-----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, TW/rum1y7lJe2AoLlh+B9a21tWZi8j5+CxG489pt7T7fxnd+Oa6Le/fCQPLKvwFx +PzYBiI3AS2nrJxgXRTPig== 0000892569-95-000141.txt : 19950417 0000892569-95-000141.hdr.sgml : 19950417 ACCESSION NUMBER: 0000892569-95-000141 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950414 SROS: NONE 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: 95529005 BUSINESS ADDRESS: STREET 1: 4350 VON KARMAN AVENUE STREET 2: SUITE 280 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 714-798-0460 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 COMPREHENSIVE CARE CORP - FORM 10-Q DATED 2/28/95 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 February 28, 1995 [ ] 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 April 13, 1995 ----------------------- ----------------------------- Common Stock, par value $.01 per share 2,314,529
1 2 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES Index Part I - Financial Information Item 1. - Condensed Consolidated Financial Statements Condensed consolidated balance sheets, February 28, 1995 and May 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 3 Condensed consolidated statements of operations for the three and nine months ended February 28, 1995 and 1994 . . . . . . . . . . 4 Condensed consolidated statements of cash flows for the nine months ended February 28, 1995 and 1994 . . . . . . . . . . . . . . . 5 Notes to condensed consolidated financial statements . . . . . . . . . . . . . . . 6 Item 2. - Management's discussion and analysis of financial condition and results of operations . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Part II - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 1. - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 3. - Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . 18 Item 5. - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Item 6. - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 18 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2 3 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)
February 28, May 31, 1995 1994 ------------ ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 1,764 $ 1,781 Accounts and notes receivable, less allowance for doubtful accounts of $3,870 and $5,729 . . . . . . . . . . . . . 3,017 5,848 Property and equipment held for sale . . . . . . . . . . . . . . . . . 6,864 6,939 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 439 508 ------ ------ Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,084 15,076 ------ ------ Property and equipment, at cost . . . . . . . . . . . . . . . . . . . . . . 24,122 29,326 Less accumulated depreciation and amortization . . . . . . . . . . . . . . (11,552) (13,338) ------ ------ Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . 12,570 15,988 ------ ------ Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,098 2,162 ------ ------ Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,752 $33,226 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $14,103 $13,776 Current maturities of long-term debt . . . . . . . . . . . . . . . . . 86 154 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 223 734 ------ ------ Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 14,412 14,664 ------ ------ Long-term debt, excluding current maturities . . . . . . . . . . . . . . . 12,392 10,477 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,542 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 2,314,524 shares and 2,198,692 . . . . . . . . . . . . . . 23 22 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 40,587 40,060 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (43,204) (34,983) ------ ------ Total stockholders' equity . . . . . . . . . . . . . . . . . . . (2,665) 5,099 ------ ------ Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . $26,752 $33,226 ====== ======
The accompanying notes are an integral part of these consolidated financial statements. 3 4 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended -------------------- ----------------- February 28, February 28, 1995 1994 1995 1994 ---- ---- ---- ---- Revenues and gains: Operating revenues . . . . . . . . . . . . . . . . . $6,470 $8,376 $21,879 $25,318 Interest income . . . . . . . . . . . . . . . . . . 20 20 31 30 ------ ------ ------ ------ 6,490 8,396 21,910 25,348 ------ ------ ------ ------ Costs and expenses: Operating expenses . . . . . . . . . . . . . . . . . 7,556 8,005 23,266 23,337 General and administrative expenses . . . . . . . . 1,038 888 2,982 2,606 Provision for doubtful accounts . . . . . . . . . . 234 85 1,417 859 Depreciation and amortization . . . . . . . . . . . 437 392 1,349 1,278 Interest expense . . . . . . . . . . . . . . . . . . 415 294 941 933 ------ ------ ------- ------ 9,681 9,664 29,955 29,013 ------ ------ ------ ------ Loss before income taxes . . . . . . . . . . . . . . . . (3,191) (1,268) (8,045) (3,665) Provision for income taxes . . . . . . . . . . . . . . . 59 40 176 147 ----- ------ ------- ----- Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(3,250) $(1,308) $(8,221) $(3,812) ===== ===== ===== ===== Loss per share: Net loss . . . . . . . . . . . . . . . . . . . . . . $(1.42) $(0.59) $(3.69) $(1.73) ==== ==== ==== ====
The accompanying notes are an integral part of these consolidated financial statements. 4 5 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Nine Months Ended ---------------------------- February 28, February 28, 1995 1994 ------------ ------------ Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(8,221) $(3,812) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . 1,349 1,278 Provision for doubtful accounts . . . . . . . . . . . . . . . . . 1,417 859 Loss on sale/write-down of assets . . . . . . . . . . . . . . . . 4 37 Carrying costs incurred on property and equipment held for sale . (382) (1,025) Decrease in accounts and notes receivable . . . . . . . . . . . . 1,415 492 Decrease (increase) in other current assets and other assets . . (50) 402 Decrease in accounts payable and accrued liabilities . . . . . . (1) (2,062) Increase (decrease) in income taxes payable . . . . . . . . . . . (511) 40 Decrease in other liabilities . . . . . . . . . . . . . . . . . . (66) (606) ----- ----- Net cash used in operating activities . . . . . . . . . . . . . . . . (5,046) (4,397) ----- ----- Cash flows from investing activities: Net proceeds from sale of property and equipment (operating and held for sale) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,766 9,826 Additions to property and equipment . . . . . . . . . . . . . . . . . (112) (278) ------ ------ Net cash provided by investing activities . . . . . . . . . . . . . 2,654 9,548 ------ ------ Cash flows from financing activities: Bank and other borrowings . . . . . . . . . . . . . . . . . . . . . . 2,000 --- Proceeds from issuance of common stock . . . . . . . . . . . . . . . . 528 --- Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . (153) (2,107) ----- ------ Net cash provided by (used in) financing activities: . . . . . . . . 2,375 (2,107) ----- ----- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . (17) 3,044 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 1,781 1,126 ----- ----- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $1,764 $4,170 ===== =====
The accompanying notes are an integral part of these consolidated financial statements. 5 6 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1 - BASIS OF PRESENTATION The condensed consolidated balance sheet as of February 28, 1995, and the related condensed consolidated statements of operations for the three and nine month periods ended February 28, 1995 and 1994, and the statements of cash flows for the nine months ended February 28, 1995 and 1994 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 February 28, 1995, 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. The 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 2,282,000 and 2,199,000 for the three months ended February 28, 1995 and 1994, respectively; and 2,226,000 and 2,199,000 for the nine months ended February 28, 1995 and 1994, 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 February 28, 1995 amounted to approximately $12.1 million and current liabilities were approximately $14.4 million, resulting in working capital deficit of approximately $2.3 million and a current ratio of 1.0:.8. Included in current assets are four hospital facilities designated as property and equipment held for sale with a total carrying value of $8.9 million. The Company sold one hospital facility in the second quarter of fiscal 1995 and received the proceeds of $2.5 million in the third quarter. In addition, during the third quarter, the Company closed one of its operating facilities due to poor performance. Accordingly, this property has been classified as property held for sale. Should the Company be unable to complete the sales transactions for the remaining three facilities held for sale, the Company's working capital would be materially adversely affected. 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. Should the Company be unable to improve the performance of hospital operations, the Company may be unable to meet terms and conditions required as part of the Company's "global structuring" (as defined below) and the settlement agreement with the IRS (See Note 5 to the Company's Condensed Consolidated Financial Statements included herein). During the first quarter of fiscal 1995, management stated its intent to restructure several of its obligations and commitments. Management intends that this "global restructuring" include as many of the following steps as possible: (i) the effectuation of a 1-for-10 reverse stock split; (ii) completion of the proposed settlement of the Company's payroll tax audit with the IRS; (iii) restructuring of the Company's financial obligations represented by the Debentures; and (iv) equity capital infusion. The Company has achieved the following to date: (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) continues to strive for completion of the restructuring of the Company's financial obligations represented by the 7 1/2% Convertible Subordinated Debentures (the "Debentures") and (iv) the Company entered 6 7 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) into a Secured Convertible Note Purchase Agreement in the amount of $2.0 million and a private offering of common stock which would provide for some of the necessary equity capital infusion to the Company, as described below. On January 5, 1995, the Company issued a $2.0 million Secured Convertible Note due January 9, 1997 to a business trust. The Note is secured by first priority liens on two of the Company's operating hospital properties. The Note bears 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 is 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 fair market value 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 15% 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 February 1, 1995, the Company sold an aggregate of 100,000 shares of common stock to one accredited investor in a private offering for an aggregate purchase price of $600,000 paid in cash on February 7, 1995. 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. In early February 1995, a group of holders and purported holders of the Debentures gave notice of acceleration of the entire amount of principal and interest due under the Debentures, and on February 24, 1995, a subset of such persons filed an involuntary petition in the United States Bankruptcy Court for the Northern District of Texas under Chapter 7 of the U.S. Bankruptcy Code. On March 3, 1995, the Company entered into a letter agreement with a representative of the holders of the Debentures who had taken such actions. The agreement provides for a consensual, out-of-court resolution that the Company's Board of Directors has approved as in the best interests of the Company, its stockholders and other stakeholders. The holders' representative agreed to provide notices of waiver of the interest non-payment default, notices of rescission of the Debenture acceleration and the effects thereof, and consent to the immediate dismissal of the involuntary Chapter 7 petition. In return, the Company has agreed to provide an opportunity to holders of Debentures to tender their Debentures to the Company pursuant to an exchange offer to be made by the Company to the holders of the Debentures. The offer consideration will consist of $500 in cash and $120 in shares of Common Stock per each $1,000 in original face amount of Debentures. Tendering holders will not receive interest calculated from and after April 15, 1994 (which includes the October 17, 1994 payment) and in lieu of calculated interest will receive $80 per $1,000 face amount of Debentures. If the exchange offer with holders of Debentures is consummated on the terms in the letter agreement and assuming the tender of 100% of the outstanding Debentures, the portion of the required offer consideration which will be payable in cash by the Company would be approximately $5,550,000. Among the factors affecting the anticipated exchange offering are the various conditions to the consummation of the offer and the ability of the Company to finance the cash payment necessary, and no assurance can be made that the exchange offer will be successfully completed. Failure to consummate the Debenture exchange offer may result in the Company considering alternative actions including filing for voluntary protection from creditors. In such case, the Company believes that the recovery to it security holders would be less than the recovery achieved under the consensual, out-of-court arrangement the Company has reached. In addition, the agreement provides for a pledge of all of the shares of CareUnit, Inc. to secure the Company's obligation to complete an exchange on the agreed upon terms; and failure to complete an exchange could result in a foreclosure sale of such shares. Should the Company be unsuccessful in the completion of the restructuring of the Debentures, the Company may be unable to meet, among other things, the terms and conditions of the settlement agreement with the IRS (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein). 7 8 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 3 - PROPERTY AND EQUIPMENT HELD FOR SALE The Company recorded no additional asset write-downs during the third 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. 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. During the third quarter, 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, to the extent that they are expected to be sold in the next 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 nine months ended February 28, 1995, is as follows (in thousands): Balance as of May 31, 1994 . . . . . . . . . . . . . . . . . . $6,939 Designation of facility as property and equipment held for sale 2,348 Proceeds from the sale of assets . . . . . . . . . . . . . . . (2,785) Carrying costs incurred during phase-out period . . . . . . . 382 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) ----- Balance as of February 28, 1995 . . . . . . . . . . . . . . . $6,864 =====
