-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ETzjkj75lJZZ0Wbg+vfqAoRq6smK7iCzANp3mfOLP7OqzAfqgaJDMC84huuhUBm3 /o58XigpPnZ7RiQHBtg2yw== 0000892569-95-000563.txt : 19951016 0000892569-95-000563.hdr.sgml : 19951016 ACCESSION NUMBER: 0000892569-95-000563 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951013 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPREHENSIVE CARE CORP CENTRAL INDEX KEY: 0000022872 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 952594724 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09927 FILM NUMBER: 95580575 BUSINESS ADDRESS: STREET 1: 4350 VON KARMAN AVE STREET 2: STE 280 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7147980460 MAIL ADDRESS: STREET 1: 4350 VON KARMAN AVENUE STREET 2: SUITE 280 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 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 FORM 10-Q PERIOD ENDING AUGUST 31, 1995 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 August 31, 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) (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 October 11, 1995 ----------------------------- ------------------------------- Common Stock, par value $.01 per share 2,656,932 The number of shares outstanding includes an aggregate of 442,433 shares previously sold by the Registrant and which the Registrant is obligated to issue. Issuance of which is pending the completion of administerial acts. 1 2 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES ----------------------------------------------- Index ----- Part I - Financial Information Item 1. - Condensed Consolidated Financial Statements Condensed consolidated balance sheets, August 31, 1995 and May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed consolidated statements of operations for the three months ended August 31, 1995 and 1994 . . . . . . . . . . . . . . . . 4 Condensed consolidated statements of cash flows for the three months ended August 31, 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 . . . . . . . . . . . . . . . . . . . . . . 17 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)
AUGUST 31, MAY 31, 1995 1995 ------------ ---------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 799 $ 1,542 Accounts and notes receivable, less allowance for doubtful accounts of $1,081 and $1,096 . . . . . . . . . . . . . 3,889 3,329 Note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 2,750 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 643 391 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,331 8,012 --------- --------- Property and equipment, at cost . . . . . . . . . . . . . . . . . . . . . . 25,378 25,181 Less accumulated depreciation and amortization . . . . . . . . . . . . . . (13,407) (13,074) --------- --------- Net property and equipment . . . . . . . . . . . . . . . . . . . . . . . . 11,971 12,107 --------- --------- Property and equipment held for sale . . . . . . . . . . . . . . . . . . . 3,857 3,746 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,956 2,136 --------- --------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,115 $ 26,001 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 10,176 $ 10,235 Long-term debt in default (see Note 2) . . . . . . . . . . . . . . . . 9,538 9,538 Current maturities of long-term debt . . . . . . . . . . . . . . . . . 1,290 3,285 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 325 296 --------- --------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 21,329 23,354 --------- --------- Long-term debt, excluding current maturities . . . . . . . . . . . . . . . 4,636 5,077 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,460 1,503 Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 Commitments and contingencies (see Notes 2 and 5) Stockholders' equity: Preferred stock, $50.00 par value; authorized 60,000 shares . . . . . --- --- Common stock, $.01 par value; authorized 12,500,000 shares, issued 2,656,936 and 2,464,516 shares . . . . . . . . . . . . . . 26 25 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 42,487 41,558 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (47,823) (46,516) ------ ------ Total stockholders' equity . . . . . . . . . . . . . . . . . . . (5,310) (4,933) --------- --------- Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . $ 23,115 $ 26,001 ========= =========
Note: The balance sheet at May 31, 1995 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 3 4 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) --------- (Dollars in thousands, except per share amounts)
THREE MONTHS ENDED ------------------ AUGUST 31, AUGUST 31, 1995 1994 ------------ ----------- Revenues and gains: Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,776 $ 8,057 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6 --------- --------- 8,786 8,063 --------- --------- Costs and expenses: Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 7,715 7,989 General and administrative expenses . . . . . . . . . . . . . . . . . 1,270 1,067 Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 280 750 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 348 461 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 454 251 --------- --------- 10,067 10,518 --------- --------- Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (1,281) (2,455) Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . 26 45 --------- --------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,307) $ (2,500) ========= ========= Loss per share: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.50) $ (1.14) ========= =========
See accompanying notes. 4 5 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) --------- (Dollars in thousands)
THREE MONTHS ENDED ------------------ AUGUST 31, AUGUST 31, 1995 1994 ------------ ---------- Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,307) $ (2,500) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . 348 461 Provision for doubtful accounts . . . . . . . . . . . . . . . . . 280 750 Loss on sale/write-down of assets . . . . . . . . . . . . . . . . --- (4) Carrying costs incurred on property and equipment held for sale . (84) (135) Decrease in accounts and notes receivable . . . . . . . . . . . . 1,910 177 Decrease in other current assets and other assets . . . . . . . . (123) 123 Decrease in accounts payable and accrued liabilities . . . . . . (58) (228) Increase in income taxes payable . . . . . . . . . . . . . . . . 29 34 Decrease in other liabilities . . . . . . . . . . . . . . . . . . (43) (100) --------- --------- Net cash provided by (used in) operating activities . . . . . . . . . 952 (1,422) --------- Cash flows from investing activities: Net proceeds (loss) from sale of property and equipment (operating and held for sale) . . . . . . . . . . . . . . . . . . . . . . . . . . . (46) 5 Additions to property and equipment . . . . . . . . . . . . . . . . . (143) (37) --------- --------- Net cash (used in) investing activities . . . . . . . . . . . . . . (189) (32) --------- --------- Cash flows from financing activities: Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . (2,436) (52) Proceeds from the issuance of common stock . . . . . . . . . . . . . . 930 --- --------- --------- Net cash (used in) financing activities: . . . . . . . . . . . . . . (1,506) (52) --------- --------- Net increase(decrease) in cash and cash equivalents . . . . . . . . . . . . (743) (1,506) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . 1,542 1,781 --------- --------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . $ 799 $ 275 ========= =========
See accompanying notes. 5 6 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 1995 (unaudited) NOTE 1 - BASIS OF PRESENTATION -------------------------------- The condensed consolidated balance sheet as of August 31, 1995, and the related condensed consolidated statements of operations and cash flows for the three months ended August 31, 1995 and 1994 are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 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 August 31, 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. Notes to consolidated financial statements included in Form 10-K for the year ended May 31, 1995, 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, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company incurred significant losses from operations in fiscal 1995 and continues to report losses for the first quarter of fiscal 1996. The continuation of the Company's business is dependent upon the resolution of operating and short-term liquidity problems and the consolidated financial statements do not include any adjustments that might result from an unfavorable outcome of this uncertainty (see Note 2--"Operating Losses and Liquidity"). Primary and fully diluted loss per common and common equivalent shares have been computed by dividing net loss by the weighted average number of common shares outstanding during the period. During fiscal 1995, 1994, and the first quarter of fiscal 1996, the effect of outstanding stock options and the assumed conversion of the Convertible Subordinated Debentures had an antidilutive impact on loss per share and, accordingly, were excluded from per share computations. The weighted average number of shares outstanding used to compute loss per share were 2,599,000 and 2,199,000 for the three months ended August 31, 1995 and 1994. All share and per share amounts contained in the Condensed Consolidated Financial Statements retroactively reflect the effect of the reverse stock split for all periods presented, which effect is to reduce the number of shares set forth by a factor of ten, with each stockholder's proportionate ownership interest remaining constant, except for payment in lieu of fractional shares. NOTE 2 - OPERATING LOSSES AND LIQUIDITY - ----------------------------------------- The Company reported a net loss of $1.3 million for the quarter ended August 31, 1995 versus a net loss of $2.5 million for the quarter ended August 31, 1994. As a result, the Company has an accumulated deficit of $47.8 million and a total stockholders' deficiency of $5.3 million as of August 31, 1995. Additionally, the Company's current assets at August 31, 1995 amounted to approximately $5.3 million and current liabilities were approximately $21.3 million, resulting in a working capital deficiency of approximately $16.0 million and a current ratio of 1:4.0. Included in current liabilities are $9.5 million of Debentures in default as a result of the Company's failure to make scheduled payments of interest on the Debentures commencing in October 1994. The Company has agreed to use its best efforts to provide an opportunity for Debenture holders to tender their Debentures pursuant to an exchange offer to be made by the Company. This proposed transaction requires the holders of a majority of the Debentures to give their approval to rescind the acceleration and the Company to obtain and expend up to $5.5 million of cash during fiscal 1996, over and above cash required to fund other financing, operating and investing needs. Additionally, the Debenture exchange provides for the Company to issue $120 worth of its common stock at a defined value for each $1,000 of Debentures, which may be contingent upon the Company's ability to effect certain filings with the Securities and Exchange Commission. The ability to timely proceed with any such proposed filings will, in part, depend upon the ability of the Company to obtain a consent from its prior auditors for the use of their report on the Company's consolidated financial statements in such registration statements. Failure to obtain Debenture holder approval or to accomplish the Debenture exchange, or, in the alternative, a failure of the Company and the Debenture holders to otherwise reach a settlement, may cause the Debenture holders to pursue the involuntary bankruptcy of the Company and/or the Company to take alternative actions that may include filing for voluntary protection from creditors. Alternatively, if the Debenture exchange is accomplished, the elimination of the Debenture's debt service requirement would decrease the Company's future cash flow requirements. (The foregoing summary does not constitute an offer to the holders of the Company's Debentures. 