<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1998 Commission File Number: 1-12238
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 749-4600
Indicate by check mark whether the registrant. (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X No
As of August 10, 1998, there were 3,525,848 shares of Common Stock, par value
$.01 per share, outstanding.
<PAGE> 2
MHM SERVICES, INC., AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations-
Nine Months Ended June 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Balance Sheets
June 30, 1998 (Unaudited) and September 30, 1997 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1998 and 1997 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II. OTHER INFORMATION 12-14
ITEM 1. LEGAL PROCEEDING 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
</TABLE>
2
<PAGE> 3
MHM SERVICES, INC., AND SUBSIDIARIES
QUARTER ENDED JUNE 30, 1998
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
<PAGE> 4
MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
(000's) (000's)
Three Months Ended June 30, Nine Months Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Net Revenues $ 7,153 $ 5,543 $ 23,176 $ 13,408
Costs and Expenses
Operating $ 5,354 4,245 17,856 10,364
General and Administrative 1,031 1,398 3,641 3,756
Provision for Bad Debts 801 562 2,018 1,242
Depreciation and Amortization 112 102 353 260
Other (credits) charges
Interest Expense - MEDIQ 233 263 757 776
Interest Expense - Other 39 35 154 51
Gain on Sale of Hospital (2,444) -- (2,444) --
Other (125) (517) (131) (662)
------------ ----------- ------------ -----------
Net Income (Loss) $ 2,152 $ (545) $ 972 $ (2,379)
============ =========== ============ ===========
Income (Loss) per Share
Basic and Diluted $ 0.61 $ (0.16) $ 0.28 $ (0.70)
============ =========== ============ ===========
Weighted Average Shares Outstanding 3,526 3,510 3,526 3,377
============ =========== ============ ===========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(000's)
Mediq Settlement
Proforma (000's) (000's)
June 30, 1998 June 30, 1998 September 30, 1997
Unaudited Unaudited (See Note)
(See Note 3)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ - $ 87 $ 195
Accounts Receivable, Net 4,384 4,384 4,491
Prepaid Expenses 179 179 103
Estimated Third Party Settlements 1,526 1,526 1,910
Other Current Assets 748 748 352
------------------------------- --------------
Total Current Assets 6,837 6,924 7,051
Property, Plant and Equipment, Net 371 371 531
Notes Receivable, Net 1,172 1,172 1,039
Restricted Cash 425 425 450
Deferred Rent 416
Other Assets 224 224 288
Goodwill, Net 722 722 766
Other Intangibles, Net 667 667 873
------------------------------- --------------
Total Assets $ 10,418 $ 10,505 $ 11,414
=============================== ==============
Liabilities and Stockholders' Deficit
Current Liabilities
Accounts Payable $ 907 $ 907 $ 975
Accrued Expenses 2,715 2,685 3,308
Accrued Expenses - MEDIQ Interest 1,776 1,019
Estimated Third Party Payor Settlements 1,661 1,661 2,187
Current Maturities of Long Term Debt 2,888 10,539 10,720
------------------------------- --------------
Total Current Liabilities 8,171 17,568 18,209
Long Term Debt, Less Current Maturities 229 229 1,456
Other Liabilities -- -- 19
Stockholders' Equity (Deficit) 2,018 (7,292) (8,270)
------------------------------- --------------
Total Liabilities and Stockholders' Equity (Deficit) $ 10,418 $ 10,505 $ 11,414
=============================== =============
</TABLE>
Note: The balance sheet at September 30, 1997 has been condensed from the
audited financial statements at that date.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 6
MHM SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(000's)
Nine Months Ended June 30,
----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $ 972 $ (2,379)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Used in Operating Activities (2,841) 185
------------ -----------
Net Cash Used in Operating Activities (1,869) (2,194)
Cash Flows from Investing Activities
Capital Expenditures (7) (117)
Proceeds from Sale of Hospital 3,182 (250)
Other (283)
------------ -----------
Net Cash Provided by (Used in) Investing Activities 3,175 (650)
Cash Flows from Financing Activities
Borrowings, Net 460 473
Proceeds from Exercise of Stock Options 5 --
Debt Repayments (1,879) (374)
------------ -----------
Net Cash Provided by (Used in) Financing Activities (1,414) 99
Decrease in Cash and Cash Equivalents (108) (2,745)
Cash and Cash Equivalents
Beginning Balance 195 3,611
------------ -----------
Ending Balance $ 87 $ 866
============ ===========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 213 $ 395
============ ===========
Income Taxes Paid (Refunded) $ -- $ (569)
============ ===========
Supplemental Disclosure of Non-cash Investing and Financing
Activities
Acquisitions - Portion Financed with Long Term Debt $ -- $ 275
============ ===========
Acquisitions - Portion Financed by Issuance of common
stock $ -- $ 100
============ ===========
Purchase and Sale of Hospital
Purchase of Hospital $ (2,700)
Sale of Hospital, Net of Related Costs $ 6,382
Receivable from Sale of Hospital $ (500)
------------
Net Proceeds $ 3,182
============
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 7
MHM SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1998, the
condensed consolidated statements of operations for the three and nine month
periods ended June 30, 1998 and 1997 and the condensed consolidated statements
of cash flows for the nine month periods ended June 30, 1998 and 1997 have been
prepared by the Company, without audit. In the opinion of management, all
material adjustments (consisting only of normal, recurring adjustments)
necessary to present fairly the condensed consolidated financial position,
results of operations and cash flows as of June 30, 1998, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1997. The results of operations
for the period ended June 30, 1998, are not necessarily indicative of the
operating results for the full year.
NOTE 2 - LIQUIDITY
The accompanying consolidated financial statements have been prepared on a
going concern basis that contemplates the continuation of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. The Company had incurred aggregated net losses of $22.2 million for
the three years and nine months ended June 30, 1998, and had a stockholders'
deficit of ($7.3) million as of June 30, 1998. Absent the sale of certain of its
assets, the Company has experienced difficulty in generating sufficient cash
flows to meet its obligations and sustain its operations. At June 30, 1998,
current liabilities exceeded current assets by $10.6 million primarily due to a
judgement MEDIQ Inc., (MEDIQ) obtained against the Company. However, as further
discussed in note 3, on July 15, 1998, the Company has settled the MEDIQ
judgement. If this settlement had occurred on or before June 30, 1998, the
Company's Balance Sheet would have reported stockholders' equity of $2 million.
Current liabilities would have exceeded current assets by $1.3 million. Net
Income for the nine-month period ending June 30, 1998 would have been $10.2
million and $11.3 million in the third quarter of fiscal year 1998.
Consistent with its strategy to withdraw from the business of providing
inpatient services, on April 17, 1998, the Company sold its last inpatient
psychiatric hospital operation, Mountain Crest Hospital in Fort Collins,
Colorado. The hospital operations, together with certain assets previously
leased by the Hospital, were sold to Poudre Valley Hospital, a general hospital
in Fort Collins, for a cash purchase price of $6.5 million. In connection with
the sale to Poudre Valley Hospital, the Company acquired the previously leased
assets for a purchase price of $2.7 million. As a result of the transaction, the
Company reported a one-time gain of approximately $2.4 million for the three
months ended June 30, 1998.
In a continuing effort to improve the Company's financial condition for
both the immediate future and the long term, the Company is continuing its
efforts to reduce operating expenses, seek more profitable business
opportunities, raise additional capital and improve its cash flows.
Nevertheless, there can be no assurance that the Company's efforts will be
successful. The consolidated financial statements do not include any adjustments
that might result should the Company be unable to continue as a going concern.
7
<PAGE> 8
MHM SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - MEDIQ DEBT
On July 15, 1998, the Company and MEDIQ settled the $11.8 million
judgement against the Company. In return for a cash payment of $3 million by the
Company, MEDIQ has vacated its claim, and released the Company and its
affiliates from any and all other liabilities; provided, however, no bankruptcy
proceedings involving the Company occur which result in MEDIQ repaying all or
part of the settlement amount it received.
The settlement was funded by a $2 million loan from Health Care Financial
Partners, the Company's principal lender, as well as from the Company's existing
lines of credit. The $2 million loan is collateralized by substantially all the
assets of the Company. The loan from Health Care Financial Partners, which has a
six month term, carries interest of prime plus two percent, a two percent
commitment fee, and a completion fee of an additional two percent. In addition,
in return for making the loan, Health Care Financial Partners has been granted
warrants for 300,000 shares of common stock of the Company, priced at $.01 per
share and exercisable at any time before July 15, 2003.
Michael S. Pinkert, the Company's CEO, has extended his personal guarantee
to Health Care Financial Partners covering $800,000 of the $2 million loan. In
return for his guarantee, Mr. Pinkert has been granted warrants for 145,000
shares of the Company's stock, at a price of $.50 per share and exercisable at
any time before July 15, 2008.
As a result of the settlement, the Company will recognize a one-time gain
of $9.2 million in the fourth quarter. This gain, in turn, will increase
shareholder's book equity by $2.64 per share. The per share increase in book
value is based on 3.5 million shares outstanding. The Company has presented a
pro forma Balance Sheet as of June 30, 1998 to present the effect of this
transaction as if it had occurred on or before June 30, 1998.
NOTE 4 - CONTINGENCY
The Company has become aware that a claim for a refund of certain Medicare
payments is being made against a mental health practice group to which a
subsidiary of the Company previously provided management services. The claim is
being asserted by the Medicare fiscal intermediary which was responsible for
processing and paying the practice group's bills for Medicare payments, and
apparently arises from post payment review by the Intermediary of Medicare
reimbursement previously paid to the group. The claim, which seeks approximately
$1.7 million in refunds, relates to Medicare reimbursement paid to the group
prior to any involvement of the Company's subsidiary as well as during the
period in which management services were provided to the group. No claim has
been asserted against the Company or its subsidiary, and the Company does not
believe that it has any liability with respect to the claims made against the
practice group.
NOTE 5 - NEW FINANCIAL ACCOUNTING STANDARDS
The Company adopted Statement 128, Earnings Per Share, in 1998. The 1997
loss per share amounts are also presented in accordance with Statement 128.
Income/(Loss) per share is computed by dividing net income/(loss) by the
weighted average number of common shares outstanding.
8
<PAGE> 9
MHM SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion addresses the financial condition of the Company
as of June 30, 1998 and the Company's results of operations for the three and
nine month periods then ended, compared with the same periods last year. This
discussion should be read in conjunction with Management's Discussion and
Analysis section (pages 21-33) for the fiscal year ended September 30, 1997
included in the Company's Annual Report on Form 10-K.
GENERAL
The Company made significant changes in its operations from 1994 to the
present, including the sale of all of the Company's seven freestanding
behavioral healthcare facilities (and the divestiture of the Company's contract
management business), so that the Company could focus on its Extended Care
Services Division and Correctional Services Division. The Extended Care Services
Division, which commenced operations in the fall of 1993, has experienced growth
through internal development, principally from one contract with the State of
Georgia, and acquisitions. However, the Company has experienced continuing
losses in the Extended Care Services Division and despite recent changes
designed to improve its profitability and cash flow, it is uncertain as to the
future of this division. The Company formed a Correctional Services Division in
1997 and in the fourth quarter of 1997 secured contracts with the Tennessee and
Georgia Departments of Correction to provide mental health services on a
capitated basis to the inmates of those states' correctional systems. The
Company is currently seeking additional contracts through acquisitions and
contract awards.
The report of the Company's independent auditors on the Company's audited
consolidated financial statements for the fiscal year ended September 30, 1997,
includes an explanatory paragraph which raises substantial doubt as to the
Company's ability to continue as a going concern. As a result of the Company's
continuing negative operating results, excluding the gain on the sale of
Mountain Crest, the Company has continued to experience difficulty generating
sufficient cash flows from operations to meet its obligations and sustain its
operations. At June 30, 1998, the Company's current liabilities exceeded its
current assets by $10.6 million. The Company's working capital deficit was
primarily due to the classification of the MEDIQ Note as a current liability. As
previously reported, the Company settled its dispute with MEDIQ Inc., on July
15, 1998. The proforma effect of this settlement would have reduced the working
capital deficit to ($1.3) million as of June 30, 1998. The Company's pro forma
working capital deficit is primarily due to the $2 million loan from Health Care
Financial Partners, which has a six-month term.
FINANCIAL POSITION - JUNE 30, 1998 COMPARED TO SEPTEMBER 30, 1997
The Company's stockholders' deficit decreased to ($7.3) million at June 30,
1998 from ($8.3) million at September 30, 1997. The change was primarily due to
the recognizing of net income of $972,000 for the nine months ended June 30,
1998. As previously mentioned, if the MEDIQ settlement had occurred prior to
June 30, 1998, the Company would have reported a stockholders' equity of $2
million and net income for the nine month period of $10.2 million.
Current Assets declined by $127,000 at June 30, 1998 as compared to
September 30, 1997 primarily due to settlements with Medicare on receivables due
from prior year cost reports offset by the receivable due from the sale of the
hospital. Non current assets declined by $782,000 due primarily to the reduction
in Deferred Rent related to the sale of the freestanding hospital and the
amortization of other intangible assets.
Current Liabilities declined by $641,000 and non-current liabilities
declined by $1.2 million. The reduction in liabilities was funded by the
proceeds the Company received from the sale of the freestanding hospital.
9
<PAGE> 10
MHM SERVICES, INC. AND SUBSIDIARIES
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Net revenues for the nine months ended June 30, 1998 were $23.2 million an
increase of 73% over the same period of 1997. This increased revenue is the
result of growth in the Company's Correctional Services and Extended Care
Services Divisions. The Correctional Services Division generated revenues of
$8.2 million for the nine months ended June 30, 1998 due to the contracts with
the States of Tennessee and Georgia which began in July 1997 and October 1997,
respectively. The Extended Care Services Division generated revenues for the
nine months ended June 30, 1998 of $11.9 million as compared to $9.1 million for
the nine months ended June 30, 1997. This increase is attributable primarily to
acquisitions in fiscal year 1997, offset in part by reduced revenues as a result
of the shutdown of Extended Care Services operations in certain states in the
fourth quarter of 1997. The Company's one remaining freestanding facility,
Mountain Crest, sold in April 1998, generated revenues of $2.8 million for the
nine months ended June 30, 1998 as compared to $4.2 million for the nine months
ended June 30, 1997. This decrease was attributable to lower census in the
facility and the sale of the facility at the beginning of the third quarter of
1998.
Operating expenses for the nine months ended June 30, 1998 were $17.9
million, as compared to $10.4 million for the nine months ended June 30, 1997.
This significant increase was attributable to the acquisitions in the Company's
Extended Care Services Division and the formation of the Correctional Services
Division. General and administrative expenses during the nine months ended June
30, 1998 were $3.6 million or 16% of net revenues, as compared to $3.8 million
or 28% of net revenues during the nine months ended June 30, 1997. The
percentage decrease is attributable to general and administrative costs
remaining relatively fixed while the Company's net revenues increased.
The provision for bad debts increased to $2 million for the first nine
months of 1998, as compared to $1.2 million for the nine months ended June 30,
1997. The increase in the provision is directly related to the increase in net
revenues of the Extended Care Services Division in fiscal year 1998 and
increases in allowances for uncollectible receivables for certain extended care
services operations, which were shut down during fiscal year 1997. As of June
30, 1998 and 1997, bad debt expense as a percentage of net revenues were
approximately 9%.
Depreciation and amortization expenses were $353,000 for the nine months
ended June 30, 1998, compared to $260,000 for the nine months ended June 30,
1997. The increase is attributable to higher amortization costs for goodwill and
other intangible costs relating to the acquired operations in the Extended Care
Services Division.
Interest expense for the nine months ended June 30, 1998 totaled $911,000
compared to $827,000 for the nine months ended June 30, 1997. Of such expense,
$757,000 related to the MEDIQ Note for the nine months ended June 30, 1998,
compared to $776,000 for the nine months ended June 30, 1997. The remaining
$154,000 in interest expense incurred in the nine months ended June 30, 1998
relates primarily to interest on the Company's accounts receivable line of
credit and indebtedness relating to Extended Care Services Division
acquisitions. The line of credit did not exist in the 1997 period and the level
of acquisition debt was significantly lower.
Primarily due to the sale of Mountain Crest Hospital, the Company
recognized other income of $2.6 million in the nine months ended June 30, 1998,
compared to other income of $662,000 in the nine months ended June 30, 1997.
For the nine month period ended June 30, 1998, the Company recognized an
operating loss of $1.6 million which was offset by the gain on sale of the
hospital and other non operating income to result in net income of $972,000 as
compared to a net loss of $2.4 million for the comparable prior year period.
THIRD QUARTER, 1998 COMPARED TO THIRD QUARTER 1997
Net revenues for the third quarter of fiscal 1998 were $7.2 million, a 29%
increase over the same period of 1997. This increased revenue is the result of
growth in the Correctional Services Division. The
10
<PAGE> 11
MHM SERVICES, INC. AND SUBSIDIARIES
Correctional Services Division generated revenues of $2.8 million for the
third quarter of fiscal 1998 due to the contracts with the States of Tennessee
and Georgia which began in July 1997 and October 1997, respectively. The
Extended Care Services Division generated revenues for the third quarter of
fiscal 1998 of $3.9 million as compared to $4.1 million for the third quarter of
fiscal 1997. This decrease is primarily attributable to the shutdown of Extended
Care Services operations in certain states in the fourth quarter of 1997.
Mountain Crest Hospital was sold on April 17, 1997 and generated net revenues of
$208,000 in the third quarter of 1998 as compared to $1.4 million in the third
quarter of 1997.
Operating expenses for the third quarter of fiscal 1998 were $5.4 million
or 75% of net revenues, as compared to $4.2 million or 77% of net revenues, for
the third quarter of fiscal 1997. This increase reflects the operating expense
growth in the Correctional Services Division offset by the shutdown of Extended
Care Services operations in certain states in the prior year. General and
administrative expenses during the third quarter of fiscal 1998 were $1 million
or 14% of net revenues, as compared to $1.4 million or 25% of net revenues in
the prior year quarter. Again, the percentage decrease is attributable to
general and administrative costs remaining relatively fixed while Company net
revenues increased.
The provision for bad debts was $801,000 for the third quarter of 1998, as
compared to $562,000 in the third quarter of fiscal 1997. During the third
quarter, the Company decided to increase its allowance for uncollectable
receivables for certain Extended Care Service operations which was shut down
during fiscal year 1997 and collections on those outstanding receivables had not
been received by the end of this quarter. As a percentage of net revenues, bad
debt expense was 11% in the third quarter of 1998, as compared to 10% in the
third quarter of 1997.
Depreciation and amortization expenses were $112,000 for the third
quarter of fiscal 1998, compared to $102,000 for the third quarter of
fiscal 1997. The increase is attributable to higher amortization costs for
goodwill and other intangible costs relating to the acquired operations in the
Extended Care Services Division.
Interest expense for the third quarter of fiscal 1998 totaled $272,000,
compared to $298,000 for the third quarter of fiscal 1997. Of such expense,
$233,000 related to the MEDIQ Note for the third quarter of fiscal 1998,
compared to $263,000 for the third quarter of fiscal 1997. The remaining $39,000
in interest expense incurred in the third quarter of fiscal 1998 relates
primarily to interest on the Company's accounts receivable line of credit and
acquisition indebtedness relating to Extended Care Services Division
acquisitions. The line of credit did not exist in the 1997 period and the level
of acquisition debt was lower.
As mention earlier, the gain on sale of Mountain Crest Hospital of $2.4
million recognized during the third quarter was the primary component of the
Company's other income.
For the three month period ended June 30, 1998, the Company recognized an
operating loss of $417,000 which was offset by the gain on sale of hospital and
other income resulting in net income of $2.2 million for the quarter as compared
to a net loss of $545,000 for the comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Effective March 11, 1997, MHM Extended Care Services, Inc., a wholly owned
subsidiary of MHM Services, Inc., obtained a $4 million revolving credit
facility to finance its receivables. Borrowings on the credit facility are
limited to qualified accounts receivable. As of June 30, 1998, the amount
available to borrow under the terms and conditions of the line was approximately
$800,000. Also, the Company has a $500,000 line of credit with NationsBank N.A.,
guaranteed by certain officers and
11
<PAGE> 12
MHM SERVICES, INC. AND SUBSIDIARIES
directors of the Company that was totally available to the Company as of
June 30, 1998. To fund the MEDIQ settlement on July 15, 1998, the Company used
the entire NationsBank's line of credit, and $275,000 of the revolving credit
facility. The outstanding debt to MEDIQ, Inc. of $11.8 million as of June 30,
1998, has been primarily replaced with a $2 million bridge loan with
HeathCare Financial Partners due on January 15, 1999.
Cash used in operating activities was $1.9 million for the nine months
ended June 30, 1998. Cash was primarily used to fund operating losses, excluding
the gain on sale of Mountain Crest Hospital, and to pay off accounts payable and
accrued expenses. The primary source of cash from investing activities for the
nine months ended June 30, 1998, was from the sale of Mountain Crest Hospital.
Net cash used in financing activities totaling $1.4 million for the nine months
ended June 30, 1998 primarily represents the Company efforts in reducing
short-term debt which had accumulated as of September 30, 1997. The Company
anticipates limited capital expenditures for the remainder of fiscal 1998,
consisting of minor purchases of office equipment as required to replace old or
obsolete equipment.
As a result of the Company's continued negative operating results,
excluding the gain on sale of Mountain Crest Hospital, the Company has been
experiencing difficulty generating sufficient cash flows from operations to meet
its obligations and sustain its operations. The Company's liquidity could be
improved by accelerated collection of receivables, reducing the operating losses
of the Company's remaining businesses, reductions in overhead and obtaining
additional capital and/or financing sources. However, to date the Company's
efforts to improve liquidity through these means have been moderately
successful. There can be no assurance that any of such events will occur or, if
they do occur, that the impact on cash flows will be sufficient to enable the
Company to continue its operations. As a result of the recent MEDIQ settlement,
the Company believes that it is in a better position to raise additional capital
and make the necessary changes to its business operation to reverse prior
historical trends.
