<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 [FEE REQUIRED] for the fiscal year ended June 30, 1996
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934 [NO FEE REQUIRED] for the transition period from to
Commission file number: 0-23524
PHC, INC.
(Name of small business issuer in its charter)
MASSACHUSETTS 04-2601571
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 LAKE STREET, SUITE 102, PEABODY, MA 01960 (Address of principal executive
(Zip Code) offices)
Issuer's telephone number: (508) 536-2777
Securities registered under Section 12(b) of the Act:
NONE.
Securities registered under Section 12(g) of the Act:
Units (each unit consisting of one share of CLASS A COMMON
STOCK AND ONE CLASS A WARRANT)
(Title of class)
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
CLASS A WARRANTS TO PURCHASE ONE SHARE OF CLASS A COMMON STOCK
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
The issuer's revenues for the fiscal year ended June 30, 1996 were $21,802,758.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of September 13, 1996, was $17,840,970. (See
definition of affiliate in Rule 12b-2 of Exchange Act).
At September 13, 1996, 2,327,624 shares of the issuer's Class A Common Stock,
806,556 shares of the issuer's Class B Common Stock and 199,816 shares of the
issuer's Class C Common Stock were outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:
Yes No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
PHC, Inc. (the "Company") is a national health care company specializing
in the treatment of substance abuse, which includes alcohol and drug dependency
and related disorders, and in the provision of psychiatric and long-term care.
The Company currently operates three substance abuse treatment facilities:
Highland Ridge Hospital, located in Salt Lake City, Utah, ("Highland Ridge");
Mount Regis Center, located in Salem, Virginia, near Roanoke ("Mount Regis");
and Good Hope Center, located in West Greenwich, Rhode Island ("Good Hope").
Until August 16, 1994, the Company operated Marin Grove, a substance abuse
treatment facility in California ("Marin Grove"). On September 20, 1994, the
Company acquired the business and certain assets of Harbor Oaks Hospital
("Harbor Oaks"), a 64-bed psychiatric hospital located in New Baltimore,
Michigan. The Company's subacute and long-term care facility, Franvale Nursing
and Rehabilitation Center ("Franvale"), which until September 7, 1994 was known
as Franvale Nursing Home, is located in Braintree, Massachusetts. On November 1,
1995, the Company acquired the business and certain assets of Harmony Counseling
Services, a provider of outpatient psychiatric services in Las Vegas, Nevada for
a purchase price of $575,000 plus 75,000 shares of PHC, Inc. Class A Common
Stock which now operates as Harmony Healthcare. On March 15, 1996, the Company
acquired the business and certain assets of Total Concept EAP, a provider of
outpatient psychiatric services in Shawnee Mission, Kansas, in a total stock
transaction for 12,000 shares of Class A Common Stock which operates under the
name of Total Concept.
The Company's substance abuse facilities provide specialized treatment
services to patients who typically have poor recovery prognoses and who are
prone to relapse. These services are offered in small specialty care and
subacute facilities (i.e., facilities designed to provide care to individuals
who no longer require hospital care but who require some medical care), which
permits the Company to provide its clients with efficient and customized
treatment without the significant costs associated with the management and
operation of general acute care hospitals. The Company tailors these programs
and services to "safety-sensitive" industries and concentrates its marketing
efforts on the transportation, oil and gas exploration, heavy equipment,
manufacturing, law enforcement, gaming, and health services industries.
The psychiatric facility which was purchased in September 1994 provides
psychiatric care to children, adolescents and adults. The Company draws patients
from the local population and uses the facility as a mental health resource to
complement its substance abuse facilities. The outpatient psychiatric clinics
provide psychiatric treatment for adults, adolescents and children.
The Company's long-term care facility provides traditional geriatric care
services as well as specialized subacute services. The facility provides care to
the high acuity segment (patients requiring a significant amount of medical
care) of the geriatric population and to younger patients who require skilled
nursing care for longer terms than typically associated with a general acute
care hospital. The Company's long-term care services are offered in a larger,
more traditional setting than the Company's substance abuse facilities, enabling
the Company to take advantage of economies of scale to provide cost-effective
treatment alternatives. The Company markets its long-term care to hospitals,
insurers and managed care providers, in addition to marketing directly to
prospective residents and their families.
The Company's strategy of providing services to particular markets has
resulted in customized, outcome-oriented programs, which the Company believes
produce overall cost savings to the patient or client organization. The
substance abuse facilities provide treatment services designed to prevent
relapse. Such services, while potentially more costly on a per patient stay
basis, often result in long-term health care cost savings to insurers, patients
and patients' families. The Company's long-term care facility achieves its cost
containment objective by providing care to high acuity patients in a setting
that produces positive outcomes through the use of tailored services. The
specific skilled services that are provided are similar to those offered in
acute care hospitals without the added overhead cost.
The Company was organized as a Delaware corporation in 1976 under the
name American International Health Services, Inc. In 1980, the Company merged
into an inactive publicly held Massachusetts corporation and was the surviving
corporation in the merger. The Company changed its name to "PHC, Inc." as of
November 24, 1992. The Company is based in Massachusetts and is unaffiliated
with an inactive Minnesota corporation of the same name. From the time of its
organization in 1976 until 1992, the Company managed treatment programs for
addictive disorders for acute care hospitals located in as many as twelve
states. Additionally, in 1984 the Company began to operate its own free-standing
treatment facilities for addictive disorders. The Company does business under
the tradename "Pioneer Healthcare." With the exception of the services provided
directly by the Company under the name Pioneer Development Support Services, the
Company operates as a holding company, providing administrative, legal and
programmatic support to its subsidiaries.
The Company plans to expand its operations through the acquisition or
establishment of additional substance abuse, long-term care and psychiatric
treatment facilities.
SUBSTANCE ABUSE FACILITIES
INDUSTRY BACKGROUND
The demand for substance abuse treatment services increased rapidly in the
last decade. The Company believes that the increased demand is related to
clinical advances in the treatment of chemical dependencies, greater societal
willingness to acknowledge the underlying problems as treatable illnesses,
improved health insurance coverage for addictive disorders and chemical
dependencies and governmental regulation which requires certain employers to
provide information to employees about, among other things, available drug
counseling and employee assistance programs.
To contain costs associated with behavioral health issues, in the 1980s
many private payors instituted managed care programs for reimbursement, which
include pre-admission certification, case management or utilization review and
limits on financial coverage or length of stay. These cost containment measures
have encouraged outpatient care for behavioral problems, resulting in a
shortening of the length of stay and revenue per day in inpatient chemical abuse
facilities. The Company believes that it has addressed these cost containment
measures by specializing in treating relapse-prone patients with poor prognoses
who have failed in other treatment settings. These patients require longer
lengths of stay and come from a wide geographic area. The Company continues to
develop alternatives to inpatient care including partial day and evening
programs in addition to onsite and offsite outpatient programs.
The Company believes that because of the apparent unmet need for certain
intense clinical and medical services, its strategy has been successful despite
national trends towards outpatient treatment, shorter inpatient stays and
rigorous scrutiny by managed care organizations.
The Company has been able to secure insurance reimbursement for
longer-term inpatient treatment as a result of its success with poor prognosis
patients. The Company's three substance abuse facilities work together to refer
patients to the center that best meets the patient's clinical and medical needs.
Each facility caters to a slightly different patient population. Highland Ridge
in Utah specializes in providing services to high-risk, relapse-prone chronic
alcoholics and drug addicts and Mount Regis in Virginia specializes in the
treatment of minority groups and dual diagnosis patients (those suffering from
both substance abuse and psychiatric disorders). Good Hope Center concentrates
on providing services to insurers, managed care networks and health maintenance
organizations for both adults and adolescents. The Company's clinicians often
work directly with managers of employee assistance programs to select the best
treatment facility possible for their clients.
Each of the Company's facilities operates a case management program for
each patient. This includes a clinical and financial evaluation of a patient's
circumstances to determine the most cost-effective modality of care from among
outpatient treatment, detoxification, inpatient, day care, specialized relapse
treatment and others. In addition to any care provided at one of the Company's
facilities, the case management program for each patient includes aftercare.
Aftercare may be provided through the outpatient services provided by a
facility. Alternatively, the Company may arrange for outpatient aftercare, as
well as family and mental health services, through its numerous affiliations
with clinicians located across the country once the patient is discharged.
As a general rule, the Company attempts not to accept patients who do not
have either insurance coverage or adequate financial resources to pay for
treatment. Each of the Company's substance abuse facilities does, however,
provide treatment free of charge to a small number of patients each year who are
unable to pay for treatment but who meet certain clinical criteria and who are
believed by the Company to have the requisite degree of motivation for treatment
to be successful. In addition, the Company provides follow-up treatment free of
charge to relapse patients who satisfy certain criteria. The number of patient
days attributable to all patients who receive treatment free of charge in any
given fiscal year is less than 5%.
The Company believes that it has benefited from an increased awareness of
the need to make substance abuse treatment services accessible to the nation's
workforce. For example, subchapter D of the Anti-Drug Abuse Act of 1988
(commonly known as The Drug Free Workplace Act) (the "Drug Free Workplace Act"),
requires employers who are Federal contractors or Federal grant recipients to
establish drug free awareness programs to inform employees about available drug
counseling, rehabilitation and employee assistance programs and the consequences
of drug abuse violations. In response to the Drug Free Workplace Act, many
companies, including many major national corporations and transportation
companies, have adopted policies that provide for treatment options prior to
termination of employment.
Although the Company does not provide federally approved mandated drug
testing, the Company treats employees who have been referred to the Company as a
result of compliance with the Drug Free Workplace Act, particularly from
companies that are part of safety sensitive industries, such as railroads,
airlines, trucking firms, oil and gas exploration companies, heavy equipment
companies and manufacturing companies.
HIGHLAND RIDGE
Highland Ridge is a 34-bed alcohol and drug treatment hospital which the
Company has been operating since 1984. It is the oldest free-standing chemical
dependency hospital in Utah. Highland Ridge is accredited by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") and received
an unconditional three-year accreditation effective July 1, 1993 which was
automatically extended pending the results of the current survey, which was
completed in August, 1996. Highland Ridge is also licensed by the Utah
Department of Health.
The patient population of Highland Ridge typically is between the ages of
18 and 70. Approximately 21% of the clients are female and 11% are minority
group members. Most patients are from Utah and surrounding states. Individuals
typically access Highland Ridge's services through professional referrals,
family members, employers, employee assistance programs or contracts between the
Company and health maintenance organizations located in Utah.
A pre-admission evaluation, which involves an evaluation of psychological,
cognitive and situational factors is completed for each prospective patient. In
addition, each prospective patient is given a physical examination upon
admission. Diagnostic tools, including those developed by the American
Psychological Association, the American Society of Addiction Medicine and the
Substance Abuse Subtle Screening Inventory are used to develop an individualized
treatment plan for each client. The treatment regimen involves an
interdisciplinary team which integrates the twelve-step principles of self-help
organizations, medical detoxification, individual and group counseling, family
therapy, psychological testing, psychiatric support, stress management, dietary
planning, vocational counseling and pastoral support. Highland Ridge also offers
extensive aftercare assistance. Individuals for whom treatment is inappropriate
are referred to other community and professional resources.
Highland Ridge was the first private for-profit hospital to address
specifically the special needs of chemically dependent women in Salt Lake
County. Approximately 40 women have been treated in an inpatient setting at no
charge since the program's inception in 1988. In addition, Highland Ridge has
contracted with Salt Lake County to provide medical detoxification services
targeted to women. The hospital also operates a specialized continuing care
support group to address the unique needs of women and minorities.
Highland Ridge periodically conducts or participates in research projects.
Highland Ridge is presently the site for a research project being conducted by
the University of Utah Medical School. The research explores the relationship
between individual motivation and treatment outcomes. This research is regulated
and reviewed by the Human Subjects Review Board of the University of Utah and is
subject to federal standards that delineate the nature and scope of research
involving human subjects. Highland Ridge benefits from this research by
expanding its professional relationships within the medical school community and
by applying the findings of the research to improve the quality of services the
Company delivers.
See "Description of Property - Highland Ridge."
MOUNT REGIS
Mount Regis is a 25-bed, free-standing alcohol and drug treatment center
located in Salem, Virginia, near Roanoke. The business, which was acquired in
1987, is the oldest program of its kind in the Roanoke Valley. Mount Regis is
accredited by the JCAHO, and licensed by the Department of Mental Health, Mental
Retardation and Substance Abuse Services of the Commonwealth of Virginia.
Mount Regis' patient population typically ranges in age from 18 to 70. In
the June 30, 1996 fiscal year, approximately 36% of Mount Regis' clients were
minority group members and 19% were females. Approximately 101 women have been
treated in an inpatient setting at no charge since the program's inception. The
programs at Mount Regis are designed to be sensitive to needs of women and
minorities. The majority of Mount Regis clients are from Virginia and
surrounding states. In addition, because of its relatively close proximity and
accessibility to New York, Mount Regis has been able to attract an increasing
number of referrals from New York-based labor unions.
Mount Regis has established programs which allow the Company to better
treat dual diagnosis patients (those suffering from both substance abuse and
psychiatric disorders), cocaine addiction and relapse-prone patients. The
multi-disciplinary case management, aftercare and family programs are designed
to prevent relapse.
Until April of 1994, the Company leased the facility from Mount Regis
Center, Limited Partnership (the "Mount Regis Partnership"), a related party. In
April of 1994, PHC, Inc. purchased all of the limited partnership interests in
the Mount Regis Partnership which were not owned by the Company for a purchase
price of $31,250 per share, with the exception of shares owned by Bruce A.
Shear, the President of the Company, for which PHC, Inc. paid $25,000 per share.
The initial investment cost per share was $25,000. PHC, Inc. then assigned its
interest to PHC of Virginia, Inc., thus dissolving the limited partnership. The
Certificate of Cancellation of Limited Partnership was recorded June 30, 1994
and, on the same date, the Limited Partnership transferred ownership of the real
estate for Mount Regis to PHC of Virginia, Inc. The property was transferred
subject to an existing outstanding mortgage of approximately $531,000. In
connection with the dissolution of the Mount Regis Partnership, the Company paid
all of its outstanding debt to the Mount Regis Partnership in the amount of
$262,500. The Company also paid $53,041 to the former limited partners for their
net profit share through the date of transfer. See "Description of Property
Mount Regis."
In April 1993, Mount Regis purchased a free-standing outpatient clinic in
Roanoke called "Changes" from Alternative Counseling Services, Inc. The purchase
price of the clinic was $69,535, $23,900 of which was paid in cash and $45,635
of which was paid with two promissory notes of the Company, one in the principal
amount of $15,635 and one in the principal amount of $30,000. The $15,635
promissory note was paid off in July of 1994. Minimum monthly payments due under
the $30,000 promissory note are $650.00 plus 12% of the clinic receipts over
$14,000 a month from May 1993 through April 1996 until paid in full. Such
payments not to exceed $30,000 in the aggregate. See "Description of Property
Mount Regis."
The Changes clinic provides structured intensive outpatient treatment for
patients who have been discharged from Mount Regis and for patients who do not
need the formal structure of a residential treatment program. The program is
licensed by the Commonwealth of Virginia and approved for reimbursement by major
insurance carriers.
GOOD HOPE CENTER
On March 16, 1994, the Company completed the purchase of the operating
assets of Good Hope, a 49-bed substance abuse treatment facility located in West
Greenwich, Rhode Island, together with related outpatient programs. In addition
to the West Greenwich facility, Good Hope has a satellite location in North
Smithfield, Rhode Island. The West Greenwich facility is located on an
approximately 70-acre site three hours from New York City and one hour from
Boston. All 49 beds are located in West Greenwich. Good Hope has both adult and
adolescent programs which are located in separate buildings. Outpatient and day
treatment programs are also located at this site. The satellite site operates
both outpatient and day treatment substance abuse programs. See "Description of
Property - Good Hope."
Good Hope concentrates on providing services to insurers, managed care
networks and health maintenance organizations (HMOs). Good Hope provides the
same quality of individualized treatment provided by the Company's other
facilities by working closely with the managed care and HMO staff. The Company
recognizes that not all clients are in need of, nor are appropriate recipients
of, acute care alcohol and drug treatment services. Good Hope also utilizes its
outpatient programs to provide a continuum of care to local patients. The day
treatment license permits treatment of substance abuse, which encompasses
primary diagnoses of both alcohol abuse and drug abuse.
Good Hope has the Company's only substance abuse treatment program for
adolescents. This program has filled a need of the Company's other facilities
for a reliable referral for adolescents. Most of the patients treated at Good
Hope are from the New England area and approximately 30% are minorities.
Good Hope Center has experienced a decline in census and continues to
operate at a loss primarily as a result of the loss of referrals from the
Department of Child, Youth and Family Services (DCYF) contract funded by the
State of Rhode Island which created a substantial decline in adolescent census.
Management changes have been made and the Company's management team is focusing
its efforts to re-engineer this program from both an expense reduction and
revenue enhancement plan.
DISCONTINUANCE OF OPERATIONS AT MARIN GROVE
On August 16, 1994, the Company discharged the last patient from and
discontinued operations at Marin Grove, its substance abuse treatment facility
located in Marin County, California. The operations were discontinued based on
the Company's assessment that the continued poor financial performance of Marin
Grove did not justify the pending purchase of the Marin Grove facility or the
expenditures of additional sums to cover operating losses. This resulted in a
writedown of assets in the 1994 fiscal year of approximately $170,000 related to
the purchase and discontinued operations.
The Company had been granted a purchase option to acquire the real estate
for the Marin Grove facility from the lessor for $950,000 under the terms of a
settlement conference order issued as a result of litigation related to the
validity of the underlying lease agreement.
A settlement agreement with the lessor was finalized on September 8, 1994
which terminated the purchase option for Marin Grove and allowed the Company to
continue to occupy the administrative building and rental apartments until
November 30, 1994. Subsequently, the litigation described in the preceding
paragraph was dismissed with prejudice. The Company was obligated to pay rent in
the amount of $40,000 for the period ended November 30, 1994.
PROPOSED SHORT-TERM INTENSIVE INPATIENT TREATMENT FACILITY
The Company had proposed to develop a short-term intensive inpatient
treatment center in Lynn, Massachusetts. The site on which such treatment center
was to be located is the former Mt. Pleasant Hospital which is owned by the
Shear Family Trust and the NMI Trust (the "Shear Trusts"), two family trusts
established by the Shear family. The Company has recently made a decision not to
pursue this project. As a result, the Company has received from the Shear Trusts
a refund of its option deposit payment of $50,000 previously made by the
Company, plus accrued interest thereon, and will obtain reimbursement of certain
development expenses over time. The Company has been paid $6,000 through June,
1996 and the Company will receive additional monthly payments of $500.00 until
paid in full.
HELPLINE REFERRAL SERVICE
In the spring of 1994 the Company began to operate a crisis hotline service
under contract with a major transportation client. The hotline, Pioneer
Development Support Services, or PDS2 ("PDS2"), is a national, 24-hour telephone
service which supplements the services provided by the client's Employee
Assistance Programs. The services provided include information, crisis
intervention, critical incidents coordination, employee counselor support,
client monitoring, case management and health promotion. The hotline is staffed
by counselors who refer callers to the appropriate professional resources for
assistance with personal problems. Four major transportation companies
subscribed to these services as of June 30, 1996. This operation is physically
located in Highland Ridge Hospital, but services are provided by staff dedicated
to PDS2. PDS2 is currently operated by the parent entity, PHC, Inc.
OPERATING STATISTICS
The following table reflects selected financial and statistical
information for the operating companies offering substance abuse treatment:
YEAR ENDED JUNE 30
1996 1995
---- ----
Net patient service revenues...... $10,307,262 $8,894,976
PDS2 $233,164 $128,157
Revenues..........................
Net revenues per patient day (1).. $380 $397
Average occupancy rate (2)........ 63% 66%
Total number of beds at endof period 108 108
(1) Net revenues per patient day is net patient service revenues divided by
total patient days.
(2) Average occupancy rates were obtained by dividing the total number of
patient days in each period by the number of licensed beds available in
such period. The total licensed beds available include only four months
for Good Hope in 1994 and 47 days for Marin Grove in 1995 due to its
closing. In calculating average occupancy rates, the total number of
patient days includes patient days attributed to scholarship patients as
well as patient days attributed to relapse patients for whom treatment is
provided by the Company without charge. In each of the fiscal years ended
June 30, 1994, 1995 and 1996, these patient days accounted for less than
5% of the total number of patients for the fiscal year.
PSYCHIATRIC FACILITY
INTRODUCTION
On September 20, 1994 the Company acquired its first psychiatric facility,
Harbor Oaks Hospital. The Company believes that its proven ability to provide
high quality, cost-effective care in the treatment of substance abuse will
assist it in growing in the related behavioral health field of psychiatric
treatment.
HARBOR OAKS
Harbor Oaks is a 64-bed psychiatric hospital located in New Baltimore,
Michigan, approximately 20 miles northeast of Detroit along a highly populated
corridor surrounding Interstate Highway-94. Harbor Oaks is licensed by the
Department of Mental Health of the State of Michigan and is accredited by JCAHO.
Harbor Oaks provides inpatient psychiatric care to children, adolescents and
adults and operates a partial hospitalization program that includes outpatient
treatment services. In addition to drawing patients from Macomb, Oakland and St.
Clair Counties in Michigan as the prior owner did, the Company utilizes the
Harbor Oaks facility as a mental health resource to complement its nationally
focused substance abuse treatment programs. See "Description of Property Harbor
Oaks."
Through a management agreement with New Life Treatment Centers, Inc. the
Hospital also offers counseling programs with a Christian philosophy on an
inpatient and partial hospitalization basis. This program has attracted patients
from across the state, as well as from bordering Ohio.
In September, 1996, Harbor Oaks received approval from the Michigan
Department of Public Health for a Certificate of Need for a 20-slot
Child/Adolescent Partial Hospitalization Program to be located in Port Huron,
Michigan.
OPERATING STATISTICS
The following table reflects selected financial and statistical
information for Harbor Oaks:
YEAR ENDED JUNE
30
INPATIENT INPATIENT PARTIAL PARTIAL
HOSPITAL HOSPITAL
1996 1995 1996 1995
---- ---- ---- ----
Net patient service revenues...... $5,296,874 $2,755,642 $921,537 $449,215
Net revenues per patient day (1).. $548 $533 $261 $176
Average occupancy rate (2)........ 64.4% 52.2% N/A N/A
Total number of beds at end of 64 64 N/A N/A
period............................
Sources of revenues:
Private(3).................... 75.5% 63.6% N/A N/A
Government(4) ................ 24.5% 36.4% N/A N/A
(1) Net revenues per patient day is net patient service revenues divided by
total patient days.
(2) Average occupancy rate was obtained by dividing the total number of
patient days in each period by the number of licensed beds available in
such period.
(3) Private pay percentage is the percentage of total patient days derived
from all payors other than Medicare and Medicaid.
(4) Government pay percentage is the percentage of total patient days derived
from the Medicare and Medicaid programs.
OUTPATIENT PSYCHIATRIC FACILITIES
INTRODUCTION
On November 1, 1995 the Company acquired its first outpatient psychiatric
clinic, Harmony Healthcare. On March 15, 1996 the Company acquired Total
Concepts, EAP, which operates Employee Assistance Programs and provides out
patient behavioral health care to adults, adolescents and children. The Company
believes its proven ability to provide high quality inpatient psychiatric
treatment will be a catalyst for the further development of its outpatient
treatment programs.
HARMONY HEALTHCARE
Harmony Healthcare, located in Las Vegas, Nevada, provides outpatient
psychiatric care to children, adolescents and adults in the local area. Harmony
also operates Employee Assistance Programs for several large casino companies
including Boyd Gaming Corporation, the MGM Grand, the Mirage and Treasure Island
resorts, which includes a rapid response program to provide immediate assistance
24 hours a day.
TOTAL CONCEPT EAP
Total Concept EAP, located in Shawnee Mission, Kansas, provides behavioral
health care to children, adolescents and adults and manages Employee Assistance
Programs for local businesses.
OPERATING STATISTICS
The following table reflects selected financial and statistical
information for the outpatient psychiatric centers for the year ended June 30,
1996:
Net revenues
Individual $ 648,302
Contract $ 503,365
-----------
$1,151,667
Total
Sources of revenues:
Private 89%
Government 11%
On August 31, 1996, the Company completed the acquisition of four
outpatient psychiatric clinics known as North Point located in Michigan for a
purchase price of $110,000 plus 15,000 shares of Class A Common Stock. On
September 7, 1996, the Company purchased three additional outpatient psychiatric
clinics from Value Behavioral Health for a purchase price of $150,000 adjustable
to $50,000 if certain contracts are not finalized within six months. The Company
will operate six of the acquired clinics as Pioneer Counseling Centers.
LONG-TERM CARE FACILITY
INDUSTRY BACKGROUND
The fastest growing market in the health care industry is the segment
which provides services for people 65 years of age and older. Demographers
predict that this population segment will increase dramatically in the next 20
years. The Company believes that there is a current shortage of long-term care
facilities which provide subacute and skilled nursing care and that such
shortage will be exacerbated by this population trend.
FRANVALE
The Company owns and operates a 128-bed, multi-level, long-term care
facility in Braintree, Massachusetts. For the fiscal year ended June 30, 1996,
Franvale operated at 87.1% of capacity.
In September, 1994, the Company received approval from The Commonwealth of
Massachusetts for a 25-bed addition to the Franvale facility. Under a one-time
regulatory exemption, the Company added an additional 12 beds to Franvale, for a
total of 37 new beds, and renovated the existing facility during the 1995 and
1996 fiscal years. To finance this addition and renovation, the Company applied
for and received Section 232 Mortgage Financing in an amount of $6,822,700 from
HUD. Approximately $2.9 million of that amount was used for the new construction
and renovation, which began September 13, 1994, and approximately $2,327,230 was
used to repay all indebtedness, plus accrued interest, relating to Franvale,
including $497,500 of indebtedness owing to the FDIC. The construction was
completed in September 1995. The Company began operation of the new addition on
September 29, 1995. The final amount of the mortgage was $6,822,700 as
determined by the HUD process of cost certification on July 9, 1996. The monthly
debt service is approximately $54,000.
Currently, the majority of the services provided by the Company at its
Franvale facility are skilled nursing services. The short-term rehabilitation
and subacute services provided include several forms of intravenous therapy,
total parenteral (intravenous) nutrition and pain management. Other subacute
services offered include hospice care, wound management and tracheotomy care.
The skilled therapeutic services offered by the Company include occupational,
physical and speech therapy, respiratory modalities and continence retraining
programs. Franvale was the first long-term care facility in Massachusetts to
hold DPH certification in all of the modalities of parenteral (intravenous)
infusion therapy, and is a leader among long-term care facilities in responding
to the needs of the managed care market and for providing transfusion services
in a setting that combines the prerequisite skill and cost effectiveness. With
completion of the addition and renovation project, the Company is expanding the
subacute services it offers to include expanded respiratory therapy services
(i.e., mechanically assisted ventilation), peritoneal and neurobehavioral
therapeutic services.
See "Description of Property - Franvale."
OPERATING STATISTICS
The following table reflects selected financial and statistical
information for Franvale:
YEAR ENDED
JUNE 30
1996 1995
Net patient service revenues........ $5,043,922 $4,180,471
Net revenues per patient day (1).... $137 $135
Average occupancy rate (2).......... 87.1% 92.7%
Total number of beds at end of period 128 91
Source of revenues:
Private (3).................... 8% 8%
Government (4)................. 92% 92%
(1) Net revenues per patient day equals net patient service revenues divided by
total patient days.
(2) Average occupancy rates were obtained by dividing the number of patient days
in each period by the number of licensed beds available in such period.
(3) Private pay percentage is the percentage of total patient days derived from
all payors other than Medicare and Medicaid.
(4) Government pay percentage is the percentage of total patient days derived
from the Medicare and Medicaid programs. Government total for 1996 reflects
increase in higher acuity Medicare patients and Medicaid patients.
DAY-CARE
The Company operated three day care centers from 1988 until 1993. The
Company is in the process of phasing out these operations and, in this regard,
sold one of the centers in fiscal year 1993 and sold one of the centers in
fiscal year 1996. The Company is currently seeking a buyer for the remaining day
care center, which is located in Saugus, Massachusetts.
MARKETING
Each of the Company's substance abuse facilities conducts its own
marketing efforts on both a local and national level. Mount Regis has four
individuals on staff who are responsible for the marketing of that facility's
services, Highland Ridge has three such individuals on staff, and Harbor Oaks
Hospital has one such individual. The Company's national marketing efforts are
coordinated by the Company's National Marketing Director who reports to the
Company's Executive Vice President.
The Company markets the services of its psychiatric facility locally in
Michigan and to its existing chemical dependency and substance abuse clients
nationally.
With respect to substance abuse and psychiatric care, the Company intends
to continue its marketing strategy of focusing on referral sources in
safety-sensitive industries such as transportation, oil and gas exploration and
heavy machinery and equipment manufacturing the Company also sees significant
growth in the gaming industry. In addition to providing excellent service and
treatment outcomes, the Company will continue, where appropriate, to negotiate
pricing policies to attract patients for long-term, intensive treatment which
also meet length-of-stay and clinical requirements established by insurers and
managed care organizations.
The Company's marketing efforts for long-term care facilities will
emphasize the specialized, transitional subacute care services provided at
Franvale and which are expected to be provided at other facilities. Such
facilities provide care to patients who no longer require the higher acuity care
provided by acute care hospitals, but who still require nursing intervention and
use a significant amount of ancillary medical services, including intravenous
rehabilitation, respiratory and enteral therapies. The Company believes that
acute care hospitals seek to transfer certain patients who have entered the
recuperative period but who are not yet well enough to be cared for at home to
facilities which offer the type of intensive care available at Franvale. The
Company believes that such patients represent a large market but one which
currently is underserved. The Company hopes to continue its relationship with
existing acute care hospitals for transitional patients and to develop other
networks with health care providers to increase its census, particularly of
higher paying private pay and long-term care insured patients.
COMPETITION
The Company's substance abuse programs compete nationally with other
health care providers, including general and chronic care hospitals, both
non-profit and for-profit, other substance abuse facilities and short-term
detoxification centers. Some competitors have substantially greater financial
resources than the Company. The Company believes, however, that it can compete
successfully with such institutions because of its success in treating
poor-prognosis patients. The Company will compete through its focus on such
patients, its willingness to negotiate appropriate rates and its capacity to
build and service corporate relationships.
The Company's inpatient psychiatric facility and outpatient centers
compete regionally in the State of Michigan and nationally with other
psychiatric service providers. Harbor Oaks is located in the suburban Detroit
area and competes for patients with facilities in Macomb, Oakland and St. Clair
Counties. The outpatient centers compete with other similar centers. The Company
specializes in inpatient and partial hospitalization for acute mental health
treatment of children, adolescents and adults. Harbor Oaks is the only provider
of child and adolescent services for nearby St. Clair County and is only one of
two facilities in its own county of Macomb. Dual diagnosis programming provides
a niche service for clients with a primary mental health and a secondary
substance abuse diagnosis. The dual diagnosis program is the only program of its
type in metropolitan Detroit offering subacute detoxification and treatment of
the primary psychiatric and secondary substance abuse diagnosis. It is the only
psychiatric facility in the area offering subacute detoxification and
psychiatric evaluations in the same facility. The dual diagnosis service was
developed in response to demand from insurers, employees and treatment
facilities. Harbor Oaks Hospital is placed strategically in terms of physical
proximity to large population centers, competing hospitals, populations served
and programming. The Company plans to acquire outpatient facilities in strategic
locations to further expand its market and integrate its delivery system.
With respect to long-term care, the Company's competitors include
hospitals, long-term care facilities and hospices which provide both custodial
and subacute care. The Company competes in the long-term market within a
catchment area of an approximately 25-mile radius from its Franvale center. The
success of a long-term care facility depends on various factors, including the
quality of its amenities and facility, the professionalism of its staff and its
location. The Company believes that it can compete successfully in the long-term
care market, notwithstanding the fact that its competitors are numerous and in
many cases have greater financial resources than the Company, by continuing to
provide intensive, cost-effective and innovative treatment and by acquiring new
facilities or upgrading its existing facilities, as it has done through the
construction and renovation project at Franvale, so that the physical plant
appeals to private paying patients.
REVENUE SOURCES AND CONTRACTS
The Company has entered into relationships with numerous employers, labor
unions and third-party payors to provide services to their employees and members
for the treatment of substance abuse disorders. In addition, the Company admits
patients who seek treatment directly without the intervention of third parties
and whose insurance does not cover these conditions in circumstances where the
patient either has adequate financial resources to pay for treatment directly or
is eligible to receive free care at one of the Company's substance abuse
facilities. Free treatment provided each year amounts to less than 5% of the
Company's total patient days.
Each contract with an institution is negotiated separately, taking into
account the insurance coverage provided to employees and members, and may
provide for differing amounts of compensation to the Company for different
subsets of employees and members depending upon such coverage. The charges may
be capitated, or fixed with a maximum charge per patient day, and, in the case
of larger clients, frequently result in a negotiated discount from the Company's
published charges. The Company believes that such discounts are appropriate as
they are effective in producing a larger volume of patient admissions. When
non-contract patients are treated by the Company, they are billed on the basis
of the Company's standard per diem rates and for additional ancillary services
provided to them by the Company.
QUALITY ASSURANCE AND UTILIZATION REVIEW
The Company has established a comprehensive quality assurance program at
all of its facilities. Such programs are designed to ensure that each facility
maintains standards that meet or exceed requirements imposed upon the Company,
with the objective of providing high-quality specialized treatment services to
its patients. The Company's professional staff, including physicians, social
workers, psychologists, nurses, dietitians, therapists and counselors, must meet
the minimal requirements of licensure for their specific discipline, as well as
the internal professional staff requirements adopted by each of the facilities.
The Company participates in the federally mandated National Practitioners Data
Bank, which monitors professional accreditation nationally.
In response to the increasing reliance of insurers and managed care
organizations upon utilization review methodologies, the Company has adopted a
comprehensive documentation policy to satisfy relevant reimbursement criteria.
Additionally, the Company has developed an internal case management system which
provides assurance that services rendered to individual patients are medically
appropriate and reimbursable. Implementation of these internal policies has been
integral to the success of the Company's strategy of providing services to
relapse-prone, higher acuity patients.
GOVERNMENT REGULATION
The Company's business and the development and operation of the Company's
facilities are subject to extensive federal, state and local government
regulation. In recent years, an increasing number of legislative proposals have
been introduced at both the national and state levels that would effect major
reforms of the health care system if adopted. Among the proposals under
consideration are reforms to increase the availability of group health
insurance, to increase reliance upon managed care, to bolster competition and to
require that all businesses offer health insurance coverage to their employees.
The Company cannot predict whether any such legislative proposals will be
adopted and, if adopted, what effect, if any, such proposals would have on the
Company's business.