6 7 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 1995 (unaudited) Any such offer may only be made pursuant to an exchange offer, and in conformity with the relevant securities laws, rules and regulations.) These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty. In fiscal 1993 the Company established a restructuring reserve to address the Company's operational issues. One purpose of such reserve was for the realignment of the Company's focus and business and the settlement and disposition of certain non- performing and under-utilized assets. Many of the Company's inpatient freestanding facilities have been sold or are in the process of being closed or sold and management has begun to implement plans for expanding the Company's contract management and managed care operations. In previous years, the Company was obligated to support and fund certain poor performing freestanding facilities that now have been closed, including two such facilities closed in fiscal 1995 (see Note 3-- "Property and Equipment Held for Sale"). As a result, the Company will no longer be burdened with the negative cash flow requirements associated with such facilities. Based upon a projection of actual performance during fiscal 1995 with adjustments for reduced cash flow requirements associated with facilities closed and/or sold in fiscal 1995, known contract and cyclical changes, and also giving consideration to cash on hand at August 31, 1995 of $799,000, management expects the Company to be able to meet its cash obligations required by operations during fiscal 1996, excluding the Company's obligations under the Debentures. However, the cash needs of the Company may vary from month to month depending upon the actual level of business activity, and through the first quarter of fiscal 1996 the Company continues to incur losses. Therefore, no assurance can be given that the Company will generate adequate cash flows to meet cash obligations required by operations, excluding the Company's obligations under the Debentures, in fiscal 1996. To provide funds for the Debenture exchange and/or additional operating needs, the Company anticipates utilizing one or more of the following potential sources of cash: - The Company has filed its fiscal 1995 Federal tax return, and a Form 1139 "Corporate Application for Tentative Refund" in the amount of $9.4 million. In the event the Company receives the full refund claim for fiscal 1995, the net amount of cash available for working capital purposes would be $7.5 million. The Company has also filed amended Federal tax returns for prior years to claim refunds of an additional $13.2 million. The net amount of cash available for working capital purposes would be $10.6 million. These refund claims have been made under Section 172(f) of the Internal Revenue Code, an area of the tax law without significant precedent, and there may be substantial opposition by the IRS to the Company's refund claims. Accordingly, no assurances can be made to the Company's entitlement to such refunds or the timing of the receipt thereof (see Note 4-- "Income Taxes"). - Included in non-current assets are three hospital facilities designated as property and equipment held for sale with a total carrying value of $3.9 million. The Company expects to sell two of these facilities in the next fiscal year and may lease a third facility to an unrelated entity. However, the contracts have not been fully negotiated and proceeds from the sales or lease of such assets are not expected to be available by the time the Debenture exchange is expected to occur. Accordingly, management expects to use such cash proceeds, if received during fiscal 1996, to fund and expand the Company's operations and implement the Company's restructuring plans. - In March 1995, a jury awarded the Company approximately $2.7 million, plus interest, in damages in its lawsuit against RehabCare Corporation. The defendant has posted a bond for the amount of the award and has filed an appeal of the judgment. Management is unable to predict whether any proceeds from this judgment will be received in fiscal 1996 (see Note 5-- "Commitments and Contingencies"). - The Company has received a firm commitment from a mutual fund to purchase in a private placement at least $5.0 million of 15% fully secured Company notes due no earlier than December 1996 if offered by the Company. 7 8 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 1995 (unaudited) All of these potential sources of additional cash in fiscal 1996 are subject to variation due to business and economic influences outside the Company's control. There can be no assurance that during fiscal 1996 the Company will complete the transactions required to fund its working capital deficit. During the first quarter of fiscal 1996, the Company paid the IRS approximately $2.3 million pursuant to its settlement agreement (see Note 5-- "Commitments and Contingencies"). The Company utilized the proceeds from a note receivable on the sale of its Sacramento facility, received on July 10, 1995 for $2.75 million in order to fund this payment. The Company continues to pay the remaining balance in monthly installments of $42,000. NOTE 3 - PROPERTY AND EQUIPMENT HELD FOR SALE - ----------------------------------------------- The Company recorded no additional asset write-downs during the first quarter of fiscal 1996 and fiscal 1995 in connection with the recognition of losses and revaluation of facilities closed, sold or designated for disposition. Future operating losses and carrying costs of such facilities will be charged directly to the carrying value of the respective property and equipment held for sale. Because chemical dependency treatment facilities are special purpose structures, their resale value is negatively affected by the oversupply of beds resulting from the diminished demand for inpatient treatment being experienced throughout the industry. 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. A summary of the transactions affecting the carrying value of property and equipment held for sale for the three months ended August 31, 1995, is as follows (in thousands): Non-current balance as of May 31, 1995 . . . . . . . . . . . . $ 3,746 Carrying costs incurred during phase-out period . . . . . . . 84 Loss on sale/write down of facilities . . . . . . . . . . . . 27 -------- Balance as of August 31, 1995 . . . . . . . . . . . . . . . . $ 3,857 ========
The loss on sale/write down of property and equipment held for sale is reflected on the Company's statement of operations and consists of the following for the three months ended August 31, 1995:
Period Ending August 31, 1995 --------------- (Loss) Gain/write down of property & equipment . . . . . . . . . . . . . . . . . $ 27 Adjustment to estimated property values. . . . . . . . . . . . . . . . . . . . (27) ---- $ -- ====
NOTE 4 - INCOME TAXES - --------------------- On July 20, 1995, the Company filed its Federal tax return for fiscal 1995. On August 4, 1995, the Company filed Form 1139 "Corporate Application for Tentative Refund" to carry back losses described in Section 172(f) requesting a refund to the Company in the amount of $9.4 million. On August 30, 1995, the Company also filed amended Federal tax returns for several prior fiscal years to carry back losses under Section 172(f). The amount of refund claimed on the amended returns are approximately $11.7 million for 1986; $0.4 million for 1985; $0.7 million for 1983 and $0.4 million for 1982. The total refunds applied for is $22.6 million, $13.2 million for amended prior years' returns and $9.4 million for fiscal year 1995. Section 172(f) is an area of the tax law without substantial legal precedent. There may be opposition by the IRS as to the Company's ability to carry back such losses. Therefore, no assurances can be made to the Company's entitlement to such a claim. Consequently, a valuation allowance has been established against this potential tax benefit. 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 8 9 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 1995 (unaudited) 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 in damages, plus interest and the costs of the action against RehabCare for securities fraud and for breach of contract. RehabCare has posted a bond in the amount of $3.0 million and filed a motion for new trial or in the alternative, for judgement as a matter of law, which the court denied in its entirety on August 4, 1995. On September 1, 1995, RehabCare filed a notice of appeal with the District Court indicating its intent to appeal the matter to the United States Court of Appeals. Although the Company feels that RehabCare will not prevail in its appeal, the Company has not recognized any gain with relation to the judgement. In connection with the proposed sale and lease-back of hospitals to CMP Properties, Inc., a real estate investment trust, the Company advanced $1.1 million to its financial advisor in fiscal 1992. The financial advisor was affiliated with several members of the Company's Board of Directors at that time. The advances, which were to be repaid if the transaction was not completed, were to be secured by a pledge of common stock in an unrelated company. The pledged shares of common stock were in the possession of the Company's primary legal counsel at that time, as collateral for the advances. After the transaction was terminated, the financial advisor refused to repay the advances and the Company's legal counsel refused to turn over the collateral to the Company. The Company has filed an action in the United States District Court for the District of Oregon (Civil Case No. 94- 384 FR) against its former financial advisor and former legal counsel to recover the advances. The former financial advisor has counterclaimed against the Company for $1,688,000 for breach of contract and unjust enrichment. The Company's former law firm has filed a counterclaim for $193,000 for unpaid legal fees. Management believes that the counterclaims are without merit and intends to vigorously defend against them and to pursue the Company's claims. 