This report includes forward-looking statements based on management's
current plans and expectations, relating to, among other matters, the proposed
business activities of the Company, estimates of amounts that are not yet
determinable 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 report, including, among others, the use of
available cash resources to fund continuing operating losses, and the amount and
timing of government reimbursement of third party payer claims. For additional
information, please refer to the Company's Annual Report on Form 10-K and other
reports filed by the Company with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 30, 1998, the Registrant did not have any market risk exposure
categories as defined in Item 305 of Regulation S-K, and therefore, no related
market risk.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(Not applicable)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
12
<PAGE> 13
MHM SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Not applicable)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(Not applicable)
ITEM 5. OTHER INFORMATION
On June 9, 1998, the Company was notified that the American Stock Exchange
Executive Committee of the Exchange Board of Governors had denied its appeal of
the February 3, 1998 determination by the Exchange to delist the Company stock.
The last day for trading the Company's stock on the American Stock Exchange was
June 16, 1998. Effective June 17, 1998, the Company's stock is traded on the
electronic bulletin board under the symbol "MHMM".
On July 15, 1998, the Company settled for a $3 million payment the $11.8
million judgement which MEDIQ, Inc. ("MEDIQ") obtained in April 1998, against
the Company and two affiliated partnerships. As a result of the settlement, the
Company will realize, in the fourth quarter, an extraordinary gain of $9.2
million. The Company's stockholder' equity will improve on a pro forma basis as
of June 30, 1998, to approximately $2 million from a ($7.8) million deficit.
The Company secured the $3 million used to satisfy the MEDIQ claim from a
$2 million loan the Company obtained from HealthCare Financial Partners along
with $1 million from its cash and existing lines of credit. The loan from
HealthCare Financial Partners has a six-month term and interest rate of prime
plus 2%. In consideration of the loan, the Company granted Healthcare Financial
Partners five year warrants for 300,000 shares exercisable at $.01 per share.
Mr. Pinkert has also guaranteed $800,000 of the $2 million HealthCare Financial
Partners loan. For his guaranty, the Company granted Mr. Pinkert 145,000
ten-year warrants exercisable at $.50 per share.
13
<PAGE> 14
MHM SERVICES, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
<TABLE>
<CAPTION>
Exhibit
a) Numbers Exhibits
<S> <C>
4.1 Common Stock Purchase Warrant Agreement between MHM Services,
Inc., and HealthCare Financial Partners, Inc. dated July 15,
1998.
4.2 Common Stock Purchase Warrant Agreement between MHM Services,
Inc., and Michael S. Pinkert dated July 15, 1998.
4.3 Registration Rights Agreement between MHM Services, Inc., and
HealthCare Financial Partners dated July 15, 1998.
4.4 Registration Rights Agreement between MHM Services, Inc., and
Michael S. Pinkert dated July 15, 1998.
10.1 Settlement Agreement between MHM Services, Inc., Oakview
Limited Partnership, Columbia Health Associated Limited
Partnership, Michael S. Pinkert and MEDIQ, Incorporated, dated
July 15, 1998
10.2 Promissory Note between MHM Services, Inc., MHM Correctional
Services, Inc., MHM Extended Care Services, Inc., MHM of
Colorado, Inc., Oakview Limited Partnership, Columbia Health
Associated Limited Partnership, Michael S. Pinkert and
HealthCare Financial Partners Funding II, Inc., dated July 15,
1998.
10.3 Credit and Security Agreement between MHM Services, Inc., MHM
Correctional Services, Inc., MHM Extended Care Services, Inc.,
MHM of Colorado, Inc., Oakview Limited Partnership, Columbia
Health Associated Limited Partnership, Michael S. Pinkert and
HealthCare Financial Partners Funding II, Inc., dated July 15,
1998.
27.1 Financial Data Schedule.
</TABLE>
b) Reports on Form 8-K
The Company filed a Current Report 8-K dated April 17, 1998 announcing
the purchase and then sale of Mountain Crest Hospital.
14
<PAGE> 15
MHM SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated August 14, 1998 MHM Services, Inc.
/s/ CLEVELAND E. SLADE
Vice President and Chief
Financial Officer
15
<PAGE> 1
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS,. AND NEITHER THIS WARRANT NOR ANY
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANTY MAY BE SOLD.
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE ACT AND
APPLICABLE SECURITIES LAWS AND UNLESS EITHER (A) A REGISTRATION STATEMENT UNDER
THE ACT OR THE APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS IS AVAILABLE FOR THE SALE,
TRANSFER OR OTHER DISPOSITION AND EXCEPT IN COMPLIANCE WITH THE TRANSFER
RESTRICTIONS SET FORTH IN SECTION 8(a) OF THIS WARRANT.
MHM SERVICES, INC.
COMMON STOCK PURCHASE WARRANT
Number of Shares of Common Stock: 300,000 Warrant Certificate No. 1
Date of Issuance: July 15, 1998 Date of Expiration: July 15, 2003
FOR VALUE RECEIVED, MHM SERVICES, INC., a Delaware corporation (the
"Company"), hereby grants to HEALTHCARE FINANCIAL PARTNERS, INC., a Delaware
corporation, or its registered assigns (the "Holder"), the right to purchase
from the Company that number of shares of the Company's Common Stock (the
"Shares"), which, calculated as of the Date of Issuance on a fully diluted basis
after exercise, and subject to adjustment as provided below, equals three
hundred thousand (300,000) Shares (the "Warrant Shares").
This Warrant is issued in connection with and as partial consideration for
the Two Million and No/100 Dollars ($2,000,000.00) loan made to the Company.
MHM Correctional Services, Inc., a Delaware corporation, MHM of Colorado, Inc.,
a Delaware corporation, MHM Extended Care Services, Inc., a Delaware
corporation, Oakview Limited Partnership, a Maryland limited partnership, and
Columbia Health Associates Limited, a Maryland limited partnership (the "Loan")
by HCFP Funding, Inc., a Delaware corporation that is a wholly owned subsidiary
of the Holder ("HCFP"), as evidenced by a Secured Bridge Note of even date with
this Warrant (the "Note").
<PAGE> 2
The Company represents and warrants to the Holder that (i) the Shares are
the only class of equity securities of the Company authorized, issued or
outstanding on the Date of Issuance, and there are no outstanding agreements,
rights, or options to acquire any securities of the Company other than as shown
on Schedule 1, and (ii) there are 3,525,848 Shares issued and outstanding on the
Date of Issuance.
Except as otherwise provided in this Warrant, this Warrant shall continue
in full force and effect until the Date of Expiration regardless of any
prepayment of the Loan.
This Warrant is subject to the following provisions:
1. Exercise Period.
The Holder may exercise, in whole or in part, the purchase rights
represented by this Warrant at any time and from time to time on or after the
Date of Issuance but not later than 5:00 p.m., Eastern time, on the Date of
Expiration identified above (the "Exercise Period").
2. Exercise Price.
The Exercise Price per Share for which all or any Warrant Shares may
be purchased pursuant to the terms of this Warrant shall be $.01.
3. Exercise Procedure.
(a) This Warrant shall be deemed to have been exercised when the
Company has received all of the following (the "Exercise Time"):
(i) an Exercise Agreement, in the form attached to this
Warrant as Exhibit "A", completed and executed by the
Holder;
(ii) this Warrant; and
(iii) payment of the total Exercise Price for the Warrant
Shares to be purchased, which payment may be made by
certified or bank check.
(b) Notwithstanding any other provision of this Warrant, if an
exercise of this Warrant (or any portion) is to be made in connection with a
registered public offering of the Company's securities or the sale of the
Company, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the registered public offering
or the sale of the Company, in which case the Holder may designate that the
exercise shall not be deemed to be effective until the consummation of the
transaction.
2
<PAGE> 3
(c) The Company shall assist and cooperate with any Holder required
to make any governmental filings or obtain any governmental approvals prior to
or in connection with any exercise of this Warrant, including, without
limitation, making any filings required to be made by the Company. The Holder
shall reimburse the Company for any reasonable costs and expenses incurred by
the Company (including without limitation, reasonable attorneys' fees) in
connection with the cooperation and assistance. Notwithstanding the foregoing,
the costs and expenses shall not include any fees or costs related to any
federal or state registration of this Warrant or the Warrant Shares or
registered public offering of the Company's securities.
4. Issuance of Warrant Shares: Taxes.
(a) To the extent that the Shares are represented by certificates,
the Company shall deliver to the Holder certificates for Warrant Shares
purchased upon exercise of this Warrant within five (5) business days after the
Exercise Time. Unless this Warrant has expired or all of the purchase rights
represented by this Warrant have been exercised, the Company shall prepare a new
Warrant covering the number of Warrant Shares in respect of which this Warrant
has not been exercised, which new Warrant shall be identical in all other
respects to this Warrant. The new Warrant shall be delivered to the Holder
within five (5) business days after the Exercise Time.
(b) To the extent that the Shares are represented by certificates,
the issuance of certificates for Warrant Shares upon exercise of this Warrant
shall be made without charge to the Holder for any issuance tax related to the
issuance, or, subject to Section 3(c), other costs incurred by the Company in
connection with the exercise and the related issuance of the Warrant Shares.
(c) Upon payment for the Warrant Shares in accordance with the terms
of this Warrant, the Warrant Shares shall be validly issued, fully paid and
nonassessable and free from all liens and charges with respect to their
issuance.
(d) The Warrant Shares shall be deemed to have been issued to the
Holder at the Exercise Time, and the Holder shall be deemed, for all purposes,
to have become the record holder of the Warrant Shares at the Exercise Time.
5. Adjustment of Number of Warrant Shares
To prevent dilution of the rights granted under this Warrant, the
number of Warrant Shares that may be purchased under this Warrant shall be
subject to adjustment from time to time as provided in this Section 5.
3
<PAGE> 4
(a) If all or any portion of this Warrant shall be exercised after
any Share split, Share dividend, recapitalization, combination of Shares of the
Company, or other similar event (a "Share Change Event") occurring after the
Date of Issuance, then the Holder exercising this Warrant shall receive, for the
total Exercise Price, but in no event less than the par value for a Warrant
Share, the total number and class of Shares that the Holder would have received
if this Warrant had been exercised immediately before the Share Change Event.
(b) If all or any portion of this Warrant shall be exercised after
any merger, consolidation, exchange of equity securities, separation, or
reorganization of the Company, or other similar event, including without
limitation an issuance of Shares to a third party as consideration for the
assets of a business owned by the third party (an "Extraordinary Event").
occurring after the Date of Issuance, as a result of which Shares shall be
changed into the same or a different number of equity securities of the same or
another class or classes of securities of the Company or another entity, then
the Holder exercising this Warrant shall receive, for the total Exercise Price
that would have been payable if this Warrant had been exercised in full
immediately before the Extraordinary Event, but in no event less than the par
value for a Warrant Share, the total number and class of equity securities or
other securities that the Holder would have received if this Warrant had been
exercised immediately before the Extraordinary Event.
Before consummating any Extraordinary Event, the Company shall make
appropriate provision to ensure that the Holder shall have the right to acquire
or receive the equity securities or other securities on the same basis as if
this Warrant had been exercised immediately before the Extraordinary Event,
subject to the proviso in the preceding paragraph. The Company shall not
consummate any Extraordinary Event unless the successor entity (if any)
resulting from the Extraordinary Event assumes in writing the obligation to
deliver the equity securities or other securities.
(c) The Company acknowledges that, at any time when the fair market
value of the Shares is less than $5.00 per Share (as adjusted for stock splits,
etc.), if the Company were to issue any Shares for a consideration that is less
than the fair market value of the Shares on the date of issuance, or if it were
to grant any rights to subscribe for or purchase, or any options for the
purchase of, Shares or any other securities convertible into or exchangeable for
Shares, and the total consideration payable for the Shares issuable upon the
exercise of the rights or options or upon conversion or exchange of the
convertible securities is less than the fair market value of the Shares (all of
the foregoing being referred to as a "Dilutive Issuance"), the effect would be
to dilute the interest in the Company that the Company and Holder intend that
Holder be able to purchase upon exercise of this Warrant. Accordingly, the
Company covenants and agrees that it shall not make any Dilutive Issuance
(except pursuant to (A) a Qualifying Stock Option Plan, as the term is defined
in Section 5(c)(iii) below or (B) any management services agreement between
Borrower and any client) without giving prior written notice of the Dilutive
Issuance to the Holder.
4
<PAGE> 5
(i) If there is a Dilutive Issuance that is a sale of Shares
at a price below the fair market value of the Shares, the number of Warrant
Shares issuable pursuant to this Warrant shall be adjusted pursuant to Section
5(c)(ii) below. If there is any other Dilutive Issuance, then appropriate
amendment shall be made to the provisions of this Warrant so as to protect the
Holder from dilution in a manner consistent with this Section 5(c).
(ii) The number of Warrant Shares shall be adjusted as
follows: the number of Warrant Shares issuable pursuant to this Warrant shall be
adjusted to be equal to the product obtained by multiplying the number of
Warrant Shares issuable pursuant to this Warrant immediately before the sale by
a fraction, the numerator of which shall be the product of (x) the total number
of Shares outstanding on a fully diluted basis immediately after the issuance or
sale, multiplied by (y) the fair market value per Share immediately before the
issuance or sale, and the denominator of which shall be the sum of (i) the total
number of Shares outstanding on a fully diluted basis immediately before the
issuance or sale multiplied by the fair market value per Share immediately
before the issuance or sale, plus (ii) the total amount of the consideration
received by the Company upon the issuance or sale.
For the purposes of this Section 5(c)(ii), all Warrant Shares that may
ultimately become issuable pursuant to this Warrant shall be deemed issuable
immediately before the date of the sale. Any determinations of fair market value
that are required pursuant to this Section 5(c) shall be made in accordance with
the procedures set forth in Section 13.
(iii) This Section 5(c) shall not apply to any grants,
issuances or sales of Shares or options to purchase Shares to employees of the
Company pursuant to a stock option or similar plan in existence as of the date
of this Warrant or adopted after the date of this Warrant, provided that all of
the Company's stock option plans in the aggregate are not authorized to issue a
number of Shares (or options to purchase Shares) that would constitute more than
ten percent (10%) of the issued and outstanding Shares on a fully diluted basis
after exercise, including exercise of this Warrant as to all Warrant Shares for
which it may be or become exercisable (such a stock option plan is referred to
as a "Qualifying Stock Option Plan").
(d) Whenever there shall be an adjustment pursuant to this Section
5, the Company shall promptly notify the Holder in writing of the adjustment,
setting forth in reasonable detail the event requiring the adjustment and the
method by which the adjustment was calculated. In addition, the Company shall
give written notice to the Holder at least twenty (20) days before the date on
which the Company takes any action contemplated in this Section 5. To prevent
dilution of the rights granted under this Warrant, the number of Warrant Shares
that may be purchased under this Warrant shall be subject to adjustment from
time to time as provided in this Section 5.
5
<PAGE> 6
6. Preemptive Purchase Rights.
(a) If at any time the Company grants, issues or sells any Shares or
other securities or any options, warrants, or rights to purchase Shares,
warrants, securities or other property pro rata to the record holders of the
Shares (the "Subscription Rights"), then the Holder of this Warrant shall be
entitled to acquire, upon the terms applicable to the Subscription Rights, the
total number of Subscription Rights that the Holder would have acquired if the
Holder had exercised this Warrant immediately before the record date for the
grant, issuance or sale of the Subscription Rights, or if no record date is
determined the date as of which all the record holders of Shares entitled to
receive the Subscription Rights were determined.
(b) Notwithstanding anything to the contrary provided elsewhere in
this Warrant, the provisions of Section 6(a) shall not apply to: (i) any grants,
issuances or sales of Shares or options to purchase Shares to employees of the
Company pursuant to a Qualifying Stock Option Plan; (ii) any grants, issuances
or sales of Shares in connection with an Extraordinary Event; or (iii) any
grants, issuances or sales of any of the Company's securities in an underwritten
public offering.
7. Liquidating Dividend.
If the Company declares or pays a dividend on the Shares payable
otherwise than in cash from its earnings or earned surplus, except for a
dividend payable in Shares (a "Liquidating Dividend"), then the Company shall,
at the time the Liquidating Dividend is paid, make a payment to the Holder of
this Warrant equivalent to the payment that would have been made to the Holder
of the Shares had this Warrant been fully exercised immediately before the
record date for payment of the Liquidating Dividend or, if no record date in
determined, the date as of which the record holders of Shares entitled to
receive the Liquidating Dividend were determined.
8. Transfer and Assignment: Exchange for Different Denominations.
(a) Subject to the transfer restrictions identified in the legend
contained at the top of this Warrant and in Section 11, this Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Holder, upon surrender of this Warrant with a properly executed assignment (in
the form attached to this Warrant as Exhibit "B") at the Company's principal
office.
(b) Upon surrender of this Warrant by the Holder at the Company's
principal office, this Warrant is exchangeable for new warrants of like tenor
representing the total purchase rights granted under this Warrant, and each of
the new warrants shall represent the portion of the rights as is designated by
the Holder at the time of the surrender. The date the Company initially
6
<PAGE> 7
issues this Warrant shall be deemed the "Date of Issuance" of this Warrant
regardless of the number of times that new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall be
issued. All warrants representing some portion of the rights under this Warrant
are referred to as the "Warrant."
9. Compliance with Law.
The Company shall take all actions reasonably necessary to assure that all
Warrant Shares may be issued without violation of any applicable law or
government regulation or any requirements of a securities exchange upon which
the Shares may be listed. The Company shall not take any action that would cause
the number of the authorized but unissued Shares to be less than the number
required to be reserved for issuance upon the exercise of this Warrant and upon
the exercise of any other options, warrants or rights to purchase Shares or to
convert into Shares.
10. No Rights as Shareholder: Limitations of Liability.
This Warrant shall not entitle the Holder to any voting rights or
other rights as a shareholder of the Company. No provision of this Warrant, in
the absence of affirmative action by the Holder to purchase Warrant Shares, and
no enumeration in this Warrant of the rights and privileges of the Holder shall
give rise to any liability of the Holder as a shareholder of the Company or for
the Exercise Price of the Warrant Shares, regardless of whether the liability is
asserted by the Company or any creditor or creditors of the Company.
11. Securities Act Restrictions.
(a) The Holder, by its acceptance of this Warrant acknowledges and
confirms that this Warrant has not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be sold or transferred except in
compliance with and subject to the Act. Unless and until this Warrant has been
registered under the Act, the Company may require, as a condition to effecting
any transfer or assignment of this Warrant on the books of the Company, a legal
opinion, at the Holder's expense in form and from counsel reasonably
satisfactory to the Company, to the effect that an exemption from registration
under the Act is available for the proposed transfer or assignment.
(b) The foregoing restrictions shall also apply to the Warrant
Shares, and all certificates representing Warrant Shares shall bear an
appropriate legend giving notice of the foregoing restrictions in substantially
the form set forth below:
7
<PAGE> 8
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS
AMENDED ("THE ACT."), OR ANY APPLICABLE STATE SECURITIES LAW
AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE ACT AND APPLICABLE SECURITIES
LAWS AND UNLESS EITHER (A) A REGISTRATION STATEMENT UNDER THE
ACT OR ANY APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (B) THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS IS AVAILABLE FOR THE
SALE, TRANSFER OR OTHER DISPOSITION AND EXCEPT IN COMPLIANCE
WITH THE TRANSFER RESTRICTIONS SET FORTH IN SECTION 8(a) OF
THE COMMON STOCK PURCHASE WARRANT DATED JULY 15, 1998.
12. Registration Rights.
The Holder shall be entitled to the benefits of that certain
Registration Rights Agreement of even date with this Warrant executed by the
Holder and the Company (the "Registration Rights Agreement") with respect to the
registration by the Company of Shares under the Act, subject to and in
accordance with the terms and conditions of the Registration Rights Agreement.
13. Holder's Put Rights.
(a) The Company hereby irrevocably grants and issues to Holder the
right and option to sell this Warrant to the Company (the "Put"), at a purchase
price (the "Put Price") equal to the "fair market value" per Warrant Share (as
defined below) of the Warrant Shares during the Put Period (as defined below).
If the Company notifies the Holder that it is unable to comply with the terms of
a Demand Notice for registration of all or a portion of the Warrant Shares for
resale by the Holder under the Act and in accordance with the terms and
conditions of the Registration Rights Agreement, then the "Put Period" for the
Warrant Shares covered by such
8
<PAGE> 9
Demand Notice shall be the time period that begins on the date that the Company
delivers such notice to the Holder and that ends six (6) months after such date.
(b) The Company shall pay the Put Price to the Holder in exchange
for the delivery to the Company of this Warrant within thirty (30) days of the
receipt of written notice from the Holder of its intention to exercise the Put
(the date of such written notice shall be referred to as the "Put Notice Date").
The payment of the Put Price shall be made (i) in cash, (ii) by cashier's check,
or (iii) by delivery of cash or cashier's check in an amount equal to 25% of the
Put Price and execution and delivery of a promissory note for the remaining 75%
of the Put Price, in form and substance satisfactory to the Holder, which shall
provide for 24 equal installment payments of principal of the Put Price and for
an interest rate equal to ten percent (10%) per annum.
(c) The "fair market value" of the Warrant Shares shall be
determined as the average of the closing price for the Shares on the Nasdaq Over
the Counter Bulletin Board or the American Stock Exchange (or such other stock
exchange on which the Shares may be listed on the Put Notice Date) on the five
(5) business days immediately preceding the Put Notice Date.