In addition, both the Medicare and Medicaid programs are subject to
statutory and regulatory changes, administrative rulings, interpretations of
policy, intermediary determinations and governmental funding restrictions, all
of which may materially increase or decrease the rate of program payments to
health care facilities. Since 1983, Congress has consistently attempted to limit
the growth of federal spending under the Medicare and Medicaid programs and will
like continue to do so. Additionally, congressional spending reductions for the
Medicaid program involving the issuance of block grants to states is likely to
hasten the reliance upon managed care as a potential savings mechanism of the
Medicaid program. As a result of this reform activity the Company can give no
assurance that payments under such programs will in the future remain at a level
comparable to the present level or be sufficient to cover the costs allocable to
such patients. In addition, many states, including The Commonwealth of
Massachusetts and the State of Michigan, are considering reductions in state
Medicaid budgets.
HEALTH PLANNING REQUIREMENTS
Some of the states in which the Company operates, and many of the states
where the Company may consider expansion opportunities, have health planning
statutes which require that prior to the addition or construction of new beds,
the addition of new services, the acquisition of certain medical equipment or
certain capital expenditures in excess of defined levels, a state health
planning agency must determine that a need exists for such new or additional
beds, new services, equipment or capital expenditures. These state determination
of need or certificate of need ("DoN") programs are designed to enable states to
participate in certain federal and state health related programs and to avoid
duplication of health services. DoNs typically are issued for a specified
maximum expenditure, must be implemented within a specified time frame and often
include elaborate compliance procedures for amendment or modification, if
needed. Several states, including The Commonwealth of Massachusetts, have
instituted moratoria on some types of DoNs or otherwise stated an intent not to
grant approvals for certain health services. Such moratoria may adversely affect
the Company's ability to expand in such states, but may also provide a barrier
to entry to potential competitors.
LICENSURE AND CERTIFICATION
All of the Company's facilities must be licensed by state regulatory
authorities. The Company's Franvale and Harbor Oaks facilities are certified for
participation as providers in the Medicare and Medicaid programs.
The Company's initial and continued licensure of its facilities, and
certification to participate in the Medicare and Medicaid programs, depends upon
many factors, including accommodations, equipment, services, patient care,
safety, personnel, physical environment, adequate policies, procedures and
controls and the regulatory process regarding the facility's initial licensure.
Federal, state and local agencies survey facilities on a regular basis to
determine whether such facilities are in compliance with governmental operating
and health standards and conditions for participating in government programs.
Such surveys include reviews of patient utilization and inspection of standards
of patient care. The Company will attempt to ensure that its facilities are
operated in compliance with all such standards and conditions. To the extent
these standards are not met, however, the license of a facility could be
restricted, suspended or revoked, or a facility could be decertified from the
Medicare or Medicaid programs.
MEDICARE REIMBURSEMENT
Currently, the Company's chemical dependency facilities do not receive
reimbursement under the Medicare program for services rendered. The Franvale and
Harbor Oaks facilities do, however, rely upon such reimbursement as presumably
will other long-term care and psychiatric facilities which may be acquired or
established by the Company. The Medicare program reimburses long-term care
facilities for routine operating costs, capital costs and ancillary costs.
Routine operating costs are subject to a routine cost limitation set for each
location. Such routine cost limitations are not applicable for the first three
years of the facility's operations. Owing to its high acuity patient population,
Franvale has received an exception to this routine cost limit for calendar years
1993, 1994, 1995 and 1996. Capital costs include interest expenses, property
taxes, lease payments and depreciation expense. Interest and depreciation are
calculated based upon the original owner's historical cost (plus the cost of
subsequent capital improvements) when changes in ownership occur after July
1984. Ancillary costs are reimbursed at actual cost to Medicare beneficiaries
based on prescribed cost allocation principles.
On December 13, 1989, the Catastrophic Care Act of 1988 (the "Catastrophic
Care Act") was repealed. Prior to the effective date of the Catastrophic Care
Act, federal law provided as a precondition to Medicare coverage of skilled
nursing facility services that the Medicare beneficiary must have been an
inpatient in an acute care hospital for at least three days preceding admission
to the nursing facility, with such admission occurring within thirty days after
discharge from the acute care hospital. Because the Catastrophic Care Act has
been repealed, that precondition to Medicare coverage of skilled nursing
facility services has been reinstated. However the Catastrophic Care Act's
expanded definition of skilled care, which increased beneficiaries' access to
skilled nursing services, has been retained.
The Medicare program generally reimburses psychiatric facilities pursuant
to its prospective payment system ("PPS"), in which each facility receives an
interim payment of its allowable costs during the year which is later adjusted
to reflect actual allowable direct and indirect costs of services based upon the
submission of a cost report at the end of each year. However, current Medicare
payment policies allow certain psychiatric service providers an exemption from
PPS. In order for a facility to be eligible for exemption from PPS, the facility
must comply with numerous organizational and operational requirements.
PPS-exempt providers are cost reimbursed, receiving the lower of reasonable
costs or reasonable charges. The Medicare program fiscal intermediary pays a per
diem rate based upon prior year costs, which may be retroactively adjusted upon
the submission of annual cost reports.
The Harbor Oaks facility is currently PPS-exempt. The amount of its
cost-based reimbursement may be limited by the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA") and regulations promulgated thereunder.
Generally, TEFRA limits the amount of reimbursement a facility may receive to a
target amount per discharge, adjusted annually for inflation. This target amount
is based upon a facility's reasonable Medicare operating cost divided by
Medicare discharges, plus a per diem allowance for capital costs, during its
base year of operations. It is not possible to predict the ability of Harbor
Oaks to remain PPS-exempt or to anticipate the impact of TEFRA upon the
reimbursement received by Harbor Oaks in future periods.
In order to receive Medicare reimbursement, each participating facility
must meet the applicable conditions of participation set forth by the federal
government relating to the type of facility, its equipment, its personnel and
its standards of medical care, as well as compliance with all state and local
laws and regulations. In addition, Medicare regulations generally require that
entry into such facilities be through physician referral. The Company must offer
services to Medicare recipients on a non-discriminatory basis and may not
preferentially accept private pay or commercially insured patients.
MEDICAID REIMBURSEMENT
Currently, the Company's chemical dependency facilities do not receive
reimbursement under any state Medicaid program. The Franvale and Harbor Oaks
facilities do, however, rely upon Medicaid reimbursement, as presumably will
other long-term care facilities which may be acquired or established by the
Company. A portion of Medicaid costs are paid by states under the Medicaid
program and the federal matching payments are not made unless the state's
portion is made. Accordingly, the timely receipt of Medicaid payments by a
facility may be affected by the financial condition of the relevant state.
Harbor Oaks, the Company's psychiatric facility, is a participant in the
Medicaid program administered by the State of Michigan. The great majority of
patients reimbursed under this program are adolescents. Harbor Oaks receives
reimbursement from the State of Michigan Medicaid program on a per diem basis,
inclusive of ancillary costs. The rate is determined by the state and is
adjusted annually based on cost reports filed by the Company.
The Franvale facility participates in the Medicaid program administered by
The Commonwealth of Massachusetts. Payment to Medicaid providers in
Massachusetts may be delayed or reduced due to budgetary constraints or limited
availability of revenues due to general economic conditions affecting the
Commonwealth. Such delays and reductions have occurred in the past and no
assurance can be given that future reductions will not be made in the scope of
covered services or the rate of increase in reimbursement rates, or that future
reimbursement will be adequate to cover the provider's cost of providing
service. The effect of such limitations or reductions will be to require
management to carefully manage costs so that they will come within available
reimbursement revenues, if possible.
FRANVALE NURSING AND REHABILITATION CENTER
For 1995 and 1996, Massachusetts Medicaid continues to reimburse skilled
nursing facilities on an acuity based prospective system. The 1995 and 1996
rates are based on costs reported and acuity data for 1993 and are adjusted by
inflation factors. Under the rate formula established for 1996, Massachusetts
nursing facilities received an average increase in their Medicaid rates of
approximately 2%.
Actual reimbursement of long-term care costs under the Massachusetts Medicaid
program is based in part upon the acuity levels of individual patients. Any
changes by the Commonwealth to the methods used to determine patient acuity will
therefore affect Medicaid reimbursement to providers of long-term care. Although
the specific Medicaid rate formula for 1997 has not been determined, it is
expected that the base year period will remain the same and a modest inflation
adjustment will be incorporated into the rates. At this time the Company cannot
predict the impact of the 1997 or future year rate changes on its operations.
FRAUD AND ABUSE LAWS
Various federal and state laws regulate the business relationships and
payment arrangements between providers and suppliers of health care services,
including employment or service contracts, and investment relationships. These
laws include the fraud and abuse provisions of the Medicare and Medicaid
statutes as well as similar state statutes (collectively, the "Fraud and Abuse
Laws"), which prohibit the payment, receipt, solicitation or offering of any
direct or indirect remuneration intended to induce the referral of patients or
the ordering or providing of certain covered services, items or equipment.
Violations of these provisions may result in civil and criminal penalties and/or
exclusion from participation in the Medicare and Medicaid programs and from
state programs containing similar provisions relating to referrals of privately
insured patients. The federal government has issued regulations which set forth
certain "safe harbors," representing business relationships and payment
arrangements that can safely be undertaken without violation of the federal
Fraud and Abuse Laws. The Company believes that its business relationships and
payment arrangements either fall within the safe harbors or otherwise comply
with the Fraud and Abuse Laws.
EMPLOYEES
As of September 15, 1996, the Company had 434 employees, of which 15 (14
full time) were employed through the Company's headquarters, 64 (34 full time)
at Highland Ridge, 41 (29 full time) at Mount Regis, 47 (27 full time) at Good
Hope, 166 (90 full time) at Franvale, and 84 (44 full time) at Harbor Oaks, 12
(9 full time) at Harmony Healthcare, 5 (4 full time) at Total Concept. Of the
Company's 434 employees, 268 are leased from Allied Resource Management of
Florida, Inc. ("ARMFCO"), a wholly owned subsidiary of HRC ARMCO, Inc. (formerly
known as Alliance Employee Leasing Corporation), a national employee leasing
firm.
The Company has elected to lease a substantial portion of its employees to
provide more favorable employee health benefits at lower cost than would be
available to the Company as a single employer and to eliminate certain
administrative tasks which otherwise would be imposed on the management of the
Company. The Company does not lease employees for its long-term care facility.
The arrangements with ARMFCO are implemented through separate leases with the
Company relating to each facility, other than Franvale, and are terminable by
either party on 30 days' written notice. The agreements with ARMFCO provide that
for all leased employees, ARMFCO will administer payroll (including withholding
of state and federal payroll taxes), provide for compliance with workers'
compensation laws, including procurement of workers' compensation insurance and
administering claims, and procure and provide designated employee benefits. The
Company retains the right to reject the services of any leased employee and
ARMFCO has the right to increase its fees at any time upon thirty days' written
notice or immediately upon any increase in payroll taxes, workers' compensation
insurance premiums or the cost of employee benefits provided to the leased
employees.
The Company believes that it has been successful in attracting skilled and
experienced personnel; competition for such employees is intense, however, and
there can be no assurance that the Company will be able to attract and retain
necessary qualified employees in the future. None of the Company's employees are
covered by a collective bargaining agreement. The Company believes that its
relationships with its employees are good.
INSURANCE
Each of the Company's facilities maintains separate professional liability
insurance policies. Mount Regis, Harbor Oaks, Harmony Healthcare, and Total
Concept have coverage of $1,000,000 per claim and $3,000,000 in the aggregate.
Highland Ridge has limits of $1,000,000 per claim and $5,000,000 in the
aggregate. Good Hope has coverage of $2,000,000 per claim and $6,000,000 in the
aggregate. In addition, these entities maintain general liability insurance
coverage in identical amounts. The Company's long-term care facility maintains
general and professional liability coverage of $2,000,000, with a limit of
$1,000,000 per claim and an aggregate of $5,000,000 excess coverage.
The Company maintains $1,000,000 of directors and officers liability
insurance coverage and $1,000,000 of general liability insurance coverage. The
Company believes, based on its experience, that its insurance coverage is
adequate for its business and that it will continue to be able to obtain
adequate coverage.
ITEM 2. DESCRIPTION OF PROPERTY.
EXECUTIVE OFFICES
The Company's executive offices are located in Peabody, Massachusetts. The
Company's lease in Peabody covers approximately 3,600 square feet for a 60-month
term effective September 10, 1994 at an annual base rent of $28,800 in the first
year, $32,400 in the second year, $34,020 in the third year, $35,721 in the
fourth year and $37,507 in the fifth year. The Company believes that this
facility will be adequate to satisfy its needs for the foreseeable future.
HIGHLAND RIDGE
The Highland Ridge premises consists of approximately 16,072 square feet
of space occupying two full stories of a three-story building. The Company is in
the twelfth year of a fifteen-year lease term, which lease provides for monthly
rental payments of approximately $21,000 for the remainder of the lease term.
The lease expires on September 30, 1998, and contains an option to renew. During
the term of the lease or any extension thereof, the Company has a right of first
refusal on any offer to purchase the leased premises. The Company believes that
these premises are adequate for its current and anticipated needs.
MOUNT REGIS
The Company owns the Mount Regis facility which consists of a three-story
wooden building located on an approximately two-acre site in a residential
neighborhood. The building consists of over 14,000 square feet. Mount
Regis/Changes occupies approximately 1,500 square feet of leased office space on
the first floor of an office building in Roanoke, Virginia. The Company believes
that these premises are adequate for its current and anticipated needs. The
Mount Regis Center property is subject to an outstanding mortgage in favor of
Douglas Roberts with an outstanding balance of $505,485 at fiscal year ended
June 30, 1996.
GOOD HOPE
The Company leases the property from NMI Realty, Inc., at an annual rent
of $206,000 for the second year, $231,000 in the third through fifth years,
$255,000 in the sixth year and $255,000 plus 5% of previous year's rent per year
in years seven through twenty of the lease. The Company has an irrevocable
option to purchase the property for $1,300,000 at the end of the second year,
for $1,200,000 at the end of the third year, for $1,150,000 at the end of the
fourth year and for $1,100,000 at any time after the end of the fifth year
through the end of the term of the lease.
The West Greenwich facility consists of three buildings, containing a
total of approximately 25,000 square feet, located on an approximately 70-acre
parcel of land. The satellite office is leased; the Company is a tenant-at-will
at the North Smithfield satellite location. The Company believes that these
premises are adequate for its current and anticipated needs.
HARBOR OAKS
Harbor Oaks is located in New Baltimore, Michigan, approximately 20 miles
northeast of Detroit. The Company owns the property on which Harbor Oaks
operates, consisting of a one-story brick and wood frame building comprising
approximately 32,000 square feet and which is used for the operation of a
psychiatric hospital, and the underlying real estate of approximately three
acres. There have been two additions to the building; in 1982, 19 beds were
added and, in 1988, a new administrative area and gymnasium were built. The
Company believes that these premises are adequate for its current and
anticipated needs.
HARMONY HEALTHCARE
The Harmony premises consists of approximately 2,628 square feet of space
located on the third floor of the building known as Charleston Tower located at
1701 West Charleston Boulevard, Las Vegas, Nevada. The property is under a four
year lease which provides for lease payments of $4,599.00 per month plus common
area charges of 3.48% of project expenses not to exceed $300.00 in the first
year with incremental increases of $50.00 per month allowed each year of the
lease. The lease also allows for an increase in leased space to 3,077 square
feet as soon as available for occupancy. This increase in leased space increases
the monthly rent charge to $5384.75 but the allocation of project expenses
remains the same. The Company believes that these premises are adequate for its
current and anticipated needs.
TOTAL CONCEPT
The Total Concept premises consists of approximately 1,850 square feet of
space known as Suite 101 located at King's Cove Office Park in Shawnee Mission,
Kansas. The property is under a three year lease which provides for monthly
lease payments of $1,735.00 for the first year, $1,773.00 for the second year
and $1,850.00 for the third year of the lease. The Company believes that these
premises are adequate for its current and anticipated needs.
FRANVALE
The Company owns the real property and improvements for Franvale. The
operations are located in a two-story building comprising 44,019 square feet
which is located on an approximately two-acre parcel of land. The real property
was owned by PHC, Inc. until September 8, 1994, at which time it was transferred
to its subsidiary, Quality Care Centers of Massachusetts, Inc., ("QCC"). At the
time the property was transferred to QCC, QCC purchased an adjoining 5,825
square foot parcel of land and refinanced its existing debt and financed the
costs of renovations and the addition of 37 beds to the long-term care facility.
The Company believes that these premises are adequate for its current and
anticipated needs.
The refinancing described in the preceding paragraph was accomplished
through guarantees provided by the U.S. Department of Housing and Urban
Development under Section 232 of The National Housing Act. A non-recourse loan
in the amount of $6,822,700 was provided by Charles River Mortgage Company of
Boston, Massachusetts in return for a promissory note and mortgage of the
Company in the same amount. This amount was adjusted after HUD's final cost
certification process completed in July, 1996. The annual interest is 9.25% and
the note is payable over a forty-year period commencing January 1, 1996. During
the twelve-month construction period, only interest was payable, effective
October 1, 1994. Pre-payment is allowed with penalty from October 1, 2000
through October 1, 2005, with no penalty from October 1, 2005. All pre-existing
debt relating to Franvale was paid by the Company out of the proceeds of the
refinancing; $497,500.00 was paid to the Federal Deposit Insurance Company,
$1,823,839.87 was paid to CMS Capital Ventures, Inc. and $5,888.77 was paid to
Trans National Leasing.
The Company completed renovations to and the addition of 37 beds to its
long-term care facility in September ,1995.
ITEM 3. LEGAL PROCEEDINGS.
Consistent with its discontinuation of operations at the Marin Grove
facility, the Company has entered into a settlement agreement with Claire
Leonhard Morse, individually and as a trustee of the Anna Leonhard Trust, Arnold
Leonhard, individually and as a trustee of the Anna Leonhard Trust, and Lloyd
Leonhard (collectively, the "Lessor") in connection with litigation relating to
the Company's lease of the Marin Grove property. Under the settlement agreement,
the Company paid the Lessor $40,000, less approximately $17,400 for amounts
already paid, as rent for the period from August 1, 1994 to November 30, 1994
and continued to occupy only that portion of the property used for
administrative purposes and rented to current subtenants until November 30,
1994. In December 1994, the litigation was dismissed with prejudice.
The Company received a notice from Pioneer Health Care, Inc., a
Massachusetts non-profit corporation demanding that the Company discontinue use
of its PIONEER HEALTHCARE trademark upon the ground that that mark infringes the
rights of Pioneer Health Care, Inc. under applicable law. Pioneer Health Care,
Inc. threatened to proceed with the necessary legal action to prevent the
Company from using the PIONEER HEALTHCARE mark, and to seek a cancellation of
the registration that has been issued by the U.S. Patent Trademark Office (the
"PTO") to the Company for the PIONEER HEALTHCARE mark, unless the Company
complied with this demand. The Company refused to comply with this demand,
whereupon Pioneer Health Care, Inc. filed a petition in the PTO seeking the
cancellation of the Company's registration of its PIONEER HEALTHCARE trademark.
The Company thereupon commenced litigation in the United States District Court
for the District of Massachusetts seeking a declaratory judgment that its use of
the PIONEER HEALTHCARE trademark does not infringe any rights of Pioneer Health
Care, Inc. under applicable law, and that it has the right to maintain its
registration of that mark. Pioneer Health Care, Inc. has filed a counterclaim in
that litigation seeking injunctive and monetary relief against the Company upon
claims of trademark infringement, trademark dilution and unfair competition. The
Company is defending itself vigorously against those claims. Proceedings upon
the petition filed by Pioneer Health Care, Inc. in the PTO seeking the
cancellation of the Company's registration of its PIONEER HEALTHCARE trademark
have been stayed pending the resolution of the litigation between the parties.
The Company does not believe that an adverse decision would have a material
adverse effect on the Company.
In January 1996, the Company received notice that Mullikin Medical Center,
A Medical Group, Inc., located in Artesia, California, filed a petition with the
PTO seeking cancellation of the registration of the PIONEER HEALTHCARE mark. The
Company and petitioner are currently discussing a settlement whereby the parties
would agree that there is no likelihood of confusion of their respective
trademarks due to the difference in the trademarks, the difference in the
parties' services, the difference in the channels of trade of the parties'
services and the scope of protection to be accorded trademarks using the name
PIONEER. The Company is unable to express an opinion as to the likely merits of
this matter.
On October 31, 1994, the Company was served with a summons for a Civil
Action in the Superior Court Department of the Trial Court of the Commonwealth
of Massachusetts by NovaCare, Inc. ("NovaCare"), an entity which contracted with
the Company in 1992 to provide rehabilitation therapy and related administrative
services to the Company's long-term care facility (the "Action"). The complaint
alleged that the Company owed NovaCare contractual damages in the amount of
approximately $587,000, plus interest, attorney fees, costs of collection, and
double or triple damages pursuant to a Massachusetts statute prohibiting unfair
and deceptive trade practices. The Company filed a counterclaim alleging that
NovaCare breached the contract in question and that the Company may be owed
damages in excess of the amount sought by NovaCare.
On February 13, 1996, the Company settled the Action by agreeing to pay
NovaCare an amount less than its claim. The Company is not paying NovaCare
accrued interest, attorney's fees, costs of collection, or multiple damages. A
portion of the settlement amount has already been paid The balance of the
settlement amount is payable over twelve (12) months with interest on the unpaid
balance at 9.5%. In the event that the Company defaults on its obligation to pay
the settlement amount, it has agreed to entry of judgment against it in the
amount of $457,637.46 (the "Judgment"). The Judgment represents the full unpaid
balance of NovaCare's claim against the Company, including interest, attorney's
fees, and costs of collection. Any amounts paid by the Company to NovaCare after
February 9, 1996 shall be deducted from the Judgment. Until the settlement
amount is paid, NovaCare will continue to hold a mortgage on a day care property
owned by the Company in Saugus, Massachusetts.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended June 30, 1996.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Company are as follows:
NAME AGE POSITION
Bruce A. Shear................ 41 Director, President, &Chief Executive Officer
Robert H. Boswell............. 47 Executive Vice President
Mark Cowell (3)............... 50 Vice President of Communications
Gerald M. Perlow, M.D. (1)(2). 58 Director and Clerk
Donald E. Robar (1)(2)........ 59 Director and Treasurer
Paula C. Wurts................ 47 Controller, Assistant Clerk, and Assistant
Treasurer
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Mr. Cowell resigned from the Company effective July, 1996.
All of the directors hold office until the annual meeting of stockholders
next following their election, or until their successors are elected and
qualified. The Company is required, upon request of Americorp Securities, Inc.,
the underwriter of the Company's initial public offering in March 1994 (the
"Underwriter"), to use its best efforts to elect a designee of the Underwriter
to the Board of Directors for a period of three years from March 3, 1994. The
underwriter has advised the Company that it has no current plans to designate a
director. Officers are elected annually by the Board of Directors and serve at
the discretion of the Board. There are no family relationships among any of the
directors or officers of the Company.
Information with respect to the business experience and affiliations of
the directors and officers of the Company is set forth below.
BRUCE A. SHEAR has been President, Chief Executive Officer and a Director
of the Company since 1980 and Treasurer of the Company since September 1993.
From 1976 to 1980 he served as Vice President, Financial Affairs, of the
Company. Mr. Shear has served on the Board of Governors of the Federation of
American Health Systems for over ten years. Mr. Shear received an M.B.A. from
Suffolk University in 1980 and a B.S. in Accounting and Finance from Marquette
University in 1976.
ROBERT H. BOSWELL has served as the Executive Vice President of the Company
since 1992. From 1989 until Spring of 1994 Mr. Boswell served as the
Administrator of the Company's Highland Ridge Hospital facility where he is
based. Mr. Boswell is principally involved with the Company's substance abuse
facilities. From 1981 until 1989, he served as the Associate Administrator at
the Prevention Education Outpatient Treatment Program--the Cottage Program,
International. Mr. Boswell graduated from Fresno State University in 1975 and
from 1976 until 1978 attended Rice University's doctoral program in philosophy.
MARK COWELL has served as Vice President of Communications of the Company
since 1984 and as Administrator of Mount Regis Center since 1989. Mr. Cowell
received his B.A. in Journalism from Northeastern University in 1969 and is
currently completing courses for an M.B.A. at Virginia Polytechnic University.
GERALD M. PERLOW, M.D. has served as a Director of the Company since May
1993 and as Clerk since February, 1996. Dr. Perlow is a cardiologist in private
practice in Lynn, Massachusetts, and has been Associate Clinical Professor of
Cardiology at the Tufts University School of Medicine since 1972. Dr. Perlow is
a Diplomat of the National Board of Medical Examiners and the American Board of
Internal Medicine (with a subspecialty in cardiovascular disease) and a Fellow
of the American Heart Association, the American College of Cardiology, the
American College of Physicians and the Massachusetts Medical Center. From 1987
to 1990, Dr. Perlow served as the Director, Division of Cardiology, at
AtlantiCare Medical Center in Lynn, Massachusetts. Dr. Perlow received a B.A.
from Harvard College in 1959 and an M.D. from Tufts University School of
Medicine in 1963.
DONALD E. ROBAR has served as a Director of the Company since 1985 and has
served as the Treasurer since February, 1996. Dr. Robar has been a professor of
Psychology since 1961, most recently at Colby-Sawyer College in New London, New
Hampshire. Dr. Robar received a Ed.D. from the University of Massachusetts in
1978, an M.A. from Boston College in 1968 and a B.A. from the University of
Massachusetts in 1960.
PAULA C. WURTS has served as the Controller of the Company since 1989, as
Assistant Treasurer since 1993, and as Assistant Clerk since January, 1996. Ms.
Wurts served as the Company's Accounting Manager from 1985 until 1989. Ms. Wurts
received an Associate's degree in Accounting from the University of South
Carolina in 1980, a B.S. in Accounting from Northeastern University in 1989 and
passed the examination for Certified Public Accountants. She has completed the
requirements for a Master's Degree in Accounting from Western New England
College.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Units, Class A Common Stock and Class A Warrants have been
traded on the NASDAQ National Market under the symbols "PIHCU," "PIHC" and
"PIHCW," respectively, since the Company's initial public offering which was
declared effective on March 3, 1994. There is no public trading market for the
Company's Class B and Class C Common Stock. The following table sets forth, for
the periods indicated, the high and low sale price of the Company's Class A
Common Stock, as reported by NASDAQ.
1995 HIGH LOW
Third Quarter (beginning
March 3, 1995) . . . . . . . . . . 6 1/4 5 1/8
Fourth Quarter . . . . . . . . . . . 7 3/8 5 1/8
1996
First Quarter . . . . . . . . . . . . 7 3/4 6 1/2
Second Quarter . . . . . . . . . . . 7 3/8 5 1/2
Third Quarter . . . . . . . . . . . . 9 5/8 5 1/4
Fourth Quarter . . . . . . . . . . . 9 3/4 7
1997
First Quarter (through
September 13, 1996). . . . . . . 9 3/4 7
On September 13, 1996, the last reported sale price of the Class A Common
Stock was $7.50. On September 13, 1996 there were 46 holders of record of the
Company's Class A Common Stock, 322 holders of record of the Company's Class B
Common Stock and 335 holders of the Company's Class C Common Stock.
DIVIDEND POLICY.
The Company has never paid any cash dividends on its Common Stock. While
there are currently no restrictions on the Company's ability to pay dividends,
the Company anticipates that in the future, earnings, if any, will be retained
for use in the business or for other corporate purposes, and it is not
anticipated that cash dividends in respect of Common Stock will be paid in the
foreseeable future. Any decision as to the future payment of dividends will
depend on the results of operations and financial position of the Company and
such other factors as the Company's Board of Directors, in its discretion, deems
relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere
herein.
The Company is a provider of health care services through several chemical
dependency centers, a long-term care facility, an acute psychiatric hospital,
and effective fiscal year 1996 two outpatient psychiatric centers. The
profitability of the Company is largely dependent on the level of patient
occupancy at these treatment facilities. The Company's administrative expenses
do not vary significantly as a percentage of total revenue although the
percentage tends to decrease slightly as revenue increases because of the fixed
components of these expenses.
The healthcare industry is subject to extensive federal, state and local
regulation governing, among other things, licensure and certification, conduct
of operations, audit and retroactive adjustment of prior government billings and
reimbursement. In addition, there are ongoing debates and initiatives regarding
the restructuring of the health care system in its entirety. While it is
anticipated that a number of the proposed regulatory changes may have a positive
impact on the Company's business, there can be no assurance that other changes
may not adversely affect the Company.
Over the past several years, the Company has been systematically phasing
out its day care center operations due to declining profitability and its lack
of fit with the Company's health care operations. At June 30, 1996 the Company
had remaining net assets related to these operations amounting to approximately
$56,700 which is a real estate parcel located in Saugus, Massachusetts. The
Company does not anticipate any significant future losses due to the disposition
of this asset.
RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996 AND 1995
The Company experienced a loss for fiscal year ended June 30, 1996
primarily as a result of the increased expenses incurred in the opening of the
new beds at Franvale. Census levels at Franvale did not increase as soon as
anticipated to cover the fixed costs involved in the expanded facility.
Marketing efforts since the opening of the new beds are now producing expected
patient census and mix. Census is currently at 90% occupancy of the 128 total
beds which is up from 87.1% for the fiscal year ended June 30, 1996 on less
available beds.
Also contributing to the current year's loss was Good Hope Center's loss
of referrals from the Department of Child, Youth and Family Services (DCYF)
contract funded by the state of Rhode Island. This created a sharp decline in
adolescent census. The Company is re-engineering the program and the center
operations. In conjunction with the re-engineering of the facility, two
unprofitable outpatient centers have been closed, some programs have been
combined, several positions have been eliminated and new management has been put
in place. The management team is focusing its attention on both expense
reduction and revenue enhancement.
Net patient care revenue from all facilities increased 32% to $21,802,758
for the year ended June 30, 1996 from $16,536,618 for the year ended June 30,
1995.. Net patient care revenue for the psychiatric hospital, Harbor Oaks
Hospital, was $6,218,410 for the fiscal year ended June 30, 1996 compared to
3,204,857 for June 30, 1995. Net patient care revenue at the Company's chemical
dependency treatment centers increased to $9,155,595 from $8,932,864 over the
same period. Net patient revenue at the Company's long-term care facility
increased to $5,043,922 for fiscal 1996 (20.7%) from $4,180,471 in fiscal 1995
which is attributable to the increase in census due to the addition of 37
available beds.
Total patient care expenses for all facilities increased 29.8% to
$12,004,383 for the year ended June 30, 1996 from $9,248,317 for the year ended
June 30, 1995. Patient care expenses for the psychiatric hospital, Harbor Oaks
Hospital, were $3,098,664 for the fiscal year ended June 30, 1996 compared to
$1,941,528 for fiscal year ended June 30, 1995. Patient care expenses at the
Company's chemical dependency treatment centers decreased to $4,350,423 from
$4,453,212 for the same period (approximately 2.3%). Patient care expenses at
the Company's long-term care facility increased to $4,029,572 for fiscal 1996
from $2,884,425 in fiscal 1995 (approximately 39.7%). The percentage increase in
patient care expenses in the long-term care facility is due to increased census
and acuity of patient mix and fixed cost increase, interest, salaries, related
to the new addition. The census increase related to the new beds took longer
than anticipated creating a loss for the fiscal year ended June, 1996. Census is
now at the expected level and rate increases have been implemented effective
September 1, 1996 to offset the higher costs.
LIQUIDITY AND CAPITAL RESOURCES
During the third fiscal quarter of 1996, the Company completed a private
placement of 493,700 Class A Common Stock with Warrants to purchase additional
shares of Class A Common Stock at $4.00 a share. This resulted in net proceeds
to the Company of approximately $1,524,800.
Prior to 1992, the Company's primary lender was a bank which failed in May
1992 and was taken over by the FDIC. As noted above, during fiscal 1994 the
Company negotiated the repayment of this debt resulting in a reduction in the
amount due of approximately $400,000. Of the total negotiated amount to be paid,
$1,100,000 was paid in fiscal 1994 and $497,500 was paid in fiscal 1996 out of
the proceeds received from HUD financing (see below).
In September 1994 the Company consummated its planned HUD financing for
the expansion and refurbishment of its long-term care facility. Under this
financing the Company received gross proceeds of $6,822,700 which were expended
as follows:
Existing Indebtedness $2,327,230
Construction Contract $2,879,183
Other Costs $ 596,470
Finance and Carrying
Charges $1,019,547
A significant factor in the liquidity and cash flow of the Company is the
timely collection of its accounts receivable. Accounts receivable from patient
care increased 45% to $9,606,000 at June 30, 1996 from approximately $6,621,000
at June 30, 1995. The increase in accounts receivable is net of the sale of
certain receivables to LINC Finance Corporation VIII (LINC). Without this sale,
the June 30, 1996 ending accounts receivable balance would have been
approximately $796,000 higher and would have reflected an increase of
approximately 40%. This significant increase in receivables is primarily due to
increase in revenues from new acquisitions and increased beds at Franvale. The
Company continues to closely monitor its accounts receivable balances and
implement procedures to manage this receivables growth and keep it consistent
with growth in revenues.
During the fiscal year ended 1995, PHC of Virginia, Inc., PHC of Rhode
Island, Inc. and LINC entered into Sale and Purchase Agreements, pursuant to
which LINC will provide funding of up to $950,000 to each of these subsidiaries.
There can be no assurance that the other subsidiaries will enter into similar
agreements or satisfy the conditions necessary to receive funding if pursued.
During the fiscal year ended June 30, 1996, PHC of Utah, Inc. and
HEALTHPARTNERS FUNDING, L.P. entered into a revolving credit agreement, pursuant
to which HealthPartners Funding, L.P. will provide funding of up to $1,000,000
to PHC of Utah, Inc. This revolving credit agreement is secured by the assets of
the subsidiary.
At June 30, 1996 the Company had approximately $293,000 in cash and cash
equivalents, working capital of approximately $4,871,000 and a working capital
ratio of approximately 1.9 to 1. Management believes that the Company has
adequate cash resources to fund operations for the foreseeable future. However,
the Company is currently seeking bank lending relationships to insure that the
Company will have the necessary capital to fund expansion of its existing
business in the future and to pursue acquisition opportunities as they arise.
The Company has made significant progress toward the accomplishment of its
acquisition and expansion plans by completing its nursing home refinancing and
the construction of a new 37-bed addition and facility renovations. The
completion of the Rhode Island acquisition expanded its substance abuse
facilities base while the closing of the Company's unprofitable California
facility focuses its efforts on contributing to the profitability of its core
substance abuse facilities.
The Company's first psychiatric hospital acquisition in September of 1994
marked the Company's entry into this compatible business line. The acquisition
of the Company's first outpatient psychiatric clinic was completed in November
of 1995. The March, 1996 acquisition of Total Concept also focuses on outpatient
psychiatric care. The Company will continue to look into further expansion in
these areas taking into account the overall enhancement of stockholders' value.
ITEM 7. FINANCIAL STATEMENTS.