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 (Case No. 663957). An amended petition was filed November 15, 1994. 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 $588,000, plus interest, which RehabCare alleges is the amount it incurred for payments to the IRS in settlement of taxes 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 intends to continue to vigorously defend this matter. In December 1994, the Company reached a settlement with the Appeals Office of the Internal Revenue Service ("IRS") on a payroll tax audit for the calendar years 1983 through 1991. Pursuant to this settlement the Company agreed to pay the IRS $5.0 million with the Company having no obligation to pay any penalties or accrued interest. The IRS agent conducting the audit asserted that certain physicians, 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 on behalf of the IRS by its 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. In July 1995, the Company paid the remaining balance of the initial payment, and continues to make the monthly installment payment pursuant to the terms of the settlement. The unpaid balance bears interest at 9% per annum due and payable after the $5.0 million is paid. An involuntary bankruptcy petition was dismissed on March 6, 1995 pursuant to an agreement dated March 3, 1995 between the Company and a representative of the petitioners. Under such agreement the Company has agreed, subject to the conditions therein, to offer to exchange for its outstanding 7 1/2% Convertible Subordinated Debentures a combination of cash and shares. See Note 2-- "Operating Losses and Liquidity" for a discussion of the Company's default in the payment of interest on its 7 1/2 % Convertible Subordinated Debentures and the consequent acceleration of the full principal amount thereof. The foregoing is intended to disclose an event, and does not constitute an offer to 9 10 COMPREHENSIVE CARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 1995 (unaudited) the holders of the Company's Debentures. Any such offer may only be made pursuant to an exchange offer, and in conformity with the relevant securities laws, rules and regulations. In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified the Company that it was below certain quantitative and qualitative listing criteria in regard to net tangible assets available to common stock and three year average net income among other items. The Listing and Compliance Committee of the NYSE has determined to monitor the Company's progress toward returning to continuing listing standards. Management anticipates success in "global restructuring" (see Note 2-- "Operating Losses and Liquidity") will be necessary in order to satisfy the Committee of the Company's progress. The Company met with representatives of the NYSE during the third quarter of fiscal 1995 and during the first quarter of fiscal 1996, to discuss the Company's financial condition and intention to issue shares without seeking approval of shareholders pursuant to the exception to the NYSE policy for financially distressed companies. From time to time, the Company and its subsidiaries are also parties and their property is subject to ordinary routine litigation incidental to their business. In some pending cases, claims exceed insurance policy limits and the Company or a subsidiary may have exposure to liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company's financial statements. NOTE 6 - SUBSEQUENT EVENTS - ---------------------------- On August 18, 1995, the Company settled its claim filed against its fidelity bond carrier in the amount of $425,000. The Company received the proceeds on September 6, 1995. On October 3, 1995, the Company sold its 83-bed freestanding facility CareUnit of Kirkland and three related clinics to Lakeside-Milam Recovery Centers, Inc. The sale results in a gain of approximately $1.0 million. 10 11 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- In early fiscal 1995, Management developed a "global restructuring" plan intended to address the Company's immediate challenges and to return to a base of profitability for future success. Management intended that this "global restructuring" include as many of the following steps as possible: (i) effect a reverse stock split to improve the Company's image; (ii) negotiate settlement of the Company's payroll tax audit with the IRS; (iii) restructure the Company's financial obligations represented by the Company's 7 1/2% Convertible Subordinated Debentures (the "Debentures"); and (iv) raise capital to finance the restructuring costs. During fiscal 1995 and 1996 management accomplished its objectives, described above, except item (iii), restructuring of the Company's financial obligations represented by the Company's Debentures. During the first quarter of fiscal 1996, the Company sold an aggregate of 155,000 shares of common stock to four accredited investors in private offerings for an aggregate of $930,000 paid in cash. The proceeds of such sales were used for working capital and other general corporate purposes. Although the Company is seeking to restructure its obligations under the Debentures, the Company is currently in default as a result of the Company's failure to make scheduled payments of interest (see Note 2 to the Company's Condensed Consolidated Financial Statements included herein). During the fourth quarter of fiscal 1995, the Company entered into a letter of agreement with a representative of holders of the Debentures. The agreement provides, among other things, that the Company provide an opportunity to holders of the 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. Although the Company has filed an exchange offer with the Securities and Exchange Commission, there can be no assurance 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. The foregoing is intended to disclose an event, and does not constitute an offer to the holders of the Debentures. RESULTS OF OPERATIONS - --------------------- Statistical Information The following utilization statistics include data from all operations including closures during the periods, joint ventures and closed facilities:
Three months ended ------------------------------------ August 31, May 31, August 31, 1995 1995 1994 --------- --------- ---------- Managed care operations: Covered lives . . . . . . . . . . . . . . . . . . . . . . 679,812 442,946 207,565 Patient days: Freestanding facilities . . . . . . . . . . . . . . . . . 3,778 4,273 8,564 Behavioral medicine contracts . . . . . . . . . . . . . . 5,534 6,230 8,580 Freestanding facilities: Occupancy rate . . . . . . . . . . . . . . . . . . . . . . 18% 18% 27% Admissions . . . . . . . . . . . . . . . . . . . . . . . . 573 646 979 Average length of stay (days) . . . . . . . . . . . . . . 7 7 9 Behavioral medicine contracts: Average occupied beds per contract . . . . . . . . . . . . 5 5 7 Admissions . . . . . . . . . . . . . . . . . . . . . . . . 770 809 1,072 Average length of stay (days) . . . . . . . . . . . . . . 7 8 8 Total beds available at end of period: Freestanding facilities . . . . . . . . . . . . . . . . . 237 237 347 Behavioral medicine contracts . . . . . . . . . . . . . . 141 157 251
11 12 Three Months Ended August 31, 1995 Compared to Three Months Ended May 31, 1995 - ------------------------------------------------------------------------------ The Company reported a loss of approximately $1.3 million or $0.50 per share for the quarter ended August 31, 1995, an improvement of approximately $2.0 million or $.88 per share from the loss reported for the quarter ended May 31, 1995. Operating revenues increased to $8.8 million in the first quarter of fiscal 1996 from $7.4 million in the fourth quarter of fiscal 1995 or by 19%. This increase is predominately related to an increase in revenues for managed care and freestanding facilities. In addition, operating expenses declined by 6% or $0.5 million. This decline was from freestanding operations and behavioral medicine contracts, which was offset by a slight increase in operating expenses for managed care operations. General and administrative expenses decreased by 6% or $0.1 million during the first quarter of fiscal 1996 compared to the fourth quarter of 1995. The first quarter of fiscal 1996 includes a credit of $425,000 related to a settlement (see Note 6 to the Company's Condensed Consolidated Financial Statements included herein) which was offset by increase in expenses for managed care operations. The provision for doubtful accounts increased by $0.3 million for the first quarter of 1996 versus the fourth quarter of fiscal 1995 as a result of adjustments made to the Company's provision at May 31, 1995. The Company recorded $0.3 million for the loss on the sale/write-down of assets during the fourth quarter of fiscal 1995. This loss is primarily attributable to the write-off of leasehold improvements on locations no longer owned or operated by the Company. Managed Care Operations - ----------------------- During the first quarter of fiscal 1996, the number of covered lives increased to 680,000 or by 53% from the end of the fourth quarter of fiscal 1995. This increase is primarily attributable to new contracts added during the first quarter of fiscal 1996. Comprehensive Behavioral Care, Inc. ("Comprehensive Behavioral") distinguishes itself from its competition by being the "science-based" provider of care and manages all clinical programs based upon proven treatment technologies. In the first quarter of fiscal 1996, operating revenues increased 67% to $3.4 million from the fourth quarter of fiscal 1995. Operating expenses increased by $0.1 million or 2% in the first quarter of fiscal 1996. In addition, general and administrative expenses increased by $0.3 million in the first quarter of fiscal 1996 compared to the fourth quarter of fiscal 1995. As a result, the net operating loss for Comprehensive Behavioral for the first quarter of fiscal 1996 was $0.2 million, an improvement of $1.0 million from the fourth quarter of fiscal 1995. Behavioral Medicine Contracts - ----------------------------- In the first quarter of fiscal 1996, CareUnit operating revenues decreased 3% from the fourth quarter of fiscal 1995. Operating expenses declined from $1.5 million to $1.3 million or 13% in the first quarter of fiscal 1996 compared to the prior quarter. The decrease in operating revenues during the first quarter of fiscal 1996 was offset by a decrease in operating expenses resulting in an improvement in CareUnit's net operating loss by $0.2 million or 41% from the fourth quarter of fiscal 1995. During the first quarter of fiscal 1996, patient days of service at behavioral medicine contracts declined by approximately 11% from 6,230 patient days to 5,534 patient days. Units which were operational for both the fourth quarter of fiscal 1995 and the first quarter of fiscal 1996 experienced a 4% increase in utilization to 5,455 patient days. Average net revenue per patient day at these units remained unchanged from the previous quarter and combined with the increased utilization resulted in an increase in overall net inpatient operating revenues of 4% to $0.6 million. Net revenues for programs operational for both quarters at these units also increased 5% from approximately $734,000 in the fourth quarter of 1995 to approximately $774,000 in the first quarter of fiscal 1996. 12 13 The following table sets forth quarterly utilization data on a "same store" basis:
Same Store Utilization -------------------------- Fiscal 1996 Fiscal 1995 1st Quarter 4th Quarter ----------- ----------- Admissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747 714 Average length of stay . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7 Patient days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,455 5,264 Average occupancy rate . . . . . . . . . . . . . . . . . . . . . . . . . . 42% 41%
For units operational for both quarters, operating expenses increased 5%, which combined with the increase in operating revenues resulted in operating income at the unit level increasing by 7% from the fourth quarter of fiscal 1995. Freestanding Operations - ----------------------- Operating revenues for freestanding operations increased 2% during the first quarter of fiscal 1996 compared to the prior quarter. In addition, operating expenses declined 9% or $0.4 million in the first quarter of fiscal 1996. Admissions in the first quarter of fiscal 1996 decreased to 573 from 646 in the fourth quarter of 1995, an overall decline of 11%. The following table sets forth selected quarterly utilization data on a "same store" basis:
Same Store Utilization -------------------------- Fiscal 1996 Fiscal 1995 1st Quarter 4th Quarter ----------- ----------- Admissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 584 Average length of stay . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6 Patient days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,778 3,708
Net revenue per patient day for "same store" facilities increased approximately 14% to $1,002 for the first quarter of fiscal 1996 from $878 for the fourth quarter of fiscal 1995. Admissions decreased for the quarter from 584 in the fourth quarter of fiscal 1995 to 573 in the first quarter of fiscal 1996 or by approximately 2%. The slight decline in admissions combined with the increase in length of stay resulted in an increase in net operating revenues for the first quarter of fiscal 1996 of $0.2 million. The Company believes that the increasing role of HMO's, reduced benefits from employers and indemnity companies, and a shifting to outpatient programs continue to impact utilization. The Company continues to focus its efforts toward providing effective, lower cost outpatient, partial hospitalization and daycare programs, obtaining psychiatric treatment licenses for its freestanding facilities, and toward establishing and maintaining relationships and contracts with managed care and other organizations which pay for or broker such services. The following table illustrates revenues in outpatient and daycare programs offered by the "same store" facilities:
Net Outpatient/Daycare Revenues ------------------------------- (Dollars in thousands) Fiscal 1996 Fiscal 1995 1st Quarter 4th Quarter ----------- ----------- Facilities offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 Net outpatient/daycare revenues . . . . . . . . . . . . . . . . . . . . . . $ 2,161 $ 2,133 % of total "same store" net operating revenues . . . . . . . . . . . . . . 57% 61%
Operating expenses at the Company's freestanding facilities on a "same store" basis decreased $.3 million. Operating income increased $.4 million in the first quarter of fiscal 1996 from the fourth quarter of fiscal 1995. The Company is taking steps to increase revenues, primarily through relicensing facilities to provide psychiatric treatment, and the continued development of its behavioral medicine managed care business. The Company is also 13 14 implementing cost reduction measures, including the closure of selected facilities. The Company owns six facilities and leases one. Three of the six owned facilities and the one leased facility are operating for a total of four operating facilities. The Company will continue to evaluate the performance of these facilities in their respective markets and, if circumstances warrant, may increase or reduce the number of facilities designated for disposition. Three Months Ended August 31, 1995 Compared to Three Months Ended August 31, - ---------------------------------------------------------------------------- 1994 - ---- The Company reported a pretax loss of approximately $1.3 million for the first quarter of fiscal 1996, a decrease of approximately $1.2 million or 48% from the pretax loss of approximately $2.5 million reported for the first quarter of fiscal 1995. Operating revenues for the first quarter of fiscal 1996 increased by approximately $0.7 million or 9% from the first quarter of fiscal 1995. This increase is primarily a result of an increase in operating revenues generated by managed care operations and behavioral medicine contracts, partially offset by a decline in operating revenues in freestanding operations. Operating expenses decreased by approximately $0.2 million or 3% from the first quarter of fiscal 1995 compared to the first quarter of fiscal 1996. The decrease in operating expenses is primarily attributable to decline in operating expenses for freestanding operations which was partially offset by a 103% increase in operating expenses related to managed care operations. General and administrative expenses increased by approximately $0.2 million from the first quarter of fiscal 1995 primarily as a result of managed care operations expansion and development. In addition, in the first quarter of fiscal 1996 a credit of $425,000 related to a settlement (see Note 6 to the Company's Condensed Consolidated Financial Statements) reduced general and administrative expense. The provision for doubtful accounts decreased by $0.5 million or 63% during the first quarter of fiscal 1996 compared to the same period for fiscal 1995. This decrease is related to the decreased freestanding operations. Interest expense increased from $0.3 million for the first quarter of fiscal 1995 to $0.5 million in the first quarter of fiscal 1996. The increase is a result of the additional interest related to the secured convertible note of $2.0 million and the IRS Offer in Compromise for $5.0 million, both of which were added during the third quarter of fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- As of August 31, 1995, the Company has an accumulated deficit of $47.8 million and a total stockholders' deficiency of $5.3 million. Additionally, the Company's current assets at August 31, 1995 amounted to approximately $5.3 million and current liabilities were approximately $21.3 million, resulting in a working capital deficiency of approximately $16.0 million and a current ratio of 1:4.0. Included in current liabilities are $9.5 million of Debentures in default as a result of the Company's failure to make scheduled payments of interest on the Debentures commencing in October 1994. As further discussed in Note 2 to the Company's Condensed Consolidated Financial Statements included herein, the Company has agreed to use its best efforts to provide an opportunity for Debenture holders to tender their Debentures pursuant to an exchange offer to be made by the Company. This proposed transaction requires the holders of a majority of the Debentures to give their approval to rescind the acceleration and the Company to obtain and expend up to $5.5 million of cash during fiscal 1996, over and above cash required to fund other financing, operating and investing needs. Additionally, the Debenture exchange provides for the Company to issue $120 worth of its common stock at a defined value for each $1,000 of Debentures, which may be contingent upon the Company's ability to effect certain filings with the Securities and Exchange Commission. The ability to timely proceed with any such proposed filings will, in part, depend upon the ability of the Company to obtain a consent from its prior auditors for the use of their report on the Company's consolidated financial statements in such registration statements. Failure to obtain Debenture holder approval or to accomplish the Debenture exchange, or, in the alternative, a failure of the Company and the Debenture holders to otherwise reach a settlement, may cause the Debenture holders to pursue the involuntary bankruptcy of the Company and/or the Company to take alternative actions that may include filing for voluntary protection from creditors. Alternatively, if the Debenture exchange is accomplished, the elimination of the Debenture's debt service requirement would decrease the Company's future cash flow requirements. (The foregoing summary does not constitute an offer to the holders of the Company's Debentures. Any such offer may only be made pursuant to an exchange offer, and in conformity with the relevant securities laws, rules and regulations.) 14 15 These conditions raise substantial doubt about the Company's ability to continue as a going concern. The 1995 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty. To address the Company's operational issues, in fiscal 1993 the Company established a restructuring reserve. One purpose of such reserve was for the realignment of the Company's focus and business and the settlement and disposition of certain non-performing and under-utilized assets. Through August 31, 1995 many of the Company's inpatient freestanding facilities have been sold or are in the process of being closed or sold. Additionally, in fiscal 1996, management has begun to implement plans for expanding the Company's contract management and managed care operations (see Note 3 to the Company's Condensed Consolidated Financial Statements included herein). In previous years, the Company was obligated to support and fund certain freestanding facilities that now have been closed, including two such facilities closed in fiscal 1995 (see Note 3 to the Company Condensed Consolidated Financial Statements included herein). As a result, the Company will no longer be burdened with the negative cash flow requirements associated with such facilities. Based upon a projection of actual performance during fiscal 1995 with adjustments for reduced cash flow requirements associated with facilities closed and/or sold in fiscal 1995, known contract and cyclical changes, and also giving consideration to cash on hand at August 31, 1995 of $799,000, management expects the Company to be able to meet its cash obligations required by operations during fiscal 1996, excluding the Company's obligations under the Debentures. However, the cash needs of the Company may vary from month to month depending upon the actual level of