14. Method of Giving Notices.
Any and all notices to be given pursuant to this Warrant shall be
sent:
To Holder:
2 Wisconsin Circle
Fourth Floor
Chevy Chase, Maryland 20815
Attention: Ethan D. Leder, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860
To the Company:
8000 Towers Crescent Drive
Suite 810
Vienna, Virginia 22182
Attention: Michael S. Pinkert, President/Chief Executive
Officer
Telephone: (703) 749-4600
Telecopier: (703) 749-4604
Except as otherwise expressly provided in this Warrant, all notices
required or permitted to be sent shall be in writing and shall be delivered
personally, sent by reputable overnight courier service or sent by registered or
certified mail, return receipt requested and
9
<PAGE> 10
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U.S. mail.
18. Expenses.
Except as otherwise provided in this Warrant, the Company shall pay
any and all expenses, transfer taxes and other charges, including all costs
associated with the preparation, issuance and delivery of Share or warrant
certificates that may be incurred in respect of the issuance or delivery of
Shares upon any exercise of this Warrant.
19. Miscellaneous.
(a) Neither this Warrant nor any of the terms or conditions of this
Warrant may be waived, amended or modified, except with the written consent of
the Company and the Holder.
(b) This Warrant shall be governed by and construed in accordance
with the laws of the State of Maryland.
(c) The captions and paragraph headings used in this Warrant are for
convenience of reference only, and shall not be referred to in connection with
any interpretation or construction of this Warrant.
[SIGNATURE ON FOLLOWING PAGE]
10
<PAGE> 11
IN WITNESS WHEREOF, the Company, having validly authorized the issuance of
this Warrant and all performance under this Warrant, has caused this Warrant to
be executed by its duly authorized officer as of the Date of Issuance.
MHM SERVICES, INC.
a Delaware corporation
By: /s/ Michael S. Pinkert
-----------------------------
Name: Michael S. Pinkert
Title: President
Attest:
- -----------------------------
Secretary
11
<PAGE> 12
SCHEDULE ___
1. Warrants outstanding (exercise price of $.50/share)
<TABLE>
<S> <C>
Michael S. Pinkert 72,514
Lee Calligaro 24,203
William Ferretti 24,203
Michael S. Pinkert
(to be issued) 145,000
</TABLE>
2. Other stock rights
In November 1993, to Company acquired substantially all of the assets and
assumed certain liabilities of Atlanta-based ICH Services, L.L.C., (ICH)
(successor to HCI Services, Inc.). The purchase price included certain
additional consideration, payable in cash or additional shares of the Company's
common stock at the option of the former ICH members. The additional
consideration was payable after the third anniversary of the acquisition
(November 18, 1996) in an amount equal to approximately 20 percent of the
appraised fair market value of the acquired operations.
To date, neither the Company nor ICH has requested an appraisal of the acquired
operations as provided for in the purchase agreement. Both parties have
negotiated to modify the terms of the additional consideration without reaching
any definitive agreements. The progress of future negotiations is uncertain.
If no agreement is reached, the Company will be required to comply with the
terms of the original agreement. The Company believes that the value of the
acquired assets has significantly declined since the acquisition date based on
prior and ongoing operational losses as well as increasing regulatory and
economic pressures inherent in the extended care services business. Therefore
the Company believes that it will be able to meet its obligation to fund the
additional consideration, and the amount estimated to be payable under the terms
of the original agreement of $158,000 has been accrued as of September 30, 1997,
in the consolidated financial statements. However, the issuance of additional
stock to satisfy the Company's obligation could have a dilutive effect on the
Company's outstanding common stockholders.
3. Options
Employee stock option pool ($.50/share) 350,000 shares
Directors option pool ($.50/share) 52,000 shares
<PAGE> 1
NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS, AND NEITHER THIS WARRANT NOR ANY
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE ACT AND
APPLICABLE SECURITIES LAWS AND UNLESS EITHER (A) A REGISTRATION STATEMENT UNDER
THE ACT OR THE APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (B) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS IS AVAILABLE FOR THE SALE,
TRANSFER OR OTHER DISPOSITION AND EXCEPT IN COMPLIANCE WITH THE TRANSFER
RESTRICTIONS SET FORTH IN SECTION 8(a) OF THIS WARRANT.
MHM SERVICES, INC.
COMMON STOCK PURCHASE WARRANT
Number of Shares of Common Stock: 145,000 Warrant Certificate No. 2
Date of Issuance: July 15, 1998 Date of Expiration: July 15, 2008
FOR VALUE RECEIVED, MHM SERVICES, INC., a Delaware corporation (the
"Company"), hereby grants to MICHAEL S. PINKERT, or his heirs or registered
assigns (the "Holder"), the right to purchase from the Company that number of
shares of the Company's Common Stock (the "Shares"), which, calculated as of the
Date of Issuance on a fully diluted basis after exercise, and subject to
adjustment as provided below, equals one hundred forty-five thousand (145,000)
Shares (the "Warrant Shares").
This Warrant is issued pursuant to a Credit and Security Agreement of
even date with this Warrant and in connection with the partial guarantee by the
Holder of the repayment obligations under a Two Million and No/100 Dollars
($2,000,000.00) loan made to the Company, MHM Correctional Services, Inc., a
Delaware corporation, MHM of Colorado, Inc., a Delaware corporation, MHM
Extended Care Services, Inc., a Delaware corporation, Oakview Limited
Partnership, a Maryland limited partnership, and Columbia Health Associates
Limited, a Maryland limited partnership (the "Loan") by HCFP Funding, Inc., a
Delaware corporation.
The Company represents and warrants to the Holder that (i) the Shares
are the only class of equity securities of the Company authorized, issued or
outstanding on the Date of Issuance, and there are no outstanding agreements,
rights, or options to acquire any securities of the Company
1
<PAGE> 2
other than as shown on Schedule 1, and (ii) there are 3,525,848 Shares issued
and outstanding on the Date of Issuance.
Except as otherwise provided in this Warrant, this Warrant shall
continue in full force and effect until the Date of Expiration regardless of any
prepayment of the Loan.
This Warrant is subject to the following provisions:
1. Exercise Period.
The Holder may exercise, in whole or in part, the purchase
rights represented by this Warrant at any time and from time to time on or after
the Date of Issuance but not later than 5:00 p.m., Eastern time, on the Date of
Expiration identified above (the "Exercise Period").
2. Exercise Price.
The Exercise Price per Share for which all or any Warrant
Shares may be purchased pursuant to the terms of this Warrant shall be $.50.
3. Exercise Procedure.
(a) This Warrant shall be deemed to have been exercised when the
Company has received all of the following (the "Exercise Time"):
(i) an Exercise Agreement, in the form attached
to this Warrant as Exhibit "A", completed
and executed by the Holder;
(ii) this Warrant; and
(iii) payment of the total Exercise Price for the
Warrant Shares to be purchased, which
payment may be made by certified or bank
check.
(b) Notwithstanding any other provision of this Warrant, if an
exercise of this Warrant (or any portion) is to be made in connection with a
registered public offering of the Company's securities or the sale of the
Company, the exercise of any portion of this Warrant may, at the election of the
Holder, be conditioned upon the consummation of the registered public offering
or the sale of the Company, in which case the Holder may designate that the
exercise shall not be deemed to be effective until the consummation of the
transaction.
(c) The Company shall assist and cooperate with any Holder
required to make any governmental filings or obtain any governmental approvals
prior to or in connection with any exercise of this Warrant, including, without
limitation, making any filings required to be made by
2
<PAGE> 3
the Company. The Holder shall reimburse the Company for any reasonable costs
and expenses incurred by the Company (including without limitation, reasonable
attorneys' fees) in connection with the cooperation and assistance.
Notwithstanding the foregoing, the costs and expenses shall not include any
fees or costs related to any federal or state registration of this Warrant or
the Warrant Shares or registered public offering of the Company's securities.
4. Issuance of Warrant Shares; Taxes
(a) To the extent that the Shares are represented by
certificates, the Company shall deliver to the Holder certificates for Warrant
Shares purchased upon exercise of this Warrant within five (5) business days
after the Exercise Time. Unless this Warrant has expired or all of the purchase
rights represented by this Warrant have been exercised, the Company shall
prepare a new Warrant covering the number of Warrant Shares in respect of which
this Warrant has not been exercised, which new Warrant shall be identical in all
other respects to this Warrant. The new Warrant shall be delivered to the Holder
within five (5) business days after the Exercise Time.
(b) To the extent that the Shares are represented by
certificates, the issuance of certificates for Warrant Shares upon exercise of
this Warrant shall be made without charge to the Holder for any issuance tax
related to the issuance, or, subject to Section 3(c), other costs incurred by
the Company in connection with the exercise and the related issuance of the
Warrant Shares.
(c) Upon payment for the Warrant Shares in accordance with the
terms of this Warrant, the Warrant Shares shall be validly issued, fully paid
and nonassessable and free from all liens and charges with respect to their
issuance.
(d) The Warrant Shares shall be deemed to have been issued to
the Holder at the Exercise Time, and the Holder shall be deemed, for all
purposes, to have become the record holder of the Warrant Shares at the Exercise
Time.
5. Adjustment of Number of Warrant Shares
To prevent dilution of the rights granted under this Warrant,
the number of Warrant Shares that may be purchased under this Warrant shall be
subject to adjustment from time to time as provided in this Section 5.
(a) If all or any portion of this Warrant shall be exercised
after any Share split, Share dividend, recapitalization, combination of Shares
of the Company, or other similar event (a "Share Change Event") occurring after
the Date of Issuance, then the Holder exercising this Warrant shall receive, for
the total Exercise Price, but in no event less than the par value for a Warrant
Share, the total number and class of Shares that the Holder would have received
if this Warrant had been exercised immediately before the Share Change Event.
3
<PAGE> 4
(b) If all or any portion of this Warrant shall be exercised
after any merger, consolidation, exchange of equity securities, separation, or
reorganization of the Company, or other similar event, including without
limitation, an issuance of Shares to a third party as consideration for the
assets of a business owned by the third party (an "Extraordinary Event"),
occurring after the Date of Issuance, as a result of which Shares shall be
changed into the same or a different number of equity securities of the same or
another class or classes of securities of the Company or another entity, then
the Holder exercising this Warrant shall receive, for the total Exercise Price
that would have been payable if this Warrant had been exercised in full
immediately before the Extraordinary Event, but in no event less than the par
value for a Warrant Share, the total number and class of equity securities or
other securities that the Holder would have received if this Warrant had been
exercised immediately before the Extraordinary Event.
Before consummating any Extraordinary Event, the Company shall
make appropriate provision to ensure that the Holder shall have the right to
acquire or receive the equity securities or other securities on the same basis
as if this Warrant had been exercised immediately before the Extraordinary
Event, subject to the proviso in the preceding paragraph. The Company shall not
consummate any Extraordinary Event unless the successor entity (if any)
resulting from the Extraordinary Event assumes in writing the obligation to
deliver the equity securities or other securities.
(c) The Company acknowledges that, at any time when the fair
market value of the Shares is less than $5.00 per Share (as adjusted for stock
splits, etc.), if the Company were to issue any Shares for a consideration that
is less than the fair market value of the Shares on the date of issuance, or if
it were to grant any rights to subscribe for or purchase, or any options for the
purchase of, Shares or any other securities convertible into or exchangeable for
Shares, and the total consideration payable for the Shares issuable upon the
exercise of the rights or options or upon conversion or exchange of the
convertible securities is less than the fair market value of the Shares (all of
the foregoing being referred to as a "Dilutive Issuance"), the effect would be
to dilute the interest in the Company that the Company and Holder intend that
Holder be able to purchase upon exercise of this Warrant. Accordingly, the
Company covenants and agrees that it shall not make any Dilutive Issuance
(except pursuant to (A) a Qualifying Stock Option Plan, as the term is defined
in Section 5(c)(iii) below or (B) any management services agreement between
Borrower and any client) without giving prior written notice of the Dilutive
Issuance to the Holder.
(i) If there is a Dilutive Issuance that is a sale of Shares
at a price below the fair market value of the Shares, the number of Warrant
Shares issuable pursuant to this Warrant shall be adjusted pursuant to Section
5(c)(ii) below. If there is any other Dilutive Issuance, then appropriate
amendment shall be made to the provisions of this Warrant so as to protect the
Holder from dilution in a manner consistent with this Section 5(c).
4
<PAGE> 5
(ii) The number of Warrant Shares shall be adjusted as
follows: the number of Warrant Shares issuable pursuant to this Warrant shall be
adjusted to be equal to the product obtained by multiplying the number of
Warrant Shares issuable pursuant to this Warrant immediately before the sale by
a fraction, the numerator of which shall be the product of (x) the total number
of Shares outstanding on a fully diluted basis immediately after the issuance or
sale, multiplied by (y) the fair market value per Share immediately before the
issuance or sale, and the denominator of which shall be the sum of (i) the total
number of Shares outstanding on a fully diluted basis immediately before the
issuance or sale, multiplied by the fair market value per Share immediately
before the issuance or sale, plus (ii) the total amount of the consideration
received by the Company upon the issuance or sale.
For the purposes of this Section 5(c)(ii), all Warrant Shares that may
ultimately become issuable pursuant to this Warrant shall be deemed issuable
immediately before the date of the sale. Any determinations of fair market
value that are required pursuant to this Section 5(c) shall be made in
accordance with the procedures set forth in Section 13.
(iii) This Section 5(c) shall not apply to any grants,
issuances or sales of Shares or options to purchase Shares to employees of the
Company pursuant to a stock option or similar plan in existence as of the date
of this Warrant or adopted after the date of this Warrant, provided that all of
the Company's stock option plans in the aggregate are not authorized to issue a
number of Shares (or options to purchase Shares) that would constitute more than
ten percent (10%) of the issued and outstanding Shares on a fully diluted basis
after exercise, including exercise of this Warrant as to all Warrant Shares for
which it may be or become exercisable (such a stock option plan is referred to
as a "Qualifying Stock Option Plan").
(d) Whenever there shall be an adjustment pursuant to this
Section 5, the Company shall promptly notify the Holder in writing of the
adjustment, setting forth in reasonable detail the event requiring the
adjustment and the method by which the adjustment was calculated. In addition,
the Company shall give written notice to the Holder at least twenty (20) days
before the date on which the Company takes any action contemplated in this
Section 5. To prevent dilution of the rights granted under this Warrant, the
number of Warrant Shares that may be purchased under this Warrant shall be
subject to adjustment from time to time as provided in this Section 5.
6. Preemptive Purchase Rights.
(a) If at any time the Company grants, issues or sells any
Shares or other securities or any options, warrants, or rights to purchase
Shares, warrants, securities or other property pro rata to the record holders of
the Shares (the "Subscription Rights"), then the Holder of this Warrant shall be
entitled to acquire, upon the terms applicable to the Subscription Rights, the
total number of Subscription Rights that the Holder would have acquired if the
Holder had exercised this Warrant immediately before the record date for the
grant, issuance or sale of the
5
<PAGE> 6
Subscription Rights, or if no record date is determined, the date as of which
all the record holders of Shares entitled to receive the Subscription Rights
were determined.
(b) Notwithstanding anything to the contrary provided elsewhere
in this Warrant, the provisions of Section 6(a) shall not apply to: (i) any
grants, issuances or sales of Shares or options to purchase Shares to employees
of the Company pursuant to a Qualifying Stock Option Plan; (ii) any
grants, issuances or sales of Shares in connection with an Extraordinary Event;
or (iii) any grants, issuances or sales of any of the Company's securities in
an underwritten public offering.
7. Liquidating Dividend.
If the Company declares or pays a dividend on the Shares payable
otherwise than in cash from its earnings or earned surplus, except for a
dividend payable in Shares (a "Liquidating Dividend"), then the Company shall,
at the time the Liquidating Dividend is paid, make a payment to the Holder of
this Warrant equivalent to the payment that would have been made to the Holder
of the Shares had this Warrant been fully exercised immediately before the
record date for payment of the Liquidating Dividend or, if no record date in
determined, the date as of which the record holders of Shares entitled to
receive the Liquidating Dividend were determined.
8. Transfer and Assignment; Exchange for Different Denominations.
(a) Subject to the transfer restrictions identified in the
legend contained at the top of this Warrant and in Section 11, this Warrant and
all rights hereunder are transferable, in whole or in part, without charge to
the Holder, upon surrender of this Warrant with a properly executed assignment
(in the form attached to this Warrant as Exhibit "B") at the Company's principal
office.
(b) Upon surrender of this Warrant by the Holder at the
Company's principal office, this Warrant is exchangeable for new warrants of
like tenor representing the total purchase rights granted under this Warrant,
and each of the new warrants shall represent the portion of the rights as is
designated by the Holder at the time of the surrender. The date the Company
initially issues this Warrant shall be deemed the "Date of Issuance" of this
Warrant regardless of the number of times that new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall be
issued. All warrants representing some portion of the rights under this Warrant
are referred to as the "Warrant."
9. Compliance with Law.
The Company shall take all actions reasonably necessary to
assure that all Warrant Shares may be issued without violation of any applicable
law or government regulation or any
6
<PAGE> 7
requirements of a securities exchange upon which the Shares may be listed. The
Company shall not take any action that would cause the number of the authorized
but unissued Shares to be less than the number required to be reserved for
issuance upon the exercise of this Warrant and upon the exercise of any other
options, warrants or rights to purchase Shares or to convert into Shares.
10. No Rights as Shareholder; Limitations of Liability.
This Warrant shall not entitle the Holder to any voting rights
or other rights as a shareholder of the Company. No provision of this Warrant,
in the absence of affirmative action by the Holder to purchase Warrant Shares,
and no enumeration in this Warrant of the rights and privileges of the Holder
shall give rise to any liability of the Holder as a shareholder of the Company
or for the Exercise Price of the Warrant Shares, regardless of whether the
liability is asserted by the Company or any creditor or creditors of the
Company.
11. Securities Act Restrictions.
(a) The Holder, by its acceptance of this Warrant, acknowledges
and confirms that this Warrant has not been registered under the Securities Act
of 1933, as amended (the "Act"), and may not be sold or transferred except in
compliance with and subject to the Act. Unless and until this Warrant has been
registered under the Act, the Company may require, as a condition to effecting
any transfer or assignment of this Warrant on the books of the Company, a legal
opinion, at the Holder's expense, in form and from counsel reasonably
satisfactory to the Company, to the effect that an exemption from registration
under the Act is available for the proposed transfer or assignment.
(b) The foregoing restrictions shall also apply to the Warrant
Shares, and all certificates representing Warrant Shares shall bear an
appropriate legend giving notice of the foregoing restrictions in substantially
the form set forth below:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"), OR
ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE ACT AND APPLICABLE SECURITIES
LAWS AND UNLESS EITHER (A) A REGISTRATION STATEMENT
UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS
SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR
(B) THE COMPANY HAS RECEIVED AN OPINION
7
<PAGE> 8
OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE FOR THE SALE, TRANSFER OR OTHER DISPOSITION
AND EXCEPT IN COMPLIANCE WITH THE TRANSFER
RESTRICTIONS SET FORTH IN SECTION 8(a) OF THE COMMON
STOCK PURCHASE WARRANT DATED JULY , 1998.
12. Registration Rights.
The Holder shall be entitled to the benefits of that certain
Registration Rights Agreement of even date with this Warrant executed by the
Holder and the Company (the "Registration Rights Agreement") with respect to
the registration by the Company of Shares under the Act, subject to and in
accordance with the terms and conditions of the Registration Rights Agreement.
13. Holder's Put Rights.
(a) The Company hereby irrevocably grants and issues to Holder
the right and option to sell this Warrant to the Company (the "Put"), at a
purchase price (the "Put Price") equal to the "fair market value" per Warrant
Share (as defined below) of the Warrant Shares during the Put Period. If the
Company notifies the Holders that it is unable to comply with the terms of a
Demand Notice for registration of all or a portion of the Warrant Shares for
resale by the Holders under the Act and in accordance with the terms and
conditions of the Registration Rights Agreement, then the "Put Period" for the
Warrant Shares covered by such Demand Notice shall be the time period that
begins on the date that the Company delivers such notice to the Holders and that
ends six (6) months after such date.
(b) The Company shall pay the Put Price to the Holder in
exchange for the delivery to the Company of this Warrant within thirty (30) days
of the receipt of written notice from the Holder of its intention to exercise
the Put (the date of such written notice shall be referred to as the "Put Notice
Date"). The payment of the Put Price shall be made (i) in cash, (ii) by
cashier's check, or (iii) by delivery of cash or cashier's check in an amount
equal to 25% of the Put Price and execution and delivery of a promissory note
for the remaining 75% of the Put Price, in form and substance satisfactory to
the Holder, which shall provide for 24 equal installment payments of principal
of the Put Price and for an interest rate equal to ten percent (10%) per annum.
(c) The "fair market value" of the Warrant Shares shall be
determined as the average of the closing price for the Shares on the Nasdaq Over
the Counter Bulletin Board or the
8
<PAGE> 9
American Stock Exchange (or such other stock exchange on which the Shares may
be listed on the Put Notice Date) on the five (5) business days immediately
preceding the Put Notice Date.
14. Method of Giving Notices.
Any and all notices to be given pursuant to this Warrant
shall be sent:
To Holder:
705 Potomac Knolls Drive
McLean, Virginia 22102
Telephone: (703) 734-0331
Telecopier: (703) 734-0198
To the Company:
8000 Towers Crescent Drive
Suite 810
Vienna, Virginia 22182
Attention: Lee Calligaro, Vice President and General Counsel
Telephone: (703) 749-4600
Telecopier: (703) 749-4604
Except as otherwise expressly provided in this Warrant, all
notices required or permitted to be sent shall be in writing and shall be
delivered personally, sent by reputable overnight courier service or sent by
registered or certified mail, return receipt requested and postage prepaid and
shall be deemed to have been given when so delivered, sent or deposited in
the U.S. mail.
18. Expenses.
Except as otherwise provided in this Warrant, the Company shall pay any
and all expenses, transfer taxes and other charges, including all costs
associated with the preparation, issuance and delivery of Share or warrant
certificates that may be incurred in respect of the issuance or delivery of
Shares upon any exercise of this Warrant.
