<PAGE>
As filed with the Securities and Exchange Commission on October 11, 1996
Registration No. 333-01750
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MHM SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1223048
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 TOWERS CRESCENT DRIVE, SUITE 810
VIENNA, VIRGINIA 22182
(703) 749-4600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MICHAEL S. PINKERT, PRESIDENT
8000 TOWERS CRESCENT DRIVE, SUITE 810
VIENNA, VIRGINIA 22182
(703) 749-4600
(Name, address, zip code and telephone number,
including area code, of agent for service)
Copy to:
Justin P. Klein, Esq. Steven J. Feder, Esq.
Ballard Spahr Andrews & Ingersoll Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor 1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599 Philadelphia, PA 19103-7599
(215) 665-8500 (215) 665-8500
Fax: (215) 864-8999 Fax: (215) 864-8999
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. [X]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED _______, 1996
PROSPECTUS
330,000 SHARES
MHM SERVICES, INC.
COMMON STOCK
This Prospectus relates to 330,000 shares of common stock, par value $.01
per share (the "Common Stock"), of MHM Services, Inc. (the "Company") held by
the selling stockholders named herein, which may be offered for sale from time
to time by such selling stockholders, or by their pledgees, donees, transferees
or other successors in interest (the "Selling Stockholders"). The Company will
not receive any proceeds from the sale of the shares of the Common Stock by the
Selling Stockholders. The Company will bear the costs relating to the
registration of the shares of the Common Stock, estimated to be approximately
$12,000.
The Selling Stockholders may offer shares of the Common Stock for sale from
time to time through agents in one or more transactions on the American Stock
Exchange or such other exchange on which such shares are then listed, in one or
more private transactions, or in a combination of such methods of sale, at
prices and on terms then prevailing or at prices and terms then obtainable. See
"Plan of Distribution." The Selling Stockholders and any agents through whom
the shares of Common Stock are made may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended, and the commissions or
discounts and other compensation paid to such persons may be regarded as
"underwriter's compensation."
The Common Stock is quoted on the American Stock Exchange under the
symbol "MHM." On __________, 1996, the closing price of the Common Stock as
reported by the American Stock Exchange was $_____.
___________________________
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE DISCUSSION
UNDER "RISK FACTORS" ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS ___________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information concerning the Company filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at its office at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the Regional Offices of the Commission at
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661-
2551 and 7 World Trade Center, 13th Floor, New York, NY 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Common
Stock is quoted on the American Stock Exchange. Such reports, proxy and
information statements and other information can also be inspected and copied at
the offices of the American Stock Exchange, 86 Trinity Place, New York, NY
10006-1881.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits thereto, referred to as the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered pursuant to this
Prospectus. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement and the exhibits filed as a part
thereof. Statements contained herein concerning any document filed as an
exhibit are not necessarily complete and, in each instance, reference is made to
the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed with the Commission (File No. 1-12238)
pursuant to the Exchange Act, are hereby incorporated by reference in this
Prospectus: (i) the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995; (ii) the Company's Current Report on Form 8-K filed
November 9, 1995; (iii) the Company's first amendment to its Annual Report,
filed on Form 10-K/A on January 29, 1996; (iv) the Company's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1995; (v) the Company's
Current Report on Form 8-K filed February 12, 1996; (vi) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996; (vii) the
Company's Current Report on Form 8-K filed April 17, 1996 (as amended by the
Company's Current Report on Form 8-K/A filed June 19, 1996); (viii) the
Company's Current Report on Form 8-K filed May 31, 1996 (as amended by the
Company's Current Report on Form 8-K/A filed September 6, 1996); (ix) the
Company's Current Report on Form 8-K filed June 17, 1996 (as amended by the
Company's Current Report on Form 8-K/A filed June 25, 1996); (x) the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996;
(xi) the Company's Current Report on Form 8-K filed September 13, 1996; and
(xii) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-B, filed with the Commission by
the Company on January 27, 1995 (by which the Company succeeded to a
Registration Statement on Form 10, filed with the Commission on August 19,
1993).
All other documents filed by the Company pursuant to Section 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date hereof and prior to the
termination of the offering of the Common Stock pursuant to this Prospectus
shall be deemed to be incorporated by reference herein and to be a part of this
Prospectus from the date of filing of such documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of any such
person, a copy of any or all of the documents incorporated herein by
reference, other than the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests
should be directed to MHM Services, Inc., 8000 Towers Crescent Drive, Suite
810, Vienna, Virginia, 22182, Attn: Investor Relations, telephone (703)
749-4600.
[INSIDE FRONT COVER]
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FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES FORWARD-LOOKING STATEMENTS BASED ON THE COMPANY'S
CURRENT PLANS AND EXPECTATIONS RELATING TO, AMONG OTHER MATTERS, THE ANTICIPATED
USE OF PROCEEDS FROM THE SALE OF CERTAIN ASSETS OF THE COMPANY, THE PROPOSED
BUSINESS ACTIVITIES OF THE COMPANY AND THE PROPOSED ACTIVITIES OF THE COMPANY
RELATING TO IMPROVING ITS LIQUIDITY. SUCH STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES WHICH MAY CAUSE ACTUAL FUTURE ACTIVITIES AND RESULTS OF OPERATIONS
TO BE MATERIALLY DIFFERENT FROM THAT SUGGESTED IN THIS PROSPECTUS, INCLUDING,
AMONG OTHERS, THE POSSIBLE NEED TO USE THE NET CASH PROCEEDS FROM THE SALE OF
CERTAIN COMPANY ASSETS FOR THE RETIREMENT OF CERTAIN INDEBTEDNESS. FOR
ADDITIONAL INFORMATION, SEE "RISK FACTORS" AND "THE COMPANY."
RISK FACTORS
PRIOR LOSSES. The Company incurred losses of $4,023,000 for the fiscal
year ended September 30, 1995, and $10,150,000 for the nine month period
ended June 30, 1996, and there can be no assurance that the Company will
return to profitability, or that the losses will not be higher for fiscal
year 1996 and future periods.
CHANGES IN MENTAL HEALTH INDUSTRY. Recently, the health care industry, in
general, and the mental health industry, in particular, have been the subject of
substantial uncertainty as a result of anticipated and on-going governmental and
other third-party payor efforts to contain health care costs. The Company's
management believes that a fundamental change has already occurred in the mental
health industry, reflecting a permanent departure from inpatient
hospitalization, upon which the Company's business has been substantially
dependent, as the primary service method in favor of more cost-effective
alternatives. This change is reflected in decreases in patient days, occupancy
rates, lengths of stay, and reimbursement rates for inpatient care. The
resulting impact has materially adversely affected the Company's operating
results as well as the Company's efforts to expand its present operations.
While the Company is taking steps to contain present and future operating costs,
there can be no assurance that such cost containment efforts will not have
further material adverse effects on the Company. See "The Company."
UNCERTAINTY OF ABILITY TO CONTINUE AS A GOING CONCERN. As a result of the
Company's continued negative operating results, as well as reduced collections
of accounts receivable, the Company has been experiencing difficulty generating
sufficient cash flows to meet its obligations and sustain its operations. The
report of the Company's independent auditors on the Company's financial
statements at September 30, 1995, included an explanatory paragraph which stated
that such conditions raise substantial doubt as to the Company's ability to
continue as a going concern. In an effort to improve this situation for both
the immediate future and the long-term, the Company has sold certain assets
relating to its Hospital Division, taking steps to reduce operating expenses,
attempting to raise additional capital, and working to improve its cash flows.
Nevertheless, there can be no assurance that the Company's efforts will result
in positive effects on the Company's financial condition. See "The Company."
INCREASED DEPENDENCE ON EXTENDED CARE SERVICES DIVISION. Of the
Company's two operating divisions, the Company's Hospital Division and the
operation of its seven freestanding behavioral healthcare treatment
facilities historically represented the majority of the Company's business.
Overall, the freestanding facilities represented 87%, 67%, and 59% of the
Company's net revenues in the fiscal years ended September 30, 1995, 1994,
and 1993, respectively, and 77%, 65%, and 67% of the Company's total assets
as of September 30, 1995, 1994, and 1993, respectively. The Company's
freestanding facilities contributed significantly to the Company's cash flows
and helped to absorb certain corporate-related expenses.
Recently, in an attempt to improve the Company's financial condition, the
Company sold six of its seven freestanding facilities and is currently pursuing
opportunities to sell the remaining facility. Upon the sale of the seventh
freestanding facility, the Company's only remaining business will be the
Extended Care Services Division. If the Extended Care Services Division is
unable to accomplish its growth objectives or produce positive earnings, the
sale of the Hospital Division's
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freestanding facilities could be disadvantageous to the stockholders of the
Company and could have a materially adverse effect on the result of the
Company's operations. The Company's Extended Care Services Division, since its
founding in October 1993, has generated only 13% and 3% of net revenues for the
years ended September 30, 1995 and 1994, respectively and 26% of net revenues
for the first six months of fiscal 1996. In addition, the rapid expansion of
the Extended Care Services Division has resulted in increased costs, and thus,
with the allocation of overhead related to the operations of the Extended Care
Services Division, the Extended Care Services Division has not yet achieved
profitable results. The Company formed its Extended Care Services Division to
pursue opportunities to provide on-site care to nursing home residents and other
patients needing less acute care. In November 1993, the Company acquired the
assets of Atlanta-based ICH Services, L.L.C. (successor to HCI Services, Inc.),
which provides behavioral health and other specialized medical services to
residents of extended care facilities, such as nursing homes, skilled nursing
facilities, and assisted living facilities. The focus of the Company's on-site
medical and behavioral healthcare service programs is to arrange for the
provision of clinically-appropriate cost-effective care to residents of extended
care facilities.
While the Company intends to utilize a portion of the proceeds from the
sale of the freestanding facilities to expand the Extended Care Services
Division through acquisitions and internal growth, no assurances can be given
that the Company will have funds available for such purpose or that the Company
will be successful in selling its remaining freestanding facility, or in the
event acquisitions are consummated that the Company will be successful in
generating profits from the Extended Care Services Division, or that the
strategy of focusing on growing the Extended Care Services Division through
internal expansion and acquisitions will not result in further increased costs.
See "The Company."
POSSIBLE NEED TO USE PROCEEDS FROM THE SALE OF THE FREESTANDING FACILITIES
TO REPAY THE MEDIQ NOTE. As of July 10, 1996, the Company had $10,861,110
outstanding under its note payable to MEDIQ Incorporated ("MEDIQ") (original
principal amount of $11,500,000) that was executed in connection with the
distribution of the Company's stock to MEDIQ's stockholders (the "MEDIQ Note").
The MEDIQ Note bears interest at prime plus 1.5% per annum, with monthly
payments of interest only through September 1995, and then monthly principal and
interest payments for the following three years, based on a fifteen year
amortization period, with the remaining balance due in August 1998. The MEDIQ
Note may be prepaid in whole or in part without penalty. The MEDIQ Note is
collateralized by a note receivable obtained by the Company as partial
consideration for the sale of the Oakview Treatment Center, one of the Company's
former freestanding facilities. The Company pledged the note receivable to
MEDIQ in connection with obtaining a waiver from MEDIQ of an event of default
provision of the MEDIQ Note relating to the sale of the assets of a significant
subsidiary. See "The Company."