===============================================================================
AT PAGE
===============================================================================
Index........................................................... F-1
===============================================================================
Reports of Independent Auditors................................. F-2
===============================================================================
Consolidated Balance Sheets..................................... F-3
===============================================================================
Consolidated Statements of Operations........................... F-4
===============================================================================
Consolidated Statements of Changes
in Stockholders' Equity......................................... F-5
===============================================================================
Consolidated Statements of Cash Flows........................... F-6
===============================================================================
Notes to Financial Statements................................... F-7
===============================================================================
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Information required by Item 401 and Item 405 of Regulation S-B is
contained in Part I of this report.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based on a review of Forms 3 and 4 furnished to the Company, all
directors, officers and beneficial owners of more than ten percent of any class
of equity securities of the Company registered pursuant to Section 12 of the
Securities Exchange Act (the "Exchange Act") filed on a timely basis reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year.
ITEM 10. EXECUTIVE COMPENSATION.
EMPLOYMENT AGREEMENTS
The Company has not entered into any employment agreements with its
executive officers. The Company has acquired a $1,000,000 key man life insurance
policy on the life of Bruce A. Shear.
EXECUTIVE COMPENSATION
Two executive officers of the Company received compensation in the 1996
fiscal year which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal year 1996:
SUMMARY COMPENSATION TABLE
ANNUAL All Other
COMPENSATION Salary
Bruce A. Shear, President and
Chief Executive Officer......... $294,063 $10,818(1)
Robert H. Boswell,
Executive Vice President...... $80,667 $24,750(2)
(1) This amount represents (i) $2,650 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii))
$5,146 in premiums paid by the Company with respect to life insurance for
the benefit of Mr. Shear, and (iii) $3,022 personal use of Company car
held by Mr. Shear.
(2) This amount represents (i) $1,000 bonus, (ii) $3,750 automobile allowance,
and (iii) $20,000 net gain from the exercise of options and subsequent
sale of stock.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
services as members of the Board. Directors who are not employees of the Company
receive $2,500 stipend per year and $1,000 for each Board meeting they attend.
In addition, directors of the Company are entitled to receive certain stock
option grants under the Company's Non-Employee Director Stock Option Plan (the
"Director Plan").
COMPENSATION COMMITTEE
The Compensation Committee consists of Mr. Donald Robar and Dr. Gerald
Perlow. The Compensation Committee met once during fiscal 1996. Mr. Shear did
not participate in discussions concerning, or vote to approve, his salary. In
fiscal year 1996, none of the executive officers or directors of the Company
served on a board of directors of any other entity.
STOCK PLAN
The Company's Stock Plan was adopted by the Board of Directors on August
26, 1993 and approved by the stockholders of the Company on November 30, 1993.
The Stock Plan provides for the issuance of a maximum of 300,000 shares of the
Class A Common Stock of the Company pursuant to the grant of incentive stock
options to employees and the grant of nonqualified stock options or restricted
stock to employees, directors, consultants and others whose efforts are
important to the success of the Company.
The Stock Plan is administered by the Board of Directors. Subject to the
provisions of the Stock Plan, the Board of Directors has the authority to select
the optionees or restricted stock recipients and determine the terms of the
options or restricted stock granted, including: (i) the number of shares, (ii)
option exercise terms, (iii) the exercise or purchase price (which in the case
of an incentive stock option cannot be less than the market price of the Class A
Common Stock as of the date of grant), (iv) type and duration of transfer or
other restrictions and (v) the time and form of payment for restricted stock
upon exercise of options. Generally, an option is not transferable by the
optionholder except by will or by the laws of descent and distribution. Also,
generally, no option may be exercised more than 60 days following termination of
employment. However, in the event that termination is due to death or
disability, the option is exercisable for a period of one year following such
termination.
In September of 1993, the Company issued options to purchase a total of
57,500 shares of Class A Common Stock at an exercise price of $5.00 per share
under the Stock Plan. Because the holders of two of those options are no longer
employees of the Company and some options have been exercised, the number of
shares of Class A Common Stock for which these options are exercisable has been
reduced to 36,250. These options were fully exercisable as of September 9, 1996.
In June of 1994, the Company issued options to purchase a total of 3,000
shares of Class A Common Stock at an exercise price of $6.37 per share under the
Stock Plan. In April of 1995, the Company issued options to purchase a total of
39,000 shares of Class A Common Stock at an exercise price of $5.13 per share
under the Stock Plan. As of June 30, 1996, 10,000 of these options had been
exercised. These options are all immediately exercisable and can be exercised
for a period of five years from the grant date, provided that the optionee
remains an employee of the Company as of the exercise date.
In March of 1996, the Company issued options to purchase a total of 35,000
shares of Class A Common Stock at an exercise price ranging from $5.25 to $6.50
under the Stock Plan. In May of 1996, the Company issued options to purchase
6,000 shares of Class A Common at an exercise price of $7.00. These options were
immediately exercisable as to 25% of the shares covered thereby. The remaining
option shares are exercisable at the rate of 25% per year over the next three
years after the grant date provided the optionee remains an employee of the
Company as of each exercise date.
EMPLOYEE STOCK PURCHASE PLAN
On October 18, 1995, the Board of Directors voted to provide employees who
work in excess of 20 hours per week and more than five months per year rights to
elect to participate in an Employee Stock Purchase Plan (the "Plan") which
became effective February 1, 1996. No more than 100,000 shares may be sold under
this Plan. The price per share shall be the lesser of 85% of fair market value
on the Offering Date or 85% of the fair market value of a share on the date such
right is exercised. Currently there is an offering period under the plan which
began on February 1, 1996 and will end on January 31, 1997. There are twenty-six
employees participating in this plan period.
NON-EMPLOYEE DIRECTOR STOCK PLAN
The Company's Non-Employee Director Stock Plan (the "Director Plan") was
adopted by the directors on October 18, 1995 and approved by the Stockholders of
the Company on December 15, 1995. Non-qualified options to purchase a total of
30,000 shares of Class A Common Stock are available for issuance under the
Director Plan.
The Director Plan is administered by the Board of Directors or a committee
of the Board. Under the Director Plan, each director of the Company who was a
director at the time of adoption of the Director Plan and who was not a current
or former employee of the Company received an option to purchase that number of
shares of Class A Common Stock as equals 500 multiplied by the years of service
of such director as of the date of the grant. At each annual meeting of the
Board of Directors of the Company following the initial grant described above,
each nonemployee director is granted under the Director Plan an option to
purchase 2,000 shares of the Class A Common Stock of the Company. The option
exercise price is the fair market value of the shares of the Company's Class A
Common stock on the date of grant. The options are non-transferable and become
exercisable as follows: 25% immediately and 25% on each of the first, second and
third anniversaries of the grant date. If an optionee ceases to be a member of
the Board of Directors other than for death or permanent disability, the
unexercised portion of the options, to the extent unvested, immediately
terminate, and the unexercised portion of the options which have vested lapse
180 days after the date the optionee ceases to serve on the Board. In the event
of death or permanent disability, all unexercised options vest and the optionee
or his or her legal representative has the right to exercise the option for a
period of 180 days or until the expiration of the option, if sooner.
On January 23, 1996, a total of 5,500 shares were issued under the
Director Plan at an exercise price of $6.63 per share. As of September 13, 1996,
none of these options had been exercised.
ISSUANCE OF RESTRICTED STOCK
On December 17, 1993, the Company issued 11,250 and 19,750 shares of the
Company's Class A Common Stock to certain directors and officers of the Company,
respectively, at a purchase price of $4.00 per share. The shares of restricted
stock were issued pursuant to the Company's Stock Plan. Each purchaser paid to
the Company 25% of the purchase price for his or her shares in cash, and the
balance with a non-recourse note. The notes are payable quarterly over three
years commencing June 30, 1994, and bear interest at the rate of 6% per year. To
secure the payment obligation under the non-recourse notes, shares paid for with
these notes have been pledged to the Company. As the principal due under each of
the notes is reduced, the appropriate number of shares are released from the
pledge.
On November 1, 1995, the Company issued 75,000 shares of the Company's
Class A Common Stock as part of the acquisition of Harmony Counseling. The
Company also issued 12,000 shares of Class A Common Stock in the acquisition of
Total Concept EAP on March 15, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the ownership
of shares of the Company's Class A Common Stock, Class B Common Stock and Class
C Common Stock (the only classes of capital stock of the Company currently
outstanding) as of September 22, 1996 by (i) each person known by the Company to
beneficially own more than 5% of any class of the Company's voting securities,
(ii) each director of the Company, (iii) each of the named executive officers as
defined in 17 CFR 228.402 (a)(2) and (iv) all directors and officers of the
Company as a group. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below have sole voting and investment power with
respect to their shares of Common Stock, except to the extent authority is
shared by spouses under applicable law. In preparing the following table, the
Company has relied on the information furnished by the persons listed below.
TITLE OF CLASS Name and Address of Amount and Nature Percent of
BENEFICIAL OWNER OF BENEFICIAL OWNER CLASS (6)
Class A Gerald M. Perlow 15,250 (3) *
Common Stock c/o PHC, Inc.
200 Lake ST, STE 102
Peabody MA 1960
Donald E. Robar 7,375 (3) *
c/o PHC, Inc.
200 Lake ST, STE 102
Peabody MA 01960
Bruce A. Shear 5,000
c/o PHC, Inc.
200 Lake ST, STE 102
Peabody MA 01960
All Directors and 74,125 (4) 3.2%
Officers as a
Group (6 persons)
Class B Bruce A. Shear 681,259 (1) 84.5%
Common c/o PHC, Inc.
Stock (7) 200 Lake ST, STE 102
Peabody MA 01960
Class B J. Owen Todd 59,280 (5) 7.3%
Common Stock c/o Todd and Weld
1 Boston Place
Boston MA 02108
William F. Grieco 59,280 (5) 7.3%
115 Marlborough ST
Boston MA 02116
All Directors and 681,259 (1) 84.5%
Officers as a
Group (6 persons)
Class C Bruce A. Shear 156,502 (2) 78.3%
Common Stock c/o PHC, Inc.
200 Lake ST, STE 102
Peabody MA 01960
J. Owen Todd 13,173 (5) 6.6%
c/o Todd and Weld
1 Boston Place
Boston, MA 02108
William F. Grieco 13,173 (5) 6.6%
115 Marlborough ST
Boston MA 02116
All Directors and 156,502 (2) 78.3%
Officers as a
Group (6 persons)
* Less than 1%.
(1) Includes 56,369 shares of Class B Common Stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the Company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear
retains full voting power with respect to these shares. Excludes an
aggregate of 59,280 shares of Class B Common Stock owned by the Shear
Family Trust and the NMI Trust, of which Bruce A. Shear is a remainder
beneficiary.
(2) Includes 12,526 shares of Class C Common Stock pledged to Steven J. Shear
of 2 Addison Avenue, Lynn, Massachusetts 01902, Bruce A. Shear's brother,
to secure the purchase price obligation of Bruce A. Shear in connection
with his purchase of his brother's stock in the Company in December 1988.
In the absence of any default under this obligation, Bruce A. Shear
retains full voting power with respect to these shares. Excludes an
aggregate of 13,173 shares of Class C Common Stock owned by the Shear
Family Trust and the NMI Trust (the "Trusts"), of which Bruce A. Shear is
a remainder beneficiary.
(3) Includes 11,375 shares issuable pursuant to currently exercisable stock
options. Of those options, 10,000 have an exercise price of $5.00 per
share, and 1,375 have an exercise price of $6.63.
(4) Includes an aggregate of 46,875 shares issuable pursuant to currently
exercisable stock options. Of those options, 20,000 have an exercise price
of $5.00 per share, 3,000 have an exercise price of $6.37 per share,
20,000 have an exercise price of $5.13 per share, 2,500 have an exercise
price of $5.25 per share, and 1,375 have an exercise price of $6.63 per
share.
(5) Messrs. Todd and Grieco are the two trustees of the Trusts which
collectively hold 72,453 shares of the Company's outstanding Common Stock.
Gertrude Shear, Bruce A. Shear's mother, is the lifetime beneficiary of
the Trusts. In addition to the shares held by the Trusts, Gertrude Shear
currently owns 2.86% of the Company's outstanding Class A Common Stock,
less than 1% of the Company's outstanding Class B Common Stock and 4.97%
of the Company's outstanding Class C Common Stock.
(6) Represents percentage of equity of class, based on numbers of shares
listed under the column headed "Amount and Nature of Beneficial
Ownership." Each share of Class A Common Stock is entitled to one vote per
share and each share of Class B Common Stock is entitled to five votes per
share on all matters on which stockholders may vote (except that the
holders of the Class A Common Stock are entitled to elect two members of
the Company's board of directors and the holders of the Class B Common
Stock are entitled to elect all the remaining members of the Company's
board of directors). The Class C Common Stock is non-voting.
Based on the numbers of shares listed under the column headed "Amount and
Nature of Beneficial Ownership," the following persons or groups hold the
following percentages of voting rights for all shares of common stock
combined:
Bruce A. Shear 53.6%
J. Owen Todd 4.7%
William F. Grieco 0%
All Directors and
Officers as a Group 54.7%
(6 persons)
(7) Each share of Class B Common Stock is convertible into one share of Class
A Common Stock automatically upon any sale or transfer thereof or at any
time at the option of the holder.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
RELATED PARTY INDEBTEDNESS
For approximately the last ten years, Bruce A. Shear, a director and the
President, Chief Executive Officer and Treasurer of the Company, and persons
affiliated and associated with him have made a series of unsecured loans to the
Company and its subsidiaries to enable them to meet ongoing financial
commitments. The borrowings generally were entered into when the Company did not
have financing available from outside sources and, in the opinion of the
Company, were entered into at market rates given the financial condition of the
Company and the risks of repayment at the time the loans were made. As of June
30, 1996, the Company owed an aggregate of $103,996 to related parties. During
the year ended June 30, 1996, the Company paid an aggregate of $181,612 to
related parties.
During the period ended June 30, 1996, the Company paid Mr. Shear
approximately $181,612 in principal and accrued interest under various notes. In
connection with the IPO, Mr. Shear contributed to the Company approximately
$85,000 of accrued and unpaid interest payable under various notes and
approximately $15,000 of accrued and unpaid guarantee fees owed to him for
20,000 shares of the Company's Class B Common Stock. The Company paid Mr. Shear
$50,000 out of the proceeds of the IPO in reduction of the principal amount of
the notes for the payment of certain tax obligations arising from the issuance
of the stock. Upon the consummation of those transactions, Mr. Shear accepted a
new promissory note of the Company in exchange for the notes plus accrued
interest for $110,596. As of August 31, 1996, the Company owed Bruce A. Shear
$110,596 on that promissory note, which is dated March 31, 1994, matures on
December 31, 1998 and bears interest at the rate of 8% per year, payable
quarterly in arrears, and requires repayments of principal quarterly in equal
installments commencing July 1, 1996, until maturity. The current balance of
this note as of June 30, 1996 is $78,996.
On June 30, 1988, in connection with the acquisition of Franvale, the
Company issued promissory notes in the amount of $1,350,000 and $225,000 to
Continental Medical Systems, Inc., the seller of Franvale. These loans bore
interest at the rate of 10% per annum and were payable on December 1, 1996.
Additionally, on June 30, 1992, the Company issued a note in the amount of
$240,084 to Continental Medical Systems, payable on December 1, 1996, and
bearing interest at the rate of 10% per annum. As of September 8, 1994, the
aggregate principal amount outstanding under these loans was paid in full
through the HUD refinancing of the Franvale facility.
Bruce A. Shear guaranteed each of the loans in connection with the
acquisition of Franvale for a guarantee fee payable by the Company equal
annually to 1.5% of the outstanding principal amount guaranteed. In addition, a
3% fee is payable by the Company on the accrued and unpaid amount of the
guarantee fees. Bruce A. Shear received no guarantee fees pursuant to these
arrangements in the fiscal year ended June 30, 1996 in cash.
Certain other relatives of Bruce A. Shear have made loans from time to
time to the Company. As of June 30, 1994, the principal amount of $27,700 was
outstanding on a note payable to Gertrude Shear, Bruce A. Shear's mother, which
paid interest from April 15, 1993 until April 15, 1994 at the rate of 8% per
annum, and thereafter paid interest at the prime rate plus 2% per annum,
adjusted quarterly. An aggregate principal amount of $13,850 was paid September
10, 1994 and the balance was paid in full on March 10, 1996.
In addition the Company owed Tot Care, Inc. and Humpty Dumpty School,
Inc., two corporations owned by Bruce A. Shear, an aggregate principal amount of
$55,000 as of June 30, 1994. These loans earned interest at the rate of 15% per
year. An aggregate principal amount of $27,500 was paid on September 10, 1994
and the balance was paid in full on March 10, 1996.
The Company has also borrowed from certain of its officers and consultants
other than Bruce Shear and his relatives. As of August 31, 1996, the aggregate
principal amount owed by the Company to such persons was $25,000 as follows:
$5,000 to Mark S. Cowell, the Company's Vice President of Communications, and
his wife, Karen K. Cowell, $10,000 to Himanshu S. Patel, the Medical Director at
Changes, and Anjana H. Patel, and $10,000 to Mukesh P. Patel, the Medical
Director at Mt. Regis, and Falguni M. Patel. All of these borrowings are payable
on demand.
The Company has leased furniture and equipment from time to time from
Trans National Leasing Corp., a corporation owned by Leon Shear, Bruce A.
Shear's uncle. The Company currently has sixteen equipment leases with Trans
National, which in the aggregate provide for annual lease payments of
approximately $70,200. At the term of each lease, the lessee has the right to
purchase the subject equipment for 10% of the total equipment purchase price.
The Company intends to honor its existing lease obligations with Trans National,
and in the future to obtain equipment and furniture either through purchase or
lease from such companies, including Trans National, as can provide the best
terms available to the Company as determined by its management. During the
period ended June 30, 1996 the Company paid an aggregate of $114,736 under these
leases.
The Company had proposed to develop a short-term intensive inpatient
treatment center in Lynn, Massachusetts. The site on which such treatment center
was to be located is the former Mt. Pleasant Hospital which is owned by the
Shear Family Trust and the NMI Trust (the "Shear Trusts"), two family trusts
established by the Shear family. The Company has recently made a decision not to
pursue this project. As a result, the Company has received from the Shear Trusts
a refund of an option deposit payment of $50,000 previously made by the Company,
plus accrued interest thereon, and will obtain reimbursement of approximately
$107,000 in development expenses over time. As of June 30, 1996, the Company
received $6,000 in payment on this account and is currently receiving payment of
$500 each month.
On December 17, 1993, the Company issued 11,250 and 19,750 shares of the
Company's Class A Common Stock to certain directors and officers, respectively,
of the Company at a price of $4.00 per share, pursuant to the Company's Stock
Plan. Each purchaser paid to the Company 25% of the purchase price for his or
her shares in cash, and the balance with a non-recourse note. The notes are
payable quarterly over the three years commencing June 30, 1994, and bear
interest at the rate of 6% per year. The shares purchased with non-recourse
notes have been pledged to the Company to secure the payment obligation. As the
principal due under each of the notes is reduced, the appropriate number of
shares are released from the pledge.
William F. Grieco, as one of the two trustees of the Shear Family Trust
and the NMI Trust, of which Gertrude Shear, Bruce A. Shear's mother, is the
lifetime beneficiary, controls 7.0% of the outstanding Class B Common Stock of
the Company, and 6.6% of the outstanding Class C Common Stock of the Company.
Mr. Grieco was a partner of Choate, Hall & Stewart, which provides general legal
representation to the Company. During the fiscal year ended June 30, 1996, the
Company incurred legal fees and expenses for services provided by Choate, Hall &
Stewart in an aggregate amount equal to $306,484.92.
The Company adopted a policy that all transactions between the Company and
its officers, directors and affiliates will be on terms no less favorable to the
Company than could be obtained from unrelated third parties and will be approved
by a majority of the disinterested members of the Company's Board of Directors.
PHC, INC. AND SUBSIDIARIES
- I N D E X -
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
PHC, Inc.
Peabody, Massachusetts
We have audited the accompanying consolidated balance sheets of PHC, Inc.
and subsidiaries as at June 30, 1996 and June 30, 1995, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the consolidated financial position of
PHC, Inc. and subsidiaries at June 30, 1996 and June 30, 1995, and the results
of their operations and their cash flows for each of the years then ended in
conformity with generally accepted accounting principles.
Cambridge, Massachusetts
September 6, 1996
F-2
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-------------
A S S E T S 1996 1995
----------- ------ -----
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 293,515 $. .586,738
Accounts receivable, net of allowance for bad debts of $1,492,983
at June 30, 1996 and $815,459 at June 30, 1995 (Notes A and M). . 8,866,065 5,964,279
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 259,893 174,539
Other receivables and advances . . . . . . . . . . . . . . . . . . . 66,513 81,889
Deferred income taxes (Note F) . . . . . . . . . . . . . . . . . . 515,300 251,863
Total current assets. . . . . . . . . . . . . . . . . . . . . 10,001,286 7,059,308
Accounts receivable, noncurrent (Note A) . . . . . . . . . . . . . 740,000 656,734
Loans receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 113,805 96,343
Property and equipment, net (Notes A and B) . . . . . . . . . . . . 7,884,063 7,086,637
Deferred income taxes (Note F). . . . . . . . . . . . . . . . . . . . 154,700
Deferred financing costs, net of amortization . . . . . . . . . . . . 702,948
Goodwill, net of accumulated amortization (Note A). . . . . . . . . . 709,573
Other assets (Note A) . . . . . . . . . . . . . . . . . . . . . . . . 454,160 352,795
Net assets of operations held for sale (Note J) . . . . . . . . . . 56,682 163,568
T O T A L . . . . . . . . . . . . . . . . . . . . . . . . . $20,817,217 $15,415,385
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,127,052 $ 2,282,765
Notes payable - related parties (Note E) . . . . . . . . . . . . . 56,600 46,598
Notes payable - bank . . . . . . . . . . . . . . . . . . . . . . . 100,000
Current maturities of long-term debt (Note C). . . . . . . . . . . 403,894 61,438
Current portion of obligations under capital leases (Note D) . . . 88,052 59,212
Accrued payroll, payroll taxes and benefits. . . . . . . . . . . . 715,515 535,525
Accrued expenses and other liabilities . . . . . . . . . . . . . . 738,784 567,846
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . 55,453
Total current liabilities . . . . . . . . . . . . . . . . . . 5,129,897 3,708,837
Long-term debt and accounts payable (Note C). . . . . . . . . . . . . 7,754,262 5,682,036
Obligations under capital lease (Note D). . . . . . . . . . . . . . . 1,468,475 1,474,976
Notes payable - related parties (Note E). . . . . . . . . . . . . . . . 47,394 88,996
Total noncurrent liabilities. . . . . . . . . . . . . . . . 9,270,131 7,246,008
Total liabilities . . . . . . . . . . . . . . . . . . . . . 14,400,028 10,954,845
Commitments and contingent liabilities (Notes G, H, K, M, N and O)
Stockholders' equity (Notes H and K):
Preferred stock, $.01 par value; 1,000,000 shares authorized,
none issued. . . . . . . .
Class A common stock, $.01 par value; 10,000,000 shares authorized,
2,293,568 and 1,504,662 shares issued in 1996 and 1995 . . . . 22,936 15,047
Class B common stock, $.01 par value; 2,000,000 shares authorized,
812,237 and 898,795 shares issued in 1996 and 1995,
convertible into one share of Class A common stock . 8,122 8,988
Class C common stock, $.01 par value; 200,000 shares
authorized and 199,816 and 199,966 shares issued in 1996 and 1995 1,998 2,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 8,078,383 5,554,874
Notes receivable related to purchase of 31,000 shares of Class A
common stock (63,928) (75,362)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . (1,630,322) (1,045,007)
Total stockholders' equity. . . . . . . . . . . . . . . . 6,417,189 4,460,540
T O T A L . . . . . . . . . . . . . . . . . . . . . . . . . $20,817,217 $15,415,385
===================================================================== =========== ============
</TABLE>
The accompanying notes are an integral part hereof.
F-3
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
1996 1995
Revenues:
Patient care, net (Note A) . . . . . . . . $21,569,594 $16,408,461
Other. . . . . . . . . . . . . . . . . . . 233,164 128,157
-------- -----------
Total revenue . . . . . . . . . . . 21,802,758 16,536,618
------------ ----------
Operating expenses:
Patient care expenses. . . . . . . . . . . 12,004,383 9,248,317
Cost of management contracts . . . . . . . 146,407 149,317
Administrative expenses. . . . . . . . . . 9,694,802 6,223,815
------------ -----------
Total operating expenses. . . . . . 21,845,592 15,621,449
------------ -----------
Income (loss) from operations . . . . . . . . (42,834) 915,169
------------ -----------
Other income (expense):
Interest income. . . . . . . . . . . . . . 14,486 28,870
Other income . . . . . . . . . . . . . . . 211,292 80,317
Start-up costs (Note A). . . . . . . . . . (128,313)
Interest expense . . . . . . . . . . . . . (863,484) (577,544)
Gain on disposal of center (Note G[2]) . . 72,756
Gain (loss) from operations held for sale
(Note J) . . . . . . . . . . . . . . . . 11,947 (9,789)
----------- ------------
Total other income (expense). . . . (754,072) (405,390)
----------- ------------
Income (loss) before income taxes . . . . . . (796,906) 509,779
Income taxes (benefit) (Note F) . . . . . . . (211,591) 241,108
---------- -----------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ (585,315) $ 268,671
=========== ===========
Net income (loss) per share (Note A). . . . . $(.22) $.11
====== ====
Weighted average number of shares outstanding 2,709,504 2,403,457
========== =========
The accompanying notes are an integral part hereof.
F-4
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B Class C Additional Notes
COMMON STOCK COMMON STOCK COMMON STOCK Paid-in Receivable Accumulated
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL FOR STOCK DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1994 . . 1,483,500 $14,835 920,000 $9,200 200,000 $2,000 $5,554,902 $(93,000) $(1,313,678) $4,174,259
Payment of notes receivable . 17,638 17,638
Conversion of shares. . . . . 21,162 212 (21,205) (212) (34) (28) (28)
Net income, year ended
June 30, 1995. 268,671 268,671
---- -------- -------- ------- -------- ------- ---------- --------- ------------ --------
Balance - June 30, 1995 . . . 1,504,662 15,047 898,795 8,988 199,966 2,000 5,554,874 (75,362) (1,045,007) 4,460,540
Payment of notes receivable . 11,434 11,434
Conversion of shares. . . . . 86,554 866 (86,558) (866) (150) (2) 2 - 0 -
Exercise of options . . . . . 22,500 225 113,575 113,800
Issuance of stock for obligations
in lieu of cash . . . . . . . 6,600 66 36,184 36,250
Exercise of bridge loan warrants 33,509 335 153,617 153,952
Sale of stock in connection with
private placement. . . . . . 493,750 4,937 1,970,063 1,975,000
Costs related to private placement (442,395) (442,395)
Exercise of IPO warrants. . . . 21,493 215 137,785 138,000
Issuance of shares with
acquisition 87,000 870 392,678 393,548
Exercise of private placement
warrants . . . . . . . . . 37,500 375 149,625 150,000
Amount paid for options, not
yet issued . . . . . . . . 9,375 9,375
Compensatory stock options. . . 3,000 3,000
Net loss, year ended June
30, 1996. (585,315) (585,315)
---- -------- -------- ------- -------- ------- ----------- --------- ------------ --------
BALANCE - JUNE 30, 1996 . . 2,293,568 $22,936 812,237 $8,122 199,816 $1,998 $8,078,383 $(63,928)$(1,630,322) $6,417,189
========== ======== ======== ======= ======== ======= =========== ========= ============ ========
</TABLE>
The accompanying notes are an integral part hereof.
F-5
<PAGE>
PHC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (585,315) $ 268,671
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Deferred tax provision (benefit). . . . . . . . . . (418,137) 173,137
Depreciation and amortization . . . . . . . . . . . 554,025 238,547
(Increase) in accounts receivable . . . . . . . . . (2,985,052) (1,786,691)
Compensatory stock options and stock issued for
obligations . . . . . . . . . . . . . . . . . . . 39,250
(Increase) in prepaid expenses and other current
assets. . . . . . . . . . . . . . . . . . . . . . (69,978) (150,933)
(Increase) decrease in other assets . . . . . . . . (107,711) 162,570
Decrease in net assets of operations held for sale. 106,886 32,303
Increase in accounts payable. . . . . . . . . . . . 1,414,089 314,196
Increase in accrued expenses and other liabilities. 295,475 258,175
------------ -----------
Net cash used in operating activities. . . . . . (1,756,468) (490,025)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment and intangibles . (1,557,419) (3,557,378)
Loan receivable . . . . . . . . . . . . . . . . . . . . (17,462) (91,343)
------------ ------------
Net cash used in investing activities. . . . . . (1,574,881) (3,648,721)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of options and warrants . . . . 576,561 17,610
Net proceeds from private placement . . . . . . . . . . 1,532,605
Proceeds from borrowings. . . . . . . . . . . . . . . . 2,043,748 5,149,643
Payments on debt. . . . . . . . . . . . . . . . . . . . (402,828) (2,651,546)
Deferred Financing Costs . . . . . . . . . . . . . . . (711,960)
------------ ------------
Net cash provided by financing activities. . . . 3,038,126 2,515,707
------------ -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . (293,223) (1,623,039)
Beginning balance of cash and cash equivalents . . . . . . 586,738 2,209,777
------------ -----------
ENDING BALANCE OF CASH AND CASH EQUIVALENTS. . . . . . . . $ 293,515 $ 586,738
============ ===========
Supplemental cash flow information:
Cash paid during the year for interest. . . . . . . . . $ 779,898 $ 575,000
Cash paid during the year for income taxes. . . . . . . 187,120 40,200
Supplemental disclosures of noncash investing and financing
activities:
Stock issued for acquisition of property and equipment
and intangibles. .. .. .. .. .. .. .. .. .. .. .. . 393,548 84,242
Long-term debt assumed upon acquisition . . . . . . . 84,242
============================================================= =============== ===============
Note payable due for litigation settlement. . . . . . 225,000
============================================================= =============== ===============
Capital leases. . . . . . . . . . . . . . . . . . . . 94,699
============================================================= =============== ===============
</TABLE>
The accompanying notes are an integral part hereof.
F-6
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] BASIS OF PRESENTATION AND CONSOLIDATION:
PHC, Inc. ("PHC") operates substance abuse treatment centers in
several locations in the United States, a nursing home in Massachusetts, a
psychiatric hospital in Michigan and psychiatric outpatient facilities in Nevada
and Kansas. The consolidated financial statements include PHC and its
subsidiaries, all of which are 100% owned (collectively the "Company"):
PHC of Utah, Inc. ("PHU"), PHC of Virginia, Inc. ("PHV") and PHC of Rhode
Island, Inc. ("PHR") provide treatment of addictive disorders and chemical
dependency. PHC of Michigan, Inc. ("PHM") provides inpatient psychiatric care.
PHC of Nevada, Inc. ("PHN") and PHC of Kansas, Inc. ("PHK") provide psychiatric
treatment on an outpatient basis. Quality Care Centers of Massachusetts, Inc.
("Quality Care") operates a long-term care facility known as the Franvale
Nursing and Rehabilitation Center. STL, Inc. ("STL") operated day care centers
(see Note J - Operations Held For Sale). All significant intercompany
transactions and balances have been eliminated in consolidation.
For the year ended June 30, 1996, the Company incurred costs related
to an addition at Quality Care prior to obtaining a license to admit patients.
These costs, amounting to $128,313, are included in other expense in the
accompanying statement of operations under the caption "Start-up Costs".
[2] REVENUES AND ACCOUNTS RECEIVABLE:
Patient care revenues are recorded at established billing rates or
at the amount realizable under agreements with third-party payors, including
Medicaid and Medicare. Revenues under third-party payor agreements are subject
to examination and adjustment, and amounts realizable may change due to periodic
changes in the regulatory environment. Provisions for estimated third party
payor settlements are provided in the period the related services are rendered.
Differences between the amounts accrued and subsequent settlements are recorded
in operations in the year of settlement.
A substantial portion of the Company's revenues at the Franvale
Nursing and Rehabilitation Center is derived from patients under the Medicaid
and Medicare programs. There have been and the Company expects that there will
continue to be, a number of proposals to limit Medicare and Medicaid
reimbursement, as well as reimbursement from certain private payor sources for
both Franvale and substance abuse treatment center services. The Company cannot
predict at this time whether any of these proposals will be adopted or, if
adopted and implemented, what effect such proposals would have on the Company.
(continued)
F-7
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
[2] REVENUES AND ACCOUNTS RECEIVABLE: (continued)
Medicaid reimbursements are currently based on established rates
depending on the level of care provided and are adjusted proactively at the
beginning of each calendar year. Medicare reimbursements are currently based on
provisional rates that are adjusted retroactively based on annual, calendar cost
reports filed by the Company with Medicare. The Company's cost reports to
Medicare are routinely audited on an annual basis. The Company periodically
reviews its provisional billing rates and provides for estimated Medicare
adjustments. The Company believes that adequate provision has been made in the
financial statements for any adjustments that might result from the outcome of
Medicare audits.
The Company has substantial receivables from Medicaid and Medicare,
relating to its long-term care facility aggregating approximately $2,350,000
(including $415,000 related to Medicare adjustments) at June 30, 1996 which
constitutes a concentration of credit risk should these agencies defer or be
unable to make reimbursement payments as due.
[3] PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets using accelerated and
straight-line methods. The estimated useful lives are as follows:
Estimated
ASSETS USEFUL LIFE
Buildings. . . . . . . . . . 20 through 39 years
Furniture and equipment. . . 3 through 10 years
Motor vehicles . . . . . . . 5 years
Leasehold improvements . . . term of lease
[4] OTHER ASSETS:
Other assets represent deposits, deferred expenses and costs
incurred in the organization of the Companies. Organization costs are amortized
over a five-year period using the straight-line method.
(continued)
F-8
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
[5] GOODWILL, NET OF ACCUMULATED AMORTIZATION:
The excess of the purchase price over the fair market value of net
assets acquired are being amortized on a straight-line basis over their
estimated useful lives.
[6] EARNINGS PER SHARE:
Net income or loss per share is based on the weighted average number
of shares of common stock outstanding during each period excluding Class C
common shares held in escrow. Common stock equivalents have been excluded since
they are antidilutive.
[7] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
[8] CASH AND CASH EQUIVALENTS:
Cash and cash equivalents are short-term highly liquid investments
with original maturities of less than three months.