19. Miscellaneous.
(a) Neither this Warrant nor any of the terms or conditions of
this Warrant may be waived, amended or modified, except with the written consent
of the Company and the Holder.
9
<PAGE> 10
(b) This Warrant shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia.
(c) The captions and paragraph headings used in this Warrant are for
convenience of reference only, and shall not be referred to in connection with
any interpretation or construction of this Warrant.
[SIGNATURE ON FOLLOWING PAGE]
10
<PAGE> 11
IN WITNESS WHEREOF, the Company, having validly authorized the issuance of
this Warrant and all performance under this Warrant, has caused this Warrant to
be executed by its duly authorized officer as of the Date of Issuance.
MHM SERVICES, INC.
a Delaware corporation
By: [SIG]
------------------------------
Name:
Title: Vice-President
Attest:
- --------------------
Secretary
11
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of this
15th day of July, 1998 by and between MHM SERVICES, INC., a Delaware corporation
(the "Company"), and HEALTHCARE FINANCIAL PARTNERS, INC., a Delaware
corporation, and its affiliates and assigns (collectively, "HCFP"). This
Agreement is made in connection with the issuance by the Company of a warrant to
HCFP (the "Warrant"), pursuant to which HCFP may purchase and the Company may
hereafter issue up to 3OO,000 shares (the "Warrant Shares") of the Company's
common stock from time to time upon the exercise of the Warrant. The Company
hereby confirms that the rights granted under this Agreement constitute a
material inducement to HCFP to accept the Warrant in connection with the
transactions under which Warrant is being issued.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. In addition to those terms defined elsewhere in
this Agreement, the following terms shall have the following meanings wherever
used in this Agreement:
"Act" shall mean the Securities Act of 1933, as amended, and
any successor statute from time to time.
"Costs and Expenses" shall mean all of the costs and expenses
relating to any subject Registration Statement, including but not limited to
registration, filing and qualification fees, blue sky expenses, costs of listing
any shares on any exchange or automated quotation system, printing expenses,
fees and disbursements of counsel to the Company, and accounting fees; provided,
however that underwriting discounts and commissions attributable solely to the
securities registered for the benefit of the Holders, fees and disbursements of
counsel to the Holders, and all other expenses attributable solely to the
Holders shall be borne by them.
"Form S-1," "Form S-3," "FORM S-4," "Form S-8" and "Form S-18"
mean such respective forms under the Act as in effect on the date of this
Agreement or any successor registration forms subsequently adopted by the
Securities and Exchange Commission (the "SEC") or any successor regulatory
authority.
"Holder" or "Holders" means any person or persons owning or
having the right to acquire Registrable Securities.
"Registrable Securities" means the Warrant Shares and any
common stock issued (or issuable upon the conversion or exercise of any warrant,
right or other security) as a dividend or other distribution with respect to, or
in exchange for or in replacement of any Warrant Shares.
<PAGE> 2
"Registration" shall mean any registration of Registrable
Securities pursuant to a registration statement filed by the Company with the
SEC in respect of any class of Registrable Securities, other than a registration
statement in respect of employee stock options or other employee benefit plans
or in respect of any merger, consolidation, acquisition or like combination
whether on Form S-3, Form S-4, Form S-8 or any equivalent form of registration
then in effect.
"Registration Statement" shall mean any registration statement
filed or to be filed by the Company in respect of any Registration.
2. Demand Registration.
(a) Subject to the provisions of this Agreement, Holders of at
least 50% of the Registrable Securities entitled to registration rights under
this Agreement may, by written request delivered to the Company (the "Demand
Notice"), demand that the Company effect a Registration to permit the resale of
the Registrable Securities. The Demand Notice may not be made for a number of
shares or Registrable Securities whose aggregate offering price is expected to
be less than $100,000.00.
(b) Within five (5) days of the receipt of the Demand Notice,
the Company shall deliver to all Holders notice of receipt of the Demand Notice
and each Holder shall have a period of fifteen (15) days after delivery of the
notice to inform the Company in writing of their desire to include their
Warrant Shares in the requested Registration. Each Holder shall be permitted to
withdraw all or any part of its Registrable Securities from a Registration
Statement by written notice to the Company given at any time before the
effective date of the Registration Statement.
(c) The Company will use its best efforts to effect the
Registration as soon as practicable after receipt of the Demand Notice, and in
any event to file the Registration Statement within 90 days of the receipt of
the Demand Notice, and to cause the Registration Statement to become effective.
(d) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if at the time the Demand Notice is received, the
Company does not qualify to file a Registration Statement on Form S-3 or such
other equivalent short-form registration form, then the Company shall
immediately notify each Holder that it is unable to meet the requirements of
such Demand Notice. Upon the Holder's receipt of such notice from the Company,
the Company's obligations under such Demand Notice shall be terminated.
2
<PAGE> 3
3. Piggyback Registration.
(a) Subject to the provisions of this Agreement, in the event
that the Company shall at any time after the date of this Agreement propose a
Registration, then the Company shall give to each Holder written notice (the
"Registration Notice") of such proposed Registration not less than thirty (30)
days prior to the filing of the subject Registration Statement, and shall,
subject to the limitations provided in Section 4, include in such Registration
Statement all or a portion of the Registrable Securities owned by each Holder,
as and to the extent that such Holder may request the same to be so included by
means of written notice given to the Company within fifteen (15) days after the
Company's giving of the Registration Notice.
(b) Each Holder shall be permitted to withdraw all or any part
of its Registrable Securities from a Registration Statement by written notice to
the Company given at any time prior to the effective date of the Registration
Statement.
(c) The Company will use its best efforts to effect the
Registration as soon as practicable after giving the Registration Notice, and to
cause such Registration Statement to become effective.
4. Terms and Conditions of the Company's Obligations.
Notwithstanding anything to the contrary contained in this Agreement, the
Company's obligation to include the Registrable Securities in any Registration
Statement pursuant to Sections 2 and 3 shall be subject, at the option of the
Company, to the following further conditions:
(a) The Registrable Securities proposed to be included in such
Registration Statement may not, at the time of the Registration Notice, be
distributable in open market transactions pursuant to any applicable exemption
from the registration requirements of the Act, including Rule 144 promulgated
thereunder (or any successor thereto);
(b) If an underwriter is used in connection with a
Registration, the distribution for the account of the Holder shall be
underwritten by the same underwriters (if any) who are underwriting the
distribution of the securities for the account of the Company and/or any other
persons whose securities are covered by such Registration Statement, and the
Holder shall enter into an agreement with such underwriters containing customary
indemnification and other provisions;
(c) If the underwriting agreement entered into with the
aforesaid underwriter contains or requires restrictions upon the sale of
securities of the Company by any of the Company, its officers, directors or
other principal stockholders, other than the securities that are to be included
in the proposed distribution, then such restrictions shall likewise be binding
upon the Holder, and if requested by the Company the Holder shall enter into a
written agreement to that effect;
3
<PAGE> 4
(d) If at any time after giving the Registration Notice, and
prior to the effective date of the Registration Statement filed in connection
with such Registration Notice, the Company shall determine for any reason not to
proceed with the subject Registration, the Company may, at its election, give
written notice of such determination to the Holder and, thereupon, shall be
relieved of its obligation to register any of the Holder's Registrable
Securities in connection with such Registration, provided, however, that the
Company may not delay a Demand Registration made pursuant to Section 2 of this
Agreement in accordance with this Section 4(d) for a period longer than one
year.
(e) If, in connection with an underwritten public offering
pursuant to a Registration Statement, the managing underwriter(s) thereof shall
advise the Company in writing that the inclusion of all of the Registrable
Securities and other securities of the Company to be included in such
Registration would interfere with the successful marketing of (including
pricing) of all of the Company's securities requested to be so included (but
which shall not refer to any securities held by or to be newly issued by the
Company), then the Company will promptly furnish each such Holder of Registrable
Securities with a copy of such written statement and may require, by written
notice to each such Holder accompanying such written statement, that the
distribution of all or a specified portion of such Registrable Securities be
excluded from such distribution (in case of an exclusion of only a portion of
such Registrable Securities, such portion to be allocated among the Holders of
Registrable Securities in proportion to the respective number of shares of
Registrable Securities so requested to be registered pursuant to such
Registration Statement by all such Holders); and
(f) The Company shall not be obligated to effect any
registration of Registrable Securities incidental to the registration of any of
its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans or
incidental to the registration of any non-equity securities convertible into
equity securities whether such registration is effected on Form S-3, Form S-4,
Form S-8, or other permitted form.
5. Registration Procedures. In the case of each Registration effected
by the Company in which Registrable Securities are to be sold for the account of
any Holder, the Company will use its best efforts to:
(a) furnish to counsel selected by each Holder copies of ail
Registration Statements or prospectuses or any amendments or supplements thereto
proposed to be filed with the SEC, which documents will be subject to review by
such counsel before filing solely with regard to any information contained
therein which pertains to the subject Holder;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
a period of not less than 90 days after the
4
<PAGE> 5
Registrable Securities may first be publicly sold pursuant thereto and to comply
with the provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during such period;
(c) furnish to each subject Holder such number of copies of
such Registration Statement, each amendment and supplement thereto, the
prospectus included in such Registration Statement (including each preliminary
prospectus) and such other documents as the Holder may reasonably require in
order to facilitate the disposition of the Registrable Securities owned by and
registered on behalf of such Holder;
(d) register or quality such Registrable Securities under such
other securities or blue sky laws of such states as the underwriter reasonably
requires and do any and all other acts and things which may be reasonably
necessary or advisable to enable each subject Holder to consummate the
disposition of the Registrable Securities in such jurisdictions (provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each subject Holder, at any time when a prospectus
relating to a Registration Statement is required to be delivered under the Act,
of the happening of any event as a result of which the prospectus included in a
Registration Statement contains an untrue statement of a material fact or omits
to state any fact necessary to make the statements therein not materially
misleading, and prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchaser(s) of Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not materially
misleading; and
(f) cause all subject Registrable Securities to be listed for
trading on each securities exchange or automated quotation system on which
similar securities issued by the Company as those which are the subject of such
Registration Statement are then listed.
6. Costs and Expenses. The Company shall bear all of the Costs and
Expenses of Registration under Sections 2 and 3 of this Agreement; provided,
however, that each Holder shall pay, pro rata based upon the number of its
Registrable Securities included therein, the underwriters' discounts,
commissions and compensation attributable solely to the inclusion of such
Registrable Securities in the public offering.
7. Indemnification by the Company.
(a) The Company will indemnify each Holder from and against
any claim, loss, cost, charge or liability of any kind, including amounts paid
in settlement and reasonable attorneys' fees, which may be incurred by the
Holder as a result of any breach of any
5
<PAGE> 6
representation or warranty or covenant of the Company contained in this
Agreement or in any certificate delivered on the closing date of the public
offering by the Company, with such indemnification to be made within thirty (30)
days of receipt of written request therefor.
(b) The Company shall indemnify and hold harmless each Holder,
any underwriter (as defined in the Act) for any Holder, each officer and
director of a Holder, legal counsel and accountants for a Holder, and each
person, if any, who controls a Holder or such underwriter within the meaning of
the Act, against any losses, expenses, claims, damages or liabilities, joint or
several, to which such Holder or any such underwriter, officer director or
controlling person becomes subject, under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, expenses, claims, damages or
liabilities (or actions in respect thereof) (i) are caused by any untrue
statement or alleged were statement of any material fact contained in any
preliminary prospectus (if used prior to the effective date of the Registration
Statement), or contained, on the effective date thereof, in any Registration
Statement of which Warrant Shares were the subject, the prospectus contained
therein, any amendment or supplement thereto, or any other document related to
such Registration Statement, or (ii) 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, or (iii)
arise out of any violation by the Company of the Act or any rule or regulation
thereunder applicable to the Company and relating to actions or omissions
otherwise required of the Company in connection with such registration. The
Company shall reimburse each Holder and any such underwriter, officer, director
or controlling person for any legal or other expenses reasonably incurred by
such Holder., or any such officer, director, underwriter or controlling person
in connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable to any such persons in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with furnished to the Company in writing by such
person expressly for inclusion in any of the foregoing documents. This indemnity
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company.
8. Indemnification by the Holders. Each Holder participating in the
Registration shall indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed a Registration Statement, legal
counsel and accountants for the Company, each person (if any) who controls the
Company within the meaning of the Act and any underwriter (as defined in the
Act) for the Company, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, controlling person or
underwriter may become subject under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (i) are caused solely by any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
prospectus (if used prior to the effective date of the Registration Statement),
or contained, on the effective date thereof, in any Registration Statement of
which such Holder's Warrant Shares were the subject,
6
<PAGE> 7
the prospectus contained therein, any amendment or supplement thereto, or any
other document related to such Registration Statement, or (ii) arise out of or
are based solely upon the omission alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished to the
Company by such Holder expressly for inclusion in any of the foregoing
documents. This indemnity shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the subject Holder.
9. Additional Provisions Regarding Indemnification.
(a) Each Holder and each other person indemnified pursuant to
Section 7 above shall, in the event that it receives notice of the commencement
of any action against it which is based upon an alleged act or omission which,
if proven, would result in the Company's having to indemnify it pursuant to
Section 7 above, promptly notify the Company, in writing, of the commencement of
such action and permit the Company, if the Company so notifies such Holder
within thirty (30) days after receipt by the Company of notice of the
commencement of the action, to participate in and to assume the defense of such
action with counsel reasonably satisfactory to such Holder; provided, however,
that such Holder or other indemnified person shall be entitled to retain its own
counsel at its own expense. The omission to notify the Company promptly of the
commencement of any such action shall not relieve the Company of any liability
to indemnify such Holder or such other indemnified person, as the case may be,
under Section 7 above, except to the extent that the Company shall suffer any
loss by reason of such failure to give notice, and shall not relieve the Company
of any other liabilities which it may have under this or any other agreement.
(b) The Company and each other person indemnified pursuant to
Section 8 above shall, in the event that it receives notice of the commencement
of any action against it which is based upon an alleged act or omission which,
if proven, would result in any Holder having to indemnify it pursuant to Section
8 above, promptly notify such Holder, in writing, of the commencement of such
action and permit such Holder, if such Holder so notifies the Company within
thirty (30) days after receipt by such Holder of notice of the commencement of
the action, to participate in and to assume the defense of such action with
counsel reasonably satisfactory to the Company; provided, however, that the
Company or other indemnified person shall be entitled to retain its own counsel
at the Company's expense. The omission to notify any Holder promptly of the
commencement of any such action shall not relieve such Holder of liability to
indemnify the Company or such other indemnified person, as the case may be,
under Section 9 above, except to the extent that the subject Holder shall suffer
any loss by reason of such failure to give notice, and shall not relieve such
Holder of any other liabilities which it may have under this or any other
agreement.
7
<PAGE> 8
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. Each indemnified party shall furnish such information regarding
itself or the claim in question as an indemnifying party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) (i) If a court of competent jurisdiction determines that
the foregoing indemnity provided under Sections 7 and 8 above is unavailable, or
is insufficient to hold harmless an indemnified party, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party as
a result of such losses, claims, damages, liabilities or expenses (A) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, or
(B) if the allocation provided by clause (A) above is not permitted by
applicable law, or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, but also the relative fault of the
indemnifying party and the indemnified party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(ii) In the event that the indemnifying party and the
indemnified party are unable to mutually agree on the relative benefits to
and/or the relative faults of such persons and the amounts of appropriate
contribution, such dispute shall be resolved by final, binding and enforceable
arbitration before the American Arbitration Association in Washington, D.C.
10. Rule 144. With the view of making available to a Holder the
benefits of Rule 144 promulgated under the Act and any other rule that may at
any time permit a Holder to sell securities of the Company without Registration,
the Company agrees to:
(a) Use its best efforts to make and keep public information
available at all times;
(b) Use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the Act and
the Securities Exchange Act of 1934, as amended (the "1934 Act"); and
(c) So long as any Holder owns any Registrable Shares, to
furnish to such Holder upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 and of the Act and the
1934 Act, a copy of its most recent annual or quarterly report, and such other
information as a Holder may reasonably request in order to permit such Holder to
take advantage of Rule 144.
8
<PAGE> 9
11. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
given in the manner provided in the Warrant.
12. Waiver and Amendment. No waiver, amendment or modification of this
Agreement or of any provision of this Agreement shall be valid unless evidenced
by a writing duly executed by the Company and Holders of a majority of the
Warrant Shares then issued and held and/or issuable upon future exercise of the
Warrants. No waiver of any default hereunder shall be deemed a waiver of any
other, prior or subsequent default hereunder.
13. Governing Law. This Agreement shall be governed, construed and
controlled by and under the substantive laws of the State of Maryland without
regard to principles of conflicts of laws.
14. Assignees. This Agreement is solely for the benefit of the Company,
HCFP, Holders, and any person(s) acquiring Warrant Shares from a Holder thereof
by will or by the laws of descent and distribution. No other transferees of
Warrant Shares shall be entitled to derive any benefit herefrom.
15. Captions. The captions and Section headings used in this Agreement
are for convenience only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions of this Agreement.
16. Entire Agreement. This Agreement constitutes the sole and entire
agreement and understanding between the parties hereto as to the subject matter
of this Agreement, and supersedes all prior discussions, agreements and
understandings of every kind and nature between them as to such subject matter.
[SIGNATURES ON FOLLOWING PAGE]
9
<PAGE> 10
IN WITNESS WHEREOF, the Company and HCFP have executed this Agreement
as of the date first written above.
COMPANY:
MHM SERVICES, INC.
a Delaware corporation
By: /s/ M.S. Pinkert
--------------------------------
Name: M.S. Pinkert
Title President
HCFP:
HEALTHCARE FINANCIAL PARTNERS,
INC.
a Delaware corporation
By:
--------------------------------
Name:
Title:
10
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of this
15th day of July, 1998 by and between MHM SERVICES, INC., a Delaware corporation
(the "Company"), and MICHAEL S. PINKERT and his heirs and assigns ("Pinkert").
This Agreement is made in connection with the issuance by the Company of a
warrant to Pinkert (the "Warrant"), pursuant to which Pinkert may purchase and
the Company may hereafter issue up to 145,000 shares (the "Warrant Shares") of
the Company's common stock from time to time upon the exercise of the Warrant.
The Company hereby confirms that the rights granted under this Agreement
constitute a material inducement to Pinkert to accept the Warrant in connection
with the transactions under which Warrant is being issued.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. In addition to those terms defined elsewhere in this
Agreement, the following terms shall have the following meanings wherever used
in this Agreement:
"Act" shall mean the Securities Act of 1933, as amended, and any
successor statute from time to time.
"Costs and Expenses" shall mean all of the costs and expenses
relating to any subject Registration Statement, including but not limited to
registration, filing and qualification fees, blue sky expenses, costs of listing
any shares on any exchange or automated quotation system, printing expenses,
fees and disbursements of counsel to the Company, and accounting fees; provided,
however, that underwriting discounts and commissions attributable solely to the
securities registered for the benefit of the Holders, fees and disbursements of
counsel to the Holders, and all other expenses attributable solely to the
Holders shall be borne by them.
"Form S-1," "Form S-3," "Form S-4," "Form S-8" and "Form S-18"
mean such respective forms under the Act as in effect on the date of this
Agreement or any successor registration forms subsequently adopted by the
Securities and Exchange Commission (the "SEC") or any successor regulatory
authority.
"Holder" or "Holders" means any person or persons owning or
having the right to acquire Registrable Securities.
"Registrable Securities" means the Warrant Shares and any common
stock issued (or issuable upon the conversion or exercise of any warrant, right
or other security) as a dividend or other distribution with respect to, or in
exchange for or in replacement of any Warrant Shares.
1
<PAGE> 2
"Registration" shall mean any registration of Registrable
Securities pursuant to a registration statement filed by the Company with the
SEC in respect of any class of Registrable Securities, other than a registration
statement in respect of employee stock options or other employee benefit plans
or in respect of any merger, consolidation, acquisition or like combination,
whether on Form S-3, Form S-4, Form S-8 or any equivalent form of registration
then in effect.
"Registration Statement" shall mean any registration statement
filed or to be filed by the Company in respect of any Registration.
2. DEMAND REGISTRATION.
(a) Subject to the provisions of this Agreement, Holders of at
least 50% of the Registrable Securities entitled to registration rights under
this Agreement may, by written request delivered to the Company (the "Demand
Notice"), demand that the Company effect a Registration to permit the resale of
the Registrable Securities. The Demand Notice may not be made for a number of
shares or Registrable Securities whose aggregate offering price is expected to
be less than $100,000.00.
(b) Within five (5) days of the receipt of the Demand Notice,
the Company shall deliver to all Holders notice of receipt of the Demand Notice
and each Holder shall have a period of fifteen (15) days after delivery of the
notice to inform the Company in writing of their desire to include their Warrant
Shares in the requested Registration. Each Holder shall be permitted to withdraw
all or any part of its Registrable Securities from a Registration Statement by
written notice to the Company given at any time before the effective date of the
Registration Statement.
(c) The Company will use its best efforts to effect the
Registration as soon as practicable after receipt of the Demand Notice, and in
any event to file the Registration Statement within 90 days of the receipt of
the Demand Notice, and to cause the Registration Statement to become effective.
(d) Notwithstanding anything to the contrary contained elsewhere
in this Agreement, if at the time the Demand Notice is received, the Company
does not qualify to file a Registration Statement on Form S-3 or such other
equivalent short-form registration form, then the Company shall immediately
notify each Holder that it is unable to meet the requirements of such Demand
Notice. Upon the Holder's receipt of such notice from the Company, the Company's
obligations under such Demand Notice shall be terminated.
2
<PAGE> 3
3. Piggyback Registration.
(a) Subject to the provisions of this Agreement, in the event
that the Company shall at any time after the date of this Agreement propose a
Registration, then the Company shall give to each Holder written notice (the
"Registration Notice") of such proposed Registration not less than thirty (30)
days prior to the filing of the subject Registration Statement, and shall,
subject to the limitations provided in Section 4, include in such Registration
Statement all or a portion of the Registrable Securities owned by each Holder,
as and to the extent that such Holder may request the same to be so included by
means of written notice given to the Company within fifteen (15) days after
the Company's giving of the Registration Notice.
