-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, TQPyIaAadai8/l5O+vHUs0+vGhurBE4HoN0ZHwSe4deKYOm/lm7neQfHWflWP8V7 YE49L0eBacQdTHIYgAHyQg== 0000022872-95-000005.txt : 19950607 0000022872-95-000005.hdr.sgml : 19950607 ACCESSION NUMBER: 0000022872-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941130 FILED AS OF DATE: 19950124 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPREHENSIVE CARE CORP CENTRAL INDEX KEY: 0000022872 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 952594724 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09927 FILM NUMBER: 95502381 BUSINESS ADDRESS: STREET 1: 16305 SWINGLEY RIDGE DR CITY: CHESTERFIELD STATE: MO ZIP: 63017 BUSINESS PHONE: 3145371288 MAIL ADDRESS: STREET 1: 16305 SWINGLEY RIDGE DRIVE CITY: CHESTERFIELD STATE: MO ZIP: 63017 FORMER COMPANY: FORMER CONFORMED NAME: NEURO PSYCHIATRIC & HEALTH SERVICES DATE OF NAME CHANGE: 19730501 FORMER COMPANY: FORMER CONFORMED NAME: JADE OIL CO DATE OF NAME CHANGE: 19700402 FORMER COMPANY: FORMER CONFORMED NAME: NEURO PSYCHIATRIC & HEALTH SERVICES INC DATE OF NAME CHANGE: 19700402 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended November 30, 1994 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________ to ______________ Commission File Number 0-5751 COMPREHENSIVE CARE CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-2594724 (State or other jurisdiction(I.R.S. Employer Identification No.) of incorporation or organi- zation) 4350 Von Karman Avenue, Suite 280, Newport Beach, California 92660 (Address of principal executive offices and zip code) 16305 Swingley Ridge Dr., Chesterfield, Missouri 63017 (Former address of the principal executive offices and zip code) (714) 798-0460 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Classes Outstanding at January 20, 1995 Common Stock, par value $.01 per share 2,129,419 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Index Part I - Financial Information Item 1. - Condensed Consolidated Financial Statements Condensed consolidated balance sheets, November 30, 1994 and May 31, 1994 3 Condensed consolidated statements of operations for the three and six months ended November 30, 1994 and 19934 Condensed consolidated statements of cash flows for the six months ended November 30, 1994 and 19935 Notes to condensed consolidated financial statements6 Item 2. - Management's discussion and analysis of financial condition and results of operations 9 Part II - Other Information 14 Item 1. - Legal Proceedings 14 Item 3. - Defaults Upon Senior Securities 15 Item 4. - Submission of Matters to a Vote of Security Holders 15 Item 5. - Other Events 15 Item 6. - Exhibits and Reports on Form 8-K15 Signatures 17 PART I. - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands, except per share amounts)
November 30, May 31, 1994 1994 (Unaudited) Assets Current assets: Cash and cash equivalents . . . . . . . . . . . . $ 388 $ 1,781 Accounts and notes receivable, less allowance for doubtful accounts of $4,773 and $5,729. . 6,291 5,848 Property and equipment held for sale. . . . . . . 6,753 6,939 Other current assets. . . . . . . . . . . . . . . 388 508 ------- ------- Total current assets . . . . . . . . . . . . . . . 13,820 15,076 ------- ------- Property and equipment, at cost. . . . . . . . . . 24,236 29,326 Less accumulated depreciation and amortization . . (11,328) (13,338) ------- ------- Net property and equipment . . . . . . . . . . . . 12,908 15,988 ------- ------- Other assets . . . . . 2,057 2,162 ------- ------- Total assets . . . . . $28,785 $33,226 ======= ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities. . . . . $14,313 $13,776 Current maturities of long-term debt. . . . . . . 265 154 Income taxes payable. . . . . . . . . . . . . . . 794 734 ------- ------- Total current liabilities. . . . . . . . . . . . . 15,372 14,664 ------- -------- Long-term debt, excluding current maturities . . . 10,418 10,477 Other liabilities . . . . 2,867 2,986 Commitments and contingencies (see Note 5) Stockholders' equity: Preferred stock, $50.00 par value; authorized 60,000 shares . . . . --- --- Common stock, $.01 par value; authorized 12,500,000 shares, issued 2,096,651 shares and 2,198,692 . . 22 22 Additional paid-in capital. . . . . . . . . . . . 40,060 40,060 Accumulated deficit . . . . . . . . . . . . . . . (39,954) (34,983) ------- ------- Total stockholders' equity. . . . . . . . 128 5,099 ------- ------- Total liabilities and stockholders' equity . . . . $28,785 $33,226 ====== ======
The accompanying notes are an integral part of these consolidated financial statements. COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended November 30, November 30, 1994 1993 1994 1993 Revenues and gains: Operating revenues . . . . . . . . . . $7,351 $8,229$15,408 $16,942 Interest income. . . . . . . . . . . . 5 5 11 10 ------ ------- ------- ------- 7,356 8,234 15,419 16,952 ------ ------- ------ ------- Costs and expenses: Operating expenses . . . . . . . . . . .7,721 7,723 15,710 15,332 General and administrative expenses. . . 877 866 1,944 1,718 Provision for doubtful accounts. . . . . 433 63 1,183 774 Depreciation and amortization. . . . . . 450 383 911 886 Interest expense . . . . . . . . . . . . 274 300 525 639 ----- ------ ------- ------- 9,755 9,335 20,273 19,349 ------ ------ ----- ------- Loss before income taxes . . . . . . . . . (2,399)(1,101) (4,854) (2,397) Provision for income taxes . . . . . . . . 72 62 117 107 ------ ------ ----- ------ Net loss $(2,471) $(1,163) $(4,971) $(2,504) ====== ====== ====== ====== Loss per share: Net loss . . . . . . . . . . . . . . . . $(1.18)$(0.53) $(2.28) $(1.14) ====== ===== ====== =====
The accompanying notes are an integral part of these consolidated financial statements. COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Six Months Ended November 30,November 30, 1994 1993 Cash flows from operating activities: Net loss . . . . $(4,971) $(2,504) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . 911 886 Provision for doubtful accounts . . . . . . . . . 1,183 774 Loss on sale/write-down of assets . . . . . . . . 6 38 Carrying costs incurred on property and equipment held for sale . . (234)(816) Decrease(increase) in accounts and notes receivable . . . 822 (161) Decrease in other current assets and other assets 85 373 Increase(decrease) in accounts payable and accrued liabilities. . . 740(1,888) Increase(decrease) in income taxes payable. . . . 60 (16) Decrease in other liabilities . . . . . . . . . . (119) (478) ------- ------- Net cash used in operating activities . . . . . . (1,517) (3,792) ------- ------- Cash flows from investing activities: Net proceeds from sale of property and equipment (operating and held for sale) . . . . 307 6,157 Additions to property and equipment . . . . . . . (85) (171) ------ ------- Net cash provided by investing activities . . . 222 5,986 ------ ------- Cash flows from financing activities: Repayment of debt . . . . . . . . . . . . . . . . 98 2,056 ------ ------- Net cash used in financing activities:. . . . . 98 2,056 ------ ------- Net increase(decrease) in cash and cash equivalents. . . . (1,393) 138 Cash and cash equivalents at beginning of period . 1,781 1,126 ------- ------- Cash and cash equivalents at end of period . . . . $ 388 $1,264 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. COMPREHENSIVE CARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Basis of Presentation The condensed consolidated balance sheet as of November 30, 1994, and the related condensed consolidated statements of operations for the three and six month periods ended November 30, 1994 and 1993, and the statements of cash flows for the six months ended November 30, 1994 and 1993 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. The results of operations for the three months ended November 30, 1994, are not necessarily indicative of the results to be expected during the balance of the fiscal year. The condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Notes to consolidated financial statements included in Form 10-K for the year ended May 31, 1994, on file with the Securities and Exchange Commission, provide additional disclosures and a further description of accounting policies. The Company's financial statements are presented on the basis that it is a going concern. The Company incurred significant losses from operations in fiscal 1994 and continues to report losses for fiscal 1995. The continuation of the Company's business is dependent upon the resolution of operating and short-term liquidity problems. The consolidated financial statements do not include any adjustments that might result from an unfavorable outcome of this uncertainty. The weighted average number of shares outstanding used to compute loss per share were 2,097,000 and 2,198,000 for the three months ended November 30, 1994 and 1993, respectively; and 2,176,000 and 2,198,000 for the six months ended November 30, 1993, respectively. The Condensed Consolidated Financial Statements for the current period and prior year have been adjusted to give effect for the 1-for-10 reverse stock split which occurred October 21, 1994. Note 2 - Operating Losses and Liquidity The Company's current assets at November 30, 1994 amounted to approximately $13.8 million and current liabilities were approximately $15.4 million, resulting in working capital deficit of approximately $1.6 million and a current ratio of 1.0:.9. Included in current assets are four hospital facilities designated as property and equipment held for sale with a total carrying value of $9.0 million. The Company sold one hospital facility in the second quarter of fiscal 1995 and entered into agreements to sell an additional facility in the third quarter and another in the fourth quarter. In addition, in January 1995, the Company closed one of its operating facilities due to poor performance. Accordingly, this property was classified as property held for sale as of November 30, 1994. The Company's primary use of working capital is to fund operations while it seeks to restore profitability to certain of its freestanding facilities and expand its behavioral medicine managed care business. As part of the Company's "global restructuring", the Company (i) implemented a 1-for-10 reverse stock split which occurred on October 21, 1994; (ii) was successful in obtaining the IRS District Counsel's acceptance of the proposed settlement of the Company's payroll tax audit (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein); and (iii) on January 5, 1995, the Company entered into a Secured Convertible Note Purchase Agreement in the amount of $2.0 million (see Note 6 to the Company's Condensed Consolidated Financial Statements included herein). However, the Company did not make its payment of interest on its 7 1/2% Convertible Subordinated Debentures (the "Debentures") when such payment was scheduled on October 17, 1994. Under the terms of the Indenture, an event of default occurs if the Company defaults in the payment of interest on the Debentures when due and payable and the default continues for a period of more than 30 days. If an event of default occurs and is continuing, the Trustee (by notice to the Company), or the Holders of at least 25% in principle amount of the $9.6 million outstanding Debentures may declare the principle and accrued interest on all the Debentures to be due and payable. On November 21, 1994, the Company recognized an ad hoc committee of bondholders who purported to represent approximately 20% of the outstanding Debentures. The company has paid for the bondholders to retain Morris Weiss of the Miami office of the law firm of Weil Gotshal & Manges to represent their interests and assist with the restructuring of the Debentures. To date, the Company has not received a notice of default from the Trustee or bondholders. Should the bondholders declare the principle and accrued interest of the Debentures to be due and payable, the Company does not have sufficient cash reserves readily available to meet such obligations and commitments. In addition, should the Company be unsuccessful in the restructuring of the Debentures, the Company may be unable to meet the terms and conditions of the settlement agreement with the IRS (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein). Note 3 - Property and Equipment Held for Sale The Company recorded no additional asset write-downs during the second quarter of fiscal 1995 and fiscal 1994 in connection with the recognition of losses and revaluation of facilities closed, sold or designated for disposition. Future operating losses and carrying costs of such facilities will be charged directly to the carrying value of the respective property and equipment held for sale. Because chemical dependency treatment facilities are special purpose structures, their resale value is negatively affected by the oversupply of beds resulting from the diminished demand for inpatient treatment being experienced throughout the industry. In January 1995, the Company closed one of its operating facilities due to poor performance. The Company will continue to evaluate the performance of all of its operating facilities in their respective markets, and, if circumstances warrant, modify the number of facilities designated for disposition. Property and equipment held for sale, which are expected to be sold in the next fiscal year, are shown as current assets on the consolidated balance sheets. Gains and losses on facilities sold are recorded as an adjustment to the remaining property values until all facilities are sold. A summary of the transactions affecting the carrying value of property and equipment held for sale for the six months ended November 30, 1994, is as follows (in thousands): Balance as of May 31, 1994 . . . . . . . . . . $6,939 Designation of facility as property and equipment held for sale . . . . . . . . . . . . . . . 2,385 Proceeds from the sale of assets(1). . . . . . (2,735) Carrying costs incurred during phase-out period. . . . . 234 Other. . (70) Balance as of November 30, 1994. . . . . . . . $6,753
(1) Includes proceeds held in escrow (see Note 6 to the Company's Condensed Consolidated Financial Statements included herein). Note 4 - Income Taxes Effective June 1, 1993, the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income Taxes" on a prospective basis. Prior to this date, the Company accounted for income taxes under APB 11. Statement No. 109 changed the Company's method of accounting for income taxes from the deferred method required under APB 11 to the asset and liability method. The change to Statement No. 109 had no cumulative effect on the financial statements of the Company as a result of recording a valuation allowance. Note 5 - Commitments and Contingencies On October 30, 1992, the Company filed a complaint in the United States District Court for the Eastern District of Missouri against RehabCare Corporation ("RehabCare") seeking damages for violations by RehabCare of the securities laws of the United States, for common law fraud and for breach of contract (Case No. 4-92CV002194-SNL). The Company seeks relief of damages in the lost benefit of certain stockholder appreciation rights in an amount in excess of $3.6 million and punitive damages. On May 18, 1993, the District Court denied a motion for summary judgement filed by RehabCare. On June 16, 1993, RehabCare filed a counterclaim seeking a declaratory judgement with respect to the rights of both parties under the stock redemption agreement, an injunction enjoining the Company from taking action under stock redemption or restated shareholders agreements and damages. The Company has filed a motion with the court to strike RehabCare's request for damages for attorney's fees and costs on the grounds that such relief is not permitted by law nor authorized by the agreements between the parties. This case is set for a jury trial beginning February 13, 1995. Management believes that the Company's allegations have merit and intends to vigorously pursue this suit. Management further believes that should RehabCare prevail at trial on its request for such attorneys fees and costs, such fees and costs would not materially affect the financial statements of the Company. In connection with the proposed sale of hospitals to CMP Properties, Inc., the Company advanced $1.1 million to a former consultant which was to be returned in the event the transaction was terminated. These advances were to be secured by the common stock of an unrelated company. The shares of common stock pledged were purported to be in the possession of the Company's former legal firm as collateral for the advances, but were not provided to the Company when the transaction was terminated. The Company filed a complaint in the United States District Court for the District of Oregon against the former consultant and legal firm to recover the advances (Case No. 94- 384 HA). The former consultant has counterclaimed against the Company for $1,688,000 for lost profits, breach of contract and unjust enrichment. Management believes that the counterclaims are meritless and intends to vigorously defend against them. In July 1993, the Company terminated the employment agreement with the former owner of Mental Health Programs ("MHP") and subsequently entered into litigation. On November 21, 1994, the Company reached an agreement with the former owner and will pay the former owner $250,000 in installments through September 30, 1996; forgive the obligations owing under the indemnification agreement between the Company and the former owner; and satisfy the terms under the stock purchase agreement dated December 30, 1992 between the former owner and the Company to issue 16,000 shares of the Company's common stock. The Company has established a reserve with respect to this settlement. The Company reached a settlement with the Appeals Office of the Internal Revenue Service ("IRS") on the payroll tax audit for the calendar years 1983 through 1991 pursuant to which the Company will pay the IRS $5 million, which will include penalties and interest. The IRS agent conducting the audit asserted that certain physicians and psychologists and other staff engaged as independent contractors by the Company should have been treated as employees for payroll tax purposes. The settlement was reviewed and accepted by the IRS district counsel. Payment terms have been accepted at 50% within 90 days of finalization with the remainder financed over the next three years. A reserve has been established with respect to this matter to cover expenses the Company expects to incur. In May 1991, the Company and RehabCare entered into a Tax Sharing Agreement providing for the Company to indemnify RehabCare for any claims of income or payroll taxes due for all periods through February 28, 1991. RehabCare has settled a proposed assessment for a payroll tax audit of calendar years 1987 and 1988 for $326,114. The Company has established a reserve with respect to this settlement. The federal income tax returns of the Company for its fiscal years ended 1984 and 1987 through 1991 were examined by the IRS. The Company provided the IRS with satisfactory documentary support for the majority of items questioned and those items were deleted from the proposed assessment and accepted as originally filed. The remaining items were agreed to and resulted in a disallowance of approximately $229,000 in deductions which were offset against the Company's net operating losses available for carryover. The examination also included the review of the Company's claim for refund of approximately $205,000 relating to an amended return for the fiscal year ended May 31, 1992. During completion of the audit, the IRS noted that the Company had received excess refunds representing its alternative minimum tax ("AMT") liability of approximately $666,000 in 1990 and 1991 from the carryback of net operating losses to the fiscal years ended May 31, 1988 and 1989, respectively. On March 29, 1994, the Company agreed to the assessment of $666,000 plus interest and received the final bill of $821,000 during the fourth quarter of fiscal 1994. The Company has accrued for this liability, net of refunds, in income taxes payable. From time to time, the Company and its subsidiaries are also parties and their property is subject to ordinary routine litigation incidental to their business. In some pending cases, claims exceed insurance policy limits and the Company or a subsidiary may have exposure to liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company's financial statements. Note 6 - Subsequent Events On January 5, 1995, the Company entered into an agreement to sell, for cash, a $2,000,000 original principal amount Secured Convertible Note due January 9, 1997 to Lindner Bulwark Funds, a division of Lindner Investment, a Massachusetts business trust. The Note will be secured by first priority liens on two of the Company's hospital properties. The Note will bear interest at the rate of 12 1/2% per annum, payable quarterly, and in the event of a default, a charge of 2 1/2% per annum until the default is cured. Prior to maturity, the Note will be redeemable, in whole or in part, at the option of the Company at a redemption price initially of 120% of the amount of principal redeemed, declining after January 9, 1996 to 110% of principal. Until paid, the principal amount of the Note is convertible into the Company's Common Stock, par value $0.01, at the rate of $6.00 per share, (which was the reported closing price of the Common Stock on the New York Stock Exchange composite tape on the date of signing.) The maximum number of shares issuable upon conversion of the Note would initially be approximately 333,333, subject to adjustments for dilution and recapitalization, which is under 17% of the undiluted number of shares of Common Stock outstanding. The proceeds will be used to pay costs of closing unprofitable operations, working capital and other general corporate purposes. On January 13, 1994, the Company closed its operating facility in Ft. Worth, Texas. This facility was closed due to its poor operating performance and limited prospects for generating an acceptable return on investment as an operating facility. Accordingly, this facility was classified to property and equipment held for sale as of November 30, 1995. The Company sold its operating facility in Lake Mary, Florida. The transaction closed in escrow on November 22, 1994 subject to the satisfaction of several items including the recording of a corrective deed and the buyer obtaining Conditional Use Approval from the City of Lake Mary. The City Commission approved the request for Conditional Use on January 5, 1995 and the funds were released from escrow to the Company on January 17, 1995. Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three Months Ended November 30, 1994 Compared to Three Months Ended August 31, 1994 The Company reported a loss of approximately $2.5 million or $1.18 per share for the quarter ended November 30, 1994, which was comparable to the loss of approximately $2.5 million or $1.14 per share reported for the quarter ended August 31, 1994. The loss for the second quarter of fiscal 1995 included an increase in operating expenses due to managed care operations. Freestanding Operations Operating revenues for the second quarter of fiscal 1995 decreased $0.5 million from the first quarter of fiscal 1995 due to a 7% decline in admissions and a 14% decline in net revenue per patient day. The decline in admissions and net revenue per patient day resulted in a decrease in net operating revenues for the second quarter of fiscal 1995 of $0.9 million. Although operating expenses at the Company's freestanding facilities decreased $0.3 million and the provision for doubtful accounts decreased by $0.1 million, it was not sufficient to offset the decline in operating revenues. The Company believes that the increasing role of HMO's, reduced benefits from employers and indemnity companies, and a shifting to outpatient programs continue to impact and affect this decline in utilization. The Company is implementing cost reduction measures, including the closure of selected facilities. In January 1995, the Company closed one of its operating facilities due to poor performance. The Company owns or manages five facilities which are currently operating and four facilities which are closed and currently for sale. The Company will continue to evaluate the performance of these facilities in their respective markets, and, if circumstances warrant, may increase the number of facilities designated for disposition. Behavioral Medicine Contracts During the second quarter of fiscal 1995, patient days of service at CareUnit contracts declined by approximately 6% from 8,580 patient days to 8,027 patient days. Units which were operational for both the first and second quarters of fiscal 1995 experienced a 4% decline in utilization to 7,969 patient days. Although average net revenue per patient day at these units increased by 1% from the previous quarter, there was a decline in overall net inpatient operating revenues of 3% to $0.8 million. Net outpatient revenues for programs operational for both quarters at these units increased 7% from approximately $389,000 in the first quarter of 1995 to approximately $418,000 in the second quarter of fiscal 1995. Operating expenses for units operational for both quarters increased 5%, which more than offset the slight increase in total operating revenues resulting in operating income at the unit level decreasing by 12% from the first quarter of fiscal 1995. The increase in operating expenses is due primarily to the write-off of startup costs related to a unit which was closed during the second quarter of fiscal 1995 and business development and marketing expenses incurred in the response for proposals related to the contracts managed for the State of Idaho. Managed Care Operations During the first and second quarters of fiscal 1995, the number of covered lives at AccessCare increased by 10%. This increase is primarily attributable to new contracts added during fiscal 1995. In the second quarter of fiscal 1995, operating revenues increased 8% from the first quarter of fiscal 1995. [In addition, AccessCare has executed contracts during the second quarter of fiscal 1995 which will commence operation during the third quarter which are expected to substantially increase revenues.] Operating expenses also increased 8% during the second quarter of fiscal 1995. Results of the second quarter of fiscal 1995 include a one-time legal settlement (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein) of $0.2 million. The increase in operating revenues during the second quarter of fiscal 1995 combined with the increase in operating expenses resulted in a slight increase in AccessCare's net operating loss of 6% from the first quarter of fiscal 1995. Excluding the one-time legal expense, operating expenses in the second quarter of fiscal 1995 decreased 6% from the first quarter of fiscal 1995. Three Months Ended November 30, 1994 Compared to Three Months Ended November 30, 1993 The Company reported a pretax loss of approximately $2.4 million for the second quarter of fiscal 1995, an increase of approximately $1.3 million from the pretax loss of approximately $1.1 million reported for the second quarter of fiscal 1994. Operating revenues for the second quarter of fiscal 1995 declined by approximately $0.9 million from the second quarter of fiscal 1994. This decrease is primarily due to a decline in operating revenues in the behavioral medicine contracts and freestanding operations which more than offset the increase in operating revenues for managed care operations experienced in the second quarter of fiscal 1995. Overall operating expenses remained comparable during the second quarter of fiscal 1995 from the second quarter of fiscal 1994. A decline in operating expenses in the behavioral medicine contracts was offset by an increase in operating expenses related to managed care operations expansion and development. Results of the second quarter of fiscal 1995 also include a one-time legal settlement (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein) of $0.2 million. The provision for doubtful accounts increased $0.4 million in the second quarter of fiscal 1995 compared to the second quarter of fiscal 1994. This increase is predominately attributable to a revaluation of the provision made during the second quarter of 1994. Six Months Ended November 30, 1994 Compared to Six Months Ended November 30, 1993 The Company reported a pretax loss of approximately $4.9 million for the first six months of fiscal 1995, an increase of approximately $2.5 million from the pretax loss of