(NOTE B) - PROPERTY AND EQUIPMENT:
Property and equipment is comprised as follows:
JUNE 30,
1996 1995
Land. . . . . . . . . . . . . $ 251,759 $ 239,259
Buildings . . . . . . . . . . 7,338,838 3,834,799
Furniture and equipment . . . 1,404,716 1,027,413
Motor vehicles. . . . . . . . 50,889 42,459
Leasehold improvements. . . . 301,067 216,633
Construction (Note D) . . . . - 0 - 2,753,679
----------- ----------
9,347,269 8,114,242
Less accumulated depreciation 1,463,206 1,027,605
T o t a l . . . . . $7,884,063 $7,086,637
=========== ==========
(continued)
F-9
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - LONG-TERM DEBT:
At June 30, 1996, the Company substantially completed an addition and
renovation to the Quality Care facility in which 37 new beds were added. The
Company financed this addition and renovation through the United States
Department of Housing and Urban Development ("HUD"). At the final endorsement,
which took place subsequent to year-end in July 1996, an additional $479,308 of
costs were advanced bringing the final balance of the note payable to
$6,781,294. At June 30, 1996 deferred financing costs related to the
construction note payable totalled $711,960 and are being amortized over the
life of the note. Interest costs capitalized in conjunction with the
construction approximated $65,250 and $89,000 at June 30, 1996 and June 30,
1995.
Long-term debt is summarized as follows:
JUNE 30,
1996 1995
Notes payable to various entities with
interest ranging from 8% to 9%
requiring monthly payments aggregating
approximately $4,000 and maturing
through May 2001. . . . . . . . . . . . $ 58,154 $ 73,772
Note payable due in monthly installments
of $2,000 including imputed interest at
8% through April 1, 1999, when the
principal is due . .. .. . . . . . . . . 60,163 78,145
9% mortgage note due in monthly
installments of $4,850 through July 1,
2012, when the remaining principal
balance is payable. . . . . . . . . . . 505,485 518,224
Mortgage note payable . . . . . . . . . . . 23,690
Note payable due in monthly installments
of $21,506 including interest at 10.5%
through November 1, 1999,
collateralized by all assets of PHN
and certain receivables . . . . . . . . 735,213
Construction obligations:
Construction note payable
collateralized by real estate and
insured by HUD due in monthly
installments of $53,635, including
interest at 9.25%, through December
2035. . . . . . . . . . . . . . . . . 6,301,986 5,049,643
Other construction obligations to be
added to note payable . . . . . . . . 344,802
Note payable to a former vendor, payable
in monthly installments of $19,728
including interest at 9.5% through
February 1997 (see Note N). . . . . . . 152,353
----------
T o t a l. . . . . . . . . . . . 8,158,156 5,743,474
Less current maturities. . . . . . . . . . 403,894 61,438
----------- ----------
T o t a l. . . . . . . . . . . . $7,754,262 $5,682,036
=========== ==========
(continued)
F-10
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - LONG-TERM DEBT: (continued)
Maturities of long-term debt are as follows as at June 30, 1996:
Year Ending
JUNE 30, AMOUNT
1997 . . . . . . . . . . . . . $ 403,894
1998 . . . . . . . . . . . . . 273,424
1999 . . . . . . . . . . . . . 302,539
2000 . . . . . . . . . . . . . 157,923
2001 . . . . . . . . . . . . . 56,977
Thereafter . . . . . . . . . . 6,618,597
----------
T o t a l. . . . . . $7,813,354
In May 1996, PHU entered into a loan and security agreement to borrow up
to $1,000,000 under a revolving line of credit. This agreement will be in effect
for a period of two years with an option to renew for one-year periods
thereafter. Principal is due upon the expiration of the term of the revolver.
Interest is payable monthly at the prime rate plus 2.25%. The revolver is
collateralized by substantially all the assets of PHU. At June 30, 1996 there
were no borrowings under this agreement.
(NOTE D) - CAPITAL LEASE OBLIGATIONS:
At June 30, 1996, the Company is obligated under various capital leases
for equipment and real estate (see Note L) providing for monthly payments
aggregating approximately $19,000 for fiscal 1997 and terms expiring from
December 1996 through February 2014.
The carrying value of assets under capital leases is as follows:
JUNE 30,
1996 1995
Building. . . . . . . . . . . . $1,477,800 $1,477,800
Equipment and improvements. . . 214,754 137,207
Less accumulated depreciation . (222,100) (137,057)
$1,470,454 $1,477,950
(continued)
F-11
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - CAPITAL LEASE OBLIGATIONS: (continued)
Future minimum lease payments under the terms of the capital lease
agreements are as follows at June 30, 1996:
Year Ending Real
JUNE 30, EQUIPMENT PROPERTY TOTAL
1997. . . . . . . . $ 68,895 $ 231,000 $ 299,895
1998. . . . . . . . 56,728 231,000 287,728
1999. . . . . . . . 33,262 239,000 272,262
2000. . . . . . . . 15,075 259,248 274,323
2001. . . . . . . . 3,098 272,208 275,306
Thereafter. . . . . - 0 - 4,886,036 4,886,036
--------- ------------ -----------
Total future
minimum lease
payments . . . . 177,058 6,118,492 6,295,550
Less amount
representing
interest . . . . (29,711) (4,709,312) (4,739,023)
--------- ------------ ------------
Present value of
future minimum
lease payments . 147,347 1,409,180 1,556,527
Less current
portion. . . . . 53,936 34,116 88,052
--------- ------------ -----------
Long-term
obligations
under capital
lease. . . . . . $ 93,411 $ 1,375,064 $ 1,468,475
========= ============ ===========
(continued)
F-12
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - NOTES PAYABLE - RELATED PARTIES:
Related party debt is summarized as follows:
JUNE 30,
1996 1995
Note payable, president and
principal stockholder,
interest at 8%, due in
installments through
1998 . . . . . . . . . . . . $ 78,996 $110,596
Notes payable, other related
parties interest at 12% and
payable on demand. . . . . . . . 24,998 24,998
--------- --------
T o t a l . . . . . . . . 103,994 135,594
Less current maturities . . . . . . 56,600 46,598
--------- --------
T o t a l . . . . . . . . $ 47,394 $ 88,996
========= ========
Accrued interest related to these notes totals $3,652 and $21,950 at
June 30, 1996 and June 30, 1995, respectively.
Maturities of related party debt are as follows at June 30, 1996:
Year Ending
JUNE 30, AMOUNT
1997. . . . . . . . . . . . . . . . $ 56,600
1998. . . . . . . . . . . . . . . . 31,600
1999. . . . . . . . . . . . . . . . 15,794
--------
T o t a l . . . . . . . . $103,994
Related party interest on notes receivable related to the purchase of
Class A common stock approximated $4,295 and $3,000 for the year ended June 30,
1996 and June 30, 1995, respectively.
(NOTE F) - INCOME TAXES:
For the year ended June 30, 1995 the Company utilized net operating loss
carryforwards of approximately $754,000 to reduce taxable income. No significant
state income taxes were paid prior to June 30, 1995.
(continued)
F-13
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - INCOME TAXES: (continued)
The Company had the following deferred tax assets included in the
accompanying balance sheets:
JUNE 30,
1996 1995
Temporary differences attributable to:
Allowance for doubtful accounts . . . . $510,000 $251,863
Depreciation. . . . . . . . . . . . . . 154,700
Other . . . . . . . . . . . . . . . . . 5,300
--------------------
Total deferred tax asset . . . . 670,000 251,863
Less current portion. . . . . . . . . . 515,300 251,863
--------- --------
Long-term portion. . . . . . . . $154,700 $ - 0 -
========= =======
The Company had no deferred tax liabilities at June 30, 1996 and June 30,
1995.
Income tax expense for the years ended is as follows:
JUNE 30,
1996 1995
Deferred income taxes (benefit) . . . $(418,137) $173,000
Current income taxes. . . . . . . . . 206,546 68,108
---------- --------
T o t a l . . . . . . . . . $(211,591) $241,108
========== ========
(continued)
F-14
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - INCOME TAXES: (continued)
Reconciliations of the statutory U.S. Federal income taxes based on a rate
of 34% to actual income taxes is as follows:
YEAR ENDED JUNE 30,
1996 1995
Income taxes (benefit) at statutory rate. . . $(271,000) $173,000
State income taxes. . . . . . . . . . . . . . 80,850 48,108
Increase due to nondeductible items,
primarily penalties and travel and
entertainment expenses . . . . . . . . . . 12,100 20,000
Other . . . . . . . . . . . . . . . . . . . . (33,541)
----------
T o t a l . . . . . . . . . . . . . $(211,591) $241,108
========== ========
(NOTE G) - COMMITMENTS AND CONTINGENT LIABILITIES:
[1] OPERATING LEASES:
The Company leases office and treatment facilities and furniture and
equipment under operating leases expiring on various dates through May 2000.
Rent expense for the years ended June 30, 1996 and June 30, 1995 was
approximately $450,000 and $386,000, respectively. Minimum future rental
payments under noncancelable operating leases having remaining terms in excess
of one year as of June 30, 1996 are as follows:
Year Ending
JUNE 30, AMOUNT
1997 . . . . . . . . . . . . . . . $ 422,791
1998 . . . . . . . . . . . . . . . 419,490
1999 . . . . . . . . . . . . . . . 205,380
2000 . . . . . . . . . . . . . . . 59,235
----------
Total minimum future
rental payments . . . $1,106,896
(continued)
F-15
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - COMMITMENTS AND CONTINGENT LIABILITIES: (continued)
[2] CENTER CLOSING:
The Company decided to discontinue operations at its treatment
center in California because of poor financial performance and discharged its
last patient in August 1994. The results of operations for the year ended June
30, 1995 reflect revenues of approximately $90,000 and a net gain of
approximately $22,000 from this center.
(NOTE H) - STOCK PLANS:
The Company has three stock plans: a stock option plan, an employee stock
purchase plan and a nonemployee directors' stock option plan.
The stock option plan provides for the issuance of a maximum of 300,000
shares of Class A common stock of the Company pursuant to the grant of incentive
stock options to employees or nonqualified stock options to employees,
directors, consultants and others whose efforts are important to the success of
the Company. Subject to the provisions of this plan, the compensation committee
has the authority to select the optionees and determine the terms of the options
including: (i) the number of shares, (ii) option exercise terms, (iii) the
exercise or purchase price (which in the case of an incentive stock option will
not be less than the market price of the Class A common stock as of the date of
grant), (iv) type and duration of transfer or other restrictions and (v) the
time and form of payment for restricted stock and upon exercise of options.
In October 1995, the Company adopted an employee stock purchase plan which
provides for the purchase of Class A common stock at 85 percent of the fair
market value at specific dates, to encourage stock ownership by all eligible
employees. At June 30, 1996, 100,000 shares were available for purchase. During
the year ended 1996, there were no shares purchased under this plan.
Also in October 1995, the Company adopted a nonemployee directors' stock
option plan that provides for the grant of nonstatutory stock options
automatically at the time of each annual meeting of the Board. During the
meeting in which this plan was approved, options for 5,500 shares were
granted under this plan. The Company has reserved 30,000 shares for issuance
under this plan. Each outside director shall be granted an option to purchase
2,000 shares of Class A common stock at fair market value, vesting 25%
immediately and 25% on each of the first three anniversaries of the grant.
(continued)
F-16
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - STOCK PLAN: (continued)
The Company had the following activity in its stock option plans for 1996
and 1995:
Number of Option Price
SHARES PER SHARE
Option plans:
Balance - June 30, 1994. . . 60,500 $5.00 - $6.37
Granted. . . . . . . . . . . 39,000 $5.13
Cancelled. . . . . . . . . . (7,500) $5.00
Exercised. . . . . . . . . .
Balance - June 30, 1995. . . 92,000 $5.00 - $6.37
Granted. . . . . . . . . . . 46,500 $5.25 - $7.00
Cancelled. . . . . . . . . . (1,250) $5.00
Exercised. . . . . . . . . . (22,500) $5.00 - $5.13
--------
Balance - June 30, 1996. . . 114,750 $5.00 - $7.00
========
Options for 68,625 shares are exercisable as of June 30, 1995 at an
average price of $5.20.
During fiscal 1994 the Company also issued restricted stock to certain of
the directors and officers of the Company for the purchase of 31,000 shares at a
purchase price of $4.00 per share. The directors and officers were required to
pay 25% of the purchase price of their shares immediately, with the balance
being payable quarterly over three years together with interest at 6% per year
until paid in full.
(continued)
F-17
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - SEGMENT INFORMATION:
The Company's continuing operations are classified into two primary
business segments: substance abuse/psychiatric treatment and long-term care.
YEAR ENDED JUNE 30,
1996 1995
Revenue:
Substance abuse/psychiatric
treatment. . . . . . . . . . $16,525,672 $12,227,990
Long-term care . . . . . . . . 5,043,922 4,180,471
Other. . . . . . . . . . . . . 233,164 128,157
------------ -----------
T o t a l . . . . . . . $21,802,758 $16,536,618
============ ===========
Income (loss) from operations:
Substance abuse/psychiatric
treatment. . . . . . . . . . $ 818,188 $ 649,395
Long-term care . . . . . . . . (826,463) 243,335
Other. . . . . . . . . . . . . 146,407 149,317
General corporate. . . . . . . (180,966) (126,878)
Other income (expense), net. . (754,072) (405,390)
------------ ------------
Income (loss) before income
taxes . . . . . . . . . . . . . $ (796,906) $ 509,779
============ ===========
Depreciation and amortization:
Substance abuse/psychiatric
treatment. . . . . . . . . . $ 349,437 $ 131,109
Long-term care . . . . . . . . 176,450 78,332
General corporate. . . . . . . 28,138 29,106
------------ -----------
$ 554,025 $ 238,547
============ ===========
Capital expenditures:
Substance abuse/psychiatric
treatment. . . . . . . . . . $ 233,466 $ 496,793
Long-term care . . . . . . . . 982,978 2,953,679
General corporate. . . . . . . 16,583 36,542
------------ -----------
$ 1,233,027 $ 3,487,014
============ ===========
Identifiable assets:
Substance abuse/psychiatric
treatment. . . . . . . . . . $10,877,197 $ 8,308,656
Long-term care . . . . . . . . 8,619,133 6,091,763
General corporate. . . . . . . 1,264,205 851,398
Net assets of operations held
for sale . . . . . . . . . . 56,682 163,568
------------ -----------
T o t a l . . . . . . . $20,817,217 $15,415,385
============ ===========
(continued)
F-18
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - OPERATIONS HELD FOR SALE:
Over the past several years, the Company has been systematically phasing
out its day care center operations (STL). At June 30, 1996 and June 30, 1995,
the Company had net assets relating to its day care centers amounting to
approximately $57,000 and $164,000, respectively, which primarily represents the
depreciated cost of real estate. At June 30, 1996 the Company had one real
estate parcel remaining which the Company has offered for sale.
The Company does not anticipate any significant future losses due to the
day care center operations or the ultimate sale of the real estate parcels.
(NOTE K) - CERTAIN CAPITAL TRANSACTIONS:
In addition to the outstanding options under the Company's stock plan
(Note I), the Company has the following options and warrants outstanding at June
30, 1996:
Number of Exercise Expiration
DESCRIPTION UNITS/SHARES PRICE DATE
Bridge warrants 4,814 units $4.57 per unit September 1998
Unit purchase option 146,077 units $5.99 per unit March 1999
IPO warrants 1,657,821 shares $7.50 per share March 1999
Private placement warrants 703,125 shares $4.00 per share January 1999
Bridge warrants 33,696 shares $7.50 per share March 1999
Incentive bridge warrants 8,424 shares $6.00 per share December 1998
Each unit consists of one share of Class A common stock and a warrant to
purchase one share of Class A common stock at $7.50 per share.
(continued)
F-19
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - CERTAIN CAPITAL TRANSACTIONS: (continued)
In February 1996, the Company issued in a private placement units
comprised of 6,250 shares of Class A common stock and warrants to purchase 9,375
shares of Class A common stock. A total of 79 units, representing 493,750 shares
of Class A common stock and 740,625 warrants were issued in the offering at a
gross purchase price of $1,975,000. Fees and expenses payable in connection with
the offering total $442,395 of fees and expenses. Subject to the terms and
conditions of the applicable warrant agreement, each warrant is exercisable for
one share of Class A common stock at an exercise price of $4.00, subject to
adjustment upon certain events. The warrants expire in January 1999. Upon the
issuance of the units described above, certain additional shares of Class A
common stock or securities exercisable therefor became issuable under the
antidilution provisions of certain outstanding securities of the Company.
Also, in connection with the Company's initial public offering, present
stockholders have agreed to restrictions on approximately 200,000 shares
(designated Class C common stock) whereby some or all of those shares will be
transferred to the Company for no consideration if certain future earnings
targets are not achieved through June 30, 1997. The earnings target for fiscal
1996 was net income of $3.0 million or more to have restrictions released and
increases to $4.0 million for the year ending June 30, 1997. When, and if, the
share restrictions are released, the Company will incur an expense based on the
fair market value of the shares at the time the restrictions lapse.
(NOTE L) - ACQUISITIONS:
On September 20, 1994 the Company purchased a 64-bed healthcare facility
located in Michigan ("PHM") which provides psychiatric and other specialty
services to patients. The Company acquired the tangible, intangible, and real
property owned by the seller of the business for consideration consisting of
$759,307 in cash. The purchase price was allocated to the assets acquired as
follows:
Land. . . . . . . . . . . . . . . . . . $ 20,959
Building. . . . . . . . . . . . . . . . 644,152
Equipment and other assets. . . . . . . 94,196
T o t a l . . . . . . . . . . $759,307
(continued)
F-20
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - ACQUISITIONS: (continued)
On November 1, 1995, the Company purchased an outpatient facility located
in Nevada ("PHN") which provides psychiatric services to patients. The Company
acquired the tangible and intangible property owned by the seller of the
business for consideration consisting of $631,000 in cash and 75,000 shares of
Class A common stock of PHC, Inc. which were valued at $323,000. The purchase
price was allocated as follows:
Accounts receivable . . . . . . . . . . $231,509
Equipment and other assets. . . . . . . 54,397
Covenant not to compete . . . . . . . . 10,500
Goodwill. . . . . . . . . . . . . . . . 671,359
Accrued benefits payable. . . . . . . . (13,765)
$954,000
On March 29, 1996 PHN entered into a lease agreement for the real estate.
The lease payments, which increase annually, are due in equal monthly
installments over a period of four years.
On March 16, 1996, the Company purchased an outpatient facility located in
Kansas ("PHK") which provides psychiatric services to patients. The Company
acquired the tangible and intangible property owned by the seller of the
business for consideration consisting of 12,000 shares of Class A common stock
of PHC, Inc., valued at $70,548. The purchase price was allocated as follows:
Equipment and other assets. . . . . . . $ 20,000
Covenant not to compete . . . . . . . . 10,000
Goodwill. . . . . . . . . . . . . . . . 40,548
--------
$ 70,548
In connection with the acquisition, PHK entered into a lease agreement for
the real estate. The lease payments, which increase annually, are due in equal
monthly installments over a period of three years.
(continued)
F-21
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - ACQUISITIONS: (continued)
Based on unaudited data, the pro forma results of operations as though the
foregoing acquisitions were made at the beginning of the periods indicated below
are as follows. Management does not believe such results are indicative of
future operations.
YEAR ENDED JUNE 30,
(in thousands
except per share
data)
1996 1995
Revenues. . . . . . . . . . $22,135 $17,588
Operating expenses. . . . . 22,126 16,559
Income from operations. . . 9 1,029
Other expenses, including
income taxes . . . . . . 552 (690)
-------- --------
Net income (loss). .. . . $ (543) $ 339
======== =======
Pro forma income (loss)
per share.. .. .. .. .. $(.20) $.14
(NOTE M) - SALE OF RECEIVABLES:
The Company has entered into a sale and purchase agreement whereby
third-party receivables are sold at a discount with recourse. The interest rate
is calculated at 5.5% plus the six-month LIBOR rate which is 11.3% and 11.5% at
June 30, 1996 and June 30, 1995, respectively. The amount of receivables subject
to recourse at June 30, 1996 totalled approximately $805,000 and the agreement
states that total sales of such outstanding receivables are not to exceed
$4,000,000. Proceeds from the sale of these receivables totalled approximately
$3,500,000 and $2,100,000 at June 30, 1996 and June 30, 1995, respectively. The
purchase fees related to the proceeds above of approximately $73,720 and $30,000
at June 30, 1996 and June 30, 1995, respectively, are included in interest
expense in the accompanying consolidated statement of operations. The agreement
expires December 31, 1997.
(continued)
F-22
<PAGE>
PHC, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE N) - LITIGATION:
On October 31, 1994, the Company and a supplier, NovaCare, Inc., became
parties to a Civil Action in the Superior Court Department of the Trial Court of
the Commonwealth of Massachusetts, NovaCare, Inc. ("NovaCare") is an entity
which contracted with the Company in 1992 to provide rehabilitation therapy and
related administrative services to the Company's long-term care facility. During
the year ended June 30, 1996, the parties agreed to settle all claims and
counterclaims in the Civil Action whereby no additional loss accrual was
necessary. See Note C for payment terms. NovaCare has obtained (but has not
recorded) a Real Estate Attachment for a portion of the settlement amount which
may be employed if PHC does not satisfy its obligation under the settlement
agreement.
(NOTE O) - SUBSEQUENT EVENT:
On August 31, 1996 the Company purchased the assets of an outpatient
psychiatric clinic in Michigan, which was financed through a loan of $500,000
received in July 1996. Annual revenues for this clinic in the past year
approximated $750,000.
F-23
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The exhibit numbers in the following list correspond to the numbers
assigned to such exhibit in the Exhibit Table of Item 601 of Regulation S-B. The
Company will furnish to any stockholder, upon written request, any exhibit
listed below upon payment by such stockholder to the Company at the Company's
reasonable expense in furnishing such exhibit.
EXHIBIT DESCRIPTION
No.
+3.1 Restated Articles of Organization of the Registrant, as amended.
3.2 By-Laws of the Registrant, as amended.
+4.1 Form of Warrant Agreement.
+4.2 Specimen certificate representing Class A Common Stock.
+4.3 Form of Certificates representing redeemable Class A Warrants
(form of certificate representing redeemable Class A Warrants
included in Exhibit 4.1).
+4.4 Form of Unit Purchase Option.
++++4.5 Warrant Agreement by and among PHC, Inc., American Stock
Transfer,and Americorp Securities, Inc.
++++4.6 Registration Rights for Exhibit 4.5.
u +10.1 1993 Stock Purchase and Option Plan of PHC, Inc.
u +10.2 Form of Stock Option Agreement of PHC, Inc.
u ++10.3 Form of Restricted Stock Agreement with list of employees
and directors who have entered into agreement and corresponding
numbers of shares.
+10.4 Form of Subscription Agreement for Bridge financing with list of
bridge investors who have entered into agreement and
corresponding amounts subscribed for.
+10.5 Form of 8% Subordinated Notes of PHC, Inc. with list of
bridge investors who have purchased notes and principal
amounts thereof.
+10.6 Form of Warrant Agreement for Bridge financing with list of
bridge investors holding warrant agreements and corresponding
numbers of bridge units for which warrant is exercisable.
+10.7 Lease Agreement between Blackacre Realty Trust and PHC, Inc.,
dated April 30, 1985, with amendments dated May 22, 1986, on or
about March 9, 1988, and May 1, 1992.
10.9 Lease Agreement between David H. Brom and Changes, dated April
1, 1995.
+10.11 Option to Purchase Agreement between PHC, Inc. and Quality
Care Centers of Massachusetts, Inc., dated July 6, 1993.
+10.12 Lease Agreement between Anna Meta Leonhard & Claire Leonhard
Morse and PHC, Inc., dated December 13, 1989; Approval of
Assignment of lease by PHC, Inc., to PHC of California, Inc.
dated December 13, 1989.
+10.13 Settlement Conference Order, dated February 1, 1993, in the
matter of AIHS OF CALIFORNIA, INC. V. CLAIRE LEONHARD MORSE;
Letter from Jerry M. Ackeret to Godfrey J. Tencer, dated
September 24, 1993, confirming extension of the Settlement;
Letter from Godfrey J. Tencer to Jerry M. Ackeret, dated October
4, 1993, accepting extension in letter of September 24, 1993;
Letter from Jerry M. Ackeret to PHC, Inc., dated February 15,
1994, agreeing to extension of closing of the purchase of the
property to March 8, 1994.
+10.14 Lease Agreement between Palmer-Wells Enterprises and AIHS, Inc.
and Edwin G. Brown, dated September 23, 1983,with Addendum dated
March 23, 1989, and Renewal of Addendum dated April 7,
1992; Tenant Acceptance Letter to The Mutual Benefit Life
Insurance Company and Palmer-Wells Enterprises, executed by
PHC, Inc. and Edwin G. Brown, dated June 6, 1989.
+10.15 Sample Equipment Lease with Trans National Leasing Corp.
+10.16 Note of PHC, Inc. in favor of Tot Care, Inc., dated January
1, 1991, in the amount of $55,000.
+10.17 Note of PHC, Inc. in favor of Humpty Dumpty School, Inc.,
dated March 1, 1991, in the amount of $25,000.
+10.18 Note of PHC, Inc. in favor of Bruce A. Shear, dated April 1,
1993, in the amount of $152,500; Subordination letter from
Aquarius Realty to Malden Trust Company as to $50,000 of debt,
dated 1983, regarding debt of PHC, Inc.; Subordination letter
from Bruce A. Shear and Steven J. Shear, individually, to Malden
Trust Company as to $80,000 of debt, dated 1983, regarding debt
of PHC, Inc.
+10.19 Note of PHC, Inc. in favor of Steven J. Shear, dated April 1,
1993, in the amount of $25,000.
+10.20 Note of PHC, Inc. in favor of Gertrude Shear, dated April
15, 1993, in the amount of $27,700.
+10.21 Note of PHC, Inc. in favor of Mark S.Cowell and Karen K.Cowell,
dated May 5, 1993, in the amount of $10,000.
+10.22 Note of PHC, Inc. in favor of Trans National Leasing Corp., dated
May 17, 1993, in the amount of $50,000.
+10.26 Advance Funding Agreement by and among Quality Care Centers of
Massachusetts, Inc., Kelspride Nursing Homes, Inc. and
Continental Medical Systems, Inc., dated June 30, 1988, and
amendment thereto dated June 30, 1992; Note of Quality Care
Centers of Massachusetts, Inc. in favor of Continental Medical
Systems, Inc., dated June 30, 1992, in the amount of $240,084;
Mortgage, Security Agreement and Assignment by PHC, Inc. to
Continental Medical Systems, Inc., dated June 30, 1988, and
amendment thereto dated June 30, 1992; Security Agreement by
Quality Care Centers of Massachusetts, Inc. to Continental
Medical Systems, Inc., dated June 30, 1988, and amendment thereto
dated June 30, 1992; Guaranty of PHC, Inc. in favor of
Continental Medical Systems, Inc. dated June 30, 1988, and
amendment thereto dated June 30, 1992; Guaranty of Bruce A.
Shear, individually, dated June 30, 1988, and amendment thereto
dated June 30, 1992 and Guaranty Fee Agreement of PHC, Inc. in
favor of Bruce A. Shear in consideration of June 30, 1988,
Guaranty on behalf of PHC, Inc.; Waiver and Agreement by and
among PHC, Inc., Quality Care Centers of Massachusetts, Inc.,
Continental Medical Systems, Inc. and CMS Capital Ventures, Inc.,
dated October 13, 1993.
+10.28 Purchase and Sale Agreement by and between Alternative Counseling
Services, Inc. and PHC of Virginia, Inc., dated March 22, 1993;
Note of PHC of Virginia, Inc. in favor of Alternative Counseling
Services, Inc., dated April 1, 1993, in the amount of $30,000;
Note of PHC of Virginia, Inc. in favor of Alternative Counseling
Services, Inc., dated April 1, 1993, in the amount of $15,485
with Changes Clinic Collections on Purchased Receivables, April
1, 1993 - September 7, 1993.
10.29 Note of PHC of Virginia, Inc. in favor of Himanshu S. Patel
and Anjana H. Patel, dated April 1, 1995, in the amount of
$10,000.
+10.30 Note of PHC of Virginia, Inc. in favor of Mukesh P. Patel
and Falguni M. Patel, dated April 1, 1993, in the amount of
$10,000.
+10.31 Mount Regis Center, Limited Partnership Agreement and Certificate
of Limited Partnership, dated July 24, 1987, by and among PHC of
Virginia, Inc. and limited partners; Form of Letter Agreement of
limited partners dated October 18, 1993, with list of Selling
Limited Partners and Units to be sold.
+10.32 Contract for Purchase and Sale of Real Estate by and
between Douglas M. Roberts, PHC of Virginia, Inc. and PHC, Inc.
dated March 31, 1987, with amendment dated July 28, 1987.
+10.33 Deed of Trust Note of Mount Regis Center Limited Partnership in
favor of Goulas M. Roberts, dated July 28, 1987, in the amount of
$560,000, guaranteed by PHC, Inc., with Deed of Trust executed by
Mount Regis Center, Limited Partnership of even date.
+10.34 Security Agreement Note of PHC of Virginia, Inc. in favor of
Mount Regis Center, Inc., dated July 28, 1987, in the amount of
$90,000, guaranteed by PHC, Inc., with Security Agreement, dated
July 1987.
+10.35 Form of Agreement amending Deed of Trust Note (by Mount Regis
Center Limited Partnership to Douglas M. Roberts, dated July 28,
1987) and Security Agreement Note (by PHC of Virginia, Inc. to
Mount Regis Center, Inc., dated July 28, 1987, and assigned by
Mount Regis to Douglas M. Roberts, effective August 1, 1987) by
and between Douglas M. Roberts, PHC of Virginia, Inc., Mount
Regis Limited Partnership and PHC, Inc., dated September, 1991.
+10.37 Note of Quality Care Centers of Massachusetts, Inc. in favor
of Bruce A. Shear, dated April 1, 1993, in the amount of $10,000.
10.38 Exhibit intentionally omitted.
+10.42 Note of PHC of California, Inc. in favor of Bruce A. Shear,
dated April 1, 1993, in the amount of $100,000.
+10.43 Note of PHC of California, Inc. in favor of Marin Addiction
Counseling & Treatment, Inc., dated January 30, 1990, in the
amount of $273,163 with Agreement, dated April 26, 1990,
evidencing assignment of note by Marin Addiction Counseling
Treatment, Inc. to Circle of Help, Inc.; Asset Purchase Agreement
by and between Marin Addiction Counseling & Treatment, Inc. and
PHC of California, Inc., dated January 19, 1990; Waiver Letter
from Circle of Help, Inc. to PHC, Inc., dated February 15, 1994.
+10.45 Promissory Note and Corporate Guarantee of STL, Inc. in favor of
Joseph and Theodora Koziol, dated November 30, 1992, in the
amount of $40,000, Corporate Guarantee by PHC, Inc., with Release
of All Demands of even date attached.
+10.50 Letter agreement between PHC, Inc. and Leonard M. Krulewich, as
assignee of the ENOBLE Corporation, dated April 26, 1993,
relative to the transfer of ownership of the DoN; Request for
Transfer of DoN, dated May 28, 1993; Request for Transfer of Site
of DoN, dated May 28, 1993; Request for Extension of
Authorization Period from June 27, 1993, dated June 24, 1993;
Letter from counsel of AtlantiCare Medical Center to
Massachusetts Department of Public Health, dated July 13, 1993.
10.51 Medical Services Agreement between Mukesh P. Patel and
Himanshu Patel and Mount Regis Center, dated August 25, 1995.
+10.52 Copy of Note of Bruce A. Shear in favor of Steven J. Shear, dated
December 1988, in the amount of $195,695; Pledge Agreement by and
between Bruce A. Shear and Steven J. Shear, dated December 15,
1988; Stock Purchase Agreement by and between Steven J. Shear and
Bruce A. Shear, dated December 1, 1988.
+10.53 Management Agreement by and between STL, Inc.and Lillian Furbish,
dated September 8, 1993.
10.54 Exhibit intentionally omitted.
+10.55 Letter Agreement by and between PHC, Inc. and the Utah Group,
dated November 5, 1993.
#10.56 Note of PHC, Inc. in favor of Bruce A. Shear, dated March 31,
1994, in the amount of $110,596.
#10.57 Consent of PHC, Inc. and PHC of Virginia, Inc., dated June 10,
1994, as to the transfer of partnership property to PHC of
Virginia, Inc.; Deed by and between Mount Regis Center, Limited
Partnership and PHC of Virginia, Inc., dated June 10, 1994;
Consent to Transfer by Douglas M. Roberts, dated June 23, 1994;
Form of Mount Regis Center, Limited Partnership Assignment and
Assumption of Limited Partnership Interest, by and between PHC of
Virginia, Inc. and each assignor dated as of June 30, 1994; Mount
Regis Center, Limited Partnership Certificate of Cancellation of
Limited Partnership, filed June 30, 1994.
#10.58 Letter from PHC of California, Inc. to Circle of Help, Inc.,
dated September 20, 1994, confirming agreement as to payment
by PHC of California, Inc. to Circle of Help, Inc. in the
amount of $100,000 as full satisfaction of promissory note of
PHC of California, Inc. in favor of Marin Addiction Counseling
and Treatment, Inc. in the amount of $273,163 which was assigned
to Circle of Help, Inc. on April 26, 1990.
#10.59 Settlement Agreement and Mutual General Release, by and between
PHC of California, Inc. and Claire Leonhard Morse, individually
and as Trustee of the Anna Leonhard Trust, Arnold Leonhard,
individually and as Trustee of the Anna Leonhard Trust, and Lloyd
Leonhard.
#10.60 Estoppel, Consent and Subordination Agreement, by and between
Zions First National Bank and Highland Ridge Hospital,
dated June 30, 1994.
#10.61 Regulatory Agreement for Multifamily Housing Projects, by and
between Quality Care Centers of Massachusetts, Inc. and Secretary
of Housing and Urban Development, dated September 8, 1994;
Mortgage of Quality Care Centers of Massachusetts, Inc. in favor
of Charles River Mortgage, dated September 8, 1994; Mortgage Note
of Quality Care Centers of Massachusetts, Inc. in favor of
Charles River Mortgage Company, Inc., in the amount of
$6,926,700, dated September 8, 1994; Security Agreement by and
between Quality Care Centers of Massachusetts, Inc. and Charles
River Mortgage Company, Inc., dated September 8, 1994; Standard
Form Agreement Between Owner and Architect for Housing Services,
by and between Quality Care Centers of Massachusetts, Inc. and
David H. Dunlap Associates, Inc., dated November 5, 1992;
Construction Contract by and between Quality Care Centers of
Massachusetts, Inc. and Corcoran Jennison Construction Co., Inc.,
dated September 8, 1994, and related documents.
#10.62 First Amendment to Management Agreement, by and between STL,
Inc.and Lillian Furbish, dated September 21, 1994.
*10.63 Asset Purchase Agreement by and between Good Hope Center, Inc.
and the Company, dated as of January 21, 1994.
#10.64 Lease and Option Agreement, by and between NMI Realty, Inc. and
PHC of Rhode Island, Inc., dated March 16, 1994.
#10.65 Tenant Estoppel Certificate of PHC of Rhode Island, Inc. to
Fleet National Bank, dated September 13, 1994.
#10.66 Subordination, Non-Disturbance and Attornment Agreement, by
and among Fleet National Bank, PHC of Rhode Island, Inc.
and NMI Realty, Inc., dated September 13, 1994.