The Company does not anticipate that cash flows from operations will be
sufficient to repay the MEDIQ Note upon maturity in 1998. In addition, as
reflected in the financial statements of the Company for the fiscal year ended
September 30, 1995, and the report of the Company's independent auditors
thereon, the Company has been experiencing difficulty generating sufficient cash
flows to meet its obligations and sustain its operations and, as a result, may
not be able to meet the monthly principal and interest obligations under the
MEDIQ Note. A portion of the net proceeds from the BHC Sale (as hereinafter
defined; see "The Company") is available to the Company to fund the monthly
obligations and a portion of the principal obligations upon maturity, if
necessary, of the MEDIQ Note. MEDIQ has pledged the MEDIQ Note as collateral
for certain of its indebtedness to a third party unaffiliated with MEDIQ or the
Company. In the event of default by MEDIQ on such indebtedness, such third
party would obtain all of MEDIQ's rights under the MEDIQ Note, including the
right to the payment of principal and interest as and when due in accordance
with the terms of the MEDIQ Note.
The MEDIQ Note also provides for certain events of default, including:
"The . . . sale of all or substantially all of the assets of [the Company]
. . ." In an attempt to preclude the possibility of a dispute as to whether the
BHC Sale constitutes the sale of all or substantially all of the assets of the
Company for purposes of the MEDIQ Note, the Company, prior to the sale, sent
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MEDIQ a letter requesting a waiver of this provision in connection
therewith. MEDIQ sent the Company a letter in which MEDIQ declined to grant
such a waiver. Since the completion of the BHC Sale, the Company has not
received any notice of default under the MEDIQ Note on this basis.
Nevertheless, in the event MEDIQ attempts to accelerate the MEDIQ Note, the
Company intends to aggressively defend its position in any legal proceeding.
There can be no assurances that the Company would be able to obtain a
favorable decision in such a legal proceeding. In the event the Company were
to receive an adverse decision on this matter, the outstanding principal
balance on the MEDIQ Note would become immediately due and payable in full.
In that event, the Company may be required to apply the remainder of the net
proceeds from the BHC Sale toward the repayment of the outstanding principal
of the MEDIQ Note, obtain alternative sources of cash with which to satisfy
such obligation, or obtain from MEDIQ a modification to the MEDIQ Note. The
current balance of the net proceeds from the BHC Sale is insufficient to
repay the entire outstanding principal balance of the MEDIQ Note. There can
be no assurance that the Company will have sufficient cash to repay the
outstanding principal balance of the MEDIQ Note or that other sources of cash
will be available to the Company in the event the Company was to receive an
adverse decision on such matter. In such event, the Company may be unable to
fulfill its debt obligations and also sustain operations at a level at which
the Company could continue as a going concern.
RELATIONSHIPS OF CERTAIN PERSONS WITH MEDIQ. Michael F. Sandler, in
addition to being a member of the Company's Board of Directors, is also a
director, Senior Vice President - Finance, Treasurer, and Chief Financial
Officer, and a stockholder of MEDIQ. In addition, H. Scott Miller, also a
member of the Company's Board of Directors, is a director of MEDIQ and provides
financial advisory services to the trust described in the next paragraph.
Consequently, Mr. Sandler's and Mr. Miller's relationships with MEDIQ may be
adverse to the interests of stockholders of the Company generally.
In addition, approximately 29% of the outstanding shares of the Common
Stock are beneficially owned by Bessie G. Rotko. Mrs. Rotko is the lifetime
income beneficiary of a trust which holds approximately 19% and 56% of MEDIQ's
outstanding common stock and preferred stock, respectively. The Trustees,
Bessie G. Rotko, Michael J. Rotko, Judith M. Shipon, John Iskrant and PNC Bank,
National Association, share voting and investment power with respect to the
shares in the trust. As a result, Mrs. Rotko, together with several other
trustees, may have effective control over all matters requiring approval by the
stockholders of the Company. The address of the trustees is c/o MEDIQ
Incorporated, One MEDIQ Plaza, Pennsauken, NJ 08110. Mrs. Rotko is the mother
of Michael J. Rotko and Judith M. Shipon. In addition, Michael J. Rotko and
Judith M. Shipon each own approximately 2% and 7% of MEDIQ's outstanding common
stock and preferred stock, respectively. Michael J. Rotko is also the Chairman
of the Board of Directors of MEDIQ.
REIMBURSEMENT FOR MENTAL HEALTH SERVICES. A significant portion of the
Company's revenues are derived from reimbursement from government programs such
as Medicare and Medicaid, which are highly regulated and subject to change.
Future changes in reimbursement could have a material effect on the Company's
operating results.
COMPETITION. Competition in the mental health industry is intense. The
Company currently competes with companies that are larger and have greater
resources than the Company. Any material adverse change in the competitive
environment could have a material adverse effect on the Company's results of
operations and financial condition.
DILUTION. The Company's business strategy includes pursuing possible
acquisition opportunities, which has involved, and may involve in the future,
using shares of the Common Stock as consideration for business transactions.
The issuance of additional shares of the Common Stock in such transactions could
have a dilutive effect on the shares outstanding.
DEPENDENCE UPON EXISTING MANAGEMENT. The Company's business and operations
are dependent, in part, upon the continued services of existing senior
management, in particular Michael
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S. Pinkert, President, Chief Executive Officer and a Director. The loss of Mr.
Pinkert's services would have a material adverse effect on the Company.
DIVIDEND POLICY. The Company has not declared any dividends on the Common
Stock and does not anticipate the declaration and payment of cash dividends in
the future. It is the present intention of the Company to retain any future
earnings to support the continued growth of the business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors shall deem relevant.
THE COMPANY
The Company offers, arranges for and manages behavioral healthcare services
primarily through extended care treatment settings. Since its founding, the
Company's goal has been to offer the highest quality, cost-effective care in the
industry. Prior to the recent sales of six of the Company's freestanding
facilities, the Company's Hospital Division operated seven psychiatric and
substance abuse facilities, delivering a full spectrum of behavioral health
services ranging from traditional inpatient care to alternative care programs,
such as partial hospitalization and outpatient treatment. These seven
freestanding facilities generated 87% of net revenue for fiscal 1995 and
comprised 77% of the Company's total assets at the end of fiscal 1995. The
Company's Extended Care Services Division provides specialized medical and
behavioral health services to approximately 795 nursing homes in twelve states.
The Extended Care Services Division also provides behavioral health care to more
than 2,000 Medicaid patients residing in nursing homes under a contract with the
State of Georgia.
Historically, the Company's principal businesses were the operation of
freestanding behavioral healthcare facilities and the management of behavioral
healthcare programs under contracts with acute care hospitals. The market for
behavioral healthcare has undergone dramatic changes in recent years. Pressure
on providers to reduce costs has resulted in an increase in the development and
utilization of alternatives to long-term in-patient care, and a decrease in the
utilization of in-patient care and reimbursement rates. With market forces
emphasizing managed care approaches to healthcare, this trend is anticipated to
continue.
In response to these changes and their adverse impact on the Company's
operating results, significant changes have been made in the structure of the
Company's operations. In August 1994, the Company merged its contract
management business (which represented 29% of the Company's net revenues in
fiscal 1994) with a competitor through the creation of a joint venture. In
March 1995, the Company sold its interest in the joint venture to such
competitor. In addition, the Company decided to pursue a growth strategy
focused on its Extended Care Services Division (which represented 13% of the
Company's net revenues in fiscal 1995) through the pursuit of non-physician
practice acquisition and management opportunities. Finally, the Company is
pursuing opportunities to sell its remaining freestanding behavioral healthcare
facility.
On April 5, 1996, the Company sold Oakview Treatment Center to a non-profit
corporation affiliated with a privately-owned operator of two psychiatric
hospitals for $50,000 in cash and $2,150,000 evidenced by two promissory notes
payable to the Company. The notes are payable in monthly installments of
principal and interest (at prime) based on a fifteen year amortization, with the
remaining principal due in five years (or earlier under certain circumstances).
In connection with obtaining a waiver from MEDIQ of an event of default
provision of the MEDIQ Note relating to the sale of the assets of a significant
subsidiary, the Company pledged one of the notes receivable (with a principal
balance of $1,875,000) as collateral for the Company's obligations under the
MEDIQ Note.
On May 31, 1996, the Company sold certain assets, consisting principally of
five of its freestanding behavioral healthcare facilities, to Behavioral
Healthcare Corporation ("BHC"), a Delaware corporation, with its principal
offices located in Nashville, Tennessee, pursuant to an
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Asset Purchase Agreement, dated as of January 24, 1996, and amended as of April
11, 1996, by and between the Company and BHC (the "BHC Sale"). The Hospitals
were sold for approximately $10,222,700, consisting of $8,864,500 in cash and
$1,358,200 in assumed liabilities of the freestanding facilities. The sale
price is subject to certain post-closing adjustments, pursuant to the terms of
the Agreement.
The Company used a portion of the proceeds from the BHC Sale for (i) the
repayment of the principal amount outstanding under the Company's revolving
credit facility ($2,515,000, including related early termination fees of
$174,000); (ii) the extinguishment of a portion of the indebtedness not to be
assumed by BHC paid at the closing of the sale ($692,000, including early
termination fees of $139,000), which consisted primarily of indebtedness secured
by certain of the assets (particularly a facility and certain equipment)
acquired by BHC; and (iii) the funding of the Company's obligation to complete
repairs to two of the freestanding facilities in the amount of $284,000 (which
amount was placed in escrow). The Company anticipates using the remainder of
the proceeds from the BHC Sale for general working capital, which the Company
anticipates will include expansion of the Extended Care Services Division. See
"Risk Factors - POSSIBLE NEED TO USE PROCEEDS FROM THE SALE OF THE FREESTANDING
FACILITIES TO REPAY THE MEDIQ NOTE."
The Company has not entered into any definitive agreement to sell its
remaining freestanding facility. Accordingly, there can be no assurance that
the Company will be successful in selling the facility.
The Company was incorporated in 1981 in Virginia, and changed its state
of incorporation to Delaware in 1994. From 1986 to August 1993, the Company
was a wholly-owned subsidiary of MEDIQ. In August 1993, MEDIQ distributed
the stock of the Company to MEDIQ's stockholders. The Company's principal
executive offices are located at 8000 Towers Crescent Drive, Suite 810,
Vienna, Virginia 22182, and its telephone number is (703) 749-4600.
USE OF PROCEEDS
The net proceeds from the sale of shares of the Common Stock will be
received by the Selling Stockholders. The Company will not receive any proceeds
from any sale of shares of the Common Stock by the Selling Stockholders.
SELLING STOCKHOLDERS
In November 1993, the Company acquired substantially all of the assets and
assumed certain liabilities (collectively, the "ICH Assets") of ICH Services,
L.L.C. ("ICH"). ICH acquired the ICH Assets from HCI Services, Inc. ("HCI").
The consideration for the acquisition consisted of an aggregate of 330,000
shares of the Company's Common Stock. Additional consideration in cash or
additional shares of the Company's Common Stock, at the option of the seller,
may be payable in the future based upon twenty percent of the fair market value
of the assets acquired after three (3) years, or earlier under certain
circumstances, such as the sale or merger of the Company. The shares of the
Company's Common Stock issued in connection with the acquisition of the ICH
Assets were also subject to the terms of a certain Registration Rights
Agreement, dated November 18, 1993, (the "Registration Rights Agreement") which
provided certain demand and incidental registration rights under the Securities
Act.