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-CAS). The Company sought damages for the lost benefit of certain stockholder appreciation rights in an amount in excess of $3.6 million and punitive damages. RehabCare filed a counterclaim in the case seeking a declaratory judgement with respect to the rights of both parties under the Stock Redemption Agreement, an injunction enjoining the Company from taking certain action under the Stock Redemption or Restated Shareholders Agreements and damages in the form of attorneys' fees and costs allegedly incurred by RehabCare with respect to its issuance of certain preferred stock and with respect to prior litigation between the parties. The case was tried before a jury commencing on February 21, 1995. Prior to the presentation of evidence to the jury, the Court struck RehabCare's counterclaim in its entirety. On March 8, 1995, the jury returned its verdict awarding the Company 8 9 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) $2,681,250 plus interest and the costs of the action against RehabCare for securities fraud and for breach of contract. A number of motions have been filed by the parties concerning the form of the judgment entered by the Court. The judgment is not yet final for purposes of appeal, pending the Court's ruling on these motions. 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 FR). The former consultant has counterclaimed against the Company for $1,688,000 for lost profits, breach of contract and unjust enrichment. The former legal firm has filed a counterclaim for $193,000 for unpaid legal fees. Management believes that the counterclaims are meritless and intends to vigorously defend against them, and to pursue the Company's claims. 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 a settlement agreement with the former owner and will pay $250,000 in installments through September 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. During the third quarter of 1995, the Company satisfied the terms of the stock purchase agreement and commenced payment installments to the former owner. The Company will no longer report on this issue. 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 with the Company having no obligation to pay any penalties or accrued 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 five years. In March 1995, the Company paid $350,000 to the IRS against the initial payment due. In return, the IRS granted the Company an additional 120 days to pay the remaining balance of $2,150,000. The unpaid balance bears interest at 9% due and payable after the $5 million is paid. On June 8, 1994, RehabCare filed a lawsuit against the Company in the Circuit Court of St. Louis County, Missouri concerning a Tax Sharing Agreement entered into between the Company and RehabCare in May 1991. In the lawsuit, RehabCare alleges that it has incurred attorneys fees in connection with the settlement of certain tax issues with the IRS and has paid the IRS a settlement amount with respect to the years 1987 and 1988. RehabCare seeks the recovery from the Company of $581,000, plus interest, which RehabCare alleges is the amount it incurred for payments to the IRS in settlement and attorneys fees it incurred in dealing with the IRS. The Company has filed its answer and affirmative defenses contesting the right of RehabCare to obtain the relief it seeks. Discovery is ongoing. Until such discovery is complete, it is not possible to predict the likely outcome of the lawsuit. The Company has established a reserve with respect to this issue. The federal income tax returns of the Company for its fiscal years ended 1984 and 1987 through 1991 were examined by the IRS resulting 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 9 10 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 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 paid the assessment including interest during the third quarter of fiscal year 1995. The Company will no longer report on this issue. On February 24, 1995, an involuntary bankruptcy petition, filed in the U.S. Bankruptcy Court in the Northern District of Texas against the Company, was dismissed. Pursuant to an agreement dated March 3, 1995 between the Company and a representative of the petitioners, the petitioners consented to the dismissal of the case. Under such agreement the Company is required to offer to exchange its outstanding 7 1/2% Convertible Subordinated Debentures for a combination of cash and shares, and no assurance can be made that the Company will have sufficient cash to provide for the retirement of the Debentures. NOTE 6 - SUBSEQUENT EVENTS On March 3, 1995, the Company entered into a letter agreement to provide consensual, out-of-court resolution on the notice of acceleration of the principal and interest due under the Debentures (see Note 2 to the Company's Condensed Consolidated Financial Statements included herein). On March 5, 1995, the Company sold its 136-bed freestanding facility in Sacramento, California to SPS Health Care, Inc. for $3.83 million. The Company received a note for $3.35 million which is due in one year and secured by a first deed of trust. On March 22, 1995, the Company and its subsidiary, AccessCare, entered into a letter agreement with PCA Family Health Plan ("PCA"), a subsidiary of Physicians Corporation of America, providing for PCA to invest $1.0 million in AccessCare for 13 1/2% of AccessCare's Series A Preferred Stock which is also exchangeable into 100,000 of the Company's common stock or the equivalent of $10 per share. As a key to the agreement, so long as PCA remains an equity holder of AccessCare, PCA and its subsidiaries will negotiate in good faith to contract with AccessCare for the delivery of mental health services in all PCA service areas where AccessCare has an adequate network. Consistant with the letter agreement, on March 30, 1995, PCA and AccessCare entered into a letter of intent with respect to AccessCare providing services on a capitated basis to 220,000 of PCA's approximately 700,000 members. This transaction is expected to close during the fourth quarter. On April 1, 1995, the Company, through its subsidiary AccessCare, Inc., acquired the operations of American Mental Healthcare, Inc. ("AMH"). AMH currently provides behavioral managed care services to approximately 80,000 members in Florida. The acquisition is being paid for in the Company's common stock pursuant to three-year net revenue earn-out requirements. 10 11 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In the 1970s and early 1980s Comprehensive Care Corporation ("CompCare" or the "Company") pioneered one of the earliest forms of managed care by contracting with acute care hospitals to take over a percentage of their beds and provide turn-key management of certain "disease state" categories. The range of contract services extended from mental health to rehabilitation to smoking cessation. This pioneering concept, which operated under the CareUnit name, led to great financial success for the Company as operations grew to over 250 contracts. Unfortunately, in the late 1980s and early 1990s the Company adopted a strategy to de-emphasize and sell off most of the CareUnit contracts to support the acquisition of freestanding behavioral health hospitals. Many of these freestanding hospitals were located near formerly successful CareUnit locations, which created animosity from administrators of acute care hospitals, who believed that the Company had gone into direct competition with them. Over the last five years the Company has lost almost $85 million from the operations of its freestanding hospitals. Furthermore, during this period management was unable to address large potential tax claims being asserted by the IRS, which by mid-1994 may have exceeded the value of the Company's assets. Beginning in August 1994, the Company's senior management began implementing a strategy to compromise the IRS claims on a favorable basis to CompCare's shareholders and restructure operations back to a managed care focus. The future of the Company is to return to its contractor roots. Acute care hospitals are facing higher pricing pressures and competition today than they were 25 years ago, when CareUnit pioneered carving out a wing of the hospital and creating cash flow for itself and the hospital administrator. The Company has restaffed CareUnit management and is attempting to recapture the marketplace that the Company abandoned. The Company also believes that the change in the reward system of the managed health care industry from paying providers on a fee-for-service basis to a fixed monthly fee basis, referred to as capitation, creates a new opportunity with powerful rewards to the health care contractor. In 1992, the Company bought a small company in Tampa, Florida, now known as AccessCare. AccessCare had been contracting with a Blue Cross Health Maintenance Organization ("HMO") to capitate all the behavioral health needs of approximately 100,000 HMO members. Once AccessCare contracts and thus controls the monthly capitation, AccessCare has demonstrated that it is able to improve the quality of care through standardization of services and to command volume discounts and work in collaboration with specialists in the community to drive down the cost of providing quality services. AccessCare was restructured in early December 1994 to contract with HMOs and insurance companies across the United States to manage specific "disease states", which the Company hopes to expand from behavioral health to include AIDS, chronic pain, oncology and other maladies. The Company's management has attempted to emphasize that restructuring the Company would prove to be financially difficult. The Company suffered losses of approximately $3.4 million or $1.29 per share for the quarter ended February 28, 1995, which was comparable to a loss of approximately $2.5 million or $1.18 per share for the previous quarter ended November 30, 1994. An analysis of the successes, challenges and failures in restructuring the balance sheet and operations follows. BALANCE SHEET RESTRUCTURE: The Company made substantial progress in restructuring its balance sheet in the third quarter including: a final settlement was executed with the IRS compromising all then outstanding IRS claims, while, in the opinion of management, preserving over $40 million of usable tax loss carryfowards; negotiating the opportunity to potentially exchange most of the Company's Debentures for sixty-two cents on the dollar; and obtaining a cash infusion from a highly respected institutional investor. Furthermore, the Company settled numerous litigation issues and contingent liabilities. The biggest challenge facing the Company regarding the balance sheet is the need to raise approximately $7.0 million through the sale of additional assets or the placement of equity to meet the financial obligations associated with the settlement of the IRS and exchange of the Debentures (See Note 2 to the Condensed Consolidated Financial Statements included herein). Although there can be no assurance that the Company will have the capital to meet these obligations, management can report that the Company has recently closed the sale of a hospital in Sacramento, California for $3.9 million in cash and a note, plus the Company is having discussions regarding the liquidation of assets held for sale and additional cash investments. Management also believes that it is in the best interest of the Company to become debt free, given that major HMOs and insurers who may want to contract with the Company are concerned about the viability of highly leveraged vendors. 11 12 OPERATIONAL RESTRUCTURE: The Company moved aggressively to restructure operations in the third quarter including: relocating Corporate Headquarters from St. Louis, Missouri back to its prior home in Newport Beach, California and eliminating over one-third of ongoing corporate burden; restaffing most senior management and key marketing positions with executives that have proven health care track records; closing an operating facility in Fort Worth, Texas that was losing over $350,000 per month; establishing contracts in AccessCare that may increase capitated revenue to approximately $12 million per year by the end of fiscal 1996 versus approximately $3 million in fiscal 1994; and completing an acquisition that grew CareUnit by over 30%. A major challenge facing the Company is to increase net revenues to offset the high expenses associated with implementing its global reorganization and absorbing the corporate overhead cost of being a public company. RESULTS OF OPERATIONS Three Months Ended February 28, 1995 Compared to Three Months Ended November 30, 1994 The Company reported a loss of approximately $3.3 million or $1.42 per share for the quarter ended February 28, 1995, which was comparable to the loss of approximately $2.5 million or $1.18 per share reported for the quarter ended November 30, 1994. Overall operating revenues declined during the third quarter primarily as a result of a decrease in revenues for freestanding operations. The deterioration in revenue from the previous quarter reflects the seasonal downturn that occurs during the fiscal third quarter for hospital and behavioral medicine contract operations. In addition, freestanding operations revenue was further impacted by the closure of a freestanding facility in January 1995 due to poor performance. General and administrative expenses increased during the quarter by $0.3 million primarily as a result of the increase in legal costs related to the notice of acceleration of the Debentures and contesting the involuntary bankruptcy petition (See Note 2 to the Company's Condensed Consolidated Financial Statements included herein) which exceeded the reduction in expenses as the Company continues to reduce its corporate overhead expenses. The Company completed the relocation of its headquarters from Missouri to California during the third quarter of fiscal 1995. The provision for doubtful accounts decreased $0.2 million during the third quarter of fiscal 1995 as compared to the second quarter of fiscal 1995. Interest expense increased by $0.1 million primarily related to the Secured Convertible Note Purchase Agreement (See Note 2 to the Company's Condensed Consolidated Financial Statements herein), and the IRS settlement (See Note 5 to the Company's Condensed Consolidated Financial Statements included herein). Managed Care Operations During the third quarter of fiscal 1995, the number of capitated members at AccessCare increased by 9% and operating revenues increased 22% or $245,000 from the second quarter of fiscal 1995. This increase is primarily attributable to new contracts added during fiscal 1995. In addition, during the fourth quarter of fiscal 1995, AccessCare has executed contracts, letters of intent or acquisitions which should commence operation during the fourth quarter of fiscal 1995 and the first quarter of fiscal 1996, which are expected to increase revenues in excess of $2.0 million Operating expenses increased 23% during the third quarter of fiscal 1995 primarily as a result of corporate restructuring and higher utilization resulting in an increase in claims expenses and an increase in the costs associated with the expansion and development for new contracts. Also, results of the second quarter of fiscal 1995 include a one-time legal settlement of $0.2 million (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein). Behavioral Medicine Contracts During the third quarter of fiscal 1995, patient days of service at CareUnit contracts declined by approximately 22% from 8,027 patient days to 6,245 patient days. Units which were operational for both the second and third quarters of fiscal 1995 experienced a 12% decline in utilization to 5,181 patient days. Although average net revenue per patient day at these units increased by 7% from the previous quarter, there was a decline in overall net inpatient operating revenues by 5% to $0.6 million. Net outpatient revenues for programs operational 12 13 for both quarters at these units increased 3% from approximately $323,000 in the second quarter of fiscal 1995 to approximately $331,000 in the third quarter of fiscal 1995. On February 1, 1995, the Company purchased certain assets of Alternative Psychiatric Centers, Inc., ("APC"), a behavioral medicine contract management company based in Southern California from Drew Q. Miller, who joined the Company and is currently Chief Financial Officer. APC had two operating locations with three contract units offering inpatient and partial hospitalization services. The addition of these contract units, although only in force for 28 days, contributed 11% of CareUnit's revenue for the third quarter of fiscal 1995. Freestanding Operations Overall operating revenues for the third quarter of fiscal 1995 decreased $1.1 million from the second quarter of fiscal 1995. Although admissions for third quarter of fiscal 1995 on a same store basis increased 5% from the previous quarter, length of stay decreased resulting in a slight increase in net revenue per patient day of 2%. The Company believes that the increasing role of HMO's, reduced benefits from employers and indemnity companies, and a shifting to partial hospitalization and outpatient programs continue to impact and affect this decline in utilization. Net outpatient revenues for the third quarter declined by 8% from the second quarter of fiscal 1995, however, outpatient revenues as a percentage of total net revenue remained constant at 47% for both the second and third quarters. The Company is continuing its cost reduction measures, including the closure of selected facilities. During the third quarter of fiscal 1995, the Company closed one of its operating facilities due to poor performance costs and expenses during the third quarter related to this closure were approximately $134,000. The Company owns or manages five facilities which are currently operating and four facilities which are closed and 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. Three Months Ended February 28, 1995 Compared to Three Months Ended February 28, 1994 The Company reported a pretax loss of approximately $3.4 million for the third quarter of fiscal 1995, versus a pretax loss of approximately $1.3 million reported for the third quarter of fiscal 1994. Operating revenues for the third quarter of fiscal 1995 declined by approximately $1.9 million from the third quarter of fiscal 1994. This decrease is primarily due to a decline in operating revenues in the freestanding operations which more than offset the increase in operating revenues for managed care operations experienced in the third quarter of fiscal 1995. Overall operating expenses declined during the third quarter of fiscal 1995 by $0.4 million from the third quarter of fiscal 1994. The significant decline in operating expenses in the freestanding operations was offset by an increase in operating expenses related to managed care operations expansion and development. General and administrative expenses increased during the third quarter by $0.3 million primarily as a result of the increase in legal costs related to the restructuring of the Debentures and subsequent notice of acceleration (see Note 2 to the Company's Condensed Consolidated Financial Statements included herein). The provision for doubtful accounts increased $0.1 million in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994. Interest expense increased by $0.1 million during the third quarter of fiscal 1995 primarily related to the Secured Convertible Note Purchase Agreement (see Note 2 to the Company's Condensed Consolidated Financial Statements included herein) and the IRS Settlement (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein). Nine Months Ended February 28, 1995 Compared to Nine Months Ended February 28, 1994 The Company reported a pretax loss of approximately $8.2 million for the first nine months of fiscal 1995, an increase of approximately $4.5 million from the pretax loss of approximately $3.7 million reported for the first nine months of fiscal 1994. Operating revenues for the first nine months of fiscal 1995 declined by approximately $3.4 million from the first nine 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 more than offset the increase in 13 14 operating revenues generated by managed care operations of $1.0 million. Operating expenses remained comparable from the first nine months of fiscal 1995 to the first nine months of fiscal 1994. 