written Notices, the principal of and accrued interest on all the Securities
become immediately due and payable.
Section 6.02 of the Indenture provides that "[t]he Holders of a majority in
principal amount of the then outstanding Securities by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if any existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration." The Trustee has not as of this date
been notified of any judgment or decree with which a rescission of the
acceleration of the Securities would conflict; and as of this date the only
existing Event of Default of which the Trustee has been notified is the failure
of the Company to make the interest payment on the Securities which became due
and payable on October 17, 1994.
The Company has delivered to the Trustee, and has requested the Trustee to mail
to the Holders, both (1) the enclosed Company Notice setting February 28, 1995,
as the special record date and also as the payment date for the interest
payment on the Securities which the Company failed to make on October 17, 1994,
and (2) the enclosed Notice of Rescission of Acceleration. Please note that,
as set forth on the Company Notice, the Company's payment of the missed October
17, 1994 interest payment (together with interest thereon from and including
October 15, 1994, and to but not including February 28, 1995) is expressly
conditioned upon the effective rescission of the acceleration of the Securities
by Holders of a majority in principal amount of the currently outstanding
Securities executing and returning to the Trustee the enclosed Notice of
Rescission of Acceleration on or before February 28, 1995.
If a Holder wants the principal of and accrued interest on all the Securities
to remain immediately due and payable, a Holder does not need to do anything.
If a Holder wants to rescind the acceleration of the principal of and interest
on the Securities, a Holder must execute the enclosed Notice of Rescission of
Acceleration and return that executed Notice of Rescission of Acceleration to
the Trustee at the address for the Trustee set forth in the following
paragraph. An executed Notice of Rescission of Acceleration must be received
by the Trustee by no later than 1:00 p.m., Los Angeles, California time, on
February 28, 1995.
The Trustee will continue with its duties under the Indenture and will monitor
developments in this matter and intends to communicate with the Holders of the
Securities as it deems appropriate as it learns of developments concerning this
matter. Any directions or inquiries regarding this matter should be directed
to Ms. Sandy Chan, Associate Administrator, Bank of America National Trust and
Savings Association, Corporate Trust Administration, Department #8510, 333
South Beaudry Avenue, 25th Floor, Los Angeles, California 90017, telephone
(213) 345-4652.
NOTE: If you are a nominee or a depository and not a beneficial holder,
please forward copies of this notice immediately to your clients who
are beneficial holders of the Securities.
Dated: February 13, 1995
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Trustee
<PAGE> 3
THIRD NOTICE
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% OF CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
(THE "SECURITIES")
THIS THIRD NOTICE IS HEREBY given to the Holders of the above-referenced
Securities, as provided for under the Indenture dated as of April 25, 1985 (the
"Indenture") between Comprehensive Care Corporation, a Delaware corporation
(the "Company"), and Bank of America National Trust and Savings Association
(the "Trustee"), that (1) the Company failed to make its interest payment on
the Securities which was due and payable April 17, 1995, and, pursuant to
Section 6.01 of the Indenture, such failure by the Company is another Event of
Default under the Indenture effective as of May 18, 1995, and (2) as more fully
described below, certain additional developments have occurred since the
Trustee's last notice to the Holders dated February 13, 1995. Capitalized
terms not otherwise defined herein shall have the same meanings as set forth in
the Indenture.
As the Holders are aware, on November 22, 1994, the Trustee notified the
Holders by mail that an Event of Default had occurred under the Indenture in
that the Company had failed to make its interest payment on the Securities
which was due and payable on October 17, 1994, and had continued to fail to
make such missed interest payment for a period of 30 days. On February 13,
1995, the Trustee notified the Holders by mail that (1) the Holders of at least
25% in principal amount of the then outstanding Securities had, pursuant to
Section 6.02 of the Indenture, by written notice to the Company and the Trustee
declared the principal of and accrued interest on all the Securities to be
immediately due and payable, and (2) the Company had delivered to the Trustee,
and had requested the Trustee to mail to the Holders, both a notice from the
Company and a Notice of Rescission of Acceleration. In order to rescind the
acceleration of the Securities pursuant to Section 6.02 of the Indenture, the
Holders of at least a majority in principal amount of the then outstanding
Securities had to execute and return to the Trustee such Notice of Rescission
of Acceleration by 1:00 p.m., Los Angeles, California time, on February 28,
1995. That did not occur.
The Company has informed the Trustee and has issued a press release announcing
that on March 3, 1995, the Company reached an agreement in principal with an ad
hoc committee of Holders. The Company has informed the Trustee that such
agreement with the ad hoc committee of Holders provides, among other things,
for the Company to offer to purchase the outstanding Securities with cash and
common stock of the Company. The Company has further informed the Trustee that
such agreement provides that the Company will submit such offer to the Holders
and will complete such offer within 180 days from March 3, 1995. If the
Company has not completed such offer by that time, the Trustee intends to
communicate at that time with the Holders once again and seek directions from
the Holders concerning the exercise of appropriate remedies against the
Company. Pursuant to the agreement with the ad hoc committee of Holders, the
involuntary bankruptcy petition which had been filed against the Company was
dismissed on March 7, 1995.
The Trustee will continue with its duties under the Indenture and will monitor
developments in this matter and intends to communicate with the Holders of the
Securities as it deems appropriate as it learns of developments concerning this
matter. Any directions or inquiries regarding this matter should be directed
to Ms. Sandy Chan, Trust Officer, Bank of America National Trust and Savings
Association, Corporate Trust Administration, Department #8510, 333 South
Beaudry Avenue, 25th Floor, Los Angeles, California 90017, telephone (213)
345-4652.
NOTE: If you are a nominee or a depository and not a beneficial holder,
please forward copies of this notice immediately to your clients who
are beneficial holders of the Securities.
Dated: May 23, 1995
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Trustee
<PAGE> 4
FOURTH NOTICE
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
(THE "SECURITIES")
THIS FOURTH NOTICE IS HEREBY given to the Holders of the
above-referenced Securities, as provided for under the Indenture dated as of
April 25, 1985 (the "Indenture") between Comprehensive Care Corporation, a
Delaware corporation (the "Company"), and Bank of America National Trust and
Savings Association (the "Trustee"), that (1) the Company failed to make its
interest payment on the Securities which was due and payable on October 16,
1995, and, pursuant to Section 6.01 of the Indenture, such failure by the
Company is another Event of Default under the Indenture, effective as of
November 16, 1995; and (2) as more fully described below, certain additional
developments have occurred since the Trustee's last notice to the Holders dated
May 23, 1995. Capitalized terms not otherwise defined herein shall have the
same meanings as set forth in the Indenture.