business activity, and through the first quarter of fiscal 1996 the Company continues to incur losses. Therefore, no assurance can be given that the Company will generate adequate cash flows to meet cash obligations required by operations, excluding the Company's obligations under the Debentures, in fiscal 1996. To provide funds for the Debenture exchange and/or additional operating needs, the Company anticipates utilizing one or more of the following potential sources of cash: - The Company has filed its fiscal 1995 Federal tax return, and a Form 1139 "Corporate Application for Tentative Refund" in the amount of $9.4 million. In the event the Company receives the full refund claim for fiscal 1995, the net amount of cash available for working capital purposes would be $7.5 million. The Company has also filed amended Federal tax returns for prior years to claim refunds of an additional $13.2 million. The net amount of cash available for working capital purposes would be $10.6 million. These refund claims have been made under Section 172(f) of the Internal Revenue Code, an area of the tax law without significant precedent, and there may be substantial opposition by the IRS to the Company's refund claims. Accordingly, no assurances can be made to the Company entitlement to such refunds or the timing of the receipt thereof (see Note 4 to the Company's Condensed Consolidated Financial Statements included herein). - Included in non-current assets are three hospital facilities designated as property and equipment held for sale with a total carrying value of $3.9 million. The Company expects to sell two of these facilities during the fiscal year and may lease a third facility to an unrelated entity. However, the contracts have not been fully negotiated, and proceeds from the sales or lease of such assets are not expected to be available by the time the Debenture exchange is expected to occur. Accordingly, management expects to use such cash proceeds, if received during fiscal 1996, to fund and expand the Company's operations and implement the Company's restructuring plans. - In March 1995, a jury awarded the Company approximately $2.7 million, plus interest, in damages in its lawsuit against RehabCare Corporation. The defendant has posted a bond for the amount of the award and has filed an appeal of the judgment. Management is unable to predict whether any proceeds from this judgment will be received in fiscal 1996 (see Note 5-- "Commitments and Contingencies"). - The Company has received a firm commitment from a mutual fund to purchase in a private placement at least $5.0 million of 15% fully secured Company notes due no earlier than December 1996 if offered by the Company. All of these potential sources of additional cash in fiscal 1996 are subject to variation due to business and economic influences outside the Company's control. There can be no assurance that during fiscal 1996 the Company will complete the transactions required to fund its working capital deficit. During the first quarter of fiscal 1996, the Company paid the IRS approximately $2.3 million pursuant to its settlement agreement (see Note 5 to the Company's Condensed Consolidated Financial Statements). The Company 15 16 utilized the proceeds from a note receivable from the sale of its Sacramento facility received on July 10, 1995 for $2.75 million in order to fund this payment. The Company continues to pay the remaining balance in monthly installments of $42,000. 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 in damages, plus interest and the costs of the action against RehabCare for securities fraud and for breach of contract. RehabCare has posted a bond in the amount of $3.0 million and filed a motion for new trial or in the alternative, for judgement as a matter of law, which the court denied in its entirety on August 4, 1995. On September 1, 1995, RehabCare filed a notice of appeal with the District Court indicating its intent to appeal the matter to the United States Court of Appeals. Although the Company feels that RehabCare will not prevail in its appeal, the Company has not recognized any gain with relation to the judgement. In connection with the proposed sale and lease-back of hospitals to CMP Properties, Inc., a real estate investment trust, the Company advanced $1.1 million to its financial advisor in fiscal 1992. The financial advisor was affiliated with several members of the Company's Board of Directors at that time. The advances, which were to be repaid if the transaction was not completed, were to be secured by a pledge of common stock in an unrelated company. The pledged shares of common stock were in the possession of the Company's primary legal counsel at that time, as collateral for the advances. After the transaction was terminated, the financial advisor refused to repay the advances and the Company's legal counsel refused to turn over the collateral to the Company. The Company has filed an action in the United States District Court for the District of Oregon (Civil Case No. 94-384 FR) against its former financial advisor and former legal counsel to recover the advances. The former financial advisor has counterclaimed against the Company for $1,688,000 for breach of contract and unjust enrichment. The Company's former law firm has filed a counterclaim for $193,000 for unpaid legal fees. Management believes that the counterclaims are without merit and intends to vigorously defend against them and to pursue the Company's claims. 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 (Case No. 663957). An amended petition was filed November 15, 1994. 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 $588,000, plus interest, which RehabCare alleges is the amount it incurred for settlement payments to the IRS 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 intends to continue to vigorously defend this matter. In December 1994, the Company reached a settlement with the Appeals Office of the Internal Revenue Service ("IRS") on a payroll tax audit for the calendar years 1983 through 1991. Pursuant to this settlement the Company agreed to pay the IRS $5.0 million with the Company having no obligation to pay any penalties or accrued interest. The IRS agent conducting the audit asserted that certain physicians, 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 on behalf of the IRS by its 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 16 17 balance of $2,150,000. In July 1995, the Company paid the remaining balance of the initial payment, and continues to make the monthly installment payment pursuant to the terms of the settlement. The unpaid balance bears interest at 9% per annum due and payable after the $5.0 million is paid. An involuntary bankruptcy petition was dismissed on March 6, 1995 pursuant to an agreement dated March 3, 1995 between the Company and a representative of the petitioners. Under such agreement the Company has agreed, subject to the conditions therein, to offer to exchange for its outstanding 7 1/2% Convertible Subordinated Debentures a combination of cash and shares. See Note 2 to the Company Condensed Consolidated Financial Statements included herein for a discussion of the Company's default in the payment of interest on its 7 1/2 % Convertible Subordinated Debentures and the consequent acceleration of the full principal amount thereof. The foregoing is intended to disclose an event, and does not constitute an offer to the holders of the Company's Debentures. Any such offer may only be made pursuant to an exchange offer, and in conformity with the relevant securities laws, rules and regulations. In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified the Company that it was below certain quantitative and qualitative listing criteria in regard to net tangible assets available to common stock and three year average net income among other items. The Listing and Compliance Committee of the NYSE has determined to monitor the Company's progress toward returning to continuing listing standards. Management anticipates success in "global restructuring" (see Note 2 to the Company Condensed Consolidated Financial Statements included herein) will be necessary in order to satisfy the Committee of the Company's progress. The Company met with representatives of the NYSE during the third quarter of fiscal 1995 and during the first quarter of fiscal 1996, to discuss the Company's financial condition and intention to issue shares without seeking approval of shareholders pursuant to the exception to the NYSE policy for financially distressed companies. From time to time, the Company and its subsidiaries are also parties and their property is subject to ordinary routine litigation incidental to their business. In some pending cases, claims exceed insurance policy limits and the Company or a subsidiary may have exposure to liability that is not covered by insurance. Management believes that the outcome of such lawsuits will not have a material adverse impact on the Company's financial statements. ITEM 3. - DEFAULTS UPON SENIOR SECURITIES - ----------------------------------------- See the discussion contained in the second paragraph 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. In October 1994, the New York Stock Exchange, Inc. ("NYSE") notified the Company that it was below certain quantitative and qualitative listing criteria in regard to net tangible assets available to common stock and three year average net income among other items. The Listing and Compliance Committee of the NYSE has determined to monitor the Company's progress toward returning to continuing listing standards. Management anticipates success in "global restructuring" (see Note 2 to the Company's Condensed Consolidated Financial Statements) will be necessary to satisfy the Committee of the Company's progress. The Company met with representatives of the NYSE during the third quarter of fiscal 1995 and the first quarter of fiscal 1996, to discuss the Company's financial condition and intention to issue shares without seeking approval of shareholders pursuant to the exception to the NYSE policy for financially distressed companies. 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 10.61 Amended Common Stock Purchase Agreement dated April 15, 1995 between the Company and James R. Moriarty, an accredited investor (filed herewith). 27 Financial Data Schedules (filed herewith). (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the three months ended August 31, 1995. 17 18 SIGNATURES 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 October 12, 1995 By /s/ DREW Q. MILLER ----------------------------- Drew Q. Miller Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial Officer) 18 19 COMPREHENSIVE CARE CORPORATION EXHIBIT INDEX FIRST QUARTER ENDED AUGUST 31, 1995
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGE - ----------- ----------- ---- 10.61 Amended Common Stock Purchase Agreement dated April 15, 1995 between the Company and James R. Moriarty, an accredited investor (filed herewith). 27 Financial Data Schedules (filed herewith).