#10.67 Secured Promissory Note of PHC of Rhode Island, Inc. in favor
of Good Hope Center, Inc., dated March 16, 1994, in the
amount of $116,000.
#10.68 Asset Sale Agreement by and between Harbor Oaks Hospital
Limited Partnership and the Company, dated June 24, 1994.
#10.69 Lease Agreement by and between Conestoga Corp. and PHC, Inc.,
dated July 11, 1994.
#10.70 Letter from counsel of PHC, Inc. to Massachusetts Department of
Public Health, dated August 31, 1994, requesting, on behalf of
the Company and ENOBLE, that the Massachusetts Department of
Public Health place them on the agenda of the Public Health
Council, with attachments.
++10.71 Sale and Purchase Agreement by and between PHC of Rhode
Island, Inc. and LINC Finance Corporation VIII, dated January 20,
1995.
+++10.72 Sale and Purchase Agreement by and Between PHC of Virginia, Inc.
and LINC Finance Corporation VIII, dated March 6, 1995.
10.73 Renewal of Lease Addendum between Palmer Wells Enterprises and
PHC of Utah, Inc., executed February 20, 1995.
+++++10.74 Employee Stock Purchase Plan
+++++10.75 Non-Employee Stock Option Plan
10.76 Loan and Security Agreement by and between PHC of Nevada, Inc.
and Linc Anthem Corp.
10.77 Secured Promissory Note for $7,500,000 by and between PHC
of Nevada, Inc. and Linc Anthem Corp.
10.78 Loan and Security Agreement for $1,000,000 by and between PHC
of Utah, Inc. and HealthPartners Funding LP
10.79 HealthPartners Revolving Credit Note
10.80 Guaranty of HealthPartners Revolving Credit Note
10.81 Stock Pledge by and between PHC, Inc. and Linc Anthem Corporation
10.82 Asset Purchase Agreement by and between Harmony Counseling, Inc.
and PHC, Inc.
10.83 Asset Purchase Agreement by and between Total Concept Employee
Assistance Program, Inc.
+16.1 Letter on Change in Independent Public Accountants.
21.1 List of Subsidiaries.
99.1 Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
+ Filed with the same exhibit number as an exhibit to the Company's
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission (Registration No. 33-71418) or an amendment thereto and
incorporated herein by reference.
++ Filed as an exhibit to the Company's quarterly report on Form 10-QSB,
filed with the Securities and Exchange Commission (Commission File number
0-23524) on February 14, 1995 and incorporated herein by reference.
+++ Filed as an exhibit to the Company's quarterly report on Form 10Q-SB,
filed with the Securities and Exchange Commission (Commission file number
0-23524) on May 15, 1995 and incorporated herein by reference.
++++ Filed as an exhibit to the Company's quarterly report on Form 10Q-SB,
filed with the Securities and Exchange Commission (Commission file number
0-23524) on February 16, 1996 and incorporated herein by reference.
+++++ Filed as an exhibit to the Company's Form 10-C dated February 22, 1996.
* Filed as an exhibit to the amendment to the Company's Current Report on
Form 8-K, filed with the Securities Exchange Commission on August 15, 1994
and incorporated herein by reference.
u Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHC, INC.
Date: October 4, 1996 By: /S/ BRUCE A. SHEAR
-------------------
Bruce A. Shear, President
and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
/S/ BRUCE A. SHEAR President, Chief October 4, 1996
- - ------------------
Bruce A. Shear Executive Officer and
Director (principal
executive officer)
/S/ PAULA C. WURTS October 4, 1996
- - ------------------
Paula C. Wurts Controller and Assistant Treasurer
(principal financial
and accounting officer)
/S/ GERALD M. PERLOW Director October 4, 1996
- - ---------------------
Gerald M. Perlow
/S/ DONALD E. ROBAR Director October 4, 1996
- - -------------------
Donald E. Robar
<PAGE>
List of Attached Exhibits
10.74 Employee Stock Purchase Plan
10.75 Non-Employee Stock Purchase Plan
10.76 Loan and Security Agreement by and between PHC of Nevada, Inc.
and Linc Anthem Corp.
10.77 Secured Promissory Note for $7,500,000 by and between PHC of
Nevada, Inc. and Linc Anthem Corp.
10.78 Loan and Security Agreement for $1,000,000 by and between PHC
of Utah, Inc. and HealthPartners Funding LP
10.79 HealthPartners Revolving Credit Note
10.80 Guaranty of HealthPartners Revolving Credit Note
10.81 Stock Pledge by and between PHC, Inc.and Linc Anthem
Corporation
10.82 Asset Purchase Agreement by and between Harmony Counseling,
Inc. and PHC, Inc.
10.83 Asset Purchase Agreement by and between Total Concept
Employee Assistance Program, Inc.
27 Current Financial Data Schedule
99.1 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
<PAGE>
EXHIBIT 10.77
SECURED PROMISSORY NOTE
$750,000.00
Chicago, Illinois
November 7, 1995
The undersigned, PHC OF NEVADA, INC. ("Maker"), promises to pay to the order of
LINC ANTHEM CORPORATION ("LINC") or any holder of this note the principal sum of
SEVEN HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($750,000.00) in United States
currency at its office at 303 East Wacker Drive, Chicago, IL 60601, or at such
other place as the holder hereof may appoint, plus interest thereon at a rate
equal to Ten and 75 One Hundredths percent (I0.75%) per annum payable in Forty
Eight (48) consecutive monthly installments commencing on December 8, 1995 and
continuing on the same day of each month thereafter as follows in accordance
with the following schedule: Six (6) consecutive monthly installments each in
the amount of $6,718.75 followed by Forty Two (42) consecutive monthly
installments each in the amount of $21,505.62 until the entire principal amount
plus all accrued interest and other charges due LINC have been paid in full.
Interest shall accrue from the date of initial disbursement hereof computed on
the basis of a 360-day year provided further that the aggregate interest payable
hereunder shall not exceed the maximum rate permitted by law. Provided that all
payments required to be made under this Note have been made in a timely manner,
Maker may voluntarily prepay not less than all of the unpaid principal balance
remaining plus all accrued and unpaid interest due thereon together with a
prepayment fee equal to a percentage of the then unpaid principal balance of the
Note. The prepayment fee percentage shall be (a) 4% if prepayment occurs after
the date hereof but prior to November 30, 1996; (b) 3% if prepayment occurs
after November 30, 1996 but prior to November 30, 1997; (c) 2% if prepayment
occurs after November 30, 1997 but prior to November 30, 1998 and (d) 2% if
prepayment occurs after November 30, 1998.
In the event the entire principal amount is not advanced by LINC to the Maker
hereof, principal payments will be reduced on a pro rata basis.
If any payment of principal or interest to be made hereunder shall become past
due for a period in excess of five (5) days, Maker shall pay a late charge of
two percent (2%) of such overdue payment for each month or portion of a month
for which such payment shall remain unpaid plus LINC's expenses resulting
therefrom together with collection expenses and reasonable attorneys' fees if
placed with an attorney for collection.
Demand, presentment for payment, notice of non-payment and protest are hereby
waived by the undersigned.
This Note is secured by and entitled to (i) the benefits of a certain
Security Agreement dated as of
<PAGE>
November 7, 1995, and (ii) any other agreements under which the holder has been
granted a lien and security interest in property to secure the payment and
performance by Maker of this Note (all of the foregoing hereinafter sometimes
collectively referred to as the "Security Agreement") to which reference is
hereby made for a statement of the nature and extent of the protection and
security afforded and the rights of the payee hereof and the rights and
obligations of the undersigned. LINC's books and records shall be dispositive
evidence of the amount disbursed under this Note. Upon an "Event of Default," as
defined in the Security Agreement, this Note may become or be declared due in
the manner and with the effect provided in the Loan Agreement. The holder hereof
shall not be required to look to any collateral for the payment of this Note,
but may proceed against Maker, or any guarantor hereof in such manner as it
deems desirable. None of the rights or remedies of the holder hereunder or under
the Security Agreement are to be deemed waived or affected by any failure to
exercise same. All remedies conferred upon the holder of this Note, the Security
Agreement or any other instrument or agreement to which the undersigned or any
guarantor hereof is a party or under any or all of them is bound, shall be
cumulative and not exclusive, and such remedies may be exercised concurrently or
consecutively at the holder's option.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS AND
DECISIONS OF THE STATE OF ILLINOIS. AT HOLDER'S ELECTION AND WITHOUT LIMITING
HOLDER'S RIGHT TO COMMENCE AN ACTION IN OTHER JURISDICTION, MAKER HEREBY SUBMITS
TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR LOCAL)
HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL SERVICE OF
PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO
THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN
TEN (10) DAYS AFTER THE DATE OF MAILING HEREOF. MAKER HEREBY WAIVES ANY
OBJECTION TO IMPROPER VENUE, FORUM NON CONVENIENS AND TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned hereunto sets its hand and seal as of the
date first set forth above.
PHC OF NEVADA, INC.
Maker
BY____/S/ BRUCE A. SHEAR___________
Title: _______PRESIDENT ___________
note. mas
11/6/95
<PAGE>
Exhibit 10.76
LOAN AND SECURITY AGREEMENT,
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made November
7, 1995, by and between PHC OF NEVADA, INC. , a Massachusetts corporation, with
its principal place of business at 200 Lake Street, Peabody, Massachusetts 01960
("Debtor") and LINC ANTHEM CORPORATION , a Delaware corporation, located at 303
East Wacker Drive, Chicago, IL 60601 ("Secured Party").
WITNESSETH:
WHEREAS, Secured Party wishes to make and Debtor wishes to receive loans
(hereinafter individually and collectively referred to as the "Loan") evidenced
by one or more of Debtor's Promissory Notes delivered in connection herewith
from time to time (hereinafter individually referred to as the "Note" and
collectively referred to as the "Notes"); and
WHEREAS, the Note and all principal thereof and interest thereon and all
additional amounts and other sums at any time due and owing from or required to
be paid by Debtor under the terms of each Note and this Agreement are
hereinafter sometimes referred to as the "Indebtedness"; and
WHEREAS, in exchange for receiving the Loan Debtor will grant to Secured
Party a security interest in the tangible and intangible assets of Debtor and
all proceeds thereof; and
Whereas, all of the requirements of law have been fully complied with and
all other acts and things necessary to make this Agreement a valid, binding and
legal instrument for the security of each Note have been done and performed;
NOW, THEREFORE, in consideration of the covenants and conditions stated in
this Agreement, the parties agree as follows:
1. THE, LOAN- ASSIGNMENT, SECURITY INTEREST.
1.01 Loan Amount- Subject to the terms and conditions of this Agreement,
Secured Party agrees to make a Loan to Debtor in the aggregate principal amount
of the lesser of $750,000 on or before November 7, 1995 with an interest rate of
10. 75 % per annum. The proceeds of the Loan shall be directed by Secured Party
to those persons identified by Debtor in writing at the time the Loan is made.
1.02 The Note Each Note shall: (a) be dated the date on which the Loan is
made; (b) be in the principal amount of the Loan; (c) bear interest on the
unpaid principal amount thereof at the Discount Rate; and (d) be transferable by
the holder thereof. The form of the Note is attached as Exhibit A.
1.03 Loan Deliveries. In connection with the initial Loan, Debtor shall
deliver or cause to be delivered to Secured Party the following documents,
certificates, opinions of counsel, and
G:\law\lac\plnc/loandoc
11/6/95
<PAGE>
agreements, in form and substance satisfactory to Secured Party:
(a) A certified copy of the Articles of Incorporation and By
Laws of
Debtor as amended and restated through November 7, 1995;
(b) Certificates of authority and incumbency to enter into this transaction
in a form acceptable to Secured Party ;
(c) Opinion of Debtor's counsel in a form acceptable to Secured Party;
(d) A Corporate Guaranty issued by PHC, Inc., PHC of Rhode Island, Inc. and
PHC of Virginia, Inc. in favor of Secured Party in a form acceptable to Secured
Party ("Corporate Guaranty");
(e) A Security Agreement issued by PHC, Inc., PHC of Rhode
Island, Inc. and PHC of Virginia, Inc. in favor of Secured Party in form
acceptable to Secured Party granting Secured Party a security interest and
collateral assignment of all accounts receivables and related rights of PHC,
Inc. now owned or hereafter created by PHC, Inc., PHC of Rhode Island, Inc. and
PHC of Virginia, Inc. ("PHC Security Agreement') except for any accounts
receivable sold to and purchased by LINC Finance Corporation VIII under either
(i) that certain Sale and Purchase Agreement dated as of January 20, 1995
between PHC of Rhode Island, Inc. and LINC FINANCE CORPORATION VIII or (ii) that
certain Sale and Purchase Agreement dated as of March 6, 1995 between PHC of
Virginia, Inc. and LINC FINANCE CORPORATION VIII (collectively the "Receivables
Agreement") and subject only to the security interest of LINC Finance
Corporation VIII granted to LINC Finance Corporation VIII under the Receivables
Agreement;
(f) UCC-1 financing statements naming the Debtor as debtor and
Secured Party as secured party, executed by Debtor for filing by Secured Party
for acknowledgment by the appropriate recording offices where the Collateral, as
hereafter defined, is located;
(g) UCC-1 financing statements naming the PHC, Inc. as debtor and Secured
Party as secured party, executed by PHC, Inc. for filing by Secured Party for
acknowledgment by the appropriate recording offices where the collateral under
the PHC Security Agreement is located;
(h) UCC-1 financing statements naming the PHC of Rhode Island, Inc. as
debtor and Secured Party as secured party, executed by PHC of Rhode Island, Inc.
for filing by Secured Party for acknowledgment by the appropriate recording
offices where the collateral under the PHC Security Agreement is located;
(i) UCC-1 financing statements naming the PHC of Virginia, Inc. as debtor
and Secured Party as secured party, executed by PHC of Virginia, Inc. for
G:\law\lac\plnc/loandoc
11/1/95
2
<PAGE>
filing by Secured Party for acknowledgment by the appropriate recording Offices
where the collateral under the PHC Security Agreement is located; and
(j) Such other instruments and documents as required by Secured
Party including a direction to LINC Finance Corporation VIII to remit sums
otherwise payable to PHC, Inc., PHC of Rhode Island, Inc. and PHC of Virginia,
Inc. under the Receivables Agreement to I-lender upon the occurrence of certain
events.
I. DEFINED TERMS. Capitalized terms not otherwise defined herein
shall have the meanings given such terms in the Note.
2. COLLATERAL.
(a) GRANT OF SECURITY - To secure the prompt and complete payment,
observance and performance of all of the obligations and liabilities of
Debtor under the Note and the payment of sums due and to become due
thereunder and all other obligations and liabilities of Debtor to Secured
Party (whether or not evidenced by a note or other instrument or document
and whether or not for the payment of money) direct or indirect, absolute
or contingent, due or to become due, now existing or hereafter and
howsoever arising, including without limitation, Costs and Expenses (as
defined in Section 6) in connection therewith (collectively, the
"Liabilities"), Debtor hereby assigns and pledges to the Secured Party, and
hereby grants to Secured Party, a security interest in all of the Debtor's
right, title and interest in and to the following, whether now owned or
existing or hereafter arising or acquired and wheresoever located (the
"Collateral"):
ACCOUNT. All present and future accounts, accounts receivable
and other rights of the Debtor to payment for goods sold or leased or for
services rendered (except those evidenced by instruments or chattel paper),
whether now existing or hereafter arising and wherever arising, and whether
or not they have been earned by performance (collectively, "Accounts");
EQUIPMENT. All machinery, all manufacturing, distribution,
selling, data processing and office equipment, all furniture, furnishings,
appliances, fixtures and trade fixtures, tools, tooling, molds, dies,
vehicles and all other goods of every type and description (other than
inventory), in each instance whether now owned or hereafter acquired by
Debtor and located at the Debtor's Location (collectively, "Equipment");
GENERAL INTANGIBLES. All rights, interests, chooses in action,
causes of action, claims and all other intangible property of Debtor of
every kind and nature related to or arising in connection with Accounts, or
Equipment, in each instance whether now owned or hereafter acquired by
Debtor, and however and whenever arising, including, without limitation,
all customer contracts, firm orders, rights under provider contracts and
all other contracts and contract rights; all deposit accounts (general or
special) with any bank or other financial institution, including, without
limitation, any deposits or other sums at any time credited by or due to
Debtor from any affiliate of Secured Party with the same rights therein as
if the deposits or other sums were credited by or due from Secured Party
thereunder; all rights to indemnification; and all letters of credit,
guaranties, liens, security interests and other security
11/1/95
3
<PAGE>
held by or granted to Debtor; and all other intangible property, whether
or not similar to the foregoing related to or arising in connection with
the Accounts or Equipment; and
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS. All chattel paper,
leases, all instruments and all payments thereunder and instruments and
other property from time to time delivered in thereof or in exchange
therefor, and other documents of title and documents, in each instance
whether now owned or hereafter acquired by Debtor relating to or arising
in connection with the Accounts or Equipment.
OTHER PROPERTY.. All other tangible and intangible real and
personal property now or hereafter acquired by Debtor including all money
and proceeds of Accounts and Equipment and insurance proceeds and books
and records relating to any of the Accounts and Equipment; together, in
each instance, with all accessions and additions thereto, substitutions
therefor, and replacements, proceeds and products thereof.
(b) DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) Debtor shall remain solely liable under the contracts
and agreements included in the Collateral to the extent set forth therein
to perform all of its duties and obligations thereunder to the same extent
as if this Agreement and any other security document executed in
connection with the Note or this Agreement ("Security Documents") had not
been executed, (ii) the exercise by Secured Party of any of its rights
hereunder or under any other Security Documents shall not release Debtor
from any of its duties or obligations under the contracts and agreements
included in the Collateral and (iii) Secured Party shall not have any
responsibility, obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement or any other
Security Documents, nor shall Secured Party be required or obligated, in
any manner, to (A) perform or fulfill any of the obligations or duties of
Debtor thereunder, (B) make any payment, or make any inquiry as to the
nature or sufficiency of any payment received by Debtor or the sufficiency
of any performance by any party under any such contract or agreement or
(C) present or file any claim, or take any action to collect or enforce
any claim for payment assigned hereunder.
(c) REPRESENTATIONS AND WARRANTIES REGARDING COLLATERAL. Debtor represents
and warrants, as of the date of this Agreement and as of each date
hereafter (except for changes permitted or contemplated by this Agreement)
until termination of this Agreement:
(i) The correct name of Debtor is set forth in the first paragraph
of this Agreement. The chief place of business, chief executive office of
Debtor and all Inventory and Equipment of Debtor is located at the address
specified as the notice address for Debtor (the "Premises") and Debtor has
exclusive possession and control of the Equipment and Inventory. All
records concerning any Accounts and all originals of all chattel paper
which evidence any Account are located at the Premises and none of the
Accounts is evidenced by a promissory note or other instrument except for
such notes and other instruments delivered to Secured Party.
(ii) Debtor is the legal and beneficial owner of the Collateral free
and clear of all liens except for liens of Secured Party. Debtor currently
conducts business under the name: KIDSPEACE CORPORATION.
11/1/95 4
<PAGE>
(iii) This Agreement creates in favor of Secured Party a legal,
valid and enforceable security interest in the Collateral. When financing
statements have been filed in the office of the Secretary of States of
Massachusetts and Nevada or delivery of Collateral made to Secured Party,
Secured Party will have a fully perfected first priority lien on, and
security interest in, the Collateral in which a security interest may be
perfected by filing or delivery.
(iv) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority that have not already been
taken or made and which are in full force and effect, is required (A) for
the grant by Debtor of the security interest in the Collateral granted
hereby; (B) for performance of this Agreement by Debtor; or (C) for the
exercise by Secured Party of any of its other rights or remedies
hereunder.
(d) PERFECTION AND MAINTENANCE OF SECURITY INTEREST AND LIEN. Debtor
agrees that until all liabilities have been fully satisfied and the Note
has been canceled, Secured Party's security interests in and liens on and
against the Collateral, and all proceeds and products thereof, shall
continue in full force and effect. Debtor shall perform any and all steps
reasonably requested by Secured Party to perfect, maintain and protect
Secured Party's security interests in and liens on and against the
Collateral granted or purported to be granted hereby and by the other
Security Documents or to enable Secured Party to exercise its rights and
remedies hereunder and under the other Security Documents with respect to
any Collateral, including, without limitation, (i) executing and filing
financing or continuation statements, or amendments thereof, in form and
substance reasonably satisfactory to Secured Party, (ii) executing and
recording mortgages, deeds of trust and other Security Documents in form
and substance reasonably satisfactory to Secured Party, (iii) delivering
to Secured Party all certificates, notes and other instruments (including,
without limitation, all letters of credit on which Debtor is named as a
beneficiary) representing or evidencing Collateral duly endorsed and
accompanied by duly executed instruments of transfer or assignment,
including, but not limited to, note powers, all in form and substance
satisfactory to Secured Party, (iv) placing notations on Debtor's books of
account to disclose Secured Party's security interest therein and marking
conspicuously each document, contract, chattel paper and all records
pertaining to the Collateral with a legend, in form and substance
satisfactory to Secured Party, indicating that such document, contract,
chattel paper or Collateral is subject to the security interest granted
herein and (v) executing and delivering all further instruments and
documents, and taking all further action, as Secured Party may reasonably
request.
(e) FINANCING STATEMENTS. To the extent permitted by applicable law,
Debtor hereby authorizes Secured Party to file one or more financing or
continuation statements and amendments thereto, disclosing the security
interest granted to Secured Party under this Agreement without Debtor's
signature appearing thereon and Secured Party agrees to notify Debtor when
such a filing has been made. Debtor agrees that a carbon, photographic,
photostatic or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
(f) FILING COSTS. Debtor shall pay the costs of, or incidental to, all
recordings or filings of all financing statements and other Security
Documents.
(g) SCHEDULE OF COLLATERAL. Debtor shall furnish to Secured Party from
time to time statements
11/1/1995 5
<PAGE>
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may reasonably
request, all in reasonable detail.
(h) EQUIPMENT AND INVENTORY. Debtor covenants and agrees with lessor that from
and after the date of this Agreement and until termination of this Agreement
Debtor shall:
(i) Keep the Equipment and Inventory (other than Inventory sold in the
ordinary course of business) on the Premises;
(ii) Maintain or cause to be maintained in good repair, working order and
condition, excepting ordinary wear and tear and damage due to casualty, all of
the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or desirable to such end.
(i) ACCOUNTS. Debtor covenants and agrees with Secured Party that from and after
the date of this Agreement and until termination of this Agreement that:
(i) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Accounts, and
the offices where it keeps all originals of all chattel paper which evidence
Accounts, at the Premises. Debtor will hold and preserve such records (in
accordance with Secured Party's usual document retention practices) and chattel
paper and will permit representatives of Secured Party at any time during normal
business hours to inspect, copy and make abstracts from such records and chattel
paper;
(ii) Except as otherwise provided in this subsection (ii), Debtor shall continue
to collect, at its own expense, all amounts due or to become due Debtor under
the Accounts. In connection with such collections, Debtor may, take (and, at the
Secured Party's discretion, shall take) such action as Debtor or Secured Party
may deem necessary of advisable to enforce collection of the Accounts; PROVIDED
however, that Secured Party shall have the right at any time upon written notice
to Secured Party of its intention to do so, to notify the account debtors or
obligors under any Account of the assignment of such Account to Secured Party
and to direct such account debtors or obligors to make payment of all amounts
due or to become due to Debtor thereunder directly to Secured Party and, upon
such notification and at the expense of Debtor, to enforce collection of any
such Account, and to adjust, settle or compromise the amount or payment thereof,
in the same manner and to the same extent as Debtor might have done. After
receipt by Debtor of the notice from Secured Party referred to in the proviso to
the proceeding sentence, (A) all amounts and proceeds (including instruments)
received by Debtor in respect of the Accounts shall be received in trust for the
benefit of Secured Party hereunder, shall be segregated from other funds of
Debtor and shall be forthwith paid over to Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash collateral and
either ((i)) released to Debtor so long as no "Event of Default" (as hereinafter
defined) shall have occurred and be continuing or ((ii)) if any Event of Default
shall have occurred and be continuing, applied as provided herein and (B) Debtor
shall not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit
6
<PAGE>
or discount thereon;
(iii) In any suit, Proceeding or action brought by Secured Party
under any Account comprising part of the Collateral, Debtor will save,
indemnify and keep Secured Party, harmless from and against all expenses,
loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction of liability whatsoever of the obligor thereunder,
arising out of a breach by Debtor of any obligation or arising out of any
other agreement, indebtedness or liability at any time owing to or in
favor of such obligor or its successors from Debtor, and all such
obligations of Debtor shall be and shall remain enforceable against and
only against Debtor and shall not be enforceable against Secured Party;
(iv) At Secured Party's request in the event that Debtor has
Accounts with respect to which the account debtor is the United States of
America or any department, agency or instrumentality thereof (all such
Accounts being hereinafter referred to as "Government Receivables"),
Debtor shall, with respect to such Government Receivables, promptly comply
with the Assignment of Claims Act of 1940, as amended (31 U.S. C. 3727 et
seq.) and any other statute or regulation governing the collection of such
Government Receivables, and shall promptly deliver to Secured Party
evidence of such compliance, which evidence shall be in form and substance
satisfactory to Secured Party in its sole discretion;
(v) Debtor shall keep and maintain at Debtor's own cost and expense
satisfactory and complete records of Debtor's Collateral in a manner
consistent with reasonable and appropriate business practices, including,
without limitation, a record of all payments received and all credits
granted with respect to such Collateral. Debtor shall, for the Secured
Party's further security, deliver and turn over to Secured Party or
Secured Party's designated representatives at any time following the
occurrence of an Event of Default and upon five (5) days' notice from
Secured Party or Secured Party's designated representative, any such books
and records (including, without limitation, the file cabinets in which
paper records are stored and any and all computer tapes, programs and
source codes relating to such Collateral in which Debtor has an interest
or any part or parts thereof);
(vi) Debtor will not create, permit or suffer to exist, and will
defend the Collateral against, and take such other action as is necessary
to remove, any lien on such Collateral, and will defend the right, title
and interest of Secured Party in and to Debtor's rights to such
Collateral, including, without limitation, the proceeds and products
thereof, against the claims and demands of all persons or entities
whatsoever;
(vii) Debtor will not, without Secured Party's prior written
consent, except in the ordinary course of business and for amounts which
are not material in the aggregate, (A) grant any extension of the time of
payment of any of the Collateral or compromise, compound or settle any
Account for less than the full amount thereof; (B) release, wholly or
partly, any person liable for the payment thereof; or (C) allow any credit
or discount whatsoever thereon other than trade discounts granted in the
ordinary course of business; and
(viii) ebtor will advise Secured Party promptly, in reasonable
detail , of (A) any material
11/1/95 7
<PAGE>
lien, security interest or claim made by or asserted against any or all of
the Collateral, and (B) the occurrence of any other event which would have
a material adverse effect on the aggregate value of such Collateral or on
the security interest and liens with respect to such Collateral created
hereunder or under any other Security Document.
(j) SECURITY PARTY APPOINTED ATTORNEY-IN-FACT. Debtor hereby irrevocably
appoints Secured Party as Debtor's attorney-in-fact, with full authority in the
place and stead of Debtor and in the name of the Debtor or otherwise, from time
to time in Secured Party's discretion, to take any action and to execute any
instrument which the Secured Party may deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation, (i) following the
occurrence and during the continuance of an Event of Default, to:
(A) obtain and adjust insurance;
(B) ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
(C) receive, endorse and collect any drafts or other
instruments, documents and chattel paper, in connection with
clause (A) or (B) above; and
(D) file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or
desirable for the collection of any of the Collateral or
otherwise to enforce the rights of Secured Party with respect
to any of the Collateral;
and (ii) at any time, to:
(A) obtain access to records maintained for Debtor by computer
services companies and other service companies or bureaus;
(B) send requests under Debtor's or a fictitious name to
Debtor's customers or account debtors for verification of
Accounts; and
(C) do all things necessary to carry out this Agreement.
(k) SECURED PARTY MAY PERFORM. If Debtor fails to perform any agreement
contained herein, Secured Party may itself perform, or cause performance
of, such agreement, and the reasonable expenses of the Secured Party
incurred in connection therewith shall be payable by Debtor on demand and
shall become part of the Liabilities secured hereunder.
(1) SECURED PARTY'S DUTIES. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon Secured Party to exercise any such powers. Except
for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party
shall have no duty as to
11/1/95 8
<PAGE>
any Collateral. Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which Secured Party
accords its own property, it being understood that Secured Party shall be under
no obligation to take any steps necessary to preserve rights against prior
parties or any other rights pertaining to any Collateral, but may do so at its
option, and all reasonable expenses incurred in connection therewith shall be
for the sole account of Debtor and shall be added to the Liabilities.
3. WARRANTIES AND REPRESENTATIONS. Debtor hereby represents and warrants to
Secured Party, on each date indebtedness is incurred under the Note, that:
(a) Debtor's principal place of business is that shown at the beginning of
this Security Agreement and all other places of business of Debtor are located
as follows: 2340 Paseo Del Prado,Las Vegas,Nevada 89102; and .All of the
Collateral is kept as such place(s) of business.
(b) Debtor is lawfully possessed of and has good title to the Collateral,
free and clear of all liens, encumbrances, security interests and adverse claims
except only for the security interest granted to Secured Party herein except as
otherwise provided herein;
(c) (i) Debtor is legally organized and validly existing, in good standing
under the laws of its state of organization and is duly qualified to do business
and in good standing under the laws of each jurisdiction where the nature of its
business or the character of its properties makes it necessary for it to so
qualify to do business; (ii) Debtor has full power and authority to execute and
deliver this Security Agreement, together with all notes, leases, agreements and
instruments evidencing Indebtedness, and to pay and perform its obligations
thereunder; (iii) Debtor has full power and authority to own its properties and
carry on its business as now being conducted; (iv) this Security Agreement and
all documents evidencing indebtedness under the Note have been duly authorized,
executed and delivered by Debtor and constitute the valid, legal and binding
obligations of Debtor enforceable in accordance with their terms.
(d) (i) The execution, delivery and payment of any and all of the
documents and instruments evidencing indebtedness under the Note and the
entering into by Debtor of this Security Agreement and the performance of its
obligations hereunder will not violate or conflict with any of the provisions of
the Certificate of Incorporation or By-Laws of Debtor (or Debtor's Articles of
Partnership, if applicable) and will not result in any breach of, or constitute
a default under, or result in the creation of any lien, charge, security
interest, or other encumbrance in or upon any of Debtor's property or assets
(except for the security interest created hereby) pursuant to any indenture,
mortgage, deed of trust, bank loan or credit agreement, or any other instrument
to which Debtor is a party or by or under which it may be bound; (ii) no
approval is required from any public regulatory body nor from any parent,
subsidiary or affiliate of Debtor or from any other person, firm or corporation
with respect to the execution, delivery and payment upon any documents
evidencing Indebtedness, the entering into of this Security Agreement, and the
performance by Debtor of its obligations hereunder; (iii) there are no suits or
proceedings pending, or to the knowledge of Debtor threatened, in any court or
before any regulatory
9
<PAGE>
commission, board or other administrative governmental agency against or
affecting Debtor which will have a material adverse effect on the financial
condition or business of
Debtor.
4. COVENANTS.
(a) FINANCIAL INFORMATION: On or prior to the tenth day of each month, Debtor
shall deliver
to Secured Party:
(i) a schedule of all Accounts created or acquired by Debtor during the
preceding month together with an aged trial balance of Accounts (an "Accounts
Trial Balance") for Debtor, indicating which Accounts are 1 to 30, 31 to 60, 61
to 90, 91 to 120 and 120 or more days past the original invoice date and, if
requested by Secured Party, listing the names and addresses of all account
debtors;
(ii) an accounts payable aging, showing which accounts payable are 10 to
30, 31 to 60, 61 to 90 and 91 days or more past due; and
(iii) interim financial statements, consisting of balance sheets, income
statements, cash flow statements for such month and for the period from the
beginning of the then current fiscal year to the end of such month.
(b) DISTRIBUTIONS: From and after Secured Party gives notice to Debtor to
do so, Debtor shall not:
(i) make any distribution of dividends or the equivalent (including
repurchases of interests in Debtor from any holder thereof); or
(ii) pay any management fees to any affiliate of Debtor.
5 . TERM OF AGREEMENT. This Agreement shall become effective as provided
herein, and shall remain in effect until such time as all of the Liabilities
shall have been fully performed and paid in full and the Note shall have been
cancelled.
6. SECURED PARTY'S EXPENSES. Debtor shall reimburse the Secured Party for all
fees, costs and expenses (including, but not limited to, attorneys' fees, costs
and expenses) incurred by the Secured Party, in connection with this Agreement
including, but not limited to, such fees, costs and expenses incurred in
connection with the implementation, administration and enforcement of this
Agreement and the other agreements, documents and instruments referred to herein
or contemplated hereby and the auditing, appraising, evaluating or otherwise
monitoring the Collateral or other credit support for the Liabilities (all such
costs and expenses, "Cost and Expenses").
7. DEFAULT; REMEDIES.
11/1/95 10
<PAGE>
(a) EVENTS OF DEFAULT. Any one of the following acts shall constitute an
"Event of Default" under this Agreement:
(i) Failure by the Debtor to pay any of the Liabilities when due.
(ii) Any representation or warranty now or hereafter made by the
Debtor herein or by the Debtor in connection with this Agreement
shall prove to have been incorrect in any material respect when made.
(iii) Failure by the Debtor to perform or observe any covenant,
condition or agreement contained in this Agreement.
(b) REMEDIES. If any Event of Default occurs, in addition to all other
remedies Secured Party may have at law or in equity, Secured Party may (i)
declare all Liabilities to be forthwith due and payable, whereupon the
Liabilities shall become and be forthwith due and payable, without presentment,
demand, protest, or further notice of any kind, all of which are hereby
expressly waived by the Debtor, and (ii) exercise all or any of the rights of a
secured party under the Uniform Commercial Code in the State where the
Collateral is located or other applicable laws and any other rights and remedies
available to Secured Party, all of which rights and remedies shall be
cumulative, and none exclusive, to the extent permitted by law; provided,
however, that if an Event of Default involving the bankruptcy of the Debtor
shall exist or occur, all of the Liabilities shall automatically, without notice
of any kind, be immediately due and payable and Secured Party shall be entitled
to reclaim the Equipment.
(c) ENTRY UPON PREMISES. Upon the occurrence of an Event of Default, (i)
Secured Party shall have the right to enter upon the premises of the Debtor
where the Collateral is located (or is believed to be located) without any
obligation to pay rent to the Debtor, or any other place or places where
the Collateral is believed to be located and kept, and render the
Collateral unusable or remove the Collateral therefrom, in order
effectively to collect or liquidate the Collateral, or (ii) Secured Party
may require the Debtor to assemble the Collateral and make it available to
Secured Party at a place reasonably convenient to Secured Party or (iii)
some combination thereof.