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 in the first nine months of fiscal 1995 by approximately $0.5 million from the first nine months of fiscal 1994 primarily as a result of the increase in legal costs related to the restructuring of the Debentures and subsequent notice of acceleration (see Note 2 to the Company's Condensed Consolidated Financial Statements included herein). Fiscal 1994 includes a credit of approximately $0.4 million as a result of the revaluation of a provision for general and administrative expenses. Excluding the revaluation, general and administrative expenses remained comparable during the first nine months of fiscal 1995 compared to the same nine month period of fiscal 1994. The provision for doubtful accounts increased $0.6 million for the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994 which is primarily a result of an increase in the number of denials related to the hospital operations in Fort Worth, Texas. This facility was closed during the third quarter of fiscal 1995 due to poor performance. Liquidity and Capital Resources The Company's current assets at February 28, 1995 amounted to approximately $12.1 million and current liabilities were approximately $14.4 million, resulting in working capital deficit of approximately $2.3 million and a current ratio of 1.0:.8. Included in current assets are four hospital facilities designated as property and equipment held for sale with a total carrying value of $8.9 million. The Company sold one hospital facility in the second quarter of fiscal 1995 and received the proceeds of $2.5 million in the third quarter. In addition, during the third quarter, the Company closed one of its operating facilities due to poor performance. Accordingly, this property has been classified as property held for sale. Should the Company be unable to complete the sales transactions for the remaining three facilities held for sale, the Company's working capital would be materially adversely affected. 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. Should the Company be unable to improve the performance of hospital operations, the Company may be unable to meet terms and conditions required as part of the Company's "global structuring" (as defined below) and the settlement agreement with the IRS (See Note 5 to the Company's Condensed Consolidated Financial Statements included herein). During the first quarter of fiscal 1995, management stated its intent to restructure several of its obligations and commitments. Management intends that this "global restructuring" include as many of the following steps as possible: (i) the effectuation of a 1-for-10 reverse stock split; (ii) completion of the proposed settlement of the Company's payroll tax audit with the IRS; (iii) restructuring of the Company's financial obligations represented by the Debentures; and (iv) equity capital infusion. The Company has achieved the following to date: (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) continues to strive for completion of the restructuring of the Company's financial obligations represented by the 7 1/2% Convertible Subordinated Debentures (the "Debentures") and (iv) the Company entered into a Secured Convertible Note Purchase Agreement in the amount of $2.0 million and a private offering of common stock which would provide for some of the necessary equity capital infusion to the Company, as described below. On January 5, 1995, the Company issued a $2.0 million Secured Convertible Note due January 9, 1997 to a business trust. The Note is secured by first priority liens on two of the Company's operating hospital properties. The Note bears 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 is 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 fair market value 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 15% of the undiluted number of shares of Common Stock outstanding. The proceeds will be used to pay costs of closing unprofitable 14 15 operations, working capital and other general corporate purposes. On February 1, 1995, the Company sold an aggregate of 100,000 shares of common stock to one accredited investor in a private offering for an aggregate purchase price of $600,000 paid in cash on February 7, 1995. 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. In early February 1995, a group of holders and purported holders of the Debentures gave notice of acceleration of the entire amount of principal and interest due under the Debentures, and on February 24, 1995, a subset of such persons filed an involuntary petition in the United States Bankruptcy Court for the Northern District of Texas under Chapter 7 of the U.S. Bankruptcy Code. On March 3, 1995, the Company entered into a letter agreement with a representative of the holders of the Debentures who had taken such actions. The agreement provides for a consensual, out-of-court resolution that the Company's Board of Directors has approved as in the best interests of the Company, its stockholders and other stakeholders. The holders' representative agreed to provide notices of waiver of the interest non-payment default, notices of rescission of the Debenture acceleration and the effects thereof, and consent to the immediate dismissal of the involuntary Chapter 7 petition. In return, the Company has agreed to provide an opportunity to holders of Debentures to tender their Debentures to the Company pursuant to an exchange offer to be made by the Company to the holders of the Debentures. The offer consideration will consist of $500 in cash and $120 in shares of Common Stock per each $1,000 in original face amount of Debentures. Tendering holders will not receive interest calculated from and after April 15, 1994 (which includes the October 17, 1994 payment) and in lieu of calculated interest will receive $80 per $1,000 face amount of Debentures. If the exchange offer with holders of Debentures is consummated on the terms in the letter agreement and assuming the tender of 100% of the outstanding Debentures, the portion of the required offer consideration which will be payable in cash by the Company would be approximately $5,550,000. Among the factors affecting the anticipated exchange offering are the various conditions to the consummation of the offer and the ability of the Company to finance the cash payment necessary, and no assurance can be made that the exchange offer will be successfully completed. Failure to consummate the Debenture exchange offer may result in the Company considering alternative actions including filing for voluntary protection from creditors. In such case, the Company believes that the recovery to it security holders would be less than the recovery achieved under the consensual, out-of-court arrangement the Company has reached. In addition, the agreement provides for a pledge of all of the shares of CareUnit, Inc. to secure the Company's obligation to complete an exchange on the agreed upon terms; and failure to complete an exchange could result in a foreclosure sale of such shares. Should the Company be unsuccessful in the completion of the restructuring of the Debentures, the Company may be unable to meet, among other things, the terms and conditions of the settlement agreement with the IRS (see Note 5 to the Company's Condensed Consolidated Financial Statements included herein). 15 16 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-CAS). The Company sought damages for the lost benefit of certain stockholder appreciation rights in an amount in excess of $3.6 million and punitive damages. RehabCare filed a counterclaim in the case seeking a declaratory judgement with respect to the rights of both parties under the Stock Redemption Agreement, an injunction enjoining the Company from taking certain action under the Stock Redemption or Restated Shareholders Agreements and damages in the form of attorneys' fees and costs allegedly incurred by RehabCare with respect to its issuance of certain preferred stock and with respect to prior litigation between the parties. The case was tried before a jury commencing on February 21, 1995. Prior to the presentation of evidence to the jury, the Court struck RehabCare's counterclaim in its entirety. On March 8, 1995, the jury returned its verdict awarding the Company $2,681,250 plus interest and the costs of the action against RehabCare for securities fraud and for breach of contract. A number of motions have been filed by the parties concerning the form of the judgment entered by the Court. The judgment is not yet final for purposes of appeal, pending the Court's ruling on these motions. 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 FR). The former consultant has counterclaimed against the Company for $1,688,000 for lost profits, breach of contract and unjust enrichment. The former legal firm has filed a counterclaim for $193,000 for unpaid legal fees. Management believes that the counterclaims are meritless and intends to vigorously defend against them, and to pursue the Company's claims. 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 a settlement agreement with the former owner and will pay $250,000 in installments through September 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. During the third quarter of 1995, the Company satisfied the terms of the stock purchase agreement and commenced payment installments to the former owner. The Company will no longer report on this issue. 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 with the Company having no obligation to pay any penalties or accrued 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 five years. In March 1995, the Company paid $350,000 to the IRS against the initial payment due. In return, the IRS granted the Company an additional 120 days to pay the remaining balance of $2,150,000. The unpaid balance bears interest at 9% due and payable after the $5 million is paid. On June 8, 1994, RehabCare filed a lawsuit against the Company in the Circuit Court of St. Louis County, Missouri concerning a Tax Sharing Agreement entered into between the Company and RehabCare in May 1991. In the lawsuit, RehabCare alleges that it has incurred attorneys fees in connection with the settlement of certain tax issues with the IRS and has paid the IRS a settlement amount with respect to the years 1987 and 1988. 16 17 RehabCare seeks the recovery from the Company of $581,000, plus interest, which RehabCare alleges is the amount it incurred for payments to the IRS in settlement and attorneys fees it incurred in dealing with the IRS. The Company has filed its answer and affirmative defenses contesting the right of RehabCare to obtain the relief it seeks. Discovery is ongoing. Until such discovery is complete, it is not possible to predict the likely outcome of the lawsuit. The Company has established a reserve with respect to this issue. The federal income tax returns of the Company for its fiscal years ended 1984 and 1987 through 1991 were examined by the IRS resulting 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 paid the assessment including interest during the third quarter of fiscal year 1995. The Company will no longer report on this issue. On February 24, 1995, an involuntary bankruptcy petition, filed in the U.S. Bankruptcy Court in the Northern District of Texas against the Company, was dismissed. Pursuant to an agreement dated March 3, 1995 between the Company and a representative of the petitioners consented to the dismissal of the case. Under such agreement the Company is required to offer to exchange its outstanding 7 1/2% Convertible Subordinated Debentures for a combination of cash and shares, and no assurance can be made that the Company will have sufficient cash to provide for the retirement of the Debentures. 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. 17 18 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 and the acceleration thereof. ITEM 5. - OTHER INFORMATION In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified the Company that it was below certain quantitative and qualitative listing criterion in regard to net tangible assets available to common stock and three year average net income. The Listing and Compliance Committee of the NYSE has determined to monitor the Company's progress toward returning to continuing listing standards. Management anticipates that success in the "global restructuring" (see Note 2 to the Company Condensed Consolidated Financial Statements included herein) will be necessary to satisfy the Committee of the Company's progress. The Company met with representatives of the NYSE during the third quarter to discuss the Company's financial condition and intention to issue shares without seeking approval of shareholders. No assurance can be given that the steps of the restructuring will be successfully completed. ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Restated Certificate of Incorporation amended November 14, 1994 (filed herewith). 3.2 Restated Bylaws as amended November 14, 1994 (filed herewith). 10.58 Stock Purchase Agreement dated February 1, 1995 between the Company and Lindner Funds, Inc. (filed herewith). 10.59 Directors and Officers Trust dated February 27, 1995 between the Company and Mark Twain Bank (filed herewith).* 10.60 Letter Agreement between the Company and Jay H. Lustig, a representative of the holders of the 7 1/2% Convertible Subordinated Debentures (filed herewith). 27 Financial Data Schedules (filed herewith). 99.3 Notice to Shareholders Regarding Exemption from Shareholder Approval Requirement of the New York Stock Exchange (filed herewith). * Management contract or compensatory plan or arrangement with one or more directors or executive officers. (b) Reports on Form 8-K 1.) On January 6, 1995, the Company filed a current report on Form 8-K to report under Item 5 the effective date and address of of the Company's headquarters which was relocated from Missouri to California. 18 19 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 April 13, 1995 By /s/ DREW Q. MILLER ------------------------ Drew Q. Miller Vice President and Chief Financial Officer and Interim Chief Operating Officer (Principal Financial Officer) April 13, 1995 By /s/ KERRI RUPPERT --------------------------- Kerri Ruppert Vice President and Chief Accounting Officer (Principal Accounting Officer)