EX-10.61 2 AMENDED COMMON STOCK PURCHASE AGREEMENT 4-15-95 1 EXHIBIT 10.61 COMPREHENSIVE CARE CORPORATION AMENDED COMMON STOCK PURCHASE AGREEMENT THIS AMENDED COMMON STOCK PURCHASE AGREEMENT ("Purchase Agreement") is made and entered into as of the 15th day of April, 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, from time to time the, issuance, of 150,000 shares for $6.50 per share under a Common Stock Purchase Agreement dated April 15, 1995 between the Company and James R. Moriarty; plus 22,500 shares as an adjustment for delay in registration of shares without additional payment therefor. The Company acknowledges receipt of the $975,000 purchase price for an aggregate of 172,500 Shares (allocated as provided in Section 9 hereof), for an average purchase price of approximately $5.6521739 in cash for each Share. The purchase price is or was payable upon the execution and delivery of this Purchase Agreement. 2. Representations and Warranties of the Company. The Company represents and warrants that, except as set forth on a Schedule hereto: 2.1 The Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware, and duly qualified to do business and in good standing as a foreign corporation in the State of California and 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, 2 corporate and otherwise, to enter into and perform this Purchase Agreement, and to execute and deliver the various instruments and documents provided for herein. 2.2 The execution, delivery and performance by the Company of this Purchase Agreement, and the making, execution and delivery by the Company of the instruments contemplated hereby, have been duly authorized by all necessary corporate action and will not violate any provision of law, court order or decree, or of its Certificate of Incorporation or Bylaws, or result in the breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any agreement or instrument to which it is a party, or by which it or its property may be bound or affected. This Purchase Agreement is a valid and binding obligation of the Company, enforceable in accordance with its terms. 2.3 Except as set forth in a Schedule attached hereto, (a) there are no material lawsuits or proceedings pending, or, to the Company's knowledge, threatened against or affecting the Company and (b) there are no proceedings before any governmental commission, bureau or other administrative agency pending, or, to the Company's knowledge, threatened against the Company. 2.4 The authorized capital of the Company is 12,500,000 shares of Common Stock, $0.01 par value per share, the number of which were outstanding as of a recent date is set forth on Schedule 2.4 hereto, and 60,000 shares of Preferred Stock, $50.00 par value per share, of which no shares are issued and outstanding. There are no shares of Common Stock reserved for issuance for options, warrants or conversion of convertible securities, except as listed on a Schedule hereto. 2.5 The Company's subsidiaries are as set forth in a Schedule attached hereto. 2.6 The minute books of the Company have been properly kept and reflect all transactions entered into by the Company which require submission to or action by the stockholders or directors of the Company. 2.7 Any and all licenses and approvals required by the Company for the conduct of its business have been obtained from the federal, state, or local authorities concerned, all of which are in good standing. 2.8 The Shares of Common Stock issuable under this Purchase Agreement have been duly authorized and, when issued against payment therefor, will be validly issued, fully paid and nonassessable 2.9 Except for any applicable requirements of state securities laws (as to which no representations or warranties are made), no governmental permit, consent, approval or authorization is required in connection with (i) the execution and delivery of this Purchase Agreement by the Company or (ii) the offer, sale, issuance and delivery of the Shares contemplated hereby by the Company; provided that, all representations made to the Company by the Purchasers in this Purchase Agreement and in any other document or instrument delivered in connection herewith are assumed for purposes of this representation and warranty to be accurate and complete. 2 3 2.10 Included in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994 are the consolidated balance sheets of the Company at May 31, 1994 and May 31, 1993, and the consolidated statements of operations, cash flows and stockholders' equity for the year ended May 31, 1994, with the report thereon of Arthur Andersen LLP, independent accountants. Included in the Company's Quarterly Reports on Form 10-Q for the quarters ended August 31, 1994 , November 30, 1994 and February 28, 1994 are the unaudited consolidated balance sheets of the Company as of such dates, the unaudited consolidated statements of operations for the three-month periods ended on such dates and for the corresponding prior year periods, and the unaudited consolidated statements of cash flows for the three-month periods ended on such dates and for the corresponding prior year periods. 2.11 None of the Company's reports and filings with the Securities and Exchange Commission ("SEC") contained a misstatement of a material fact or omitted to state a material fact necessary to make the statements contained therein, in the light of the circumstances in which they were made or omitted, not misleading. 2.12 The Company Common Stock is traded on The New York Stock Exchange, Inc. ("NYSE"). No assurance is made as to any future NYSE listing of Shares of Common Stock. 2.13 The proceeds received by the Company from the Shares will be applied to general corporate purposes. 3. Representations of Each of the Purchasers. 3.1 Investment Representations. 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 for investment for their own account and not for the beneficial interest of any other person, and not with a view to the resale or 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; (e) the Purchaser is either an investment company as defined in the Investment Company Act of 1940, a pension or profit sharing trust, or other financial institution or institutional buyer; (f) Purchaser is an accredited investor as defined in Rule 501(a) under Regulation D pursuant to the Act and any applicable state securities laws; (g) a reasonable time prior to the sale of Shares, the Company provided to Purchaser (A) the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994; (B) the information contained in the Company's definitive proxy statements, 3 4 Forms 10-Q and Forms 8-K filed since May 31, 1994; (C) a brief description of the Shares, the use of the proceeds from the offering, and any material changes in the Company's affairs not disclosed in the documents furnished; (D) information identifying the contents of the material exhibits to the Company's Form 10-K, and if requested in writing, such exhibits; and (E) the opportunity to ask questions and receive answers concerning the terms of the offering and to obtain any additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify other required information; (j) Purchaser was not offered or sold the Shares by means of any general solicitation or general advertising, including but not limited to any advertisement, article, notice or communication published in any print or broadcast media or any seminar or meeting to which attendees were invited by any general solicitation or advertising; (k) no Purchaser that is an entity was formed for the specific purpose of purchasing the Shares; and (l) each Purchaser that is a trust has total assets in excess of $5,000,000 and its purchase of the Shares is directed by a sophisticated person with such knowledge in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment. 3.2 Other Representations. Each Purchasers, severally and not jointly, represents as follows: (a) No governmental permit, consent, approval or authorization is required in connection with (i) the execution and delivery of this Purchase Agreement by the Purchaser or (ii) the purchase of the Shares contemplated hereby by the Purchaser; (b) if Purchaser is an entity, the Purchaser is duly organized and validly existing in good standing under the laws of the state in which it is organized, and if Purchaser is an individual, the Purchaser has capacity, and in either case with full power and authority to enter into and perform this Purchase Agreement, and to execute and deliver the various instruments and documents provided for herein; (c) the execution, delivery and performance by the Purchaser of this Purchase Agreement, and the making, execution and delivery by the Purchaser 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 charter or bylaws, or result in the breach of, or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Purchaser pursuant to any agreement or instrument to which it is a party, or by which it or its property may be bound or affected; and (d) this Purchase Agreement is a valid and binding obligation of the Purchaser, enforceable in accordance with its terms. 4. Condition to Issuance; Authority to List Shares on NYSE. So long as the Company's Common Stock continues to be listed on the NYSE, the obligation of the Company to issue, and the Purchasers to accept, the Shares is conditioned upon the prior occurrence of one of the following events: the satisfaction of the NYSE shareholder approval requirement for the issuance; the availability for the issuance of an exception to the NYSE shareholder approval policy evidenced by NYSE approval and compliance by the Company with the conditions to such exception; or the approval for listing of the Shares on the NYSE. Further, the Purchaser's obligation to accept such shares when issued shall be limited to the extent that Lindner Investments would then hold record title to an amount of outstanding Common Stock in excess of ten percent (10%) of the Company's then outstanding Common Stock. 5. 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 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 4 5 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 below, setting forth the restrictions on transfer of 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. 6. Registration. 6.1 (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 or in the event that the proposed registration form is inappropriate to register their Shares at that time in the reasonable judgment of counsel to the Company. (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: 5 6 (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. (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. 6.2 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, Texas, 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 6 7 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. 6.3 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 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. 6.4 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. 