Pursuant to the terms of the Registration Rights Agreement, the persons
listed below have proposed to sell the shares indicated below pursuant to the
plan of distribution described elsewhere herein.
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The following table provides the names and addresses of each Selling
Stockholder and the amount of the Common Stock offered hereby and the amount of
the Common Stock owned beneficially by each of such Selling Stockholders.
Name and Address Shares Owned Shares Offered
- ---------------- ------------ --------------
CIBC Trust Company (Bahamas) 26,373 26,373
Limited, Trustee (1)
Shirley Street, P.O. Box N-3933
Nassau, Bahamas
W.C. McGraw 15,675 15,675
P.O. Box 888670
Atlanta, GA 30356
H. Charles Mohler, D.D.S. 495 495
706 Douglas Drive
Johnson City, TN 37604
Thomas Newbill 9,075 9,075
7205 Riverside Drive
Atlanta, GA 30328
Point Venture Partners, L.P. (2) 118,854 118,854
2970 USX Tower
600 Grant Street
Pittsburgh, PA 15219
Point Venture Partners Pennsylvania, L.P.(2) 6,600 6,600
2970 USX Tower
600 Grant Street
Pittsburgh, PA 15219
Carol Skiba 27 27
7425 E. Portland Street
Scottsdale, AZ 85257
James D. Strausburg 19 19
1490 Moores Mill Road
Atlanta, GA 30327
Walnut Capital Corp. (3) 82,455 82,455
8000 Towers Crescent Drive, Suite 1070
Vienna, VA 22182
Windy City, Inc. (4) 20,354 20,354
8000 Towers Crescent Drive, Suite 1070
Vienna, VA 22182
David C. Winters 573 573
1506 Holly Banks Circle
Dunwoody, GA 30338
Venture First II, L.P. (5) 49,500 49,500
4811 Thornwood Drive
Acworth, GA 30102
(1) Sole voting and investment control of the subject securities is vested in
CIBC Trust Company, Limited in their institutional capacity as Trustee.
The beneficiaries of the Trust are so-called "discretionary
beneficiaries" and are not entitled to any specific distributions or
trust corpus, nor can they direct the voting or investment control of
the assets held by the Trust, which control is vested solely with CIBC
Trust Company, Limited as Trustee.
8
<PAGE>
(2) Point Venture Partners, L.P. and Point Venture Partners Pennsylvania, L.P.
are managed by the same general partner, Point Venture Associates, L.P.,
a limited partnership whose general partners are Don J. Casturo, Kent L.
Engelmeier and Derek F. Minno.
(3) Walnut Capital Corp. is a wholly-owned subsidiary of Walnut Financial
Services, Inc., a publicly traded concern. Sole voting and investment
control of Walnut Capital assets is vested in Walnut Capital's
President, Mr. Joel S. Kanter.
(4) Sole voting and investment control of Windy City's assets is vested in
in Windy City's President, Mr. Joel S. Kanter.
(5) The general partner of Venture First II, L.P. is Venture First
Associates II, L.P., whose general partners are James Douglas Mullins,
Riverwest Ventures, Inc., Benton Otto Wheeley and William Andrew Grubbs.
The sole stockholder of Riverwest Venture, Inc. is James Douglas Mullins.
In addition to their role as members of ICH, certain of the Selling
Stockholders were formerly officers and directors of HCI. None of such persons
is currently an officer or director of HCI. Except as described above, none of
the Selling Stockholders listed above has held any position, office or other
material relationship within the past three years with the Company or any of its
predecessors or affiliates.
PLAN OF DISTRIBUTION
Any distribution of the shares of the Common Stock by the Selling
Stockholders, or by pledgees, donees, transferees or other successors in
interest, may be effected from time to time in one or more of the following
transactions: (a) to underwriters who will acquire shares of the Common Stock
for their own account and resell them in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale (any public offering price and any discount or
concessions allowed or re-allowed or paid to dealers may be changed from time to
time); (b) through brokers, acting as principal or agent, in transactions (which
may involve block transactions) on the American Stock Exchange, or on one or
more exchanges on which the Common Stock is then listed, in special offerings,
exchange distributions pursuant to the rules of the applicable exchanges or in
the over-the-counter market, or otherwise, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices; or (c) directly or through brokers or agents in
private sales at negotiated prices, or by any other legally available means.
The shares of the Common Stock may be sold by the Selling Stockholders pursuant
to this Prospectus or otherwise pursuant to Rule 144, promulgated under the
Securities Act.
The Selling Stockholders and such underwriters, brokers, dealers or agents,
upon effecting a sale of shares of the Common Stock, may be considered
"underwriters" as that term is defined by the Securities Act.
Underwriters participating in any offering made pursuant to this Prospectus
(as amended or supplemented from time to time) may receive underwriting
discounts and commissions, and discounts or concessions may be allowed or re-
allowed or paid to dealers, and brokers or agents participating in such
transaction may receive brokerage or agent's commissions or fees.
At the time a particular offering of shares of the Common Stock is made, to
the extent required, a Prospectus Supplement will be distributed which will set
forth the amount of shares of the Common Stock being offered and the terms of
offering, including the purchase price or public offering price, the purchase
price paid by an underwriter for shares of the Common Stock purchased from the
Selling Stockholders, the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation from the
Selling Stockholders and any discounts, commissions or concessions allowed or
re-allowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the shares of the Common Stock will be sold in such jurisdictions,
if required, only through registered or licensed brokers or dealers. In
addition, in certain states, the shares of the Common Stock may not be sold
unless the shares of the Common Stock have been registered or qualified for sale
in such state or an exemption from registration or qualification is available
and complied with.
The Company and the Selling Stockholders have agreed that the Company will
bear all costs, expenses and fees in connection with the registration of the
shares of the Common Stock. The Selling Stockholders will bear the cost of all
commissions and discounts, if any, attributable to the sale of the shares of the
Common Stock. The Selling Stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
of the Common Stock against certain liabilities, including liabilities arising
under the Securities Act. The Company and the Selling
9
<PAGE>
Stockholders have agreed to indemnify each other and certain other persons
against certain liabilities in connection with the offering of the shares of the
Common Stock, including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, 1735 Market Street, Philadelphia,
Pennsylvania 19103.
EXPERTS
The financial statements and the related financial schedule incorporated
in this Prospectus by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1995 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference (which report expresses an unqualified opinion and
includes an explanatory paragraph referring to the Company's ability to
continue as a going concern), and have been so incorporated in reliance upon the
report of such firm, given upon their authority as experts in accounting and
auditing.
10
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in or incorporated by
reference in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company,
the Selling Stockholders or any underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such an offer in such jurisdiction. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs of
the Company since such date.
__________, 1996
MHM SERVICES, INC.
330,000 Shares
Common Stock
($.01 par value)
P R O S P E C T U S
___________________
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . 2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SELLING STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the issuance and distribution of the shares of the
Common Stock being registered hereby.
SEC Registration Fee $ 184.91
Accountants' Fees and Expenses 1,500.00*
Legal Fees 7,000.00*
Blue Sky Filing Fees and Expenses 2,500.00*
Miscellaneous 1,000.00*
----------
Total $12,184.91*
----------
----------
* Estimated, subject to change
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has adopted the provisions of Section 102(b)(7) of the Delaware
General Corporation Act (the "Delaware Act") which eliminate or limit the
personal liability of a director to the Company or its stockholders for monetary
damages for breach of fiduciary duty under certain circumstances. Furthermore,
under Section 145 of the Delaware Act, the Company shall indemnify each of its
directors and officers against expenses (including reasonable costs,
disbursements and counsel fees) in connection with any proceeding involving such
person by reason of having been an officer or director, to the extent such
person acted in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interest of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful. The determination of whether indemnification is proper under the
circumstances, unless made by a court, shall be made by a majority of a quorum
of disinterested members of the Company's Board of Directors, independent legal
counsel or the stockholders of the Company. The Company has purchased
directors' and officers' liability insurance in an amount totalling $5,000,000,
subject to certain deductibles.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibit
Number Description
- ------- -----------
2.1 Agreement by and between the Company and ICH Services, L.L.C., dated
November 18, 1993 (incorporated by reference to the Company's Form 8-K
report, dated October 2, 1993)
2.2 Amendment No. 1 to Agreement by and between the Company and ICH
Services, L.L.C. dated November 18, 1993, dated October 12, 1995
(filed herewith)
4.1 Specimen copy of Common Stock Certificate (incorporated by reference
to the Company's Registration Statement on Form 8-B, filed with the
Commission by the Company on January 27, 1995 (by which the Company
succeeded to a Registration Statement on Form 10 filed with the
Commission on August 19, 1993))
4.2 The Company's Restated Certificate of Incorporation (incorporated
by reference to the Company's Current Report on Form 8-K dated May
15, 1996)
4.3 Certificate of Amendment to the Company's Restated Certificate of
Incorporation (incorporated by reference to the Company's Current
Report on Form 8-K/A dated September 6, 1996)
4.4 The Company's Amended Bylaws (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, as amended)
5 Opinion of Ballard Spahr Andrews & Ingersoll (previously filed)
23.1 Consent of Deloitte & Touche LLP (filed herewith)
23.2 Consent of Ballard Spahr Andrews & Ingersoll
(included in Exhibit 5)
24 Power of Attorney (included on signature page)
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended, that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934, as amended; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is,
II-3
<PAGE>
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended,
shall be deemed to be part of this registration statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the County of Fairfax, Commonwealth of Virginia.
Dated: October 11996 MHM SERVICES, INC.
By: /s/ Michael S. Pinkert
--------------------------
Michael S. Pinkert, President
and Chief Executive Officer
By: /s/ Carolyn Zimmerman
--------------------------
Carolyn Zimmerman
Vice President-Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons, in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Michael S. Pinkert President and Chief October 11, 1996
- ------------------------- Executive Officer
Michael S. Pinkert
/s/ William P. Ferretti Director October 11, 1996
- -------------------------
William P. Ferretti
* Director
- -------------------------
Kenneth A. Kessler, M.D.
* Director
- -------------------------
H. Scott Miller
* Director
- -------------------------
Michael F. Sandler
* /s/ Michael S. Pinkert October 11, 1996
----------------------
Michael S. Pinkert,
as attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
2.1 Agreement by and between the Company and ICH Services, L.L.C.,
dated November 18, 1993 (incorporated by reference to the
Company's Form 8-K report, dated October 2, 1993)
2.2 Amendment No. 1 to Agreement by and between the Company and ICH
Services, L.L.C. dated November 18, 1993, dated October 12, 1995
4.1 Specimen copy of Common Stock Certificate (incorporated by
reference to the Company's Registration Statement on Form 8-B,
filed with the Commission by the Company on January 27, 1995 (by
which the Company succeeded to a Registration Statement on Form
10 filed with the Commission on August 19, 1993))
4.2 The Company's Restated Certificate of Incorporation (incorporated
by reference to the Company's Current Report on Form 8-K dated May
15, 1996)
4.3 Certificate of Amendment to the Company's Restated Certificate of
Incorporation (incorporated by reference to the Company's Current
Report on Form 8-K/A dated September 6, 1996)
4.4 The Company's Amended Bylaws (incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, as amended)
5 Opinion of Ballard Spahr Andrews & Ingersoll (previously filed)
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll
(included in Exhibit 5)
24 Power of Attorney (included on signature page)
<PAGE>
EXHIBIT 2.2
AMENDMENT NO. 1 TO AGREEMENT
DATED NOVEMBER 18, 1993
This AMENDMENT NO. 1 TO AGREEMENT DATED NOVEMBER 18, 1993,
("Amendment") is made and entered into this 12th day of October, 1995, by and
among Mental Health Management, Inc., a Delaware corporation (which is a
successor by merger to a Virginia corporation having the same name) ("MHM") and
the former members of ICH Services, L.L.C., a Delaware limited liability company
("ICH") listed on SCHEDULE A hereto (collectively, the "Former ICH Members").