19 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION OF COMPREHENSIVE CARE CORPORATION (ORIGINALLY INCORPORATED UNDER THE NAME NEURO-PSYCHIATRIC & HEALTH SERVICES, INC.) (ORIGINAL CERTIFICATE OF INCORPORATION FILED JANUARY 28, 1969) COMPREHENSIVE CARE CORPORATION, a corporation duly organized and existing under the General Corporation Law of Delaware (the "corporation"), does hereby certify as follows: 1. The following provisions of the Restated Certificate of Incorporation of the corporation, shall be and become the certificate of incorporation of the corporation effective at 5:00 o'clock p.m. New York City time on Monday, November 14, 1994, and shall be amended and restated to read in its entirety as follows: FIRST. The name of the corporation (the "corporation") is COMPREHENSIVE CARE CORPORATION SECOND. Its registered office in the State of Delaware is located at 32 Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name and address of its registered agent are The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100, Dover, Delaware 19901. THIRD. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The corporation shall have authority to issue two classes of shares of stock to be designated, respectively, "Preferred Stock" and "Common Stock." On Friday, October 21, 1994 (the "Effective Time"), the total number of shares which the corporation shall have authority to issue is twelve million five hundred sixty thousand (12,560,000). The total number of shares of Preferred Stock which the corporation shall have authority to issue shall be sixty thousand (60,000); and each such share shall have a par value of fifty dollars ($50.00); and the total number of shares of Common Stock which the corporation shall have authority to issue shall be twelve million five hundred thousand (12,500,000); and each such share shall have a par value of one cent ($.01). Simultaneously with the Effective Time, each share of the corporation's Common Stock, par value $0.10 per share, issued and outstanding immediately prior to the Effective Time (the "Old Common Stock") shall automatically and without any action on the part of the holder thereof be reclassified as and changed into one-tenth (1/10th) of a share of 1 2 the corporation's Common Stock, par value $.01 per share (the "New Common Stock"), subject to the treatment of fractional share interests as described below. Each holder of a certificate or certificates which immediately prior to the Effective Time represented shares outstanding of Old Common Stock (the "Old Certificates," whether one or more) shall be entitled to receive upon surrender of such Old Certificates to the corporation's Transfer Agent for cancellation, a certificate or certificates (the "New Certificates," whether one or more) representing the number of whole shares of the New Common Stock into which and for which the shares of the Old Common Stock formerly represented by such Old Certificates so surrendered, are reclassified under the terms hereof. From and after the Effective Time, Old Certificates shall represent only the right to receive New Certificates (and, where applicable, cash in lieu of fractional shares, as provided below) pursuant to the provisions hereof. No certificates or scrip representing fractional share interests in New Common Stock will be issued, and no such fractional share interest will entitle the holder thereof to vote, or to any rights of a stockholder of the corporation. A holder of Old Certificates shall receive, in lieu of any fraction of a share of New Common Stock to which the holder would otherwise be entitled, a cash payment therefor on the basis of the closing price of the Old Common Stock on the New York Stock Exchange immediately prior to the Effective Time, as reported on the composite tape of the New York Stock Exchange, Inc. (or in the event the corporation's Common Stock is not so traded on the date on which occurs the Effective Time, such closing price on the next preceding day on which such stock was traded on the New York Stock Exchange). If more than one Old Certificate shall be surrendered at one time for the account of the same Stockholder, the number of full shares of New Common Stock for which New Certificates shall be issued shall be computed on the basis of the aggregate number of shares represented by the Old Certificates so surrendered. In the event that the corporation's Transfer Agent determines that a holder of Old Certificates has not tendered all his certificates for exchange, the Transfer Agent shall carry forward any fractional share until all certificates of that holder have been presented for exchange such that payment for fractional shares to any one person shall not exceed the value of one share. If any New Certificate is to be issued in a name other than that in which the Old Certificates surrendered for exchange are issued, the Old Certificates so surrendered shall be properly endorsed and otherwise in proper form for transfer, and the person or persons requesting such exchange shall affix any requisite stock transfer tax stamps to the Old Certificates surrendered, or provide funds for their purchase, or establish to the satisfaction of the Transfer Agent that such taxes are not payable. From and after the Effective Time the amount of capital represented by the shares of the New Common Stock into which and for which the shares of the Old Common Stock are reclassified under the terms hereof shall be the same as the amount of capital represented by the shares of Old Common Stock so reclassified, until thereafter reduced or increased in accordance with applicable law. 2 3 Each share of Common Stock shall be entitled to one vote at all meetings of Stockholders of the corporation and, subject to the rights of the holders of Preferred Stock, shall be entitled to receive dividends, when and as declared by the Board of Directors of the corporation. The following is a statement of the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of the respective classes of stock, and a statement of the authority vested in the Board of Directors of the corporation to adopt a resolution or resolutions from time to time providing for the issue of such stock and making provision for such matters: 1. Except as otherwise provided in the resolution or resolutions of the Board of Directors adopted pursuant to paragraphs (4) and (5) of this Article FOURTH, each share of Common Stock shall entitle the holder thereof to one vote, provided that at all elections of directors of the corporation each stockholder shall be entitled to as many votes as shall equal the number of votes which (except for this provision) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them, as he may see fit. 2. Subject to any preferential dividend rights of the holders of Preferred Stock determined as provided in paragraph (6) of this Article FOURTH, the holders of Common Stock shall be entitled to receive dividends out of any funds of the corporation legally available therefor, when and as declared by the Board of Directors. 3. In the event of any dissolution of, or upon any distribution of the assets of, the corporation, subject to all of the preferential rights, if any, of the holders of Preferred Stock, the holders of the Common Stock shall be entitled to receive, ratably and without distinction as to class, all of the remaining assets of the corporation. 4. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to fix or alter the dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices and the liquidation preferences of any wholly unissued series of Preferred Stock, and the 3 4 number of shares constituting any such series and the designation thereof, or any of them. 5. The holders of the Preferred Stock or any series thereof shall be entitled to such voting powers, full or limited, as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. The Board of Directors may issue one or more series of Preferred Stock without any voting power. 6. The holders of Preferred Stock or any series thereof shall be entitled to receive dividends at such rates, on such conditions and at such times as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors, payable in preference to, or in relation to, the dividends payable on any other class or classes of stock, or series thereof and cumulative as shall be so stated and expressed. 7. The holders of the Preferred Stock or any series thereof shall be entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the corporation as shall be stated and expressed in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors. 8. The Preferred Stock may be subject to redemption at such time or times and at such price or prices and may be issued in such series, with such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions of the Board of Directors providing for the issue of the Preferred Stock. Without in any manner limiting the foregoing, the Board of Directors may, but is not required to, establish and provide for a sinking fund in connection with any such redemptions, providing for such payments, at such time and otherwise upon such terms and conditions, as may be established in any such resolution or resolutions of the Board of Directors. 9. The Preferred Stock or any series thereof may be made convertible into other classes or series of stock upon such terms and conditions as are stated and expressed in the resolution or resolutions of the Board of Directors providing for the issue of such series of Preferred Stock. FIFTH: In the furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly 4 5 authorized to make, alter, amend or repeal the by-laws of the corporation. SIXTH. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote may be dispensed with on the written consent of the holders of a majority of the stock entitled to vote upon such corporate action; provided that in no case shall the written consent be by the holders of stock having less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. SEVENTH. Election of directors need not be by ballot unless the by-laws of the corporation shall so provide. EIGHTH. To the fullest extent permitted by Delaware General Corporation Law as the same exists or may hereafter be amended, a director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. NINTH. At the 1994 Annual Meeting of Stockholders, the directors shall be divided into three (3) classes, designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1994 Annual Meeting of Stockholders, Class I directors shall be elected for a three-year term, Class II directors for a two-year term and Class III directors for a one-year term. At each succeeding Annual Meeting of Stockholders beginning in 1995, successors to the class of directors whose term expires at that Annual Meeting of Stockholders shall be elected for a three-year term. If the number of directors has changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly as equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, unless otherwise required by law, but in no case shall a decrease in the number of directors for a class shorten the term of an incumbent director. Notwithstanding any other provisions of the Certificate of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage for separate class votes for certain actions may be permitted by law, by the Certificate of Incorporation or by the Bylaws), the affirmative vote of the holders of not less than 80% of the votes entitled to be cast by the holders of all then outstanding shares of voting stock, voting together as a single class, will be required to amend or repeal any provision of the Certificate of Incorporation or the Bylaws to the extent that such action is 5 6 inconsistent with the purpose of this Article Ninth; provided, however, that the provisions of this paragraph shall not apply to amendments of the Bylaws or Certificate of Incorporation that are recommended by not less than two-thirds of the members of the Board of Directors. 2. The Board of Directors of the corporation duly adopted resolutions that set forth the foregoing Restated Certificate of Incorporation (which restates and integrates and also further amends the corporation's certificate of incorporation, as heretofore amended or supplemented), declared the proposed amendment and restatement to be advisable, and directed that the amendment and restatement be submitted to the corporation's stockholders for adoption by written consent. 3. The Restated Certificate of Incorporation was duly adopted by a majority of the holders of all shares outstanding of Common Stock, being the holders of all shares outstanding of capital stock entitled to vote thereon, by written consent in accordance with the applicable provisions of Sections 228, 242 and 245 of the General Corporation Law of Delaware and notice has been given as provided in Section 228 of the General Corporation Law of Delaware. IN WITNESS WHEREOF, the corporation has caused this instrument to be executed as of the 14th day of November, 1994, and each of the signatories to this instrument acknowledges or affirms under penalties of perjury that this instrument is the act and deed of the corporation and that the matters set forth in this instrument are true. COMPREHENSIVE CARE CORPORATION By: /s/ CHRISS W. STREET -------------------------------------- Chriss W. Street, Chairman and President ATTEST: By: /s/ KERRI RUPPERT -------------------------------------- Kerri Ruppert, Vice President/Secretary 6 EX-3.2 3 RESTATED BYLAWS AS AMENDED NOVEMBER 14, 1994 1 Exhibit 3.2 COMPREHENSIVE CARE CORPORATION (a Delaware corporation) RESTATED BYLAWS Adopted November 14, 1994 As Amended November 14, 1994 ARTICLE I OFFICES Section 1.01 Registered office. The registered office of Comprehensive Care Corporation (hereinafter called the "Corporation") in the State of Delaware shall be at 229 South State Street, City of Dover, County of Kent, and the name of the registered agent in charge thereof shall be The Prentice-Hall Corporation Systems, Inc. Section 1.02 Principal Office. The principal office for the transaction of the business of the Corporation shall be at 16305 Swingley Ridge Drive, Suite 100, Chesterfield, Missouri 63017. The Board of Directors (hereinafter called the "Board") is hereby granted full power and authority to change said principal office from one location to another. Section 1.03 Other Offices. The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.01 Annual Meetings. Annual meetings of the stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time, date and place as the Board shall determine by resolution. Section 2.02 Special Meetings. Special meetings of the Corporation's stockholders for the transaction of any proper business may be called at any time by the Board, the Chairman of the Board, the Vice Chairman, or by the President. Section 2.03 Place of Meetings. All meetings of the stockholders shall be held at such places, within or without the State of Delaware, as may from time to time be designated by the person or persons calling the respective meeting and specified in the respective notices or waivers of notice thereof. 1 2 Section 2.04 Notice of Meetings. Except as otherwise required by law, notice of each meeting of the stockholders, whether annual or special, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting by delivering a typewritten or printed notice thereof to him personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to him at his post office address furnished by him to the Secretary of the Corporation for such purpose or, if he shall not have furnished to the Secretary his address for such purpose, then at his post office address last known to the Secretary, or by transmitting a notice thereof to him at such address by telegraph, cable, telecopier or wireless. Except as otherwise expressly required by law, no publication of any notice of a meeting of the stockholders shall be required. Every notice of a meeting of the stockholders shall state the place, date and hour of the meeting, and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall have waived such notice and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. Whenever notice is required to be given to any stockholder to whom (i) notice of two (2) consecutive annual meetings, and all notices of meetings or of the taking of action by written consent at a meeting to such person between such two (2) consecutive annual meetings, or (ii) all, and at least two (2) payments (if sent by First Class Mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any person shall deliver to the Corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. Section 2.05 Notice of Stockholder Business at Annual Meeting. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (b) otherwise properly brought before the meeting by or at the direction of the Board, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as 2 3 to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the books of the Corporation, of the stockholder proposing such business, (c) the class and number of shares of stock of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 2.05. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 2.05, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 2.06 Notice of Stockholder Nominees for Director. Only persons who are nominated in accordance with the procedures set forth in this Section 2.06 shall be eligible for election as directors. Nominations of persons for election to the Board of the Corporation may be made at a meeting of stockholders by or at the direction of the Board or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.06. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than seventy (70) days, notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for reelection of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected) ; and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the books of the Corporation, of such stockholder, and (ii) the class and number of shares of stock of the Corporation which are beneficially owned by such stockholder. At the request of the Board any person nominated by the Board for election as a director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.07 Quorum. Except in the case of any meeting for the election of directors summarily ordered as provided by law, the holders of record of a majority in voting interest of 3 4 the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of the stockholders of the Corporation or any adjournment thereof. In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from tune to time. At any such adjourned meeting at which a quorum is present any business may be transacted which might have been transacted at the meeting as originally called. Section 2.08 Voting. (a) Each stockholder shall, at each meeting of the stockholders, be entitled to vote in person or by each share or fractional share of the stock of the proxy Corporation having voting rights on the matter in question and which shall have been held by him and registered in his name on the books of the Corporation: (i) On the date fixed pursuant to Section 6.05 of the Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, or (ii) If no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day on which notice of the of the meeting shall be given or (b) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held. (b) Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes. Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. Stock having voting power standing of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by entirety or otherwise, or with respect to which two (2) or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the General Corporation Law of the State of Delaware. (c) Any such voting rights may be exercised by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized and delivered to the secretary of the meeting; provided, however, that no proxy shall be voted or acted upon after three (3) years from its date unless said proxy shall provide for a longer period. The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless he shall in writing so notify the secretary of the meeting prior to the voting of the proxy. At any meeting of the stockholders all matters, except as otherwise provided in the Certificate of Incorporation, in the Bylaws or by law, shall be decided by the vote of a majority 4 5 in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon, a quorum being present. The vote at any meeting of the stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting. On a vote by ballot each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and it shall state the number of shares voted. Section 2.09 List of Stockholders. The Secretary of the Corporation shall prepare and make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire duration thereof, and may be inspected by any stockholder who is present. Section 2.10 Judges. If at any meeting of the stockholders a vote by written ballot shall be taken on any question, the chairman of such meeting may appoint a judge or judges to act with respect to such vote. Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of his ability. Such judges shall decide upon the qualification of the voters and shall report the number of shares represented at the meeting and entitled to vote on such question, shall conduct and accept the votes, and, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question. Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation. The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which he shall have a material interest. Section 2.11 Stockholder Action By Written Consent Without A Meeting. (a) Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. All such consents shall be filed with the Secretary of the Corporation and shall be maintained in the corporate records. Any stockholder giving a written consent, or the stockholder's proxy holders, or a transferee of the shares or a personal representative of the stockholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the Corporation. (b) If, in the case of an action taken pursuant to Section 2.11(a), the consents of all stockholders entitled to vote have not been solicited in writing, or if the unanimous written consent of all such stockholders shall not have been received, the Secretary of the Corporation shall give prompt notice of the corporate action approved by the stockholders 5 6 without a meeting. This notice shall be given in the manner specified in Section 2.04. In the case of the approval of any (i) amendment to the Certificate of Incorporation of the Corporation; (ii) election to voluntarily wind up and dissolve the Corporation; or (iii) distribution in dissolution other than in accordance with the rights of holders of outstanding preferred stock as set forth in the Certificate of Incorporation of the Corporation, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. (c) Cumulative voting shall apply to any proposed election of directors by written consent of stockholders to fill vacancies and/or newly created directorships in the Board of Directors of the Corporation, so that each stockholder shall be entitled to cast by written consent as many votes as shall equal the number of votes which (except for this provision and Article FOURTH, Section 1 of the Restated Certificate of Incorporation of the Corporation) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of vacancies and/or newly created directorships in the Board of Directors to be filled, and he may cast by written consent all of such votes for a single such director or may distribute them among the number of directors to be voted for, or any two or more of them, as he may see fit. For purposes of this Section 2.11, when action relating to the election of directors is taken by stockholders by written consent, stockholders taking such action by written consent shall be referred to as having "cast vote(s)" for the election of such director(s). Section 2.12 Record Date For Stockholder Notice, Voting and Giving Consents. (a) For purposes of determining the stockholders entitled to notice of or to vote at any meeting or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than sixty (60) days or less than ten (10) days before the date of any such meeting, and only stockholders of record on the date so fixed are entitled to notice and to vote, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided in the General Corporation Law of the State of Delaware. If the Board does not so fix a record date, the record date for determining stockholders entitled to notice of or to vote at the meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board to fix a record date. The Board shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the 6 7 Board within ten (10) days of the date on which such a request is receive, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action. (c) In the event of the delivery to the Corporation of a written consent or consents purporting to authorize or take corporate action and/or related revocations (each such written consent or related revocation is referred to in this Section 2.12 as a "Consent"), the Secretary of the Corporation shall provide for safekeeping of such Consent and shall immediately appoint duly qualified and objective inspectors to conduct, as promptly as practical, such reasonable ministerial review as they deem necessary or appropriate for the purpose of ascertaining the sufficiency and validity of such Consent and all matters incident thereto, including, without limitation, whether holders of shares having the requisite voting power to authorize or take the action specified in the Consent have given consent. if after such investigation the Secretary shall determine that the Consent is valid, that fact shall be certified on the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders, and the Consent shall be filed in such records, at which time the Consent shall become effective as stockholder action. ARTICLE III BOARD OF DIRECTORS Section 3.01 Powers. The business and affairs of the Corporation shall be carried on by or under the direction of the Board of Directors, which shall have all the power authorized by the laws of the State of Delaware, subject to such limitations as may be provided by the Certificate of Incorporation or these Bylaws. Section 3.02 Number, Election and Qualification. Effective as of the date of the 1994 Annual Meeting of Stockholders, the number of directors of the Company shall be fixed at five. The number of directors may thereafter be changed by the affirmative vote of at least two-thirds of the members of the Board of Directors or by the affirmative vote of at least 80% of the votes entitled to be cast by the holders of all outstanding shares of voting stock of the Company, voting together as a class. Directors shall be elected by a plurality of the shares of stock present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Each director shall serve until the election and qualification of his or her successor or until his or her earlier death, resignation, retirement, disqualification or removal as provided in the Certificate of Incorporation or these Bylaws. In the case of an increase in the number of directors between elections by the stockholders, the additional directorships shall be considered 7 8 vacancies and shall be filled in the manner prescribed in Article V of these Bylaws. Directors need not be stockholders. Section 3.03 Compensation. The Board of Directors, or a committee thereof, may from time to time by resolution authorize the payment of fees or other compensation to the directors for services as such to the Corporation, including, but not limited to, fees for attendance at all meetings of the Board of Directors or any committee thereof, and determine the amount of such fees and compensation. No compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation thereof. Section 3.04 Notices, Meetings and Quorum. Except as otherwise expressly provided in these Bylaws, the Certificate of Incorporation or the laws of the State of Delaware, meetings of the Board of Directors, both regular and special, may be held either in or outside of the State of Delaware. At all meetings of the Board of Directors, a majority of the fixed number of directors shall constitute a quorum for the transaction of business. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, without notice or an announcement at such meeting, until a quorum shall be present. The Board of Directors shall, at the close of each annual meeting of stockholders and without further notice other than these Bylaws, if a quorum of directors is then present or as soon thereafter as may be convenient, hold a regular meeting for the election of officers and the transaction of any other business. The Board of Directors may from time to time provide for the holding of regular meetings with or without notice and may fix the times and places at which such meetings are to be held. Meetings other than regular meetings may be called at any time by the Chairman of the Board of Directors, the Chief Executive Officer or the President, and may and must be called by the Secretary or an Assistant Secretary upon the written request of at least one-half (1/2) of the members of the Board of Directors. Notice of each meeting other than a regular meeting (unless required by the Board of Directors), shall be given to each director (i) by mailing the same to each director at his or her residence or business address at least five (5) days before the meeting; (ii) by sending the same by overnight courier to each director at his or her residence or business address at least three (3) days before the meeting; (iii) by facsimile transmission at his or her business facsimile number and telephonic confirmation of receipt at least two (2) days before the meeting; or (iv) by delivering the same personally or by telephone or telegraph at least two (2) days before the meeting. Notwithstanding the preceding sentence, in the case of exigency, the Chairman of the Board of Directors, the Chief Executive Officer, the President or the Secretary shall be authorized to prescribe a shorter notice to be given personally or by telephone, telegraph, cable, facsimile transmission or wireless to all or any one or more of the directors at their respective residences or place of business. Notice of any meeting shall state the time and place of such meeting, but need not state the purposes thereof unless otherwise required by the laws of the State of Delaware, the Certificate of Incorporation or the Board of Directors. 8 9 Section 3.05 Committees. (a) General Provisions. The Board of Directors may, by resolution adopted by a majority of the whole Board of Directors, designate one or more committees. Each committee shall consist of two or more directors and the Board of Directors shall elect the members thereof to serve at the pleasure of the Board of Directors and may designate each of such members to act as chairperson. The Board of Directors may at any time change the membership of any such committee, fill vacancies in it, designate alternate members to replace any absent or disqualified members at any meeting of any such committee, or dissolve it. Each such committee shall have the powers and perform such duties, not inconsistent with law, as may be assigned to it by the Board of Directors, and shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Each committee may determine its rules of procedure and the notice to be given of its meeting. A majority of the members of each committee shall constitute a quorum. (b) Executive Committee. The Board of Directors shall, by resolution adopted by a majority of the whole Board of Directors, provide for an Executive Committee. Subject to such limitations as may be imposed by the laws of the State of Delaware, during the intervals between the meeting of the Board of Directors, the Executive Committee shall possess and may exercise any or all of the power of the Board of Directors in the management or direction of the business and affairs of the Corporation, including the full power and authority to declare dividends, of any kind whatsoever, to authorize the issuance of capital stock, of any class or series, of the Corporation and to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware, as it may be amended from time to time. Section 3.06 Conference Telephone Meetings. Except as may be otherwise prescribed by the laws of the State of Delaware, the Certificate of Incorporation or these Bylaws, any one or more members of the Board of Directors or any committee thereof may participate in a meeting by means of a conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 3.07 Action Without Meeting. Except as may be otherwise prescribed by the laws of the State of Delaware, the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Section 3.08 Directors Elected by Preferred Stockholders. Notwithstanding anything in these Bylaws to the contrary, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of 9 10 office, filling of vacancies and other features of such directorships shall be governed by the terms of the Certificate of Incorporation or the resolutions or the resolutions of the Board of Directors creating such class or series, as the case may be, applicable thereto. ARTICLE IV OFFICERS Section 4.01 Titles and Election. The officers of the Corporation shall be the Chairman of the Board of Directors, the Chief Executive Officer, the President, the Treasurer, one or more Vice Presidents and the Secretary. The officers of the Corporation, in the absence of earlier resignations or removals, shall be elected at the first meeting of the Board of Directors following each annual meeting of stockholders. Each officer shall hold office at the pleasure of the Board of Directors except as may otherwise be approved by the Board of Directors, or until his or her earlier resignation, removal under these Bylaws or other termination of his employment. Any person may hold more than one office if the duties can be consistently performed by the same person. The Board of Directors, in its discretion, may also at any time elect or appoint Assistant Secretaries and Assistant Treasurers and such other officers as it may deem advisable, each of whom shall hold office at the pleasure of the Board of Directors, except as may otherwise be approved by the Board of Directors, or until his or her resignation, removal or other termination of employment, and shall have such authority and shall perform such duties as may be prescribed or determined from time to time by the Board of Directors or, in the case of officers other than the Chairman of the Board, if not prescribed or determined by the Board of Directors, as the Chairman of the Board, the Chief Executive Officer, the President or then senior executive officer may prescribe or determine. ARTICLE V CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 5.01 Execution of Contracts. The Board, except as in the Bylaws otherwise provided, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by the Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount. Section 5.02 Checks, Drafts, Etc. All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board. Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require. 10 11 Section 5.03 Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman, Vice Chairman, President, any Vice President or the Treasurer (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation. Section 5.04 General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient. ARTICLE VI SHARES AND THEIR TRANSFER Section 6.01 Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class of shares of the stock of the Corporation owned by him. The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman, Vice Chairman, President or a Vice President, and by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provide for in Section 6.04 hereof. Section 6.02 Transfers of Stock. Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by his or her attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, 11 12 or with a transfer clerk or a transfer agent appointed as provided in Section 6.03 hereof, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferror and the transferee request the Corporation to do so. Section 6.03 Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with the Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one (1) or more transfer clerks or one (1) of more transfer agents and one (1) or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them. Section 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do. Section 6.05 Record Date for Purposes Other Than Notice and Voting. For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action (other than action by stockholders by written consent without a meeting), the Board may fix a record date which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which shall not be more than sixty (60) days before any such action, and in that case only stockholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date so fixed, except as otherwise provided in the General Corporation Law of the State of Delaware. If the Board does not so fix a record date, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. ARTICLE VII INDEMNIFICATION Section 7.01 Indemnification of Directors and Officers. The Corporation shall, to the fullest extent permitted by law, indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including without limitation an action by or in 12 13 the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Section 7.02 Advance of Expenses. Costs and expenses (including attorneys' fees) incurred by or on behalf of a director, officer, employee or agent in defending or investigating any action, suit, proceeding or investigation shall be paid by the Corporation in advance of the final disposition of such matter, if such director, officer, employee or agent shall undertake in writing to repay any such advances in the event that it is ultimately determined that he is not entitled to indemnification. Notwithstanding the foregoing, no advance shall be made by the Corporation if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel, that, based upon the facts known to the Board or counsel at the time such determination is made, (a) the director, officer, employee or agent acted in bad faith or deliberately breached his duty to the Corporation or its stockholders, and (b) as a result of such actions by the director, officer, employee or agent, it is more likely than not that it will ultimately be determined that such director, officer, employee or agent is not entitled to indemnification. Section 7.03 Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise or as a member of any committee or similar body against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article or applicable law. Section 7.04 Non-Exclusivity. The right of indemnity and advancement of expenses provided herein shall not be exclusive, and the Corporation may provide indemnification or advancement of expenses to any person, by agreement or otherwise, on such terms and conditions as the Board of Directors may approve. Any agreement for indemnification of or advancement of expenses to any director, officer, employee or other person may provide to any rights of indemnification or advancement of expenses which are broader or otherwise different from those set forth herein. 13 14 ARTICLE VIII MISCELLANEOUS Section 8.01 Seal. The Board shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words and figures showing that the Corporation was incorporated in the State of Delaware and the year of incorporation. Section 8.02 Waiver of Notices. Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice. Section 8.03 Amendments. Except as otherwise provided in the Bylaws, the Bylaws, or any of them, may be altered, amended or repealed, and new Bylaws may be made (i) by the Board, by vote of a majority of the number of directors then in office as directors, acting at any meeting of the Board, or (ii) by the vote of the holders of a majority of the total voting power of all outstanding shares of voting stock of the Corporation, at any annual meeting of stockholders, without previous notice, or at any special meeting of stockholders, provided that notice of such proposed amendment, modification, repeal or adoption is given in the notice of special meeting. Except as otherwise provided in these Bylaws, any Bylaws made or altered by the stockholders may be altered or repealed by either the Board or the stockholders. ARTICLE IX Section 9.01 Number of Directors. Effective as of the date of the 1994 Annual Meeting of Stockholders, the number of directors of the Company shall be fixed at five. The number of directors may, thereafter, be changed by the affirmative vote of at lease two-thirds of the members of the Board of Directors or by the affirmative vote of at least 80% of the votes entitled to be cast by the holders of all outstanding shares of voting stock of the Company, voting together as a class. Directors shall be elected by a plurality of the shares of stock present in person or represented by proxy at the meeting and entitled to vote on the election of directors. 14 EX-10.58 4 COMMON STOCK PURCHASE AGREEMENT DATED 2/1/95 1 Exhibit 10.58 COMPREHENSIVE CARE CORPORATION COMMON STOCK PURCHASE AGREEMENT THIS COMMON STOCK PURCHASE AGREEMENT ("Purchase Agreement") is made and entered into as of this 1st day of February, 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 authorized and previously unissued shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"); and B. The Purchasers desire to acquire shares of the Common Stock (such shares referred to herein individually as a "Share" and collectively as the "Shares") 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 the Shares. Subject to the terms and conditions hereof, the Company has authorized the issuance of an aggregate of 100,000 Shares to the Purchasers (allocated as provided in Section 9 hereof) for a purchase price of $6.00 in cash for each Share. The purchase price will be payable upon the execution and delivery of this Purchase Agreement by wire transfer in same-day or next-day funds as directed by the Company in writing. 2. Representations and Warranties of the Company. The Company represents and warrants that: (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 each state in which the nature of its business or properties requires such qualification (except where failure as to qualify would not have a material adverse effect on the Company taken as a whole), with full power and authority, corporate and otherwise, to enter into and perform this Purchase Agreement, and to execute and deliver the various instruments and documents provided for herein. (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 1 2 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. This Purchase Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms. (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. (4. The authorized capital of the Company is 12,500,000 shares of Common Stock, $0.01 par value per share, of which approximately 2,214,500 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. (5. The Company's subsidiaries are as set forth in a Schedule attached hereto. (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. (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. (8. The Shares of Common Stock issuable under this Purchase Agreement have been duly authorized and, when issued against payment therefor, will be validly issued, fully paid and nonassessable (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. (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 quarters ended August 31, 1994 and November 30, 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 2 3 the unaudited consolidated statements of cash flows for the three-month periods ended on such dates and for the corresponding prior year periods. (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. (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. (13. The proceeds received by the Company from the Shares will be applied to general corporate purposes. 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 Shares 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 Shares 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 Shares have not been registered under the Act, and that, accordingly, the Shares will be what is commonly known as "restricted securities," and are not freely transferrable by the Purchasers except pursuant to an exemption from registration under the Act, such as Rule 144, the substance of which is known to the Purchasers; and (e) that substantially the following legends shall be placed on the Shares: THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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 OR REGULATION D THEREUNDER AND NOT WITH A VIEW TO OR IN CONNECTION WITH THE DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE OFFERED FOR SALE OR SOLD OR OTHERWISE DISPOSED OF OR ENCUMBERED 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 Shares to be purchased by Purchasers, nor any interest therein, shall be sold, transferred, assigned, or otherwise disposed 3 4 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 certificates evidencing the Shares shall bear a conspicuous notation, substantially as provided above, setting forth the restrictions on transfer herein set forth. 5. Registration. (1. (a) Incidental Registration. The Company will notify the 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 Shares issued to Purchasers 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 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 forty-five (45) 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 under the Purchase Agreement. 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 Shares 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' Shares pursuant to this Section 5.1, except that the 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. 4 5 (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 the Purchasers' Shares. 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 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. (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, or 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' Shares 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' Shares, as provided in Section 5.1(c)(iv), such minimum period of ninety (90) days shall be extended by the period of such deferral. (3. The Company's obligations under this Section 5 are conditioned upon its being furnished by Purchasers with detailed descriptions of Purchasers, their Shares 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 5 6 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. (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 Shares 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. 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 6 7 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 the 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. (6. To the extent transfers of the Shares are permitted pursuant to Section 4 hereof, the 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 the Purchasers shall increase or otherwise affect the nature or extent of the Company's obligations provided in this Section. 6. Hypothecation of Shares. The Company expressly agrees that any of the Purchasers may pledge, assign or otherwise hypothecate any of the Shares acquired hereby to any other Purchaser. 7. 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 7 8 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. 8. 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 for the execution, delivery or performance of this Purchase Agreement, or the delivery and issuance of the Shares, other than such actions as shall have been taken prior to the Closing. 9. Notices. Any notice or demand required or desired to be given to or served upon the Company or the 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 mail certified or registered, postage prepaid, addressed or delivered as follows: If to the Company: Comprehensive Care Corporation c/o Chriss Street & Co. 1111 Bayside Drive, Suite 100 Corona del Mar, California 92629 Attention: Chriss W. Street, Chairman If to the Purchasers: Lindner Fund, Inc. c/o Ryback Management 7711 Carondelet Avenue, Suite 700 St. Louis, Missouri 63105 Attention: Larry Callahan Number of Shares Purchased Purchasers: 100,000 Lindner Fund, Inc., a Missouri corporation Total: 100,000 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. 10. 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 Shares sold to the public pursuant to Section 5 hereof. 8 9 11. 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. 12. 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. 13. Attorneys' Fees. In the event of any suit or action arising out of an Event of Default under this Purchase Agreement, the Purchasers shall be entitled to reasonable attorneys' fees and costs of suit. IN WITNESS WHEREOF, the undersigned have caused this Purchase 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 9 10 "Purchasers" LINDNER FUND, INC., a Missouri corporation By: /s/ Larry Callahan --------------------------------- Its: Vice President -------------------- 10 EX-10.59 5 DIRECTORS AND OFFICERS TRUST DATED 2/27/95 1 Exhibit 10.59 COMPREHENSIVE CARE CORPORATION DIRECTORS AND OFFICERS TRUST This agreement ("Agreement") is entered into this 27th day of February, 1995, by and between Comprehensive Care Corporation, a Delaware corporation (the "Company"), and Mark Twain Bank, a Missouri state bank (the "Trustee"). The Agreement provides for the establishment of a trust (the "Trust") to provide a source for certain payments required to be made under the indemnification agreements listed as Exhibit A, as amended from time to time (each an "Indemnification Agreement"), between the Company and certain of its Officers and/or members of the Board of Directors of the Company (each an "Indemnitee"). WITNESSETH: WHEREAS, the Company has entered into an Indemnification Agreement with each Indemnitee which provides that the Company may establish a Trust to fund certain obligations under the Indemnification Agreements; and WHEREAS, the Company considers it desirable to provide each Indemnitee with additional assurance that the Company will honor the obligations under the Indemnification Agreements; and WHEREAS, to provide such assurance, the Company has obtained a policy to provide for Directors and Officers insurance coverage and considers it desirable to establish the Trust and to transfer assets to the Trust in an amount sufficient to meet certain obligations under the Indemnification Agreements, which assets shall be held therein until paid to the Underwriter or his designee or returned to the Company in such manner and at such time as specified in this Agreement. NOW, THEREFORE, IT IS AGREED: ARTICLE I INTRODUCTION 1. 1. Name; Purpose. The Trust shall be known as the "Comprehensive Care Corporation Directors and Officers Trust." The purpose of the Trust is to assure that certain obligations of the Company to the Indemnitees under the Indemnification Agreements are fulfilled. 1.2. Trust Fund. All contributions to the Trust made by the Company, together with any earnings or increments thereon, but reduced by any losses and distributions from the Trust, and any other reductions (including, but not limited to, Trustee fees) thereof, shall be referred to as the "Trust Fund." 2 1.3. Tax Status of Trust. The Trust is intended to be a grantor trust, within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed accordingly. The Trust does not form part of a plan designed to qualify under Code section 401(a). 1.4. Rights Against Company. The Trust Fund shall be held separate and apart from other funds of the Company and shall be used exclusively for the uses and purposes herein set forth. No Indemnitee shall have any preferred claim on, or any beneficial ownership interest in, the Trust Fund prior to the time amounts are to be paid to the Underwriter or his designee from the Trust Fund pursuant to the terms of this Agreement, and all rights created under an Indemnification Agreement and this Agreement shall be mere unsecured contractual rights of the Indemnitee against the Company. ARTICLE II CONTRIBUTIONS; ACCOUNTS 2.1. Company Contributions. In connection with the establishment of the Trust, the Company hereby deposits with the Trustee Two Hundred Fifty Thousand Dollars ($250,000.00). The Company may at any time and from time to time make additional cash deposits with the Trustee to augment the Trust Fund, but the Trustee shall not have any duty to require that any additional contributions be made by the Company. The Trust Fund shall be held, managed, and administered by the Trustee as a single commingled fund pursuant to the terms of this Agreement without distinction between principal and income. 2.2 Accounts. The Trustee shall establish and maintain a bookkeeping account on behalf of all Indemnitees (an "Account"), the initial balance of which shall be as set forth in Exhibit B. The Trustee shall debit the Account by any amounts paid to the Underwriter or his designee from the Trust, and, at least quarterly and upon the occurrence of any distribution to or on behalf of an Indemnitee under Article IV, shall adjust Account of which has not received a distribution from the Trust to of account for the earnings of the Trust Fund since the last such adjustment. The accounts maintained pursuant to this Section shall be for bookkeeping purposes only, and shall not determine the amounts to which any Indemnitee is entitled under his Indemnification Agreement. 