6.5 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 7 8 allegedly untrue statement of a material fact contained in any such registration statement or related prospectus or actually or allegedly caused by any omission to state therein a material fact actually or allegedly required to be stated therein or necessary to make the statements therein not misleading, except insofar as such statement or omission shall have been made in reliance upon and in conformity with written information furnished to the Company by or on behalf of Purchasers specifically for use in connection with such registration statement. (a) The foregoing indemnity shall include reimbursements for any legal or other expenses incurred by the indemnified party or any director, officer or controlling person, as defined above, in connection with investigating or defending any such loss, damage, claim, liability or action. (b) Promptly after receipt by an indemnified party under this Section 5.5 of notice of commencement of any action, the indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 5.5, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it or him, as the case may be, from any liability to any indemnified party otherwise than under this Section 5.5 except to the extent that the failure to so notify such party adversely affected the indemnifying party. In case any such action is brought against any indemnified party and it or he notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent desired, jointly, with any other indemnifying party similarly notified, assume the defense and control the settlement thereof, with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party as to its or his election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 5.5 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than reasonable cost of investigation. (c) The Company and 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, and not to use for purposes of effecting any trades, any information derived until such time as the information is filed with the SEC on a non-confidential basis.. 6.6 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. 7. 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. 8 9 8. 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 TEXAS, 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 TEXAS. THE COMPANY AND EACH PURCHASER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION. THE COMPANY AND EACH PURCHASER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE PURCHASE AGREEMENT OR THE NOTES OR ANY OF THE AGREEMENTS, DOCUMENTS, INSTRUMENTS AND TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND EACH PURCHASER REPRESENTS FOR ITSELF THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A NON-JURY TRIAL BY THE COURT. 9. 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. 10. 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: James R. Moriarty c/o The Moriarty Law Firm 1111 Bagbe, Suite 1950 Houston, Texas 77002-2546 9 10
Number of of Shares Purchased Purchasers: 172,500 James R. Moriarty, an individual Total: 172,500
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. 11. 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. 12. 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. 13. 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. 14. 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. 15. Entire Agreement. This Purchase Agreement amends, and restates in full, the Common Stock Purchase Agreement dated April 15, 1995 between the Company and James R. Moriarty, designated as the "Purchaser" or "Purchasers" therein, which, as amended and restated herein, continues in full force and effect and constitutes the entire agreement of the parties with respect to the subject matter hereof, and the Purchasers are relying on no representation, warranty or understanding not expressly contained herein. 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 10 11 "Purchasers" /s/ James R. Moriarty -------------------------------- James R. Moriarty, an individual 11 12 SCHEDULE 2.3 TO COMMON STOCK PURCHASE AGREEMENT Pending or Threatened Litigation or Governmental Proceedings INCORPORATED BY REFERENCE TO RELEVANT DISCLOSURE IN THE COMPREHENSIVE CARE CORPORATION QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 28, 1995 IN THE FORM AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION 12 13 SCHEDULE 2.4 TO COMMON STOCK PURCHASE AGREEMENT Shareholders' (Common Stock Purchase) Rights Plan * 1988 Incentive Stock Option Plan 491,130 1988 Non Statutory Stock Option Plan 200,000 Options not within a Plan 97,500 Directors' Stock Option Plan 200,000 Secured Convertible Note 333,333* due January 1997 Private Placements (shares unissued) 472,500 Includes: Lindner (100,000+15,000+135,000); Moriarty (150,000+22,500); RH Capital (150,000) Option to purchase of American Mental Health Care, Inc. 44,054 Potential purchase price of American Mental Health Care, Inc. 132,162 Option issued to Physician Corporation of America 100,000 Shares issuable on Conversion of Convertible Subordinated Debentures (approx.) ** 35,000*** Shares issuable upon proposed exchange with Debentureholders 150,000***
*Each share of Common Stock outstanding or issued will have one attached Right to purchase, initially, one share of Common Stock. In the event a person becomes an Acquiring Person, as defined in the Rights Agreement, the number of shares purchasable with one Right will be subject to increase based on a formula that provides generally for a purchase of $300 worth of shares of Common Stock at a price equal to 50% of the then current market value, as defined. **Subject to anti-dilution adjustments. ***Excludes shares issuable upon future voluntary reductions of the conversion price in the discretion of the Company. 2,214,508 shares, in addition to shares reserved as indicated above, were outstanding at May 31, 1995. These shares outstanding included 2,148,414 shares represented by new certificates for post-reverse-split Common Stock and an estimated 66,094 (subject to payment in lieu of fractional shares) of new shares represented by unexchanged old certificates nominally representing 660,940 shares of pre-reverse split common stock. All numbers reflect the 1-for-10 reverse stock split effected in October 1994. 13 14 SCHEDULE 2.5 TO COMMON STOCK PURCHASE AGREEMENT Subsidiaries
% STOCK OWNED STATE OF INCORP. ------------- ---------------- CareManor Hospital of Washington, Inc. 100% Washington Trinity Oaks Hospital, Inc. 100% Texas Starting Point, Inc. 100% California CareInstitute (Non-Profit) 100% California CareUnit Clinic of Washington, Inc. 100% Washington CareUnit Hospital of Ohio, Inc. 100% Ohio CareUnit, Inc. 100%(7) Delaware Comprehensive Behavioral Care, Inc., formerly known as AccessCare, Inc. 86.5%(8) Nevada Newport Point, Inc.(1)(4) 80% Delaware Access Managed Care, Inc.(2) 100% Ohio Managed Behavioral HealthCare, Inc.(1)(3) 100% Florida N.P.H.S., Inc.(2) 100% California NeuroAffiliates Company(2)(6) 100% California CareUnit, Inc.(1) 100% California Comprehensive Care Corporation(1) 100% Nevada CareUnit Hospital of St. Louis, Inc.(1) 100% Missouri CareUnit Hospital of Albuquerque, Inc.(1) 100% New Mexico CareUnit Hospital of Nevada, Inc.(1) 100% Nevada CareUnit of Chicago, Inc.(1) 100% Illinois GVHC, Inc.(1) 50% Minnesota CMP Properties, Inc.(1) 100% Oregon CompCare Health Services, Ltd.(1) 100% Canada AccessCare of Washington, Inc.(2)(5) 100% Washington CareUnit of Florida, Inc.(2) 100% Florida
- ---------------- (1) Inactive and in the process of dissolution. (2) Inactive. (3) Formerly known as Mental Health Programs, Inc. (4) Stock interest held by Starting Point, Inc. (5) Stock interest held by AccessCare, Inc. (6) Unincorporated. N.P.H.S. holds this interest. (7) The Company has agreed to pledge these shares to secure its performance of the letter agreement dated March 3, 1995 between the Company and a representative of debentureholders, which requires that the Company offer up to approximately $4,775,000 in cash, plus $1,150,000 in shares of Common Stock, plus $765,000 in cash in lieu of interest, to exchanging debentureholders, assuming the tender of all of the outstanding debentures. (8) Reflects a purchase by Physician Corporation of America of shares of preferred stock representing a 13.5% fully-diluted interest in the subsidiary. 14 15 SCHEDULE 2.6 TO COMMON STOCK PURCHASE AGREEMENT Although some corporate minutes are not completed and executed, the Company believes that the necessary corporate authorizations material to this transaction are fully effective. 15 16 SCHEDULE 2.9 TO COMMON STOCK PURCHASE AGREEMENT The Company has submitted a listing application to the NYSE covering certain shares issuable by the Company, and intends to amend such application to include these shares. In connection with the application, the Company has applied for an exception to the NYSE Shareholder Approval Policy based on the Company's severe financial distress. The Audit Committee of the Board of Directors of the Company approved reliance upon that exception for such other shares and will be asked to approve reliance upon exception for issuance of the Shares pursuant to the foregoing Purchase Agreement. Such exception is also subject to review and approval by the NYSE, and no assurances can be made that such approval will be forthcoming. Under such exception, one or more news releases and notices will be required that express the Company';s reliance on the exception because of the financial distress of the Company. 16 17 SCHEDULE 2.10 TO COMMON STOCK PURCHASE AGREEMENT In connection with the resignation of Arthur Andersen LLP ("Andersen") from its audit engagement with the Company, Andersen indicated that "We have advised the Company that if Arthur Andersen LLP is requested in the future to include our reports on the Company's 1993 and 1994 financial statements in future filings with the Securities and Exchange Commission, we would consider undertaking an engagement to respond to each such request based on the existing facts and circumstances. Any such engagement would require that we (a) perform a post-audit review based on procedures and scopes as we considered necessary in the circumstances, and (b) determine the appropriate form of any report reissuance at that time based on the results of those procedures." There can be no assurances that Andersen would reissue its audit reports at this time without additional or other qualifications or uncertainties. Also there are no assurances made that events subsequent to the date of the most recent audited or unaudited financial statements do not, or would not be expected to, have material and adverse effects on the financial condition of the Company. The Company's Form 8-K filed on or about May 22, 1995 and Form 8-K/A filed on or about June 2, 1995 contain additional information. Also see Schedule 2.11. 17 18 SCHEDULE 2.11 TO COMMON STOCK PURCHASE AGREEMENT The Securities and Exchange Commission ("SEC") has delivered comment letters to the Company from time to time since early 1995 regarding the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 1994, and which contains requests that the Company amendment such report and subsequent Forms 10-Q in conformity with such comments. The Company has responded and is attempting to persuade the SEC that the Form 10- Q, and the financial statements therein, does comply with applicable requirements, and that other comments are not an appropriate basis to require amending any filings. No assurances can be made of the outcome of the SEC comments. In the event such SEC comments are not resolved in a manner favorable to the positions of management, the Company may incur liability that potentially could arise in connection with SEC, shareholder or similar claims under applicable securities laws, any of which could have a materially adverse effect on the Company's financial condition. Until such comments can be satisfactorily resolved, the Company may be unable to register securities with the SEC, which could have a material and adverse effect on the Company's financial condition. Purchasers may review and ask questions concerning the SEC comment letters and the issues raised thereby. Reference is made to the SEC Reports and to the Exhibits thereto, which provide additional information relevant to an investment in the Shares. 