As the Holders are aware, on November 22, 1994, the Trustee notified
the Holders by mail that an Event of Default had occurred under the Indenture
in that the Company had failed to make its interest payment on the Securities
which was due and payable on October 17, 1994, and had continued to fail to
make such missed interest payment for a period of 30 days. On February 13,
1995, the Trustee notified the Holders by mail that (1) the Holders of at least
25% in principal amount of the then outstanding Securities had, pursuant to
Section 6.02 of the Indenture, by written notice to the Company and the Trustee
declared the principal of and accrued interest on all the Securities to be
immediately due and payable, and (2) the Company had delivered to the Trustee,
and had requested the Trustee to mail to the Holders, both a notice from the
Company and a Notice of Rescission of Acceleration. In order to rescind the
acceleration of the Securities pursuant to Section 6.02 of the Indenture, the
Holders of at least a majority in principal amount of the then outstanding
Securities had to execute and return to the Trustee such Notice of Rescission
of Acceleration by 1:00 p.m., Los Angeles, California time on February 28,
1995. That did not occur. On May 23, 1995, the Trustee notified the Holders by
mail (the "Third Notice") that (a) an additional Event of Default had occurred
under the Indenture in that the Company had failed to make its interest payment
on the Securities which was due and payable on April 17, 1995, and had
continued to fail to make such missed interest payment for a period of 30 days,
and (b) the Company had informed the Trustee that on March 3, 1995, the Company
reached an agreement in principle with an ad hoc committee of Holders
providing, among other things, for the Company to offer to purchase the
outstanding Securities with cash and common stock of the Company and that such
agreement provided that the Company would submit such offer to the Holders and
would complete such offer within 180 days from March 3, 1995. To date, such
offer has not yet been submitted to the Holders.
The Company has informed the Trustee (1) that the Company has
submitted to the United States Securities and Exchange Commission (the
"Commission") preliminary materials with respect to the offer to the Holders
referenced in the next to the last sentence of the preceding paragraph of this
Fourth Notice, (2) that the Company has received comments on these preliminary
materials from the Commission, and (3) that the Company is now responding to
such comments. The Company has informed the Trustee that the Company cannot at
this time specify an exact date by which the foregoing described offer will be
submitted to the Holders.
The Company has also informed the Trustee, and has issued a press
release announcing, that on October 20, 1995, the Company received a tax refund
from the Internal Revenue Service in the amount of $9,393,382.00 together with
accrued interest thereon in the amount of $80,956.10, that the Internal Revenue
Service offset against such tax refund amount $2,547,618.14, including
interest, then owed by the Company to the Internal Revenue Service pursuant to
a settlement agreement, and that the Company thereby actually received a net
tax refund in the amount of $6,926,719.96 from the Internal Revenue Service.
The Trustee seeks direction from the Holders concerning how the
Holders wish the Trustee to proceed in connection with the delay which has
occurred in submitting the foregoing described offer to the Holders.
The Trustee will continue with its duties under the Indenture and will
monitor developments in this matter and intends to communicate with the Holders
of the Securities as it deems appropriate as it learns of developments
concerning this matter. Any directions or inquiries regarding this matter
should be directed to Ms. Sandy Chan, Trust Officer, First Trust of California,
National Association, as agent for Bank of America National Trust and Savings
Association, Corporate Trust Administration, Department #8510, 333 South
Beaudry Avenue, 25th Floor, Los Angeles, California 90017, telephone: (213)
345-4652.
NOTE: IF YOU ARE A NOMINEE OR A DEPOSITORY AND NOT A BENEFICIAL HOLDER,
PLEASE FORWARD COPIES OF THIS NOTICE IMMEDIATELY TO YOUR CLIENTS WHO
ARE BENEFICIAL HOLDERS OF THE SECURITIES.
Dated: November 24, 1995
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Trustee
<PAGE> 5
TO THE HOLDERS OF
COMPREHENSIVE CARE CORPORATION
7 1/2% OF CONVERTIBLE SUBORDINATED DEBENTURES
DUE APRIL 15, 2010 (CUSIP NO. 204620AA6)
NOTICE IS HEREBY GIVEN to the holders ("Holders") of the
above-referenced securities (the "Securities") pursuant to Section 7.05 of the
Indenture, dated as of April 25, 1985 (the "Indenture"), between Comprehensive
Care Corporation, a Delaware Corporation (the "Company") and First Trust of
California, National Association (as successor trustee of Bank of America
National Trust and Savings Association, (the "Trustee") as follows:
Interest Due April 15, 1996. The Company failed to pay interest on
the Securities due on April 15, 1996 and failed to pay such interest
within thirty (30) days after it became due and payable. Such failure
is an Event of Default under Section 6.01(1) of the Indenture.
Principal Due April 15, 1996. Section 6 of the Securities provides
that five percent (5%) of the aggregate principal amount of the
Securities were to be redeemed by the Company on April 15, 1996. Such
amount was subject to reduction as provided in Section 6 of the
Securities and Section 3.01 of the Indenture upon notice to the
Trustee from the Company at least fifty (50) days prior to the
redemption date. Notice from the Company, dated March 27, 1996, was
received by the Trustee on April 1, 1996--fourteen days prior to the
redemption date. Accordingly, the Trustee determined that no credit
or reduction was applicable to the April 15, 1996 principal
redemption. The Company failed to pay such amount due and payable on
April 15, 1996. Such failure is an Event of Default under Section
6.01(2) of the Indenture.
ADDITIONAL NOTICE IS HEREBY GIVEN that the Trustee has not received
notice from the Holders of a majority in principal amount of outstanding
securities to rescind the previously declared acceleration of principal of and
accrued interest on the Securities. Accordingly, such acceleration is still in
effect.
Reference is made to the Fourth Notice to the Holders, dated November
24, 1995 (the "Fourth Notice"). The Company has informed the Trustee that it
is diligently pursuing the tender offer for the outstanding Securities
referenced in the Fourth Notice, in that regard, has filed with the United
States Securities and Exchange Commission (the "Commission") certain documents
including a Schedule 13E-4 Issuer Tender Offer Statement and amendments and
exhibits thereto. Such documents which are public information are available
from the Commission. The Company has further informed the Trustee that the
Company intends to submit to the Holders a tender offer for the Securities upon
receipt of clearance from the Commission but that the Company cannot at this
time specify an exact date by which such submission will be made.
The Trustee will continue with its duties under the Indenture.
Consistent with the foregoing, the Trustee will continue to monitor
developments in this matter and, as the Trustee deems appropriate, communicate
the same with the Holders. Any directions or inquiries regarding this matter
should be directed to the Trustee at the following address:
First Trust of California, National Association
c/o First Trust National Association
First Trust Center, Suite 200
1800 East Fifth Street
Saint Paul, Minnesota 55101
Dated June 10, 1996
NOTE: Recipients of this Notice that are a nominee or depository of
a beneficial holder or beneficial holders of the Securities
are asked to please immediately forward copies of this Notice
to their respective beneficial holder(s).