(b) Each Holder shall be permitted to withdraw all or any part
of its Registrable Securities from a Registration Statement by written notice to
the Company given at any time prior to the effective date of the Registration
Statement.
(c) The Company will use its best efforts to effect the
Registration as soon as practicable after giving the Registration Notice, and to
cause such Registration Statement to become effective.
4. Terms and Conditions of the Company's Obligations. Notwithstanding
anything to the contrary contained in this Agreement, the Company's obligation
to include the Registrable Securities in any Registration Statement pursuant to
Sections 2 and 3 shall be subject, at the option of the Company, to the
following further conditions:
(a) The Registrable Securities proposed to be included in such
Registration Statement may not, at the time of the Registration Notice, be
distributable in open market transactions pursuant to any applicable exemption
from the registration requirements of the Act, including Rule 144 promulgated
thereunder (or any successor thereto);
(b) If an underwriter is used in connection with a Registration,
the distribution for the account of the Holder shall be underwritten by the same
underwriters (if any) who are underwriting the distribution of the securities
for the account of the Company and/or any other persons whose securities are
covered by such Registration Statement, and the Holder shall enter into an
agreement with such underwriters containing customary indemnification and other
provisions;
(c) If the underwriting agreement entered into with the
aforesaid underwriter contains or requires restrictions upon the sale of
securities of the Company by any of the Company, its officers, directors or
other principal stockholders, other than the securities that are to be included
in the proposed distribution, then such restrictions shall likewise be binding
upon the Holder, and if requested by the Company the Holder shall enter into a
written agreement to that effect;
3
<PAGE> 4
(d) If at any time after giving the Registration Notice, and
prior to the effective date of the Registration Statement filed in connection
with such Registration Notice, the Company shall determine for any reason not to
proceed with the subject Registration, the Company may, at its election, give
written notice of such determination to the Holder and, thereupon, shall be
relieved of its obligation to register any of the Holder's Registrable
Securities in connection with such Registration, provided, however, that the
Company may not delay a Demand Registration made pursuant to Section 2 of this
Agreement in accordance with this Section 4(d) for a period longer than one
year.
(e) If, in connection with an underwritten public offering
pursuant to a Registration Statement, the managing underwriter(s) thereof shall
advise the Company in writing that the inclusion of all of the Registrable
Securities and other securities of the Company to be included in such
Registration would interfere with the successful marketing of (including
pricing) of all of the Company's securities requested to be so included (but
which shall not refer to any securities held by or to be newly issued by the
Company), then the Company will promptly furnish each such Holder of Registrable
Securities with a copy of such written statement and may require, by written
notice to each such Holder accompanying such written statement, that the
distribution of all or a specified portion of such Registrable Securities be
excluded from such distribution (in case of an exclusion of only a portion of
such Registrable Securities, such portion to be allocated among the Holders of
Registrable Securities in proportion to the respective number of shares of
Registrable Securities so requested to be registered pursuant to such
Registration Statement by all such Holders); and
(f) The Company shall not be obligated to effect any
registration of Registrable Securities incidental to the registration of any of
its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans or
incidental to the registration of any non-equity securities convertible into
equity securities whether such registration is effected on Form S-3, Form S-4,
Form S-8, or other permitted form.
5. Registration Procedures. In the case of each Registration effected
by the Company in which Registrable Securities are to be sold for the account of
any Holder, the Company will use its best efforts to:
(a) furnish to counsel selected by each Holder copies of all
Registration Statements or prospectuses or any amendments or supplements thereto
proposed to be filed with the SEC, which documents will be subject to review by
such counsel before filing solely with regard to any information contained
therein which pertains to the subject Holder;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
a period of not less than 90 days after the
4
<PAGE> 5
Registrable Securities may first be publicly sold pursuant thereto and to comply
with the provisions of the Act with respect to the disposition of all securities
covered by such Registration Statement during such period;
(c) furnish to each subject Holder such number of copies of such
Registration Statement, each amendment and supplement thereto, the prospectus
included in such Registration Statement (including each preliminary prospectus)
and such other documents as the Holder may reasonably require in order to
facilitate the disposition of the Registrable Securities owned by and registered
on behalf of such Holder;
(d) register or qualify such Registrable Securities under such
other securities or blue sky laws of such states as the underwriter reasonably
requires and do any and all other acts and things which may be reasonably
necessary or advisable to enable each subject Holder to consummate the
disposition of the Registrable Securities in such jurisdictions (provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each subject Holder, at any time when a prospectus
relating to a Registration Statement is required to be delivered under the Act,
of the happening of any event as a result of which the prospectus included in a
Registration Statement contains an untrue statement of a material fact or omits
to state any fact necessary to make the statements therein not materially
misleading, and prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchaser(s) of Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not materially
misleading; and
(f) cause all subject Registrable Securities to be listed for
trading on each securities exchange or automated quotation system on which
similar securities issued by the Company as those which are the subject of such
Registration Statement are then listed.
6. Costs and Expenses. The Company shall bear all of the Costs and
Expenses of Registration under Sections 2 and 3 of this Agreement; provided,
however, that each Holder shall pay, pro rata based upon the number of its
Registrable Securities included therein, the underwriters' discounts,
commissions and compensation attributable solely to the inclusion of such
Registrable Securities in the public offering.
7. Indemnification by the Company.
(a) The Company will indemnify each Holder from and against any
claim, loss, cost, charge or liability of any kind, including amounts paid in
settlement and reasonable attorneys' fees, which may be incurred by the Holder
as a result of any breach of any
5
<PAGE> 6
representation or warranty or covenant of the Company contained in this
Agreement or in any certificate delivered on the closing date of the public
offering by the Company, with such indemnification to be made within thirty (30)
days of receipt of written request therefor.
(b) The Company shall indemnify and hold harmless each Holder,
any underwriter (as defined in the Act) for any Holder, each officer and
director of a Holder, legal counsel and accountants for a Holder, and each
person, if any, who controls a Holder or such underwriter within the meaning of
the Act, against any losses, expenses, claims, damages or liabilities, joint or
several, to which such Holder or any such underwriter, officer, director or
controlling person becomes subject, under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, expenses, claims, damages or
liabilities (or actions in respect thereof) (i) are caused by any untrue
statement or alleged untrue statement of any material fact contained in any
preliminary prospectus (if used prior to the effective date of the Registration
Statement), or contained, on the effective date thereof, in any Registration
Statement of which Warrant Shares were the subject, the prospectus contained
therein, any amendment or supplement thereto, or any other document related to
such Registration Statement, or (ii) 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, or (iii)
arise out of any violation by the Company of the Act or any rule or regulation
thereunder applicable to the Company and relating to actions or omissions
otherwise required of the Company in connection with such registration. The
Company shall reimburse each Holder and any such underwriter, officer, director
or controlling person for any legal or other expenses reasonably incurred by
such Holder, or any such officer, director, underwriter or controlling person in
connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable to any such persons in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information furnished to the Company in
writing by such person expressly for inclusion in any of the foregoing
documents. This indemnity shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company.
8. Indemnification by the Holders. Each Holder participating in the
Registration shall indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed a Registration Statement, legal
counsel and accountants for the Company, each person (if any) who controls the
Company within the meaning of the Act and any underwriter (as defined in the
Act) for the Company, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, controlling person or
underwriter may become subject under the Act or any rule or regulation
thereunder or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) (i) are caused solely by any untrue statement or
alleged untrue statement of any material fact contained in any preliminary
prospectus (if used prior to the effective date of the Registration Statement),
or contained, on the effective date thereof, in any Registration Statement of
which such Holder's Warrant Shares were the subject,
6
<PAGE> 7
the prospectus contained therein, any amendment or supplement thereto, or any
other document related to such Registration Statement, or (ii) arise out of or
are based solely 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, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
to the Company by such Holder expressly for inclusion in any of the foregoing
documents. This indemnity shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the subject Holder.
9. Additional Provisions Regarding Indemnification.
(a) Each Holder and each other person indemnified pursuant to
Section 7 above shall, in the event that it receives notice of the commencement
of any action against it which is based upon an alleged act or omission which,
if proven, would result in the Company's having to indemnify it pursuant to
Section 7 above, promptly notify the Company, in writing, of the commencement of
such action and permit the Company, if the Company so notifies such Holder
within thirty (30) days after receipt by the Company of notice of the
commencement of the action, to participate in and to assume the defense of such
action with counsel reasonably satisfactory to such Holder; provided, however,
that such Holder or other indemnified person shall be entitled to retain its own
counsel at its own expense. The omission to notify the Company promptly of the
commencement of any such action shall not relieve the Company of any liability
to indemnify such Holder or such other indemnified person, as the case may be,
under Section 7 above, except to the extent that the Company shall suffer any
loss by reason of such failure to give notice, and shall not relieve the Company
of any other liabilities which it may have under this or any other agreement.
(b) The Company and each other person indemnified pursuant to
Section 8 above shall, in the event that it receives notice of the commencement
of any action against it which is based upon an alleged act or omission which,
if proven, would result in any Holder having to indemnify it pursuant to Section
8 above, promptly notify such Holder, in writing, of the commencement of such
action and permit such Holder, if such Holder so notifies the Company within
thirty (30) days after receipt by such Holder of notice of the commencement of
the action, to participate in and to assume the defense of such action with
counsel reasonably satisfactory to the Company; provided, however, that the
Company or other indemnified person shall be entitled to retain its own counsel
at the Company's expense. The omission to notify any Holder promptly of the
commencement of any such action shall not relieve such Holder of liability to
indemnify the Company or such other indemnified person, as the case may be,
under Section 9 above, except to the extent that the subject Holder shall suffer
any loss by reason of such failure to give notice, and shall not relieve such
Holder of any other liabilities which it may have under this or any other
agreement.
7
<PAGE> 8
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each indemnified party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. Each indemnified party shall furnish such information regarding
itself or the claim in question as an indemnifying party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) (i) If a court of competent jurisdiction determines that the
foregoing indemnity provided under Sections 7 and 8 above is unavailable, or is
insufficient to hold harmless an indemnified party, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified party as a
result of such losses, claims, damages, liabilities or expenses (A) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other, or
(B) if the allocation provided by clause (A) above is not permitted by
applicable law, or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, but also the relative fault of the
indemnifying party and the indemnified party, as well as any other relevant
equitable considerations. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
(ii) In the event that the indemnifying party and the
indemnified party are unable to mutually agree on the relative benefits to
and/or the relative faults of such persons and the amounts of appropriate
contribution, such dispute shall be resolved by final, binding and enforceable
arbitration before the American Arbitration Association in Washington, D.C.
10. Rule 144. With the view of making available to a Holder the
benefits of Rule 144 promulgated under the Act and any other rule that may at
any time permit a Holder to sell securities of the Company without Registration,
the Company agrees to:
(a) Use its best efforts to make and keep public information
available at all times;
(b) Use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the Act and the
Securities Exchange Act of 1934, as amended (the "1934 Act"); and
(c) So long as any Holder owns any Registrable Shares, to
furnish to such Holder upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 and of the Act and the
1934 Act, a copy of its most recent annual of quarterly report, and such other
information as a Holder may reasonably request in order to permit such Holder to
take advantage of Rule 144.
8
<PAGE> 9
11. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
given in the manner provided in the Warrant.
12. Waiver and Amendment. No waiver, amendment or modification of this
Agreement or of any provision of this Agreement shall be valid unless evidenced
by a writing duly executed by the Company and Holders of a majority of the
Warrant Shares then issued and held and/or issuable upon future exercise of the
Warrants. No waiver of any default hereunder shall be deemed a waiver of any
other, prior or subsequent default hereunder.
13. Governing Law. This Agreement shall be governed, construed and
controlled by and under the substantive laws of the Commonwealth of Virginia
without regard to principles of conflicts of laws.
14. Assignees. This Agreement is solely for the benefit of the Company,
Pinkert, Holders, and any person(s) acquiring Warrant Shares from a Holder
thereof by will or by the laws of descent and distribution. No other transferees
of Warrant Shares shall be entitled to derive any benefit herefrom.
15. Captions. The captions and Section headings used in this Agreement
are for convenience only, and shall not affect the construction or
interpretation of this Agreement or any of the provisions of this Agreement.
16. Entire Agreement. This Agreement constitutes the sole and entire
agreement and understanding between the parties hereto as to the subject matter
of this Agreement, and supersedes all prior discussions, agreements and
understandings of every kind and nature between them as to such subject matter.
[SIGNATURES ON FOLLOWING PAGE]
9
<PAGE> 10
IN WITNESS WHEREOF, the Company and Pinkert have executed this
Agreement as of the date first written above.
COMPANY:
MHM SERVICES, INC.
a Delaware corporation
By: /s/ Illegible signature
-------------------------------------
Name:
Title Vice President
/s/ Michael S. Pinkert
-----------------------------------
Michael S. Pinkert
10
<PAGE> 1
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made as of the 15th day of
July, 1998 between and among MHM Services, Inc. ("MHM"), Oakview Limited
Partnership ("Oakview"), Columbia Health Associates Limited Partnership
("Columbia") (MHM, Oakview, and Columbia are collectively referred to herein as
"Obligors"), Michael Pinkert ("Pinkert"), and MEDIQ, Incorporated ("MEDIQ").
BACKGROUND
A. On or about February 10, 1997, MHM commenced an action in the Superior
Court of New Jersey (Law Division, Camden County) styled MHM Services, Inc. v.
MEDIQ, Inc., Case No. L-4026-97 (the "New Jersey Action") which, inter alia,
challenged the enforceability of indebtedness (the "Indebtedness") due to MEDIQ
by Obligors under a promissory note delivered by MHM in favor of MEDIQ dated
August 31, 1993 in the original principal amount of $11,500,000.00 (the "Note").
B. On April 17, 1998, the Court entered judgment (the "Judgment") against
Obligors in the amount of $11,783,423.31 (the "Judgment Amount") in the New
Jersey Action. On or about May 28, 1998, Obligors filed a notice of appeal with
the Superior Court of New Jersey Appellate Division, Docket No. A-484-97-T2 (the
"Appeal").
C. On or about May 7, 1998, the Judgment was transferred, filed and
docketed in the Circuit Court of Fairfax County, Virginia pursuant to the
Uniform Enforcement of Judgments Act, VA Code Section 8.01-465.1, et seq under
Miscellaneous Number 85602, Judgment No. 311372 (the "Virginia Judgment").
Notice of filing of foreign judgment was provided by MEDIQ to MHM on May 6, 1998
in accordance with applicable law.
D. A Garnishment Summons was served on NationsBank, N.A., and MHM on July
2, 1998, and July 6, 1998, respectively, in accordance with Va. Code Sections
8.01-511, et seq., which constitutes a garnishment and levy upon all accounts
maintained by MHM at NationsBank, N.A. (the "NationsBank Garnishment").
E. On or about July 6, 1998, a notice of lien was served on NationsBank,
N.A. and MHM in accordance with VA Code Sections 8.01-501 and 8.01-502 which
constitutes notice to NationsBank of MEDIQ's lien on all of MHM's property that
is not capable of being levied upon, including without limitation, all debts and
other monies owed by NationsBank to or which NationsBank is obligated to advance
to MHM (the "Virginia Lien Notice").
F. On or about July 8, 1998, a Summons for Debtors Interrogatories was
served on MHM in accordance with Va. Code Sections 8.01-506. et seq., such
Summons commanding MHM to be examined under oath and to produce documents on
July 9, 1998, before a Commissioner in Chancery of Fairfax County, Virginia (the
"Virginia Interrogatories").
<PAGE> 2
G. The Obligors assigned to MEDIQ, as collateral security for the
Indebtedness of Obligors to MEDIQ under the Note, certain rights, title, and
interest held by Obligors, including but not limited to indebtedness due to one
or more Obligors under a certain Promissory Note 1, dated April 5, 1996 in the
original principal amount of $1,875,000 (the "Glass Note") and collateral
pledged in connection with the Glass Note (including but not limited to the Deed
of Trust, also dated April 15, 1996 with respect to realty and improvements
located in Maryland), as more fully set forth in a Collateral Assignment of
Glass Purchase Agreements dated April 5, 1996 (the "Collateral Assignment").
H. In or about December, 1997, MEDIQ filed a complaint in the Superior
Court of Delaware for New Castle County styled MEDIQ, Inc. v. Pinkert, Case No.
16528, alleging causes of action against Pinkert including, inter alia, breach
of fiduciary duty (the "Pinkert Action").
I. The parties have conducted discussions concerning resolution and
settlement of Obligors' Indebtedness under the Judgment, the claim asserted in
the Pinkert Action, and other proceedings in connection therewith and related
thereto.
NOW THEREFORE, the parties hereto, incorporating the foregoing Background
by reference as if fully set forth below, hereby agree as follows:
AGREEMENT
1. Status of Indebtedness and Judgment. For purposes of this Agreement,
the status of the Indebtedness under the Note as of the date of this Agreement
is as follows:
(a) The amount of the Indebtedness under the Note as of April 28,
1998 was the Judgment Amount, together with all additional charges, interest and
other amounts which accrue and become due with the passage of time under the
Note, Judgment and applicable law.
(b) Obligors acknowledge and agree that the Judgment is valid,
legally binding, and enforceable pursuant to its terms, and constitutes valid
and binding obligations of Obligors.
(c) As security for the Indebtedness under the Note and Judgment,
Obligors acknowledge and agree that MEDIQ holds a valid and perfected first
priority security interest in and lien against the Glass Note and other property
identified in the Collateral Assignment (collectively, the "Collateral"), and
pursuant to the Collateral Assignment and applicable law, Obligors absolutely
and unconditionally assigned all of their respective rights and interests in the
Collateral to MEDIQ.
(d) Obligors additionally acknowledge and agree as follows:
(i) the Virginia Judgment was properly filed and notice of
filing thereof properly served upon Obligors in accordance with applicable law;
-2-
<PAGE> 3
(ii) the NationsBank Garnishment and the Virginia Lien Notice
were properly filed and served on MHM and NationsBank in accordance with
applicable law and are valid and enforceable;
(iii) the Virginia Interrogatories were properly filed and
served on MHM in accordance with applicable law and are valid and enforceable.
(iv) MEDIQ delivered all notices required by the Collateral
Assignment to MEDIQ and the obligors under the Glass Note, and MEDIQ is entitled
to receive all amounts due and owing under the Glass Note and the Collateral;
and
(v) Obligors acknowledge and agree that they hold no defense,
claim, counterclaim, setoff, recoupment, or cause of action against the
Judgment, the Virginia Judgment, the Indebtedness and/or MEDIQ, its agents,
representatives, employees and/or attorneys.
2. Settlement Amount. MEDIQ agrees that, conditioned upon Obligors' and
Pinkert's strict compliance with all terms and conditions of this Agreement,
MEDIQ shall accept the amount of Three Million ($3,000,000) Dollars or on before
July 15, 1998 (the "Closing Date") in full settlement of the Indebtedness under
the Note and Judgment, the Virginia Judgment, and claim asserted by MEDIQ in the
Pinkert Action (the "Settlement Amount"). Payment of the Settlement Amount shall
be made by wire transfer of immediately available funds to MEDIQ, as designated
in writing by MEDIQ to MHM prior to the Closing Date. The date of delivery and
receipt of the Settlement Amount by Obligors and Pinkert to MEDIQ and delivery
of the documents, instruments, and pleadings identified in Sections 4 and 5
below (collectively, the "Closing Documents") shall be referred to in this
Agreement as the "Closing Date."
3. Application of Settlement Amount. MEDIQ shall have complete and full
discretion in the application of the Settlement Amount paid by Obligors and
Pinkert to MEDIQ under this Agreement against the Judgment Amount and claim
asserted in the Pinkert Action.
4. Scheduling and Place of Closing.
(a) The Closing Date shall occur on or before July 15, 1998, time
being of the essence. The Closing will take place on July 15, 1998 at 11:00 at
the offices of Hunton & Williams, MEDIQ's counsel, 1751 Pinnacle Drive, Suite
1700, McLean, VA 22102, or other time and place agreed upon by MEDIQ in its sole
discretion.
(b) Delivery of Documents by MEDIQ Upon Receipt of Settlement Amount
at Closing. Upon receipt by MEDIQ of the Settlement Amount on the Closing Date,
MEDIQ shall deliver to Obligors the following documents, instruments, and
notices:
(i) Stipulation of Dismissal of the New Jersey Action, in the
form annexed hereto as Exhibit "A";
-3-
<PAGE> 4
(ii) Stipulation releasing Judgment in the New Jersey Action
in the form annexed hereto as Exhibit "B";
(iii) Release of Judgment vacating the Virginia judgment, in
the form annexed hereto as Exhibit "C";
(iv) Praecipe of Dismissal of Garnishment filed in connection
with the Virginia Judgment, in the form annexed hereto as Exhibit "D";
(v) Original Note, marked "settled and paid";
(vi) Release by MEDIQ in favor of Obligors, in the form
annexed hereto as Exhibit "E";
(vii) Original Guaranty by Oakview and Columbia of the
Indebtedness marked "cancelled";
(viii) Release of Collateral Assignment, in the form annexed
hereto as Exhibit "F"; and
(ix) Notice to obligors under Glass Note rescinding prior
notices delivered by MEDIQ exercising MEDIQ's rights under the Collateral
Assignment, in the form annexed hereto as Exhibit "G".
(c) Delivery of Documents by Obligors to MEDIQ at Closing. At the
time of Closing, Obligors shall deliver to MEDIQ the following documents,
instruments, and notices:
(i) Release by Obligors in favor of MEDIQ in the form annexed
hereto as Exhibit "H"; and
(ii) Stipulation of Dismissal of the Appeal in the State Court
Action, in the form annexed hereto as Exhibit "I".