WHEREAS, MHM, ICH and the Former ICH Members are all of the parties to
that certain Agreement dated November 18, 1993 (the "Agreement"), pursuant to
which MHM purchased from ICH certain assets of ICH;
WHEREAS, the assets of ICH acquired by MHM are currently held and
operated by MHM Extended Care Services, Inc., a Delaware corporation and wholly
owned subsidiary of MHM ("ECS");
WHEREAS, ICH filed a Certificate of Cancellation with the Office of
the Secretary of State of the State of California on July 6, 1994, the effect of
which was to dissolve ICH;
WHEREAS, in connection with the acquisition by ECS on July 7, 1995 of
certain assets of Supportive Counseling Care, a Professional Corporation, (i)
ECS issued to Murray I. Firestone, Ph.D. a warrant to purchase 9% of the Common
Stock of ECS, in the form attached hereto as EXHIBIT A (the "Warrant") and (ii)
ECS entered into a related Repurchase Agreement with Dr. Firestone, in the form
attached hereto as EXHIBIT B (the "Repurchase Agreement"), pursuant to which the
holder of the Warrant has the right to require ECS to purchase the Warrant on
the last day of the initial or extended term of the Warrant at its Fair Market
Value (as defined in the Repurchase Agreement); it being understood that ECS and
Dr. Firestone are negotiating an amendment to the Repurchase Agreement to
clarify the definition of such defined term; and
WHEREAS, in connection with the issuance of such Warrant and taking
into account the benefits expected to inure from the proposed acquisition to the
Operations (as defined in the Agreement) and the dilution that would result from
the Warrant, MHM and the Former ICH Members desire to amend the Agreement to
adjust the additional consideration that the Former ICH Members may become
entitled to receive under Section 3 of the Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
<PAGE>
1. AMENDMENT TO SECTION 3 OF THE AGREEMENT.
(a) Subparagraph 3(a) of the Agreement is hereby amended by
deleting the second sentence thereof in its entirety and substituting therefor
the following:
Within ninety (90) days after the third anniversary of the
Closing, Buyer will pay to the Former ICH Members an amount
equal to eighteen and thirty-five one-hundredths percent
(18.35%) (twenty percent (20%) in the event of a full or
partial termination of the Warrant issued by Buyer to
Murray I. Firestone, Ph.D. dated July 7, 1995 in connection
with the acquisition by Buyer of certain assets of
Supportive Counseling Care, a Professional Corporation (the
"Warrant"), prior to its exercise pursuant to Paragraphs
1.3(a) or 1.3(b) thereof occurring prior to the third
anniversary of the Closing) of the appraised fair market
value of the Operations ("Additional Consideration") as of
the third anniversary of the Closing as determined by the
investment banking firm (the "Investment Banking Firm")
selected by the parties as provided in subparagraph 3(d)
herein.
(b) Subparagraph 3(a) of the Agreement is hereby further amended
by deleting the sixth sentence thereof in its entirety and substituting therefor
the following:
There shall be no discount to such value (i) due to minority
interest, (ii) due to lack of liquidity, (iii) by reason of
the fact that some services are being provided to the
Operations by Buyer or its affiliates, or (iv) by reason of
the dilution resulting from the Warrant or Buyer's
obligations pursuant to that certain Repurchase Agreement by
and between Buyer and Dr. Firestone dated July 7, 1995, as
the same may be amended by Buyer and Dr. Firestone to
clarify the definition of the term "Fair Market Value" as
set forth therein (the "Repurchase Agreement").
(c) Subparagraph 3(h) of the Agreement is hereby amended by
deleting the second, third, fourth, fifth and sixth sentences thereof in their
entirety and substituting therefor the following:
In the event that the Disposition is consummated on or
before the second anniversary of the Closing, but after the
first anniversary of the Closing then, in
2
<PAGE>
lieu of the Additional Consideration provided in subparagraph
3(a), Buyer shall pay to the Former ICH Members an amount
prorated between twenty seven and fifty-two one-hundredths
percent (27.52%) and twenty two and ninety-four one-hundredths
percent (22.94%) of the Consideration as a result of the
Disposition, prorated based upon the date of the closing of the
Disposition; PROVIDED, HOWEVER, that in the event of a Warrant
Termination Event (as hereinafter defined), such amount shall be
thereafter reprorated between thirty percent (30%) and
twenty-five percent (25%) of the Consideration as a result of the
Disposition, prorated based upon the date of the closing of the
Disposition. In the event that the Disposition is consummated
after the second anniversary of the Closing, but before the third
anniversary of the Closing, then in lieu of the Additional
Consideration provided in subparagraph 3(a), Buyer shall pay to
the Former ICH Members an amount prorated between twenty-two and
ninety-four one-hundredths percent (22.94%) and eighteen and
thirty-five one-hundredths percent (18.35%) of the Consideration
as a result of the Disposition, prorated based upon the date of
closing of the Disposition; PROVIDED, HOWEVER, that in the event
of Warrant Termination Event, such amount shall be thereafter
reprorated between twenty-five percent (25%) and twenty percent
(20%) of the Consideration as a result of the Disposition,
prorated based upon the date of the closing of the Disposition.
As used herein, a "Warrant Termination Event" shall mean (i) the
failure of the holder thereof to exercise the Warrant during the
initial or extended terms of the Warrant as provided therein and
the failure of the holder thereof to exercise the right to sell
holder's rights, title and interest in the Warrant to Buyer
pursuant to the Repurchase Agreement as provided therein or (ii)
the full or partial termination of the Warrant prior to its
exercise in accordance with the terms of Paragraphs 1.3(a) or
1.3(b) thereof. The amount to be paid pursuant to this
subparagraph 3(h) shall be due and payable within ten (10)
business days after the closing of the Disposition; PROVIDED,
HOWEVER, that any additional amount to be paid pursuant to this
subparagraph 3(h) due to a reproration as a result of a Warrant
3
<PAGE>
Termination Event shall be due and payable within ten (10)
business days after the later to occur of the closing of the
Disposition or the Warrant Termination Event. The applicable
provisions contained in subparagraph 3(b) above shall apply
except that if the Former ICH Members elect to receive the above
payments in the form of MHM Stock the price per share of said MHM
Stock shall be equal to the average of the closing bid prices of
the common stock of Buyer on the exchange on which said common
stock is then listed on the twenty (20) trading days immediately
preceding the date of the closing of the Disposition.
Notwithstanding the foregoing, the election made by the former
ICH Members in accordance with subparagraph 3(b) to receive cash
or MHM Stock with respect to any initial amount due and payable
hereunder in connection with a Disposition shall be binding upon
the Former ICH Members with respect to the form of consideration
to be paid as to any amount due and payable hereunder due to a
reproration as a result of a Warrant Termination Event occurring
after a Disposition. Further, Buyer shall be under no obligation
to register any shares of MHM Stock issued to the Former ICH
Members in connection with any such reproration, except in
accordance with the terms and conditions of the incidental
registration rights set forth on EXHIBIT C attached hereto and
made a part hereof.
(d) A new subparagraph 3(i) is added to the Agreement as
follows:
(i) In the event Warrant Termination Event occurs
subsequent to the payment of any Additional Consideration by
Buyer to the Former ICH Members pursuant to subparagraph
3(a), the Additional Consideration payable by Buyer to the
Former ICH Members pursuant to subparagraph 3(a), if any,
shall be readjusted to an amount equal to twenty percent
(20%) of the appraised fair market value of the Operations
as of the third anniversary of the Closing as determined by
the Investment Banking Firm selected by the parties as
provided in subparagraph 3(d) herein. Any additional amount
to be paid by Buyer to the Former ICH Members pursuant to
this subparagraph 3(i) shall be due and payable within ten
(10)
4
<PAGE>
business days after the Warrant Termination Event. The election
made by the Form ICH Members in accordance with subparagraph 3(b)
to receive cash or MHM Stock with respect to any initial payment
of Additional Consideration under subparagraph 3(a) shall be
binding upon the Former ICH Members with respect to the form of
consideration to be paid as to any additional amount due and
payable hereunder. Further, Buyer shall be under no obligation
to register any shares of MHM Stock issued to the Former ICH
Members pursuant to this subparagraph 3(i), except in accordance
with the terms and conditions of the incidental registration
rights set forth on EXHIBIT C attached hereto and made a part
hereof.
(e) A new subparagraph 3(j) is added to the Agreement as
follows:
(j) Each of the Former ICH Members individually
represent to Buyer that he or it will acquire the MHM Stock
under subparagraphs 3(a), 3(h) and/or 3(i) for investment,
without any view to the resale or other distribution
thereof. Accordingly, Buyer has not registered such MHM
Stock for sale to the public pursuant to the Securities Act
but Buyer has agreed so to register the MHM Stock in
accordance with the terms of subparagraphs 3(b), 3(h) and
3(i) hereof. Each of the Former ICH Members agrees that
such MHM Stock may only be transferred in compliance with
the registration requirements of the Securities Act and
applicable state securities laws or pursuant to an exemption
from such registration requirements. The Former ICH Members
acknowledge that the certificates for such MHM Stock will
bear a legend on the face thereof substantially as follows:
"The shares represented by this certificate have been
acquired for investment and have not been registered under
the Securities Act of 1933 or under applicable state
securities laws. The shares may not be sold except pursuant
to an exemption therefrom, the availability of which must be
established to the satisfaction of the Buyer."
5
<PAGE>
2. Each of the Former ICH Members represent and warrant that they
are "assignees" of ICH within the meaning of the Agreement and, therefore, are
entitled to receive any payment of Additional Consideration or following a
Disposition to be made to the Company under the Agreement.
3. CONTINUATION OF AGREEMENT. The Agreement as amended hereby shall
continue in full force and effect.
4. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have each executed and
delivered this Amendment as of the date first above written.
MENTAL HEALTH MANAGEMENT, INC.
By:
---------------------------
Michael S. Pinkert
President
FORMER ICH MEMBERS:
POINT VENTURE PARTNERS, L.P.
By: /s/ Kent L. Engelmeier
-------------------------
Name: Kent L. Engelmeier
-----------------------
Title: General Partner
----------------------
POINT VENTURE PENNSYLVANIA,
L.P.
By: /s/ Kent L. Engelmeier
-------------------------
Name: Kent L. Engelmeier
-----------------------
Title: General Partner
----------------------
VENTURE FIRST II, L.P.
By: /s/ J.D. Mullins
Name:
----------------------
Title:
----------------------
6
<PAGE>
CANADIAN IMPERIAL BANK
OF COMMERCE TRUST COMPANY
(BAHAMAS) LIMITED, TRUSTEE
By: /s/ Carlos E. Chisholm /s/
Linda W. Williams
-------------------------
Name: Carlos E. Chisholm and
Linda W. Williams
-----------------------
Title: Manager, Trust
Department and Trust
Officer
----------------------
WALNUT CAPITAL CORP.