approximately $2.4 million reported for the first six months of fiscal 1994. Operating revenues for the first six months of fiscal 1995 declined by approximately $1.5 million from the first six months of fiscal 1994. This decrease is primarily a result of a decline in operating revenues in the behavioral medicine contracts and freestanding operations which offset the increase in operating revenues generated by managed care operations. Operating expenses increased by approximately $0.4 million from the first six months of fiscal 1994 to the first six months of fiscal 1995. The increase in operating expenses is primarily attributable to the freestanding operations and managed care operations expansion and development. Results for fiscal 1995 include a one-time legal settlement related to managed care operations (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein) of $0.2 million. In addition, general and administrative expenses increased by approximately $0.2 million from the first six months of fiscal 1994. The first six months of fiscal 1994 includes a credit of approximately $345,000 as a result of the revaluation of a provision for general and administrative expenses. Excluding the revaluation, general and administrative expenses decreased $0.1 million during the first six months of fiscal 1995 compared to the same six month period of fiscal 1994. Interest expense decreased by approximately $0.1 million from the first six months of fiscal 1994 as a result of the repayment of debt with the proceeds from the sale of assets and the reduction of the interest expense attributable to the Financial Security Plan, the Company's former deferred compensation plan. Liquidity and Capital Resources Included in current assets are four hospital facilities designated as property and equipment held for sale with a total carrying value of $9.0 million. The Company sold one hospital facility in the second quarter of fiscal 1995 and entered into agreements to sell an additional facility in the third quarter and another in the fourth quarter. In January 1995, the Company closed one of its operating facilities due to poor performance. Accordingly, this property was classified as property held for sale as of November 30, 1994. The Company's primary use of working capital is to fund operations while it seeks to expand its behavioral medicine and managed care business. As part of the Company's "global restructuring", the Company (i) implemented a 1-for-10 reverse stock split which occurred on October 21, 1994; (ii) was successful in obtaining the IRS District Counsel's acceptance of the proposed settlement of the Company's payroll tax audit (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein); and (iii) on January 5, 1995, the Company entered into a Secured Convertible Note Purchase Agreement in the amount of $2.0 million (see Note 6 to the Company's Condensed Consolidated Financial Statements included herein). However, the Company did not make its payment of interest on its 7 1/2% Convertible Subordinated Debentures (the "Debentures") when such payment was scheduled on October 17, 1994. Under the terms of the Indenture, an event of default occurs if the Company defaults in the payment of interest on the Debentures when due and payable and the default continues for a period of more than 30 days. If an event of default occurs and is continuing, the Trustee (by notice to the Company), or the Holders of at least 25% in principle amount of the $9.6 million outstanding Debentures may declare the principle and accrued interest on all the Debentures to be due and payable. On November 21, 1994, the Company recognized an ad hoc committee of bondholders who purported to represent approximately 20% of the outstanding Debentures. The company has paid for the bondholders to retain Morris Weiss of the Miami office of the law firm of Weil Gotshal & Manges to represent their interests and assist with the restructuring of the Debentures. To date, the Company has not received a notice of default from the Trustee or bondholders. Should the bondholders declare the principle and accrued interest of the Debentures to be due and payable, the Company does not have sufficient cash reserves readily available to meet such obligations and commitments. In addition, should the Company be unsuccessful in the restructuring of the Debentures, the Company may be unable to meet the terms and conditions of the settlement agreement with the IRS (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein). PART II. - OTHER INFORMATION Item 1. - Legal Proceedings On October 30, 1992, the Company filed a complaint in the United States District Court for the Eastern District of Missouri against RehabCare Corporation ("RehabCare") seeking damages for violations by RehabCare of the securities laws of the United States, for common law fraud and for breach of contract (Case No. 4-92CV002194-SNL). The Company seeks relief of damages in the lost benefit of certain stockholder appreciation rights in an amount in excess of $3.6 million and punitive damages. On May 18, 1993, the District Court denied a motion for summary judgement filed by RehabCare. On June 16, 1993, RehabCare filed a counterclaim seeking a declaratory judgement with respect to the rights of both parties under the stock redemption agreement, an injunction enjoining the Company from taking action under stock redemption or restated shareholders agreements and damages. The Company has filed a motion with the court to strike RehabCare's request for damages for attorney's fees and costs on the grounds that such relief is not permitted by law nor authorized by the agreements between the parties. This case is set for a jury trial beginning [February 13, 1995]. Management believes that the Company's allegations have merit and intends to vigorously pursue this suit. Management further believes that should RehabCare prevail at trial on its request for such attorneys fees and costs, such fees and costs would not materially affect the financial statements of the Company. In connection with the proposed sale of hospitals to CMP Properties, Inc., the Company advanced $1.1 million to a former consultant which was to be returned in the event the transaction was terminated. These advances were to be secured by the common stock of an unrelated company. The shares of common stock pledged were purported to be in the possession of the Company's former legal firm as collateral for the advances, but were not provided to the Company when the transaction was terminated. The Company filed a complaint in the United States District Court for the District of Oregon against the former consultant and legal firm to recover the advances (Case No. 94-384 HA). The former consultant has counterclaimed against the Company for $1,688,000 for lost profits, breach of contract and unjust enrichment. Management believes that the counterclaims are meritless and intends to vigorously defend against them. In July 1993, the Company terminated the employment agreement with the former owner of Mental Health Programs ("MHP") and subsequently entered into litigation. On November 21, 1994, the Company reached an agreement with the former owner and will pay the former owner $250,000 in installments through September 30, 1996; forgive the obligations owing under the indemnification agreement between the Company and the former owner; and satisfy the terms under the stock purchase agreement dated December 30, 1992 between the former owner and the Company to issue 16,000 shares of the Company's common stock. The Company has established a reserve with respect to this settlement. Other Litigation The Company reached a settlement with the Appeals Office of the Internal Revenue Service ("IRS") on the payroll tax audit for the calendar years 1983 through 1991 pursuant to which the Company will pay the IRS $5 million, which will include penalties and interest. The IRS agent conducting the audit asserted that certain physicians and psychologists and other staff engaged as independent contractors by the Company should have been treated as employees for payroll tax purposes. The settlement was reviewed and accepted by the IRS district counsel. Payment terms have been accepted at 50% within 90 days of finalization with the remainder financed over the next three years. A reserve has been established with respect to this matter to cover expenses the Company expects to incur. In May 1991, the Company and RehabCare entered into a Tax Sharing Agreement providing for the Company to indemnify RehabCare for any claims of income or payroll taxes due for all periods through February 28, 1991. RehabCare has settled a proposed assessment for a payroll tax audit of calendar years 1987 and 1988 for $326,114. The Company has established a reserve with respect to this settlement. The federal income tax returns of the Company for its fiscal years ended 1984 and 1987 through 1991 were examined by the IRS. The Company provided the IRS with satisfactory documentary support for the majority of items questioned and those items were deleted from the proposed assessment and accepted as originally filed. The remaining items were agreed to and resulted in a disallowance of approximately $229,000 in deductions which were offset against the Company's net operating losses available for carryover. The examination also included the review of the Company's claim for refund of approximately $205,000 relating to an amended return for the fiscal year ended May 31, 1992. During completion of the audit, the IRS noted that the Company had received excess refunds representing its alternative minimum tax ("AMT") liability of approximately $666,000 in 1990 and 1991 from the carryback of net operating losses to the fiscal years ended May 31, 1988 and 1989, respectively. On March 29, 1994, the Company agreed to the assessment of $666,000 plus interest and received the final bill of $821,000 during the fourth quarter of fiscal 1994. The Company has accrued for this liability, net of refunds, in income taxes payable. From time to time, the Company and its subsidiaries are also parties and their property is subject to ordinary routine litigation incidental to their business. In some pending cases, claims exceed insurance policy limits and the Company or a subsidiary may have exposure to liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company's financial statements. Item 3. - Defaults Upon Senior Securities See the discussion contained in the last two paragraphs under "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" for a discussion of the Company's default in the payment of interest on its 7 1/2% Convertible Subordinated Debentures. Item 4. - Submission of Matters to a Vote of Security Holders The results of the Company's Annual Shareholders' Meeting were reported in the Company's Report on Form 8-K filed on November 23, 1994. Item 5. - Other Events In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified the Company that it was below certain quantitative and qualitative listing criterion in regard to net tangible assets available to common stock and three year average net income. The Listing and Compliance Committee (the "Committee") of the NYSE has determined to monitor the Company's progress toward returning to original listing standards. The Company has met with and continues to meet with the Committee on its progress to "globally restructure" the Company (see Note 2 to the Company's Condensed Consolidated Financial Statements included herein). The Committee will continue to monitor the Company's progress. Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits 4.4 Restated Rights Agreement dated between the Company and Continental Stock Transfer & Trust Co. (filed herewith). 10.4 1988 Incentive Stock Option and 1988 Nonstatutory Stock Option Plans, as amended (filed herewith). 10.54 1995 Directors Stock Option Plan (filed herewith). 10.55 Non-qualified Stock Option Agreement dated October 21, 1994 between the Company and Richard L. Powers (filed herewith). 10.56 Employment Agreement dated January 1, 1995 between the Company and Chriss W. Street (filed herewith). 10.57 Secured Convertible Note Purchase Agreement dated January 5, 1995 between the Company and Ryback Management (filed herewith). 27 Financial Data Schedules (filed herewith). (b) Reports on Form 8-K 1.) On November 23, 1994, the Company filed a current report on Form 8-K to report a) results of the Annual Shareholder's meeting which included the election of Directors; b) classification of the Board of Directors into three classes; c) relocation of the Corporate Headquarters from Missouri to California; d) the appointment of a new member of executive management; e) implementation of a reverse stock split of common shares; f) ratification of the Restated Rights Agreement and the appointment of Continental Stock Transfer & Trust Company as the Rights Agent; and g) non- payment of interest on the Company's 7 1/2% Convertible Subordinated Debentures. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMPREHENSIVE CARE CORPORATION January 23, 1994By /s/ DREW Q. MILLER Drew Q. Miller Vice President and Chief Financial Officer (Principal Financial Officer) January 23, 1994By /s/ KERRI RUPPERT Kerri Ruppert Vice President and Chief Accounting Officer (Principal Accounting Officer) EX-10 2 EMPLOYMENT AGREEMENT AGREEMENT made this 21st day of December, 1994, as of December 1, 1994, by and between CHRISS W. STREET, residing at 2235 Pacific Drive, Corona Del Mar, California 92625 (hereinafter referred to as the "Executive") and COMPREHENSIVE CARE CORPORATION, a Delaware corporation with principal offices located at 16305 Swingley Ridge Road, Chesterfield, Missouri 63017, (hereinafter referred to as the "Company"). W I T N E S S E T H : WHEREAS, the Company, through its wholly-owned subsidiary corporations, is currently engaged in the business of (i) providing treatment programs for psychiatric disorders and chemical and drug dependence through freestanding and leased facilities and (ii) providing various managed behavioral health care services through contract capitation agreements; and WHEREAS, the Company desires to continue to benefit from the executive talent and ability of Executive, and to continue to engage Executive as its President and Chief Executive Officer; NOW, THEREFORE, it is mutually agreed by and between the parties hereto as follows: ARTICLE I EMPLOYMENT Subject to and upon the terms and conditions of this Agreement, the Company hereby employs and agrees to continue the employment of the Executive, and the Executive hereby accepts such continued employment in his capacity as President and Chief Executive Officer of the Company, with the title of Chairman, President and Chief Executive Officer. Executive shall report to the Board of Directors of the Company. ARTICLE II ELECTION OF EXECUTIVE AS A DIRECTOR; DIRECTORS LIABILITY INSURANCE AND INDEMNIFICATION (A) Election of Executive as a Director of the Company Upon the execution of this Agreement and for the full term hereof, the Company shall cause Executive to continue to be elected as a Class II Director of the Company, and to be further elected as Chairman of its Board of Directors. The Company shall, during the full term of this Agreement, utilize its best efforts to cause Executive to be re-elected to such positions. Such best efforts shall, in the case of the Company, include but not be limited to including Executive as part of managements slate of Directors to be elected by shareholders, endorsing the election of Executive as a director, and soliciting proxies for the election of Executive. (B) Procurement of Directors Liability Insurance So long as Executive shall serve as an officer and Director of the Company, the Company shall procure and obtain, and continue in full force and effect, at its sole cost and expense, an officers and Directors liability insurance policy in an amount of not less than $1 million. Such policy of insurance shall insure against claims and liability while acting in the capacity of an officer or director of the Company or any subsidiary thereof, shall provide for the defense of all such claims and shall be subject to fraud exclusions and other usual and customary exclusions contained in such policies as offered and written in the City of Los Angeles. Such policy shall be obtained from a reputable insurance carrier rated A+ or better by Best. (C) Indemnification During the term of employment, and subsequent thereto with respect to any claim arising out of or in connection with his employment with the Company or any subsidiary of the Company during the term of this Agreement, the Company shall indemnify and hold Executive harmless from all claims and liability, loss or damage (including but not limited to judgments, fines and amounts paid in settlement), asserted against Executive or incurred by Executive, including reasonable attorneys fees and costs of investigation (the "Indemnification"). The Indemnification provided for herein shall be in addition to and not in substitution or diminution of any and all rights to indemnification which Executive may be entitled to under the laws of the State of Delaware or the Certificate of Incorporation or By-Laws of the Company. In furtherance of the Indemnification, the Company shall indemnify Executive from any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including any action by or in the right of the Company, by reason of the fact that Executive is or was an officer or director of the Company or any subsidiary of the Company. All expenses, including reasonable attorneys fees, incurred by Executive in defending any civil, criminal, administrative or investigative action, suit or proceeding, shall, upon request by Executive, be paid and advanced by the Company in advance of the final disposition of such action, suit, or proceeding; provided, however, that Executive shall repay to the Company all amounts so advanced if it shall be ultimately and finally determined that Executive is not entitled to be indemnified under the laws of the State of Delaware. All advances shall be made by the Company within 10 days after the request therefor by Executive accompanied by a statement by Executive's counsel that the amount of advance requested is fair and reasonable. The Indemnification provided in this Article II shall enure to the benefit of Executive, his heirs, executors and administrators. The Company shall enter into a separate Indemnification Agreement with Executive which shall incorporate the provisions of this Article II. ARTICLE III DUTIES (A) Executive shall, during the term of his employment with the Company, and subject to the reasonable and good faith direction and control of the Company's Board of Directors, perform such duties and functions for the Company as he may be called upon to perform by the Company's Board of Directors during the term of this Agreement consistent with the position of President and Chief Executive Officer. (B) The Executive agrees to devote his best efforts to the performance of his duties for the Company and to render such services for any subsidiary corporations of the Company. (C) The Executive shall perform, in conjunction with the Company's Senior Management, to the best of his ability the following services and duties for the Company and its subsidiary corporations (by way of example, and not by way of limitation): (i) Those duties attendant to the position with the Company for which he is hired; (ii) Financial and strategic planning to preserve and enhance the Company's business; (iii) Promotion of the relationships of the Company and its subsidiary corporations with their respective employees, customers, suppliers and others in the business and investment community. (D) The Company acknowledges that Executive has substantial business and financial background and experience, and has acted and continues to act in an advisory capacity to various businesses as well as engaging in investment and merchant banking through affiliated entities (the "Non-Competitive Activities"). The Company consents to Executive continuing to engage in the Non-Competitive Activities for his own pecuniary benefit. The Company further consents to Executive devoting less than his full business time to the performance of his duties hereunder, having due regard to the fact that it is Executive's normal practice to work extended business hours. ARTICLE IV PRINCIPAL BUSINESS LOCATION OF EXECUTIVE; ESTABLISHMENT OF CALIFORNIA OFFICE (A) Executive shall be based in the Greater Los Angeles/Orange County, California Area, and shall undertake such occasional travel, within or without the United States as is or may be reasonably necessary in the interests of the Company. Executive shall be in attendance at the Company's Chesterfield, Missouri principal business facilities at such occasional and incidental times as may be reasonably necessary to the performance of his duties hereunder, having due regard to the ability of Executive to adequately interact with the Company's Chesterfield, Missouri facility by telephone, telefax and computer, and having further regard to the contemplated objective of implementing the Company's intended business plans and programs which may not necessarily require extended presence in Missouri. (B) To facilitate the performance of his duties hereunder, the Company shall, within 90 days from the date hereof, open, furnish, equip and staff an office in Los Angeles or Orange County, California; the site to be selected by Executive (the "California Office"). In the alternative, the Company shall reimburse Chriss Street and Company, the sum of $3,000 per month for the temporary use of office facilities and personnel. ARTICLE V COMPENSATION (A) Commencing the date hereof and during the full term of this Agreement, Executive shall receive a base salary (the "Base Salary") at the rate of $150,000 per annum payable in equal weekly increments. (B) Executive may receive such other bonuses or additional compensation as may be determined from time to time by the Board of Directors. (C) The Company shall deduct from Executive's compensation all federal, state and local taxes which it may now or may hereafter be required to deduct. ARTICLE VI SPECIAL SEVERANCE BENEFIT UPON CHANGE IN CONTROL In the event of a Change in Control of the Company, as defined herein, the Company shall pay to Executive a special severance benefit equal to the sum of (i) Executive's Base Salary for the unexpired portion of the term and (ii) two times the sum of Executive's prevailing Base Salary, provided that following such Change in Control (i) his employment is terminated by the Company within three years of the date of such Change in Control or (ii) though not terminated by the Company, within three years from the date of the Change in Control, Executive's duties and responsibilities are materially curtailed or diminished from those prevailing immediately preceding the time of the Change in Control, and following such material curtailment or diminution, Executive elects to terminate his employment irrespective of whether or not the term of his Agreement shall have expired. As used herein, a Change in Control of the Company shall mean the acquisition by any person or group as defined in Rule 13D(3) under the General Rules and Regulations under the Securities Exchange Act of 1934 (other than a corporation or employee benefit plan sponsored by the corporation) of the beneficial ownership of right to vote 20% or more of the total number of votes of the Company's voting securities eligible to vote in the election of Directors of the Company. ARTICLE VII BENEFITS (A) During the term hereof, (i) the Company shall reimburse Executive for the premium cost of health and major medical insurance for Executive and Executive's dependents upon presentation of vouchers therefor; (ii) when obtained by the Company, and when made generally available to the Company's senior management, the Company shall provide Executive with dental and eye care coverage; (iii) Executive shall be reimbursed by the Company, upon presentation of appropriate vouchers, for all reasonable business expenses incurred by the Executive on behalf of the Company; (iv) the Company shall pay to Executive an automobile allowance of $500 per month, which shall be for the purpose of partially reimbursing Executive for the use by Executive of his personal automobile. In addition, the Company shall pay directly or reimburse Executive, upon presentation of vouchers therefor, for the full cost of Executive's automobile insurance, repairs, maintenance, gasoline charges, monthly garage cost and mobile telephone. (B) The Company will obtain and maintain during the full term hereof and at its sole cost and expense a policy of term life insurance on the life of Executive in the amount of $500,000 payable to a beneficiary named and designated by Executive. (C) For each year of the term hereof, Executive shall be entitled to paid vacation consistent with prevailing Company vacation policy for the Company's senior management. At Executive's option, accrued but unused vacation shall be payable in cash. (D) The Company shall obtain a long term disability insurance policy for Executive's benefit. Executive shall be provided with such disability benefit equal to 100% of Executive's prevailing Base Salary at a premium cost at the sole cost and expense of the Company. ARTICLE VIII NON-DISCLOSURE The Executive shall not, at any time during or after the termination of his employment hereunder except when acting on behalf of and with the authorization of the Company, make use of or disclose to any person, corporation, or other entity, for any purpose whatsoever, any trade secret or other confidential information concerning the Company's business, finances, marketing information, managed care business, plans and programs, psychiatric and dependency operations, and information relating to any managed care, capitation, sales or marketing programs of the Company (collectively referred to as the "Proprietary Information"). For the purposes of this Agreement, trade secrets and confidential information shall mean information disclosed to the Executive or known by him solely as a consequence of his employment by the Company, whether or not pursuant to this Agreement, and not generally known (other than as disclosed by any person in breach of any obligation of confidentiality to the Company) in the industry, concerning the business, finances, methods, operations, marketing information, and information relating to the sales and marketing of the Company. The foregoing is intended to be confirmatory of the common law of the state of California relating to trade secrets and confidential information. ARTICLE IX RESTRICTIVE COVENANT (A) In the event of the voluntary termination of employment with the Company by Executive, Executive agrees that he will not, for a period of one year following such termination, directly or indirectly enter into or become associated with or engage in any other business (whether as a partner, officer, director, shareholder, employee, consultant, or otherwise), which business is primarily involved in the business of developing, marketing, owning or operating facilities providing psychiatric care or drug or alcohol dependency rehabilitation or treatment, or providing or marketing managed health care programs on a contract or capitated basis. (B) In furtherance of the foregoing, Executive shall not during the aforesaid period of non- competition, directly or indirectly, in competition with the Company, solicit any management person who was employed by the Company or solicit any provider, insurer or group through, from or with which the Company transacted any managed health care business. The foregoing shall not be deemed or construed to prevent Executive from soliciting any consultant or advisor to the Company for any project that Executive may participate in which is not in violation of this Article IX. (C) If any court shall hold that the duration of non-competition or any other restriction contained in this paragraph is unenforceable, it is our intention that same shall not thereby be terminated but shall be deemed amended to delete therefrom such provision or portion adjudicated to be invalid or unenforceable or in the alternative such judicially substituted term may be substituted therefor. ARTICLE X TERM This Agreement shall be for a term of three years commencing January 1, 1995 and terminating on December 31, 1998. The Company agrees to notify Executive in writing of its intent to negotiate a renewal of this Agreement six months prior to the expiration of the term hereof. If the Company elects not to seek to renegotiate a renewal, or