(d) SALE OR OTHER DISPOSITION OF COLLATERAL BY SECURITY PARTY. Any notice
required to be given by Secured Party of a sale, lease or other disposition
or other intended action by Secured Party with respect to any of the
Collateral, at least three (3) business days prior to such proposed action
shall constitute fair and reasonable notice to the Debtor of any such
action. If the Secured Party chooses to dispose of the Collateral, it shall
dispose of the Collateral in a commercially reasonable manner. Any sale of
the Collateral conducted in conformity with the reasonable commercial
practices of banks, insurance companies, commercial finance companies or
other financial institutions disposing of property similar to the
Collateral shall be deemed to be commercially reasonable. The net proceeds
realized by Secured Party upon any such sale or other disposition, after
deduction for the expense of retaking, holding, preparing for sale, selling
or the like and the reasonable attorneys' fees and legal expenses incurred
by Secured Party in connection therewith, shall be applied toward
satisfaction of the Liabilities. Secured Party shall account to Debtor for
any surplus realized upon such sale or other disposition, and Debtor shall
remain liable for any
11/1/95
<PAGE>
deficiency. The commencement of any action, legal or equitable, or the
rendering of any judgment or decree for any deficiency shall not affect
Secured Party's security interest in the Collateral until the Liabilities
are fully paid. Debtor agrees that Secured Party has no obligation to
preserve rights to the Collateral against any other parties.
8. AMENDMENTS. No amendment or modification of any provision of this
Agreement shall be effective without the written agreement of the Secured
Party and Debtor, and no termination or waiver of any provision of this
Agreement, or consent to any departure by Debtor therefrom, shall in any
event be effective without the written concurrence of Secured Party. Any
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which it was given. No notice to or demand upon
Debtor or any guarantor of the obligations of Debtor in any case shall
entitle such party to any other or further notice or demand in similar or
other circumstances.
9. NO WAIVER. Secured Party's failure, at any time or times hereafter, to
require strict performance by Debtor of any provision or term of this
Agreement shall not waive, affect or diminish any right of Secured Party
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Secured Party of an Event of Default shall not,
except as may be expressly set forth herein, suspend, waive or affect any
other Event of Default, whether the same is prior or subsequent thereto
and whether of the same or of a different kind or character. None of the
undertakings, agreements, warranties, covenants and representations of
Debtor contained in this Agreement, and no Event of Default shall be
deemed to have been suspended or waived by Secured Party, unless such
suspension or waiver is (a) in writing and signed by Secured Party, and
(b) delivered to Debtor.
10. SOLE BENEFIT OF PARTIES. This Agreement is solely for the benefit of
the parties hereto and their respective successors and assigns, and no other
person shall have any right, benefit or interest under or because of the
existence of this Agreement.
11. LIMITATION ON RELATIONSHIP BETWEEN PARTIES The relationship of Secured
Party on the one hand, and Debtor, on the other hand, has been and shall
continue to be, at all times, that of lessor and lessee and, to the extent
monies are owed to Secured Party by Debtor, creditor and debtor. Nothing
contained in this Agreement, any instrument, document or agreement
delivered in connection therewith or in the Note or any of the other
documents shall be deemed or construed to create a fiduciary relationship
between the parties.
12. NO ASSIGNMENT. This Agreement shall not be assignable by Debtor
without the
written consent of Secured Party. Secured Party may assign to one or more
persons all or any
part of, or any participation interest in, the Secured Party's rights and
benefits hereunder.
13. SECTION TITLES. The section and subsection titles contained in this
Agreement are included for the sake of convenience only, shall be without
substantive meaning or content of any kind whatsoever, and are not a part of the
agreement between Debtor and Secured Party.
14. NOTICES. Except as otherwise expressly provided herein, any notice
required or desired
11/6/95 12
<PAGE>
to be served, given or delivered hereunder shall be in writing, and shall be
deemed to have been validly served, given or delivered (a) four (4) days after
deposit in the United States mails, with proper postage prepaid, (b) when sent
after receipt of confirmation or answer back if sent by telecopy, telex or other
similar facsimile transmission, (c) one (1) business day after deposited with a
reputable overnight courier with all charges prepaid or (d) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent, to the address or number indicated below:
(a) If to Secured Party at: LINC ANTHEM CORPORATION
303 East Wacker Drive, Suite 1000
Chicago, Illinois 60601
Attention: Vice President - Operations
Telecopy: (312) 938-4290
Confirmation: (312) 946-10W
(b) If to Debtor, at: PHC OF NEVADA, INC.
200 Lake Street,
Peabody, Massachusetts 01960
Attention:
Telecopy: (508) 536 - 2677
Confirmation: (508) 536 - 2777
or to such other address as each party may designate for itself by like notice.
15. 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 one and the same instrument.
16. GOVERNING LAW. SECURED PARTY AND DEBTOR EACH HEREBY AGREE THAT ALL DISPUTES
AMONG OR BETWEEN THEM, ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED AMONG OR BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS AND NOT THE CONFLICTS OF LAW
PROVISIONS OF THE STATE OF ILLINOIS.
11/1/95 13
<PAGE>
17. WAIVER OF JURY TRIAL. EACH OF DEBTOR AND SECURED PARTY WAIVES ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE, BETWEEN DEBTOR AND SECURED PARTY OR ANY OF THEIR RESPECTIVE
AFFILIATES ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT.
INSTEAD, ANY DISPUTES RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL
WITHOUT A JURY.
18. WAIVER OF BOND. DEBTOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF
SECURED PARTY IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE
ANY JUDGEMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SECURED PARTY OR TO
ENFORCE THIS AGREEMENT BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION.
IN WITNESS WHEREOF, this Agreement has been duly executed as of this
7TH day of November, 1995.
PHC OF NEVADA, INC. LINC ANTHEM CORPORATION
(Debtor) (Secured Party)
By: By:
Authorized Signature Authorized Signature
Name: Bruce A. Shear Name:
Title: President Title:
11/1/95 14
<PAGE>
EXHIBIT 10.78
$1,000,000.00
LOAN AND SECURITY AGREEMENT
by and between
PHC OF UTAH, INC.
(the "Borrower")
and
HEALTHPARTNERS FUNDING, L.P.
(the "Lender")
May , 1996
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of this 19th
day of May, 1996, by and between PHC OF UTAH, Inc., a Massachusetts corporation,
(collectively, the "Borrower") and HEALTHPARTNERS FUNDING, L.P., a Delaware
limited partnership ("Lender").
RECITALS
A. Borrower desires to establish certain financing arrangements with and
borrow funds from Lender, and Lender is willing to establish such arrangements
for and make loans and extensions of credit to Borrower, on the terms and
conditions set forth below.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, in consideration of the promises and covenants contained
in this Agreement, and for other consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
SECTION 1.1. ACCOUNT.ACCOUNT. "Account" means any right to payment for
goods sold or leased or services rendered, whether or not evidenced by an
instrument or chattel paper, and whether or not earned by performance,
including, without limitation, the right to payment of management fees.
SECTION 1.2. ACCOUNT DEBTOR.ACCOUNT DEBTOR. "Account Debtor" means any
Person obligated on any Account of Borrower, including without limitation, any
Insurer and any Medicaid/Medicare Account Debtor.
SECTION 1.3. AFFILIATE.AFFILIATE. "Affiliate" means, with respect to a
specified Person, any Person directly or indirectly controlling, controlled by,
or under common control with the specified Person, including without limitation
their stockholders and any Affiliates thereof. A Person shall be deemed to
control a corporation if the Person possesses, directly or indirectly, the power
to direct or cause the direction of the management and business of the
corporation whether through the ownership of voting securities, by contract, or
otherwise.
SECTION 1.4. AGREEMENT.AGREEMENT. "Agreement" means this Loan and
Security Agreement, as it may be amended or supplemented from time to time.
SECTION 1.5. BASE RATE.BASE RATE. "Base Rate" means a rate of interest
equal to two and three quarters percent (2.25%) above the "Prime Rate of
Interest".
SECTION 1.6. BORROWED MONEY.SECTION 1.6. BORROWED MONEY. "Borrowed Money"
means any obligation to repay money, any indebtedness evidenced by notes, bonds,
debentures or similar obligations, any obligation under a conditional sale or
other title retention agreement and the net aggregate rentals under any lease
which under GAAP would be capitalized on the books of the Borrower or which is
the substantial equivalent of the financing of the property so leased.
SECTION 1.7. BORROWER.BORROWER. "Borrower" has the meaning set forth in the
Preamble.
SECTION 1.8. BORROWING BASE.BORROWING BASE. "Borrowing Base" has the
meaning set forth in Section 2.1(d).
SECTION 1.9. BUSINESS DAY.BUSINESS DAY. "Business Day" means any day on
which financial institutions are open for business in the State of Maryland,
excluding Saturdays and Sundays.
SECTION 1.10. CLOSING; CLOSING DATE.CLOSING; CLOSING DATE. "Closing" and
"Closing Date" have the meanings set forth in Section 5.3.
SECTION 1.11. COMMITMENT FEE.COMMITMENT FEE. "Commitment Fee" has the
meaning set forth in Section 2.4(a).
SECTION 1.12. COLLATERAL.COLLATERAL. "Collateral" has the meaning set
forth in Section 3.1.
SECTION 1.13. CONTROLLED GROUP.CONTROLLED GROUP. "Controlled Group"
means a "controlled group" within the meaning of Section 4001(b) of ERISA.
SECTION 1.14. COST REPORT SETTLEMENT ACCOUNT. "Cost Report Settlement
Account" means an "Account" owed to Borrower by a Medicaid/Medicare Account
Debtor pursuant to any cost report, either interim, filed or audited, as the
context may
require.
SECTION 1.15. DEFAULT RATE. "Default Rate" means a rate per annum
equal to two percent (2%) above the Base Rate.
SECTION 1.16 DOMINION ACCOUNT. "Dominion Account" has the meaning set forth
in Section 2.3(a).
SECTION 1.17. ERISA.ERISA. "ERISA" has the meaning set forth in Section
4.12.
SECTION 1.18. EVENT OF DEFAULT.EVENT OF DEFAULT. "Event of Default" and
"Events of Default" have the meanings set forth in Section 8.1.
SECTION 1.19. GAAP.GAAP. "GAAP" means generally accepted accounting
principles applied in a matter consistent with the financial statements referred
to in Section 4.7.
SECTION 1.20. GOVERNMENTAL AUTHORITY.GOVERNMENTAL AUTHORITY.
"Governmental Authority" means and includes any federal, state, District of
Columbia, county, municipal, or other government and any department, commission,
board, bureau, agency or instrumentality thereof, whether domestic or foreign.
SECTION 1.21. HAZARDOUS MATERIAL.HAZARDOUS MATERIAL. "Hazardous Material"
means any substances defined or designated as hazardous or toxic waste,
hazardous or toxic material, hazardous or toxic substance, or similar term, by
any environmental statute, rule or regulation or any Governmental Authority.
SECTION 1.22. HIGHEST LAWFUL RATE.HIGHEST LAWFUL RATE. "Highest Lawful
Rate" means the maximum lawful rate of interest referred to in Section 2.7 that
may accrue pursuant to this Agreement.
SECTION 1.23. INSURER. A Person that insures a Patient against certain of
the costs incurred in the receipt by such Patient of Medical Services, or that
has an agreement with Borrower to compensate Borrower for providing services to
a Patient.
SECTION 1.24. LENDER.LENDER. "Lender" has the meaning set forth in the
Preamble.
SECTION 1.25. LOAN.LOAN. "Loan" has the meaning set forth in Section
2.1(a).
SECTION 1.26. LOAN DOCUMENTS.LOAN DOCUMENTS. "Loan Documents" means and
includes this Agreement, the Note, and each and every other document now or
hereafter delivered in connection therewith, as any of them may be amended,
modified, or supplemented from time to time.
SECTION 1.27. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning
set forth in Section 2.4(c).
SECTION 1.28. LOCKBOX.LOCKBOX. "Lockbox" has the meaning set forth in
Section 2.3(a).
SECTION 1.29. LOCKBOX BANK.LOCKBOX BANK. "Lockbox Bank" has the meaning set
forth in Section 2.3(a).
SECTION 1.30. MAXIMUM LOAN AMOUNT.MAXIMUM LOAN AMOUNT. "Maximum Loan
Amount" has the meaning set forth in Section 2.1(a).
SECTION 1.31. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare
Account Debtor" means any Account Debtor which is (i) the United States of
America acting under the Medicaid/Medicare program established pursuant to the
Social Security Act, (ii) any state or the District of Columbia acting pursuant
to a health plan adopted pursuant to Title XIX of the Social Security Act or
(iii) any agent, carrier, administrator or intermediary for any of the
foregoing.
SECTION 1.32. MEDICAL SERVICES. Medical and health care services provided
to a Patient, including, but not limited to, medical and health care services
provided to a Patient and performed by Borrower which are covered by a policy of
insurance issued by an Insurer, and includes physician services, nurse and
therapist services, dental services, hospital services, skilled nursing facility
services, comprehensive outpatient rehabilitation services, home health care
services, residential and out-patient behavioral healthcare services, and
medicine or health care equipment provided by Borrower to a Patient for a
necessary or specifically requested valid and proper medical or health purpose.
SECTION 1.33. NOTE.NOTE. "Note" has the meaning set forth in Section
2.1(c).
SECTION 1.34. OBLIGATIONS. "Obligations" has the meaning set forth in
Section 3.1.
SECTION 1.35. PATIENT. Any Person receiving Medical Services from Borrower
and all Persons legally liable to pay Borrower for such Medical Services other
than Insurers.
SECTION 1.36. PERMITTED LIENS.PERMITTED LIENS. "Permitted Liens" means: (a)
liens for taxes not delinquent, or which are being contested in good faith and
by appropriate proceedings which suspend the collection thereof and in respect
of which adequate reserves have been made (provided that such proceedings do
not, in Lender's sole discretion, involve any substantial danger of the sale,
loss or forfeiture of such property or assets or any interest therein); (b)
deposits or pledges to secure obligations under workmen's compensation, social
security or similar laws, or under unemployment insurance; (c) deposits or
pledges to secure bids, tenders, contracts (other than contracts for the payment
of money), leases, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary course of business; (d)
mechanic's, workmen's, materialmen's or other like liens arising in the ordinary
course of business with respect to obligations which are not due, or which are
being contested in good faith by appropriate proceedings which suspend the
collection thereof and in respect of which adequate reserves have been made
(provided that such proceedings do not, in Lender's sole discretion, involve any
substantial danger of the sale, loss or forfeiture of such property or assets or
any interest therein); (e) liens and encumbrances in favor of Lender; (f) liens
granted in connection with the lease or purchase of property or assets financed
by borrowings permitted by Section 7.1 (provided, however, that no such
borrowings permitted by Section 7.1 may be secured by liens on any of the
Collateral); and (g) liens set forth on SCHEDULE 1.36.
SECTION 1.37. PERSON.PERSON. "Person" means an individual, partnership,
corporation, trust, joint venture, joint stock company, limited liability
company, association, unincorporated organization, Governmental Authority, or
any other entity.
SECTION 1.38. PLAN.PLAN. "Plan" has the meaning set forth in Section
4.12.
SECTION 1.39. PREMISES.PREMISES. "Premises" has the meaning set forth in
Section 4.14.
SECTION 1.40. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that
rate of interest publicly announced by Shawmut Bank, N.A., or any successor
thereto, as the same may from time to time fluctuate.
SECTION 1.41. PROHIBITED TRANSACTION.PROHIBITED TRANSACTION. "Prohibited
Transaction" means a "prohibited transaction" within the meaning of Section 406
of ERISA or Section 4975(c)(1) of the Internal Revenue Code.
SECTION 1.42. QUALIFIED ACCOUNT.QUALIFIED ACCOUNT. "Qualified Account"
means an Account of Borrower generated in the ordinary course of Borrower's
business from the sale of goods or rendition of medical services which Lender,
in its sole credit judgment, deems to be a Qualified Account. Without limiting
the generality of the foregoing, no Account shall be a Qualified Account if: (a)
it or any portion thereof is payable by an individual beneficiary, recipient or
subscriber individually and not directly to Borrower by a Medicaid/Medicare
Account Debtor or commercial medical insurance carrier acceptable to Lender in
its sole discretion; (b) it remains unpaid more than ninety (90) days past the
claim or invoice date; (c) the Account is subject to any defense, set-off,
counterclaim, deduction, discount, credit, chargeback, freight claim, allowance,
or adjustment of any kind amounting in the aggregate to at least one percent
(1%) of such Account; (d) any part of any goods the sale of which has given rise
to the Account has been returned, rejected, lost, or damaged; (e) if it arises
from the sale of goods by Borrower, such sale was not an absolute sale or on
consignment or on approval or on a sale-or-return basis or subject to any other
repurchase or return agreement, or such goods have not been shipped to the
Account Debtor or its designee; (f) if it arises from the performance of
services, such services have not been actually been performed or were undertaken
in violation of any law; (g) the Account is subject to a lien other than a
Permitted Lien; (h) the Borrower knows or should have known of the bankruptcy,
receivership, reorganization, or insolvency of the Account Debtor; (i) the
Account is evidenced by chattel paper or an instrument of any kind, or has been
reduced to judgment; (j) it is an Account of an Account Debtor having its
principal place of business or executive office outside the United States; (k)
the Account Debtor is an Affiliate or Subsidiary of Borrower; (l) more than ten
percent (10%) of the aggregate balance of all Accounts owing from the Account
Debtor obligated on the Account are outstanding more than one hundred twenty
(120) days past their invoice date; (m) fifty percent (50%) or more of the
Accounts from the Account Debtor are not deemed Qualified Accounts hereunder;
(n) the total unpaid Accounts of the Account Debtor, except for a
Medicaid/Medicare Account Debtor, exceed twenty percent (20%) of the net amount
of all Qualified Accounts; (o) any covenant, representation or warranty
contained in the Loan Documents with respect to such Account has been breached
in any material respect; or (p) the Account fails to meet such other
specifications and requirements which may from time to time be reasonably
established by Lender.
SECTION 1.43. REPORTABLE EVENT.REPORTABLE EVENT. "Reportable Event"
means a "reportable event" as defined in Section 4043(b) of ERISA.
SECTION 1.44. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the
meaning set forth in Section 2.1(b).
SECTION 1.45. TERM.TERM. "Term" has the meaning set forth in Section 2.8.
ARTICLE II
LOAN
SECTION 2.1. TERMS.TERMS.
(a) The maximum aggregate principal amount of credit extended by
Lender to Borrower hereunder (the "Loan") that will be outstanding at any time
is One Million and No/100 Dollars ($1,000,000.00) (the "Maximum Loan Amount").
(b) The Loan shall be in the nature of a revolving line of credit,
and shall include sums advanced and other credit extended by Lender to or for
the benefit of the Borrower from time to time under this Article II (each a
"Revolving Credit Loan") up to the Maximum Loan Amount depending upon the
availability in the Borrowing Base, the requests of Borrower pursuant to the
terms and conditions of Section 2.2 below, and on such other basis as Lender may
reasonably determine. The outstanding principal balance of the Loan may
fluctuate from time to time, to be reduced by repayments made by Borrower (which
may be made without penalty or premium), and to be increased by future Revolving
Credit Loans, advances and other extensions of credit to or for the benefit of
Borrower, and shall be due and payable in full upon the expiration of the Term.
For purposes of this Agreement, any determination as to whether there is ability
within the Borrowing Base for advances or extensions of credit shall be made by
Lender in its reasonable discretion and is final and binding upon Borrower.
(c) At Closing, Borrower shall execute and deliver to Lender a
promissory note evidencing the Borrower's unconditional obligation to repay
Lender for Revolving Credit Loans, advances, and other extensions of credit made
under the Loan, in the form of EXHIBIT A to this Agreement (the "Note"), dated
the date hereof, payable to the order of Lender in accordance with the terms
thereof. The Note shall bear interest from the dates of the respective advances
until repaid, with interest payable monthly in arrears on the first Business Day
of each month, at a rate per annum (on the basis of the actual number of days
elapsed over a year of 360 days) equal to the Base Rate, provided that after an
Event of Default such rate shall be equal to the Default Rate. Each Revolving
Credit Loan, advance and other extension of credit shall be deemed evidenced by
the Note, which is deemed incorporated by reference herein and made a part
hereof.
(d) Subject to the terms and conditions of this Agreement, advances
under the Loan shall be made against a borrowing base equal to (i) eighty
percent (80%) of Qualified Accounts that remain unpaid for fewer than one
hundred twenty (120) days, and (ii) sixty percent (60%) of Qualified Accounts
that remain unpaid for between one hundred twenty (120) and one hundred fifty
(150) days, in either case due and owing from any Medicaid/Medicare, Insurer or
other Account Debtor, including, without limitation, Accounts payable pursuant
to Cost Report Settlement Accounts or in the form of management fees (the
"Borrowing Base").
SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as
follows:
(a) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrower, may give Lender notice
of its intention to borrow, in which notice Borrower shall specify the amount of
the proposed borrowing and the proposed borrowing date, not later than 2:00 p.m.
Eastern time one (1) Business Day prior to the proposed borrowing date;
PROVIDED, HOWEVER, that no such request may be made at a time when there exists
an Event of Default; and (ii) the becoming due of any amount required to be paid
under this Agreement, whether as interest or for any other Obligation, shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the due date
in the amount required to pay such interest or other Obligation.
(b) Borrower hereby irrevocably authorizes Lender to disburse the
proceeds of each Revolving Credit Loan requested, or deemed to be requested, as
follows: (i) the proceeds of each Revolving Credit Loan requested under
subsection 2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank
account as may be agreed upon by Borrower or Lender from time to time or
elsewhere if pursuant to written direction from Borrower; and (ii) the proceeds
of each Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be
disbursed by Lender by way of direct payment of the relevant interest or other
Obligation.
(c) All Revolving Credit Loans, advances and other extensions of
credit to or for the benefit of Borrower shall constitute one general Obligation
of Borrower, and shall be secured by Lender's lien upon all of the Collateral.
(d) Lender shall enter all Revolving Credit Loans as debits to a
loan account in the name of Borrower and shall also record in said loan account
all payments made by Borrower on any Obligations and all proceeds of Collateral
which are indefeasibly paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits, including interest
and all charges and expenses properly chargeable to Borrower.
(e) Lender will account to Borrower monthly with a statement of
Revolving Credit Loans, charges and payments made pursuant to this Agreement,
and such account rendered by Lender shall be deemed final, binding and
conclusive upon Borrower unless Lender is notified by Borrower in writing to the
contrary within thirty (30) days of the date each accounting is mailed to
Borrower. Such notice shall be deemed an objection to those items specifically
objected to therein.
SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND
LOCKBOX ACCOUNT.COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX
ACCOUNT. Borrower shall maintain a lockbox account (the "Lockbox") with Bank One
Arizona, N.A. (the "Lockbox Bank"), subject to the provisions of this Agreement,
and shall execute with the Lockbox Bank a Lockbox Agreement in the form attached
as EXHIBIT B, and such other agreements related thereto as Lender may require.
Borrower shall ensure that all collections of Accounts are paid directly from
Account Debtors into the Lockbox, and that all funds paid into the Lockbox are
immediately transferred into a depository account maintained by Lender at Bank
One Arizona, N.A. (the "Dominion Account"). Lender shall apply, on a daily
basis, all funds transferred into the Dominion Account pursuant to this Section
2.3 to reduce the outstanding indebtedness under the Loan with future Revolving
Credit Loans, advances and other extensions of credit to be made by Lender under
the conditions set forth in this Article II. To the extent that any collections
of Accounts or proceeds of other Collateral are not sent directly to the Lockbox
but are received by Borrower, such collections shall be held in trust for the
benefit of Lender and immediately remitted, in the form received, to the Lockbox
Bank for transfer to the Dominion Account immediately upon receipt by Borrower.
All funds transferred from the Dominion Account for application to Borrower's
indebtedness to Lender shall be applied to reduce the Loan balance, but for
purposes of calculating interest, shall be subject to a three (3) Business Day
clearance period. If as the result of collections of Accounts pursuant to the
terms and conditions of this Section 2.3 a credit balance exists with respect to
the Dominion Account, such credit balance shall not accrue interest in favor of
Borrower, but shall at all times be available to Borrower and shall be paid to
Borrower upon Borrower's written request for such payment.
SECTION 2.4. FEES.FEES.
(a) At Closing and thereafter Borrower shall unconditionally pay to
Lender, in one or more installments, a commitment fee (the "Commitment Fee")
equal to one percent (1%) of incremental Revolving Credit Loans up to the
Maximum Loan Amount. For example, if at Closing Lender makes a Revolving Credit
Loan in the amount of Five Hundred Thousand and No/100 Dollars ($500,000.00),
and ten (10) days after Closing Lender makes an additioanal Revolving Credit
Loan resulting in aggregate outstanding principal of Eight Hundred Thousand and
No/100 Dollars ($800,000.00), Borrower shall be olligated to pay an inital
installment of the Commitment Fee of Five Thousand and No/100 Dollars
($5,000.00) at Closing, and a second installment of the Commitment Fee of Three
Thounsand and No/100 Dollars ($3,000.00) ($800,000.00 - $500,000.00 x 1%) in
connection with the second advance. Consistent with the foregoing, the maximum
aggregate Commitment Fee payable by Borrower hereunder shall be $10,000.00
($1,000,000.00 x 1%).
(b) INTENTIONALLY DELETED
(c) For so long as the Loan is available to Borrower, Borrower
unconditionally shall pay to Lender a monthly loan management fee (the "Loan
Management Fee") equal to twenty-seven and one-half one hundredths of one
percent (0.275%) of the average amount of the outstanding principal balance of
the Revolving Credit Loans during the preceding month. The Loan Management Fee
shall be payable monthly in arrears on the first day of each successive calendar
month.
(d) Borrower shall pay to Lender all out-of-pocket audit and
appraisal fees in connection with audits and appraisals of Borrower's books and
records and such other matters as Lender shall deem appropriate, which shall be
due and payable on the first Business Day of the month following the date of
issuance by Lender of a request for payment thereof to Borrower. Notwithstanding
anything herein to the contrary, Lender acknowledges and agrees that, absent the
occurrence of an Event of Default hereunder, Borrower's maximum obligation for
the payment of out-of-pocket audit and appraisal fees in any calendar year shall
be Seven Thousand Five Hundred and No/100 Dollars ($7,500.00). Following the
occurrence of an Event of Defaultl, such limitations shall not be applicable.
(e) Borrower shall pay to Lender, on demand, any and all fees, costs
or expenses (exclusive of interest, points and other finance charges payable by
Lender in connection with any of its borrowings from third parties) which Lender
pays to a bank or other similar institution (so long as the payee is not an
Affiliate of Lender) arising out of or in connection with (i) the forwarding to
Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of
Revolving Credit Loans made by Lender to Borrower pursuant to this Agreement,
and (ii) the depositing for collection, by Lender, of any check or item of
payment received or delivered to Lender on account of Obligations.
SECTION 2.5. PAYMENTS.PAYMENTS. Principal payable on account of Revolving
Credit Loans shall be payable by Borrower to Lender immediately upon the
earliest of (i) the receipt by Borrower of any proceeds of any of the
Collateral, to the extent of such proceeds, (ii) the occurrence of an Event of
Default in consequence of which the Loan and the maturity of the payment of the
Obligations are accelerated, or (iii) the termination of this Agreement pursuant
to Section 2.8 hereof; PROVIDED, HOWEVER, that if any advance made by Lender in
excess of the Borrowing Base shall exist at any time, Borrower shall,
immediately upon demand, repay such overadvance. Interest accrued on the
Revolving Credit Loans shall be due on the earliest of (i) the first Business
Day of each month (for the immediately preceding month), computed on the last
calendar day of the preceding month, (ii) the occurrence of an Event of Default
in consequence of which the Loan and the maturity of the payment of the
Obligations are accelerated, or (iii) the termination of this Agreement pursuant
to Section 2.8 hereof. Except to the extent otherwise set forth in this
Agreement, all payments of principal and of interest on the Loan, all other
charges and any other obligations of Borrower hereunder, shall be made to Lender
to the Dominion Account, in immediately available funds.
SECTION 2.6. USE OF PROCEEDS.USE OF PROCEEDS. The proceeds of Lender's
advances under the Loan shall be used solely for working capital (in accordance
with generally accepted accounting principles) and for other costs of Borrower
arising in the ordinary course of Borrower's business.
SECTION 2.7. INTEREST RATE LIMITATION.INTEREST RATE LIMITATION. The
parties intend to conform strictly to the applicable usury laws in effect from
time to time during the term of the Loan. Accordingly, if any transaction
contemplated hereby would be usurious under such laws, then notwithstanding any
other provision hereof: (a) the aggregate of all interest that is contracted
for, charged, or received under this Agreement or under any other Loan Document
shall not exceed the maximum amount of interest allowed by applicable law (the
"Highest Lawful Rate"), and any excess shall be promptly credited to Borrower by
Lender (or, to the extent that such consideration shall have been paid, such
excess shall be promptly refunded to Borrower by Lender); (b) neither Borrower
nor any other Person now or hereafter liable hereunder shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Highest
Lawful Rate; and (c) the effective rate of interest shall be reduced to the
Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use,
forbearance, and detention of the debt of Borrower to Lender shall, to the
extent permitted by applicable law, be allocated throughout the full term of the
Note until payment is made in full so that the actual rate of interest does not
exceed the Highest Lawful Rate in effect at any particular time during the full
term thereof. If at any time the rate of interest under the Note exceeds the
Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement
shall be limited, notwithstanding anything to the contrary herein, to the
Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not
reduce the interest to accrue pursuant to this Agreement below the Highest
Lawful Rate until the total amount of interest accrued equals the amount of
interest that would have accrued if a varying rate per annum equal to the
interest rate under the Note had at all times been in effect. If the total
amount of interest paid or accrued pursuant to this Agreement under the
foregoing provisions is less than the total amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had been in effect, then Borrower agrees to pay to Lender an amount equal to the
difference between (a) the lesser of (i) the amount of interest that would have
accrued if the Highest Lawful Rate had at all times been in effect, or (ii) the
amount of interest that would have accrued if a varying rate per annum equal to
the interest rate under the Note had at all times been in effect, and (b) the
amount of interest accrued in accordance with the other provisions of this
Agreement.
SECTION 2.8. TERM.
(a) Subject to Lender's right to cease making Revolving Credit Loans
to Borrower upon or after any Event of Default, this Agreement shall be in
effect for a period of two (2) years from the Closing Date, and this Agreement
shall automatically renew itself for one-year periods thereafter, unless
terminated as provided in this Section 2.8 (the "Term").
(b) Upon at least thirty (30) days prior written notice to Borrower,
Lender may terminate this Agreement as of the day of the second and each
subsequent annual anniversary of the Closing Date, and may terminate this
Agreement without notice upon or after the occurrence of an Event of Default.
(c) Upon at least thirty (30) days prior written notice to Lender,
Borrower may terminate this Agreement effective as of the day of the second or
any subsequent annual anniversary of the Closing Date. In addition, upon at
least thirty (30) days prior written notice to Lender, Borrower may terminate
this Agreement prior to the second or any subsequent annual anniversary of the
Closing Date, provided that, at the effective date of termination prior to such
second anniversary, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other Obligations owing under the
terms of this Agreement and any other Loan Documents) as liquidated damages for
the loss of bargain and not as a penalty, an amount equal to two percent (2%) of
the Maximum Loan Amount.
(d) All of the Obligations shall be immediately due and payable upon
the termination date stated in any notice of termination of this Agreement. All
undertakings, agreements, covenants, warranties, and representations, of
Borrower contained in the Loan Documents shall survive any such termination and
Lender shall retain its liens in the Collateral and all of its rights and
remedies under the Loan Documents notwithstanding such termination until
Borrower has paid the Obligations to Lender, in full, in immediately available
funds.
ARTICLE III
COLLATERAL
SECTION 3.1. GENERALLY.GENERALLY. As security for the payment of all
liabilities of Borrower to Lender, including without limitation: (i)
indebtedness evidenced under the Note, repayment of Revolving Credit Loans,
advances and other extensions of credit, all fees and charges owing by Borrower,
and all other liabilities and obligations of every kind or nature whatsoever of
Borrower to Lender, whether now existing or hereafter incurred, joint or
several, matured or unmatured, direct or indirect, primary or secondary, related
or unrelated, due or to become due, including but not limited to any extensions,
modifications, substitutions, increases and renewals thereof, (ii) the payment
of all amounts advanced by Lender to preserve, protect, defend, and enforce its
rights hereunder and in the following property in accordance with the terms of
this Agreement, and (iii) the payment of all expenses incurred by Lender in
connection therewith (collectively, the "Obligations"), Borrower hereby assigns
and grants to Lender a continuing first priority lien on and security interest
in, upon, and to the following property (the "Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or arising
Accounts, accounts receivable and rights to payment of every kind and
description, and any contract rights, chattel paper, documents and instruments
with respect thereto;
(b) All of Borrower's now owned and hereafter acquired or arising
general intangibles of every kind and description pertaining to its Accounts,
accounts receivable and other rights to payment, including, but not limited to,
all existing and future customer lists, choses in action, claims, books,
records, contracts, licenses, formulae, tax and other types of refunds, returned
and unearned insurance premiums, rights and claims under insurance policies, and
computer information, software, records, and data;
(c) All of Borrower's now or hereafter acquired deposit accounts into which
Accounts are deposited, including the Dominion Account;
(d) All of Borrower's monies and other property of every kind and
nature now or at any time or times hereafter in the possession of or under the
control of Lender or a bailee or Affiliate of Lender; and
(e) The proceeds (including, without limitation, insurance proceeds) of all
of the foregoing.
SECTION 3.2. LIEN DOCUMENTS.LIEN DOCUMENTS. At Closing and thereafter as
Lender deems necessary in its sole discretion, Borrower shall execute and
deliver to Lender, or have executed and delivered (all in form and substance
satisfactory to Lender in its sole discretion):
(a) UCC-1 Financing statements pursuant to the Uniform Commercial
Code in effect in the jurisdiction(s) in which Borrower operates, which Lender
may file in any jurisdiction where any Collateral is or may be located and in
any other jurisdiction that Lender deems appropriate; PROVIDED that a carbon,
photographic, or other reproduction or other copy of this Agreement or of a
financing statement is sufficient as and may be filed in lieu of a financing
statement;
(b) A Dominion Account Agreement in the form of EXHIBIT C attached
hereto; and
(c) Any other agreements, documents, instruments, and writings
deemed necessary by Lender or as Lender may otherwise request from time to time
in its sole discretion to evidence, perfect, or protect Lender's lien and
security interest in the Collateral required hereunder.
SECTION 3.3. COLLATERAL ADMINISTRATION.
(a) All Collateral (except deposit accounts) will at all times be
kept by Borrower at its principal office(s) as set forth on EXHIBIT D hereto and
shall not, without the prior written approval of Lender, be moved therefrom.