18 19 SCHEDULE 2.12 TO COMMON STOCK PURCHASE AGREEMENT As described in the Company's Form 10-Q for the period ended February 28, 1995, the Company is subject to "listing watch" by the NYSE and fails to satisfy continuing listing requirements of the NYSE. The Company has been required to present financial plans and projections to the NYSE, and has generally not met such projections, and may not have shown improvement in the necessary listing standard criteria. The Company understands that continued listing of the Common Stock on the NYSE was made subject to substantial improvement toward meeting such requirements. No assurances can be made that the Company's Common Stock will continue to be listed on the NYSE, or in the potential event of NYSE delisting, that the Common Stock will be acceptable for quotation on the Nasdaq Stock Market. 19 20 RISK FACTORS SCHEDULE TO COMMON STOCK PURCHASE AGREEMENT In addition to all other factors described in the foregoing Purchase Agreement, these Schedules, and the documents referred to therein or herein, Purchasers should consider the following risk factors: RISK FACTORS History of Losses and Anticipated Future Losses; Uncertainty of Future Profitability There can be no assurance that the Company will be able to achieve profitability and positive cash flows from operations or that profitability and positive cash flow from operations, if achieved, can be sustained on an ongoing basis. Moreover, if achieved, the level of that profitability or that positive cash flow cannot accurately be predicted. Need for Additional Funds; Uncertainty of Future Funding The Company's negative cash flow from operations has consumed substantial amounts of cash. Payment of amounts due the IRS on or before July 12, 1995 and retiring of 7 1/2% Convertible Subordinated Debentures, which the Company has agreed to use its best efforts to do before approximately July 31, 1995, also will require substantial amounts of cash. Issuance of additional equity securities by the Company could result in substantial dilution to then-existing stockholders. There can be no assurance that additional financing will be available on acceptable terms, if at all. In the event of a failure to meet these obligations on a timely basis, the Company may become liable for substantial amounts in addition to the negotiated amounts presently contemplated pursuant to the debenture letter agreement or IRS settlement agreement. Disposition of Assets The Company has been required to dispose of various properties in order to raise working capital, and no assurance can be made that such dispositions will not have adverse effects on the Company's financial condition or that the Company has additional assets that could be disposed of in order to fund its capital requirements. In connection with a March 3, 1995 letter agreement with a representative of the debentureholders, the Company has agreed to pledge all of the shares of its CareUnit, Inc. subsidiary. The agreement provides that "At 150 days after the date of this Agreement, provided that the Participating Securityholders have in each material respect performed (with opportunity to cure if a cure is possible) their obligations required to be performed hereunder on or prior to such date, and if the Offer has not then been consummated, the Company shall pledge (with the Trustee, or an alternate acceptable to the Company, to act as pledgeholder on terms of a written agreement containing standard terms reasonably acceptable to the Participating Securityholders) all of the Shares as collateral for its obligation to purchase the Securities pursuant to the Offer or otherwise. Such pledge may only be foreclosed upon following 180 days after the date hereof at 20 21 the request of any Securityholder or the Trustee if the Offer is not consummated on or prior to such date, provided that the Participating Securityholders have in each material respect performed (with opportunity to cure if a cure is possible) their obligations required to be performed hereunder on or prior to such date. ... Upon consummation of the Offer, the said pledges shall be released." No assurances can be made that any such pledged shares will be returned to the Company or that the Company will not be required to perform such agreement, or otherwise satisfy its obligations to debentureholders. Dependence on Reimbursement by Third-Party Payors The Company's ability to succeed in increasing revenues may depend in part on the extent to which reimbursement of the cost of such treatment will be available from government health administration authorities, private health insurers and other organizations. Third-party payors are increasingly challenging the price of medical products and services. As a result of reimbursement changes and competitive pressures, the contractual obligations of the Company have been subject to intense evaluation. Uncertainty of Pricing; Healthcare Reform and Related Matters The levels of revenues and profitability of healthcare companies may be affected by the continuing efforts of governmental and third party payors to contain or reduce the costs of healthcare through various means. In the United States, there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement governmental controls on the price of healthcare. It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for healthcare goods and services may take in response to any healthcare reform proposals or legislation. The Company cannot predict the effect healthcare reforms may have on its business, and no assurance can be given that any such reforms will not have a material adverse effect on the Company. Management of Expansion The Company's anticipated growth and expansion into areas and activities requiring additional expertise, such as managed care, are expected to place increased demands on the Company's resources. These demands are expected to require the retention of current management and the addition of new management personnel and the development of additional expertise by existing management personnel. The failure to retain or acquire such services or to develop such expertise could have a material adverse effect on the prospects for the Company's success. Management of Transition The Company's prospects for success depend, to a degree, on its ability to successfully implement its current restructuring plans. The failure of the Company to successfully transition, or any unanticipated or significant delays in such transition, could have a material adverse effect on the Company's business. There can be no assurance that the Company will be able to achieve its planned transition without disruption to its business or that the new facilities or management information system will be adequate to sustain future growth. 21 22 Shares Eligible for Future Sale The Company contemplates issuing substantial amounts of equity through private placements and other private transactions that have been committed to but not completed, pending listing on NYSE, shareholder approval, or the exercise or conversion by holders of securities, and the Company anticipates issuances of additional equity, including without limitation to holders of approximately $9.5 million of outstanding convertible debentures. Issuance or these shares, registration thereof pursuant to registration rights or otherwise, and additional sales of these shares could adversely affect the trading prices of the Common Stock. Price Volatility in Public Market The securities markets have from time to time experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. Trading prices of securities of companies in the managed care sector have experienced significant volatility. Anti-takeover Provisions The Company's Restated Certificate of Incorporation provides for 60,000 authorized shares of Preferred Stock, the rights, preferences, qualifications, limitations and restrictions of which may be fixed by the Board of Directors without any further vote or action by the stockholders, which could have the effect of diluting the Common Stock or reducing working capital that would otherwise be available to the Company. The Company's Restated Certificate of Incorporation also provides for a classified board of directors, with directors divided into three classes serving staggered terms. In addition, the Company's stock option plans generally provide for the acceleration of vesting of options granted under such plans in the event of certain transactions which result in a change of control of the Company. In addition, Section 203 of the General Corporation Law of Delaware prohibits the Company from engaging in certain business combinations with interested stockholders. In addition each share of the Company's Common Stock includes one right on the terms, and subject to the conditions, of the Rights Agreement between the Company and Continental Stock Transfer & Trust Company. These provisions may have the effect of delaying or preventing a change in control of the Company without action by the stockholders, and therefore could adversely affect the price of the Company's Common Stock. Taxes The Company may claim entitlement to tax deductions on account of specified liability losses defined in Section 172(f) and intends to attempt to reduce, by means of an offset against taxes due for the 1995 tax year, its obligations to the Internal Revenue Service ("IRS") for amounts currently due and payable to the IRS pursuant to a settlement agreement relating to tax years 1987 through 1991. Section 172(f) is an area of the tax law without substantial legal precedent. There may be substantial opposition by the IRS to such claims, and no assurances can be made of the ability to claim such deductions. The accountants that are engaged to prepare such tax claims are not independent with regard to the claims and will be compensated on a contingent basis. In the event that prior tax returns are amended in order to utilize some of the 22 23 claimed deductions, neither the Company nor the IRS will be foreclosed by the settlement agreement from raising additional issues. The Company's ability to use any Net Operating Losses may be subject to limitation in the event that the Company issues or agrees to issue substantial amounts of additional equity. The Company may be unable to utilize some or all of its allowable tax deductions or losses, which depends upon factors including the availability of sufficient net income from which to deduct such losses during limited carryback and carryover period. 23 EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-31-1996 JUN-01-1995 AUG-31-1995 799 0 3,889 1,081 0 5,331 25,378 13,407 23,115 21,329 4,636 26 0 0 (5,336) 23,115 8,776 8,786 0 7,715 1,618 280 454 (1,281) 26 (1,307) 0 0 0 (1,307) (.50) (.50)
-----END PRIVACY-ENHANCED MESSAGE-----