if the Company fails to reach agreement with Executive as to the terms of renewal, then the Company agrees to pay to Executive, upon the expiration of this Agreement without renewal, a severance benefit equal to 50% of the aggregate amount of Executive's then prevailing annual Base Salary. ARTICLE XI DISABILITY DURING TERM In the event that the Executive becomes totally disabled so that he is unable or prevented from performing any one or all of his usual duties hereunder, the Company shall nevertheless continue to compensate him, and he shall continue to receive his Base Salary as provided under Article V of this Agreement for the remainder of the unexpired term. The obligation of the Company to make the aforesaid payments shall be modified and reduced and the Company shall receive a credit for all disability insurance payments which Executive may receive or to which he may become entitled; provided, however, that the premiums for such disability insurance had been paid by the Company or had been reimbursed to Executive by the Company. ARTICLE XII RIGHTS FOLLOWING TERMINATION The Company recognizes that Executive has agreed to become employed by the Company and to accept a Base Compensation which is less than that which Executive could otherwise command in the market. In consideration therefor, the Company agrees that in the event of the termination of this Agreement by the Company for any reason whatsoever (with or without cause, with the sole exception of the commission by Executive of any criminal act against the Company involving theft, embezzlement, misappropriation of property, or criminal fraud) or by reason of the death or disability of Executive, the Company shall nevertheless pay to Executive (or to Executive's estate or representative in the case of death), within 30 days following such termination, the full amount of Executive's then prevailing Base Salary for the full remaining unexpired term of this Agreement, and Executive shall not be obligated or required to mitigate any damages. The Company acknowledges that the foregoing constitutes reasonable liquidated damages to be paid to Executive. ARTICLE XIII STOCK OPTIONS The Option Agreement dated August 25, 1994 pursuant to which Executive has been granted options to purchase Common Stock of the Company is herewith ratified and confirmed. ARTICLE XIV TERMINATION OF PRIOR AGREEMENTS This Agreement sets forth the entire agreement between the parties and supersedes all prior agreements between the parties, whether oral or written. ARTICLE XV ARBITRATION Any dispute arising out of the interpretation, application and/or performance of this Agreement shall be settled through final and binding arbitration before a single arbitrator in the City of Los Angeles, the State of California in accordance with the commercial rules of the American Arbitration Association. The arbitrator shall be selected by the Association and shall be an attorney at law experienced in the field of corporate law. Any judgment upon any arbitration award may be entered in any court, federal or state, having competent jurisdiction of the parties. ARTICLE XVI SEVERABILITY If any provision of this Agreement shall be held invalid and unenforceable, the remainder of this Agreement shall remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall remain in full force and effect in all other circumstances. ARTICLE XVII NOTICE All notices required to be given under the terms of this Agreement shall be in writing and shall be deemed to have been duly given only if delivered to the addressee in person or mailed by certified mail, return receipt requested, as follows: IF TO THE COMPANY: Comprehensive Care Corporation 16305 Swingley Ridge Road Chesterfield, Missouri 63017 IF TO THE EXECUTIVE: Chriss W. Street ___________________________ ___________________________ or to any such other address as the party to receive the notice shall advise by due notice given in accordance with this paragraph. ARTICLE XVIII BENEFIT This Agreement shall inure to, and shall be binding upon, the parties hereto, the successors and assigns of the Company, and the heirs and personal representatives of the Executive. ARTICLE XIX WAIVER The waiver by either party of any breach or violation of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of construction and validity. ARTICLE XX GOVERNING LAW This Agreement has been negotiated and executed in the State of California, and California law shall govern its construction and validity. ARTICLE XXI ENTIRE AGREEMENT This Agreement contains the entire agreement between the parties hereto. No change, addition or amendment shall be made hereto, except by written agreement signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement and affixed their hands and seals the day and year first above written. (Corporate Seal) COMPREHENSIVE CARE CORPORATION By CHRISS W. STREET (Executive) EX-10 3 LETTER OF AGREEMENT This letter will confirm the agreement between Comprehensive Care Corporation (the "Company") and The Miller Group ("Miller") pursuant to which Miller will furnish to the Company, management consulting and investor relation services, as follows: 1. Miller will perform services for the Company in all areas generally considered to be management consulting and investor relations, including but not limited to the preparation and dissemination of financial publicity, annual and interim reports for stockholders and the financial community, preparation and dissemination of information concerning the Company's operations, and consultation with respect to the timing and content of financial communications. 2. Information to be released by Miller will be disseminated to general, financial and trade media, the investment banking community, banks and statistical organizations, all as deemed necessary or appropriate by Miller and the Company. 3. All information to be disseminated through Miller will be based upon material furnished by the Company and will be released only after receipt by Miller of final approval from the Company. The Company recognizes that Miller may have, either at the present time or in the future, obligations imposed upon it by the federal securities laws to verify independently certain of the information contained in releases being made through it. Accordingly, the Company agrees that Miller shall have the right to make such reasonable inquiries as it shall deem necessary or appropriate of officers and employees of the Company and its counsel and auditors with respect to information being released by Miller. The Company recognizes that the accuracy and completeness of all information contained in releases ultimately rests with the Company and agrees to indemnify and hold Miller harmless from and against any loss and expense arising out of a claim that any information released by Miller is inaccurate or incomplete. 4. You acknowledge and understand that Miller, in order to perform its services effectively under this agreement, and to satisfy such obligations as may be imposed upon it by the federal securities laws, requires the prompt receipt of all material information with respect to the Company, its operations and its prospects. Accordingly, you agree to furnish promptly to Miller copies of all reports and other filings with the Securities and Exchange Commission, all communications with stockholders and all reports received from your auditors. Furthermore, you recognize the necessity of promptly notifying Miller of all material developments concerning the Company, its business and prospects and to supply Miller with sufficient information necessary for Miller to make a determination as to its compliance with its own procedures as well as any legal requirements. 5. The terms of this agreement shall be for a minimum of twelve months from January 1, 1995. As compensation for the services to be rendered hereunder, the Company will pay to Miller a monthly fee of $5,500, payable in advance. In addition, out-of-pocket expenses incurred by Miller in connection with the services to be performed by it hereunder will be payable by the Company upon submission by Miller of monthly invoices delineating such expenses. This agreement shall continue in effect for the full period set forth in this paragraph five (5) and thereafter unless terminated by the Company or Miller upon not less than 30 days written notice, which notice may be given only after the expiration date. 6. The Company recognizes that client service officers and other employees of Miller are necessary for the continued servicing by Miller of its several clients. Accordingly, the Company agrees that it will not, during the term of this agreement and for a period of two years after its termination, employ any client service officer, account executive or other employee of Miller in any capacity. 7. Miller recognizes the personal nature of the services to be performed by it and agrees that it shall not transfer or assign to any other person, firm or corporation its responsibilities and obligations under this agreement. In the event that a merger, sale of assets or change of control of the Company or Miller shall occur, this agreement shall be binding upon the successor and assigns of such party. AGREED AND ACCEPTED: Please confirm that the foregoing correctly sets forth our mutual understanding by signing and returning the copy of this agreement provided for that purpose. Comprehensive Care Corporation The Miller Group Chriss W. Street Rudy R. Miller By: By: --------------------------- ----------------------------- Title: Chairman, Pres.&CEO Title: Chairman & CEO Date: Date: -------------------- -------------------- EX-27 4 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 QTR-1 QTR-2 MAY-31-1995 MAY-31-1995 AUG-31-1994 NOV-30-1994 275 388 0 0 4,921 6,291 4,965 4,773 0 0 12,649 13,820 29,317 24,236 13,676 11,328 30,380 28,785 14,610 15,372 10,579 10,683 22 22 0 0 0 0 2,600 128 30,380 28,785 8,057 7,351 8,063 7,356 0 0 7,989 7,721 1,528 1,327 750 433 251 274 2,455 2,399 45 72 2,500 2,471 0 0 0 0 0 0 2,500 2,471 1.14 1.18 1.14 1.18
EX-10 5 COMPREHENSIVE CARE CORPORATION SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT THIS SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT ("Purchase Agreement") is made and entered into as of this 5th day of January, 1995, by and among COMPREHENSIVE CARE CORPORATION, a Delaware corporation (the "Company"), and the persons whose names appear on the signature pages hereof (hereinafter collectively called the "Purchasers"). R E C I T A L S: A. The Company desires to obtain financing by issuance of its Two (2) Year Secured Convertible Notes (individually "Note" or collectively the "Notes") which are the subject of this Purchase Agreement; and B. The Company owns certain real property in the County of Arapahoe, State of Colorado, and Care Unit Hospital of Ohio, Inc., an Ohio corporation and a wholly-owned subsidiary of the Company ("CUHO"), owns certain real property in the County of Hamilton, State of Ohio, respectively, and in order to induce the Purchasers to purchase the Notes, and so that the Company and CUHO will receive financial and other benefits from the sale of Notes, the Company shall, and shall cause CUHO to, secure the obligations of the Company under the Notes with the said real property which is more particularly described elsewhere in this Purchase Agreement; and C. The Purchasers desire to acquire the Notes on the terms and conditions set forth herein. A G R E E M E N T: NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATIONS, IT IS AGREED as follows: 1. Issue of Notes. Subject to the terms and conditions hereof, the Company has authorized the issue of: (i) $2,000,000 aggregate principal amount of its Notes due January 9, 1997, to be issued substantially in the form attached hereto as Exhibit A for delivery at the office of Ryback Management, 7711 Carondelet Avenue, Suite 700, St. Louis, Missouri 63105, against payment to the Company of $2,000,000 by wire transfer in same day or next day funds. The term "Notes" or "Note" as used herein shall include the Notes originally issued pursuant to the provisions of this Purchase Agreement and any promissory notes delivered in substitution or exchange therefor. The Notes will bear interest, be payable and mature at the time and under the terms and conditions specified therein. The Notes will be convertible into shares of the Company's Common Stock at the rate of $6.00 face value of the Notes for each share of the Company's Common Stock, all as provided in the Notes. (ii) The issuance of up to 400,000 shares of Common Stock (which number may be adjusted as provided in the Notes) upon conversion of the Notes in accordance with their terms has been authorized and reserved for issuance by the Company. Notwithstanding any other term or provision hereof, the aggregate maximum amount of Notes that may be converted will be the amount which would result in the issuance of 400,000 shares of Common Stock upon conversion of Notes. The limitation shall be effected in the manner described below immediately upon and following receipt by the Company or its conversion agent of conversion notices resulting in aggregate conversions, aggregated with all previous conversion notices received, that would, except for this limitation, exceed 400,000 shares. Priority in right to convert Notes shall be given on a first to give Notice basis. Notices of conversion received on the same business day that in total would exceed the limitation shall each be deemed to be automatically reduced pro rata on the basis of the relative amounts elected to be converted. This 400,000 shares limitation is subject to analogous adjustments in the events and in the manners described in this Purchase Agreement or the Notes of the numbers of shares issuable upon conversion (related reciprocally to conversion price adjustments) of the Notes. 2. Representations and Warranties of the Company. The Company represents and warrants that: 2.1 The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, and duly qualified to do business and in good standing as a foreign corporation in the State of California and the State of Colorado, with full power and authority, corporate and otherwise, to enter into and perform this Purchase Agreement, to borrow hereunder, and to make, execute and deliver the various instruments and documents provided for herein; and CUHO is a corporation duly organized and validly existing in good standing under the laws of the State of Ohio, with full power and authority, corporate and otherwise, to enter into and perform this Purchase Agreement, to borrow hereunder, and to make, execute and deliver the various instruments and documents provided for herein. 2.2 The execution, delivery and performance by the Company of this Purchase Agreement, and the making, execution and delivery by the Company of the instruments contemplated hereby, have been duly authorized by all necessary corporate action and will not violate any provision of law, court order or decree, or of its Certificate of Incorporation or Bylaws, or result in the breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any agreement or instrument to which it is a party, or by which it or its property may be bound or affected. Each of this Purchase Agreement and the Notes is a valid and binding obligation of the Company, enforceable in accordance with its respective terms. 2.3 Except as set forth in a Schedule attached hereto, (a) there are no material lawsuits or proceedings pending, or, to the Company's knowledge, threatened against or affecting the Company and (b) there are no proceedings before any governmental commission, bureau or other administrative agency pending, or, to the Company's knowledge, threatened against the Company. 2.4 The authorized capital of the Company is 12,500,000 shares of Common Stock, $0.01 par value per share, of which approximately 2,200,000 are issued and outstanding, and 60,000 shares of Preferred Stock, $50.00 par value per share, of which no shares are issued and outstanding. There are no shares of Common Stock reserved for issuance for options, warrants or conversion of convertible securities, except as listed on a Schedule hereto. 2.5 The Company's subsidiaries are as set forth in a Schedule attached hereto. 2.6 The minute books of the Company have been properly kept and reflect all transactions entered into by the Company which require submission to or action by the stockholders or directors of the Company. 2.7 Any and all licenses and approvals required by the Company for the conduct of its business have been obtained from the federal, state, or local authorities concerned, all of which are in good standing. 2.8 The shares of Common Stock initially issuable upon conversion of the Notes have been duly authorized and at all times prior to such conversion will have been duly reserved for issuance upon such conversion and, when so issued, will be validly issued, fully paid and nonassessable. 2.9 Except for any applicable requirements of state securities laws (as to which no representations or warranties are made), no governmental permit, consent, approval or authorization is required in connection with (i) the execution and delivery of this Purchase Agreement by the Company or (ii) the offer, sale, issuance and delivery of the Notes contemplated hereby by the Company; provided that, all representations made to the Company by the Purchasers in this Purchase Agreement and in any other document or instrument delivered in connection herewith are assumed for purposes of this representation and warranty to be accurate and complete. 2.10 Included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 are the consolidated balance sheets of the Company at May 31, 1994 and May 31, 1993, and the consolidated statements of operations, cash flows and stockholders' equity for the year ended May 31, 1994, with the report thereon of Arthur Andersen & Co., independent accountants. Included in the Company's Quarterly Reports on Form 10-Q for the quarter ended August 31, 1994 are the unaudited consolidated balance sheets of the Company as of such dates, the unaudited consolidated statements of operations for the three-month periods ended on such dates and for the corresponding prior year periods, and the unaudited consolidated statements of cash flows for the three-month periods ended on such dates and for the corresponding prior year periods. 2.11 None of the Company's reports and filings with the Securities and Exchange Commission ("SEC") contained a misstatement of a material fact or omitted to state a material fact necessary to make the statements contained therein, in the light of the circumstances in which they were made or omitted, not misleading. 2.12 The Company Common Stock is traded on The New York Stock Exchange, Inc. ("NYSE"). No assurance is made as to any future NYSE listing of shares of Common Stock, whether issuable on conversion of Notes or otherwise outstanding. 2.13 The proceeds received by the Company from the Notes will be applied to payment in partial settlement of outstanding federal income tax liabilities and other general corporate purposes. 2.14 A portion of the proceeds of the sale of Notes shall be used for the benefit of CUHO, and CUHO derives a financial or other advantage from the sale of Notes to the Purchasers. 3. Representations of Each of the Purchasers. This Purchase Agreement is made with Purchasers by the Company in reliance upon the Purchasers' representations to the Company, which by Purchasers' acceptance hereof, Purchasers confirm, severally and not jointly, except as indicated herein, that (a) Purchasers are acquiring the Notes to be delivered for their own account and not for the beneficial interest of any other person, and not with a view to the distribution thereof, and that Purchasers will not distribute, sell or otherwise dispose of the Notes or any of the shares of Common Stock of the Company issuable upon conversion of the Notes except as permitted under the Securities Act of 1933, as amended (the "Act"), the General Rules and Regulations thereunder, and all applicable State "Blue Sky" laws; (b) Purchasers have been afforded access to information and have been informed fully concerning the Company, its financial condition and business prospects; (c) Purchasers' financial circumstances are such as to permit Purchasers to make this investment without having a present intention or need to liquidate their investment and Purchasers also severally acknowledge their awareness that their investment is subject to substantial risk of loss; (d) Purchasers severally confirm further that they have been advised that neither the Notes nor the Common Stock issuable upon the conversion thereof have been registered under the Act, and that, accordingly, such Notes and shares of Common Stock will be what is commonly known as "restricted securities," and are not freely transferrable by Purchasers except pursuant to an exemption from registration under the Act, such as Rule 144, the substance of which has been explained to Purchasers; and (e) that substantially the following legends shall be placed on the Notes (and any Shares of Common Stock issuable upon conversion thereof): THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION 4(2) OF SAID ACT AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES ISSUED UPON CONVERSION HEREOF MAY BE OFFERED FOR SALE OR SOLD OR OTHERWISE DISPOSED OF EXCEPT UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY. 4. Transfer by Each of the Purchasers. Neither the Notes to be purchased by Purchasers, nor any interest therein, shall be sold, transferred, assigned, or otherwise disposed of, unless the Company shall previously have received an opinion of counsel knowledgeable in federal securities law, in form and substance satisfactory to the Company and accompanied by such supporting documents as the Company may reasonably request, to the effect that registration under the Act is not required in connection with such disposition pursuant to the Act or the General Rules and Regulations thereunder. The Notes and the certificates evidencing the shares of Common Stock issued upon conversion of the Notes shall bear a conspicuous notation, substantially as provided above, setting forth the restrictions on transfer herein set forth. 5. Registration. 5.1 (a) Incidental Registration. The Company will notify Purchasers of any proposed filing of a registration statement at least thirty (30) days prior to each time that the Company proposes to file such registration statement covering shares of its Common Stock other than (i) a registration statement for the purpose of registering employees' stock options or plans or employees' stock purchase or other such director or employee plans on Form S-8 or its equivalent, or (ii) a registration statement filed in connection with a business combination, and will include in not more than two (2) such registration statements any Common Stock issued to Purchasers upon conversion of the Notes which Purchasers request to have so registered, by notifying the Company not later than ten (10) days after the receipt by Purchasers of the Company's notice. If any Purchaser requests such registration, all of the Purchasers shall be entitled to register such number of their shares of Common Stock at that time as they shall specify in writing to the Company, subject to reduction on a pro rata basis if in the reasonable judgment of the Company or its underwriter or investment banker the inclusion of more shares could reasonably be expected to threaten the success of the registration. (b) Demand Registration. If the Company has not instituted registration procedures within the period ending one hundred eighty (180) days after the date of this Purchase Agreement and which afford the Purchasers an opportunity to include their shares in such registration proceedings, the Purchasers shall be entitled to demand a registration with the SEC of some or all of their shares. The demand must be made by the holders of not less than one-half of the shares originally issued and/or issuable under the Notes. The obligations of the Company and of the Purchasers in connection with any demand registration shall be as set forth in Section 5.1(c) below. (c) Terms of Registrations. The foregoing rights and duties shall be subject to the following terms and conditions: (i) The Company's duty to notify the Purchasers and to include any Purchaser's Common Stock in any such registration statement pursuant to an incidental registration under Section 5.1(a) shall cease after any of the Purchasers' Common Stock has been included in any two (2) effective registration statements, including any pursuant to Section 5.1(b). (ii) The Company shall bear the cost of any registration statement and the incremental expense of including therein any of the Purchasers' Common Stock pursuant to this Section 5.1, except that Purchasers shall bear the following expenses ratably applicable to each Purchaser's Common Stock: any underwriting discount or brokerage commissions, SEC or NYSE or "Blue Sky" filing or similar fees, securities transfer taxes, if applicable, and the Purchaser's own legal expenses. (iii) The Company will use its best efforts to cause such registration statement to become effective under the Act; provided, however, that if any securities being sold directly by the Company are included in such registration statement, the Company may at its discretion elect not to proceed with such registration statement or to withdraw such registration statement after it has been filed but before it becomes effective under the Act without regard to whether the registration statement also includes any of Purchasers' Common Stock. In the event that any such registration is terminated by the Company prior to effectiveness, such registration shall not be counted as one of the two (2) registration statements under which a Purchaser is entitled to include shares of Common Stock hereunder. (iv) If such registration statement relates to an underwritten public offering of the Company's Common Stock for cash and the underwriters or managing underwriters of such proposed offering determine in good faith that the marketability of the underwritten Company's Common Stock so requires, Purchasers' Common Stock which has been included in the registration statement pursuant to this section shall not be offered or sold to the public for such period up to sixty (60) days from the effective date of the registration statement, as such underwriters shall specify in writing. Nothing herein shall require Purchasers to offer such securities through any such underwriter. 5.2 The Company's obligations to Purchasers shall require it to use its best efforts to cause any such registration statement to be prepared in accordance with the Act and filed in an expeditious manner with due regard for continuity of the ordinary and necessary business operations of the Company. In connection with any requests pursuant to Section 5.1, the Company will (i) use its best efforts to permit a lawful distribution by Purchasers in the manner specified by Purchasers; (ii) use its best efforts to qualify or otherwise "blue sky" the proposed offering by Purchasers in California, New York, Missouri, and not more than two (2) additional jurisdictions agreed upon by the holders of the majority of the shares included in the registration statement; provided, however, if such offering is underwritten by an underwriter, the Purchasers' shares shall also be "blue skied" in all states covered by the underwriting; and provided, further, that nothing herein contained shall require the Company to qualify as a foreign corporation in a jurisdiction in which it is not presently qualified or to become licensed as a securities broker or dealer in any jurisdiction; (iii) use its best efforts to obtain approval for listing the shares included in the registration statement on the NYSE, the other principal exchange, or the principal trading market or quotation system upon which shares of Company Common Stock are then traded; (iv) provide Purchasers with a reasonable number of registration statements and prospectuses (including amendments and revisions) requested by Purchasers; and (v) use its best efforts to have such prospectuses meet the requirements of Section 10(a) of the Securities Act of 1933, as amended. The Company shall use reasonable efforts to cause any effective registration statement which includes Purchasers' Common Stock to remain effective for a period of at least ninety (90) days. Provided, however, in the event of a deferral in the inclusion of Purchasers' Common Stock, as provided in Section 5.1(c)(iv), such minimum period of ninety (90) days shall be extended by the period of such deferral. 