(b) Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit to Lender on
such periodic basis as Lender shall request a sales and collections report for
the preceding period, in form satisfactory to Lender. In addition, if Qualified
Accounts in an aggregate face amount in excess of $50,000.00 become ineligible
because they fall within one of the specified categories of ineligibility set
forth in the definition of Qualified Accounts or otherwise, Borrower shall
notify Lender of such occurrence on the first Business Day following such
occurrence and the Borrowing Base shall thereupon be adjusted to reflect such
occurrence. If requested by Lender, Borrower shall execute and deliver to Lender
formal written assignments of all of its Accounts weekly or daily, which shall
include all Accounts that have been created since the date of the last
assignment, together with copies of claims, invoices or other information
related thereto.
(c) Whether or not an Event of Default has occurred, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or Borrower, to verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in
an effort to facilitate and promptly conclude such verification process.
(d) To expedite collection, Borrower shall endeavor in the first
instance to make collection of its Accounts for Lender. Lender retains the right
at all times after the occurrence of an Event of Default, subject to applicable
law regarding Medicaid/Medicare Account Debtors, to notify Account Debtors that
Accounts have been assigned to Lender and to collect Accounts directly in its
own name and to charge the collection costs and expenses, including reasonable
attorneys' fees to Borrower.
SECTION 3.4. OTHER ACTIONS.OTHER ACTIONS. In addition to the foregoing,
Borrower (i) shall provide prompt written notice to each private indemnity,
managed care or other Insurer who either is currently an Account Debtor or
becomes an Account Debtor at any time following the date hereof that the Lender
has been granted a first priority lien and security interest in, upon and to all
Accounts applicable to such Insurer, and hereby authorizes Lender to send any
and all similar notices to such Insurers by Lender, and (ii) shall do anything
further that may be lawfully required by Lender to secure Lender and effectuate
the intentions and objects of this Agreement, including but not limited to the
execution and delivery of lockbox agreements, continuation statements,
amendments to financing statements, and any other documents required hereunder.
At Lender's request, Borrower shall also immediately deliver to Lender all items
for which Lender must receive possession to obtain a perfected security
interest. Borrower shall, on Lender's demand, deliver to Lender all notes,
certificates, and documents of title, chattel paper, warehouse receipts,
instruments, and any other similar instruments constituting Collateral.
SECTION 3.5. SEARCHES.SEARCHES. Prior to Closing, and thereafter (as and
when requested by Lender in its sole discretion), Borrower shall obtain and
deliver to Lender the following searches against Borrower (the results of which
are to be consistent with Borrower's representations and warranties under this
Agreement), all at its own expense:
(a) Uniform Commercial Code searches with the Secretary of State and
local filing offices of each jurisdiction where Borrower maintains its executive
offices, a place of business, or assets;
(b) Judgment, federal tax lien and corporate tax lien searches, in each
jurisdiction searched under clause (a) above; and
(c) Good standing certificates showing Borrower to be in good
standing in its state of formation and in each other state in which it is doing
and presently intends to do business for which qualification is required.
SECTION 3.6. POWER OF ATTORNEY.POWER OF ATTORNEY. Each of the officers of
Lender is hereby irrevocably made, constituted and appointed the true and lawful
attorney for Borrower (without requiring any of them to act as such) with full
power of substitution to do the following: (a) endorse the name of Borrower upon
any and all checks, drafts, money orders, and other instruments for the payment
of money that are payable to Borrower and constitute collections on Borrower's
Accounts; (b) execute in the name of Borrower any financing statements,
schedules, assignments, instruments, documents, and statements that Borrower is
obligated to give Lender hereunder; and (c) do such other and further acts and
deeds in the name of Borrower that Lender may deem necessary or desirable to
enforce any Account or other Collateral or perfect Lender's security interest or
lien in any Collateral.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each entity comprising the Borrower represents and warrants to
Lender, and shall be deemed to represent and warrant on each day on which any
Obligations shall be outstanding hereunder, that:
SECTION 4.1. SUBSIDIARIES.SUBSIDIARIES. Except as set forth in SCHEDULE
4.1, Borrower has no subsidiaries.
SECTION 4.2. ORGANIZATION AND GOOD STANDING.ORGANIZATION AND GOOD
STANDING. Borrower is a corporation duly organized, validly existing, and in
good standing under the laws of its state of incorporation, is in good standing
as a foreign corporation in each jurisdiction in which the character of the
properties owned or leased by it therein or the nature of its business makes
such qualification necessary, except where such failure to qualify would not
have a material adverse effect on the Borrower, has the corporate power and
authority to own its assets and transact the business in which it is engaged,
and has obtained all certificates, licenses and qualifications required under
all laws, regulations, ordinances, or orders of public authorities necessary for
the ownership and operation of all of its properties and transaction of all of
its business.
SECTION 4.3. AUTHORITY.AUTHORITY. Borrower has full corporate power and
authority to enter into, execute, and deliver this Agreement and to perform its
obligations hereunder, to borrow the Loan, to execute and deliver the Note, and
to incur and perform the obligations provided for in the Loan Documents, all of
which have been duly authorized by all necessary corporate action. No consent or
approval of shareholders of, or lenders to, Borrower and no consent, approval,
filing or registration with any Governmental Authority is required as a
condition to the validity of the Loan Documents or the performance by Borrower
of its obligations thereunder.
SECTION 4.4. BINDING AGREEMENT.BINDING AGREEMENT. This Agreement and all
other Loan Documents constitute, and the Note, when issued and delivered
pursuant hereto for value received, will constitute, the valid and legally
binding obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, and similar laws affecting the rights and
remedies of secured parties and creditors generally.
SECTION 4.5. LITIGATION.LITIGATION. Except as disclosed in SCHEDULE 4.5,
there are no actions, suits, proceedings or investigations pending or, to the
best of Borrower's knowledge, threatened against Borrower before any court or
arbitrator or before or by any Governmental Authority which, in any one case or
in the aggregate, if determined adversely to the interests of the Borrower,
could have a material adverse effect on the business, properties, condition
(financial or otherwise) or operations, present or prospective, of Borrower, or
upon its ability to perform its obligations under the Loan Documents. Borrower
is not in default with respect to any order of any court, arbitrator, or
Governmental Authority applicable to Borrower or its properties which would have
a material adverse effect on Borrower or its properties.
SECTION 4.6. NO CONFLICTS.NO CONFLICTS. The execution and delivery by
Borrower of this Agreement and the other Loan Documents do not, and the
performance of its obligations thereunder will not, violate, conflict with,
constitute a default under, or result in the creation of a lien or encumbrance
upon the property of Borrower under: (a) any provision of Borrower's articles of
incorporation or its bylaws, (b) any provision of any law, rule, or regulation
applicable to Borrower, or (c) any of the following: (i) any indenture or other
material agreement or instrument to which Borrower is a party or by which
Borrower or its property is bound; or (ii) any judgment, order or decree of any
court, arbitration tribunal, or Governmental Authority having jurisdiction over
Borrower which is applicable to Borrower.
SECTION 4.7. FINANCIAL CONDITION.FINANCIAL CONDITION. The audited
financial statements of PHC, Inc. and its subsidiaries (including the entity
comprising the Borrower) (collectively, the "Consolidated Company") as of June
30, 1995, certified by Richard A. Eisner & Co., LLP, and the unaudited financial
statements of the Consolidated Company as of December 31, 1995, certified by the
chief financial officer of the Consolidated Company, which have been delivered
to Lender, fairly present, in all material respects, the financial condition of
the Consolidated Company and the results of its operations and changes in
financial condition as of the dates and for the periods referred to, and have
been prepared in accordance with GAAP. There are no material unrealized or
anticipated liabilities, direct or indirect, fixed or contingent, of the
Consolidated Company as of the dates of such financial statements which are not
reflected therein or in the notes thereto. There has been no material adverse
change in the business, properties, condition (financial or otherwise) or
operations (present or prospective) of any of the entities comprising Borrower
since December 31, 1995. The Consolidated Company's fiscal year ends on June 30.
The federal tax identification numbers for the entities comprising the Borrower
are listed on SCHEDULE 4.7.
SECTION 4.8. NO DEFAULT.NO DEFAULT. Borrower is not in default under or
with respect to any obligation in any respect which could be materially adverse
to its business, operations, property or financial condition, or which could
materially, adversely affect the ability of Borrower to perform its obligations
under the Loan Documents. No Event of Default or event which, with the giving of
notice or lapse of time, or both, could become an Event of Default, has occurred
and is continuing.
SECTION 4.9. TITLE TO PROPERTIES.TITLE TO PROPERTIES. Borrower has good
and marketable title to its properties and assets, including the Collateral and
the properties and assets reflected in the financial statements described in
Section 4.7, subject to no lien, mortgage, pledge, encumbrance or charge of any
kind, other than Permitted Liens. Borrower has not agreed or consented to cause
any of its properties or assets whether owned now or hereafter acquired to be
subject in the future (upon the happening of a contingency or otherwise) to any
lien, mortgage, pledge, encumbrance or charge of any kind other than Permitted
Liens.
SECTION 4.10. TAXES.TAXES. Borrower has filed, or has obtained extensions
for the filing of, all federal, state and other tax returns which are required
to be filed, and has paid all taxes shown as due on those returns and all
assessments, fees and other amounts due as of the date hereof. All tax
liabilities of Borrower were, as of December 31, 1995, and are now, adequately
provided for on Borrower's books. No tax liability has been asserted by the
Internal Revenue Service or other taxing authority against Borrower for taxes in
excess of those already paid except as described in Schedule 4.10..
SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS.SECURITIES AND
BANKING LAWS AND REGULATIONS.
(a) The use of the proceeds of the Loan and Borrower's issuance of
the Note will not directly or indirectly violate or result in a violation of the
Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including without limitation
Regulations U, T, G, or X of the Board of Governors of the Federal Reserve
System. Borrower is not engaged in the business of extending credit for the
purpose of the purchasing or carrying "margin stock" within the meaning of those
regulations. No part of the proceeds of the Loan hereunder will be used to
purchase or carry any margin stock or to extend credit to others for such
purpose.
(b) Borrower is not an investment company within the meaning of the
Investment Company Act of 1940, as amended, nor is it, directly or indirectly,
controlled by or acting on behalf of any Person which is an investment company
within the meaning of that Act.
SECTION 4.12. ERISA.ERISA. No employee benefit plan (a "Plan") subject to
the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations
issued pursuant thereto that is maintained by Borrower or under which Borrower
could have any liability under ERISA (a) has failed to meet minimum funding
standards established in Section 302 of ERISA, (b) has failed to comply with all
applicable requirements of ERISA and of the Internal Revenue Code, including all
applicable rulings and regulations thereunder, (c) has engaged in or been
involved in a prohibited transaction (as defined in ERISA) under ERISA or under
the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed,
or received notice of a claim asserted against Borrower for, withdrawal
liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980,
as amended) with respect to any multi-employer pension plan and is not a member
of any Controlled Group (as defined in ERISA). Borrower has timely made when due
all contributions with respect to any multi-employer pension plan in which it
participates and no event has occurred triggering a claim against Borrower for
withdrawal liability with respect to any multi-employer pension plan in which
Borrower participates.
SECTION 4.13. COMPLIANCE WITH LAW.COMPLIANCE WITH LAW. Except as described
in SCHEDULE 4.13, Borrower has received no written notification of any
violation, and to the best of its knowledge is not in violation, in any material
respect, of any statute, rule or regulation of any Governmental Authority
(including, without limitation, any statute, rule or regulation relating to
employment practices or to environmental, occupational and health standards and
controls). Borrower has obtained all licenses, permits, franchises, and other
governmental authorizations necessary for the ownership of its properties and
the conduct of its business. Borrower is current, in all material respects, with
all reports and documents required to be filed with any state or federal
securities commission or similar Governmental Authority and is in compliance, in
all material respects, with all applicable rules and regulations of such
commissions.
SECTION 4.14. ENVIRONMENTAL MATTERS.ENVIRONMENTAL MATTERS. To the best of
Borrower's knowledge, no use, exposure, release, generation, manufacture,
storage, treatment, transportation or disposal of Hazardous Material has
occurred or is occurring on or from any real property on which the Collateral is
located or which is owned, leased or otherwise occupied by Borrower (the
"Premises"), or off the Premises as a result of any action of Borrower, except
as described in SCHEDULE 4.14. All Hazardous Material used, treated, stored,
transported to or from, generated or handled on the Premises, or off the
Premises by Borrower, has been disposed of on or off the Premises by or on
behalf of Borrower in a lawful manner.
SECTION 4.15. PLACES OF BUSINESS.PLACES OF BUSINESS. The only places of
business of Borrower, and the places where it keeps and intends to keep the
Collateral and records concerning the Collateral, are at the addresses set forth
in SCHEDULE 4.15.
SECTION 4.16. INTELLECTUAL PROPERTY.INTELLECTUAL PROPERTY. Borrower has
received no written challenges to its ownership of, and to the best of its
knowledge exclusively owns or possesses, all the patents, patent applications
trademarks trademark applications, service marks, trade names, copyrights,
franchises, licenses, and rights with respect to the foregoing necessary for the
present and planned future conduct of its business, without any conflict with
the rights of others. A list of all such intellectual property (indicating the
nature of Borrower's interest), as well as all outstanding franchises and
licenses given by or held by Borrower, is attached as SCHEDULE 4.16. Borrower is
not in default, in any material respect, of any obligation or undertaking with
respect to such intellectual property or rights.
SECTION 4.17. STOCK OWNERSHIP.STOCK OWNERSHIP. The identity of the
stockholders of all classes of the outstanding stock of each entity comprising
Borrower, together with the respective ownership percentages held by such
stockholders, are as set forth on SCHEDULE 4.17.
SECTION 4.18. MATERIAL FACTS.MATERIAL FACTS. Neither this Agreement nor
any other Loan Document nor any other agreement, document, certificate, or
statement furnished to Lender by or on behalf of Borrower in connection with the
transactions contemplated hereby contains any untrue statement of material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no material fact known to
Borrower that materially adversely affects or in the future may materially
adversely affect the business, operations, affairs or financial condition of
Borrower, or any of its properties or assets.
SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS.INVESTMENTS,
GUARANTEES, AND CERTAIN CONTRACTS. Borrower does not own or hold any equity or
long-term debt investments in, have any outstanding advances to, have any
outstanding guarantees for the obligations of, or have any outstanding
borrowings from, any Person, except as described on SCHEDULE 4.19. Borrower is
not a party to any contract or agreement, or subject to any charter or other
corporate restriction, which materially adversely affects its business.
SECTION 4.20. BUSINESS INTERRUPTIONS.BUSINESS INTERRUPTIONS. Within five
years prior to the date hereof, neither the business, property or assets, or
operations of Borrower has been adversely affected in any way by any casualty,
strike, lockout, combination of workers, or order of the United States of
America or other Governmental Authority, directed against Borrower. There are no
pending or threatened labor disputes, strikes, lockouts, or similar occurrences
or grievances against Borrower or its business.
SECTION 4.21. NAMES.NAMES. Within five years prior to the date hereof,
Borrower has not conducted business under or used any other name (whether
corporate or assumed) other than as shown on SCHEDULE 4.21. To the best of
Borrower's knowledge Borrower is the sole owner of all names listed on that
Schedule and any and all business done and invoices issued in such names are
Borrower's sales, business, and invoices. Each trade name of Borrower represents
a division or trading style of Borrower and not a separate corporate subsidiary
or independent Affiliate.
SECTION 4.22 JOINT VENTURES.JOINT VENTURES. Borrower is not engaged in any
joint venture or partnership with any other Person, except as set forth on
SCHEDULE 4.22.
SECTION 4.23 ACCOUNTS. Lender may rely, in determining which Accounts are
Qualified Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(a) It is genuine and in all material respects what it purports to be, and
is not evidenced by a judgment;
(b) It arises out of a completed, BONA FIDE sale and delivery of
goods or rendition of services by Borrower in the ordinary course of its
business and in accordance with the terms and conditions of all purchase orders,
contracts, certification, participation, certificate of need, or other documents
relating thereto and forming a part of the contract between Borrower and the
Account Debtor;
(c) It is for a liquidated amount maturing as stated in a duplicate
claim or invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to Lender;
(d) Such Account, and Lender's security interest therein, is not,
and, to the best of Borrower's knowledge, will not (by voluntary act or omission
by Borrower), be in the future, subject to any offset, lien, deduction, defense,
dispute, counterclaim or any other adverse condition, and each such Account is
absolutely owing to Borrower and is not contingent in any respect or for any
reason;
(e) There are no facts, events or occurences which in any way impair
the validity or enforceability of any Accounts or tend to reduce the amount
apyable threunder from the face amount of the claim or invoice and statements
delivered to Lender with respect thereto;
(f) To the best of Borrower's knowledge, (i) the Account Debtor
thereunder had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (ii) such Account Debtor is
solvent;
(g) To the best of Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debtor thereunder
which might result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account;
(h) It has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and compliance and conformance with
any and requisite procedures, requirements and regulations governing payment by
such Account Debtor with respect to such Account, and such Account if due from a
Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and
(i) Borrower has obtained and currently has all material
certificates of need, Medicaid and Medicare provider numbers, licenses, permits
and authorizations as necessary in the generation of such Accounts.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT.CONDITIONS PRECEDENT TO
AGREEMENT. The obligation of Lender to enter into and perform this Agreement and
to make Revolving Credit Loans is subject to the following conditions precedent:
(a) Lender shall have received two (2) originals of this Agreement
and all other Loan Documents required to be executed and delivered at or prior
to Closing (other than the Note, as to which Lender shall receive only one
original), executed by Borrower and any other required Persons, as applicable.
(b) Lender shall have received all searches and good standing
certificates required by Section 3.5.
(c) Borrower shall have complied, in all material respects, and
shall then be in compliance, in all material respects, with all the terms,
covenants and conditions of the Loan Documents.
(d) There shall have occurred no Event of Default and no event
which, with the giving of notice or the lapse of time, or both, could constitute
such an Event of Default.
(e) The representations and warranties contained in Article IV shall be
true and correct.
(f) Lender shall have received copies of all board of directors
resolutions and other corporate action taken by Borrower to authorize the
execution, delivery and performance of the Loan Documents and the borrowing of
the Loan thereunder, as well as the names and signatures of the officers of
Borrower authorized to execute documents on its behalf in connection herewith,
all as also certified as of the date hereof by Borrower's chief financial
officer, and such other papers as Lender may require.
(g) Lender shall have received copies, certified as true, correct
and complete by a corporate officer of Borrower, of the articles of
incorporation and bylaws of Borrower, with any amendments thereto, and all other
documents necessary for performance of the obligations of Borrower under this
Agreement and the other Loan Documents.
(h) Lender shall have received a written opinion of counsel for
Borrower, dated the date hereof, in the form of EXHIBIT E.
(i) Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered
hereunder, including without limitation an initial borrowing base certificate
calculating the Borrowing Base.
(j) Lender shall have received the portion of the Commitment Fee
payable at Closing in accordance with Section 2.4(a) of this Agreement.
(k) The Lockbox and the Dominion Account shall have been established.
(l) Lender shall have received an estoppel certificate in form and
substance reasonably satisfactory to Lender from Borrower's landlord or
sublandlord, as the case may be, with respect to the facility identified on
Schedule 4.15.
(m) Lender shall have received a certificate of Borrower's chief
financial officer, dated the Closing Date, certifying that all of the conditions
specified in this Section have been fulfilled.
SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES.CONDITIONS PRECEDENT TO
ADVANCES. Notwithstanding any other provision of this Agreement, no Loan
proceeds, Revolving Credit Loans, advances or other extensions of credit under
the Loan shall be disbursed hereunder unless the following conditions have been
satisfied or waived immediately prior to such disbursement:
(a) The representations and warranties on the part of Borrower
contained in Article IV of this Agreement shall be true and correct in all
respects at and as of the date of disbursement or advance, as though made on and
as of such date (except to the extent that such representations and warranties
expressly relate solely to an earlier date and except that the references in
Section 4.7 to financial statements shall be deemed to be a reference to the
then most recent annual and interim financial statements of Borrowers furnished
to Lender pursuant to Section 6.1 hereof).
(b) No Event of Default or event which, with the giving of notice of
the lapse of time, or both, could become an Event of Default shall have occurred
and be continuing or would result from the making of the disbursement or
advance.
(c) No adverse change in the condition (financial or otherwise),
properties, business, or operations of Borrower shall have occurred and be
continuing with respect to Borrower since the date hereof.
SECTION 5.3. CLOSING.CLOSING. Subject to the conditions of this Article V,
the Loan shall be made available on the date as is mutually agreed by the
parties (the "Closing Date") at such time as may by mutually agreeable to the
parties upon the execution hereof (the "Closing") at such place as may be
requested by Lender.
SECTION 5.4. WAIVER OF RIGHTS.WAIVER OF RIGHTS. By completing the Closing
hereunder, or by making advances under the Loan, Lender does not waive a breach
of any representation or warranty of Borrower hereunder or under any other Loan
Document, and all of Lender's claims and rights resulting from any breach or
misrepresentation by Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Borrower covenants and agrees that for so long as Borrower may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrower under the Loan Documents:
SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS.FINANCIAL
STATEMENTS AND COLLATERAL REPORTS. Borrower will furnish to Lender (a) a sales
and collections report and accounts receivable aging schedule on a form
acceptable to Lender within fifteen (15) days after the end of each calendar
month, which shall include, but not be limited to, a report of sales, credits
issued, and collections received; (b) payable aging schedules within fifteen
(15) days after the end of each calendar month; (c) internally prepared monthly
financial statements for Borrower, certified by Borrower's chief financial
officer, to be in accordance with GAAP to the best of hir or her knowledge,
within forty-five (45) days of the end of each calendar month (provided,
however, that Borrower reserve the right to make reasonable accounting
adjustments to such monthly financial statements within a resonable period of
time following the delivery thereof to Lender); (d) internally prepared
quarterly financial statements for the Consolidated Company (accompanied by
detailed financial information pertaining to Borrower, to be furnished to Lender
simultaneous with the filing by the Consolidated Company with the US Securities
and Exchange Commission of quarterly financial statements on Form 10-Q; (e) to
the extent prepared by Borrower, annual projections, profit and loss statements,
balance sheets, and cash flow reports (prepared on a monthly basis) for the
succeeding fiscal year within thirty (30) days before the end of each of
Borrower's fiscal years; (f) annual audited financial statements for the
Consolidated Company (as such term is defined in Section 4.7) prepared by
Richard A. Eisner & Co., LLP or a firm of independent public accountants
satisfactory to Lender, to be furnished to Lender simultaneous with the filing
by the Consolidated Company with the US Securities and Exchange Commission of
annual financial statement on Form 10-K; (g) promptly upon receipt thereof,
copies of any reports submitted to Borrower by independent accountants in
connection with any interim audit of the books of Borrower and copies of each
management control letter provided to Borrower by independent accountants; (h)
as soon as available, copies of all financial statements and notices provided by
Borrower to all of its stockholders; and (i) such additional information,
reports or statements as Lender may from time to time request. Annual financial
statements shall set forth in comparative form figures for the corresponding
periods in the prior fiscal year. All financial statements shall include a
balance sheet and statement of earnings and shall be prepared in accordance with
GAAP.
SECTION 6.2. PAYMENTS HEREUNDER.PAYMENTS HEREUNDER. Borrower will make all
payments of principal, interest, fees, and all other payments required
hereunder, under the Loan, and under any other agreements with Lender to which
Borrower is a party, as and when due.
SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS.
EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will do or cause to
be done all things necessary (a) to obtain and keep in full force and effect all
corporate existence, rights, licenses, privileges, and franchises of Borrower
necessary to the ownership of its property or the conduct of its business, and
comply, in all material respects, with all applicable present and future laws,
ordinances, rules, regulations, orders and decrees of any Governmental Authority
having or claiming jurisdiction over Borrower; and (b) to maintain and protect
the properties used or useful in the conduct of the operations of Borrower, in a
prudent manner, including without limitation the maintenance at all times of
such insurance upon its insurable property and operations as required by law or
by Section 6.7 hereof.
SECTION 6.4. LEGALITY.LEGALITY. The making of the Loan and each
disbursement or advance under the Loan shall not be subject to any penalty or
special tax, shall not be prohibited by any governmental order or regulation
applicable to Borrower, and shall not violate any rule or regulation of any
Governmental Authority, and necessary consents, approvals and authorizations of
any Governmental Authority to or of any such disbursement or advance shall have
been obtained.
SECTION 6.5. LENDER'S SATISFACTION. LENDER'S SATISFACTION. All instruments
and legal documents and proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and substance to
Lender and its counsel, and Lender shall have received all documents, including
records of corporate proceedings and opinions of counsel, which Lender may have
requested in connection therewith.
SECTION 6.6. TAXES AND CHARGES. TAXES AND CHARGES. Borrower will timely
file all tax reports and pay and discharge all taxes, assessments and
governmental charges or levies imposed upon Borrower, or its income or profits
or upon its properties or any part thereof, before the same shall be in default
and prior to the date on which penalties attach thereto, as well as all lawful
claims for labor, material, supplies or otherwise which, if unpaid, might become
a lien or charge upon the properties or any part thereof of Borrower; PROVIDED,
HOWEVER, that the Borrower shall not be required to pay and discharge or cause
to be paid and discharged any such tax, assessment, charge, levy or claim so
long as the validity or amount thereof shall be contested in good faith and by
appropriate proceedings by Borrower, and the Borrower shall have set aside on
their books adequate reserve therefor; and PROVIDED FURTHER, that such deferment
of payment is permissible only so long as Borrower's title to, and its right to
use, the Collateral is not adversely affected thereby and Lender's lien and
priority on the Collateral are not adversely affected, altered or impaired
thereby.
SECTION 6.7. INSURANCE. INSURANCE. Borrower will carry adequate public
liability and professional liability insurance with responsible companies
satisfactory to Lender in such amounts and against such risks as is customarily
maintained by similar businesses and by owners of similar property in the same
general area.
SECTION 6.8. GENERAL INFORMATION. GENERAL INFORMATION. Borrower will
furnish to Lender such information as Lender may, from time to time, reasonably
request with respect to the business or financial affairs of Borrower, and upon
reasonable prior notice, permit any officer, employee or agent of Lender to
visit and inspect Borrower's cororate headquarters or any of Borrower's
facilities at which Accounts are generated, to meet with President or
Controller, or any other person designated by either of them, an to examine the
minute books, books of account and other records, including management letters
prepared by Borrower's auditors, of Borrower, and make copies thereof or
extracts therefrom, and to discuss its and their business affairs, finances and
accounts with, and be advised as to the same by, the accountants and officers of
Borrower, all at such times and as often as Lender may reasonably require.
SECTION 6.9. MAINTENANCE OF PROPERTY. MAINTENANCE OF PROPERTY. Borrower
will maintain, keep and preserve, in all material respects, all of its
properties in good repair, working order and condition and from time to time
make all needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS.
NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS. Borrower promptly
will notify Lender upon the occurrence of: (a) any Event of Default; (b) any
event which, with the giving of notice or lapse of time, or both, could
constitute an Event of Default; (c) any event, development or circumstance
whereby the financial statements previously furnished to Lender fail in any
material respect to present fairly, in accordance with GAAP, the financial
condition and operational results of Borrower; (d) any judicial, administrative
or arbitration proceeding pending against Borrower, and any judicial or
administrative proceeding known by Borrower to be threatened against it which,
if adversely decided, could materially adversely affect its condition (financial
or otherwise) or operations (present or prospective) or which may expose
Borrower to uninsured liability of $25,000.00 or more; (e) any default, subject
to applicable grace and cure periods, claimed by any other creditor for Borrowed
Money of Borrower other than Lender; and (f) any other development in the
business or affairs of Borrower which may be materially adverse; in each case
describing the nature thereof and (in the case of notification under clauses (a)
and (b)) the action Borrower proposes to take with respect thereto.
SECTION 6.11. EMPLOYEE BENEFIT PLANS. EMPLOYEE BENEFIT PLANS. Borrower
will (a) comply with the funding requirements of ERISA with respect to the Plans
for its employees, or will promptly satisfy any accumulated funding deficiency
that arises under Section 302 of ERISA; (b) furnish Lender, promptly after
filing the same, with copies of all reports or other statements filed with the
United States Department of Labor, the Pension Benefit Guaranty Corporation, or
the Internal Revenue Service with respect to all Plans, or which Borrower, or
any member of a Controlled Group, may receive from such Governmental Authority
with respect to any such Plans, and (c) promptly advise Lender of the occurrence
of any Reportable Event or Prohibited Transaction with respect to any such Plan
and the action which Borrower proposes to take with respect thereto. Borrower
will make all contributions when due with respect to any multi-employer pension
plan in which it participates and will promptly advise Lender: (a) upon its
receipt of notice of the assertion against Borrower of a claim for withdrawal
liability; (b) upon the occurrence of any event which could trigger the
assertion of a claim for withdrawal liability against Borrower; and (c) upon the
occurrence of any event which would place Borrower in a Controlled Group as a
result of which any member (including Borrower) thereof may be subject to a
claim for withdrawal liability, whether liquidated or contingent.
SECTION 6.12. FINANCING STATEMENTS.FINANCING STATEMENTS. Borrower shall
provide to Lender evidence satisfactory to Lender as to the due recording of
termination statements, releases of collateral, and Forms UCC-3, and shall cause
to be recorded financing statements on Form UCC-1, duly executed by Borrower and
Lender, in all places necessary to release all existing security interests and
other liens in the Collateral (other than as permitted hereby) and to perfect
and protect Lender's first priority lien and security interest in the
Collateral, as Lender may request.
SECTION 6.13. FINANCIAL RECORDS.FINANCIAL RECORDS. Borrower shall keep
current and accurate books of records and accounts in which full and correct
entries will be made of all of its business transactions, and will reflect in
its financial statements adequate accruals and appropriations to reserves, all
in accordance with GAAP.
SECTION 6.14. COLLECTION OF ACCOUNTS.COLLECTION OF ACCOUNTS. Borrower shall
continue to collect its Accounts in the ordinary course of business.
SECTION 6.15. PLACES OF BUSINESS.PLACES OF BUSINESS. Borrower shall give
thirty (30) days' prior written notice to Lender of any change in the location
of any of its places of business, of the places where its records concerning its
Accounts are kept, of the places where the Collateral is kept, or of the
establishment of any new, or the discontinuance of any existing, places of
business.
SECTION 6.16. BUSINESS CONDUCTED.BUSINESS CONDUCTED. Borrower shall
continue in the business presently conducted by it using its best efforts to
maintain its customers and goodwill. Borrower shall not engage, directly or
indirectly, in any line of business substantially different from the business
conducted by it immediately prior to the Closing Date, or engage in business or
lines of business which are not reasonably related thereto.
SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS.LITIGATION AND OTHER
PROCEEDINGS. Borrower shall give prompt notice to Lender of any litigation,
arbitration, or other proceeding before any Governmental Authority against or
affecting Borrower if the amount claimed is more than $25,000.00
SECTION 6.18. BANK ACCOUNTS.BANK ACCOUNTS. Borrower shall assign to Lender
all of its depository and disbursement accounts into which any proceeds of
Accounts are deposited.
SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS.SUBMISSION OF COLLATERAL
DOCUMENTS. Borrower will, on demand of Lender, make available to Lender copies
of shipping and delivery receipts evidencing the shipment of goods that gave
rise to an Account, medical records, insurance verification forms, assignment of
benefits, in-take forms or other proof of the satisfactory performance of
services that gave rise to an Account, a copy of the claim or invoice for each
Account and copies of any written contract or order from which the Account
arose. Borrower shall promptly notify Lender if an Account becomes evidenced or
secured by an instrument or chattel paper and upon request of Lender, will
promptly deliver any such instrument or chattel paper to Lender.
SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS.LICENSURE;
MEDICAID/MEDICARE COST REPORTS. Borrower will maintain all certificates of need,
provider numbers and licenses materially necessary to conduct its business as
presently conducted, and take any steps required to comply with any such new or
additional requirements that may be imposed on providers of medical products and
services. If required, all Medicaid/Medicare cost reports will be properly
filed.
SECTION 6.21. OFFICER'S CERTIFICATES.OFFICER'S CERTIFICATES. Together with
the monthly financial statements delivered pursuant to clause (c) of Section
6.1, and together with the audited annual financial statements delivered
pursuant to clause (g) of that Section, Borrower shall deliver to Lender a
certificate of its chief financial officer in form and substance satisfactory to
Lender setting forth:
(a) The information (including detailed calculations) required in
order to establish whether Borrower is in compliance with the requirements of
Articles VI and VII as of the end of the period covered by the financial
statements then being furnished; and
(b) That the signer has reviewed the relevant terms of this
Agreement, and has made (or caused to be made under his supervision) a review of
the transactions and conditions of Borrower from the beginning of the accounting
period covered by the income statements being delivered to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or which
is then, or with the passage of time or giving of notice or both, could become
an Event of Default, and if any such condition or event existed during such
period or now exists, specifying the nature and period of existence thereof and
what action Borrower has taken or proposes to take with respect thereto.
SECTION 6.22. VISITS AND INSPECTIONS.VISITS AND INSPECTIONS. Borrower
shall permit representatives of Lender, from time to time, as often as may be
reasonably requested, but only during normal business hours following at least
twenty-four hours' prior notice, to visit and inspect the properties of
Borrower, and to inspect, audit and make extracts from its books and records,
and discuss with its officers, its employees and its independent accountants,
Borrower's business, assets, liabilities, financial condition, business
prospects and results of operations.
ARTICLE VII
NEGATIVE COVENANTS
Each entity comprising the Borrower covenants and agrees that so long as
Borrower may borrow hereunder and until payment in full of the Note and
performance of all other obligations of the Borrower under the Loan Documents,
Borrower shall not do any of the following without Lender's prior written
consent (which consent may be withheld in Lender's sole discretion except as
otherwise specified to the contrary in this Article VII):
SECTION 7.1. BORROWING. BORROWING. Borrower will not create, incur, assume
or suffer to exist any liability for Borrowed Money except: (a) indebtedness to
Lender; (b) indebtedness of Borrower secured by mortgages, encumbrances or liens
expressly permitted by Section 7.3 hereof; (c) accounts payable to trade
creditors and current operating expenses (other than for borrowed money) 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, and
Borrower shall have set aside such reserves, if any, with respect thereto as are
required by GAAP and deemed adequate by Borrower and its independent
accountants; (d) borrowings incurred in the ordinary course of its business and
not exceeding $150,000.00 in the aggregate outstanding at any one time. Borrower
will not make prepayments on any existing or future indebtedness for Borrowed
Money to any Person (other than Lender, to the extent permitted by this
Agreement or any subsequent agreement between Borrower and Lender).
SECTION 7.2. JOINT VENTURES. JOINT VENTURES. Borrower will not invest
directly or indirectly in any joint venture for any purpose without the prior
written notice to, and the express written consent of, Lender, which consent may
be withheld in Lender's sole discretion.