By: /s/ Joel S. Kanter
-------------------------
Name: Joel S. Kanter
-----------------------
Title: President
----------------------
WINDY CITY, INC.
By: /s/ Joel S. Kanter
-------------------------
Name: Joel S. Kanter
-----------------------
Title: President
----------------------
-----------------------------
H. Charles Mohler, DDS
/s/ David C. Winters
-----------------------------
David C. Winters
/s/ James D. Strausburg
-----------------------------
James D. Strausburg
/s/ Thomas C. Newbill, Jr.
-----------------------------
Thomas C. Newbill, Jr.
-----------------------------
W. C. McGraw
7
<PAGE>
SCHEDULE A
FORMER MEMBERS OF ICH SERVICES, L.L.C.
Point Venture Partners, L.P.
Point Venture Pennsylvania, L.P.
Venture First II, L.P.
Canadian Imperial Bank of
Commerce Trust Company (Bahamas)
Limited, Trustee
Walnut Capital Corp.
Windy City, Inc.
H. Charles Mohler, DDS
David C. Winters
James D. Strausburg
Thomas C. Newbill, Jr.
W. C. McGraw
8
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SHARES OF COMMON STOCK (OR OTHER SECURITIES) ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
PURCHASE WARRANT
ISSUED BY
MHM EXTENDED CARE SERVICES, INC.
TO
MURRAY I. FIRESTONE, PH.D.
DATED: JULY 7, 1995
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THIS WARRANT AND THE SHARES OF COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
PURCHASE WARRANT
FOR THE PURCHASE OF 9,000* SHARES OF COMMON STOCK OF
MHM EXTENDED CARE SERVICES, INC.
EXPIRES JULY 7, 1998
W I T N E S S E T H
WHEREAS, MHM EXTENDED CARE SERVICES, INC., a corporation organized and
existing pursuant to the laws of the State of Delaware, with its principal
offices located at 990 Hammond Drive, Suite 310, Atlanta, GA 30328 ("Issuer")
has entered into an employment agreement dated July 7, 1995 (the "Employment
Agreement") with Murray I. Firestone ("Holder"); and
WHEREAS, Issuer and Holder have agreed that in connection with the
Employment Agreement, a portion of the compensation of the Holder for his
services under the Employment Agreement will be in the form of a Warrant, which
Warrant will grant the right to Holder to purchase and acquire an equity
interest in Issuer in the form of shares of common stock, par value $.01 per
share, ("Common Stock") of the Issuer, on the terms and conditions hereinafter
set forth; and
WHEREAS, the aggregate number of shares of Common Stock the Issuer is
presently authorized to issue is 1,000,000, and there are presently 100,000
shares outstanding; and
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* Subject to adjustment and termination as more fully described hereinafter.
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WHEREAS, Issuer is duly authorized to issue to Holder this Warrant, which
Warrant shall, upon the occurrence of a Trigger Event (as hereinafter defined),
entitle, until exercise or prior expiration or termination, the Holder by
exercise thereof to purchase that number of shares of Common Stock more fully
described herein at a certain price (the "Exercise Price") as hereinafter set
forth, subject to adjustment as hereinafter provided, until July 7, 1998 (the
"Expiration Date") unless extended or earlier terminated pursuant to the terms
hereinafter set forth; and
WHEREAS, Issuer and Holder have agreed to provide herein for the terms,
conditions and provisions respecting this Warrant, the terms upon which the
Warrant shall be issued and exercised, and the respective rights and limitations
of rights of the Issuer and of Holder concerning the same; and
WHEREAS, Issuer and Holder have agreed that this Warrant, upon execution by
the Issuer shall be, and shall remain until its exercise or its prior
expiration, the valid, binding and legal obligation of Issuer.
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein and in the Purchase Agreement pursuant to which this Warrant is issued,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, Issuer hereby
agrees as follows:
1.1 THE WARRANT.
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This Warrant evidences the right of the Holder hereof, for a period of
thirty (30) days following the occurrence of a Trigger Event as set forth in
Section 1.2 herein, to purchase 9,000 shares of Common Stock (the "Shares") on
the date of exercise (an "Exercise"), subject to adjustment from time to time,
pursuant to the provisions of paragraph 3 hereof, and subject to termination as
provided herein. Such thirty (30) day period shall not be reduced in the event
the Expiration Date is within said period.
1.2 TRIGGER EVENTS.
(a) This Warrant shall only be exercisable for a period of thirty
(30) days following the occurrence of one of the following events ("Trigger
Events");
(i) the initial public offering by the Issuer of shares of
Common Stock; or
(ii) the disposition of the shares of Common Stock of the Issuer
by Mental Health Management, Inc., the present sole stockholder of the Issuer,
("MHM") in a public offering, distribution to its stockholders or sale or
transfer for value to an unaffiliated thirty party;
(iii) the sale by the Issuer of all or substantially all of its
assets to an unaffiliated third party.
(b) In the event of a Trigger Event, a notice thereof shall be sent
by the Issuer to the Holder, at least thirty (30) days before the effective date
of the Trigger Event (which date shall be specified in such notice). Such
notice shall also
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specify the date on which the right to Exercise the Warrant shall expire, as
provided in Section 1.1 of this Warrant.
1.3 TERMINATION AND PARTIAL TERMINATION.
(a) In the event the Holder's employment with the Issuer is
terminated for cause by the Issuer at any time during the term of this Warrant,
then this Warrant and all rights contained herein, shall immediately terminate.
(b) In the event the Holder's employment with the Issuer ceases at
any time prior to the first anniversary of the date of this Warrant because
Holder voluntarily ceases employment with the Issuer, then, thereafter, this
Warrant shall only entitle the Holder to purchase one-third (1/3) of the Shares,
and all rights contained herein which relate to the Shares shall thereafter
relate to only one-third (1/3) of the Shares.
(c) In the event the Holder's employment with the Issuer ceases at
any time following the first anniversary of the date of this Warrant but prior
to the second (2nd) anniversary of the date of this Warrant because Holder
voluntarily ceases employment with the Issuer, then, thereafter, this Warrant
shall only entitle the Holder to purchase two-thirds (2/3) of the Shares, and
all rights contained herein which relate to the Shares shall thereafter relate
to only two-thirds (2/3) of the Shares.
2. EXERCISABILITY.
Upon the occurrence of a Trigger Event, Holder shall be entitled to
purchase the Shares and to receive a certificate or certificates for the Shares
so purchased, upon presentation and
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surrender to the Issuer, with a form of subscription duly executed, and
accompanied by payment of the Exercise Price, either in cash or by certified or
bank cashier's check payable to the order of the Issuer, or by wired funds
pursuant to the directions of Issuer. Such issuance shall be under and subject
to the terms and conditions set forth in this Warrant.
2.1 Issuer consents and agrees that the Shares to be delivered upon
exercise of this Warrant will, upon delivery, by free from all taxes, liens, and
charges with respect to the purchase thereof hereunder.
2.2 This Warrant may be exercised at any time permitted by Sections 1.1
and 1.2, subject to termination and partial termination as set forth in Section
1.3, except that if notice has been given as provided in Section 5 of this
Warrant in connection with the liquidation, dissolution, or winding up of
Issuer, the right to Exercise shall expire at the close of business on the third
full business day before the date specified in such notice.
2.3 This Warrant shall entitle Holder, upon the occurrence of a Trigger
Event as set forth in Sections 1.1 and 1.2, to purchase the number of Shares
stated herein at the Exercise Price of $1.00 per Share, subject to adjustment as
set forth in this Warrant and subject to the provisions of Section 1.3 of this
Warrant. The Exercise Price represents the net book value per share of the
Shares, as reflected on its financial statements as of March 31, 1995. The
parties hereto acknowledge that such amount shall be the Exercise Price
notwithstanding any change in
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the net book value per share of the Issuer which may have occurred from March
31, 1995 to the date of this Warrant. For the purposes of this Warrant, the net
book value per share of the Issuer shall be determined by reference to the
balance sheet for the Issuer's most recently completed fiscal quarter, prepared
in accordance with generally accepted accounting principles applied in a manner
consistent with the Issuer's prior practices, and shall be deemed to be equal to
the difference between the total assets and total liabilities of the Issuer as
reflected on such balance sheet. The determination of the net book value per
share of the Issuer shall be made by the Issuer, and shall not be subject to
contest.
2.4 This Warrant shall be exercised by surrendering it, together with a
subscription in the form annexed as Exhibit A hereto, duly executed, accompanied
by the tender of funds for the Exercise Price. The Warrant may surrendered at
the office of the Company, to the attention of the Secretary of the Company. As
soon as practicable after the Warrant has been so exercised, Issuer shall issue
and deliver to, the order of Holder, or in such name or names as may otherwise
be directed by Holder, a certificate or certificates for the number of full
Shares to which Holder is entitled. All Warrants surrendered shall be cancelled
by Issuer.
2.5 The Issuer shall not be required to issue fractional shares upon
Exercise of this Warrant, but in lieu thereof shall issue, in addition to
Shares, a cash payment representing any fractional Share which might otherwise
be issuable except for
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this provision. The amount of the cash payment hereunder shall be determined by
the Issuer by multiplying the amount of such fractional Share by the difference
between the net book value per share of the Issuer (as determined pursuant to
Section 2.3 of this Warrant and the Exercise Price then in effect.
2.6 All Shares issued upon the exercise of this Warrant, or any
replacement or substitution therefor, shall at all times be validly issued and
outstanding.
2.7 (a) This Warrant shall expire and no longer be exercisable after 5:00
p.m. on the Expiration Date, unless extended or earlier terminated pursuant to
the terms set forth in this Warrant.
(b) In the event the Holder's employment with the Issuer is continued
after the initial term of the Employment Agreement, the term of this Warrant
shall be deemed to be extended for the duration of such continued employment;
provided, however, that no such extension shall extend the term of this Warrant
beyond an aggregate term, including the initial three-year term, of five (5)
years from the date of this Warrant.
3. ADJUSTMENTS, DIVIDENDS, ETC.
The number of Shares for which this Warrant is exercisable, and the
price at which such Shares may be purchased upon exercise of this Warrant, shall
be subject to adjustment from time to time as set forth in this Section 3. The
Issuer shall give Holder notice of any event described below which requires an
adjustment pursuant to this Section 3 in accordance with Section 9(b).
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3.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time the
Issuer shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution of,
shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock; then (i) the number of Shares for which this
Warrant is exercisable immediately after the occurrence of any such event shall
be adjusted to equal the number of shares of Common Stock which a record holder
of the same number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the Exercise
Price shall be recalculated after giving effect to the adjustment in the number
of shares of Common Stock for which this Warrant is exercisable pursuant to
clause (i) above so that the aggregate Exercise Price for the purchase of all of
the Shares for which this Warrant is exercisable is the same immediately before
and after the happening of such event.
A reclassification of the Common Stock (other than a change in par value,
or from par value to no par value or from no par value to par value) into shares
of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Common Stock of such shares of
such
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<PAGE>
other class of stock within the meaning of Section 3.8 and, if the outstanding
shares of Common Stock shall be changed into a larger or smaller number of
shares of Common Stock as a part of such reclassification, such change shall be
deemed a subdivision or combination, as the case may be, of the outstanding
shares of Common Stock within the meaning of this Section 3.1.