5. Additional Deliveries at Closing; Escrow Agreement and Escrow Documents
resolving Pinkert Action. (a) Escrow and Escrow Documents. At the time of the
Closing, Pinkert and MEDIQ shall deliver to MEDIQ's designee (the "Escrow
Agent") documents and pleadings which shall dismiss the Pinkert Action and
release claims by and between MEDIQ and Pinkert (collectively, the "Escrow
Documents"), to be held by the Escrow Agent in escrow pursuant to an escrow
agreement between MEDIQ and Pinkert in the form annexed to this Agreement as
Exhibit "J" (the "Escrow Agreement"). The Escrow Documents shall include the
following:
(i) Stipulation of Dismissal of the Pinkert Action, with
prejudice, in the form annexed hereto as Exhibit "K";
-4-
<PAGE> 5
(ii) Release by MEDIQ in favor of Pinkert, in the form annexed
hereto as Exhibit "L"; and
(iii) Release by Pinkert in favor of MEDIQ, in the form
annexed hereto as Exhibit "M".
(b) Release of Escrow Documents by Escrow Agent. (a) The date for
release of the Escrow Documents from escrow by the Escrow Agent (the "Escrow
Document Release Date") shall be the date ninety-one (91) calendar days after
the date of receipt by MEDIQ of the Settlement Amount under this Agreement;
provided however, if prior to the expiration of the 91-day period, either an
Avoidance Action (as defined below) is commenced against MEDIQ or a case (an
"Insolvency Proceeding") is commenced by or against Obligors or Pinkert or any
of them under any state or federal insolvency law, including but not limited to
the filing of a petition by or against Obligors or Pinkert or any of them under
the United States Bankruptcy Code, 11 U.S.C. Sections 101, et seq. (the "Code"),
the Escrow Document Release Date shall not occur, if at all, until the date on
which the following occurs:
(i) The Insolvency Proceeding is dismissed and/or closed by
order of the court of competent jurisdiction over the Insolvency Proceeding,
such order dismissing or closing the Insolvency Proceeding is no longer subject
to reconsideration or appeal, and no adversary proceeding or action (an
"Avoidance Action") has been filed against MEDIQ asserting claims (the
"Avoidance Claims") for (i) avoidance, rescission, or return of the Settlement
Amount or any part thereof of the Settlement Amount under Sections 545, 546,
547, 548, 549, 550, and/or 553 of the Code, any state statutory or common law,
or otherwise, or (ii) rescission or rejection of the release of MEDIQ delivered
by Obligors to MEDIQ under this Agreement;
(ii) an Avoidance Action is filed and thereafter dismissed
with prejudice by order of the court of competent jurisdiction over the
Avoidance Action, and such order of dismissal is no longer subject to
reconsideration or appeal; or
(iii) the applicable statute of limitations, if any,
pertaining to such Avoidance Claims has passed and such Avoidance Action can no
longer be brought under applicable law without being barred by an applicable
statute of limitation.
(c) Forbearance in Pinkert Action Pending Occurrence of Escrow
Document Release Date. MEDIQ and Pinkert agree to forbear further prosecution
and defense of the Pinkert Action pending the earlier to occur of the Escrow
Document Release Date or a Forbearance Event of Default (the "Forbearance Events
of Default") under this Agreement. For the purposes of this Agreement, a
Forbearance Event of Default shall include (i) the commencement of an Avoidance
Action against MEDIQ; or (ii) breach of the terms and conditions of this
Agreement by Pinkert or Obligors. Upon the occurrence of a Forbearance Event of
Default, the parties' forbearance of prosecution of the Pinkert Action shall
terminate without further notice or demand. The parties agree to file such
stipulations with the Court in the Pinkert Action as are necessary to implement
the forbearance provided by the terms of this Agreement.
-5-
<PAGE> 6
6. Reinstatement of Indebtedness. Obligors and Pinkert acknowledge and
agree that the material inducement for MEDIQ to execute this Agreement is the
payment of the Settlement Amount. In the event (a) an Avoidance Action is
commenced against MEDIQ for the return, avoidance, rescission, or rejection of
the Settlement Amount and/or the release provided to MEDIQ under this Agreement
and (b) MEDIQ is compelled by court order or, in its sole discretion and in good
faith, MEDIQ enters into a settlement agreement with a trustee,
debtor-in-possession, or other party plaintiff to such Avoidance Action which
provides for a payment in settlement of any Avoidance Claim asserted against
MEDIQ in such Avoidance Action, the following shall occur: (i) the release by
MEDIQ of Obligors of the Indebtedness under the Note and Judgment shall be
rendered null and void ab initio without further notice or action by MEDIQ; (ii)
the entire Indebtedness will be reinstated and due and owing by Obligors to
MEDIQ; without setoff, demand, recoupment, defense, or counterclaim; and (iii)
MEDIQ shall have the right to assert a claim in any Insolvency Proceeding
against the Obligors in the full amount of the Indebtedness or against Pinkert
for the alleged liability of Pinkert, as applicable. Notwithstanding the
reinstatement of the Indebtedness of Obligors to MEDIQ, the release of claims by
Obligors in favor of MEDIQ shall survive and remain in full force and effect.
7. Understandings of the Parties. (a) This Agreement and other agreements
and instruments executed in connection with this Agreement herein, (i)
constitute the entire understanding between the parties hereto, (ii) without
limiting the generality of the foregoing, supersede all letters, agreements in
principle, outlines of terms or other oral or written communications between the
parties hereto, and (iii) may not be modified, amended or terminated, except by
a written agreement which is signed by each of the parties hereto.
(b) Each of the parties hereto stipulates and agrees that such party
has not relied upon any representations, statements, covenants or warranties in
entering into this Agreement and performing the respective actions contemplated
hereby other than those actually set forth in this Agreement, incorporated by
reference by this Agreement, or specifically referred to in this Agreement. All
representations and warranties contained herein shall be true and correct as of
the Closing Date.
(c) Each party represents that it has received independent advice
from legal counsel of its choosing with respect to the advisability of entering
into this Agreement and making the agreements and providing the releases,
waivers and expressions of intent contained in this Agreement.
(d) Each party represents that it has read this Agreement and
understands the contents hereof.
8. Representations and Warranties of Obligors. Obligors represent and
warrant as follows:
(a) Each Obligor (i) is duly organized and validly existing under
the laws of the state of its incorporation or organization; (ii) has the
requisite power and authority to
-6-
<PAGE> 7
effect the transactions contemplated hereby; and (iii) has all requisite power
and authority and the legal right to own, pledge, mortgage and operate its
property, and to conduct its business.
(b) The execution, delivery and performance by each Obligor of this
Agreement, the Escrow Agreement, and all other agreements and instruments
executed in connection with this Agreement to which it is a party, (i) are
within the respective powers of such Obligor, and (ii) have been duly authorized
by all necessary corporate or partnership action, including the consent of
shareholders or partners where required.
(c) This Agreement has been duly executed and delivered by each
Obligor. This Agreement is, and each of the other agreements to which any
Obligor will be a party, when delivered hereunder or thereunder, will be a
legal, valid, and binding obligation of such Obligor, enforceable against it in
accordance with its terms.
9. Representations and Warranties of MEDIQ. MEDIQ represents and warrants
as follows:
(a) MEDIQ (i) is duly organized and validly existing under the laws
of the state of its incorporation or organization; (ii) has the requisite power
and authority to effect the transactions contemplated hereby; and (iii) has all
requisite power and authority and the legal right to conduct its business.
(b) The execution, delivery and performance by MEDIQ of this
Agreement, the Escrow Agreement, and all other agreements and instruments
executed in connection with this Agreement to which it is a party, (i) are
within the respective powers of MEDIQ, and (ii) have been duly authorized by all
necessary corporate action.
(c) This Agreement has been duly executed and delivered by MEDIQ.
This Agreement is, and each of the other agreements to which MEDIQ will be a
party, when delivered hereunder or thereunder, will be a legal, valid, and
binding obligation of MEDIQ, enforceable against it in accordance with its
terms.
10. No Third Party Beneficiaries. This Agreement is made for the sole
benefit of the parties hereto, except with respect to (a) sections above
pertaining to releases of additional parties referred to herein, who shall
receive the benefits of those releases even though they may not be parties to
this Agreement in their individual capacities, and (b) the representations,
warranties, agreements and attestations of Obligors as herein set forth, which
have been made for the protection and benefit of MEDIQ, its successors and
assigns.
11. TIME IS OF THE ESSENCE. TIME SHALL BE OF THE ESSENCE WITH RESPECT TO
EACH AND EVERY TERM OF THIS AGREEMENT.
12. Authority. Each person executing this Agreement represents and
warrants that such person is lawfully authorized and empowered to execute this
Agreement on behalf of
-7-
<PAGE> 8
the entity on whose behalf such person is signing, and that upon execution, this
Agreement will be binding upon such entity, without any further approval,
ratification, or other action.
13. Binding on Successors and Assigns. This Agreement shall inure to the
benefit of, and shall be binding upon, Obligors, Pinkert, MEDIQ, and each of
their respective successors and assigns.
14. No Waiver. No delay or omission by MEDIQ in exercising any right or
power arising under this Agreement reason of any default hereunder or thereunder
shall be construed as a waiver of such default or as an acquiescence therein,
nor shall any single or partial exercise thereof preclude any further exercise
thereof. No waiver of any default shall be construed as a waiver, acquiescence
or consent to any preceding or subsequent default.
15, Further Assurances. Obligors, Pinkert and MEDIQ mutually covenant and
agree to execute any additional documents and to do all other acts reasonably
required to effect the intent and purposes of this Agreement.
16. Effective Date. This Agreement shall be effective as of the date set
forth above upon (i) receipt by MEDIQ of the Settlement Amount and (ii)
execution and delivery by the parties of the Closing Documents and execution and
delivery to the Escrow Agent of the Escrow Agreement and Escrow Documents
provided by Sections 4 and 5 herein.
17. Notice. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be given to each party hereto (i)
by U.S. First Class Mail and (ii) either overnight delivery service, telecopy,
or U.S. Certified Mail as follows:
If to Obligors and Pinkert:
MHM Services, Inc.
8000 Towers Crescent Drive
Suite 810
Vienna, VA 22182
Attn: Lee Caligaro, Esquire
Telecopy No.: 703-749-4604
with a copy to:
Gins & Greenfield
2021 "L" Street, N.W., Suite 200
Washington, DC 20026
Telecopy No. 202-785-9678
Att'n: Richard H. Gins, Esquire
-8-
<PAGE> 9
20. Counterparts. This Agreement may be executed by each party in
identical counterparts, each of which shall be deemed to be an original and all
of which, taken together, shall constitute one agreement binding upon all
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MHM Services, Inc.
By: /s/ M. S. PINKERT
----------------------------------
Its: President
OAKVIEW LIMITED PARTNERSHIP
By: MHM Services, Inc.
Its General Partner
By: /s/ M. S. PINKERT
------------------------------
Its: President
COLUMBIA ASSOCIATES LIMITED PARTNERSHIP
By: MHM Services Inc.
Its General Partner
By: /s/ M. S. PINKERT
------------------------------
Its: President
/s/ MICHAEL S. PINKERT
--------------------------------------
MICHAEL S. PINKERT
MEDIQ, INCORPORATED
By: /s/ ALAN S. EICHORN
----------------------------------
Its: General Counsel
-9-
<PAGE> 10
If to MEDIQ:
MEDIQ, Incorporated
One Mediq Plaza
Pennsauken, NJ 08110
Attn: Alan S. Einhorn, Esquire
Telecopy No.: 609-661-0958
with a copy to.
DRINKER BIDDLE & REATH
1345 Chestnut Street
PNB Building, Suite 1100
Philadelphia, PA 19107-3496
Telecopy No.: 215-988-1809
Att'n: Andrew C. Kassner, Esquire
(or at such other address as shall be designated by such party in a notice to
each other party complying with the terms of this Section).
18. Partnership. Nothing herein shall be deemed or construed to create a
partnership or joint venture between any of the parties hereto.
19. Governing Law. This Agreement and performance hereunder shall be
governed by the laws of the State of Delaware.
[THIS SPACE LEFT INTENTIONALLY BLANK]
-9-
<PAGE> 11
20. Counterparts. This Agreement may be executed by each party in
identical counterparts, each of which shall be deemed to be an original and all
of which, taken together, shall constitute one agreement binding upon all
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
MHM Services, Inc.
By:___________________________________
Its:__________________________________
OAKVIEW LIMITED PARTNERSHIP
By:___________________________________
Its General Partner
By:________________________________
Its:_______________________________
COLUMBIA ASSOCIATES LIMITED PARTNERSHIP
By:___________________________________
Its General Partner
By:________________________________
Its:_______________________________
______________________________________
MICHAEL PINKERT
MEDIQ, INC.
By:___________________________________
Its:__________________________________
-10-
<PAGE> 12
HANNOCH WEISMAN
A Professional Corporation
4 Becker Farm Road
Roseland, New Jersey 07068
(201) 535-5300
Attorneys for Plaintiff MHM Services, Inc. and
Third-Party Defendants Columbia Health Associates
Limited Partnership and Oakview Limited Partnership
SUPERIOR COURT OF NEW JERSEY
LAW DIVISION-CAMDEN COUNTY
DOCKET NO. CAM-L-004026-97
- -------------------------
MHM SERVICES, INC., :
a Delaware corporation, :
:
Plaintiff, : Civil Action
:
v. : STIPULATION OF DISMISSAL
: WITHOUT COSTS
MEDIQ, INCORPORATED, :
a Delaware corporation, :
:
Defendant. :
- -------------------------
The matter in difference in the above-entitled action having been amicably
settled and adjusted by and between the parties, it is hereby stipulated and
agreed that the same (inclusive of the complaint, counterclaim and third-party
complaint) be and is hereby dismissed with prejudice, subject to the terms and
conditions of that certain settlement Agreement between the parties, dated as of
July 15, 1998 without costs.
HANOCH WEISMAN, P.C. DRINKER BIDDLE & REATH, LLP
Attorneys for Plaintiff MHM Attorneys for Defendant
Services, Inc. and Third-Party MEDIQ, Incorporated
Defendants Columbia Health
Associates Limited Partnership
and Oakview Limited Partnership
By:______________________________ By:______________________________
Joseph J. Fleischman John F. Schultz
<PAGE> 13
HANNOCH WEISMAN
A Professional Corporation
4 Becker Farm Road
Roseland, New Jersey 07068
(201) 535-5300
Attorneys for Plaintiff MHM Services, Inc. and
Third-Party Defendants Columbia Health Associates
Limited Partnership and Oakview Limited Partnership
SUPERIOR COURT OF NEW JERSEY
LAW DIVISION-CAMDEN COUNTY
DOCKET NO. CAM-L-004026-97
- ------------------------- Judgment No.
MHM SERVICES, INC., :
a Delaware corporation, : Book , Page
:
Plaintiff, : Civil Action
:
v. : WARRANT OF RELEASE
: OF JUDGMENT
MEDIQ, INCORPORATED, :
a Delaware corporation, :
:
Defendant. :
- -------------------------
TO: THE CLERK OF THE ABOVE NAMED COURT
You are hereby directed to release of record the judgment docketed in the
office of the Clerk of the Superior Court of New Jersey on April 17, 1998, in
the above entitled action, in favor of defendant MEDIQ, Incorporated, judgment
creditor, and against plaintiff MHM Services, Inc. judgment debtor, in the
amount of $11,783,423.31, plus interest and costs.
DRINKER BIDDLE & REATH, LLP
Attorneys for Debtor
By:__________________________________
John F. Schultz
<PAGE> 14
CERTIFICATION
I certify that the foregoing statements made by me are true. I am aware
that if any of the foregoing statements made by me are willfully false, I am
subject to punishment.
_____________________________________
John F. Schultz
-2-
<PAGE> 15
RELEASE OF JUDGMENT
KNOW ALL MEN BY THESE PRESENTS that _______________, the duly authorized
________________ and agent for Mediq Incorporated, judgment creditor, hereby
directs the Clerk of the Circuit Court of Fairfax County, Virginia, to enter on
the judgment lien docket the release of the following judgment: the judgment
lien docket the release of the following judgment: the judgment rendered in the
Superior Court of New Jersey for Camden County on April 17, 1998, in favor of
Mediq Incorporated against MHM Services, Inc., in the suit styled MHM Services,
Inc. V. Mediq Incorporated, Docket No. CAM-L-004026-97, and docketed in the
Circuit Court of Fairfax County, Virginia, on May 8, 1998, in Judgment Book
______, page ___, in the amount of $11,783,423.31, plus interest calculated in
accordance with New Jersey Rule 4:42-11(a)(iii) (currently 5.5 percent per
annum) from April 17, 1998 until paid.
GIVEN under my hand this _______ day of July, 1998.
_______________________________
Name___________________________
Title__________________________
COMMONWEALTH OF VIRGINIA )
COUNTY OF FAIRFAX ) TO-WIT:
Personally appeared before me, the undersigned Notary Public, __________,
____________, of Mediq Incorporated, a _________________, corporation, whose
name is signed to the foregoing instrument and acknowledged the same before me
this ____ day of July, 1998, on behalf of the corporation.
____________________________
Notary Public
My commission expires:____________________________
<PAGE> 16
IN THE CIRCUIT COURT OF FAIRFAX COUNTY
- ------------------------------
PLAINTIFF/JUDGMENT CREDITOR
AT LAW NO.
- ------------------------------ --------------------
DEFENDANT/DEBTOR
JUDGMENT NO.
--------------------
- ------------------------------
GARNISHEE
GARNISHMENT PRAECIPE
(check one only)
Plaintiff/Judgment Creditor requests that the following action be taken in this
garnishment action at this time:
1) Enter the attached Order For Payment
------
2) Dismiss this garnishment action
------
3)* Continue this matter to Friday, on the 9:00 a.m.
------ --------------------
without a Judge docket for service or for an answer from the
Co-Defendant.
4)* Enter the attached Rule to Show Cause against the Co-Defendant
------ returnable Friday, at 10:00 a.m.
-----------------
5)* Continue this matter to Friday, at 10:00 a.m.
------ -------------------
for further proceedings against the Co-Defendant.
*If you are requesting that this matter be placed on the Motions Day docket
pursuant to 3, 4 or 5 above you must also file the Court's Motions' Day
Praecipe Notice Form.
Dated:
- ----------------------------------------- ------------------------
Counsel for Plaintiff/Plaintiff
Va. State Bar #
--------------------------
- -----------------------------------------
Address
- -----------------------------------------
- -----------------------------------------
Phone #
Certificate of Service
I HEREBY CERTIFY that a true copy of the foregoing was mailed postage prepaid
to all counsel of record or pro se parties this day of , 19 .
----- --------- --
Counsel for Plaintiff/Plaintiff:
------------------------
<PAGE> 17
RELEASE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which
are hereby acknowledged, MEDIQ, Incorporated (the "Releasor"), does hereby
absolutely and unconditionally forever release, discharge and acquit MHM
Services, Inc., Oakview Limited Partnership, and Columbia Health Associates
Limited Partnership and their respective affiliates, subsidiaries, officers,
directors, partners, employees, and respective successors and assigns
(collectively, the "Releasee" or the "Releasees"), of and from any and all
claims, demands, obligations, liabilities, indebtedness, breaches of contract,
breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance,
cause or causes of action, debts, sums of money, accounts, compensation,
contracts, controversies, promises, damages, costs, losses and expenses, of
every type, kind, nature, description or character, and irrespective of how,
why, or by reason of what facts, whether heretofore or now existing, of whatever
kind or name, whether known or unknown, suspected or unsuspected, liquidated or
unliquidated, from the beginning of the world to the date hereof, that the
Releasor held against Releasees, including, without limitation, any claims
arising under or related to the action styled MHM Services, Inc. v. Mediq,
Incorporated, pending in the Superior Court of New Jersey, Case No.
CAM-L-004026-97.
As further consideration for this Release, the Releasor hereby agrees,
represents and warrants that the matters released herein are not limited to
matters which are known or disclosed, and the Releasor hereby waives any and all
rights and benefits which it has upon it, including, without limitation, claims
which the Releasor does not know or suspect to exist in its favor at the time of
executing this Release, which if known by it may have materially affected its
settlement with the Releasees; provided, however, that the release set forth
herein shall not include a release of claims arising from Releasees' breach of
their obligations under that certain Settlement Agreement by and among
Releasors, Releasees, and Michael Pinkert, dated as of July 15, 1998 (the
"Settlement Agreement"). Capitalized terms not defined in this Release shall
have the same meaning assigned to such terms in the Settlement Agreement.
This Release shall be null and void ab initio, and of no force and
effect in the event that (i) an Avoidance Action is commenced seeking avoidance,
rescission, or return of the Settlement Amount or any portion thereof or the
release of Releasor by Releasees under the Settlement Agreement and (ii) MEDIQ
(a) is compelled by court order to make payment on account of Avoidance Claims
asserted in such Avoidance Action or (b) in its sole discretion but in good
faith enters into a settlement agreement with the plaintiff to such Avoidance
Action which provides for a payment in settlement of such Avoidance Claims.
The acceptance of delivery of this Release by the parties released
hereby shall not be deemed or construed as an admission of liability by any
party released by the terms hereof, and each such party hereby expressly denies
liability of any nature whatsoever arising from or related to the subject of the
within Release.
The Releasor hereby agrees, represents and warrants that it has had
advice of counsel of its own choosing in negotiations for and the preparation of
this Release, that it has read this Release or has had the same read to it by
its counsel, that it has had this Release fully explained
<PAGE> 18
by such counsel, and that it is fully aware of its contents and legal effect.
IN WITNESS WHEREOF, the undersigned has executed this Release on this
____ day of July 1998.
MEDIQ, INCORPORATED
By: __________________________________
Title:
In the presence of :
STATE OF NEW JERSEY :
ss
COUNTY OF ________________ :
On , 1998 before me personally came _____________, known to me to be the
individual described herein, and who executed the foregoing RELEASE, and duly
acknowledged to me that he executed the same and that such execution was his
free act and deed.