2 3 ARTICLE III INVESTMENT The Trustee shall have full discretion in and sole responsibility for the investment, management, and control of the Trust Fund; provided that, because of the nature of the Trust, the Trustee shall maintain the Trust Fund in an interest-bearing account or accounts (including accounts with the banking department of the Trustee), or may invest only in certificates of deposit or other short-term investments with a stated maturity of twelve (12) months or less from the date of purchase by the Trustee, or in money-market funds which are invested in obligations of or guaranteed by the United States of America, commercial paper obligations receiving the highest rating from either Moody's Investors Service, Inc. or Standard & Poor's Corporation or a similar rating service, or certificates of deposit, bank repurchase agreements, or bankers acceptances of commercial banks, the securities of which (or the securities of the holding company of which) are rated in the highest category by a nationally-recognized credit agency. ARTICLE IV DISTRIBUTIONS 4.1. Payment to Underwriter. (a) Upon written demand for payment by the Beneficiary Representative (or in case of death, such Beneficiary Representative alternate, if any, as may be entitled to authorize payments under the Indemnification Agreement), accompanied by a "Notice of Qualification" (as defined below), the Trustee shall pay to the Underwriter or his designee, after the passage of three (3) business days from the Trustee's receipt of such demand, an amount equal to the lesser of (i) the amount so demanded for payment, or (ii) the then balance of the specified Account. Upon the occurrence of any demand under this Section, the Trustee promptly shall value the Trust Fund, and adjust each Account to reflect the earnings on the Trust Fund since the preceding adjustment, and the balance of each Account who has filed a demand with the Trustee shall be determined after such adjustment. (b) For purposes of this Section, a "Notice of Qualification" shall be a written statement by the Beneficiary Representative (or in case of death, such Beneficiary Representative alternate, if any, as may be entitled to authorize payments under the Indemnification Agreement) which (i) states the date and action on which the policyholder is obligated to Indemnitee(s) under the terms of the Indemnification Agreement, (ii) certifies that, pursuant to the terms of the Indemnification Agreement, the Indemnitees are entitled to payment 3 4 thereunder as a result of the investigation, claim, action, suit or proceeding, and (iii) states the amount of the payment to which the Underwriter is entitled. The Trustee shall be under no duty to make inquiry as to whether the determination made by the Beneficiary Representative is correct or whether any payment so demanded is proper and correct. (c) Upon the receipt of a demand pursuant to subsection (a), above, the Trustee promptly shall inform the Company of such receipt by courier delivery to the Company of written notice thereof. Subject to any contrary order issued by a court of competent jurisdiction, a payment made pursuant to this Section may be made without the approval or direction of the Company, and shall be made despite any direction to the contrary by the Company. 4.2. Payment to Company. As soon as practicable after all Accounts have filed a demand for and received payment under Section 4. 1, or, if earlier, upon the expiration of three (3) calendar years from the date this Agreement is entered into, the Trustee shall pay to the Company all amounts then held in the Trust Fund; provided that, if any payment from the Trust to the Beneficiary Representative or the Underwriter or his designee who has filed a demand pursuant to Section 4.1 is being contested or litigated, and payment from the Trust is delayed under the terms of this Agreement or at the direction of a court of competent jurisdiction beyond the expiration of the three (3) year period specified above, payment to the Company shall be delayed until the proper disposition of the payment to the Indemnitee has been determined. If the Company and the Beneficiary Representative each certify to the Trustee that the Company's obligations to make lump sum payments under the Indemnification Agreement have been satisfied or are no longer required to be maintained by the Trust, the Trustee shall repay to the Company all monies then held in the Trust Fund. ARTICLE V ACCOUNTING BY TRUSTEE 5.1. Records of Trust Fund Account. The Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be done, including such specific records as shall be agreed upon in writing between the Company and the Trustee. Within sixty (60) days following the close of each calendar year, and within sixty (60) days after the removal or resignation of the Trustee, the Trustee shall deliver to the Company and to the Beneficiary Representative a written account of its administration of the Trust during such year or during such period from the close of the last preceding year to the date of such 4 5 removal or resignation, setting forth all investments, receipts, disbursements, and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), showing all cash, securities, and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be, and the book and fair market value of any such asset. 5.2. Inspections/Audit. All accounts, books, and records maintained by the Trustee with respect to the Trust shall be opened to inspection and audit at all reasonable times by the Company and, on an annual basis, after receipt of the written account described in Section 5. 1, by the Beneficiary Representative, provided that, no one shall have access to information about another or any Account other than in the normal course of performing his duties as an Officer or Director of the Company. 5.3. Valuations. The fair market value of the Trust Fund shall be determined by the Trustee whenever required pursuant to this Agreement, but in any event not less than quarterly. The Trustee may base such determination upon such sources of information as it may deem reliable including, but not limited to, information reported in (i) newspapers of general circulation, (ii) standard financial periodicals or publications, (iii) statistical and valuation services, (iv) the records of securities exchanges or brokerage firms deemed by the Trustee to be reliable, or any combination thereof. ARTICLE VI GENERAL RESPONSIBILITIES OF TRUSTEE 6.1. Fiduciary Duties. The Trustee shall act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims; provided that, the Trustee shall incur no liability to anyone for any action taken pursuant to a direction, request, or approval by the Company or the Beneficiary Representative contemplated by and complying with the terms of this Agreement. The Trustee shall discharge its responsibility for the investment, management, and control of the Trust Fund solely in the interest of the Indemnitees and for the exclusive purpose of assuring that, to the extent of the available assets of the Trust Fund, all payments due under an Indemnification Agreement are paid when due to the Underwriter or his designee. 6.2. Litigation. The Trustee shall not be required to undertake or to defend any litigation 5 6 arising in connection with this Agreement, unless it is first indemnified by the Company against its prospective costs, expenses, and liability, and the Company hereby agrees to indemnity the Trustee for such costs, expenses, and liability. 6.3. Legal Counsel. The Trustee may consult with legal counsel with respect to any of its duties or obligations hereunder, and shall be fully protected in acting or refraining from acting in accordance with the advice of legal counsel. 6.4. General Powers. The Trustee is authorized and empowered to do all acts necessary or desirable for the proper administration of the Trust, including, but not limited to, the following: (a) To purchase, hold, sell, invest, and reinvest the assets of the Trust Fund, together with the income therefrom; (b) To hold, manage, and control all property at any time forming part of the Trust Fund; (c) To sell, convey, transfer, exchange, and otherwise dispose of the assets of the Trust Fund, for such consideration and upon such terms and conditions as it shall determine; (d) To employ counsel, agents, accountants, and financial consultants as may be reasonably necessary in managing and protecting the Trust Fund, and to pay them reasonable compensation; (e) To cause any property of the Trust Fund to be issued, held, or registered in the individual name of the Trustee, or in the name of its nominee, or in such form that title will pass by delivery, provided that, the records of the Trustee shall indicate the true ownership of all such property; (f) To settle, compromise, or abandon with the consent of the Company, all claims and demands from other than the Beneficiary Representative or the Company in favor of or against the Trust Fund; (g) To exercise all the further rights, powers, options, and privileges granted, provided for, or vested in trustees generally under applicable federal law or the laws of the State of California, as amended from time to time, it being intended that, except as herein otherwise provided, the powers conferred upon the Trustee herein shall not be construed as being in limitation of any authority conferred by law, but shall be construed as in addition thereto. 6 7 ARTICLE VII COMPENSATION/EXPENSES OF THE TRUSTEE The Trustee shall be entitled to receive such reasonable compensation for its services as shall be agreed upon by the Company and the Trustee, and its reasonable expenses incurred with respect to the administration of the Trust. Such compensation and expenses shall be payable by the Company, but if not so paid, shall be paid from the Trust Fund. If any assets of the Trust Fund are used pursuant to the preceding sentence to pay compensation or expenses of the Trustee, the Company promptly shall contribute to the Trust any such amount. ARTICLE VIII RESIGNATION OF TRUSTEE 8.1. Resignation of Trustee. The Trustee may resign at any time during the term of this Agreement by delivering to the Company a written notice of the proposed resignation. In the event the Trustee notifies the Company of its intention to resign, the Company shall appoint a successor trustee which shall be a bank or trust company. The resignation of the Trustee shall take effect upon the appointment of a successor trustee and such successor trustee commencing to act as such. 8.2. Transfer of Assets. Upon the appointment of a successor trustee, (i) the Trustee hereunder shall thereupon deliver to the successor trustee all property of the Trust, together with such records and documents as may be reasonably required to enable the successor trustee to properly administer the Trust, reserving such funds as the Trustee may reasonably deem necessary to cover its unpaid bills and expenses, and closing costs, and (ii) all right, title, and interest of the Trustee in the Trust Fund, and all rights and privileges under this Agreement previously vested in the Trustee shall vest in the successor Trustee, and thereupon all future liability of the resigning Trustee shall terminate; provided that, the Trustee shall execute, acknowledge, and deliver all documents and written instruments which are necessary to transfer and convey the right, title, and interest in the Trust Fund, and all rights and privileges to the successor Trustee. 8.3. Judicial Settlement. Nothing in this Agreement shall be interpreted as depriving the Trustee or the Company of the right to have a judicial settlement of the Trustee's accounts, and upon any proceeding for a judicial settlement of the Trustee's accounts or for instructions, the only necessary parties thereto shall be the 7 8 Trustee and the Company. ARTICLE IX TERMINATION This Agreement and the Trust hereby created shall be irrevocable by the Company, but automatically shall terminate when all assets of the Trust Fund have been distributed pursuant to Article IV. ARTICLE X PROTECTION OF TRUSTEE 10.1. Indemnification. To the extent permitted by law, the Company agrees to indemnity the Trustee and hold it harmless from and against any claim or liability that may be asserted against it by reason of its taking or refraining from taking any action under this Agreement, including, but not limited to, any claim brought against the Trustee by the Company, otherwise than on account of the Trustee's own negligence or willful misconduct. 10.2. Certifications. The Trustee shall be fully protected in relying upon a certification of an authorized representative of the Company with respect to any instruction, direction, or approval of the Company until a subsequent certification is filed with the Trustee. 10.3. Other Instruments. The Trustee shall be fully protected in acting upon any instrument, certificate, or paper believed by it to be genuine and to have been signed or presented by the proper person or persons, and the Trustee shall be under no duty to make any investigation or inquiry as to any statement contained in any such writing but may accept the same as conclusive evidence of the truth and accuracy of the statements therein contained. 10.4. Notice of Qualification. The Trustee shall not be liable for the proper application of any part of the Trust Fund if distributions are made in accordance with the terms of this Agreement and information furnished to the Trustee by the Beneficiary Representative. ARTICLE XI GENERAL PROVISIONS 8 9 11.1. Communications. For purposes of this Agreement, notices and other communications shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, as follows: If to Company: Comprehensive Care Corporation 4350 Von Karman Avenue, Suite 280 Newport Beach, California 92660 Attn: Kerri Ruppert, Vice President/Secretary If to Beneficiary Representative: Mr. J. Marvin Feigenbaum 250 E. 73rd St., Apt. 2C New York, New York 10021 If to Trustee: Mark Twain Bank, Trust Division 8820 Ladue Road 2nd Floor - Trust Division St. Louis, Missouri 63124 Attn: Walt Roddy or such other address as either party may have furnished to the other in writing in accordance with this Section. 11.2. Severability. Any provision of this Agreement which is found to be prohibited by law shall be ineffective to the extent of any such prohibition without invalidating or in any other way limiting the remaining provisions. 11.3. Alienation. The rights of an Indemnitee under this Agreement, and the payments available to the Underwriter or his designee from the Trust may not be anticipated, assigned (either at law or in equity), alienated, or subject to attachment, garnishment, levy, execution, or other legal or equitable process. Any attempt by an Indemnitee to anticipate, alienate, assign, sell, transfer, pledge, encumber, or charge the same shall be void. The Trust Fund shall not in any manner be subject to the debts, contracts, liabilities, engagements, or torts of any Indemnitee, and no payment hereunder shall be considered an asset of the Indemnitee in the event of his insolvency or bankruptcy. 11.4. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of California to the extent not preempted by federal law. 11.5 Taxes. The Trustee shall not be liable (individually or severally) for any taxes of any kind levied or assessed under the existing or future laws against the Trust Fund. The Trustee shall withhold from 9 10 payment any federal, state, or local withholding taxes which may be required to be deducted under applicable laws. To the extent that any taxes levied or assessed upon the Trust are not paid by the Company, the Trustee shall pay such taxes out of the Trust Fund. 11.6. Fees and Expenses. Expenses of and fees charged to the Company for the administration of the Trust and services in relation thereto for actuarial, legal, accounting, and similar services, including any costs with respect to the creation of the Trust, shall be paid by the Company and, if not so paid, may be paid by the Trustee from the Trust Fund. 11.7. No Employment Rights. This Agreement is not a contract of employment or directorship and shall not give any Indemnitee the right to be retained as a director or in the employ of the Company nor any other rights other than those specifically enumerated herein. 11.8. Release of Liability under Indemnification Agreements. To the extent payment to the Underwriter or his designee, is made in accordance with the provisions of this Agreement, such payment shall be in partial satisfaction of claims against the Trustee and the Company under the Indemnification Agreement. Nothing in this Agreement shall relieve the Company of its liabilities to pay amounts under any Indemnification Agreement except to the extent such liabilities are met through the use of assets of the Trust Fund. 11.9. Successors. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their successors and assigns. 11.10. Actions by Company. Any action of the Company pursuant to this Agreement, including all orders, requests, directions, or instructions, shall be in writing signed on behalf of the Company by an officer or named designee of the Company. 11.11. Actions by Indemnitees. Any action of the Indemnitees pursuant to this Agreement, including all orders, requests, directions, or instructions, shall be in writing signed on behalf of the Indemnitees by the Beneficiary Representative or named designee of the Indemnitees. 11.12. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and said counterparts shall constitute but one and the same instrument, which may be sufficiently evidenced by one counterpart. 