<PAGE> 1
EXHIBIT 99.12
[GRAPHIC: COMPREHENSIVE CARE CORPORATION LETTERHEAD ("COMPCARE LOGO")]
To: Holders of Comprehensive Care Corporation 7 1/2% Convertible
Subordinated Debentures Due April 15, 2010 (the "Securities")
NOTICE IS HEREBY given, pursuant to Section 2.12 of that certain Indenture
dated as of April 25, 1985 (the "Indenture"), between Comprehensive Care
Corporation (the "Company") and First Trust of California, National
Association, as successor to Bank of America National Trust and Savings
Association (the "Trustee"), that the Company intends to pay on ________, 1996
(the "Payment Date"), the aggregate amount of four interest payments, and
default interest on each missed payment, plus the regular semi-annual interest
payment, calculated as follows:
(1) The interest payment on the Securities in the aggregate amount
of $357,675 ($37.50 per each $1,000 of principal amount of a
Security) which was due and payable by the Company on October
17, 1994, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including
October 15, 1994, and to but not including the Payment Date)
in the aggregate amount of $___________ ($_____ per each
$1,000 of principal amount of a Security);
(2) The interest payment on the Securities in the aggregate amount
of $357,675 ($37.50 per each $1,000 of principal amount of a
Security) which was due and payable by the Company on April
17, 1995, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including
April 15, 1995, and to but not including the Payment Date) in
the aggregate amount of $__________ ($______ per each $1,000
of principal amount of a Security);
(3) The interest payment on the Securities in the aggregate amount
of $357,675 ($37.50 per each $1,000 of principal amount of a
Security) which was due and payable by the Company on October
16, 1995, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including
October 15, 1995, and to but not including the Payment Date)
in the aggregate amount of $_________ ($_______ per each
$1,000 of principal amount of a Security);
(4) The interest payment on the securities in the aggregate amount
of $357,675 ($37.50 per each $1,000 principal amount of a
Security) which was due and payable by the Company on April
15, 1996, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including
the Payment Date) in the aggregate amount of $_______ ($______
per each $1,000 of principal amount of a Security); and
(5) The interest payment on the securities in the aggregate amount
of $357,675 ($37.50 per each $1,000 principal amount of a
Security) which was due and payable by the Company on October
15, 1996, together with interest on such missed interest
payment (at the rate of 7 1/2% per annum from and including
the Payment Date) in the aggregate amount of $_______ ($______
per each $1,000 of principal amount of a Security).
Such payments by the Company will be made to Holders in whose name a
Security is registered as of _________, 1996. Such payment by the Company is
conditioned upon the concurrent effectiveness of rescission of the acceleration
of the Securities by Holders of a majority in principal amount of the
outstanding Securities.
Dated: November __, 1996
COMPREHENSIVE CARE CORPORATION,
a Delaware corporation
By:_________________________________________________________
Its:________________________________________________________
<PAGE> 1
EXHIBIT 99.13
NEWS RELEASE
TO BE ISSUED CONTEMPORANEOUSLY WITH THE
MAILING OF PROXY AND EXCHANGE MATERIALS
TO DEBENTURE HOLDERS
CORONA DEL MAR, CALIFORNIA . . . November 14, 1996: Comprehensive Care
Corporation (the "Company") announced that it has commenced an exchange offer,
which is being made to the holders of up to 100% of the $9,538,000 outstanding
principal amount of its 7-1/2% Convertible Subordinated Debentures Due April
15, 2010 (the "Debentures"). Debenture holders will receive an Offering
Circular in connection with the Exchange Offer made by the Company and
scheduled to expire December 23, 1996. The Company is offering therein to
exchange $580 in cash plus 24 shares of Common Stock for the surrender of each
$1,000 of outstanding principal amount of Debentures, including the waiver by
the Debenture holder of all interest accrued and unpaid on such principal
amount. The Company will deposit with the Exchange Agent, $5.5 million in
cash, representing the maximum cash portion of the Exchange Offer, and 228,912
shares of Common Stock, representing the maximum stock portion of the Exchange
Offer for delivery upon consummation of the Exchange. Debentures not tendered
and exchanged will receive full payment of overdue interest and default
interest if the Exchange is consummated.
The Company stated that the terms and conditions of the Exchange Offer are more
fully described in the offering circular, copies of which may be obtained from
Kerri Ruppert, Secretary, upon request addressed to her c/o Comprehensive Care
Corporation, 1111 Bayside Drive, Suite 100, Corona del Mar, CA 92625 or by
telephone at 714/222-2273.
In connection with the Exchange Offer, the Company announced that it has also
mailed proxy materials to its Debenture holders in connection with the related
solicitation of consents to, among other things, rescind the acceleration of
all principal and interest due on the Debentures. Consents are solicited from
all Debenture holders to the Proposals therein by the Company's management. In
addition to receiving the consents being solicited, the consummation of the
Exchange Offer is subject to the occurrence of various material conditions, and
the occurrence of these conditions cannot be assured.
The foregoing announcement is not a solicitation of any Debenture holder to
exchange any Debentures, and such Exchange Offer may only be made pursuant to
the offering circular of the Company being distributed to Debenture holders.
The Company will pay no commissions in connection with soliciting exchanges by
Debentureholders. The Exchange Offer is being conducted only with the existing
Debentureholders and in accordance with Section 3(a)(9) under the Securities
Act of 1933, and applicable rules and regulations promulgated thereunder, so
that the Company's issuance of up to the maximum of 228,912 shares of Common
Stock issuable by the Company to tendering Debentureholders in the Exchange
will be exempt from the registration requirements of the Securities Act of
1933.
COMPCARE(R) provides care and care coordination on a contractual or at-risk
(managed care) basis of chronic and catastrophic disease to HMOs, hospitals,
the government and corporations throughout the United States and its
protectorates through its Disease State ManagementSM products.
###
<PAGE> 1
EXHIBIT 99.15
COMPREHENSIVE CARE CORPORATION
DEBENTURE EXCHANGE OFFER
FREQUENTLY ASKED QUESTIONS
1. Q. WHAT IS THE DEBENTURE CONSENT FOR?
A. All Debentureholders are separately asked to consent
to four proposals, including that the Debenture
acceleration be rescinded. Rescission of
Acceleration is a precondition of consummation of the
Exchange, and is the most important proposal for your
consent. Debentureholders holding aggregately at
least a majority of the outstanding principal amount
of Debentures can consent to rescind the
acceleration. The other proposals are intended to
facilitate the Exchange. Depending on the
circumstances, the other proposals may not be
essential to a successful exchange. We request
Debentureholders to consider all of the proposals and
consent so that the Exchange can be accomplished.
Only Debentures that are tendered and accompanied by
a Consent will be accepted for exchange.
2. Q. WHAT DO I RECEIVE IN EXCHANGE FOR DEBENTURES THAT I
TENDER?
A. For every $1,000 of principal amount, and a waiver of
default interest and interest accrued on default
interest, you will receive $580 in cash and 24 shares
of Common Stock of Comprehensive Care Corporation.