______________________________________
Notary Public
-2-
<PAGE> 19
RELEASE
THIS RELEASE is made this ___ day of ___________________________, 1998 by
MEDIQ INCORPORATED.
RECITALS
R-1. Pursuant to the terms of that certain Collateral Assignment of Glass
Purchase Agreements dated April 5, 1996, from Oakview Limited Partnership
("Oakview") and Columbia Health Associates Limited Partnership ("CHALP"), the
following documents were collaterally assigned to MEDIQ, ("Lender") to secure
certain financing agreements between the Lender, Mental health Management,
Inc., Oakview and CHALP (collectively, the "Pledged Documents"):
(a) Purchase Money Note No. 1 from Glass Mental Health Foundation,
Inc., payable to the order of Oakview and CHALP dated April 5,
1996 in the original principal amount of $1,875,000 ("Note 1");
and
(b) Security Agreement dated April 5, 1996 from Glass Mental Health,
Inc. securing Oakview and CHALP; and
(c) Purchase Money Deed of Trust and Security Agreement from Glass
Mental Health, Inc., securing Oakview and CHALP and recorded in
Liber 3700 in folio 315 among the Land Records of Howard County,
Maryland.
R-2. The collateral assignment of the Pledged Documents was subject to the
prior rights of Congress Financial Corporation ("Congress").
R-3. As a result of the prior rights of Congress, Note 1 was delivered to
Congress and never delivered to Lender.
R-4. The indebtedness secured by the Pledged Documents has been resolved
by settlement and the Lender desires to terminate and release any security
interest it has in the Pledged Documents.
NOW, THEREFORE, in consideration of the mutual premises herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Lender agrees as follows:
1. The Recitals are incorporated herein by reference.
2. The indebtedness secured by the Pledged Documents has been resolved
by settlement. At the time of the resolution of such indebtedness, Lender
continued to be the holder of the security interest in the Pledged Documents.
1
<PAGE> 20
3. Lender hereby releases any security interest it holds in the Pledged
Documents and agrees to execute any further documents reasonably necessary to
effectuate its release of such security interest, including UCC-3 terminations,
if necessary.
IN WITNESS WHEREOF, the Lender has executed this release as of the date
first above written.
ATTEST/WITNESS: LENDER:
MEDIQ INCORPORATED
______________________________ By:_____________________________
STATE OF MARYLAND :
: ss:
COUNTY OF ____________________ :
I HEREBY CERTIFY THAT on this ____ day of __________, 1998, before the
undersigned, a Notary Public of the State and County aforesaid personally
_____________________________, who acknowledged himself/herself to be the
__________________________ of MEDIQ Incorporated, a corporation, and that
he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
(SEAL)
_______________________________
Notary Public
MY COMMISSION EXPIRES:
2
<PAGE> 21
July__, 1998
Congress Financial Corporation
1133 Avenue of the Americas
New York, NY 10036
Gentlemen:
Reference is made to a certain Purchase Money Deed of Trust and
Security Agreement from Glass Mental Health, Inc., securing the Oakview Limited
Partnership ("Oakview") and Columbia Health Associates Limited Partnership
("CHALP") indebtedness; a certain Security Agreement, dated April 5, 1996, from
Glass Mental Health, Inc. securing the Oakview and CHALP indebtedness; a
Purchase Money Note No. 1, dated April 5, 1996, in the face amount of
$1,875,000, and a Purchase Money Note No. 2, dated April 5, 1996, in the face
amount of $275,000 (collectively "Notes") each of which Notes have been executed
by Glass Mental Health Foundation, Inc. and assigned to Congress.
Recognizing that Congress has been paid in full, we hereby waive any
requirement that these Notes be transferred to us, as provided for at the time
of the assignment, and claim no rights in and to these Notes.
MEDIQ INCORPORATED
By:____________________________
Title:_________________________
<PAGE> 22
RELEASE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which
are hereby acknowledged, the undersigned MHM Services, Inc., Oakview Limited
Partnership and Columbia Health Associates Limited Partnership, and their
respective subsidiaries, affiliates, successors and assigns (collectively, the
"Releasors"), do hereby absolutely and unconditionally forever release,
discharge and acquit MEDIQ, Incorporated and its respective affiliates,
subsidiaries, officers, directors, attorneys, agents and employees
(collectively, the "Releasee" or the "Releasees"), of and from any and all
claims, demands, obligations, liabilities, indebtedness, acts, omissions,
misfeasance, malfeasance, cause or causes of action, debts, sums of money,
accounts, compensation, contracts, controversies, promises, damages, costs,
losses and expenses, of every type, kind, nature, description or character, and
irrespective of how, why, or by reason of what facts, whether heretofore or now
existing, of whatever kind or name, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, from the beginning of the world to the
date hereof.
As further consideration for this Release, the Releasors hereby agree,
represent and warrant that the matters released herein are not limited to
matters which are known or disclosed, and the Releasors hereby waive any and all
rights and benefits which now have conferred upon them, including, without
limitation, claims which the Releasors do not know or suspect to exist in favor
of Releasor at the time of executing this Release, which if known by them or any
of them may have materially affected their respective settlements with the
Releasee.
The acceptance of delivery of this Release by the parties released
hereby shall not be deemed or construed as an admission of liability by any
party released by the terms hereof, and each such party hereby expressly denies
liability of any nature whatsoever arising from or related to the subject of the
within Release.
The Releasors hereby agree, represent and warrant that they have had
advice of counsel of their own choosing in negotiations for and the preparation
of this Release, that they have read this Release or has had the same read to
them by their counsel, that they have had this Release fully explained by such
counsel, and that they are fully aware of its contents and legal effect.
<PAGE> 23
IN WITNESS WHEREOF, the undersigned have executed this Release on
this____day of July, 1998.
MHM Services, Inc.
BY:____________________________
Its:___________________________
In the presence of
COMMONWEALTH OF VIRGINIA :
: ss
COUNTY OF :
On_____________, 1998 before me personally came ____________________________,who
has been proven to me to be the____________________________of MHM Services, Inc.
described herein, and who executed the foregoing RELEASE, and duly acknowledged
to me that he executed the same and that such execution was his free act and
deed.
______________________________________
Notary Public
OAKVIEW LIMITED PARTNERSHIP
By:__________________________________
Its General Partner
By:__________________________________
Its:_________________________________
In the presence of
COMMONWEALTH OF VIRGINIA :
: ss
COUNTY OF :
On _________, 1998 before me personally came ______________,who has been proven
to me to be the_____________of Oakview Limited Partnership, described herein,
and who executed the foregoing RELEASE, and duly acknowledged to me that he
executed the same and that such execution was his free act and deed.
____________________________________
Notary Public
2
<PAGE> 24
COLUMBIA ASSOCIATES LIMITED PARTNERSHIP
By:_____________________________________
Its General Partner
By: ____________________________________
Its:
In the presence of
COMMONWEALTH OF VIRGINIA :
: ss
COUNTY OF :
On _________, 1998 before me personally came _________________________, who has
been proven to me to be the _______________________ of Columbia Associates
Limited Partnership, described herein, and who executed the foregoing RELEASE,
and duly acknowledged to me that he executed the same and that such execution
was his free act and deed.
________________________________________
Notary Public
3
<PAGE> 25
HANNOCH WEISMAN
A Professional Corporation
4 Becker Farm Road
Roseland, New Jersey 07068
(201) 535-5300
Attorneys for Plaintiff MHM Services, Inc. and
Third-Party Defendants Columbia Health Associates
Limited Partnership and Oakview Limited Partnership
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4840-97-T2
- --------------------------
MHM SERVICES, INC., :
a Delaware corporation, :
:
Plaintiff : Civil Action
:
v. : STIPULATION OF DISMISSAL
: WITHOUT COSTS
:
MEDIQ, INCORPORATED, :
a Delaware corporation, :
:
Defendant :
- --------------------------
The matter in difference in the above-entitled action having been
amicably settled and adjusted by and between the parties, it is hereby
stipulated and agreed that the same (inclusive of the complaint, counterclaim
and third-party complaint) be and is hereby dismissed without costs.
HANOCH WEISMAN, P.C. DRINKER BIDDLE & REATH, LLP
Attorneys for Plaintiff MHM Attorneys for Defendant
Services, Inc. and Third-Party MEDIQ, Incorporated
Defendants Columbia Health
Associates Limited Partnership
and Oakview Limited Partnership
By: By:
--------------------- -----------------
Joseph J. Fleischman John F. Schultz
<PAGE> 26
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made as of this day of
July, 1998, by and between Michael Pinkert ("Pinkert"), MEDIQ, Incorporated
("MEDIQ") and Hunton & Williams (the "Escrow Agent").
BACKGROUND
WHEREAS, Pinkert, MEDIQ and other interested parties have entered into
a Settlement Agreement of even date herewith (the "Settlement Agreement"), which
Settlement Agreement is hereby incorporated herein by reference. Pursuant to the
terms of the Settlement Agreement, Pinkert and MEDIQ have agreed to deliver the
Escrow Documents (as hereinafter defined) to the Escrow Agent. The parties
desire to provide for an escrow of the Escrow Documents as more fully set forth
below. All terms capitalized herein not otherwise defined shall have the
definitions given to them in the Settlement Agreement.
WITNESSETH:
NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound, hereby covenant and agree as follows:
<PAGE> 27
1. Incorporation by Reference. The recitals set forth above and the
exhibits attached thereto are hereby incorporated herein by reference as if set
forth in full in the body of this Agreement.
2. Appointment of Escrow Agent; Acceptance of Appointment. Pinkert and
MEDIQ hereby appoint Escrow Agent to act as escrowee under this Agreement, and
Escrow Agent, by its execution of this Agreement, hereby accepts such
appointment and agrees to act in such capacity by holding, administering and
disbursing the Escrow Documents (as hereinafter defined) in accordance with the
terms and conditions of this Agreement. No fees shall be due to Escrow Agent for
acting in such capacity hereunder.
3. The Escrow Documents and the Release Document. The parties
acknowledge that the following documents (collectively the "Escrow Documents")
shall be delivered to the Escrow Agent at the time of the Closing, duly executed
by Pinkert and MEDIQ, properly acknowledged, and otherwise in form and substance
satisfactory to MEDIQ:
(i) Stipulation of Dismissal of the Pinkert Action, identified
as Exhibit K to the Settlement Agreement (the "Stipulation of Dismissal");
(ii) Release identified as Exhibit "L" to the Settlement
Agreement (the "Pinkert Release"); and
(iii) Release identified as Exhibit "M" to the Settlement
Agreement (the "MEDIQ Release").
- 2 -
<PAGE> 28
4. Release of the Escrow Documents. The Escrow Documents shall be
released from escrow upon receipt by Escrow Agent of a written request from
Pinkert, which shall be simultaneously delivered to MEDIQ, demanding the release
of the Escrow Documents in accordance with the terms of the Settlement Agreement
(the "Pinkert Demand"). Upon receipt by Escrow Agent of Pinkert's Demand, unless
Escrow Agent receives a written notice from MEDIQ within three (3) business days
after receipt of the Pinkert Demand objecting to the Pinkert Demand and stating
that the Escrow Document Release Date has not occurred under the Settlement
Agreement, Escrow Agent shall cause the (i) Pinkert Release and Stipulation of
Dismissal to be delivered to Pinkert at such address as Pinkert may direct and
(ii) the MEDIQ Release to be delivered to MEDIQ at such address as MEDIQ may
direct. Delivery of the Escrow Documents shall be via certified mail, return
receipt requested or guaranteed overnight courier.
5. Status, Rights and Duties of Escrow Agent; Indemnification.
a. The parties hereto hereby confirm and agree that the
status, rights and duties of Escrow Agent hereunder shall be governed
by the following provisions:
(1) It is agreed that the duties of Escrow Agent
hereunder are only such as are herein specifically provided,
being purely ministerial in nature, and that Escrow Agent
shall incur no liability hereunder whatsoever except for its
willful misconduct or gross negligence, and Escrow Agent shall
not incur any liability hereunder with respect to any action
taken or omitted by Escrow Agent
- 3 -
<PAGE> 29
(A) in good faith upon the advice of its legal counsel given with respect to any
questions relating to the duties and responsibilities of Escrow Agent hereunder,
(B) in reliance on any instrument, including any written notice or instruction
provided for in this Agreement, not only as to its due execution and the
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which Escrow Agent shall in good
faith believe to be genuine, to have been signed or presented by a person or
persons having authority to sign or present such instrument, and to conform to
the provisions of this Agreement, or (C) pursuant to any judgment, decree, or
order of a court adjudicating any dispute arising under this Agreement or with
respect to the Escrow Documents, Escrow Agent being hereby authorized and
directed to act in accordance with such judgment, decree or order regardless of
whether an appeal has been or may be taken therefrom by Pinkert or MEDIQ.
(2) Escrow Agent shall be under no responsibility with respect to the
Escrow Documents other than faithfully to hold the same as herein provided and
thereafter to deliver the same in accordance with the provisions of this
Agreement and any subsequent instructions given in accordance with the
provisions of this Agreement.
(3) Escrow Agent assumes no liability under this Agreement except that
of a stakeholder.
- 4 -
<PAGE> 30
(4) Following the release and delivery of the Escrow Documents
as provided in this Agreement, Escrow Agent shall have no further
duties or liabilities hereunder.
b. Pinkert and MEDIQ hereby irrevocably waive and covenant not to
bring any suit, claim, demand or cause of action of any kind which either one or
both may have or assert against Escrow Agent arising out of or relating to the
execution or performance by Escrow Agent of this Agreement, unless such suit,
claim, demand or cause of action is based upon the Escrow Agent's willful
misconduct or gross negligence. Pinkert and MEDIQ hereby indemnify Escrow Agent
against, and hold Escrow Agent harmless from, any and all claims, actions,
demands, losses, damages, expenses (including, without limitation, court costs
and reasonable attorneys' fees) and liabilities that may be imposed in
connection with the performance of Escrow Agent's duties hereunder, including,
without limitation, any litigation arising with respect to this Agreement or
involving the subject matter hereof, but excluding any such claims, actions,
demands, losses, damages, expenses and liabilities resulting from or arising out
of any willful misconduct or gross negligence by Escrow Agent hereunder. In the
event Pinkert and MEDIQ are opposing parties in such litigation, the party
prevailing in such litigation shall be reimbursed promptly upon demand by the
other party in an amount equal to that amount which the prevailing party shall
have paid Escrow Agent with respect to such litigation and the subject matter
thereof and for its counsel fees and costs pertaining to such litigation. The
provisions of this subsection (b) shall survive the termination of this
Agreement.
- 5 -
<PAGE> 31
c. Escrow Agent may resign at any time upon ten (10) days'
prior written notice to Pinkert and MEDIQ, and may be removed by the
mutual consent of Pinkert and MEDIQ upon ten (10) days' prior written
notice to Escrow Agent. Prior to the effective date of the resignation
or removal of Escrow Agent or any successor escrow agent, Pinkert and
MEDIQ shall jointly appoint a successor escrow agent to hold the Escrow
Documents, and any such successor escrow agent shall execute and
deliver to the predecessor escrow agent an instrument accepting such
appointment, whereupon such successor escrow agent shall, without
further act, become vested with all of the rights, powers and duties of
the predecessor escrow agent as if originally named herein. Prior to
the appointment of such successor escrow agent and such successor
escrow agent's acceptance of such appointment, the escrow agent who is
resigning or being removed shall continue to serve in such capacity
and, upon such appointment and acceptance, the predecessor escrow agent
shall cooperate and take all necessary actions to transfer the Escrow
Documents to the successor escrow agent.
6. Notices. All notices, statements, demands, requests, consents,
communications and certificates from any party hereto to the others shall be in
writing sent by United States Registered or Certified Mail, return receipt
requested, postage prepaid, or by express courier service with guaranteed
overnight delivery, in either case addressed as follows:
a. If intended for MEDIQ:
MEDIQ, Incorporated
One Mediq Plaza
Pennsauken, NJ 08110
Attn: Alan S. Einhorn, Esquire
- 6 -
<PAGE> 32
With a copy to:
Drinker Biddle & Reath
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107
Attention: Andrew C. Kassner, Esquire
b. If intended for Pinkert:
Mr. Michael Pinkert
705 Potomac Knowells Drive
McLean, VA 22102
With a copy to:
Gins & Greenfield
2921 "L" Street, N.W.
Suite 200
Washington, DC 20026
Att'n: Richard H. Gins, Esquire
If intended for Escrow Agent:
Hunton & Williams
1751 Pinnacle Drive, Suite 1700
McLean, VA 22102
Att'n: Linda Lemmon Najjoum, Esquire
or to such other addresses or entities any party hereto may from time to time
direct by service of notice on the other parties as provided above. Any such
notices, statements, demands, requests, consents, communications or certificates
shall be deemed received two (2) days after the same is deposited with the
United States Postal Service or one (1) day after the same is delivered to a
courier service with guaranteed overnight delivery.
- 7 -
<PAGE> 33
7. Miscellaneous.
a. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
b. This Agreement:
(1) may only be amended by an instrument in writing
signed by each of the parties hereto;
(2) shall be governed by and construed in accordance
with the laws of the State of Virginia; and
[THIS SPACE LEFT INTENTIONALLY BLANK]
- 8 -
<PAGE> 34
(3) may be executed in any number of counterparts,
each of which shall be an original and all of
which together shall constitute but one and the
same instrument.
THE PARTIES WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY
ACTION CONCERNING PERFORMANCE UNDER THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
MEDIQ, INCORPORATED
By _______________________
MICHAEL PINKERT
HUNTON & WILLIAMS
By: ______________________
- 9 -
<PAGE> 35
RELEASE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and adequacy of which
are hereby acknowledged, MEDIQ, Incorporated (the "Releasor"), does hereby
absolutely and unconditionally forever release, discharge and acquit MICHAEL
PINKERT and his successors and assigns (collectively, the "Releasee" or the
"Releasees"), of and from any and all claims, demands, obligations, liabilities,
indebtedness, breaches of contract, breaches of duty or any relationship, acts,
omissions, misfeasance, malfeasance, cause or causes of action, debts, sums of
money, accounts, compensation, contracts, controversies, promises, damages,
costs, losses and expenses, of every type, kind, nature, description or
character, and irrespective of how, why, or by reason of what facts, whether
heretofore or now existing, of whatever kind or name, whether known or unknown,
suspected or unsuspected, liquidated or unliquidated, from the beginning of the
world to the date hereof, that the Releasor held against Releasee, including,
without limitation, any claims arising under or related to the action styled
Mediq, Incorporated v. Michael Pinkert pending in the Superior Court of
Delaware, Case No.__________.
As further consideration for this Release, the Releasor hereby agrees,
represents and warrants that the matters released herein are not limited to
matters which are known or disclosed, and the Releasor hereby waives any and all
rights and benefits which it now has conferred upon them, including, without
limitation, claims which the Releasor does not know or suspect to exist in its
favor at the time of executing this Release, which if known by it may have
materially affected its settlement with the Releasees; provided, however, that
the release set forth herein shall not include a release of claims arising from
Releasee's breach of his obligation under that certain Settlement Agreement by
and among Releasors, Releasee, MHM Services, Inc., Oakview Limited Partnership,
and Columbia Health Associates Limited Partnership dated as of July 15, 1998
(the "Settlement Agreement"). Capitalized term not defined in this Release shall
have the same meaning assigned to such terms in the Settlement Agreement.
This Release shall be null and void ab initio, and of no force and
effect in the event that (i) an Avoidance Action is commenced seeking avoidance,
rescission, or return of the Settlement Amount of any portion thereof and (ii)
MEDIQ (a) is compelled by court order to make payment on account of Avoidance
Claims asserted in such Avoidance Action or (b) in its sole discretion but in
good faith enters into a settlement agreement with the plaintiff to such
Avoidance Action which provides for a payment in settlement of such Avoidance
Claims.
The acceptance of delivery of this Release by the parties released
hereby shall not be deemed or construed as an admission of liability by any
party released by the terms hereof, and each such party hereby expressly denies
liability of any nature whatsoever arising from or related to the subject of the
within Release.
The Releasor hereby agrees, represents and warrants that it has had
advice of counsel of its own choosing in negotiations for and the preparation of
this Release, that it has read this Release or has had the same read to it by
its counsel, that it has had this Release fully explained by such counsel, and
that it is fully aware of its contents and legal effect.
<PAGE> 36
IN WITNESS WHEREOF, the undersigned has executed this Release on this
_____ day of July, 1998.
MEDIQ, Incorporated
By ______________________________
Title
In presence of
STATE OF NEW JERSEY :
: ss
COUNTY OF CAMDEN :
On ___________, 1998, before me personally came __________known to be the
individual described herein, and who executed the foregoing RELEASE, and duly
acknowledged to me that he executed the same and that such execution was his
free act and deed.
______________________________
Notary Public
- 2 -
<PAGE> 1
PROMISSORY NOTE
July 15, 1998
This Promissory Note is delivered by the Borrowers to the Guarantor
pursuant to a Credit and Security Agreement between the Borrowers and the
Guarantor dated July 15, 1998 (the "Security Agreement"), which sets forth the
agreement of the parties thereto in connection with the partial guarantee by the
Guarantor (the "Guarantee") of the Borrowers' obligations to HCFP Funding II,
Inc. ("HCFP") under a Secured Bridge Note dated July 15, 1998 (the "Bridge
Note").