11.13. Headings. Headings in this Agreement are included only for reference and are not be considered in the construction of the provisions hereof. 10 11 11.14. Gender. As used in this Agreement, the masculine includes the feminine and neuter genders. IN WITNESS WHEREOF, the Company and the Trustee have executed this Agreement as of the date first above written. MARK TWAIN BANK By: /s/ Joann Barton ---------------------------------- Title: Vice President ------------------------------- COMPREHENSIVE CARE CORPORATION By: /s/ Kerri Ruppert ---------------------------------- Title: Vice President/Secretary ------------------------------ 11 12 EXHIBIT A FEBRUARY 1995 Directors Indemnification Agreements - --------- -------------------------- Chriss W. Street March 7, 1994 William H. Boucher March 7, 1994 Harvey Felsen March 7, 1994 J. Marvin Feigenbaum March 7, 1994 H. Stan Groth March 7, 1994 W. James Nicol March 7, 1994 Rudy R. Miller August 25, 1994 Executive Officers - ------------------ Fred C. Follmer March 7, 1994 Kerri Ruppert March 7, 1994 Drew Q. Miller November 1, 1994 12 13 EXHIBIT B 1. Deductible $75,000 2. SEC Deductible $175,000 13 EX-10.60 6 LETTER OF AGREEMENT BETWEEN JAY LUSTIG & COMPANY 1 Exhibit 10.60 COMPREHENSIVE CARE CORPORATION 4350 Von Karman Suite 280 Newport Beach, CA 92660 Tel: 714-798-0460 Fax: 714-752-0585 March 3, 1995 HAND DELIVERED Mr. Jay H. Lustig Individually and as representative of the Participating Securityholders (defined below) Re: Proposed Rescission of Acceleration of Securities Dear Mr. Lustig: Based on the various discussions that we have had among or between Comprehensive Care Corporation (the "Company"), the Trustee of its 7-1/2% Convertible Subordinated Debentures Due April 15, 2010 (the "Securities"), and you as a representative of certain holders, and individually as a holder, of certain Securities which we understand aggregate $4.653 million in original principal amount (the "Participating Securityholders"), certain of whom were Securityholders who gave notice of acceleration in February 1995, and our understanding of the type of transaction that is feasible for rescission of acceleration and of interest to us, we outline the basis for this proposed rescission relative to the proposed agreement to pay cash and issue shares to Participating Securityholders, and permitted assigns (collectively, the "Consideration"). In this regard, we propose the principal terms of an agreement (the "Agreement") to be as set out in this letter as follows: 1. Voting of Securities; "Lock-Up." Upon the dismissal of the involuntary Chapter 7 petition filed against the Company, the Participating Securityholders will give notices of rescission of acceleration reasonably acceptable and at times as determined by the Trustee and the Company, will vote in favor of each related proposal to be made to all of the Securityholders of the Company, including without limitation a proposed supplemental indenture if necessary, and will tender their Securities for exchange for cash and shares as described herein (the "Offer"). Furthermore the Participating Securityholders will neither submit any notice or demand of acceleration, nor pursue any remedies available under the Indenture nor join or participate in any Securities Exchange Act of 1934 Rule 13(d) group or participate against the Board or management in any proxy or other solicitation of any of the Securities or Common Stock of the Company, and the Participating Securityholders agree that they will give the Company any information they receive about anyone trying to form such a group. Jay H. Lustig represents that he is authorized to execute and deliver this Agreement on behalf of and to bind at least $2.5 million in original principal amount of the Securities and further represents that he shall cause the holders of at least $2.5 million of the outstanding principal amount of Securities to rescind acceleration and waive the interest payment defaults, substantially as provided in the attached Notice of Rescission of Acceleration on or before March 31, 1995, and use his best efforts to cause holders of an additional amount of Securities necessary to aggregately comprise more than 2 50% of the outstanding principal amount of Securities to rescind such acceleration and waive such interest payment defaults substantially as provided in such notice. 2. Rights Non-Assignable. Until the earlier of the expiration of this Agreement or the completion of the exchange of Securities contemplated herein, nothing contained in this Agreement will permit any Participating Securityholder to at any time sell or dispose of in any manner the rights or obligations of the said Participating Securityholder under this Agreement. However, the Participating Securityholders may transfer their Securities provided that the recipient, and each subsequent transferee, is irrevocably bound hereby and so agrees in writing. Until the earlier of the expiration of this Agreement or the completion of the exchange of Securities contemplated herein, each Participating Securityholder shall notify the Company of any private or public sale, and agrees to placement of an appropriate legend on the Securities bound hereby. 3. Standstill. Until the earlier of the expiration of this Agreement or the completion of the exchange of Securities contemplated herein, if any Participating Securityholders, directly or indirectly, acquires beneficial or record ownership of any Securities or other equity securities of the Company or interest, such Securities will become and remain subject to this Agreement. 4. The Offer. The Offer shall incorporate the following features and specifications upon first being given to Securityholders, subject to requirements of law: [] The Offer shall be made pursuant to Section 3(a)(9) of the Securities Act of 1933 for up to 100% of the Securities. Shares issuable pursuant to the Offer are intended to be freely tradeable under the Securities Act of 1933. [] The Board of the Company shall use best efforts to complete this transaction within 120 days, but shall have a reasonable period of additional time, ending not later than 180 days after the date hereof, in order to consummate legal requisites to the Offer. [] The Company shall not, during the term of this Agreement, pledge or otherwise dispose of, or issue or commit to issue any additional, capital stock, or any interest therein, or securities convertible into shares of such stock, of CareUnit, Inc., a Delaware corporation ("Care Unit"), 100% of whose outstanding shares (the "Shares") are held beneficially and of record by the Company free of any other liens or claims. At 150 days after the date of this Agreement, provided that the Participating Securityholders have in each material respect performed (with opportunity to cure if a cure is possible) their obligations required to be performed hereunder on or prior to such date, and if the Offer has not then been consummated, the Company shall pledge (with the Trustee, or an alternate acceptable to the Company, to act as pledgeholder on terms of a written agreement containing standard terms reasonably acceptable to the Participating Securityholders) all of the Shares as collateral for its obligation to purchase the Securities pursuant to the Offer or otherwise. Such pledge may only be foreclosed upon following 180 days after the date hereof at the request of any Securityholder or the Trustee if the Offer is not consummated on or prior to such date, provided that the Participating Securityholders have in each material respect performed (with opportunity to cure if a cure is possible) their obligations required to be performed hereunder on or prior to such date. From day 150 through day 180 after the date hereof, or the earlier consummation of the Offer, the tendered (or all Participating Securityholders' Securities if the Offer has not been commenced without fault of the Participating Securityholders) Securities of the Participating Securityholders shall accrue and be paid upon purchase thereof additional interest at the rate of 7-1/2% per annum on the original principal 2 3 amount). Upon consummation of the Offer, the said pledges shall be released. The Company represents that Care Unit is the subsidiary generating operating profits under the CareUnit name, and all of its other subsidiaries with similar names are substantially inactive. [] The Participating Securityholders shall support the proposed Offer and shall not speak or write publicly against the proposed Offer. In addition, the Participating Securityholders will not solicit or support any solicitation of proxies or consents inconsistent with the purposes or spirit of this Agreement. [] The Offer shall allow the Securityholders to participate pro-rata to the amounts tendered, up to 100% of the amount of Securities outstanding, provided that all tendering Securityholders also give notice of rescission of acceleration and consent to any proposals reasonably made by the Company that are incidental to the Offer. [] The tendering Securityholders shall receive, net to the Securityholder, for each $1,000.00 of original principal amount tendered, $500.00 in cash, plus $120.00 in shares of Common Stock of the Company (based on a fair value of the Common Stock equalling the average round-lot traded price reported on the NYSE Composite Tape for all trading days during the 75 calendar days commencing with and as of March 6, 1995). Additionally, for each $1,000.00 of original principal amount, tendering Securityholders will receive $80 in cash (approximately 1 year's interest) representing the amount agreed upon to represent all interest owing and accrued to the payment date, in return for which they will waive all other obligations including all default interest accrued from April 15, 1994 which was due as of October 17, 1994, and all interest (or interest on interest) accruing from and after October 15, 1994 through the date on which the Offer is consummated. [] The Offer and the Company's completion of an exchange as described herein are subject to all relevant conditions provided in the Indenture relating to the Securities dated as of April 25, 1985 between the Company and the Trustee, as defined therein, and receipt of all reasonably necessary governmental, and third-party, consents, filings, or approvals necessary to consummate the Offer. [] The Company may condition the Offer upon a minimum of tendered Securities of $2.5 million from the Participating Securityholders. 5. Costs. The Company shall pay legal fees of Weil, Gotshal & Manges incurred by the accelerating Participating Securityholders from January 1, 1995 to date in the amount of between $35,000 and $40,000. Otherwise, the parties each will bear their own respective costs. 6. Release. Upon dismissal of the involuntary Chapter 7 case, referred to further below, the Company shall release each Participating Securityholder and its officers, employees, agents, representatives, attorneys, and advisors from any and all claims and causes of action arising or occurring prior to the date hereof, including without limitation any and all claims or causes of action arising out of or related to the delivery of the notice of acceleration of the Securities or the filing of an involuntary Chapter 7 petition against the Company, provided that the effectiveness of the release shall be conditioned upon and subject only to the execution and delivery by each respectively released Participating Securityholder of the notice of rescission of acceleration described in paragraph 1 hereof and each Participating Securityholder using its best efforts to achieve consummation of the transactions contemplated herein. 7. News Release. Upon the execution by you and return to us of this Agreement, the Company shall prepare the news release. Each news release concerning this Agreement or the Offer shall be in form and substance and at times reasonably determined by the Company 3 4 after reasonable notice to you and reasonable prior consultation with you, with your reasonable cooperation, as representative of the Participating Securityholders. 8. Bankruptcy Petition. The Participating Securityholders that are petitioning creditors in the involuntary Chapter 7 bankruptcy petition filed against the Company shall support and cause their attorneys to execute and indicate consent to the Order Dismissing Involuntary Petition (the "Order") attached hereto. The Participating Securityholders that are petitioning creditors shall support entry of the Order and dismissal of the involuntary petition at the hearing scheduled for March 7, 1995. If such order is not entered by the court prior to or on March 8, 1995, the Company thereafter shall have the option to terminate this Agreement upon written notice and, prior to such termination, to require additional reasonable cooperation of the Participating Securityholders for the purpose contemplated in this paragraph. 9. Survival. If the Offer is consummated, the terms and provisions of this Agreement shall survive the consummation of the Offer. If the foregoing meets with your approval, so signify by signing and returning the enclosed duplicate copy of this letter, whereupon this letter shall constitute the final agreement between the parties in accordance with the terms and provisions set forth above. This offer will expire if not accepted on March 3, 1995. We shall look forward to receiving your prompt acceptance. Very truly yours, COMPREHENSIVE CARE CORPORATION By: /s/ Chriss W. Street ----------------------------------------- Chriss W. Street, Chairman of the Board, Chief Executive Officer and President AGREED AND CONFIRMED: By: /s/ Jay H. Lustig Dated: March 3, 1995 ------------------------------ Jay H. Lustig APPROVED AS TO FORM: WEIL, GOTSHAL & MANGES By: /s/ Martin A. Sosland ------------------------------ Martin A. Sosland 4 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR THE PERIOD ENDED 5/31/94 AND FORM 10-Q FOR THE PERIOD ENDED 2/28/95. 0000022872 COMPREHENSIVE CARE CORPORATION 1,000 U.S. DOLLARS 9-MOS MAY-31-1995 JUN-01-1994 FEB-28-1995 1,000 1,764 0 3,017 (3,870) 0 12,084 24,122 (11,552) 26,752 14,412 12,392 23 0 0 (2,571) 26,752 34,581 34,612 (12,702) (12,702) 27,597 1,417 941 (8,045) 176 (8,221) 0 0 0 (8,221) (3.69) (3.69)
EX-99.3 8 LETTER TO COMPREHENSIVE CARE CORP SHAREHOLDERS 1 Exhibit 99.3 IMPORTANT NOTICE April 14, 1995 Dear Fellow Shareholders of Comprehensive Care Corporation: Since January 1, 1995, Comprehensive Care Corporation (the "Company") has sold for $2,000,000 in cash a $2,000,000 Secured Convertible Note initially convertible into 333,333 shares of Common Stock (representing approximately 15% of the number of previously outstanding shares) and sold, for $600,000 in cash, 100,000 shares of Common Stock (representing approximately 4.5% of the number of previously outstanding shares), to 1Lindner Investments in a private placement. Physicians Corporation of America ("PCA"), a private investor and customer of the Company's services, is expected to be issued, among other things, an option to acquire 100,000 shares of Common Stock in exchange for $1.0 million cash investment in the Company's subsidiary, AccessCare, Inc. Additional private placements of shares are anticipated. These issuances and proposed issuances, in the aggregate, including all private placements since January 1, 1995, would exceed 20% of the previously outstanding Common Stock. This notice is necessary for compliance with the rules of The New York Stock Exchange, Inc. (the "Exchange"), which generally requires shareholder approval of issuances of shares of stock in certain transactions, including issuances which result in a change of control or if the number of shares would exceed 20% of the number of previously outstanding shares. The Audit Committee of the Board of Directors of Comprehensive Care Corporation determined that delay in securing shareholder approval prior to the sale of shares would seriously jeopardize the financial viability of Comprehensive Care Corporation as an enterprise. Because of that determination, the Audit Committee, pursuant to an exception provided in the Exchange's Shareholder Approval Policy for such a situation, expressly approved Comprehensive Care Corporation's omission to seek a shareholder approval that would otherwise have been required under the policy. Comprehensive Care Corporation, in order to be able to rely on the exception, is required to mail to all shareholders this letter notifying them of its intention to issue the shares without seeking their approval, and the issuances of additional shares have not been completed to date pending the giving of this notice. The Company was required to, and has, issued a news release to substantially the same effect. The Exchange's policy requires that this notice be mailed at least 10 days prior to the issuance of shares, or securities convertible into shares, under the exemption. The Board of Directors believes that the issuance and sale of shares will help to enhance shareholder value by providing a badly-needed source of funds in order to advance the efforts that are underway to refocus the Company on profitable operations, to close unprofitable facilities and to resolve the tax claims that pre-date the Company's current management. Sincerely yours, Chriss W. Street Chairman of the Board, Chief Executive Officer and President -----END PRIVACY-ENHANCED MESSAGE-----