3.2 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time the Issuer shall issue or sell any additional
shares of Common Stock in exchange for consideration in an amount per additional
share of Common Stock less than the net book value per share of the Issuer (as
determined pursuant to Section 2.3), then (i) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
number of shares of Common Stock which is equal to nine (9%) percent of the
outstanding shares of Common Stock immediately after the issuance or sale of
such additional shares; and (ii) the Exercise Price shall be recalculated after
giving effect to the adjustment in the number of shares of Common Stock for
which this Warrant is exercisable pursuant to clause (i) above so that the
aggregate Exercise Price for the purchase of all of the Shares for which this
Warrant is exercisable is the same immediately before and after the happening of
such event.
(b) The provisions of this Section 3.2 shall not apply to any
issuance of additional shares of Common Stock for which an adjustment is
provided under Section 3.1. No adjustment of the number of Shares for which
this Warrant shall be exercisable shall be made under this Section 3.2 upon the
issuance of any
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additional shares of Common Stock which are issued pursuant to the exercise of
any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities, if
any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such convertible securities (or
upon the issuance of any warrant or other rights therefor) pursuant to Section
3.3 or Section 3.4.
3.3 ISSUANCE OF WARRANTS OR OTHER RIGHTS. If at any time the Issuer shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Company is the surviving corporation)
issue or sell, any warrants or other rights to subscribe for or purchase any
additional shares of Common Stock or any convertible securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
warrants or other rights or upon conversion or exchange of such convertible
securities shall be less than the net book value per share of the Issuer (as
determined pursuant to the provisions of Section 2.3 of this Warrant), then the
number of Shares for which this Warrant is exercisable and the Exercise Price
shall be adjusted as provided in Section 3.2 on the basis that the maximum
number of additional shares of Common Stock issuable pursuant to all such
warrants or other rights or necessary to effect the conversion or exchange of
all such convertible securities shall
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be deemed to have been issued and outstanding and the Issuer shall have received
all of the consideration payable therefor, if any, as of the date of the actual
issuance of such warrants or other rights. No further adjustments of the number
of Shares for which this Warrant is exercisable or the Exercise Price shall be
made upon the actual issue of such Common Stock or of such convertible
securities upon exercise of such warrants or other rights or upon the actual
issue of such Common Stock upon such conversion or exchange of such convertible
securities.
3.4 ISSUANCE OF CONVERTIBLE SECURITIES. If at any time the Issuer shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Issuer is the surviving corporation)
issue or sell, any convertible securities, whether or not the rights to exchange
or convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange shall be less
than the net book value per share of the Issuer (as determined pursuant to the
provisions of Section 2.3 of this Warrant), then the number of shares of Common
Stock for which this Warrant is exercisable and the Exercise Price shall be
adjusted as provided in Section 3.2 on the basis that the maximum number of
additional shares of Common Stock necessary to effect the conversion or exchange
of all such convertible securities shall be deemed to have been issued and
outstanding and the Issuer shall have received all of the consideration payable
therefor, if any, as of the date of actual
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issuance of such convertible securities. No further adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the Exercise
Price shall be made under this Section 3.4 upon the issuance of any convertible
securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 3.3. No further adjustments of the number of shares of
Common Stock for which this Warrant is exercisable and the Exercise Price shall
be made upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities.
3.5 SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the
number of Shares for which this Warrant is exercisable and the Exercise Price
shall have been made pursuant to Section 3.3 or Section 3.4 as the result of any
issuance of warrants, other rights or convertible securities.
(a) such warrants or other rights, or the right of conversion or
exchange in such other convertible securities, shall expire, and all or a
portion of such other convertible securities, as the case may be, shall not have
been exercised; or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or other rights, or the terms of such other
convertible securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event, then as to this Warrant
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such previous adjustment shall be rescinded and annulled and the additional
shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants, other
rights or options or other convertible securities on the basis of treating the
number of additional shares of Common Stock or other property, if any,
theretofore actually issued or issuable pursuant to the previous exercise of any
such warrants or other rights or any such right of conversion or exchange, as
having been issued on the date or dates of any such exercise and for the
consideration actually received and receivable therefor, and treating any such
warrants or other rights or any such other convertible securities which then
remain outstanding as having been granted or issued immediately after the time
of such increase of the consideration per share for which shares of Common Stock
or other property are issuable under such warrants or other rights or other
convertible securities; whereupon a new adjustment of the number of Shares for
which this Warrant is exercisable and the Exercise Price shall be made, which
new adjustment shall supersede the previous adjustment so rescinded and
annulled.
3.6 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
Following provisions shall be applicable to the making of adjustments of the
number of Shares for which this
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Warrant is exercisable and the Exercise Price provided for in this Section 3.
(a) COMPUTATION OF CONSIDERATION. To the extent that any additional
shares of Common Stock or any convertible securities or any warrants or other
rights to subscribe for or purchase any additional shares of Common Stock or any
convertible securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Issuer therefor, or, if such additional shares of Common Stock or convertible
securities are offered by the Issuer for subscription, the subscription price,
or, if such additional shares of Common Stock or convertible securities are sold
to underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts paid
or receivable for accrued interest or accrued dividends and deducting any
compensation, discounts or expenses paid or incurred by Issuer for and in the
underwriting of, or otherwise in connection with, the issuance thereof). To the
extent that such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the fair value of such consideration at the time of such
issuance as determined by the Board of Directors of the Issuer. In any case any
additional shares of Common Stock or any convertible securities or any warrants
or other rights to subscribe for or purchase such additional shares of Common
Stock or convertible securities shall
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be issued in connection with any merger in which the Issuer issues any
securities, the amount of consideration therefor shall be deemed to be the fair
value, as determined by the Board of Directors of the Issuer, of such portion of
the assets and business of the nonsurviving corporation as such Board shall
determine to be attributable to such additional shares of Common Stock,
convertible securities, warrants or other rights, as the case may be. The
consideration for any additional shares of Common Stock issuable pursuant to any
convertible securities, warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Issuer for issuing such
convertible securities, warrants or other rights plus the additional
consideration, if any, payable to the Issuer upon exercise, conversion or
exchange of such convertible securities, warrants or other rights. In case of
the issuance of any additional shares of Common Stock or convertible securities
in payment or satisfaction of any dividends upon any class of stock other than
Common Stock, the Issuer shall be deemed to have received for such additional
shares of Common Stock or convertible securities a consideration equal to the
amount of such dividend so paid or satisfied.
(b) WHEN ADJUSTMENTS MADE. The adjustments required by this Section
3 shall be made whenever and as often as any specified event requiring an
adjustment shall occur, except that any adjustment of the number of Shares for
which this Warrant is exercisable or the Exercise Price that would otherwise be
required may be postponed (except in the case of a subdivision or
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combination of shares of Common Stock, as provided for in Section 3.1) up to,
but not beyond the date of exercise of this Warrant is such adjustment either by
itself or together with other adjustments not previously made adds or subtracts
less than one (1%) percent of the Shares for which this Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than the minimum amount (except as aforesaid) which is
postponed shall be carried forward and made upon the earlier of: (i) as soon as
such adjustment, together with other adjustments required by this Section 3 and
not previously made, would result in a minimum adjustment, or (ii) on the date
of exercise. For the purposes of any adjustment, any specified event shall be
deemed to have occurred at the close of business in the date of its occurrence.
(c) FRACTIONAL INTERESTS. In computing adjustments under this
Section 3, fractional interests in Common Stock shall be taken into account to
the nearest 10th of a share.
(d) WHEN ADJUSTMENT NOT REQUIRED. If the Issuer shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, abandon its plan
to pay or deliver such dividend, distribution, subscription or purchase rights,
then thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
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(e) ESCROW OF WARRANT STOCK. If after any property becomes
distributable pursuant to this Section 3 by reason of the taking of any record
of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and Holder exercises this Warrant (or any part
thereof), any Shares issuable upon exercise by reason of adjustment shall be
deemed to be the last Shares for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held by the Issuer in escrow for Holder to be issued to
Holder upon and to the extent that the event actually takes place, upon payment
of the Exercise Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property return to the Issuer.
(f) EMPLOYEE BENEFITS. Notwithstanding anything to the contrary
contained in this Section 3, there shall be no adjustment in the Exercise Price
or the number of Shares for which this Warrant is exercisable upon the issuance
of shares of Common Stock or options or warrants or other rights for the
purchase of Common Stock issued, sold or granted on or after the date hereof by
the Issuer to its officers, employees or directors pursuant to a bona fide
employee stock purchase, option or similar benefit plans or other arrangements
approved by the Board of Directors of the Issuer.
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3.7 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR DISPOSITION
OF ASSETS. In case the Issuer shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Issuer is not the surviving corporation or where there is a change or
distribution with respect to the Common Stock of the Issuer), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of Common Stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Issuer, then Holder shall have the right thereinafter to receive, upon
exercise of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Issuer (if it is the surviving corporation)
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock of the Issuer for which this Warrant is
exercisable immediately prior to such event. For purposes of this Section 3.7,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
on liquidation
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and which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 3.7 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
3.8 NO ADJUSTMENT FOR CERTAIN OTHER DISTRIBUTIONS. If at any time the
Issuer shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of cash, any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property of any nature whatsoever (other than cash, convertible
securities or additional shares of Common Stock), or any warrants or other
rights to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property of any nature
whatsoever (other than cash, convertible securities or additional shares of
Common Stock); then Holder shall not be entitled to receive in respect of this
Warrant any amount in respect of such dividend or distribution.
3.9 OTHER ACTIONS REQUIRING ADJUSTMENT. If at any time during the term of
this Warrant, Issuer shall take any action (other than set forth in Section 3.8
hereof) similar in nature or effect to the transactions described in Sections
3.1, 3.2, 3.3, 3.4 or 3.7; provided, however, that this Section 3.9 shall not be
construed to expand the provisions of such Sections 3.1, 3.2, 3.3,
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3.4 or 3.7, then the Issuer shall make appropriate adjustment such that (i) the
number of Shares for which this Warrant is exercisable immediately after the
occurrence of such event shall equal the number of shares of Common Stock which
a record holder of the same number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the occurrence of such event would
own or be entitled to receive after the happening of such event, and (ii) the
Exercise Price shall be recalculated after giving effect to the adjustment in
the number of shares of Common Stock for which this Warrant is exercisable
pursuant to clause (i) above so that the aggregate Exercise Price for the
purchase of all of the Shares for which this Warrant is exercisable is the same
immediately before and after the happening of such event.
4. DIVIDENDS AND INTEREST.
Holder shall not, upon any exercise of this Warrant, be entitled to
any dividends that may have accrued with respect to Shares, or to any interest
that may have accrued upon any evidence of indebtedness, prior to the date of
its Exercise.
5. LIQUIDATION, DISSOLUTION, WINDING UP.
In the event of the liquidation, dissolution, or winding up of the
Issuer, a notice thereof shall be sent by the Issuer to the Holder, at least
thirty (30) days before the record date (which date shall be specified in such
notice) for determining holders of Shares entitled to receive
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<PAGE>
any distribution upon such liquidation, dissolution or winding up. Such notice
shall also specify the date on which the right to Exercise the Warrant shall
expire, as provided in Section 2.2 of this Warrant.