Part of the amount will be considered interest. The
tax consequences for a typical holder are described
in the Offering Circular.
3. Q. HOW MUCH INTEREST HAS ACCRUED PER $1,000?
A. If the Debenture acceleration is rescinded, the
amount of interest that would be due will include
five missed semi-annual interest payments of $37.50
each. The five interest installments due aggregate
$187.50, and interest has accrued and will accrue on
that default interest and will have added another
$21.44 as of November 15, 1996, and the total
increases by approximately another $.02 or $.03 per
day thereafter. This is the amount of interest that
a non- tendering Debentureholder will receive before
the acceleration is rescinded. If the acceleration
is not rescinded, the entire principal amount
continues to be due immediately, and the accrued
interest (and the interest on the default interest)
is due and payable in full immediately. If the
acceleration is rescinded, whatever portion of the
next $37.50 interest payment that has accrued from
October 15, 1996 on the outstanding principal amount
(approximately $.21 per day) will be included in the
$37.50 semi-annual interest payment due and payable
April 15, 1997.
4. Q. ARE THE SHARES OF COMMON STOCK ISSUED IN THE EXCHANGE
FREELY-TRADEABLE?
A. That depends on the Debentures you hold now; if they
are freely tradeable, an exchange should give you
freely tradeable shares. Comprehensive Care is
relying on an exception to the requirement to
register the shares that requires that no commissions
be paid by Comprehensive Care to persons for
soliciting holders to exchange. No commissions will
be paid by Comprehensive Care. Employees, officers
or directors may solicit exchanges but will receive
no additional compensation for that service.
5. Q. WHAT HAPPENS TO DEBENTURES THAT ARE NOT TENDERED?
A. If the Exchange does not take place because the
acceleration is not rescinded, you will remain the
holder of a Debenture that is due and payable in
full. However, if the Debenture acceleration is
rescinded, Debentures that are not tendered will have
been paid the overdue interest and interest on
overdue interest. A condition to the Exchange Offer
is that the principal and interest of Debentures will
no longer be accelerated. After rescission of the
acceleration, Debentures will continue to accrue
interest at the rate of 7 1/2% per year. Interest
payments will follow the original semi-annual April
15 - October 15 schedule until maturity in 2010, at
which time the principal amount will become due. To
that extent, the holder will become more reliant on
sale of Debentures to provide liquidity. However,
there will be fewer Debentures outstanding, and if
the Debentures are traded more thinly, there would be
a material risk of reduced liquidity of Debentures.
<PAGE> 2
6. Q. HOW CAN I TENDER DEBENTURES?
A. 1. If you wish to tender Debentures that you
hold in your own name, you must complete a
Letter of Transmittal form and submit it to
the Exchange Agent yourself. To obtain the
form for yourself, give me your name and
address to confirm that you hold your
Debentures directly; or
2. If you wish to tender Debentures that you
hold through a broker, nominee or fiduciary,
you should request and instruct that such
person tender Debentures for you. Forms have
been sent to all known brokers, nominees or
fiduciaries,; however, to assure they obtain
the form for you, give me your broker's,
nominee's or fiduciary's name and address to
confirm that such person is on the mailing
list for these materials.
<PAGE> 3
7. Q. WHAT IS THE EXCHANGE AGENT'S ADDRESS?
A. TRUSTEE AND EXCHANGE AGENT:
First Trust of California, National Association
180 East Fifth Street, Suite 200
St. Paul, Minnesota 55101
8. Q. CAN I CHANGE MY MIND AND WITHDRAW DEBENTURES THAT I
TENDERED OR DIRECTED TO BE TENDERED?
A. Yes, but only if the notice of withdrawal is received
prior to the expiration date and only if you or your
broker gives written notice.
1. If you are the holder of record (i.e., you
are on the Trustee's official list of
registered holders holding Debentures), you
yourself should send a signed and dated
notice of withdrawal to First Trust of
California, National Association, 180 East
Fifth Street, Suite 200, St. Paul, Minnesota
55101. The notice must state the exact name
of, and be signed by, the registered owner,
the principal amount of Debentures to
withdraw from the Offer and that the
registered holder is withdrawing Debentures
tendered by the registered holder.
2. If you are holding Debentures through a
broker, then you are not considered to be a
registered holder yourself and, instead of
giving notice yourself, you should instruct
the broker who tendered the Debentures on
your behalf to withdraw them by giving
written notice. The notice must state the
exact name of, and be signed by, the
registered owner, the principal amount of
Debentures to withdraw from the Offer and
that the registered holder is withdrawing
Debentures tendered by the registered holder.
9. Q. HOW CAN I RE-TENDER ANY DEBENTURES I PREVIOUSLY
TENDERED AND THEN WITHDREW?
A. To re-tender a withdrawn or rejected Debenture, you
must submit another Letter of Transmittal form. You
could obtain another copy of the form or use any
reasonable facsimile of the Letter of Transmittal
form.
10. Q. HOW WILL I KNOW THAT MY DEBENTURES HAVE BEEN
EXCHANGED?
A. The Offer Period will expire not earlier than
December 23, 1996. The Company may keep the Offer
open for a longer period of time without notice by
making a public announcement. The Exchange will be
consummated at approximately the same time as the
interest payment to cure the existing Events of
Default. The Exchange Agent will deliver certified
checks and stock certificates in the amount of the
Exchange Consideration as promptly as practicable
thereafter.
11. Q. WHAT SHOULD I KNOW ABOUT TAXES?
A. The circumstances of a particular holder sometimes
affect the tax consequences. There is no federal tax
consequence of any kind to adoption of the Proposals.
The tax effects for typical persons of the Exchange
are described in the Offering Circular under
"Potential Federal Income Tax Consequences - Effects
on the Debentureholders." To the extent you want
legal advice or that you may have particular
circumstances that may affect the tax results, you
must consult your own legal, tax or accounting
counsel.
<PAGE> 1
EXHIBIT 99.18
NOTICE OF CONVERSION PRICE ADJUSTMENT
<TABLE>
<CAPTION>
Shares Out-
Number of standing Prior Shares Aggregate Price
Shares Previous Adjusted to Issuance Outstanding Dollar Paid 30 Day
Issued or Conversion Conversion of Additional After Consideration Per Market
Issuable Shares Price Price Shares Issuance Received Share Price
- --------------- ----- ----- ------ -------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
333,3331 $ 259.69 $ 256.99 2,214,541 2,547,874 $ 2,000,000 $ 6.00 $ 6.517
115,0002 $ 256.99 $ 255.50 2,547,874 2,662,874 $ 600,000 $ 5.21 $ 6.029
172,5003 $ 255.50 $ 252.51 2,662,874 2,835,374 $ 975,000 $ 5.65 $ 7.000
135,0004 $ 252.51 $ 250.12 2,835,374 2,970,374 $ 810,000 $ 6.00 $ 7.579
4,1005 $ 250.12 $ 250.06 2,970,374 2,974,474 $ 24,600 $ 6.00 $ 7.104
5,0006 $ 250.06 $ 249.97 2,974,474 2,979,474 $ 30,000 $ 6.00 $ 7.750
10,8337 $ 249.97 $ 249.76 2,979,474 2,990,307 $ 64,998 $ 6.00 $ 7.750
132,5608 $ 249.76 $ 248.12 2,990,307 3,122,867 $ 1,000,000 $ 7.54 $ 8.925
</TABLE>
______________________
1 Shares of Common Stock issuable upon conversion of the Secured
Convertible Note dated January 9, 1996, at the original
conversion price of $6.00 per share, issued to Lindner Funds,
Inc.