5.3 The Company's obligations under this Section 5 are conditioned upon its being furnished by Purchasers with detailed descriptions of Purchasers, their Common Stock to be covered in the requested registration statement, their proposed method of distribution, and such other relevant information and undertakings as may be required. If any Purchaser or Purchasers do not furnish the requisite information, shares of such Purchasers need not be included in the registration statement. However, this shall not affect the right of the other Purchasers hereunder to have their shares included within the registration statement. 5.4 Anything herein to the contrary notwithstanding, if the Company receives a request pursuant to Section 5.1 hereof and believes, in good faith, that registration under the Act is not required in order to permit the proposed sale or other disposition of such Common Stock covered by such request either because it reasonably believes it can obtain a "no-action letter" from the SEC permitting the proposed transactions without registration under the Act or it is not required by reason of Rule 144(k) or otherwise, within ten (10) days after receiving such request it will so notify Purchasers in writing and proceed diligently with Purchasers' cooperation to seek to obtain such "no-action letter" or opinion of counsel, as the case may be; provided, however, that if such "no-action letter" or an opinion of counsel reasonably satisfactory in form and substance to Purchasers and Purchasers' counsel (who must be knowledgeable in federal securities law) is not obtained and submitted to Purchasers within thirty (30) days from the date on which Purchaser made a request pursuant to Section 5.1 hereof, the Company shall diligently proceed to comply with such request in accordance with the terms hereof, without the imposition on Purchasers of an incremental registration expense occasioned by such delay. 5.5 In connection with any registration statement pursuant to this Section 5, Purchasers shall severally and not jointly indemnify and hold harmless the Company and each person (if any) who controls the Company within the meaning of Section 15 of the Act from and against all losses, claims, damages and liabilities to which the Company or any of them may be subject, actually or allegedly caused by any untrue or allegedly untrue statement of a material fact contained in any such registration statement or related prospectus or actually or allegedly caused by an omission to state therein a material fact actually or allegedly required to be stated therein or necessary to make the statements therein not misleading, which statement or omission shall have been made in reliance upon and in conformity with written information furnished to the Company by Purchasers on Purchasers' behalf specifically for use in connection with such registration statement. Reciprocally, the Company hereby agrees to indemnify and hold harmless Purchasers, any broker or other person who may be deemed an underwriter for Purchasers and each person (if any) who controls the Purchasers or Purchasers' underwriter within the meaning of Section 14 of the Act, from and against all losses, claims, damages and liabilities to which such parties or any of them may be subject, actually or allegedly caused by any untrue or allegedly untrue statement of a material fact contained in any such registration statement or related prospectus or actually or allegedly caused by any omission to state therein a material fact actually or allegedly required to be stated therein or necessary to make the statements therein not misleading, except insofar as such statement or omission shall have been made in reliance upon and in conformity with written information furnished to the Company by or on behalf of Purchasers specifically for use in connection with such registration statement. (a) The foregoing indemnity shall include reimbursements for any legal or other expenses incurred by the indemnified party or any director, officer or controlling person, as defined above, in connection with investigating or defending any such loss, damage, claim, liability or action. (b) Promptly after receipt by an indemnified party under this Section 5.5 of notice of commencement of any action, the indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5.5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it or him, as the case may be, from any liability to any indemnified party otherwise than under this Section 5.5 except to the extent that the failure to so notify such party adversely affected the indemnifying party. In case any such action is brought against any indemnified party and it or he notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent desired, jointly, with any other indemnifying party similarly notified, assume the defense and control the settlement thereof, with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party as to its or his election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 5.5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable cost of investigation. (c) The Company and Purchasers each have the right to make a reasonable investigation of the information contained in any registration statement covered by this Section 5 to confirm its accuracy, subject, however, to the obligation of each Purchaser to keep in confidence any information derived until such time as the information is filed with the SEC. 5.6 To the extent transfers of the Notes or Common Stock are permitted pursuant to Section 4 hereof, Purchasers may transfer, assign or otherwise dispose of their rights under this Section 5, as a whole or in part, to one or more parties; but no such action by Purchasers shall increase or otherwise affect the nature or extent of the Company's obligations provided in this Section. 6. Right to Redeem; Notices to Trustee. (a) The Company, at its option at any time, may redeem the Notes, in whole or in part, at any time prior to maturity for cash at a redemption price as provided herein. From the date of the Notes to and including the first anniversary of the date of the Notes, the redemption price shall be an amount equal to 120% of the outstanding face amount of the Notes being redeemed. After the first anniversary of the date of the Notes to and including the second anniversary of the date of the notes, the redemption price shall be an amount equal to 110% of the outstanding face amount of the Notes being redeemed. If the Company elects to redeem Notes, it shall notify the holders of the Notes in writing of the redemption date, the principal amount of Notes to be redeemed, the redemption price and the paying agent, if any. The Company shall give the notice provided for in this Section at least 30 days before the redemption date. Any partial redemption shall be allocated among the then outstanding Notes pro rata on the basis of the then unpaid principal amount of each of such Notes. (b) Once notice of redemption is mailed, Notes called for redemption become due and payable at 4:01 P.M. Los Angeles time on the redemption date and at the redemption price. Upon surrender to the Company or its paying agent, such Notes shall be paid at the redemption price, plus accrued interest to the redemption date. (c) On or before the redemption date, the Company shall deposit into a segregated trust account or with a paying agent money sufficient to pay the redemption price of and (unless the redemption date is an interest payment date) accrued interest on all Notes to be redeemed on that date other than any Notes called for redemption on that date which have been converted prior to the date of such deposit. The paying agent shall return to the Company any money not required for that purpose because of conversion of Notes. (d) Upon surrender of a Note that is redeemed in part, the Company shall issue the holder of the Note a new Note equal in principal amount to the unredeemed portion of the Note surrendered. 7. Hypothecation of Notes. The Company expressly agrees that any of the Purchasers may pledge, assign or otherwise hypothecate any of the Notes acquired hereby to any other Purchaser. 8. Security. The Notes shall be secured by a deed of trust on certain real property, as more particularly described in a Schedule attached hereto, located in Arapahoe County, Colorado ("Deed of Trust") and a mortgage on certain real property located in Hamilton County, Ohio ("Mortgage"), each in substantially the form and substance attached as a Schedule hereto. The priority of the Deed of Trust as a first deed of trust on the property thereby encumbered and the priority of the Mortgage as a first mortgage on the property thereby encumbered shall be insured by ALTA lender's policies of title insurance issued by Chicago Title Insurance Company subject only to the title exceptions identified in the title commitments attached as a Schedule hereto. 9. Relative Priorities. All Notes shall rank equally and ratably with each other. Except to the extent of the security provided by the Deed of Trust and the Mortgage, the Notes shall rank on a parity with all other unsecured general obligations of the Company. 10. Waiver of Usury Defense. The Company agrees that it will not assert, plead (as a defense or otherwise) or in any manner whatsoever claim (and will actively resist any attempt to compel it to assert, plead or claim) in any action, suit or proceeding that the interest rate on the Notes violates present or future usury or other laws relating to the interest payable on any debt and will not otherwise avail itself (and will actively resist any attempt to compel it to avail itself) of the benefits or advantages of any such laws. 11. Choice of Law and Venue; Jury Trial Waiver THE VALIDITY OF THIS PURCHASE AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MISSOURI, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF MISSOURI. THE COMPANY AND EACH PURCHASER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE PURCHASE AGREEMENT OR THE NOTES OR ANY OF THE AGREEMENTS, DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND EACH PURCHASER REPRESENTS FOR ITSELF THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A NON-JURY TRIAL BY THE COURT. 12. Environmental Condition. None of the real properties or assets subject to the Deed of Trust or the Mortgage (the "Real Property") has ever been used by the Company or CUHO or, to the best of the Company's or CUHO's knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials. None of Real Property has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned or operated by the Company or CUHO. The Company and CUHO have not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by the Company or CUHO resulting in the releasing or disposing of Hazardous Materials into the environment. "Hazardous Materials" means all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; and (d) asbestos in any form or electrical equipment which contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of fifty (50) parts per million. 13. Licenses and Permits. All material licenses, permits and consents and similar rights required from any Federal, state or local governmental body for the ownership, construction, use and operation of the businesses or properties now owned or operated by the Company or CUHO at the Real Property have been validly issued and are in full force and effect, and each of the Company and CUHO is in compliance, in all material respects, with all of the provisions thereof and none of such licenses, permits or consents is the subject of any pending or, to the best of the Company's or CUHO's knowledge and belief, threatened proceeding for the revocation, cancellation, suspension or non-renewal thereof. 14. Governmental Authority. No consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other Person is required (i) for the grant by the Company and CUHO of the security interest in the Real Property contemplated hereby or for the execution, delivery or performance of this Purchase Agreement, the Notes and the Deed of Trust by the Company or the execution, delivery or performance of the Mortgage by CUHO, or (ii) for the perfection of such security interests as are granted thereby. 15. Notices. Any notice or demand required or desired to be given to or served upon the Company or Purchasers in connection herewith shall be in writing and deemed to have been sufficiently given or served for all purposes when delivered in person or when deposited in the United States mails, certified or registered, postage prepaid, if to the Company, addressed or delivered as follows: If to the Company: Comprehensive Care Corporation 16305 Swingley Ridge Drive, Suite 100 Chesterfield, Missouri 63017 Attention: Secretary If to the Purchasers: Lindner Bulwark Fund, Inc. c/o Ryback Management 7711 Carondelet Avenue, Suite 700 St. Louis, Missouri 63105 Attention: Larry Callahan Principal Amount of Notes Purchased Purchasers: $ 2,000,000.00 Lindner Bulwark Fund, Inc. $ 2,000,000.00 Total or, if any other address shall at any time be designated by the Company or by the Purchaser in writing in conformance with the provisions hereof, to such other address. 16. Parties in Interest. All the terms and provisions of this Purchase Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, other than purchasers of Common Stock sold to the public pursuant to Section 5 hereof. 17. Section and Other Headings. Section and other headings herein are for reference purposes only, and shall not be used in any way to govern, limit, modify, construe or otherwise affect this Purchase Agreement. 18. Counterparts. This Purchase Agreement may be executed with each Purchaser in one or more counterparts, each of which shall be deemed an original, but all of which together shall be deemed but one and the same instrument. 19. Attorneys' Fees. In the event of any suit or action arising out of an Event of Default under this Purchase Agreement or the Notes issued hereunder, the Purchasers shall be entitled to reasonable attorneys' fees and costs of suit. IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by the undersigned persons thereunto duly authorized. "Company" COMPREHENSIVE CARE CORPORATION By:/S/ Chriss W. Street Chriss W. Street, Chairman of the Board, Chief Executive Officer and President "Purchasers" LINDNER BULWARK FUND, INC. By: /S/ Larry Callahan Its: Vice President By: Its: EXHIBIT A TO SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT INCORPORATED BY REFERENCE TO THE ATTACHED COMPREHENSIVE CARE CORPORATION SECURED CONVERTIBLE NOTE THE SECURITIES REPRESENTED BY THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO SECTION 4(2) OF SAID ACT AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE DISTRIBUTION THEREOF. NEITHER THIS NOTE NOR THE SECURITIES ISSUED UPON CONVERSION HEREOF MAY BE OFFERED FOR SALE OR SOLD OR OTHERWISE DISPOSED OF EXCEPT UPON COMPLIANCE WITH SAID ACT AND AS PERMITTED BY THE PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE AND MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE COMPANY. COMPREHENSIVE CARE CORPORATION SECURED CONVERTIBLE NOTE No. 1 St. Louis, Missouri January 9, 1995 FOR VALUE RECEIVED, the undersigned, COMPREHENSIVE CARE CORPORATION, a Delaware corporation (the "Company"), hereby promises to pay to Lindner Bulwark Funds, Inc. (the "Holder") or order, the principal amount of Two Million and no/100ths dollars ($2,000,000), such amount to be due and payable on January 9, 1997. Interest on the unpaid principal balance from the date hereof shall be payable quarterly commencing April 9, 1995, and on each July 9, October 9, January 9, and April 9, thereafter, at the rate of twelve and one-half percent (12-1/2%) per annum. Provided, however, that upon and during the continuance of an Event of Default under this Note, the Company shall pay an additional finance charge at the rate of two and one-half percent (2-1/2%) per annum. Provided, further, that the Company shall have the right to redeem all or a portion of the principal amount of this Note upon thirty (30) days' written notice to the Holder effective at any time on or prior to January 9, 1996 at a price equal to 120% of the principal amount of the Note being redeemed, and the right to redeem all or a portion of the principal amount of this Note upon thirty (30) days' written notice to the Holder effective at any time on or after the first anniversary and prior to the second anniversary of the date of this Note at a price equal to 110% of the principal amount of the Note being redeemed. Payments of principal and interest shall be made in lawful money of the United States of America, at the principal office of the Holder or at such other place as the Holder hereof shall have designated to the Company in writing. This Note is secured by a deed of trust of even date herewith encumbering certain real property in the County of Arapahoe, State of Colorado ("Deed of Trust"), and a mortgage of even date herewith encumbering certain real property in the County of Hamilton, State of Ohio ("Mortgage"). This Note is made pursuant to a certain Secured Convertible Note Purchase Agreement dated as of January 5, 1995 (the "Purchase Agreement") between the Company and the Purchasers named therein, and the Holder hereof is entitled to the benefits of the Purchase Agreement and may exercise the remedies provided for thereby or otherwise available in respect thereof, in case of any material breach thereof by the Company. (This Note and other Notes identical in terms (except for name and face amount) issued to Holder and to other Holders who are parties to said Agreement, are hereinafter collectively called the "Notes".) In case of an Event of Default, as defined herein, the unpaid balance of the principal of this Note may be declared and become due and payable in the manner provided herein. This Note is issued subject to the following additional terms and conditions: 1. Conversion. (a) Subject to any limitations expressly provided in the Purchase Agreement, any holder of this Note will have the right at its option at any time to and including the date on which the principal amount of and interest on this Note is paid in full to convert, subject to the terms and provisions hereof, all or a portion of the principal amount of this Note, into shares of the Company's Common Stock, $.01 par value per share, at the conversion price hereinafter provided. (b) To convert this Note, in whole or in part as provided herein at the Holder's election, the Holder hereof shall surrender this Note and give written notice to the Company of his intention to convert, stating the portion of the Note that is to be converted and the name and address of each person in whose name a share or shares of stock issuable upon such conversion is to be registered. If requested by the Company, said Holder shall also deliver to the Company a statement of each such person in whose name shares are to be registered that such person intends to acquire such shares for investment and not with a view to the distribution thereof. (c) As promptly as practical after the surrender and giving of notice to convert as herein provided, the Company shall (i) pay the Holder the amount of accrued and unpaid interest on this Note to the date on which such conversion is made or deemed made, as hereinafter provided in subparagraph 2(b) hereof; and (ii) deliver or cause to be delivered at its office or agency maintained for that purpose to or upon written order of the Holder of the Note certificates representing the number of fully paid and nonassessable shares of Common Stock of the Company into which said Note is converted and, in the event of partial conversion, a new Note in an aggregate principal amount equal to the unconverted portion of said Note, dated as of the date to which interest has been paid, and if no interest has been paid, dated as of the date of the Note converted in part, and in all other respects identical to the Note converted. The Company shall have the right to imprint upon such certificates the legend set forth in Section 3 of the Purchase Agreement. (d) The conversion price for each share of Common Stock issuable pursuant to the conversion of the Note shall be six dollars ($6.00) per share payable in lawful money of the United States of America and shall be adjusted as provided in Section 3.6 hereof, and as provided below (hereinafter called the "Conversion Price"). 2. Reservation of Shares. (a) The Company covenants and agrees that it, concurrently with issuance of the Notes, shall have reserved and shall at all times thereafter reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issuing such shares upon the conversion of the Notes, the full number of shares of Common Stock deliverable upon the conversion of all Notes, subject to the aggregate limitation provided in the Purchase Agreement. The Company covenants and agrees that the shares of its Common Stock delivered upon conversion of the Notes shall at the time of delivery of the certificates for such shares of Common Stock, be validly issued and outstanding and fully paid and nonassessable shares of Common Stock. The Company further covenants and agrees that it will pay when due and payable any and all Federal and state original issue taxes which may be payable in respect of the issue of the Notes or any shares of Common Stock upon the conversion of Notes. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the transfer and delivery of Notes or the issuance or delivery of certificates for Common Stock upon the conversion of any Notes, all such tax being payable by the Holder of such Notes at the time of surrender. (b) Each person in whose name any certificate for shares of Common Stock is issuable upon the exercise of this Note shall for all purposes be deemed to have become the holder of record of the Common Stock represented thereby on, and such certificate shall be dated, the date upon which the Note was duly surrendered and notice of conversion was given; provided, however, that if the date of such surrender and notice is a date upon which the stock transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next prior business day on which the stock transfer books of the Company are open. 3. Adjustments to Conversion Price. 3.1 In case the Company shall at any time or from time to time after the date of issuance of the Notes issue any additional shares of Common Stock (or any security convertible into shares of Common Stock or any rights or options to purchase shares of Common Stock as provided in Section 3.3(c) below) for a consideration per share less than the Conversion Price in effect immediately prior to the issuance of such additional shares, or without consideration, then, and thereafter successively upon each such issuance, the Conversion Price in effect immediately prior to the issuance of such additional shares shall forthwith be reduced to a price determined by dividing: (a) An amount equal to the sum of (i) the number of shares of capital stock outstanding immediately prior to such issuance multiplied by the then existing Conversion Price, plus (ii) the consideration, if any, received by the Company upon such issuance, by (b) The total number of shares of capital stock outstanding immediately after the issuance of such additional shares. 3.2 The Company shall not be required to make any adjustment of the Conversion Price in accordance with Section 3.1 if the amount of such adjustment shall be less than $.01, but in such case, any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment of the Conversion Price which, together with all adjustments thereof so carried forward, shall amount to not less than $.01. 3.3 For the purpose of adjustments under Section 3.1, the following provisions shall also be applicable: (a) In the case of the issuance of additional shares of capital stock for cash, the consideration received by the Company therefor shall be deemed to be the net cash proceeds received for such shares without deducting any commissions or other expenses paid or incurred by the Company for any underwriting of, or otherwise in connection with, the issuance of such shares. (b) In case of the issuance (otherwise than upon conversion of Notes or exchange of shares of capital stock) of additional shares of capital stock for a consideration other than cash or a consideration a part of which shall be other than cash, the amount of the consideration shall be determined by the Board of Directors of the Company. (c) In the case of the issuance by the Company after the date of issuance of the Notes, of any security that is convertible into shares of capital stock or any rights or options to purchase shares of Common Stock, (i) the Company shall be deemed to have issued the maximum number of shares of capital stock deliverable upon the exercise of such rights or options or upon conversion of such securities and (ii) the consideration therefor shall be deemed to be the sum of (x) the consideration received by the Company for such convertible securities or for such other rights or options as the case may be, without deducting therefrom any expenses or commissions incurred or paid by the Company for any underwriting or issuance of such convertible security or right or option, plus (y) the consideration or adjustment payment to be received by the Company in connection with such conversion, plus (z) the minimum price at which shares of capital stock are to be delivered upon the exercise of such rights or options, or, if no minimum price is specified and such shares are to be delivered at the option price related to the market value of the subject shares, an option price bearing the same relation to the market value of the subject shares at the time such rights or options were granted, provided that as to such options such further adjustment as shall be necessary on the basis of the actual option price at the time of exercise shall be made at such time if the actual option price is less than the aforesaid assumed option price. Except as above stated, no further adjustment of the Conversion Price shall be made as a result of the actual issuance of the shares of capital stock referred to in this subparagraph (c). (d) For the purpose hereof, any additional shares of capital stock issued as a stock dividend shall be deemed to have been issued for no consideration. (e) The number of shares of capital stock at any time outstanding shall include (i) all outstanding common stock of the Company, and (ii) the aggregate number of shares deliverable in respect of the convertible securities, rights and options referred to in subparagraph (c) of this Section 3.3, provided that, with respect to shares referred to in clause (i) of such subparagraph (c), to the extent that such options, warrants or conversion privileges are not exercised, such shares shall be deemed to be outstanding only until the expiration dates of the rights, options or conversion privilege or the prior cancellation thereof. Notwithstanding the foregoing, there shall not be taken into account, for the purpose of any computation made pursuant to Section 3.1, whether for the determination of the number of shares of capital stock issued or outstanding on or prior to any date, or otherwise: (i) any options, warrants, or rights to purchase shares of capital stock of the Company in existence on the date of issuance of the Notes, (ii) any options, warrants, or rights for the purchase of shares of capital stock hereafter granted to any employee or director of the Company, including such grant with respect to any employees' or directors' stock option plan or stock purchase or other such plan or grant, provided that such options, warrants, grants and rights hereafter granted together with all other then outstanding options, warrants, grants and rights granted to employees do not in the aggregate provide for the issuance of more than 20% of the then outstanding shares of the capital stock of the Company, (iii) the Company's Shareholder Rights Plan, or (iv) any shares of capital stock issued upon the exercise of any such options, warrants, or conversion rights. 3.4 If at any time or from time to time the Company shall by subdivision, consolidation or reclassification of shares, or otherwise, change as a whole, the outstanding shares of Common Stock into a different number or class of shares, the outstanding shares issuable upon conversion of each Note and the Conversion Price per share shall be proportionately and correspondingly adjusted. 