6. NO REGISTRATION OF WARRANT AND SHARES.
(a) Neither this Warrant nor the Shares issuable upon the Exercise
thereof are being registered with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933 (the "Act"). This Warrant, and any
replacement or substitution therefor, shall bear on the face thereof a legend
substantially similar to the notice endorsed on the first page of this Warrant.
Each certificate for shares of Common Stock (or other securities) issued
pursuant to the exercise of this Warrant shall bear on the face thereof a legend
substantially as follows:
THE SHARES OF COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
(b) In connection with this Warrant, the Issuer has granted to the
Holder certain incidental registration rights the terms and conditions of which
are set forth in Exhibit B attached hereto and made a part hereof.
7. NO RIGHTS AS SECURITYHOLDER CONFERRED.
This Warrant shall not entitle the Holder to any voting rights or
other rights as a shareholder or other securityholder of Issuer, or to any other
rights whatsoever except the rights herein expressed and set forth, and no
dividends shall be payable or accrue with respect of this Warrant or the
interest
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represented hereby or the Shares purchasable hereunder, until or unless, and
except to the extent that, this Warrant shall have been Exercised. In addition,
the Issuer shall have sole discretion with respect to all matters involving the
business, operations and financial condition of the Issuer, including without
limitation, matters relating to equity or debt financing, dispositions of assets
or property or security interests therein, transactions or arrangements with MHM
and other affiliates, declarations and payments of dividends and distributions
on Issuer's capital stock and acquisitions of assets or property, or any
reorganization, reclassification, merger, consolidation, business combination or
other corporate transaction whether extraordinary or ordinary, and shall not be
limited in any respect whatsoever by any provision of this Warrant or any rights
of the Holder.
8. NON-TRANSFERABILITY.
This Purchase Warrant is not transferable at any time.
9. MISCELLANEOUS PROVISIONS.
(a) The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Delaware.
(b) Each notice which is or may be required to be given in connection
with this Warrant shall be in writing, and given by telex, telegram, telecopy,
personal delivery, receipted delivery service, or by certified mail, return
receipt requested, prepaid and properly addressed as shown below. Notices shall
be effective on the date sent via telex, telegram or telecopy, the
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<PAGE>
date delivered personally or by receipted delivery service, or three (3) days
after the date mailed:
If to Issuer: MHM Extended Care Services, Inc.
990 Hammond Drive, Suite 310
Atlanta, GA 30328
With a copy to: Alan S. Einhorn, Esq.
General Counsel
Mental Health Management, Inc.
7601 Lewinsville Road, Suite 200
McLean, VA 22102
If to Holder: Murray I. Firestone, Ph.D.
--------------------------
--------------------------
(c) This Warrant contains the entire agreement of the parties with
respect to the subject matter hereof. It may not be changed orally, but only by
an agreement in writing executed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
(d) The section headings contained in this Warrant are for
convenience only and in no manner shall be construed as part of this Agreement.
IN WITNESS WHEREOF, Issuer has caused this Purchase Warrant to be
executed by its duly authorized officers, and its corporate seal hereunto
affixed.
Corporate Seal MHM EXTENDED CARE SERVICES, INC.
By:
-----------------------
Michael S. Pinkert,
President
A-24
<PAGE>
Attest:
-----------------------
Alan S. Einhorn
Assistant Secretary
A-25
<PAGE>
EXHIBIT A TO PURCHASE WARRANT
SUBSCRIPTION FORM
[TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of _____ shares of Common Stock of MHM Extended Care
Services, Inc., and herewith makes payment therefor, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered to
_________________ whose address is__________________________________________.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
EXHIBIT B TO PURCHASE WARRANT
TERMS AND CONDITIONS OF
INCIDENTAL REGISTRATION RIGHTS
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the
following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
issued under that Act, as they each may, from time to time, be in effect.
"Person" means an individual, a corporation, a partnership, a trust,
an unincorporated organization, or a government or any department, agency or
political subdivision thereof.
"Incidental Registration Statement" means a registration statement
(other than on Form S-8 (unless the Registrable Shares may be registered
thereunder), Form S-4, or any successor forms thereto, or on any other forms for
use solely in connection with mergers or other combinations or issuances of
securities to employees) filed by the Company with the Commission for a public
offering and sale of common stock of the Company, whether on behalf of the
Company or any stockholder.
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<PAGE>
"Registration Expenses" means the expenses described in paragraph 6 of
this Agreement.
"Registrable Shares" means (i) shares of Stock issued to Firestone
pursuant to the Warrant and (ii) any other shares of Stock issued in respect of
such stock (because of stock splits, stock dividends, reclassifications,
recapitalizations, mergers, consolidations, or similar events); provided,
however, that any shares of Stock previously sold by Firestone pursuant to a
registered public offering, Sections 4(l) or 4(2) or Rule 144 under the
Securities Act shall cease to be Registrable Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission issued
under that Act, as they each may, from time to time, be in effect.
2. INCIDENTAL REGISTRATION RIGHT.
(a) Whenever the Company proposes to file a Registration
Statement at any time or from time to time after the date hereof, it will, prior
to such filing, give written notice to Firestone of its intention to do so
(which notice shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable Blue Sky or
other state securities laws), and upon the written request of Firestone, given
within 20 days after receipt of any such notice (which request shall state the
intended methods of distribution of Registrable Shares by Firestone), the
Company will include in such registration (and any related qualification under
Blue Sky or other compliance filings) all Registrable
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<PAGE>
Shares which the Company has been requested by Firestone to register, to the
extent necessary to permit the sale or other disposition in accordance with the
intended methods of distribution specified in the request of Firestone. The
Company shall only be obligated to include such Registrable Shares in such
registration statement if Stockholder has indicated an intention to dispose of
at least five hundred thousand ($500,000) dollars in value of such shares.
(b) If the offering to which the proposed registration under
this paragraph 2 relates is to be distributed by or through an underwriter or
underwriters, Firestone, if requested by such underwriters, shall agree to sell
those Registrable Shares which are subject to the Incidental Registration
Statement to or through such underwriters at the same price and on the same
terms to be paid to the Company; provided, however, that if in the written
opinion of the underwriter or managing underwriter the registration of all or
part of the Registrable Shares which Firestone has requested to be included
would materially and adversely affect such public offering, then and in that
event the Company shall be required to register only that number of Registrable
Shares, if any, which the underwriter or managing underwriter believes may be
sold without causing such adverse effect. If Firestone proposes to distribute
its Stock through such underwriting, Optionee shall enter into an underwriting
agreement with the underwriter or underwriters selected for underwriting by the
Company.
3. OPINION.
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<PAGE>
As a condition to including the Registrable Shares of Firestone in any
registration statement pursuant to paragraph 2 hereof, Firestone shall, if
requested by the Company, present an opinion of independent counsel reasonably
acceptable to the Company to the effect that no proposed public sale of the
Registrable Shares requested to be registered by said Firestone may be made
unless a registration statement under the Securities Act shall be in effect with
respect to such Registrable Shares.
4. INDEMNIFICATION.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless Firestone against any losses, claims, damages or
liabilities, joint or several, to which Firestone may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse Firestone for any legal
or other out-of-pocket expenses reasonably incurred by Firestone in connection
with investigating or defending any
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<PAGE>
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable to Firestone in any such case if, and to the extent
that, any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or omission made in the Registration Statement, preliminary
prospectus or prospectus, or the amendment or supplement in reliance upon and in
conformity with information furnished to the Company by or on behalf of
Firestone in writing, for use in the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, Firestone will
indemnify and hold harmless the Company, each of its directors and officers and
each underwriter (if any) and each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which the Company
or any such director, officer, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
loses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or arise out of or are
based upon the omission or alleged omission to
A-31
<PAGE>
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information furnished to the Company by or
on behalf of Firestone for use in connection with the preparation of the
Registration Statement or prospectus, or arise out of or are based upon any
other violation by Firestone of any Federal or state securities law or rule or
regulation thereunder and Firestone will reimburse the Company and each such
director, officer, underwriter and controlling person for any legal or other
out-of-pocket expenses reasonably incurred by the Company or any such director,
officer, underwriter or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
(c) For purposes of administering the indemnification provisions
of this paragraph 4, the following procedures shall apply:
(1) After receipt by an indemnified party under this
paragraph 4 of any notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the indemnifying party in writing of the commencement thereof.
(2) After notification is given as aforesaid, the
indemnifying party shall be entitled to participate in such action and, at its
sole discretion, to assume the defense thereof with counsel mutually
satisfactory to the indemnified and indemnifying parties.
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<PAGE>
(d) The indemnification obligations of Firestone pursuant to
this paragraph 4 shall be limited to the aggregate offering price of securities
being registered for sale by, or for the benefit of, Firestone, net of
underwriting discounts or commissions attributable to the sale of such shares.
A-33
<PAGE>
EXHIBIT B
REPURCHASE AGREEMENT
THIS AGREEMENT, made this 7th day of July, 1995, by and among MHM
Extended Care Services, Inc., a Delaware corporation (the "Company") and
Murray I. Firestone, Ph.D., an individual (the "Holder").
W I T N E S S E T H:
WHEREAS, pursuant to a Warrant (the "Warrant") issued on even date
herewith, the Company has issued certain rights to Holder to purchase shares of
the Company's Common Stock; and
WHEREAS, the Company and the Holder wish to make provision for the
Holder to require the Company to purchase all of the Holder's rights, title and
interest in the Warrant, all upon terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. OWNERSHIP OF THE WARRANT. As of the date of the execution of
this Agreement, the Holder is the legal and equitable owner of all of the rights
and privileges of, and all of the responsibilities under, the Warrant.
B-1
<PAGE>
2. PURCHASE OF WARRANT AT THE OPTION OF HOLDER. If the Holder shall
desire to sell all of the Holder's rights, title and interest in the Warrant
upon the last day of the initial or extended term of the Warrant (the
"Repurchase Date"), then the Holder shall send a notice (in the form set forth
as Exhibit A, attached hereto) to the Company within ninety (90) days prior to
the Repurchase Date, and, if it has received a properly completed notice, the
Company shall, within thirty (30) days following the Repurchase Date, be
obligated to repurchase from the Holder all of the Holder's rights, title and
interest in the Warrant at such time, at a price equal to the Fair Market Value
of the Warrant (as hereinafter defined) on the Repurchase Date. The purchase
price shall be paid in cash within thirty (30) days after the Repurchase Date.
For the purposes of this Agreement, the "Fair Market Value of this Warrant"
shall mean an amount equal to (a) the Company's net revenues for its most
recently completed fiscal year multiplied by one and then (b) multiplied by the
number of shares of the Company's Common Stock which the Holder is then entitled
to purchase under the terms of the Warrant. For the purposes of this Agreement,
the net revenues of the Company shall be determined by reference to the
Company's income statements, prepared in accordance with generally accepted
accounting principles, applied in a manner consistent with the Company's prior
practices. The right to require the Company to repurchase the Holder's interest
in the Warrant may only be exercised within the time period set forth above. If
this right is not exercised, it shall immediately expire.