2 Shares of Common Stock issued under the Common Stock Purchase
Agreement dated February 1, 1996 between the Company and
Lindner Funds, Inc., at the price of $6.00 per share.
3 Shares of Common Stock issued, at the price of $6.00 per
share, under the amended Common Stock Purchase Agreement dated
April 15, 1995 between the Company and James R. Moriarty.
4 Shares of Common Stock issued, at the price of $6.00 per
share, under the Amended Common Stock Purchase Agreement dated
June 29, 1995 between the Company and Lindner Funds, Inc.
5 Shares of Common Stock issued, at the price of $6.00 per
share, under the Common Stock Purchase Agreement dated July
29, 1995 between the Company and W.V.C. Limited.
6 Shares of Common Stock issued, at the price of $6.00 per
share, under the Common Stock Purchase Agreement dated August
15, 1995 between the Company and BLC Investments.
7 Shares of Common Stock issued, at the price of $6.00 per
share, under the Common Stock Purchase Agreement dated August
15, 1995 between the Company and The Helen Jean Quinn Family
Trust.
8 Shares of Common Stock issued upon effectuation of the Secured
Conditional Exchangeable Note dated November 30, 1995, at a
price of approximately $7.54 per share issued to Dreyfus
Strategic Growth, L.P.
The conversion price was adjusted for issuances of shares of Common
Stock for less consideration than the Market Price, as defined in the
Indenture, as well as issuances of securities convertible into or exchangeable
for shares of Common Stock for a consideration per share of Common Stock
(deliverable upon such conversion or exchange) that is less than the Market
Price, as defined in the Indenture. Adjustments were calculated by (a)
dividing the aggregate dollar consideration received by the Company by the
Market Price, as defined in the Indenture, per share of outstanding Common
Stock, and (b) then adding this quotient to the number of shares of Common
Stock that were previously outstanding, and (c) then dividing said sum of
shares by the aggregate of all shares of common Stock that would be outstanding
or deemed outstanding pursuant to the Indenture, after the transaction
requiring the adjustment, including the issuance of the actual amount of the
new shares to be issued or deemed to be issued in connection with the deemed
conversion or exchange of the new securities issued, and (d) then multiplying
this fraction by the conversion price as previously in effect. See Sections
10.09 and 10.10 of the Indenture.
<PAGE> 1
EXHIBIT 99.20
COMPREHENSIVE CARE CORPORATION
4350 Von Karman
Suite 280
Newport Beach, CA 92660
Tel: 714-798-0468
Fax: 714-752-0585
March 3, 1995
HAND DELIVERED
Mr. Jay H. Lustig
Individually and as representative of
the Participating Securityholders (defined below)
Re: Proposed Rescission of Acceleration of Securities
Dear Mr. Lustig:
Based on the various discussions that we have had among or between
Comprehensive Care Corporation (the "Company"), the Trustee of its 7-1/2%
Convertible Subordinated Debentures Due April 15, 2010 (the "Securities"), and
you as a representative of certain holders, and individually as a holder, of
certain Securities which we understand aggregate $4.653 million in original
principal amount (the "Participating Securityholders"), certain of whom were
Securityholders who gave notice of acceleration in February, 1995, and our
understanding of the type of transaction that is feasible for rescission of
acceleration and of interest to us, we outline the basis for this proposed
rescission relative to the proposed agreement to pay cash and issue shares to
Participating Securityholders, and permitted assigns (collectively, the
"Consideration"). In this regard, we propose the principal terms of an
agreement (the "Agreement") to be as set out in this letter as follows:
1. Voting of Securities; "Lock-Up." Upon the dismissal of the
involuntary Chapter 7 petition filed against the Company, the Participating
Securityholders will give notices of rescission of acceleration reasonably
acceptable and at times as determined by the Trustee and the Company, will vote
in favor of each related proposal to be made to all of the Securityholders of
the Company, including without limitation a proposed supplemental indenture if
necessary, and will tender their Securities for exchange for cash and shares as
described herein (the "Offer"). Furthermore the Participating Securityholders
will neither submit any notice or demand of acceleration, nor pursue any
remedies available under the Indenture nor join or participate in any
Securities Exchange Act of 1934 Rule 13(d) group or participate against the
Board or management in any proxy or other solicitation of any of the Securities
or Common Stock of the Company, and the Participating Securityholders agree
that they will give the Company any information they receive about anyone
trying to form such a group. Jay H. Lustig represents that he is authorized to
execute and deliver this Agreement on behalf of and to bind at least $2.5
million in original principal amount of the Securities and further represents
that he shall cause the holders of at least $2.5 million of the outstanding
principal amount of Securities to rescind acceleration and waive the interest
payment defaults, substantially as provided in the attached Notice of
Rescission of Acceleration on or before March 31, 1995, and use his best
efforts to cause holders of an additional amount of Securities necessary to
aggregately comprise more than 50% of the outstanding principal amount of
Securities to rescind such acceleration and waive such interest payment
defaults substantially as provided in such notice.
2. Rights Non-Assignable. Until the earlier of the expiration of
this Agreement or the completion of the exchange of Securities contemplated
<PAGE> 2
herein, nothing contained in this Agreement will permit any Participating
Securityholder to at any time sell or dispose of in any manner the rights or
obligations of the said Participating Securityholder under this Agreement.
However, the Participating Securityholders may transfer their Securities
provided that the recipient, and each subsequent transferee, is irrevocably
bound hereby and so agrees in writing. Until the earlier of the expiration of
this Agreement or the completion of the exchange of Securities contemplated
herein, each Participating Securityholder shall notify the Company of any
private or public sale, and agrees to placement of an appropriate legend on the
Securities bound hereby.
3. Standstill. Until the earlier of the expiration of this
Agreement or the completion of the exchange of Securities contemplated herein,
if any Participating Securityholders, directly or indirectly, acquires
beneficial or record ownership of any Securities or other equity securities of
the Company or interest, such Securities will become and remain subject to this
Agreement.
4. The Offer. The Offer shall incorporate the following features
and specifications upon first being given to Securityholders, subject to
requirements of law:
/ / The Offer shall be made pursuant to Section 3(a)(9) of the
Securities Act of 1933 for up to 100% of the Securities. Shares issuable
pursuant to the Offer are intended to be freely tradeable under the Securities
Act of 1933.