3.5 In case the Company shall declare a dividend upon the capital stock payable otherwise than out of earnings or earned surplus and otherwise than in capital stock, the Conversion Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to the amount thereof payable per share of the capital stock, or in the case of any other dividend, to the fair value thereof per share of the capital stock as determined by the Board of Directors of the Company. For the purposes of the foregoing, a dividend other than in cash shall be considered payable out of earnings or earned surplus only to the extent that such earnings or earned surplus are charged an amount equal to the fair value of such dividend as determined in good faith by the Board of Directors of the Company. Such reductions shall take effect as of the date on which a record is taken, the date as of which the holders of capital stock of record entitled to such dividend are to be determined. 3.6 Irrespective of any adjustments or changes in the Conversion Price or the number of shares of Common Stock actually issuable under the several Notes, the Notes shall continue to express the Conversion Price per share and the number of shares issuable thereunder as expressed in the Notes when initially issued. 3.7 The Company shall give notice to the Holder of any change in the Conversion Price under this Note and the method of calculation thereof. The Company shall give the Holder advance notice of any cash dividends, rights offerings and other transactions directly for the benefit of holders of Common Stock of the Company. 4. Merger. If, prior to the payment in full or conversion in full of the Notes, the Company shall at any time consolidate with or merge into another corporation, the Holder of each Note will thereafter be entitled to receive, upon the conversion thereof, the securities or property to which a holder of the number of shares of Common Stock then issuable upon the conversion of such Note would have been entitled upon such consolidation or merger, and the Company shall take such steps in connection with such consolidation or merger as may be necessary to assure that this Note (or a new Note issued by the succeeding company containing exactly the same terms as this Note) shall remain in effect and that the provisions of this Note shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter issuable upon the conversion of the Notes. A sale of all or substantially all of the assets of the Company for a consideration (apart from the assumption of obligations) consisting principally of securities shall be deemed a consolidation or merger for the foregoing purposes. 5. Fractional Shares. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the conversion of Notes, but in respect of any final fraction of a share it will make a payment in cash based on the then market value of the Common Stock as determined by the Company's Board of Directors. 6. Default. "Event of Default" whenever used herein means any one of the following events: (a) Default in payment under this Note or under any other loan instrument of the Company of: (i) any installment of interest when it becomes due and the continuance of such default for a period of fifteen (15) days after receipt of written notice to the Company of such default, or (ii) the principal when it becomes due; (b) The entry of a decree or order by any court having jurisdiction in the premises adjudging the Company bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee (or similar official) of the Company or any substantial part of its property, and the continuance of such decree or order in effect for a period of ten (10) consecutive days; (c) The institution by the Company of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer to consent seeking reorganization or relief under the Federal Bankruptcy Code or any other applicable federal or state law, or the consent by it to the filing of any such petition or to the appointment of any receiver, liquidator, assignee, trustee (or similar official) for the Company or any substantial part of its property, or the making by it of any assignment for the benefit of creditors; (d) Any default under the Deed of Trust or the Mortgage; or (e) The real property encumbered by the Mortgage or the Deed of Trust is sold or transferred other than to an entity controlling, controlled by or under common control with the Company. In case of the occurrence of an Event of Default (i) written notice thereof shall be given by the Company to the Holder of this Note and (ii) the entire unpaid principal amount of any Note together with any interest then unpaid shall immediately become due and payable at the option of the Holder thereof without presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived. In such case, any such Holder may proceed to protect and enforce his rights by a suit in equity, action at law, or other appropriate proceedings. In the event that an Event of Default, as defined above, necessitates legal action, the Company agrees to pay all costs and expenses thereof, including reasonable attorneys' fees and costs of suit and collection. 7. No Present Right as Stockholder on account of Holding Note. No Holder of this Note shall be entitled to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the conversion hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder of this Note, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matters submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance, or otherwise) or to receive dividends or subscriptions rights or otherwise until the Note shall have been converted and the Common Stock issuable upon the conversion hereof shall have been come deliverable as provided herein. WITNESS the seal of the Company and the signature of its duly authorized officers. COMPREHENSIVE CARE CORPORATION By: Chriss W. Street, Chairman of the Board, Chief Executive Officer and President ATTEST: Kerri Ruppert, Secretary [SEAL] EX-10 6 - ------------------------------------------------------------- COMPREHENSIVE CARE CORPORATION and CONTINENTAL STOCK TRANSFER & TRUST COMPANY Rights Agent Rights Agreement Dated as of April 19, 1988 Restated and Amended as of October 21, 1994 RIGHTS AGREEMENT Rights Agreement, dated as of April 19, 1988, restated and amended as of 5:00 o'clock p.m. New York City time, October 21, 1994 (the "Effective Time"), between Comprehensive Care Corporation, a Delaware corporation (the "Company"), and Continental Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). RECITALS A. The Board of Directors of the Company had authorized and declared a dividend of one right (a "Right") for each Old Common Share (as defined in Section 1(f) hereof) outstanding at the authorized the issuance of one Right with respect to each Old Common Share that has or shall become outstanding between the Record Date and the earliest of (1) the Distribution Date, (2) the Redemption Date or (3) the Final Expiration Date (as such terms are defined in Section 1(k) hereof), each Right initially representing the right to purchase one Old Common Share. B. The Board of Directors of the Company have authorized a reclassification of each Old Common Share into one-tenth (1/10th) of one Common Share (as defined in Section 1(f) hereof). C. Pursuant to the determination of the Board of Directors to adjust the number of Rights outstanding as of the Effective Time, each one Right Outstanding immediately prior to the Effective Time ("Old Right") shall become one-tenth (1/10th) of one Right; and the Purchase Price of one Common Share shall become $300. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows: Section 1. Certain Definitions. For purposes of this Rights Agreement, the following terms have the meanings indicated: (a) "Acquiring Person" shall mean any Person (as such term is hereinafter defined) who or which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 25% or more of the Common Shares of the Company then outstanding but shall not include the Company, any Subsidiary of the Company or any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such plan, in its capacity as an agent or trustee for any such plan. (b) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations, as in effect on the date of this Rights Agreement, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed to "beneficially own" any securities: (i) which such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such Person or any of such Person's Affiliates or Associates, directly or indirectly, has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, whether or not in writing (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, (1) securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange or (2) securities which a Person or any of such Person's Affiliates or Associates may acquire, does acquire or may be deemed to have the right to acquire, pursuant to any merger or other acquisition agreement between the Company and such Person (or one or more of his Affiliates or Associates) if such agreement has been approved by the Board of Directors of the Company prior to there being an Acquiring Person; or (B) the right to vote pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this clause (B) if the agreement, arrangement or understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or Associate thereof) with which such Person or any of such Person's Affiliates or Associates has any agreement, arrangement or understanding (other than customary agreements with and between underwriters and selling group members with respect to a bona fide public offering of securities), whether or not in writing, for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in the proviso to Section 1(c)(ii)(B)) or disposing of any securities of the Company. (d) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in either the State of New York or California are authorized or obligated by law or executive order to close. (e) "Close of Business" on any given date shall mean 5:00 p.m., New York City time, on such date; provided, however, that if such date is not a Business Day it shall mean 5:00 p.m., New York City time, on the next succeeding Business Day. (f) "Common Shares" when used with reference to the Company shall mean the shares of Common Stock, par value $.01 per share, of the Company as reclassified as of the Effective Time. "Common Shares" when used with reference to any Person other than the Company shall mean the capital stock (or equity interest) with the greatest voting power of such other Person or, if such Person is a Subsidiary of another Person, the Person or Persons which ultimately control such first-mentioned Person. "Old Common Shares" shall mean the shares of Common Stock, par value $.10 per share, as constituted at and after the Record Date and prior to the Effective Time. (g) "Continuing Director" shall mean (i) any member of the Board of Directors of the Company, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate or an Acquiring Person, or a representative, nominee or designee of any Acquiring Person or of any such Affiliate or Associate, and was a member of the Board prior to the time that any Person becomes an Acquiring Person or (ii) any Person who subsequently becomes a member of the Board, while such Person is a member of the Board, who is not an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a representative, nominee or designee of an Acquiring Person or of any such Affiliate or Associate, if such Person's nomination for election or election to the Board is recommended or approved by a majority of the Continuing Directors. (h) "Person" shall mean any individual, partnership, firm, corporation or other entity, and shall include any successor (by merger or otherwise) of such entity. (i) "Shares Acquisition Date" shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such. (j) "Subsidiary" of any Person shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interests is owned, of record or beneficially, directly or indirectly, by such Person. (k) The following terms shall have the meanings defined for such terms in the Sections set forth below: Term Section Adjustable Shares 11(a)(ii) common stock equivalents Company Recitals 11(a)(iii) current per share market price 11(d) Current Value 11(a)(iii) Distribution Date 3(a) Final Expiration Date 7(a) Purchase Price 4 Record Date Recitals Redemption Date 7(a) Redemption Price 23(a) Right Recitals Right Certificate 3(a) Rights Agent Recitals Spread 11(a)(iii) Substitution Period 11(a)(iii) Summary of Rights 3(b) Trading Day 11(d) Section 2. Appointment of Rights Agent. The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to the Distribution Date also be the holders of the Common Shares) in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such Co-Rights Agents as it may deem necessary or desirable. In the event the Company appoints one or more co- Rights Agents the respective duties of the Rights Agent and any co-Rights Agent shall be as the Company shall determine. Contemporaneously with such appointment, if any, the Company shall notify the Rights Agent thereof. Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth day after the date of the commencement of, or first public announcement of the intent of any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any entity holding shares of capital stock of the Company for or pursuant to the terms of any such plan, in its capacity as an agent or trustee for any such plan) to commence, a tender or exchange offer the consummation of which would result in any Person becoming the Beneficial Owner of Common Shares aggregating more than 30% or more of the then outstanding Common Shares of the Company (including any such date which is after the date of this Rights Agreement; the earlier of (i) and (ii) being herein referred to as the "Distribution Date"), (x) the Rights (unless earlier terminated, redeemed or expired) will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for Common Shares registered in the names of the holders thereof (which certificates for Common Shares shall also be deemed to be Right Certificates) and not by separate certificates, and (y) the Rights (and the right to receive certificates therefor) will be transferable only in connection with the transfer of the underlying Common Shares. As soon as practicable after the Distribution Date, the Rights Agent will send, by first-class, insured, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, a certificate for Rights, in substantially the form of Exhibit A hereto (a "Right Certificate"), evidencing one Right for each Common Share so held. As of the Distribution Date, the Rights will be evidenced solely by such Right Certificates. (b) On the Record Date or as soon as practicable thereafter, the Company will send or cause to be sent a copy of a Summary of Rights to Purchase Common Shares, in substantially the form attached hereto as Exhibit B (the "Summary of Rights"), by first-class, postage-prepaid mail, to each record holder of Common Shares as of the close of business on the Record Date at the address of such holder shown on the records of the Company. With respect to certificates for Common Shares outstanding as of the close of business on the Record Date, until the Distribution Date (or the earlier Redemption Date or Final Expiration Date), the Rights will be evidenced by such certificates for Common Shares registered in the names of the holders thereof (together with a copy of the Summary of Rights) and the registered holders of the Common Shares shall also be registered holders of the associated Rights. Until the Distribution Date (or the earlier Redemption Date or Final Expiration Date), the surrender for transfer of any certificate for Common Shares outstanding at the close of business on the Record Date, with or without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. (c) Certificates for Common Shares which become outstanding (whether upon issuance out of authorized but unissued Common Shares, issuance out of treasury or transfer or exchange of outstanding Common Shares) after the Record Date but prior to the earliest of the Distribution Date, the Redemption Date or the Final Expiration Date shall be deemed also to be certificates for Rights, and shall have impressed, printed, stamped, written or otherwise affixed onto them the following legend: This certificate also evidences and entitles the holder hereof to certain Rights as set forth in a Rights Agreement between Comprehensive Care Corporation and Security Pacific National Bank, dated as of April 19, 1988 (the "Rights Agreement"), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of Comprehensive Care Corporation. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. Comprehensive Care Corporation will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor. As described in the Rights Agreement, Rights issued to Acquiring Persons or Associates or Affiliates thereof (as defined in the Rights Agreement) shall become null and void. With respect to such certificates containing the foregoing legend, until the Distribution Date (or the earlier Redemption Date or Final Expiration Date), the Rights associated with the Common Shares represented by such certificates shall be evidenced by such certificates (together with a copy of the Summary of Rights) and the surrender for transfer of any such certificates shall also constitute the transfer of the Rights associated with the Common Shares represented thereby. In the event that the Company purchases or acquires any Common Shares after the Record Date but prior to the Distribution Date, any Rights associated with such Common Shares shall be deemed cancelled and retired so that the Company shall not be entitled to exercise any Rights associated with the Common Shares which are no longer outstanding. Section 4. Form of Right Certificates. The Right Certificates (and the forms of election to purchase shares, certification and assignment to be printed on the reverse thereof) shall be substantially the same as Exhibit A hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Rights Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange or trading system on which the Rights may from time to time be listed or quoted, or to conform to usage. Subject to the terms and conditions hereof, the Right Certificates, whenever issued, shall be dated as of the Record Date, and shall show the date of countersignature by the Rights Agent, and on their face shall entitle the holders thereof to purchase such number of Common Shares as shall be set forth therein at the price per share set forth therein (the "Purchase Price"), but the number and kind of such shares and the Purchase Price shall be subject to adjustment as provided herein. Section 5. Countersignature and Registration. The Right Certificates shall be executed on behalf of the Company by its Chairman of the Board of Directors, President or any Senior Vice President, Executive Vice President or Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company's seal or a facsimile thereof which shall be attested by the Secretary or any Assistant Secretary of the Company, either manually or by facsimile signature. The Right Certificates shall be manually countersigned by an authorized signatory of the Rights Agent, but it shall not be necessary for the same signatory to countersign all of the Right Certificates hereunder. No Right Certificate shall be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Right Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Right Certificates, nevertheless, may be countersigned by the Rights Agent, and issued and delivered by the Company with the same force and effect as though the person who signed such Right Certificates had not ceased to be such officer of the Company; and any Right Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Right Certificate, shall be a proper officer of the Company to sign such Right Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer. Following the Distribution Date, the Rights Agent will keep or cause to be kept, at one of its offices in New York, New York, books for registration and transfer of the Right Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Right Certificates, the number of Rights evidenced on its face by each of the Right Certificates and the date of each of the Right Certificates. Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject to the provisions of Sections 11(a)(ii) and 14 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the earlier of the Redemption Date or the Final Expiration Date, any Right Certificate or Right Certificates may be transferred, split up, combined or exchanged for another Right Certificate or Right Certificates, entitling the registered holder to purchase a like number of Common Shares as the Right Certificate or Right Certificates surrendered then entitled such holder to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Right Certificate shall make such request in writing delivered to the Rights Agent, and shall surrender, together with any required form of assignment and certificate duly completed, the Right Certificate or Right Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose. Thereupon the Rights Agent shall, subject to Sections 11(a)(ii) and 14 hereof, countersign and deliver to the person entitled thereto a Right Certificate or Right Certificates, as the case may be, as so requested. The Company may require payment from the holders of Right Certificates of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of such Right Certificates. Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Right Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company's request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Right Certificate if mutilated, the Company will make and deliver a new Right Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Right Certificate so lost, stolen, destroyed or mutilated. Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights. (a) The registered holder of any Right Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein) in whole or in part at any time after the Distribution Date upon surrender of the Right Certificate, with the form of election to purchase and certification on the reverse side thereof duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each Common Share as to which the Rights are exercised, at or prior to the earliest of (i) the close of business on April 19, 1998 (the "Final Expiration Date"), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the closing of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in Section 1(c)(ii)(A)(2) hereof. (b) The Purchase Price for each Common Share pursuant to the exercise of a Right shall initially be $30, shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below. (c) Upon receipt of a Right Certificate representing exercisable Rights, with the form of election to purchase and certification duly executed, accompanied by payment of the Purchase Price for the shares to be purchased and an amount equal to any applicable transfer tax required to be paid by the holder of such Right Certificate in accordance with Section 9 hereof, by certified or cashier's check, or money order payable to the order of the Company, the Rights Agent shall thereupon promptly (i) requisition from any transfer agent of the Common Shares (or make available, if the Rights Agent is the transfer agent) certificates for the number of Common Shares to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, (ii) when appropriate, requisition from the Company the amount of cash to be paid in lieu of issuance of fractional shares in accordance with Section 14, (iii) promptly after receipt of such certificates, cause the same to be delivered to or upon the order of the registered holder of such Right Certificate, registered in such name or names as may be designated by such holder and (iv) when appropriate, after receipt, promptly deliver such cash to or upon the order of the registered holder of such Right Certificate. (d) In case the registered holder of any Right Certificate shall exercise less than all the Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Right Certificate or to his duly authorized assigns, subject to the provisions of Section 14 hereof. (e) Notwithstanding anything in this Rights Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless the certificate contained in the form of election to purchase set forth on the reverse side of the Right Certificate surrendered for such exercise shall have been duly completed and signed by the registered holder thereof and the Company shall have been provided with such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Section 8. Cancellation and Destruction of Right Certificates. All Right Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in cancelled form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Rights Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Right Certificate acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all cancelled Right Certificates to the Company, or shall, at the written request of the Company, destroy such cancelled Right Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. Section 9. Reservation and Availability of Common Shares. The Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued Common Shares, or any authorized and issued Common Shares held in its treasury, the number of Common Shares that will be sufficient to permit the exercise in full of all outstanding Rights. So long as the Common Shares issuable upon the exercise of Rights may be listed on any national securities exchange or traded in the over-the-counter market and quoted on the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ"), the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange or so traded in such over-the-counter market, upon official notice of issuance upon such exercise. The Company covenants and agrees that it will take all such action as may be necessary to ensure that all Common Shares delivered upon exercise of Rights shall, at the time of delivery of the certificates for such shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares. The Company further covenants and agrees that it will pay when due and payable any and all Federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Right Certificates or of any Common Shares upon the exercise of Rights. The Company shall not, however, be required to pay any transfer tax which may be payable in respect of any transfer or delivery of Right Certificates to a person other than, or the issuance or delivery of certificates for the Common Shares in a name other than that of, the registered holder of the Right Certificate evidencing Rights surrendered for exercise or to issue or deliver any certificates for Common Shares in a name other than that of the registered holder upon the exercise of any Rights until any such tax shall have been paid (any such tax being payable by the holder of such Right Certificate at the time of surrender) or until it has been established to the Company's satisfaction that no such tax is due. Section 10. Common Shares Record Date. Each person in whose name any certificate for Common Shares is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of the Common Shares represented thereby on, and such certificate shall be dated, the date upon which the Right Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and any applicable transfer taxes) was made; provided, however, that if the date of such surrender and payment is a date upon which the Common Shares transfer books of the Company are closed, such person shall be deemed to have become the record holder of such shares on, and such certificate shall be dated, the next succeeding Business Day on which the Common Shares transfer books of the Company are open. Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights. The Purchase Price, the number of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11. (a) (i) In the event the Company shall at any time after the date of this Rights Agreement (A) declare a dividend on the Common Shares payable in Common Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding Common Shares into a smaller number of shares or (D) issue any shares of its capital stock in a reclassification of the Common Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a), the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of capital stock issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive the aggregate number and kind of shares of capital stock which, if such Right had been exercised immediately prior to such date and at a time when the Common Shares transfer books of the Company were open, he would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification. If an event occurs which would require an adjustment under both Section 11(a)(i) and Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, the adjustment required pursuant to, Section 11(a)(ii). (ii) In the event (A) any Acquiring Person or any Associate or Affiliate of any Acquiring Person, at any time after the date of this Rights Agreement, directly or indirectly, shall merge into the Company or otherwise combine with the Company and the Company shall be the continuing or surviving corporation of such merger or combination and the Common Shares of the Company shall remain outstanding and not changed into or exchanged for stock or other securities of any other Person or the Company or cash or any other property, or (B) any Person shall become an Acquiring Person, then, promptly following the first occurrence of one of the events listed in this subparagraph (ii), proper provision shall be made so that each holder of a Right, except as provided below, shall thereafter have a right to receive, upon exercise thereof in accordance with the terms of this Rights Agreement, such number of Common Shares as shall equal the result obtained by (x) multiplying the then- current Purchase Price by the then-number of Common Shares for which a Right is then exercisable and (y) dividing that product by 50% of the current per share market price of the Common Shares (determined pursuant to Section 11(d)) on the fifth day after the earlier of the date of the occurrence of, or the date of the first public announcement of, one of the events listed above in this subparagraph (ii) (the "Adjustment Shares"); provided, however, that if the transaction that would otherwise give rise to the foregoing adjustment is also subject to the provisions of Section 13 hereof, then only the provisions of Section 13 hereof shall apply and no adjustment shall be made pursuant to this Section 11(a)(ii). Notwithstanding the foregoing, upon the occurrence of either of the events listed above in this subparagraph (ii), any Rights that are or were acquired or beneficially owned by the Acquiring Person or any Associate or Affiliate of the Acquiring Person shall become void and any holder (whether or not such holder is an Acquiring Person or an Associate or Affiliate of an Acquiring Person) of such Rights shall thereafter have no right to exercise such Rights under any provision of this Rights Agreement. The Company shall not enter into any transaction of the kind listed in this subparagraph (ii) if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. Any Right Certificate issued pursuant to Section 3 hereof that represents Rights beneficially owned by an Acquiring Person or any Associate or Affiliate thereof and any Right Certificate issued at any time upon the transfer of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate, and any Right Certificate issued pursuant to Section 6, 7(d) or 22 or this Section 11 upon transfer, exchange, replacement or adjustment of any other Right Certificate referred to in this sentence, shall contain the following legend (provided, however, that the Rights Agent shall not be responsible for affixing such legend unless it has actual knowledge as to the foregoing circumstances or the Company has notified the Rights Agent in writing thereof): The Rights represented by this Right Certificate were issued to a Person who was an Acquiring Person or an Affiliate or an Associate of an Acquiring Person or a nominee thereof. This Right Certificate and the Rights represented hereby have become null and void as specified in Section 11(a)(ii) of the Rights Agreement. (iii) In the event that there shall not be sufficient Treasury shares or authorized but unissued Common Shares to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii), the Company shall take all such action as may be necessary to authorize additional Common Shares for issuance upon exercise of the Rights, provided, however, that if the Company is unable to cause the authorization of a sufficient number of additional Common Shares, then, in the event the Rights become so exercisable, the Company, with respect to each Right and to the extent necessary and permitted by applicable law and any agreements or instruments in effect on the date hereof to which it is a party, shall: (A) determine the excess of (1) the value of the Adjustment Shares issuable upon the exercise of a Right (the "Current Value"), over (2) the Purchase Price (such excess, the "Spread") and (B) with respect to each Right, make adequate provision to substitute for the Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Shares or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock which the Board of Directors of the Company has deemed to have the same value as Common Shares) (such shares of preferred stock, "common stock equivalent")), (4) debt securities of the Company, (5) other assets or (6) any combination of the foregoing having an aggregate value equal to the Current Value, where such aggregate value has been determined by the Board of Directors of the Company based upon the advice of a nationally recognized investment banking firm selected by the Board of Directors of the Company; provided, however, if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the first occurrence of one of the events listed in subparagraph (ii) above, then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, Common Shares (to the extent available) and then, if necessary, cash, which in the aggregate are equal to the Spread. If the Board of Directors of the Company shall determine in good faith that it is unlikely that sufficient additional Common Shares could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than ninety (90) days following the first occurrence of one of the events listed in subparagraph (ii) above, in order that the Company may seek stockholder approval for the authorization of such additional shares (such period as may be extended, the "Substitution Period"). To the extent that the Company determines that some action need be taken pursuant to the first and/or second sentences of this Section 11(a)(iii), the Company (x) shall provide that such action shall apply uniformly to all outstanding Rights, and (y) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek any authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such suspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a)(iii), the value of the Common Shares shall be the current per share market price (as determined pursuant to Section 11(d) hereof) on the date of the first occurrence of one of the events listed in subparagraph (ii) above and the value of any "common stock equivalent" shall be deemed to have the same value as the Common Shares on such date. (b) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of Common Shares entitling them (for a period expiring within 45 calendar days after such record date) to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a price per Common Share (or having a conversion price per Common Share, if a security convertible into Common Shares) less than the current per share market price of the Common Shares (as defined in Section 11(d)) on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of Common Shares outstanding on such record date plus the number of Common Shares which the aggregate offering price of the total number of Common Shares to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such current market price and the denominator of which shall be the number of Common Shares outstanding on such record date plus the number of additional Common Shares to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible). In case such subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. Common Shares owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (c) In case the Company shall fix a record date for the making of a distribution to all holders of the Common Shares (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing or surviving corporation) of evidences of indebtedness, securities or assets (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of the last regular period cash dividend theretofore paid or a dividend payable in Common Shares) or subscription rights or warrants (excluding those referred to in Section 11(b)), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the current per share market price of the Common Shares (as defined in Section 11(d)) on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the assets, securities or evidences of indebtedness so to be distributed or of such subscription rights or warrants applicable to one Common Share and the denominator of which shall be such current per share market price of the Common Shares. Such adjustments shall be made successively whenever such a record date is fixed; and in the event that such distribution is not so made, the Purchase Price shall again be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed. (d) For the purpose of any computation hereunder, the "current per share market price" of the Common Shares on any date shall be deemed to be the average of the daily closing prices per share of such Common Shares for the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that in the event that the current per share market price of the Common Shares is determined during any period following the announcement by the issuer of such Common Shares of (i) a dividend or distribution on such Common Shares payable in such Common Shares or securities convertible into such Common Shares or (ii) any subdivision, combination or reclassification of such Common Shares, and prior to the expiration of 30 Trading Days after the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification, then, and in each such case, the "current market price" shall be appropriately adjusted to reflect the current market price per Common Share equivalent. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Shares are listed or admitted to trading or, if the Common Shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by NASDAQ or such other system then in use, or, if on any such date the Common Shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Shares selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Common Shares, the fair value of the Common Shares on such date as determined in good faith by the Board of Directors of the Company shall be used. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the Common Shares are listed or admitted to trading is open for the transaction of business or, if the Common Shares are not listed or admitted to trading on any national securities exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by law or executive order to close. If the Common Shares are not publicly held or not so listed or traded, "current per share market price" shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent. (e) No adjustment in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price. Any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest ten- thousandth of a share as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three years from the date of the transaction which requires such adjustment or (ii) the date of the expiration of the right to exercise any Rights. (f) If as a result of an adjustment made pursuant to Section 11(a), the holder of any right thereafter exercised shall become entitled to receive any shares of capital stock of the Company other than Common Shares, thereafter the number of such other shares so receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Shares contained in Section 11(a) through (c), inclusive, and the provisions of Sections 7, 9, 10 and 13 hereof with respect to the Common Shares shall apply on like terms to any such other shares. (g) All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of Common Shares purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein. (h) Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of shares (calculated to the nearest ten-thousandth) obtained by (i) multiplying (x) the number of shares covered by a Right immediately prior to this adjustment by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price and (ii) dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price. (i) The Company may elect on or after the date of any adjustment of the Purchase Price to adjust the number of Rights, in substitution for any adjustment in the number of Common Shares issuable upon the exercise of a Right. Each of the Rights outstanding after such adjustment of the number of Rights shall be exercised for the number of Common Shares for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest ten-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Right Certificates have been issued, shall be at least 10 days later than the date of the public announcement. If Right Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Section 11(i), the Company shall, as promptly as practicable, cause to be distributed to holders of record of Right Certificates on such record date Right Certificates evidencing, subject to Section 14 hereof, the additional Rights to which such holders shall be entitled as a result of such adjustment, or, at the option of the Company, shall cause to be distributed to such holders of record in substitution and replacement for the Right Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Right Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Right Certificates so to be distributed shall be issued, executed and countersigned in the manner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the names of the holders of record of Right Certificates on the record date specified in the public announcement. (j) Irrespective of any adjustment or change in the Purchase Price or the number of Common Shares issuable upon the exercise of the rights, the Right Certificates theretofore and thereafter issued may continue to express the Purchase Price per share and the number of shares which were expressed in the initial Right Certificates issued hereunder. (k) Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the Common Shares issuable upon exercise of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable Common Shares at such adjusted Purchase Price. (l) In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuing to the holder of any Right exercised after such record date the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the Common Shares and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment; provided, however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment. (m) Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that it in its sole discretion shall determine to be advisable in order that any consolidation or subdivision of the Common Shares, issuance wholly for cash of any of the Common Shares at less than the current market price, issuance wholly for cash of Common Shares or securities which by their terms are convertible into or exchangeable for Common Shares, stock dividends or issuance of rights, options or warrants referred to hereinabove in this Section 11, hereafter made by the Company to holders of its Common Shares shall not be taxable to such stockholders. Section 12. Certificate of Adjusted Purchase Price or Number of Shares. Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment, and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Common Shares a copy of such certificate and (c) mail a brief summary thereof to each holder of a Right Certificate in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained and shall not be deemed to have knowledge of any such adjustment unless and until it shall have received such certificate. Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. (a) Except as provided in Section 13(b) hereof, in the event, directly or indirectly, (A) the Company shall consolidate with, or merge with and into, any other Person, (B) any Person shall consolidate with the Company, or merge with and into the Company and the Company shall be the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for stock or other securities of any other Person (or the Company) or cash or any other property, or (C) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one or more transactions, assets or earning power aggregating more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person, then, and in each such case, proper provision shall be made so that (i) each holder of a Right (except as otherwise provided herein) shall thereafter have the right to receive, upon the exercise thereof in accordance with the terms of this Rights Agreement, such number of Common Shares of such other Person (including the Company as successor thereto or as the surviving corporation) as shall be equal to the result obtained by (x) multiplying the then-current Purchase Price by the then-number of Common Shares for which a Right is then exercisable (without taking into account any adjustment previously made pursuant to Section 11(a)(ii)) and (y) dividing that product by 50% of the current per share market price of the Common Shares of such other Person (determined pursuant to Section 11(d) hereof) on the date of consummation of such consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares shall thereafter be liable for, and shall assume, by virtue of such consolidation, merger, sale or transfer, all the obligations and duties of the Company pursuant to this Rights Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such issuer shall take such steps (including, but not limited to, the reservation of a sufficient number of its Common Shares in accordance with Section 9 hereof) in connection with such consummation as may be necessary to assure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights. The Company shall not enter into any transaction of the kind referred to in this Section 13 if at the time of such transaction there are any rights, warrants, instruments or securities outstanding or any agreements or arrangements which, as a result of the consummation of such transaction, would eliminate or substantially diminish the benefits intended to be afforded by the Rights. The Company shall not consummate any such consolidation, merger, sale or transfer unless prior thereto the Company and such issuer shall have executed and delivered to the Rights Agent a supplemental agreement so providing. The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. (b) In the event of any merger or other acquisition transaction involving the Company pursuant to an agreement of the type described in Section 1(c)(ii)(A)(2), the provisions of Section 13(a) hereof shall not be applicable to such transaction and this Rights Agreement and the rights of holders of Rights hereunder shall be terminated in accordance with Section 7(a) hereof. Section 14. Fractional Rights and Fractional Shares. (a) The Company shall not be required to issue fractions of Rights or to distribute Right Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the registered holders of the Right Certificates with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right. For the purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading or, if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the- counter market, as reported by NASDAQ or such other system then in use or, if on any such date the Rights are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights, the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used. (b) The Company shall not be required to issue fractions of shares upon exercise of the Rights or to distribute certificates which evidence fractional shares. In lieu of fractional shares, the Company may pay to the registered holders of Right Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one Common Share. For purposes of this Section 14(b), the current market value of a Common Share shall be the closing price of a Common Share (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of such exercise. (c) The holder of a Right by the acceptance of the Rights expressly waives his right to receive any fractional Rights or any fractional shares upon exercise of a Right. Section 15. Rights of Action. All rights of action in respect of this Rights Agreement, except the rights of action given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Right Certificates (and, prior to the Distribution Date, the registered holders of the Common Shares); and any registered holder of any Right Certificate (or, prior to the Distribution Date, of the Common Shares), without the consent of the Rights Agent or of the holder of any other Right Certificate (or, prior to the Distribution Date, of the Common Shares), may, in his own behalf and for his own benefit, enforce this Rights Agreement, and may institute and maintain any suit, action or proceeding against the Company to enforce this Rights Agreement, or otherwise enforce or act in respect of his right to exercise the Rights evidenced by such Right Certificate in the manner provided in such Right Certificate and in this Rights Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Rights Agreement and shall be entitled to specific performance of the obligations under, and injunctive relief against actual or threatened violations of, the obligations of any Person (including, without limitation, the Company) subject to this Rights Agreement. Section 16. Agreement of Right Holders. Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that: (a) prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Shares; (b) as of and after the Distribution Date, the Right Certificates are transferable only on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer with all required certifications completed; and (c) the Company and the Rights Agent may deem and treat the person in whose name the Right Certificate (or, prior to the Distribution Date, the associated Common Shares certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Right Certificates or the associated Common Shares certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary. Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder, as such, of any Right Certificate shall be entitled to vote, receive dividends or be deemed for any purpose the holder of the Common Shares or any other securities of the Company which may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained herein or in any Right Certificate be construed to confer upon the holder of any Right Certificate, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 24 hereof), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by such Right Certificate shall have been exercised in accordance with the provisions hereof. Section 18. Concerning the Rights Agent. The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it hereunder in accordance with a fee schedule to be mutually agreed upon and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Rights Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Rights Agreement, including the costs and expenses of defending against any claim of liability in the premises. The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Rights Agreement in reliance upon any Right Certificate or certificate for the Common Shares or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, instruction, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper person or persons. Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust or stock transfer business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Rights Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Rights Agreement, any of the Right Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, any successor Rights Agent may countersign such Right Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases Right Certificates shall have the full force provided in the Right Certificates and in this Rights Agreement. In case at any time the name of the Rights Agent shall be changed and at such time any of the Right Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Right Certificates so countersigned; and in case at that time any of the Right Certificates shall not have been countersigned, the Rights Agent may countersign such Right Certificates either in its prior name or in its changed name; and in all such cases such Right Certificates shall have the full force provided in the Right Certificates and in this Rights Agreement. Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties and obligations imposed by this Rights Agreement upon the following terms and conditions, by all of which the Company and the holders of Right Certificates, by their acceptance thereof, shall be bound: (a) The Rights Agent may consult with legal counsel selected by it (who may be legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Rights Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Operating Officer, any Executive Vice President, Senior Vice President or Vice President, the Treasurer, the Secretary or any Assistant Treasurer or Assistant Secretary of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Rights Agreement in reliance upon such certificate. (c) The Rights Agent shall be liable hereunder only for its own negligence, bad faith or willful misconduct. (d) The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Rights Agreement or in the Right Certificates (except as to its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Rights Agent shall not be under any responsibility in respect of the validity of this Rights Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Right Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Rights Agreement or in any Right Certificate; nor shall it be responsible for any adjustment required under the provisions of Sections 11 or 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Right Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Common Shares to be issued pursuant to this Rights Agreement or any Right Certificate or as to whether any Common Shares will, when so issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Rights Agreement. (g) The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from any one of the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Operating Officer, any Executive Vice President, Senior Vice President or Vice President, the Treasurer, the Secretary or any Assistant Treasurer or Assistant Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties under this Rights Agreement, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or for any delay in acting while waiting for these instructions. Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken or omitted by the Rights Agent with respect to its duties or obligations under this Rights Agreement and the date on and/or after which such action shall be taken or omitted. The Rights Agent shall not be liable to the Company for any action taken or omitted in accordance with a proposal included in any such application on or after the date specified therein (which date shall not be less than three business days after the date any such officer actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking of any such action (or the effective date in the case of omission), the Rights Agent shall have received written instructions in response to such application specifying the action to be taken or omitted. (h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Rights Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity. (i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, omission, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof. (j) At any time and from time to time after the Distribution Date, upon the request of the Company, the Rights Agent shall promptly deliver to the Company a list, as of the most recent practicable date (or as of such earlier date as may be specified by the Company), of the holders of record of Rights. Section 21. Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Rights Agreement upon 30 days' notice in writing mailed to the Company and to each transfer agent of the Common Shares by registered or certified mail. The Company shall promptly notify the holders of the Right Certificates by first-class mail of any such resignation. The Company may remove the Rights Agent or any successor Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Shares by registered or certified mail, and to the holders of the Right Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the resigning, removed, or incapacitated Rights Agent shall remit to the Company, or to any successor Rights Agent designated by the Company, all books, records, funds, certificates or other documents or instruments of any kind then in its possession which were acquired by such resigning, removed or incapacitated Rights Agent in connection with its services as Rights Agent hereunder, and shall thereafter be discharged from all duties and obligations hereunder. Following notice of such removal, resignation or incapacity, the Company shall appoint a successor to such Rights Agent. If the Company shall fail to make such appointment within a period of 30 days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Right Certificate (who shall, with such notice, submit his Right Certificate for inspection by the Company), then the registered holder of any Right Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be a corporation organized and doing business under the laws of the United States or of any state of the United States so long as such corporation is authorized to do business as a banking institution in the State of California, in good standing, having an office or an affiliate with an office in the State of New York which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Shares, and mail a notice thereof in writing to the registered holders of the Right Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be. Section 22. Issuance of New Right Certificates. Notwithstanding any of the provisions of this Rights Agreement or of the Rights to the contrary, the Company may, at its option, issue new Right Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Right Certificates made in accordance with the provisions of this Rights Agreement. Section 23. Redemption. (a) The Board of Directors of the Company may, at its option, at any time prior to the close of business on the tenth day following the Shares Acquisition Date, redeem all but not less than all of the then outstanding Rights at a redemption price of $.02 per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the "Redemption Price"), provided, however, if the Board of Directors of the Company authorizes redemption of the Rights after the time a person becomes an Acquiring Person, then there must be Continuing Directors then in office and such authorization shall require the concurrence of a majority of such Continuing Directors. Notwithstanding anything contained in this Rights Agreement to the contrary, the Rights shall not be exercisable following a transaction or event described in Section 11(a)(ii) prior to the expiration of the Company's right of redemption hereunder. (b) Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price. Within ten (10) days after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Shares. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made. Neither the Company nor any of its Affiliates or Associates may redeem, acquire or purchase for value any Rights at any time in any manner other than that specifically set forth in this Section 23, and other than in connection with the purchase of Common Shares prior to the Distribution Date. Section 24. Notice of Certain Events. In case the Company shall propose (a) to pay any dividend payable in stock of any class to the holders of Common Shares or to make any other distribution to the holders of Common Shares (other than a regular periodic cash dividend at a rate not in excess of 125% of the rate of the last regular periodic cash dividend theretofore paid) or (b) to offer to the holder of Common Shares rights or warrants to subscribe for or to purchase any additional Common Shares or shares of stock of any class or any other securities, rights or options, or (c) to effect any reclassification of its Common Shares (other than a reclassification involving only the subdivision of outstanding Common Shares), or (d) to effect any consolidation or merger into or with, or to effect any sale or other transfer (or to permit one or more of its subsidiaries to effect any sale or other transfer), in one or more transactions, of more than 50% of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to, any other Person (other than pursuant to a merger or other acquisition agreement of the type described in Section 1(c)(ii)(A)(2) hereof), or (e) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to the Rights Agent and to each holder of a Right Certificate, in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of the Common Shares, if any such date is to be fixed, and such notice shall be so given in the case of any action covered by clause (a) or (b) above at least ten (10) days prior to the record date for determining holders of the Common Shares for purposes of such action, and in the case of any such other action, at least ten (10) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the Common Shares, whichever shall be the earlier. In case any event set forth in Section 11(a)(ii) of this Rights Agreement shall occur, then, in any such case, the Company shall as soon as practicable thereafter give to the Rights Agent and to each holder of a Right Certificate, in accordance with Section 25 hereof, a notice of the occurrence of such event, which notice shall describe the event and the consequences of the event to holders of Rights under Section 11(a)(ii) hereof. Section 25. Notices. Notices or demands authorized by this Rights Agreement to be given or made by the Rights Agent or by the holder of any Right Certificate to or on the Company shall be sufficiently given or made if sent by first- class mail, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows: Comprehensive Care Corporation 16305 Swingley Ridge Drive, Suite 100 Chesterfield, Missouri 63017 Attention: Secretary Subject to the provisions of Section 21 hereof, any notice or demand authorized by this Rights Agreement to be given or made by the Company or by the holder of any Right Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Company) as follows: Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 Attention: Compliance Department Notices or demands authorized by this Rights Agreement to be given or made by the Company or the Rights Agent to the holder of any Right Certificate shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at the address of such holder as shown on the registry books of the Company. Section 26. Supplements and Amendments. The Company and the Rights Agent may from time to time supplement or amend this Rights Agreement without the approval of any holders of Right Certificates (i) to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (ii) to shorten or lengthen any time period hereunder, including specifically any time period relating to when the Rights may be redeemed (which shortening or lengthening, following the Shares Acquisition Date, shall be effective only if there are Continuing Directors and shall require the concurrence of a majority of such Continuing Directors) or (iii) so long as the interests of the holders of the Right Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person) are not adversely affected thereby, to make any other provisions in regard to matters or questions arising hereunder which the Company and the Rights Agent may deem necessary or desirable, including but not limited to extending the Final Expiration Date. Upon the delivery of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Rights Agreement to the contrary, no supplement or amendment shall be made which changes the Redemption Price, the Purchase Price or the number of Common Shares for which a Right is exercisable. Prior to the Distribution Date, the interests of the holders of Rights shall be deemed coincident with the interests of the holders of Common Shares. Section 27. Successors. All the covenants and provisions of this Rights Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. Section 28. Benefits of this Rights Agreement. Nothing in this Rights Agreement shall be construed to give to any person or corporation other than the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares) any legal or equitable right, remedy or claim under this Rights Agreement; but this Rights Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Right Certificates (and, prior to the Distribution Date, the Common Shares). Section 29. Severability. If any term, provision, covenant or restriction of this Rights Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Rights Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Section 30. Governing Law. This Rights Agreement and each Right Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts to be made and performed entirely within such State. Section 31. Counterparts. This Rights Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 32. Descriptive Heading. Descriptive headings of the several Sections of this Rights Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed and their respective corporate seals to be hereunto affixed, all dated as of the day and year first above written and restated and amended as set forth herein as of the Effective Time. COMPREHENSIVE CARE CORPORATION By: Chriss W. Street, Chairman, President and Chief Executive Officer By: Kerri Ruppert, Secretary CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: William F. Seegraber, Vice President Exhibit A [Form of Right Certificate] Certificate No. R- ________ Rights NOT EXERCISABLE AFTER APRIL 19, 1998 OR EARLIER IF NOTICE OF REDEMPTION IS GIVEN OR IF THE COMPANY IS MERGED OR ACQUIRED PURSUANT TO AN AGREEMENT OF THE TYPE DESCRIBED IN SECTION 1(c)(ii)(A)(2) OF THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.02 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED IN SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS CERTIFICATE WERE ISSUED TO A PERSON WHO WAS AN ACQUIRING PERSON OR AN ASSOCIATE OR AFFILIATE OF AN ACQUIRING PERSON OR A NOMINEE THEREOF. THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY HAVE BECOME NULL AND VOID AS SPECIFIED IN SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT.] Right Certificate COMPREHENSIVE CARE CORPORATION This certifies that ________________________, or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement dated as of April 19, 1988 (the "Rights Agreement") between Comprehensive Care Corporation, a Delaware corporation (the "Company"), and Security Pacific National Bank, a national banking association, as Rights Agent (the "Rights Agent"), to purchase from the Company at any time after the Distribution Date and prior to 5:00 P.M. (New York City time) on April 19, 1998, at the offices of the Rights Agent, or its successors as Rights Agent, designated for such purpose, one fully paid, nonassessable common share (the "Common Shares") of the Company, at a purchase price of $____ per share (the "Purchase Price"), upon presentation and surrender of this Right Certificate with the Form of Election to Purchase and certification duly executed. The number of Rights evidenced by this Right Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of 5:00 p.m. New York City time, __________________, 199_ based on the Common Shares as constituted at such date. Capitalized terms used in this Right Certificate without definition shall have the meanings ascribed to them in the Rights Agreement. As provided in the Rights Agreement, the Purchase Price and the number of Common Shares which may be purchased upon the exercise of the Rights evidenced by this Right Certificate are subject to modification and adjustment upon the happening of certain events. This Right Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Right Certificates. Copies of the Rights Agreement are on file at the principal offices of the Company and the Rights Agent. This Right Certificate, with or without other Right Certificates, upon surrender at the offices of the Rights Agent designated for such purpose, may be exchanged for another Right Certificate or Right Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of Common Shares as the Rights evidenced by the Right Certificate or Right Certificates surrendered shall have entitled such holder to purchase. If this Right Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Right Certificate or Right Certificates for the number of whole Rights not exercised. Subject to the provisions of the Rights Agreement, the Rights evidenced by this Right Certificate may be redeemed by the Company at its option at a redemption price of $.02 per Right at any time prior to ten (10) days after the Shares Acquisition Date. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors. No fractional Common Shares will be issued upon the exercise of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will be made, as provided in the Rights Agreement. No holder of this Right Certificate, as such, shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Common Shares or of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the Right or Rights evidenced by this Right Certificate shall have been exercised as provided in the Rights Agreement. The Company and the Rights Agent may from time to time supplement or amend the Rights Agreement without the approval of any holders of Right Certificates, to cure any ambiguity, to correct or supplement any provision contained therein which may be defective or inconsistent with any other provisions therein, to shorten or lengthen any time period thereunder, including any time period relating to when the Rights may be redeemed (which shortening or lengthening, following the Shares Acquisition Date, shall be effective only if there are Continuing Directors and shall required the concurrence of a majority of such Continuing Directors), or, so long as the interests of the holders of Right Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person) are not adversely affected thereby, to make any other provisions in regard to matters or questions arising thereunder which the Company and the Rights Agent may deem necessary or desirable, including but not limited to extending the Final Expiration Date. If any term, provision, covenant or restriction of the Rights Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of the Rights Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. This Right Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent. WITNESS the facsimile signature of the proper officers of the Company and its corporate seal. Dated as of _______________, 19____. Attest: COMPREHENSIVE CARE CORPORATION By By Title: Title: Countersigned: CONTINENTAL STOCK TRANSFER & TRUST COMPANY By Date: Authorized Officer [Form of Reverse Side of Right Certificate] FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Right Certificate.) FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) this Right Certificate and the Rights evidenced thereby, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to transfer the within Right Certificate on the books of the within-named Company, with full power of substitution. Dated: , 19 Signature Signature Guaranteed: Signatures must be guaranteed by a participant in a Securities Transfer Association recognized signature program. The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not beneficially owned by an Acquiring Person or an Affiliate or an Associate thereof; and (2) after due inquiry and to the best knowledge of the undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate thereof. Dated: , 19 Signature NOTICE The signature in the foregoing Form of Assignment must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Assignment is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate hereof and, in the case of an Assignment, will affix a legend to that effect on any Right Certificates issued in exchange for this Right Certificate. FORM OF ELECTION TO PURCHASE (To be executed if holder desires to exercise the Right Certificate.) To COMPREHENSIVE CARE CORPORATION: The undersigned hereby irrevocably elects to exercise _________________ Rights represented by this Right Certificate to purchase the Common Shares issuable upon the exercise of such Rights and requests that certificates for such shares be issued in the name of: Please insert social security or other identifying number (Please print name and address) If such number of Rights shall not be all the Rights evidenced by this Right Certificate, a new Right Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to: Please insert social security or other identifying number (Please print name and address) Dated: , 19 Signature Signature Guaranteed: Signatures must be guaranteed by a participant in a Securities Transfer Association recognized signature program. The undersigned hereby certifies by checking the appropriate boxes that: (1) the Rights evidenced by this Right Certificate [ ] are [ ] are not beneficially owned by an Acquiring Person or an Affiliate or an Associate thereof; and (2) after due inquiry and to the best knowledge of the undersigned, the undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from any person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate thereof. Dated: , 19 Signature --------------------------------------------- NOTICE The signature in the foregoing Form of Election to Purchase must conform to the name as written upon the face of this Right Certificate in every particular, without alteration or enlargement or any change whatsoever. In the event the certification set forth above in the Form of Election to Purchase is not completed, the Company will deem the beneficial owner of the Rights evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or Associate hereof and, in the case of an Assignment, will affix a legend to that effect on any Right Certificates issued in exchange for this Right Certificate. Exhibit B SUMMARY OF RIGHTS TO PURCHASE COMMON SHARES On April 19, 1988 the Board of Directors of Comprehensive Care Corporation (the "Company") declared a dividend of one Right ("Old Right") for each share of Common Stock, $.10 par value (the "Old Common Shares"), of the Company outstanding at the close of business on May 6, 1988 (the "Record Date"). Each Old Right entitled the registered holder to purchase from the Company one Old Common Share at a price of $30 per share. At 5:00 p.m. New York City time on October 21, 1994 (the "Effective Time"), each one Old Common Share was reclassified into and became one-tenth (1/10th) of one share of Common Stock, par value $.01 per share ("Common Share"). Each Right entitles the registered holder to purchase from the Company one Common Share at a price of $300 per share (the "Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement") between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). Until the earlier to occur of (i) ten (10) days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") acquired, or obtained the right to acquire, beneficial ownership of 25% or more of the Common Shares or (ii) ten (10) days following the commencement or announcement of an intention to make a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 30% or more of the Common Shares (the earlier of (i) and (ii) being called the "Distribution Date"), the Rights will be evidenced, with respect to any of the Common Share certificates outstanding as of the Record Date, by such Common Share certificate with a copy of this Summary of Rights attached thereto. The Rights Agreement provides that, until the Distribution Date, the Rights will be transferred with and only with the Common Shares. Until the Distribution Date (or earlier redemption or expiration of the Rights), new Common Share certificates issued after the close of business on the Record Date upon transfer or new issuance of the Common Shares will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender for transfer of any certificates for Common Shares, even without a copy of this Summary of Rights attached thereto, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. As soon as practicable following the Distribution Date, separate certificates evidencing the Rights ("Right Certificates") will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Right Certificates alone will evidence the Rights. The Rights are not exercisable until the Distribution Date. The Rights will expire on April 19, 1998 (the "Final Expiration Date"), unless earlier redeemed by the Company as described below. The Purchase Price payable, and the number of Common Shares or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of the Common Shares, (ii) upon the grant to holders of the Common Shares of certain rights or warrants to subscribe for or purchase Common Shares or convertible securities at less than the current market price of the Common Shares or (iii) upon the distribution to holders of the Common Shares of evidences of indebtedness, securities or assets (excluding regular periodic cash dividends at a rate not in excess of 125% of the rate of the last cash dividend theretofore paid or dividends payable in Common Shares) or of subscription rights or warrants (other than those referred to above). In the event that a person were to acquire 25% or more of the Common Shares or if the Company were the surviving corporation in a merger and its Common Shares were not changed or exchanged, each holder of a Right, other than Rights that are or were acquired or beneficially owned by the 25% stockholder (which Rights will thereafter be void), will thereafter have the right to receive upon exercise that number of Common Shares having a market value of two times the exercise price of the Right. In the event that the Company were acquired in a merger or other business combination transaction or more than 50% of its assets or earning power were sold, proper provision shall be made so that each holder of a Right shall thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the Right. With certain exceptions, no adjustment in the Purchase Price will be required until cumulative adjustments require an adjustment of at least 1% in such Purchase Price. No fractional shares will be issued and in lieu thereof, a payment in cash will be made based on the market price of the Common Shares on the last trading date prior to the date of exercise. The Rights may be redeemed in whole, but not in part, at a price of $.02 per Right (the "Redemption Price") by the Board of Directors at any time until ten (10) days following the public announcement that a person has become an Acquiring Person. Under certain circumstances set forth in the Rights Agreement, the decision to redeem shall require the concurrence of a majority of the Continuing Directors (as defined below). Immediately upon the action of the Board of Directors of the Company electing to redeem the Rights, the Company shall make announcement thereof, and upon such election, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. The term "Continuing Directors" means any member of the Board of Directors who was a member of the Board prior to the time that any Person becomes an Acquiring Person, and any person who is subsequently elected to the Board if such person is recommended or approved by a majority of the Continuing Directors. Continuing Directors do not include an Acquiring Person, or an affiliate or associate of an Acquiring Person, or any representative of the foregoing entities. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company beyond those as an existing stockholder, including, without limitation, the right to vote or to receive dividends. The Company and the Rights Agent may amend or supplement the Rights Agreement without the approval of any holders of Right Certificates to cure any ambiguity, to correct or supplement any provision contained therein which may be defective or inconsistent with any other provisions therein, to shorten or lengthen any time period under the Rights Agreement, including any time period relating to when the Rights may be redeemed (so long as, under certain circumstances, a majority of Continuing Directors approve such shortening or lengthening) or so long as the interests of the holder of Right Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person) are not adversely affected thereby, and to make any other provisions in regard to matters or questions arising thereunder which the Company and the Rights Agent may deem necessary or desirable, including but not limited to extending the Final Expiration Date. A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an Exhibit to a Current Report on Form 8-K. A copy of the Rights Agreement is available free of charge from the Company. This summary description of the Rights does not purport to be complete and is qualified in its entirety by reference to the Rights Agreement, which is hereby incorporated herein by reference. APPOINTMENT OF CONTINENTAL STOCK TRANSFER AND TRUST COMPANY BY COMPREHENSIVE CARE CORPORATION The undersigned Comprehensive Care Corporation, a Delaware corporation ("Company") hereby appoints Continental Stock Transfer & Trust Company as successor Rights Agent under the terms and subject to the conditions of the attached Rights Agreement between Comprehensive Care Corporation and Continental Stock Transfer & Trust Company, dated as of April 19, 1988 and Restated and Amended as of October 21, 1994. COMPREHENSIVE CARE CORPORATION By: Kerri Ruppert Secretary ACCEPTANCE OF APPOINTMENT The undersigned Continental Stock Transfer & Trust Company hereby accepts the appointment as successor Rights Agent under the terms and subject to the condition of the attached Rights Agreement between Comprehensive Care Corporation and Continental Stock Transfer & Trust Company, dated as of April 19, 1988 and Restated and Amended as of October 21, 1994. CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: William F. Seegraber Vice President CONSENT TO APPOINTMENT OF SUCCESSOR RIGHTS AGENT The undersigned Bank of America, National Trust and Savings Association, as successor by merger to Security Pacific National Bank, a national association, hereby consents to the appointment by Comprehensive Care Corporation, a Delaware corporation, of Continental Stock Transfer & Trust Company as successor Rights Agent under the terms and subject to the conditions of the attached Rights Agreement between Comprehensive Care Corporation and Continental Stock Transfer & Trust Company, dated as of April 19, 1988 and Restated and Amended as of October 21, 1994. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: --------------------------------- Jeffrey E. Seadschlag Vice President and Assistant Secretary EX-10 7 COMPREHENSIVE CARE CORPORATION NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT is made by COMPREHENSIVE CARE CORPORATION (the "Company") to_______________________ (the "Optionee"). Upon and subject to the Terms and Conditions attached hereto and incorporated herein by reference, the Company hereby awards as of the Grant Date to Optionee a non-qualified stock option (the "Option"), as described below, to purchase the Option Shares. A. Grant Date: B. Type of Option: Non-Qualified Stock Option. Plan (under which Option is granted): Comprehensive Care Corporation Directors' Stock Option Plan. C. Option Shares: All or any part of __________ shares of the Company's common stock (the "Common Stock"). Exercise Price: $______ per share which is the Fair Market Value, as defined in the Plan, of a share of Common Stock determined as of the Grant Date. Option Period: The Option may be exercised, to the extent vested, during the Option Period which commences on the Grant Date and ends no later than the close of business on the tenth anniversary of the Grant Date. Note that other restrictions to exercising the Option, as described in the attached Terms and Conditions, may apply. Vesting Schedule: An Option will vest in 25% increments on each Vesting Date, provided the Optionee is still a Director on the Vesting Date. For purposes of this Option, the term "Vesting Date," shall mean each of the next four annual meetings of the Company's stockholders held after the Grant Date. [what if a Director is appointed mid year? should each vesting period be at least 12 months? or should the first vesting period just be shorter?] IN WITNESS WHEREOF, the Company has executed and sealed this Agreement as of the Grant Date set forth above. COMPREHENSIVE CARE CORPORATION By: Title: TERMS AND CONDITIONS TO THE NON-QUALIFIED STOCK OPTION AGREEMENT UNDER THE COMPREHENSIVE CARE CORPORATION DIRECTORS' STOCK OPTION PLAN 1. Exercise of Option. Subject to the provisions provided herein or in the Agreement made pursuant to the Comprehensive Care Corporation Directors' Stock Option Plan: (a) the Option may be exercised with respect to all or any portion of the Option Shares at any time during the Option Period by the delivery to the Company, at its principal place of business, of (i) a written notice of exercise in substantially the form attached hereto as Exhibit 1, which shall be actually delivered to the Company no earlier than thirty (30) days and no later than ten (10) days prior to the date upon which Optionee desires to exercise all or any portion of the Option and (ii) payment to the Company of the Exercise Price multiplied by the number of shares being purchased (the "Purchase Price") in the manner provided in Subsection (b). Upon acceptance of such notice and receipt of payment in full of the Purchase Price, the Company shall cause to be issued a certificate representing the Option Shares purchased. (b) The Purchase Price shall be paid in full upon the exercise of an Option and no Option Shares shall be issued or delivered until full payment therefor has been made. Payment of the Purchase Price for all Option Shares purchased pursuant to the exercise of an Option shall be made in cash or, alternatively, as follows: (i) by delivery to the Company of a number of shares of Common Stock which have been owned by the Optionee for at least six months prior to the date of the Option's exercise, having a Fair Market Value, as determined under the Plan, on the date of exercise either equal to the Purchase Price or in combination with cash to equal the Purchase Price; or (ii) by receipt of the Purchase Price in cash from a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System following delivery by the Optionee to the Committee (defined in the Plan) of instructions in a form acceptable to the Committee regarding delivery to such broker, dealer or other creditor of that number of Option Shares with respect to which the Option is exercised. 