FOR VALUE RECEIVED, MHM Services, Inc., a Delaware corporation, MHM
Correctional Services, Inc., a Delaware corporation, MHM Extended Care Services,
Inc., a Delaware corporation, MHM of Colorado, Inc., a Delaware corporation,
Oakview Limited Partnership, a Maryland limited partnership, and Columbia Health
Associates Limited Partnership, a Maryland limited partnership (collectively,
the "Borrowers") agree to repay to the order of Michael S. Pinkert (the
"Guarantor"), upon demand, any and all payments made by Guarantor pursuant to
the Guarantee, or pursuant to the letter of credit described in the Guarantee
(the "Letter of Credit"), together with all fees, expenses, interest, and other
payments of any kind whatsoever to which Guarantor is entitled under the
Security Agreement. Any and all amounts due under this Promissory Note shall
bear interest at the greater of the rate of 10% per annum or the interest rate
in effect under the Bridge Note at the time of HCFP's first demand for payment
under the Letter of Credit (or at the rate of 10% if no demand for payment has
been made by HCFP under the Letter of Credit).
Joint and Several Liability. The Borrowers are jointly and severally
liable under this Promissory Note and each reference to "Borrowers" shall refer
to all entities jointly and severally.
Absolute Obligation. The Borrowers' obligations under this Promissory
Note are absolute and unconditional and without right of offset or defense of
any kind or nature (except for the defense of payment).
Payments. All payments under this Promissory Note shall be made in
lawful money of the United States of America at the address of the Guarantor
stated in the Security Agreement, or at such other place as may be designated by
the holder hereof in accordance with this Promissory Note.
Partial Payments. Any Partial Payment made under this Promissory Note
shall be applied first to interest due and payable and the balance, if any,
shall be applied toward the reduction of the outstanding principal amount.
Security Agreement. The performance of the Borrowers' obligations
under this Promissory Note are secured in the manner set forth in the Security
Agreement and by the collateral described in the Security Agreement. Nothing
contained in this
<PAGE> 2
Promissory Note
Page 2 of 4
Promissory Note shall be deemed to diminish any rights of the Guarantor or any
obligations of the Borrowers under the Security Agreement.
Waiver by Borrowers. Borrowers hereby (a) waive all presentment, protest,
notice of protest and notice of dishonor, and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Promissory Note (except for the demand for payment by the holder), (b)
assent to any extension or postponement of the time of payment or any other
indulgence and/or to the addition or release of any party or party or entity
primarily or secondarily liable, (c) waive any requirement of diligence or
promptness on the part of the holder in the enforcement of rights under this
Promissory Note, (d) waive all notices of every kind that may be required to be
given by any statute or rule of law, (e) waive any valuation, stay, appraisement
or redemption laws, and (f) waive any defense of any kind (other than payment)
which Borrowers may now or hereafter have with respect to liability under this
Promissory Note.
Course of Dealing; Amendment. No course of dealing between the parties
shall operate as a waiver of any of the parties' respective rights under this
Promissory Note. No delay or omission on the part of the Guarantor or other
holder in exercising any right under this Note shall operate as a waiver of
such right or any other right hereunder. No amendment or waiver hereof shall be
binding unless it is in writing and signed by the parties.
Notices and Demands. The notice provisions of Section 5.5 of the Security
Agreement shall apply to any notice or demand under this Promissory Note and
such notice or demand shall be deemed delivered in accordance with such
provisions. Notice or demand to MHM Services, Inc. shall be deemed to be notice
or demand to all Borrowers.
Costs. Borrowers agree to pay all reasonable expenses of the holder hereof
(including reasonable attorney fees and expenses) in connection with the
enforcement and/or collection of this Promissory Note.
Assignability; Governing Law. This Promissory Note shall bind and inure to
the benefit of the Borrowers and the Guarantor and their respective heirs,
successors and assigns, including as such successors and assigns of the
Guarantor any holder of this Promissory Note, provided that the obligations of
the Borrowers hereunder may not be assigned except with the prior written
consent of the holder hereof. This Promissory Note shall be governed by and
construed in accordance with the laws (other than the conflict of laws rules)
of the Commonwealth of Virginia. The word "holder" as used in this Promissory
Note shall refer to the Guarantor and all assignees, endorsees or transferees
of the Guarantor or of a subsequent holder.
<PAGE> 3
Promissory Note
Page 3 of 4
IN WITNESS WHEREOF, the undersigned Borrowers have caused this promissory
Note to be executed as an agreement under seal by their duly authorized
officers or partners as of the date first written above.
BORROWERS:
ATTEST: MHM SERVICES, INC.
By: By: [SIG]
------------------------------- -------------------------------
Name: Name:
Title: Title: Vice President
ATTEST: MHM CORRECTIONAL SERVICES, INC.
By: By: [SIG]
------------------------------- -------------------------------
Name: Name:
Title: Title: Asst. Sec.
ATTEST: MHM OF COLORADO, INC.
By: By: [SIG]
------------------------------- -------------------------------
Name: Name:
Title: Title: Asst. Sec.
ATTEST: MHM EXTENDED CARE SERVICES, INC.
By: By: [SIG]
------------------------------- -------------------------------
Name: Name:
Title: Title: Asst. Sec.
<PAGE> 4
Promissory Note
Page 4 of 4
ATTEST: OAKVIEW LIMITED PARTNERSHIP
By: MHM Services, Inc.,
Its General Partner
By: By: [SIG]
________________________ ________________________
Name: Name:
Title: Title: Vice President
ATTEST: COLUMBIA HEALTH ASSOCIATES
LIMITED PARTNERSHIP
By: MHM Services, Inc.,
Its General Partner
By: By: [SIG]
_____________________ __________________________
Name: Name:
Title: Title: Vice President
<PAGE> 1
CREDIT AND SECURITY AGREEMENT
THIS CREDIT AND SECURITY AGREEMENT (the "Agreement") is made as of this 15th day
of July, 1998, by and between MHM Services, Inc., MHM Correctional Services,
Inc., MHM Extended Care Services, Inc., MHM of Colorado, Inc., Oakview Limited
Partnership, and Columbia Health Associates Limited Partnership, on the one hand
(referred to collectively hereafter as "Borrowers" and singly as a "Borrower")
and Michael S. Pinkert, on the other hand ("Guarantor").
RECITALS
WHEREAS, MHM Services, Inc., Oakview Limited Partnership, and Columbia
Health Associates Limited Partnership are judgment debtors (collectively, the
"Judgment Debtors") pursuant to a judgment in the amount of $11,783,423.31
entered by the New Jersey Superior Court (Civil Action No. CAM-L-004026-97) on
April 17, 1998 in favor of MEDIQ Inc., and
WHEREAS, MEDIQ Inc. had indicated a willingness to accept in
satisfaction of the judgment and in settlement of the underlying dispute the sum
of $3 million (the "Settlement"), and
WHEREAS, the Judgment Debtors wish to accept the Settlement, if still
available, and
WHEREAS, the Judgment Debtors do not have adequate liquid financial
resources of their own to fund the Settlement, and
WHEREAS, HCFP Funding II, Inc. ("HCFP") has offered to loan Borrower
the sum of $2 million to be used as partial funding of the settlement (the
"Secured Bridge Loan", which will be evidenced by a Secured Bridge Note issued
by Borrowers to HCFP, (the "Secured Bridge Note")), conditioned upon $800,000 of
such borrowing being guaranteed by Guarantor (the "Guarantee"), which obligation
of Guarantor will be secured by a bank letter of credit obtained by Guarantor in
favor of HCFP (the "Letter of Credit"),
WHEREAS, Guarantor is willing to provide the Guarantee on the terms set
forth herein,
WHEREAS, the parties wish to define the terms and conditions on which
Guarantor will extend the Guarantee, and to reduce their agreement to writing,
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and for other consideration the receipt and
sufficiency is hereby acknowledged, the parties agree as follows:
ARTICLE I
GUARANTEE
Section 1. Subject to the terms and conditions of this Agreement,
Guarantor will execute his personal guarantee to HCFP (subject to a maximum
liability of $800,000) for the repayment by Borrowers when due of the sum of $2
million to be loaned to Borrower by HCFP. The Guarantee shall be in such form as
is satisfactory to Guarantor in his sole and absolute discretion.
Section 1.2. Note. Upon issuance of the Guarantee, Borrowers shall
execute and deliver to Guarantor a promissory note (the "Note") evidencing, for
each of the Borrowers, an unconditional obligation to repay Guarantor any and
all payments made by Guarantor made pursuant to Guarantor's obligations under
the Guarantee, or under the Letter of Credit, together with all fees, expenses,
interest, and other payments of any kind whatsoever to which Guarantor is
entitled under this Agreement (collectively, all of the foregoing being
hereinafter referred to as "Guarantee Payments"). The Note shall bear interest
on outstanding obligations thereunder at the rate of interest in effect under
the Secured Bridge Loan at the time of HCFP's first demand for payment under the
Letter of Credit and shall be in the form attached hereto as Attachment A.
Section 1.3. Term. All Guarantee Payments shall immediately become due
and owing to Guarantor by Borrowers.
Section 1.4. Prepayments. The net proceeds to any Borrower from any of
the following transactions shall be paid over immediately to HCFP in reduction
of the amount of borrowings subject to the Guarantee: (1) any amounts required
to be made as prepayments to HCFP pursuant to the Secured Bridge Loan; (2) sale
by any Borrower of any assets if such sale is at a price of more than $1,500.00;
(3) receipt by any Borrower of any other funds not in the ordinary course of
business; (4) funds received by any Borrower in connection with the sale or any
other transaction related to the ownership of any portion of the businesses
currently operated by any Borrower.
Section 1.5. Fees. MHM Services, Inc. hereby agrees to pay to Guarantor
upon execution of this Agreement as consideration for the Guarantee a warrant in
the form attached hereto as Attachment B, giving Guarantor the right to purchase
up to 145,000 shares of common stock of MHM Services, Inc. at a
2
<PAGE> 3
price of $0.50 a share.
Section 1.6. Expense Reimbursement. Borrowers unconditionally and
jointly and severally agree to reimburse Guarantor for any and all out-of-pocket
expenses incurred by Guarantor in connection with the transaction which is the
subject of this Agreement. Such reimbursable expenses include, but are not
limited to, fees for legal or other professional services, bank fees or
expenses, appraisal and audit expenses, letter of credit fees, and all other
fees, charges, and expenses of any kind.
Section 1.7 Need for Guarantor Consent. Borrowers agree that none of
them will consent to or enter into any modification or amendment of the Secured
Bridge Loan or seek any waiver in connection therewith, without the prior
written consent of Guarantor. Borrowers will give Guarantor prompt written
notice of any default or any other notice in connection with the Secured Bridge
Loan received or sent by any Borrower or on its behalf, together with a complete
copy of such notice.
ARTICLE II
COLLATERAL AND REMEDIES
Section 2. As security for Borrowers' obligations under the Agreement,
including the obligation to repay to Guarantor any Guarantee Payments, each
Borrower hereby grants to Guarantor a lien and security interest in all of the
"Collateral" defined and described in Attachment C (which is the same Collateral
described in Section 7 of the Secured Bridge Note, excluding Purchase Note 1,
Purchase Note 2, and the Glass Deed of Trust). Such lien and security interest
shall be of the first priority, superior to all other liens, security interests,
claims, or interests whatsoever, save only such liens and security interests
granted to HCFP previously or under the Secured Bridge Note. Upon the request of
the Guarantor, each of the Borrowers will execute and deliver any and all
documents, agreements, instruments, and other writings necessary or appropriate
to create and perfect the security interests created hereby. With respect to the
Collateral, Guarantor shall have all of the rights, options and remedies granted
to HCFP under the Secured Bridge Note, subject only to such restrictions on the
exercise of such rights, options and remedies by Guarantor as are stated in the
Guarantee. Each of the Borrowers further agrees that, in the event of any
Guarantee Payment, the Guarantor shall be entitled, upon satisfaction of the
Borrowers' obligations to HCFP under the Secured Bridge Note, to be subrogated
to all rights of HCFP against Borrowers and to all collateral security or
guarantees or rights of offset held by HCFP for the payment and performance of
Borrowers' obligations under the Secured Bridge Note.
3
<PAGE> 4
ARTICLE III
ASSIGNMENT
Section 3. Guarantor may sell, assign, transfer, or participate any of
its rights and obligations under this Agreement to any entity, of which Michael
S. Pinkert may or may not be an owner, which entity shall agree to discharge the
obligations of Guarantor hereunder and which is acceptable to HCFP as a
substitute guarantor. Such assignment and the acceptance by HCFP shall be in
writing, and the assignee shall have executed a written undertaking to perform
the obligations of Guarantor under this Agreement as though an original party
hereto. In such event, Michael S. Pinkert shall be discharged from his original
Guarantee upon assignee issuing a replacement guarantee, and the term
"Guarantor" as used in this Agreement shall be understood as referring to such
assignee.
ARTICLE IV
INDEMNIFICATION AND RELEASE
Section 4.1 Borrower acknowledges that Guarantor has undertaken the
obligations set out in this Agreement as an accommodation to Borrower, and at
considerable personal financial risk to Guarantor. Accordingly, and in further
consideration of the agreements of Guarantor herein, Borrower agrees to
indemnify and hold harmless Guarantor from any and all loss, expenses, costs,
claims, demands, and liabilities of any kind (including attorney's fees) in any
way arising from or related to this Agreement or the performance or
nonperformance of the undertakings set forth herein, it being the intent of the
parties that Guarantor bear no cost, incur no unreimbursed expense, undertake no
liability by reason of his agreement as set forth herein. The indemnification
granted hereby shall survive both payment in full of all obligations hereunder
and termination of this Agreement.
Section 4.2. Release of Guarantor. Borrower releases Guarantor from any
claims for loss or damage resulting from Guarantor's acts, omissions, or conduct
of any kind, unless caused by Guarantor's recklessness, gross negligence, or
willful misconduct.
4
<PAGE> 5
ARTICLE V
MISCELLANEOUS
Section 5.1. Conditions Precedent. Guarantor's obligation to issue the
Guarantee shall be subject to approval and ratification of this Agreement by the
Board of Directors of each Borrower (or, if the Borrower is a limited
partnership, the Board of Directors of the general partner of such partnership).
Section 5.2. No Other Borrowings. Without the written consent of
Guarantor, granted or withheld in his sole discretion, the Borrowers covenant
and agree that no Borrower will create, incur, assume or suffer to exist any
indebtedness, or any mortgages, liens, pledges, or encumbrances on its property
except: (a) indebtedness to HCFP for: (i) the $2 million loan subject to the
Guarantee, and (ii) the line of credit previously extended to Borrower pursuant
to the loan agreement of March 11, 1997 between MHM Extended Care Services and
HCFP; (b) the line of credit for up to $500,000 previously arranged with
NationsBank; and (c) accounts payable to trade creditors and current operating
expenses which are not aged more than one hundred twenty (120) days from the
billing date or more than thirty (30) days from the due date, in each case
incurred in the ordinary course of business and paid within such time period,
unless the same are being contested in good faith and by appropriate and lawful
proceedings. Borrower will not make prepayments on any existing or future
indebtedness other than on amounts subject to the Guarantee.
Section 5.3. Entire Agreement: Amendments. This Agreement constitutes
the full and entire understanding and agreement among the parties with regard to
the subject matter and supersede all prior written or oral agreements,
understandings, representations and warranties made with respect thereto. No
amendment, supplement or modification of this Agreement nor any waiver of any
provision thereof shall be made except in writing executed by the party against
whom enforcement is sought.
Section 5.4. No Waiver; Cumulative Rights. No waiver by any party
hereto of any one or more defaults by the other party in the performance of any
of the provisions of this Agreement shall operate or be construed as a waiver of
any future default or defaults, whether of a like or different nature. No
failure or delay on the part of any party in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to
5
<PAGE> 6
any party hereto at law, in equity or otherwise.
Section 5.5. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and personally delivered, mailed by
registered or certified mail (return receipt requested and postage prepaid),
sent by telecopier (with a confirming copy sent by regular mail), or sent by
prepaid overnight courier service, and addressed to the relevant party at its
address set forth below, or at such other address as such party may, by written
notice, designate as its address for purposes of notice hereunder:
(a) If to Guarantor, at:
Michael S. Pinkert
705 Potomac Knolls Drive
McLean, Virginia 22102
Telephone: (703) 734-0331
Telecopier: (703) 734-0198
(b) If to Borrower, at:
MHM Services, Inc.
8000 Towers Crescent Drive
Suite 810
Vienna, Virginia 22182
Attn: Mr. Darren Brady
Telephone: (703) 749-4651
Telecopier: (703) 749-4604
(c) If to HCFP, at:
HCFP Funding, Inc.
2 Wisconsin Circle, Suite 320
Chevy Chase, Maryland 20815
Attn: John K. Delaney, President
Telephone: (301) 961-1640
Telecopier: (301) 664-9860
If mailed, notice shall be deemed to be given five (5) days after being
sent. If sent by personal delivery or telecopier, notice shall be deemed to be
given when delivered, and if sent by prepaid courier, notice shall be deemed to
be on the next Business Day following deposit with the courier.
Section 5.6. Severability. If any term, covenant or condition of this
6
<PAGE> 7
Agreement, or the application of such term, covenant or condition to any party
or circumstance shall be found by a court of competent jurisdiction to be, to
any extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall be valid and
enforced to the fullest extent permitted by law. Upon determination that any
such term is invalid, illegal or unenforceable, the parties hereto shall amend
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner.
Section 5.7. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
Section 5.8. Interpretation. No provision of this Agreement shall be
interpreted or construed against any party because that party or its legal
representative drafted that provision. The titles of the paragraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement. Any pronoun used in this Agreement shall be deemed to
include singular and plural and masculine, feminine and neuter gender as the
case may be. The words "herein," "hereof," and "hereunder" shall be deemed to
refer to this entire Agreement, except as the context otherwise requires.
Section 5.9. Survival of Terms. All covenants, agreements,
representations and warranties made in this Agreement and in any certificates
and other instruments delivered in connection therewith shall be considered to
have been relied upon by Guarantor and shall survive the issuance by Guarantor
of the Guarantees herein contemplated and the execution and delivery to
Guarantor of the Note, and shall continue in full force and effect until all
liabilities and obligations of Borrower to Guarantor are satisfied in full.
Section 5.10. Time. Whenever Borrower is required to make any payment
or perform any act on a Saturday, Sunday, or a legal holiday under the laws of
the Commonwealth of Virginia (or other jurisdiction where Borrower is required
to make the payment or perform the act), the payment may be made or the act
performed on the next Business Day. Time is of the essence in Borrower's
performance under this Agreement.
Section 5.11. Third Parties. No rights are intended to be created
hereunder for the benefit of any third party donee, creditor, or incidental
beneficiary of Borrower, other than HCFP.
7
<PAGE> 8
Section 5.12. Discharge of Borrower's Obligations. Guarantor, in his
sole discretion, shall have the right at any time, and from time to time,
without prior notice to Borrower if Borrower fails to do so, to: (a) obtain
insurance covering any of the Collateral as required hereunder; (b) pay for the
performance of any of Borrower's obligations hereunder; (c) discharge taxes,
liens, security interests, or other encumbrances at any time levied or placed on
any of the Collateral in violation of this Agreement unless Borrower is in good
faith with due diligence by appropriate proceedings contesting those items; and
(d) pay for the maintenance and preservation of any of the Collateral. Expenses
and advances shall be added to the amounts to be repaid Guarantor, until
reimbursed to Guarantor and shall be secured by the Collateral. Such payments
and advances by Guarantor shall not be construed as a waiver by Guarantor of an
Event of Default.
Section 5.13. Choice of Law; Consent to Jurisdiction. This agreement
and the note shall be governed by, and construed in accordance with, the laws of
the Commonwealth of Virginia, without regard to any otherwise applicable
principles of conflicts of laws. If any action arising out of this agreement or
the note is commenced by guarantor in the Commonwealth of Virginia or federal
court located in the Commonwealth of Virginia, borrower hereby consents to the
jurisdiction of any such court in any such action and to the laying of venue in
the Commonwealth of Virginia. Any process in any such action shall be duly
served if mailed by registered mail, postage prepaid, to the borrower at its
address described in section 6.5 hereof.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
BORROWER:
ATTEST: MHM SERVICES, INC.
By: By: [SIG]
--------------------------------- ----------------------------
Name: Name:
Title: Title: Vice President
ATTEST: MHM CORRECTIONAL SERVICES,
INC.
By: By: [SIG]
--------------------------------- ----------------------------
Name: Name:
Title: Title: Asst. Secy.
ATTEST: MHM OF COLORADO, INC.
By: By: [SIG]
--------------------------------- ----------------------------
Name: Name:
Title: Title: Asst. Secy.
ATTEST: MHM EXTENDED CARE SERVICES,
INC.
By: By: [SIG]
--------------------------------- ----------------------------
Name: Name:
Title: Title: Asst. Secy.
ATTEST: OAKVIEW LIMITED PARTNERSHIP
By: MHM Services, Inc.,
Its General Partner
By: By: [SIG]
--------------------------------- ----------------------------
Name: Name:
Title: Title: Vice President
9
<PAGE> 10
ATTEST: COLUMBIA HEALTH ASSOCIATES
LIMITED PARTNERSHIP
By: MHM Services, Inc.,
Its General Partner
By: By: [SIG]
--------------------------------- ----------------------------
Name: Name:
Title: Title: Vice-President
ATTEST: GUARANTOR:
By: [SIG]
--------------------------------- ----------------------------
Name: Michael S. Pinkert
Title:
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 8,944
<ALLOWANCES> (4,560)
<INVENTORY> 0
<CURRENT-ASSETS> 6,924
<PP&E> 1,297
<DEPRECIATION> (926)
<TOTAL-ASSETS> 10,505
<CURRENT-LIABILITIES> 7,029
<BONDS> 10,838
0
0
<COMMON> 35
<OTHER-SE> (7,327)
<TOTAL-LIABILITY-AND-EQUITY> 10,505
<SALES> 0
<TOTAL-REVENUES> 25,751
<CGS> 0
<TOTAL-COSTS> 21,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,018
<INTEREST-EXPENSE> 911
<INCOME-PRETAX> 972
<INCOME-TAX> 0
<INCOME-CONTINUING> 972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 972
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