/ / The Board of the Company shall use best efforts to complete
this transaction within 120 days, but shall have a reasonable period of
additional time, ending not later than 180 days after the date hereof, in order
to consummate legal requisites to the Offer.
/ / The Company shall not, during the term of this Agreement,
pledge or otherwise
dispose of, or issue or commit to issue any additional, capital stock, or any
interest therein, or securities convertible into shares of such stock, of
CareUnit, Inc., a Delaware corporation ("Care Unit"), 100% of whose outstanding
shares (the "Shares") are held beneficially and of record by the Company free
of any other liens or claims. At 150 days after the date of this Agreement,
provided that the Participating Securityholders have in each material respect
performed (with opportunity to cure if a cure is possible) their obligations
required to be performed hereunder on or prior to such date, and if the Offer
has not then been consummated, the Company shall pledge (with the Trustee, or
an alternate acceptable to the Company, to act as pledgeholder on terms of a
written agreement containing standard terms reasonably acceptable to the
Participating Securityholders) all of the Shares as collateral for its
obligation to purchase the Securities pursuant to the Offer or otherwise. Such
pledge may only be foreclosed upon following 180 days after the date hereof at
the request of any Securityholder or the Trustee if the Offer is not
consummated on or prior to such date, provided that the Participating
Securityholders have in each material respect performed (with opportunity to
cure if a cure is possible) their obligations required to be performed
hereunder on or prior to such date. From day 150 through day 180 after the
date hereof, or the earlier consummation of the Offer, the tendered (or all
Participating Securityholders' Securities if the Offer has not been commenced
without fault of the Participating Securityholders) Securities of the
Participating Securityholders shall accrue and be paid upon purchase thereof
additional interest at the rate of 7-1/2% per annum on the original principal
amount). Upon consummation of the Offer, the said pledges shall be released.
The Company represents that Care Unit is the subsidiary generating operating
profits under the CareUnit name, and all of its other subsidiaries with similar
names are substantially inactive.
/ / The Participating Securityholders shall support the proposed
Offer and shall not speak or write publicly against the proposed Offer. In
addition, the Participating Securityholders will not solicit or support any
solicitation of proxies or consents inconsistent with the purposes or spirit
of this Agreement.
<PAGE> 3
/ / The Offer shall allow the Securityholders to participate
pro-rata to the amounts tendered, up to 100% of the amount of Securities
outstanding, provided that all tendering Securityholders also give notice of
rescission of acceleration and consent to any proposals reasonably made by the
Company that are incidental to the Offer.
/ / The tendering Securityholders shall receive, net to the
Securityholder, for each $1,000.00 of original principal amount tendered,
$500.00 in cash, plus $120.00 in shares of Common Stock of the Company (based
on a fair value of the Common Stock equalling the average round-lot traded
price reported on the NYSE Composite Tape for all trading days during the 75
calendar days commencing with and as of March 6, 1995). Additionally, for each
$1,000.00 of original principal amount, tendering Securityholders will receive
$80 in cash (approximately 1 year's interest) representing the amount agreed
upon to represent all interest owing and accrued to the payment date, in return
for which they will waive all other obligations including all default interest
accrued from April 15, 1994 which was due as of October 17, 1994, and all
interest (or interest on interest) accruing from and after October 15, 1994
through the date on which the Offer is consummated.
/ / The Offer and the Company's completion of an exchange as
described herein are subject to all relevant conditions provided in the
Indenture relating to the Securities dated as of April 25, 1985 between the
Company and the Trustee, as defined therein, and receipt of all reasonably
necessary governmental, and third-party, consents, filings, or approvals
necessary to consummate the Offer.
/ / The Company may condition the Offer upon a minimum of tendered
Securities of $2.5 million from the Participating Securityholders.
5. Costs. The Company shall pay legal fees of Weil, Gotshal &
Manges incurred by the accelerating Participating Securityholders from January
1, 1995 to date in the amount of between $35,000 and $40,000. Otherwise, the
parties each will bear their own respective costs.
6. Release. Upon dismissal of the involuntary Chapter 7 case,
referred to further below, the Company shall release each Participating
Securityholder and its officers, employees, agents, representatives, attorneys,
and advisors from any and all claims and causes of action arising or occurring
prior to the date hereof, including without limitation any and all claims or
causes of action arising out of or related to the delivery of the notice of
acceleration of the Securities or the filing of an involuntary Chapter 7
petition against the Company, provided that the effectiveness of the release
shall be conditioned upon and subject only to the execution and delivery by
each respectively released Participating Securityholder of the notice of
rescission of acceleration described in paragraph 1 hereof and each
Participating Securityholder using its best efforts to achieve consummation of
the transactions contemplated herein.
7. News Release. Upon the execution by you and return to us of
this Agreement, the Company shall prepare the news release. Each news release
concerning this Agreement or the Offer shall be in form and substance and at
times reasonably determined by the Company after reasonable notice to you and
reasonable prior consultation with you, with your reasonable cooperation, as
representative of the Participating Securityholders.
8. Bankruptcy Petition. The Participating Securityholders that
are petitioning creditors in the involuntary Chapter 7 bankruptcy petition
filed against the Company shall support and cause their attorneys to execute
and indicate consent to the Order Dismissing Involuntary Petition (the "Order")
attached hereto. The Participating Securityholders that are petitioning
creditors shall support entry of the Order and dismissal of the involuntary
petition at the hearing scheduled for March 7, 1995. If such order is not
entered by the court prior to or on March 8, 1995, the Company thereafter shall
have the option to terminate this Agreement upon written notice and, prior to
such termination, to require additional reasonable cooperation of the
Participating Securityholders for the purpose contemplated in this paragraph.
<PAGE> 4
9. Survival. If the Offer is consummated, the terms and
provisions of this Agreement shall survive the consummation of the Offer.
If the foregoing meets with your approval, so signify by signing and
returning the enclosed duplicate copy of this letter, whereupon this letter
shall constitute the final agreement between the parties in accordance with the
terms and provisions set forth above. This offer will expire if not accepted
on March 3, 1995. We shall look forward to receiving your prompt acceptance.
Very truly yours,
COMPREHENSIVE CARE CORPORATION
By: /s/ Chriss W. Street
Chriss W. Street, Chairman of the Board,
Chief Executive Officer and President
AGREED AND CONFIRMED:
By: /s/ Jay H. Lustig Dated: March 3, 1995
Jay H. Lustig
APPROVED AS TO FORM:
WEIL, GOTSHAL & MANGES
By: /s/ Martin A. Sosland
Martin A. Sosland
<PAGE> 1
EXHIBIT 99.21
MAR-21-96 THU 11:59 JHL HOLDINGS INC FAX NO. 13104518518
March 21, 1996
Mr. Marvin Feigenbaum
c/o Goldstein, Axelrod & DiGioia
399 Lexington Avenue - 18th Floor
New York, NY 10017
Dear Marvin:
I have been unable to contact Sohail Masood. Nevertheless, my opinion is that
bondholders would be willing to tender their bonds upon receiving a revised
offer that compensates them for the delay in completing the transaction.