2. Exercise Price. The exercise price for each Option Share shall be the Fair Market Value (defined in the Plan) of a share of Common Stock as of the Grant Date, subject to adjustment as set forth in Section 6 below (the "Exercise Price"). 3. Term and Termination of Option. Except as otherwise provided in the Plan, the term of the Option (the "Option Period") shall commence on the Grant Date and terminate on the tenth anniversary of the Grant Date. 4. Rights as Shareholder. Until the stock certificates reflecting the Option Shares accruing to the Optionee upon exercise of the Option are issued to the Optionee, the Optionee shall have no rights as a shareholder with respect to such Option Shares. The Company shall make no adjustment for any dividends or distributions or other rights on or with respect to Option Shares for which the record date is prior to the issuance of that stock certificate, except as the Plan, the Agreement or these Terms and Conditions otherwise provide. 5. Restriction on Transfer of Option. The Option evidenced hereby is nontransferable other than by will or the laws of descent and distribution, and, shall be exercisable during the lifetime of the Optionee only by the Optionee (or in the event of his disability, by his personal representative) and after his death, only by his personal representative. 6. Changes in Capitalization; Merger; Liquidation. (a) The number of Option Shares and the Exercise Price shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or combination of shares or the payment of a stock dividend in shares of Common Stock to holders of outstanding shares of Common Stock or any other increase or decrease in the number of shares of Common Stock outstanding effected without receipt of consideration by the Company. (b) In the event of or anticipation of a merger, consolidation or other reorganization of the Company or tender offer for shares of Stock, the Committee may make such adjustments with respect to the Option and take such other action as it deems necessary or appropriate to reflect such merger, consolidation, reorganization or tender offer, including without limitation, the substitution of new Options, the termination or adjustment of outstanding Option shares, the acceleration of the Option or the removal of restrictions on outstanding Option shares. Any adjustment pursuant to this Section may provide, in the Committee's discretion, for the elimination without payment therefor of any fractional shares that might otherwise become subject to the Option, but shall not otherwise diminish the then value of the Option. (c) The existence of the Plan and the Agreement shall not affect in any way the right or power of the Company to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger or consolidation of the Company, any issue of debt or equity securities having preferences or priorities as to the Common Stock or the rights thereof, the dissolution or liquidation of the Company, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding. 7. Special Limitation on Exercise. Any exercise of the Option is subject to the condition that if at any time the Committee, in its discretion, shall determine that the listing, registration or qualification of the shares covered by the Option upon any securities exchange or under any state or federal law is necessary or desirable as a condition of or in connection with the delivery of shares thereunder, the delivery of any or all shares pursuant to the Option may be withheld unless and until such listing, registration or qualification shall have been effected. The Optionee shall deliver to the Company, prior to the exercise of the Option, such information, representations and warranties as the Company may reasonably request in order for the Company to be able to satisfy itself that the Option Shares are being acquired in accordance with the terms of an applicable exemption from the securities registration requirements of applicable federal and state securities laws. 8. Legend on Stock Certificates. Certificates evidencing the Option Shares, to the extent appropriate at the time, shall have noted conspicuously on the certificates a legend intended to give all persons full notice of the existence of the conditions, restrictions, rights and obligations set forth in the Agreement, these Terms and Conditions and the Plan. 9. Governing Laws. This Agreement shall be construed, administered and enforced according to the laws of the State of California; provided, however, no Option may be exercised except, in the reasonable judgment of the Board of Directors, in compliance with exemptions under applicable state securities laws of the state in which the Optionee resides, and/or any other applicable securities laws. 10. Successors. The Agreement and these Terms and Conditions shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and permitted assigns of the parties. 11. Notice. Except as otherwise specified herein, all notices and other communications under the Agreement shall be in writing and shall be deemed to have been given if personally delivered or if sent by registered or certified United States mail, return receipt requested, postage prepaid, addressed to the proposed recipient at the last known address of the recipient. Any party may designate any other address to which notices shall be sent by giving notice of the address to the other parties in the same manner as provided herein. 12. Severability. In the event that any one or more of the provisions or portion thereof contained in the Agreement and these Terms and Conditions shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not invalidate or otherwise affect any other provisions of the Agreement and these Terms and Conditions, and the Agreement and these Terms and Conditions shall be construed as if the invalid, illegal or unenforceable provision or portion thereof had never been contained herein. 13. Entire Agreement. Subject to the terms and conditions of the Plan, the Agreement and these Terms and Conditions express the entire understanding and agreement of the parties. 14. Violation. Any transfer, pledge, sale, assignment, or hypothecation of the Option or any portion thereof shall be a violation of the terms of the Agreement and these Terms and Conditions and shall be void and without effect. 15. Headings. Paragraph headings used herein are for convenience of reference only and shall not be considered in construing the Agreement or these Terms and Conditions. 16. Specific Performance. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of the Agreement and these Terms and Conditions, the party or parties who are thereby aggrieved shall have the right to specific performance and injunction in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. 17. Right to Remove Director. Neither the establishment of the Plan nor the award of Option Shares hereunder shall be construed as giving the Optionee the right to continued directorship. EXHIBIT 1 NOTICE OF EXERCISE OF STOCK OPTION TO PURCHASE COMMON STOCK OF COMPREHENSIVE CARE CORPORATION Name Address Date Comprehensive Care Corporation Re: Exercise of the Non-Qualified Stock Option Gentlemen: Subject to acceptance hereof in writing by Comprehensive Care Corporation (the "Company") pursuant to the provisions of the Comprehensive Care Corporation Directors' Stock Option Plan (the "Plan"), I hereby give at least ten days but not more than thirty days prior notice of my election to exercise options granted to me to purchase ______________ shares of Common Stock of the Company under the Non-Qualified Stock Option Agreement (the "Agreement") pursuant to the Plan dated as of ____________. The purchase shall take place as of __________, 199__ (the "Exercise Date"). On or before the Exercise Date, I will pay the applicable purchase price as follows: [ ] by delivery of cash or a certified check for $___________ for the full purchase price payable to the order of Comprehensive Care Corporation. [ ] by delivery of a certified check for $___________ representing a portion of the purchase price with the balance to consist of shares of Common Stock that I have owned for at least six months and that are represented by a stock certificate I will surrender to the Company with my endorsement. If the number of shares of Common Stock represented by such stock certificate exceed the number to be applied against the purchase price, I understand that a new stock certificate will be issued to me reflecting the excess number of shares. [ ] by delivery of a stock certificate representing shares of Common Stock that I have owned for at least six months which I will surrender to the Company with my endorsement as payment of the purchase price. If the number of shares of Common Stock represented by such certificate exceed the number to be applied against the purchase price, I understand that a new certificate will be issued to me reflecting the excess number of shares. [ ] by delivery of the purchase price by ________________, a broker, dealer or other "creditor" as defined by Regulation T issued by the Board of Governors of the Federal Reserve System. I hereby authorize the Company to issue a stock certificate in number of shares indicated above in the name of said broker, dealer or other creditor or its nominee pursuant to instructions received by the Company and to deliver said stock certificate directly to that broker, dealer or other creditor (or to such other party specified in the instructions received by the Company from the broker, dealer or other creditor) upon receipt of the purchase price. The required federal, state and local income tax withholding obligations, if any, on the exercise of the Agreement shall also be paid in cash or by certified check on or before the Exercise Date. As soon as the stock certificate is registered in my name, please deliver it to me at the above address. If the Common Stock being acquired is not registered for issuance to and resale by the Optionee pursuant to an effective registration statement on Form S-8 (or successor form) filed under the Securities Act of 1933, as amended (the "1933 Act"), I hereby represent, warrant, covenant, and agree with the Company as follows: The shares of the Common Stock being acquired by me will be acquired for my own account for investment and not with a view to any further distribution thereof; I understand that the Common Stock will be issued and sold to me without registration under the 1933 Act and of applicable state laws and I must hold the shares indefinitely unless such shares are subsequently registered under such laws or an exemption from registration is available; The Company will be under no obligation to register the Common Stock or to comply with any exemption available for sale of the Common Stock without registration or filing or to act in any manner so as to make Rule 144 available with respect to the Common Stock; I have had the opportunity to ask questions of and receive answers from the Company and any person acting on its behalf and to obtain all material information reasonably available with respect to the Company and its affairs. I have received all information and data with respect to the Company which I have requested and which I have deemed relevant in connection with the evaluation of the merits and risks of my investment in the Company; I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase of the Common Stock hereunder and I am able to bear the economic risk of such purchase; I understand that the certificates representing the shares being purchased by me in accordance with this notice shall bear a legend referring to the foregoing covenants, representations and warranties and restrictions on transfer, and I agree that a legend to that effect may be placed on any certificate which may be issued to me as a substitute for the certificates being acquired by me in accordance with this notice; and I understand that mailing or delivery of this notice to you constitutes an irrevocable exercise of the Option as to the number of shares set forth above, creating a binding, legal obligation on my part to purchase the shares. Very truly yours, AGREED TO AND ACCEPTED: Comprehensive Care Corporation By: Title: Number of Shares Exercised: Number of Shares Remaining: Date: EX-10 8 NEITHER THIS OPTION AGREEMENT NOR THE SHARES ISSUABLE BY COMPREHENSIVE CARE CORPORATION (THE "COMPANY") UPON EXERCISE HEREOF, HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND THIS OPTION IS BEING ISSUED IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS ARISING THEREUNDER, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS AND UPON FURNISHING THE COMPANY AN OPINION OF COUNSEL, THAT THE PROPOSED TRANSFER WOULD BE IN COMPLIANCE WITH ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS. ANY DOCUMENTS EVIDENCING THIS SECURITY, INCLUDING STOCK CERTIFICATES EVIDENCING THE UNDERLYING SHARES, WILL CONTAIN A SIMILAR LEGEND. THE COMPANY SHALL PLACE NOTATIONS WITH RESPECT TO THESE RESTRICTIONS ON ITS SECURITIES RECORDS AND SHALL INFORM THE TRANSFER AGENT, OF SUCH RESTRICTIONS. NON-QUALIFIED STOCK OPTION AGREEMENT This Option Agreement ("Agreement") is made effective as of October 11, 1994 ("Option Grant Date"), by and between Comprehensive Care Corporation, a Delaware corporation, ("Company") and Richard L. Powers ("Optionee") and is contingent upon Optionee commencing employment with the Company. In consideration of the foregoing and of the mutual covenants set forth herein and other good and valuable consideration, the parties hereto agree as set forth below. 1. The Option. Optionee may, at Optionee's option and on the terms and conditions set forth herein, purchase all or any part of an aggregate of 200,000 shares of common stock at the price per share of $0.75, $1.00, and $1.50, vesting at the rate of 75,000 at first anniversary of the grant date provided that the specified amount of new sales (as defined in Exhibit B) is attained; 75,000 at the end of the second anniversary of the grant date provided that the specified amount of new sales (as defined in Exhibit B) is attained; and 50,000 at the third anniversary of the grant date provided that the specified amount of new sales (as defined in Exhibit B) is attained; and pursuant to Exhibit A. 2. Vesting and Exercisability of Option. Subject to the limitations set forth herein, the option granted shall vest and be exercisable in accordance with the following rules: A. General. Subject to the other provisions of this Section 2, Option shall vest and become exercisable at such times and in such installments as set forth in Section 1. Unless otherwise provided in this Section 2, the Option may be exercised when the installments accrue and at any time thereafter until, and including, the day before the Termination Date (as defined below). Option shall remain exercisable until the Termination Date, notwithstanding the subsequent grant of additional options with Page Two different start or termination dates. Optionee acknowledges that Optionee has no right whatsoever to exercise the Option granted hereunder with respect to any share covered by an installment until such installment accrues as provided in Section 1. B. Termination of Option. All installments of the Option shall expire and terminate on October 11, 2004 ("Termination Date"). C. Termination of Employment. In the event that the employment of the Optionee is terminated for any reason, any installments under the option held by such Optionee which have not accrued as of the employment termination date shall expire and become unexercisable as of the employment termination date. In the event that Optionee's employment with the Company is terminated "for cause", then the option granted hereunder to such terminated Optionee, whether vested or not, shall expire and become unexercisable as of the effective date of the termination of employment of the Optionee. All accrued installments as of the employment termination date shall remain exercisable for three (3) months following the employment termination date. 3. Exercise of Option. The Option may be exercised in accordance with this Section as to all or any portion of the Shares covered by an accrued installment of the Option from time to time during the applicable option period, except that the Option shall not be exercisable with respect to fractions of a Share. The Option may be exercised, in whole or in part, by giving written notice of exercise to the Company, which notice shall specify the number of Shares to be purchased and shall be accompanied by payment in full of the purchase price in accordance with Section 4. The Option shall be deemed exercised when such written notice of exercise has been received by the Company. No Shares shall be issued until full payment has been made and the Optionee has satisfied such other conditions as may be required by applicable law, rules, or regulations, or as may be adopted or imposed by the Company. Until the issuance of stock certificates, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to optioned Shares notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date the stock certificate is issued. 4. Payment of Option Exercise Price. Except as otherwise provided in this Section, the entire option exercise price shall be paid at the time the option is exercised by cashier's check or such other means as deemed acceptable by the Company. 5. Option Not Transferable. The Option granted under this Agreement may not be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred or alienated in any manner. 6. Restrictions on Issuance of Shares. A. No Shares shall be issued or delivered upon exercise unless and until there shall have been compliance with all applicable requirements of the Securities Act Page Three of 1933, all applicable listing requirements of any national securities exchange on which Shares are then listed, and any other requirement of law or of any regulatory body having jurisdiction over such issuance and delivery. The inability of the Company to obtain any required permits, authorizations, or approvals necessary for the lawful issuance and sale of any Shares hereunder on terms deemed reasonable by the Company shall relieve the Company of any liability in respect of the nonissuance or sale of such Shares as to which such requisite permits, authorizations, or approvals shall not have been obtained. B. As a condition to the granting or exercise of the Option, the Company may require the person receiving or exercising such option to make any representation and/or warranty to the Company as may be required under any applicable law or regulation, including but not limited to a representation that the Option and/or Shares are being acquired only for investment and without any present intention to sell or distribute each Option and/or Shares if such representation is required under the Securities Act of 1933 or any other applicable law, rule, or regulation. 7. Taxes. On the Exercise Date, the Optionee must pay to the Company the amount of the federal, state and local tax withholding obligation arising from the exercise of the Option; A. in cash equal to the minimum withholding; B. if the Exercise Price for the Option Shares is paid by a broker, dealer or other "creditor" (as defined by Regulation T issued by the Board of Governors of the Federal Reserve System) with the Optionee making a Tax Withholding Election to have such broker, dealer or other "creditor" deliver to the Company cash in the amount of tax withholding due after the Optionee has delivered to the Company instructions acceptable to the Company regarding the delivery of the number of Option Shares being exercised to such broker, dealer or other "creditor". 8. Legends on Option and Stock Certificates. Each certificate representing Shares acquired upon exercise of the option shall be endorsed with all legends, if any, required by applicable federal and state securities laws to be placed on the certificate. The determination of which legends, if any, shall be placed upon said Shares shall be made by the Company in its sole discretion and such decision shall be final and binding. 9. Certain Representations and Warranties. Executive expressly acknowledges, represents and agrees: A. Optionee understands that the option is not issued under the Company's existing stock option plans. B. That the Shares are not now registered under applicable securities laws or listed on any national securities exchange, and that the Company may require, Page Four as a condition to the granting or exercise of the Option, that the person receiving or exercising the option must make such representations or warranties to the Company as may be required under applicable law or regulation, including but not limited to a representation that the Option and/or Shares are being acquired only for investment and without any present intention to sell or distribute such Option or Shares. C. That Optionee understands that the existence and execution of this Agreement is not sufficient by itself to cause any exercise of the Option. D. That Optionee is a person subject to the provisions of Section 16 of the Securities Exchange Act of 1934, and Optionee has been advised to consult with a competent federal securities law advisor as to the reporting obligations or potential liability for short swing profits under Section 16 with respect to the granting, investing and exercise of the Option. E. Nothing in this Agreement shall be construed to create any contract of employment between the Company and the Optionee or confer upon Optionee any right to continue in the employment of the Company. The Company shall have the right to deal with Optionee in the same manner as if this Agreement did not exist including without limitation the hiring, discharge, compensation and conditions of employment of Optionee. 10. Agreement Binding on Successors. The terms of this Agreement shall be binding upon the executors, administrators, heir and successors of Optionee and Optionee may not transfer or assign this Agreement, except in compliance with all applicable state and federal securities laws and upon furnishing the Company an opinion of counsel to that effect. 11. Governing Law. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the internal laws, and not the laws pertaining to conflicts or choice of laws, of the State of Missouri applicable to agreements made and to be performed wholly within the State of Missouri. 12. Necessary Acts. Executive agrees to perform all acts and execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Agreement, including but not limited to all acts and documents related to compliance with federal and/or state securities laws. 13. Invalid Provisions. In the event that any provision of this Agreement is found to be invalid or otherwise unenforceable under any applicable law, such invalidity or unenforceability shall not be construed as rendering any other provisions contained herein invalid or unenforceable, and all such other provisions shall be given full force and effect to the same extent as though the invalid and unenforceable provision was not contained herein. Page Five 14. Notice. Any notice or other communication required or permitted to be given pursuant to the Agreement must be in writing and may be given by registered or certified mail, and if given by registered or certified mail, shall be determined to have been given and received when a registered or certified letter containing such notice, properly addressed with postage prepaid, is deposited in the United States mails; and if given otherwise than by registered or certified mail, it shall be deemed to have been given when delivered to and received by the party to whom addressed. Notice shall be given to Optionee at his most recent address shown in the Company's records. Notice to the Company shall be addressed to the Company at the address of the Company's principal executive offices, to the attention of the Secretary of the Company. IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement effective as the date first written above. COMPREHENSIVE CARE CORPORATION By ----------------------------------------- Kerri Ruppert Its Vice President and Secretary OPTIONEE ------------------------------------------ Richard L. Powers EXHIBIT A Date Exercisable Number of Shares and Price Year One vests 10/11/95 contingent upon 75,000 at $0.75 per share the attainment of $5 million in New Sales(1) during the period 10/11/94 through 10/10/95. If 120% of New Sales goal is achieved, then option vesting date will accelerate to such date that 120% is attained. If 50% or more of New Sales goal ($5 million) is achieved, then the options shall vest upon a prorated basis. If less than 50% of New Sales goal is achieved, then no options shall vest. Any unvested options shall be forfeited. Year Two vests 10/11/96 contingent upon 75,000 at $1.00 per share the attainment of $7 million in New Sales(1) during the period 10/11/95 through 10/10/96. If 120% of New Sales goal is achieved, then option vesting date will accelerate to such date that 120% is attained. If 50% or more of New Sales goal ($7 million) is achieved, then the options shall vest upon a prorated basis. If less than 50% of New Sales goal is achieved, then no options shall vest. Any unvested options shall be forfeited. Year Three vests 10/11/97 contingent upon 50,000 at $1.50 per share the attainment of $10 million in New Sales(1) during the period 10/11/96 through 10/10/97. If 120% of New Sales goal is achieved, then option vesting date will accelerate to such date that 120% is attained. If 50% or more of New Sales goal ($10 million) is achieved, then the options shall vest upon a prorated basis. If less than 50% of New Sales goal is achieved, then no options shall vest. Any unvested options shall be forfeited. (1) in accordance with Exhibit B. Option Agreement - Powers Page Seven EXHIBIT B 1. Sales. The definition of a "New Sale" in the context of this non-qualified stock option agreement is defined as an annualized premium received for a contract during the first year of the contract where such contract has been obtained through the personal efforts of the Optionee. Personal efforts encompass the solicitation and subsequent discussions with a contract, culminating with a signed and implemented contract with a payor organization with whom AccessCare, Inc. has no prior relationship within the geographic area covered by the contract. The President of AccessCare, Inc. shall have the ultimate decision making authority concerning the acceptability of a contract under the term, "New Sale". 2. General. The Options as stated in the non-qualified option agreement vest contingent upon the attainment of New Sales in each of the option years as depicted in Exhibit A. To obtain the total vesting of the option shares, the entire sales goal, as defined above, must be achieved. If one hundred and twenty percent (120%) of New Sales is achieved, then the option vesting date will accelerate to such date in which the one hundred and twenty percent (120%) is achieved. If less than one hundred percent (100%) but at least fifty percent (50%) of the total amount of New Sales is achieved, the amount of options that will vest will be calculated on a prorated basis. As a result, if seventy-five percent (75%) of the New Sales goal is achieved, then seventy-five (75%) of the stock options for that year will be vested. If less than fifty percent (50%) of the New Sales is achieved, then no options shall vest for that year. For each year, any unvested portion of the stock options will be forfeited. -----END PRIVACY-ENHANCED MESSAGE-----