B-2
<PAGE>
3. INTENTIONALLY DELETED.
4. NOTICES.
(a) Each notice, demand, request, consent, report, approval or
communication ("Notice") under this Agreement shall be in writing and given by
telex, telegram, telecopy, personal delivery or receipted delivery service or
certified U.S. mail, return receipt requested, prepaid and properly addressed to
the address of the party to be served as shown below. Notice shall be effective
on the date it was sent via telex, telegram or telecopy, the date delivered
personally or by receipted delivery service, or three (3) days after the date
the Notice was mailed.
(b) Each notice which is or may be required to be given in
connection with this Warrant shall be in writing, and given by telex, telegram,
telecopy, personal delivery or receipted delivery service or certified mail,
return receipt requested, prepaid and properly addressed to the addressed as
shown below. Notices shall be effective on the date sent via telex, telegram or
telecopy, the date delivered personally or by receipted delivery service, or
three (3) days after the date mailed:
If to the Company: MHM Extended Care Services, Inc.
990 Hammond Drive, Suite 310
Atlanta, GA 30328
With a copy to: Alan S. Einhorn, Esq.
General Counsel
Mental Health Management, Inc.
7601 Lewinsville Road, Suite 200
McLean, VA 22102
If to Holder: Murray I. Firestone, Ph.D.
------------------------------
------------------------------
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<PAGE>
(c) Each party may designate by Notice to the others in writing,
given in the foregoing manner, a new address to which any Notice may thereafter
be so given, served or sent.
5. CAPTIONS. The section headings contained in this Agreement are
for convenience only and in no manner shall be construed as part of this
Agreement.
6. NON-TRANSFERABILITY. The rights granted to the Holder hereunder
are personal and many not be transferred at any time.
7. GOVERNING LAW. The validity, interpretation, and performance of
this Agreement shall be governed by the laws of the State of Delaware.
8. FURTHER ASSURANCES. The parties hereto agree to execute any and
all other and further instruments and perform any and all acts which are or may
become necessary to effectuate the terms of this Agreement.
9. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be binding
upon and shall inure to the benefit of the parties, their respective heirs,
personal representatives, successors and, to the extent permitted, assigns, but
may not be assigned by any party without the prior written consent of the other
party. Notwithstanding the foregoing, the Company shall have the right to
assign all of its rights and obligations under this Agreement to a wholly-owned
subsidiary of the Company.
10. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties pertaining to the subject matter hereof, and
there are no other prior or
B-4
<PAGE>
contemporaneous, written or oral agreements, understandings, undertakings,
negotiations, promises, discussions, warranties or covenants not specifically
referred to or contained herein or attached hereto. No supplement,
modification, termination in whole or in part or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other provision hereof (whether or not similar), nor
shall any such waiver constitute a continuing waiver unless otherwise expressly
provided.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but al of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the corporate party hereto has caused this
Agreement to be executed by its respected duly authorized officers and has
affixed its respected corporate seals, and the individual party has hereunto set
his hand and seal, all on the day and year first above written.
Corporate Seal MHM Extended Care Services, Inc.
By:
-----------------------------
Michael S. Pinkert, President
Attest:
------------------------
Alan S. Einhorn
Secretary
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<PAGE>
/s/ Murray I. Firestone (SEAL)
- ------------------------- -----------------------------
Witness Murray I. Firestone
B-6
<PAGE>
EXHIBIT C
TERMS AND CONDITIONS OF
INCIDENTAL REGISTRATION RIGHTS
1. CERTAIN DEFINITIONS.
As used in herein, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Company" means Mental Health Management, Inc., a corporation
organized and existing under the laws of the State of Delaware.
"Corporation" means ICH Services, Inc., L.L.C., a limited liability
company formerly organized and existing under the laws of the State of Delaware.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
issued under that Act, as they each may, from time to time, be in effect.
"Former ICH Members" means the former Members of the Corporation.
"Person" means an individual, a corporation, a partnership, a trust,
an unincorporated organization, or a government or any department, agency or
political subdivision thereof.
"Incidental Registration Statement" means a registration statement
(other than on Form S-8 (unless the
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<PAGE>
Registrable Shares may be registered thereunder), Form S-4, or any successor
forms thereto, or on any other forms for use solely in connection with mergers
or other combinations or issuances of securities to employees) filed by the
Company with the Commission for a public offering and sale of Common Stock of
the Company, whether on behalf of the Company or any stockholder.
"Registration Expenses" means the expenses described in paragraph 5
hereof.
"Registrable Shares" means (i) share of Common Stock of the Company
issued pursuant to paragraphs 3(h) (in respect of a payment of a reproration
amount only) or 3(i) of that certain Agreement dated November 18, 1993 by and
among the Company, the Corporation and the Members of the Corporation listed
therein (the "Members"), as amended by Amendment No. 1 thereto dated as of
October 12, 1995 and (ii) any other shares of Common Stock of the Company issued
in respect of such Common Stock (because of stock splits, stock dividends,
reclassification, recapitalizations, mergers, consolidations, or similar
events); provided, however, that any such shares of Common Stock of the Company
previously sold by any Former ICH Member or its transferee pursuant to a
registered public offering, Section 4(1) or 4(2) or Rule 144 shall thereupon
cease to be Registrable Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statutes, and the rules and regulations of the Commission issued
under that Act, as they each may, from time to time, be in effect.
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<PAGE>
2. INCIDENTAL REGISTRATION RIGHT.
(a) Whenever the Company proposes to file a Registration
Statement at any time or from time to time after the issuance to the Former ICH
Members of any Registrable Shares, it will, prior to such filing, give written
notice to the registered holders of the Registrable Shares (each, a "Holder,"
collectively, the "Holders") of its intention to do so (which notice shall
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable Blue Sky or other state securities
laws), and upon the written request of any Holder, given within 20 days after
receipt of any such notice (which request shall state the intended methods of
distribution of Registrable Shares by said Holders), the Company will include in
such registration (and any related qualification under Blue Sky or other
compliance filings) all Registrable Shares which the Company has been requested
by said Holders to register, to the extent necessary to permit the sale or other
disposition in accordance with the intended methods of distribution specified in
the request of said Holders.
(b) If the offering to which the proposed registration under
this paragraph 2 relates is to be distributed by or through an underwriter or
underwriters, the Holders, if requested by such underwriters, shall agree to
sell those Registrable Shares which are subject to the Incidental Registration
Statement to or through such underwriters at the same price and on the same
terms to be paid to the Company; provided, however, that if in the written
opinion of the managing
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underwriter the registration of all or part of the Registrable Shares which the
Holders have requested to be included in addition to the shares being sold by
the Company pursuant to such offering, would materially and adversely affect
such public offering, then and in that even the Company shall be required to
register only that number of Registrable Shares, if any, which the underwriter
or managing underwriter reasonably believes may be sold without causing such
adverse effect. If any Holder proposes to distribute their Common Stock of the
Company through such underwriting, said Holder shall enter into an underwriting
agreement with the underwriter or underwriters selected for underwriting by the
Company containing such terms as are customary in such agreements; provided,
however, said Holder shall not be required to indemnify the underwriters for any
misstatement or omission contained in the Registration Statement except to the
extent it relates to information requested of and furnished by said Holder.
3. AMENDMENTS.
If the Company has delivered preliminary or final prospectuses to any
Holder pursuant to paragraph 2 hereof, and after having done so the prospectus
should be amended to comply with the requirements of the Securities Act, the
Company shall promptly notify said Holders, and if requested, said Holders shall
immediately cease making offers of Registrable Shares and return all
prospectuses in their possession relating to such registration to the Company.
The Company shall promptly amend its registration statement and provide said
Holders with revised prospectuses, and following receipt of the revised
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prospectuses, said Holders shall be free to resume making offers of the
Registrable Shares in accordance with the terms thereof.
4. OPINION.
As a condition to including the Registrable Shares of any Holder in
any registration statement pursuant to paragraph 2 hereof, said Holder shall, if
requested by the Company, present an opinion of independent counsel reasonably
acceptable to the Company to the effect that no proposed public sale of the
Registrable Shares requested to be registered by said Holder may be made unless
a registration statement under the Securities Act shall be in effect with
respect to such Registrable Shares; provided, however, that no such opinion
shall be required for any registration statement to become effective within two
years after the issuance of the Registrable Shares.
5. ALLOCATION OF EXPENSES.
"Registrable Shares" shall mean all expenses pertaining to the
Registrable Shares incurred by the Company in complying with the terms hereof,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and accountants for the Company,
state Blue Sky fees and expenses, exchange listing fees and expenses and the
expense of any special audits incident to or required by any such registration,
but excluding underwriting discounts and selling commissions. All Registrable
Expenses incurred as a result of any registration made pursuant to paragraph 2
hereof
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<PAGE>
(an "Incidental Registration Statement"), shall be borne by the Company.
6. INDEMNIFICATION.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to the Exhibit, the Company will
indemnify and hold harmless any selling Holders against any losses, claim
damages or liabilities, joint or several, to which said Holders may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon: (i) any untrue statement or alleged untrue statement of
any material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act; (ii) any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto; or (iii) an omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the statement
therein not misleading; and the Company will reimburse each selling Holder for
any legal or other out-of-pocket expenses reasonably incurred by selling Holders
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable to
any selling Holder in any such case if, and to the extent that, any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
omission made in the Registration Statement, preliminary prospectus or
prospectuses, or the
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<PAGE>
amendment or supplement in reliance upon and in conformity with information
furnished to the Company by or on behalf of said selling Holder in writing, for
use in the preparation thereof.
(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Exhibit, each
selling Holder will indemnify and hold harmless the Company, each of its
directors and officers and each underwriter (if any) and each person, if any,
who controls the Company or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer, underwriter or
controlling person may become subject under the Securities Act, the Exchange
Act or otherwise, insofar such losses, claims, damages or liabilities (or
actions in respect thereto arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement under which such Registrable Shares were registered
under the Securities Act; (ii) any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to
the Registration Statement; or (iii) an omission or alleged omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; with respect to each of the foregoing, if
the statement or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of said Holder for use
in connection with the preparation of the Registration Statement or
prospectus, or arise out of or are
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based upon any other violation by the selling Holder of any Federal or state
securities law or rule or regulation thereunder and the selling Holder will
reimburse the Company and each such director, officer, underwriter and
controlling person for any legal or other out-of-pocket expenses reasonably
incurred by the Company or any such director, officer, underwriter or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action.
(c) For purposes of administering the indemnification provisions
of this paragraph 4, the following procedures shall apply:
(i) After receipt by an indemnified party under this
paragraph 4 of any notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, notify the identifying party in writing of the commencement thereof.
(ii) After notification is given as aforesaid, the
indemnifying party shall be entitled to participate in such action and, at its
sole discretion, to assume the defense thereof with counsel mutually
satisfactory to the indemnified and indemnifying parties.
7. ASSIGNMENT.
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The incidental registration rights afforded hereunder shall inure to
the benefit of and shall be binding upon the heirs, executors and personal
representatives of and successors of each Holder and transferees of the
Registrable Shares. The rights hereunder may be assigned to each Holder's
transferees.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement of MHM Services, Inc. on Form S-3 (File No. 333-1750) of
our report dated January 12, 1996 (which report expresses an unqualified opinion
and includes an explanatory paragraph relating to the Company's ability to
continue as a going concern), on our audit of the consolidated financial
statements and financial statement schedule appearing in the Annual Report on
Form 10-K of MHM Services, Inc. (formerly "Mental Health Management, Inc.") for
the year ended September 30, 1995 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Washington, D.C.
October 10, 1996