The old offer was for bondholders to receive $580 cash and 16 shares of fully
registered stock. It also provided for additional interest in the event the
transaction was not completed in 180 days (September 3, 1995).
In keeping consistent with this theme, a revised offer that incorporates this
would be $635 in cash and 16 shares of stock. In the event CompCare wanted to
pay the additional $55 in stock (which would have to be based on the same
formula price as the 16 shares). That would make the revised alternative offer
of $580 in cash and 23 1/3 shares per bond.
<TABLE>
<CAPTION>
Old Offer New Offer or Stock Option/Offer
--------- -------------------------------
<S> <C> <C> <C>
Cash $580 $635 $580
Shares 16 shares 16 shares 23 1/3 shares
</TABLE>
Sincerely,
/s/ JAY H. LUSTIG
Jay H. Lustig
P.S. This is assuming a transaction could be completed by May 1, 1996.
Anything later would need to reflect more interest.
<PAGE> 1
EXHIBIT 99.22
[GRAPHIC: LOGO] First Trust
First Trust Center
180 East Fifth Street
Suite 200
St. Paul, MN 55101
March 1, 1996
Mr. Drew Q. Miller
Comprehensive Care Corporation
4350 Von Karman Avenue, Suite 280
Newport Beach, CA 92660
Re: 7-1/2% Convertible Subordinated Debentures, Due April 15, 2010
Dear Mr. Miller:
You have indicated that Comprehensive Care Corporation (the "Company")
intends to pay all amounts due and overdue with respect to the above-referenced
securities (the "Securities") on April 15, 1996 and, thereafter, seek
rescission of the previously declared declaration of acceleration thereon.
Section 2.12 of the Indenture dated as of April 25, 1985 (the
"Indenture"), pursuant to which the Securities were issued, requires that the
Company shall fix the record and payment dates for payment of defaulted
interest (together with additional interest accrued on such amounts) and shall
provide notice thereof at least 15 days before the record date. Section 6 of
the Securities provides that 5% of the aggregate principal amount of the
Securities shall be redeemed on April 15, 1996. The amount of the April 15,
1996 sinking fund redemption is subject to reduction as provided in such
section following notice to the Trustee at least 50 days prior to the
redemption date, as provided in Section 3.01 of the Indenture. No such notice
was received.
Assuming the Company provides appropriate notification of the record
and payment dates to the holders of the Securities as required by the
Indenture, the amount to be paid on April 15, 1996 with respect to the
Securities is as follows:
<TABLE>
<S> <C>
Defaulted Interest (including
additional interest thereon) $1,155,532.66
Interest Due April 15, 1996 357,675.00
Sinking Fund Redemption 476,900.00
----------------
Total $1,990,107.66
</TABLE>
The declaration of acceleration with respect to the Securities may be
rescinded by the holders of a majority in principal amount of the then
outstanding Securities, as provided in
<PAGE> 2
Mr. Drew Q. Miller
March 1, 1996
Page 2
Section 6.02 of the Indenture, upon the payment of the foregoing amounts
(provided there are no other Events of Default which have not been cured or
waived).
Please confirm, in writing and not later than Friday, March 8, 1996,
that the Company will provide for the payment of the total amount indicated
above. Such amount, together with the fees and expenses of the Trustee and its
counsel, must be deposited with the Trustee on or before April 12, 1996 or, if
not federal funds or immediately available funds, on or before April 8, 1996.
Unpaid fees and expenses of the Trustee and its counsel, exclusive of any
unpaid fees and expenses of Bank of America Trust and Morrison & Foerster LLP,
are approximately $6,000 through February 29, 1996. Additional fees of the
Trustee and its counsel will be incurred in connection with the preparation and
distribution of the requisite notice to holders of the Securities, as well as
for the review of the rescission ballots. We will advise you, prior to April
8, 1996, of the total fees and expenses incurred, or to be incurred, through
the April 15, 1996 payment date.
Upon receipt of your written confirmation, we will have notices
prepared and forwarded to holders of the Securities to advise them of the April
15, 1996 payment date for defaulted interest and the sinking fund redemption,
to advise them of the record date with respect thereto, and to solicit their
consent to the rescission of acceleration.
Sincerely,
/s/ Joseph D. Roach
Joseph D. Roach
<PAGE> 1
EXHIBIT 99.23
COMPREHENSIVE CARE CORPORATION
350 W. Bay Street
Costa Mesa, California 92627
Tel: (714) 222-2273
Fax: (714) 574-3030
March 27, 1996
VIA U.S. FIRST CLASS MAIL &
CERTIFIED MAIL -- RETURN RECEIPT REQUESTED
First Trust of California
180 East Fifth Street, Suite 200
St. Paul, Minnesota 55101
Attention: Joe Roach: Bank of America Trust Administration No. 8510
Re: Notice of reduction of principal amount of Securities, as such
term is defined in the Indenture dated April 25, 1985 (the
"Indenture") between Comprehensive Care Corporation (the
"Company") and First Trust of California, National
Association, as successor to Bank of America National Trust
and Savings Association (the "Trustee"), To Be Redeemed
Pursuant to Paragraph 6 of the Securities
Ladies and Gentlemen:
The Company wants to reduce, in accordance with paragraph 6 of the
Securities, the principal amount of Securities otherwise required to be
redeemed pursuant to paragraph 6 of the Securities.
The Company hereby notifies the Trustee, and affirms previous
notices, that each respective principal amount referred to in paragraph 6 of
the Securities shall be individually reduced by subtracting an equal principal
amount (without premium) of Securities previously delivered by the Company to
the Trustee for cancellation. In accordance with paragraph 6 of the
Securities, the Company may reduce the principal amount of Securities to be
redeemed by the principal amount of Securities (i) that have been converted by
Securityholders, (ii) that the Company has delivered to the Trustee for
cancellation or (iii) that the Company has redeemed other than pursuant to
paragraph 6.
The reductions shall be based on the $36,462,000 in principal amount
of Securities previously delivered by the Company to the Trustee for
cancellation. In March 1991 $36,460,000 of such Securities had been converted
into Common Stock by Securityholders. The Securities that were converted may,
in accordance with paragraph 6 of the Securities, reduce the principal amount
to be redeemed under paragraph 6 because such Securities had not been called
for mandatory redemption prior to conversion. The Company has never called any
of the Securities for redemption, mandatory or otherwise.
The reductions described above shall be effective independently, and
the amounts described above shall be subtracted independently and successively,
to reduce the principal amount of Securities otherwise required to be redeemed
under paragraph 6 of the Securities. The principal amount of each of the
cancelled Securities is to be subtracted only once.
The $36,462,000 amount available to reduce the redemptions is
substantially greater than the amount of redemptions otherwise required.
Accordingly, the Company will not be required to redeem any Securities prior to
maturity.
The Company reserves the right to supplement or modify this notice.
If you have any question or comment about this notice, please call promptly.
Very truly yours,
COMPREHENSIVE CARE CORPORATION
By: /s/KERRI RUPPERT
Kerri Ruppert, Senior Vice President,
Chief Accounting Officer and
Secretary/Treasurer
cc: Steven Rensig, Esq.
<PAGE> 2
COMPREHENSIVE CARE CORPORATION
350 W. Bay Street
Costa Mesa, California 92627
Tel: (714) 222-2273
Fax: (714) 574-3030
March 27, 1996
VIA U.S. FIRST CLASS MAIL &
CERTIFIED MAIL -- RETURN RECEIPT REQUESTED
First Trust of California
180 East Fifth Street, Suite 200
St. Paul, Minnesota 55101
Attention: Joe Roach: Bank of America Trust Administration No. 8510
RE: Indenture dated April 25, 1985 (the "Indenture") between
Comprehensive Care Corporation (the "Company") and First Trust
of California, National Association, as successor to Bank of
America National Trust and Savings Association (the "Trustee")
Ladies and Gentlemen:
Pursuant to Section 3.01 of the Indenture, the Company is to notify
the Trustee of the amount and basis for a reduction of the principal amount of
Securities to be redeemed pursuant to paragraph 6 of the Securities. The
Company is to give each notice provided for in Section 3.01 at least 50 days
before the redemption date.
The Company has given a notification today in a separate letter. The
Company understands that the Trustee has no objection to the timing of such
notification effecting independently a series of successive reductions of the
amount of redemptions pursuant to paragraph 6 of the Securities as to 5% of the
aggregate principal amount of Securities on April 15 in each of the successive
years from and including 1997 through and including 2009.
By letter dated March 1, 1996, the Trustee indicates that notice was
not given at least 50 days prior to the redemption date in 1996. The Company
has provided one or more such notifications in any case. The Company
respectfully draws the Trustee's attention to the fact that the Company has
previously notified the Trustee of the reduction by providing the Trustee with
copies of the Company's SEC filings made September 14, 1995, September 15,
1995, and February 6, 1996, among others, that stated in clear and unequivocal
terms the Company's intention not to make any payments of principal on the
Securities prior to April 15, 2010 and, contingent upon rescission of
acceleration, to recommence to pay only interest until April 15, 2010.
Such statements reflect the Company's intentions not to pay sinking
fund redemption payments, and the only way to do that is by the Company
electing to reduce such obligations to zero through the mechanics of paragraph
6 of the Securities, based upon previous cancellation by the Trustee of
$36,462,000 of Securities.
The Trustee's predecessor seemed to accept the Company's basis for
making no sinking fund payments. The SEC documents, which relate to the
exchange offer with Securityholders, were reviewed and commented on by the
predecessor Trustee's counsel.
Moreover, and in addition to the above, the notice given concurrently
with this letter should not be considered untimely whatsoever. The Trustee has
done so only as a result of treating April 15, 1996 as the redemption date.
The Company respectfully disagrees--April 15 is not the redemption date.
Treating April 15 as the "redemption date" for purposes of prior notice under
Section 3.01 of the Indenture is contrary to the meaning given to redemption
date by the Indenture and the Securities. It is not reasonable therefore to
treat April 15 as the redemption date for the limited purpose of the notice
requirement in Section 3.01 of the Indenture. Please consider the following:
i. The Company, under paragraph 6, is to "redeem 5% of
the aggregate principal amount of Securities on April 15, 1996 ... at a
redemption price of 100% of principal amount, plus accrued interest to the
redemption date," which contemplates a lapse of time after April 15 to the
redemption date.
ii. The meaning given to "redemption date" by the
Indenture is the actual payment date. This conclusion is clear, judging from
the fact that interest accrues to the redemption date under paragraph 6. In
addition, the provisions of Section 3.03(8) clearly describe the redemption
date as the date on which "interest on Securities called for redemption ceases
to accrue." If April 15 were
<PAGE> 3
the redemption date, interest could cease to accrue before payments were made.
iii. The Company is required to pay all accrued interest
on April 15 each year, and no additional interest would accrue if April 15 were
also "the redemption date." It would be unnecessary to describe interest
accruing after April 15 unless the redemption date can be after April 15.
iv. Section 3.03 of the Indenture contemplates that prior
to every redemption the Company will mail a notice of redemption that states
the redemption date, a date chosen by the Company. In fact, the notice must
state a redemption date not less than 15 nor more than 60 days after the
mailing of the notice, which does not contemplate that the redemption date
under paragraph 6 would always be April 15.
v. We do not understand how can 5% of the aggregate
amount of Securities on April 15 reasonably or practicably be called for
redemption by the Company 15 days or more before April 15. It would seem
impracticable to give the redemption notice until after April 15, and the
redemption date needs to be from 15 to 60 days after mailing the redemption
notice.
In accordance with the Company's intentions to solicit Securityholders
to rescind the present acceleration of the Securities, the Company proposes
therein not to pay any amount on the Securities prior to rescission of
acceleration, which is anticipated to be at least 50 days into the future.
Therefore, not only has adequate notice for purposes of Section 3.01
of the Indenture been given at least 50 days prior to April 15, 1996, the
notice given today shall have been given at least 50 days prior to the earliest
date that potentially might be the redemption date.
If you object to our conclusion that the Company is not required to
redeem 5% of the aggregate amount of Securities on April 15, 1996 because
adequate notice has been given under Section 3.01 of the Indenture, please call
promptly.
Very truly yours,
COMPREHENSIVE CARE CORPORATION
By: /s/KERRI RUPPERT
Kerri Ruppert, Senior Vice President,
Chief Accounting Officer and
Secretary/Treasurer
cc: Steven Rensig, Esq.
<PAGE> 1
[GRAPHIC]
EXHIBIT 99.25
[LETTERHEAD]
LINDER FUNDS
ADVISED BY RYBACK MANAGEMENT CORPORATION
August 8, 1996
Mr. Chriss Street
Comprehensive Care Corporation
1111 Bayside Drive
Corona del Mar, CA 92625
Dear Mr. Street:
Lindner Fund, a registered Mutual Fund, hereby offers a firm commitment to
purchase directly from Comprehensive Care Corporation at least $5 million of
face amount of a private placement of 15% fully secured notes that will not be
due or callable for at least fifteen months from the date of issue. Lindner
Fund currently has in excess of $1,400,000,000 under management and has
demonstrated its ability to invest in securities for many years.
Such commitment shall remain open for a minimum of twelve months.
Sincerely,
/s/ Larry Callahan
Larry Callahan
Portfolio Manager
Ryback Management Corporation Is Registered With The Securities And Exchange
Commission Under The Investment Advisers Act Of 1940