SECTION 7.3. LIENS AND ENCUMBRANCES. LIENS AND ENCUMBRANCES. Borrower will
not create, incur, assume or suffer to exist any mortgage, pledge, lien or other
encumbrance of any kind (including the charge upon property purchased under a
conditional sale or other title retention agreement) upon, or any security
interest in, any of its Collateral, whether now owned or hereafter acquired,
except for Permitted Liens.
SECTION 7.4. MERGER, ACQUISITION, OR SALE OF ASSETS. MERGER, ACQUISITION,
OR SALE OF ASSETS. Borrower will not enter into any merger or consolidation with
or acquire all or substantially all of the assets of any Person, and will not
sell, lease, or otherwise dispose of any of its assets except in the ordinary
course of its business.
SECTION 7.5. SALE AND LEASEBACK. SALE AND LEASEBACK. Borrower will not,
directly or indirectly, enter into any arrangement whereby Borrower sells or
transfers all or any part of its assets and thereupon and within one year
thereafter rents or leases the assets so sold or transferred without the prior
written notice to, and the express written consent of, Lender, which consent may
be withheld in Lender's sole discretion; provided, however, that in any fiscal
year Borrower shall be permitted to enter into any transactions described in
this Section 7.5 without obtaiing Lender's prior written consent to long as the
aggregate amount involved in such transactions during such fiscal year is lower
than Fifty Thousand and No/100 Dollars ($50,000.00).
SECTION 7.6. DIVIDENDS AND MANAGEMENT FEES. DIVIDENDS AND MANAGEMENT FEES.
Borrower will not declare or pay any dividends, purchase, redeem or otherwise
acquire for value any of its outstanding stock, or return any capital of its
stockholders, nor shall Borrower pay or become obligated to pay management fees
or fees of a similar nature to any Person; provided, however, jthat so long as
no Event of Default has occurred hereunder, Borrower may make any such dividends
or purchase, redeem or otherwise acquire such outstanding stock, return any such
capital, or pay any such management fees, so long as doing so would not violate
any of the other terms and conditions of this Agreement.
SECTION 7.7. LOANS. LOANS. Borrower will not make loans or advances to any
Person, other than (i) trade credit extended in the ordinary course of its
business, (ii) advances for business travel and similar temporary advances in
the ordinary course of business to officers, stockholders, directors, and
employees.
SECTION 7.8. CONTINGENT LIABILITIES. CONTINGENT LIABILITIES. Borrower will
not assume, guarantee, endorse, contingently agree to purchase or otherwise
become liable upon the obligation of any Person, except by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
SECTION 7.9. SUBSIDIARIES. SUBSIDIARIES. Borrower will not form any
subsidiary, or make any investment in or any loan in the nature of an investment
to, any other Person.
SECTION 7.10. COMPLIANCE WITH ERISA. COMPLIANCE WITH ERISA. Borrower will
not permit with respect to any Plan covered by Title IV of ERISA any Prohibited
Transaction or any Reportable Event.
SECTION 7.11. CERTIFICATES OF NEED. CERTIFICATES OF NEED. Amend, alter or
suspend or terminate or make provisional in any material way, any certificate of
need or provider number without the prior written consent of Lender.
SECTION 7.12. TRANSACTIONS WITH AFFILIATES.TRANSACTIONS WITH AFFILIATES.
Borrower will not enter into any transaction, including without limitation the
purchase, sale, or exchange of property, or the loaning or giving of funds to
any Affiliate or subsidiary, except in the ordinary course of business and
pursuant to the reasonable requirements of Borrower's business and upon terms
substantially the same and no less favorable to Borrower as it would obtain in a
comparable arm's length transaction with any Person not an Affiliate or
subsidiary, and so long as the transaction is not otherwise prohibited
hereunder. For purposes of the foregoing, Lender consents to the transactions
described on SCHEDULE 7.12.
SECTION 7.13. USE OF LENDER'S NAME.USE OF LENDER'S NAME. Borrower will not
use Lender's name (or the name of any of Lender's affiliates) in connection with
any of its business operations. Borrower may disclose to third parties that
Borrower has a borrowing relationship with Lender. Nothing herein contained is
intended to permit or authorize Borrower to make any contract on behalf of
Lender.
SECTION 7.14. CHANGE IN CAPITAL STRUCTURE.CHANGE IN CAPITAL STRUCTURE.
There shall occur no change in Borrower's capital structure as set forth in
SCHEDULE 4.17.
SECTION 7.15. CONTRACTS AND AGREEMENTS.CONTRACTS AND AGREEMENTS. Borrower
will not become or be a party to any contract or agreement which would breach
this Agreement, or breach any other material instrument, agreement, or document
to which Borrower is a party or by which it is or may be bound.
SECTION 7.16. MARGIN STOCK.MARGIN STOCK. Borrower will not carry or
purchase any "margin security" within the meaning of Regulations U, G, T or X of
the Board of Governors of the Federal Reserve System.
SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES.TRUTH OF STATEMENTS AND
CERTIFICATES. Borrower will not furnish to Lender any certificate or other
document that contains any untrue statement of a material fact or that omits to
state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. EVENTS OF DEFAULT. Each of the following
(individually, an "Event of Default" and collectively, the "Events of Default")
shall constitute an Event of Default hereunder:
(a) A default in the payment of any installment of principal of, or
interest upon, the Note when due and payable, whether at maturity or otherwise,
which default shall have continued unremedied for a period of five (5) days
after written notice thereof from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or other
monetary obligations owing to Lender arising out of or incurred in connection
with this Agreement when such payment is due and payable, which default shall
have continued unremedied for a period of five (5) days after written notice
from Lender;
(c) A default in the due observance or performance by Borrower of
any other term, covenant or agreement contained in any of the Loan Documents,
which default shall have continued unremedied for a period of thirty (30) days
after written notice from Lender;
(d) If any representation or warranty made by Borrower herein or in
any of the other Loan Documents, any financial statement, or any statement or
representation made in any other certificate, report or opinion delivered in
connection herewith or therewith proves to have been incorrect or misleading in
any material respect when made, which default shall have continued unremedied
for a period of ten (10) days after written notice from Lender;
(e) If any obligation of Borrower (other than its Obligations
hereunder) for the payment of Borrowed Money is not paid when due or within any
applicable cure period, or such obligation becomes or is declared to be due and
payable prior to the expressed maturity thereof, or there shall have occurred an
event which, with the giving of notice or lapse of time, or both, would cause
any such obligation to become, or allow any such obligation to be declared to
be, due and payable;
(f) If Borrower makes an assignment for the benefit of creditors,
offers a composition or extension to creditors, or makes or sends notice of an
intended bulk sale of any business or assets now or hereafter conducted by
Borrower;
(g) If Borrower files a petition in bankruptcy, is adjudicated
insolvent or bankrupt, petitions or applies to any tribunal for any receiver of
or any trustee for itself or any substantial part of its property, commences any
proceeding relating to itself under any reorganization, arrangement,
readjustment or debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced against
Borrower any such proceeding which remains undismissed for a period of sixty
(60) days, or any Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
any trustee for a Borrower or any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of
sixty (60) days;
(h) If one or more final judgments against Borrower or attachments
against its property not fully and unconditionally covered by insurance shall be
rendered by a court of record and shall remain unpaid, unstayed on appeal,
undischarged, unbonded and undismissed for a period of ten (10) days;
(i) A Reportable Event which might constitute grounds for
termination of any Plan covered by Title IV of ERISA or for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan or for the entry of a lien or encumbrance to secure any deficiency, has
occurred and is continuing thirty (30) days after its occurrence, or any such
Plan is terminated, or a trustee is appointed by an appropriate United States
District Court to administer any such Plan, or the Pension Benefit Guaranty
Corporation institutes proceedings to terminate any such Plan or to appoint a
trustee to administer any such Plan, or a lien or encumbrance is entered to
secure any deficiency or claim;
(j) If any outstanding stock of Borrower is sold or otherwise
transferred by the Person owning such stock on the date hereof;
(k) If there shall occur any uninsured damage to or loss, theft or
destruction of any portion of the Collateral;
(l) If Borrower breaches of violates the terms of, or if a default
or an event which could, whether with notice or the passage of time, or both,
constitute a default, occurs under any other existing or future agreement
(related or unrelated) between Borrower and Lender;
(m) Upon the issuance of any execution or distraint process against
Borrower or any of its property or assets;
(n) If Borrower ceases any material portion of its business operations as
presently conducted;
(o) If any indication or evidence is received by Lender that
Borrower may have directly or indirectly been engaged in any type of activity
which, in Lender's discretion, might result in the forfeiture of any property of
Borrower to any Governmental Authority, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender;
(p) Borrower or any Affiliate of Borrower, shall challenge or
contest, in any action, suit or proceeding, the validity or enforceability of
this Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Lender;
(q) Borrower shall be criminally indicted or convicted under any law
that could lead to a forfeiture of any Collateral.
(s) There shall occur a material adverse change in the financial
condition or business prospects of Borrower, or if Lender in good faith deems
itself insecure as a result of acts or events bearing upon the financial
condition of Borrower or the repayment of the Note, which default shall have
continued unremedied for a period of ten (10) days after written notice from
Lender.
(t) PHC, Inc. shall have breached any of its representations,
warranties or covenants contained in the Unconditional Guaranty of Payment and
Performance of even date herewith, executed in favor of Lender.
SECTION 8.2. ACCELERATION.ACCELERATION. Upon the occurrence of any of the
foregoing Events of Default, the Note shall become and be immediately due and
payable upon declaration to that effect delivered by Lender to Borrower;
provided that, upon the happening of any event specified in Section 8.1.(g)
hereof, the Note shall be immediately due and payable without declaration or
other notice to Borrower.
SECTION 8.3. REMEDIES.REMEDIES.
(a) In addition to all other rights, options, and remedies granted
to Lender under this Agreement, upon the occurrence of an Event of Default
Lender may (i) terminate the Loan, whereupon all outstanding Obligations shall
be immediately due and payable, (ii) exercise all other rights granted to it
hereunder and all rights under the Uniform Commercial Code in effect in the
applicable jurisdiction(s) and under any other applicable law, and (iii)
exercise all rights and remedies under all Loan Documents now or hereafter in
effect, including the following rights and remedies (which list is given by way
of example and is not intended to be an exhaustive list of all such rights and
remedies):
(i) The right to take possession of, send notices regarding,
and collect directly the Collateral, with or without judicial process, and to
exercise all rights and remedies available to Lender with respect to the
Collateral under the Uniform Commercial Code in effect in the jurisdiction(s) in
which such Collateral is located;
(ii) The right to (by its own means or with judicial
assistance) enter any of Borrower's premises and take possession of the
Collateral, or render it unusable, or dispose of the Collateral on such premises
in compliance with subsection (b), without any liability for rent, storage,
utilities, or other sums, and Borrower shall not resist or interfere with such
action;
(iii) The right to require Borrower at Borrower's expense to
assemble all or any part of the Collateral and make it available to Lender at
any place designated by Lender;
(iv) The right to reduce the Maximum Loan Amount or to use the
Collateral and/or funds in the Dominion Account in amounts up to the Maximum
Loan Amount for any reason; and
(v) The right to relinquish or abandon any Collateral or any
security interest therein.
(b) Borrower agrees that a notice received by it at least five (5)
days before the time of any intended public sale, or the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable Collateral which threatens to speedily decline
in value or which is sold on a recognized marked may be sold immediately by
Lender without prior notice to Borrower. At any sale or disposition of
Collateral, Lender may (to the extent permitted by applicable law) purchase all
or any part of the Collateral, free from any right of redemption by Borrower,
which right is hereby waived and released. At any sale or disposition of
Collateral, Lender may (to the extent permitted by applicable law) purchase all
or any part of the Collateral, free from any right of redemption by Borrower,
which right is hereby waived and released. Borrower covenants and agrees not to
interfere with or impose any obstacle to Lender's exercise of its rights and
remedies with respect to the Collateral.
SECTION 8.4. NATURE OF REMEDIES.NATURE OF REMEDIES. Lender shall have the
right to proceed against all or any portion of the Collateral to satisfy the
liabilities and Obligations of Borrower to Lender in any order. All rights and
remedies granted Lender hereunder and under any agreement referred to herein, or
otherwise available at law or in equity, shall be deemed concurrent and
cumulative, and not alternative remedies, and Lender may proceed with any number
of remedies at the same time until the Loans, and all other existing and future
liabilities and obligations of Borrower to Lender, are satisfied in full. The
exercise of any one right or remedy shall not be deemed a waiver or release of
any other right or remedy, and Lender, upon the occurrence of an Event of
Default, may proceed against Borrower, and/or the Collateral, at any time, under
any agreement, with any available remedy and in any order.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. EXPENSES AND TAXES. EXPENSES AND TAXES.
(a) Borrower agrees to pay, whether or not the Closing occurs, all
out-of-pocket charges and expenses incurred by Lender (including, without
limitation, the fees and expenses of Lender's counsel) in connection with the
negotiation, preparation and execution of each of the Loan Documents; provided,
however, that with respect to ther period thorugh and including the Closing,
Borrrower shall in no event be required to pay more than the sum of the
following amounts incurred by Lender: (i) Six Thousand and No/100 Dollars
($6,000) in legal fees, plus (ii) out of pocket charges and expenses. Borrower
also agrees to pay all out-of-pocket charges and expenses incurred by Lender
(including the reasonable fees and expenses of Lender's counsel) in connection
with the enforcement, protection or preservation of any right or claim of Lender
and the collection of any amounts due under the Loan Documents.
(b) Borrower shall pay all taxes (other than taxes based upon or
measured by Lender's income or revenues or any personal property tax), if any,
in connection with the issuance of the Note and the recording of the security
documents therefor. The obligations of Borrower under this clause (b) shall
survive the payment of Borrower's indebtedness hereunder and the termination of
this Agreement.
SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS.ENTIRE AGREEMENT; AMENDMENTS.
This Agreement and the other Loan Documents constitute the full and entire
understanding and agreement among the parties with regard to their 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 9.3. NO WAIVER; CUMULATIVE RIGHTS.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 any party hereto at law, in equity or
otherwise.
SECTION 9.4. NOTICES. 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 Lender, at:
HealthPartners Funding, L.P.
c/o HealthPartners Financial Corporation
Chevy Chase Metro Building
2 Wisconsin Circle, Suite 320
Chevy Chase MD 20815
Attn: John K. Delaney, President
(b) If to Borrower, at:
200 Lake Street, Suite 102
Peabody MA 01960
ATTN: Ms. Paula Wurts, Chief Financial Officer
Telephone: (508) 536-2777
Telecopier: (508) 536-2677
With a copy to:
Willie J. Washington, Esq.
Choate, Hall& Stewart
53 State Street
Boston MA 02109
Telephone: (617)248-5095
Telecopier: (617) 248-4000
If mailed, notice shall be deemed to be given five (5) days after being sent, if
sent by personal delivery or telecopier, followed by a confirmatory mailing,
notice shall be deemed to be given when delivered, and if sent by prepaid
courier, notice shall be deemed to be given on the next Business Day following
deposit with the courier.
SECTION 9.5. SEVERABILITY. SEVERABILITY. If any term, covenant or
condition of this 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 9.6. SUCCESSORS AND ASSIGNS. SUCCESSORS AND ASSIGNS. This
Agreement, the Note, and the other Loan Documents shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors and
assigns. Notwithstanding the foregoing, Borrower may not assign any of its
rights or delegate any of its obligations hereunder without the prior written
consent of Lender, which may be withheld in its sole discretion. Lender may
sell, assign, transfer, or participate any or all of its rights or obligations
hereunder without notice to or consent of Borrower.
SECTION 9.7. COUNTERPARTS. 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 9.8. INTERPRETATION.INTERPRETATION. No provision of this Agreement
or any other Loan Document 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 9.9. SURVIVAL OF TERMS. SURVIVAL OF TERMS. All covenants,
agreements, representations and warranties made in this Agreement, any other
Loan Document, and in any certificates and other instruments delivered in
connection therewith shall be considered to have been relied upon by Lender and
shall survive the making by Lender of the Loans herein contemplated and the
execution and delivery to Lender of the Note, and shall continue in full force
and effect until all liabilities and obligations of Borrower to Lender are
satisfied in full.
SECTION 9.10. RELEASE OF LENDER.RELEASE OF LENDER. Borrower releases
Lender, its officers, employees, and agents, of and from any claims for loss or
damage resulting from acts or conduct of any or all of them, unless caused by
Lender's recklessness, gross negligence, or willful misconduct.
SECTION 9.11. TIME.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 State of Maryland (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 and all other Loan Documents.
SECTION 9.12. COMMISSIONS.COMMISSIONS. The transaction contemplated by
this Agreement was brought about by Lender and Borrower acting as principals and
without any brokers, agents, or finders being the effective procuring cause.
Borrower represents that it has not committed Lender to the payment of any
brokerage fee, commission, or charge in connection with this transaction. If any
such claim is made on Lender by any broker, finder, or agent or other person,
Borrower will indemnify, defend, and hold Lender harmless from and against the
claim and will defend any action to recover on that claim, at Borrower's cost
and expense, including Lender's counsel fees. Borrower further agrees that until
any such claim or demand is adjudicated in Lender's favor, the amount demanded
will be deemed a liability of Borrower under this Agreement, secured by the
Collateral.
SECTION 9.13. THIRD PARTIES.THIRD PARTIES. No rights are intended to be
created hereunder or under any other Loan Document for the benefit of any third
party donee, creditor, or incidental beneficiary of Borrower. Nothing contained
in this Agreement shall be construed as a delegation to Lender of Borrower's
duty of performance, including without limitation Borrower's duties under any
account or contract in which Lender has a security interest.
SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS.DISCHARGE OF BORROWER'S
OBLIGATIONS. Lender, in its sole discretion, shall have the right at any time,
and from time to time, without any additional notice to Borrower if Borrower has
failed to do so following reasonable notice from Lender, 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 Loan, until reimbursed to Lender and shall be
secured by the Collateral. Such payments and advances by Lender shall not be
construed as a waiver by Lender of an Event of Default.
SECTION 9.15. INFORMATION TO PARTICIPANTS.INFORMATION TO PARTICIPANTS.
Lender may divulge to any participant it may obtain in the Loan, or any portion
thereof, all information, and furnish to such participant copies of reports,
financial statements, certificates, and documents obtained under any provision
of this Agreement or any other Loan Document.
SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold
harmless Lender, its partners, officers, agents and employees (collectively,
"Indemnitee") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties hereunder, or from the breach of any of the representations
or warranties contained in Article IV hereof. In addition, Borrower shall defend
Indemnitee against and save it harmless from all claims of any Person with
respect to the Collateral. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 9.16 shall survive the
payment in full of the Obligations and the termination of this Agreement.
SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION.CHOICE OF LAW;
CONSENT TO JURISDICTION. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND, 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 LENDER IN THE STATE OF
MARYLAND OR FEDERAL COURT LOCATED IN THE STATE OF MARYLAND, BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH ACTION AND TO THE
LAYING OF VENUE IN THE STATE OF MARYLAND. 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 9.4 HEREOF.
SECTION 9.18. WAIVER OF TRIAL BY JURY.WAIVER OF TRIAL BY JURY. BORROWER
HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO
THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY
BORROWER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE.
LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF BORROWER'S WAIVER OF THE RIGHT TO JURY TRIAL.
FURTHER, BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF LENDER
(INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO
BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL
PROVISION.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first written above.
ATTEST: HEALTHPARTNERS FUNDING, L.P.
(Seal)
By: HealthPartners Financial
Corporation
By:________________________ By:__________________________
Edward P. Nordberg, Jr., John K. Delaney,
Secretary President
ATTEST: PHC OF UTAH, INC. (Seal) a Massachusetts corporation
By:________________________ By:________________________________
Name: Name:
Title: Title:
<PAGE>
LIST OF EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - Form of Lockbox Agreement
Exhibit C - Form of Dominion Account Agreement
Exhibit D - Locations of Collateral
Exhibit E - Form of Legal Opinion
<PAGE>
LIST OF SCHEDULES
Schedule 1.36 - Permitted Liens
Schedule 4.1 - Subsidiaries
Schedule 4.5 - Litigation
Schedule 4.7 - Tax Identification Numbers
Schedule 4.13 - Non-Compliance with Law
Schedule 4.14 - Environmental Matters
Schedule 4.15 - Places of Business
Schedule 4.16 - Licenses
Schedule 4.17 - Stock Ownership
Schedule 4.19 - Borrowings and Guarantees
Schedule 4.21 - Trade Names
Schedule 4.22 - Joint Ventures
Schedule 7.12 - Transactions with Affiliates
29374250.12C
<PAGE>
SCHEDULE 1.36
PERMITTED LIENS: None
SCHEDULE 4.1
SUBSIDIARIES: None
SCHEDULE 4.5
LITIGATION: None
SCHEDULE 4.7
TAX IDENTIFICATION NUMBERS: 87-0401574
SCHEDULE 4.10
TAX LIABILITIES: None
SCHEDULE 4.13
NON-COMPLIANCE WITH LAW: None
SCHEDULE 4.14
ENVIRONMENTAL MATTERS: None
<PAGE>
SCHEDULE 4.15
PLACES OF BUSINESS: 4578 Highland Drive, Salt lake City, UT
- - -------------------
Record Owner: Palmer Wells Enterprises
4616 Highland Drive, Salt lake City, UT
Record Owner: Scott Hopkinson
*Additional records kept at Corporate Office at 200 Lake Street, Suite 102,
Peabody, MA 10960
SCHEDULE 4.16
LICENSES: State of Utah Bureau of Health Facility Licensure
SCHEDULE 4.17
STOCK OWNERSHIP: PHC, Inc. 100%
SCHEDULE 4.19
BORROWINGS AND GUARANTEES:
Alco Capital Resource, Inc. (printer lease)
Transnational Leasing Co. (computer lease)
Orix Credit Alliance, Co. (phone lease)
INAC (finance for insurance premium)
Premium Payment Company (finance for insurance premium)
SCHEDULE 4.21
TRADE NAMES: Highland Ridge Hospital
<PAGE>
SCHEDULE 4.22
JOINT VENTURES: None
SCHEDULE 7.12
TRANSACTIONS WITH AFFILIATES:
PDS2 - A d/b/a of PHC, Inc. which operates an Employee Assistance
Program
out of Highland Ridge Hospital.
<PAGE>
EXHIBIT 10.79
REVOLVING CREDIT NOTE
$1,000,000.00 May , 1996
For value received, the undersigned, PHC OF UTAH, INC., a Massachusetts
corporation (the "Borrower"), promises to pay, in lawful money of the United
States, to the order of HEALTHPARTNERS FUNDING, L.P., a Delaware limited
partnership ("Lender"), the principal sum of One Million and No/100 Dollars
($1,000,000.00), or so much thereof as shall be advanced or readvanced and shall
remain unpaid under the Loan established pursuant to that certain Loan and
Security Agreement of even date herewith by and among the undersigned and Lender
(the "Loan Agreement"), plus interest on the unpaid balance thereof, computed on
a 360-day basis, at the rate per annum that is set forth in the Loan Agreement.
All capitalized terms used herein, unless otherwise specifically defined in this
Note, shall have the meanings ascribed to them in the Loan Agreement.
This Note shall evidence the undersigned's obligation to repay all sums
advanced by Lender from time to time under and as part of the Loan. The actual
amount due and owing from time to time hereunder shall be evidenced by Lender's
records of receipts and disbursements with respect to the Loan, which shall be
conclusive evidence of that amount.
Interest hereon shall be payable monthly, in arrears, on the first
Business Day of each month hereafter (for the previous month). For purposes
hereof, a "Business Day" shall mean any day on which banks are open for business
in Maryland, excluding Saturdays and Sundays.
This Note shall become due and payable upon the earlier to occur of (i)
the expiration of the Term, or (ii) any Event of Default under the Loan
Agreement, or any other event under any other Loan Documents which would result
in this Note becoming due and payable. At such time, the entire principal
balance hereof and all other fees, costs and expenses, if any, shall be due and
payable in full. Lender shall thereupon have the option at any time and from
time to time to exercise all of the rights and remedies set forth herein and in
the other Loan Documents, as well as all rights and remedies otherwise available
to Lender at law or in equity, to collect the unpaid indebtedness hereunder and
thereunder. This Note is secured by the Collateral, as defined in and described
in the Loan Agreement.
Whenever any principal and/or interest and/or fee hereunder shall not be
paid when due, whether at the stated maturity or by acceleration, interest on
such unpaid amounts shall thereafter be payable at a rate per annum equal to two
percentage points above the stated rate of interest on this Note until such
amounts shall be paid.
The undersigned and Lender intend to conform strictly to the applicable
usury laws in effect from time to time during the term of the Loan. Accordingly,
if any transaction contemplated hereby would be usurious under such laws, then
notwithstanding any other provision hereof: (a) the aggregate of all interest
that is contracted for, charged, or received under this Note or under any other
Loan Document shall not exceed the maximum amount of interest allowed by
applicable law, and any excess shall be promptly credited to the undersigned by
Lender (or, to the extent that such consideration shall have been paid, such
excess shall be promptly refunded to the undersigned by Lender); (b) neither the
undersigned nor any other Person (as defined in the Loan Agreement) now or
hereafter liable hereunder shall be obligated to pay the amount of such interest
to the extent that it is in excess of the maximum interest permitted by
applicable law; and (c) the effective rate of interest shall be reduced to the
Highest Lawful Rate (as defined in the Loan Agreement). All sums paid, or agreed
to be paid, to Lender for the use, forbearance, and detention of the debt of
Borrower to Lender shall, to the extent permitted by applicable law, be
allocated throughout the full term of this Note until payment is made in full so
that the actual rate of interest does not exceed the Highest Lawful Rate in
effect at any particular time during the full term thereof. If at any time the
rate of interest under the Note exceeds the Highest Lawful Rate, the rate of
interest to accrue pursuant to this Note shall be limited, notwithstanding
anything to the contrary herein, to the Highest Lawful Rate, but any subsequent
reductions in the Base Rate shall not reduce the interest to accrue pursuant to
this Note below the Highest Lawful Rate until the total amount of interest
accrued equals the amount of interest that would have accrued if a varying rate
per annum equal to the interest rate under the Note had at all times been in
effect. If the total amount of interest paid or accrued pursuant to this Note
under the foregoing provisions is less than the total amount of interest that
would have accrued if a varying rate per annum equal to the interest rate under
this Note had been in effect, then the undersigned agrees to pay to Lender an
amount equal to the difference between (a) the lesser of (i) the amount of
interest that would have accrued if the Highest Lawful Rate had at all times
been in effect, or (ii) the amount of interest that would have accrued if a
varying rate per annum equal to the interest rate under the Note had at all
times been in effect, and (b) the amount of interest accrued in accordance with
the other provisions of this Note and the Loan Agreement.
This Note is the "Note" referred to in the Loan Agreement, and is issued
pursuant thereto. Reference is made to the Loan Agreement for a statement of the
additional rights and obligations of the undersigned and Lender. In the event of
any conflict between the terms hereof and the terms of the Loan Agreement, the
terms of the Loan Agreement shall prevail. All of the terms, covenants,
provisions, conditions, stipulations, promises and agreements contained in the
Loan Documents to be kept, observed and/or performed by the undersigned are made
a part of this Note and are incorporated herein by this reference to the same
extent and with the same force and effect as if they were fully set forth
herein, and the undersigned promises and agrees to keep, observe and perform
them or cause them to be kept, observed and performed, strictly in accordance
with the terms and provisions thereof.
Each party liable hereon in any capacity, whether as maker, endorser,
surety, guarantor or otherwise, (i) waives presentment for payment, demand,
protest and notice of presentment, notice of protest, notice of non-payment and
notice of dishonor of this debt and each and every other notice of any kind
respecting this Note and all lack of diligence or delays in collection or
enforcement hereof, (ii) agrees that Lender and any subsequent holder hereof, at
any time or times, without notice to the undersigned or its consent, may grant
extensions of time, without limit as to the number of the aggregate period of
such extensions, for the payment of any principal, interest or other sums due
hereunder, (iii) to the extent permitted by law, waives all exemptions under the
laws of the State of Maryland and/or any state or territory of the United
States, (iv) to the extent permitted by law, waives the benefit of any law or
rule of law intended for its advantage or protection as an obligor hereunder or
providing for its release or discharge from liability hereon, in whole or in
part, on account of any facts or circumstances other than full and complete
payment of all amounts due hereunder, and (v) agrees to pay, in addition to all
other sums of money due, all cost of collection and attorney's fees, whether
suit be brought or not, if this Note is not paid in full when due, whether at
the stated maturity or by acceleration.
No waiver by Lender or any subsequent holder hereof of any one or more
defaults by the undersigned in the performance of any of its obligations
hereunder 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 Lender in exercising any right, power or remedy hereunder (including, without
limitation, the right to declare this Note due and payable) 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.
If any term, covenant or condition of this Note, 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 Note 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 undersigned shall cooperate with Lender to amend this Note so
as to effect the original intent of the parties as closely as possible in an
acceptable manner.
No amendment, supplement or modification of this Note nor any waiver of
any provision hereof shall be made except in writing executed by the party
against whom enforcement is sought.
This Note shall be binding upon the undersigned and its successors and
assigns. Notwithstanding the foregoing, the undersigned may not assign any of
its rights or delegate any of its obligations hereunder without the prior
written consent of Lender, which may be withheld in its sole discretion.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES
OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS NOTE IS COMMENCED BY
LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE STATE OF
MARYLAND, THE UNDERSIGNED HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH COURT
IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY
PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL,
POSTAGE PREPAID, TO THE UNDERSIGNED AT ITS ADDRESS DESCRIBED IN SECTION 9.4 OF
THE LOAN AGREEMENT.
THE UNDERSIGNED HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY
JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL
BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE
UNDERSIGNED, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE.
LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY
TRIAL. FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT
OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
TO ANY BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
JURY TRIAL PROVISION.
IN WITNESS WHEREOF, the undersigned have caused their authorized officers
to execute this Note as of the date first above written.
ATTEST: PHC OF UTAH, INC.
(Seal) a Massachusetts corporation
By:________________________ By:________________________________
Name: Name:
Title: Title:
29374251.12A
<PAGE>
EXHIBIT 10.80
THIS GUARANTY CONTAINS PROVISIONS FOR WAIVER
OF JURY TRIAL
UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE
THIS UNCONDITIONAL GUARANTY OF PAYMENT AND PERFORMANCE (the "Guaranty")
dated as of April 15, 1996 by PHC, INC., a Massachusetts corporation with its
principal place of business at 200 Lake Street, Suite 102, Peabody, MA 01960,
Attn: Ms. Paula Wurts, Chief Financial Officer (the "Guarantor"), in favor of
HEALTHPARTNERS FUNDING, L.P., a Delaware limited partnership with its principal
place of business at c/o HealthPartners Financial Corporation, 2001 L Street,
N.W., Suite 402, Washington, D.C. 20036, Attn: John K. Delaney, President (the
"Lender").
W I T N E S S E T H
WHEREAS, pursuant to a certain Loan and Security Agreement, dated as of
the date hereof (as such agreement may from time to time be amended, modified or
supplemented, the "Loan Agreement"), by and between PHC of Utah, Inc. d/b/a/
Highland Ridge Hospital (the "Borrower") and Lender, Lender has agreed to make
available to Borrower a revolving line of credit in the maximum aggregate
principal amount of One Million and No/100 Dollars ($1,000,000.00), or so much
thereof as shall be advanced or readvanced from time to time and remain unpaid
(the "Loan"); and
WHEREAS, the Lender is willing to make the Loan under the Loan Agreement
but only upon the condition, among others, that the Guarantor shall have
executed and delivered to Lender this Guaranty.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. Unless otherwise defined herein, all capitalized terms used in this
Guaranty shall have the respective meanings given them in the Loan Agreement.
2. In order to induce Lender to execute and deliver the Loan Agreement and
to make the Loan upon the terms and conditions set forth in the Loan Agreement,
and in consideration thereof, the Guarantor hereby unconditionally and
irrevocably guarantees to Lender and to its successors, endorsees, transferees
and assigns, Borrower's prompt and complete payment when due, whether at the
stated maturity, by acceleration or otherwise, of the Obligations, and
Borrower's prompt and complete performance of all of its other covenants,
obligations and agreements contained in the Loan Agreement.
3. The Guarantor hereby waives notice of the acceptance of this Guaranty
and of the extending of credit as above specified and the state of indebtedness
of Borrower at any time, and expressly agrees to any extensions, renewals,
accelerations or modifications of such credit or any of the terms thereof, and
waives diligence, presentment, demand of payment, protest or notice, whether of
non-payment, dishonor, protest or otherwise of any document or documents and
notice of any extension, renewal, modification or default and assent to the
release, substitution or variation of any collateral which may at any time be
held as security for any credit extended to Borrower, all without relieving the
Guarantor of any liability under this Guaranty. The obligations of the Guarantor
hereunder shall be an unconditional obligation to make prompt payment and
performance to the Lender irrespective of the genuineness, validity, regularity
or enforceability of any indebtedness or evidence of indebtedness of Borrower to
Lender or of other circumstances which might otherwise under the laws of any
jurisdiction constitute a legal or equitable discharge of a surety or a
guarantor or a bar (in the nature of a moratorium or otherwise) to the
enforcement of Lender's rights either (i) against Borrower on all or any part of
its Obligations or (ii) under this Guaranty.
4. Notwithstanding any payment or payments made by the Guarantor hereunder
or any setoff or application of funds of the Guarantor by the Lender, the
Guarantor shall not be entitled to be subrogated to any of the rights of the
Lender against the Borrower or any collateral security or guarantee or right of
offset held by Lender for the payment or performance of the Obligations, nor
shall the Guarantor seek any reimbursement from Borrower in respect of payments
made by the Guarantor hereunder, until all amounts owing and any other
performance due to Lender by Borrower for or on account of the Obligations are
paid and satisfied in full. Upon such payment and satisfaction in full, the
Guarantor shall be subrogated to all rights of Lender against Borrower or any
collateral security or guarantee or right of offset held by Lender for the
payment and performance of the Obligations.
5. Any indebtedness of Borrower now or hereafter owed to or held by
Guarantor is hereby subordinated to the indebtedness of Borrower to Lender; and
such indebtedness of Borrower to Guarantor if Lender so requests shall be
collected, enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the indebtedness of Borrower to Lender but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty.
6. This is intended to be and shall be construed as a continuing guarantee
and shall remain in full force and effect and can be binding in accordance with
and to the extent of its terms upon the Guarantor and its successors and
assigns, and shall inure to the benefit of the Lender, and its successors,
endorsees, transferees and assigns.
7. In the event that all or any part of the Obligations as aforesaid of
Borrower to Lender are not paid when due, the Guarantor hereby guarantees that
it will pay to Lender, upon demand therefor, without set-off or counterclaim and
without reduction by reason of any taxes, levies, imposts, charges and
withholdings, restrictions or conditions of any nature which are now or may
hereafter be imposed levied or assessed by any country, political subdivision or
taxing authority, all of which will be for the account of and paid by the
Guarantor, and Lender need not first proceed to preserve, utilize or exhaust any
other right or remedy against the Borrower or any other guarantor or any
security the Lender may have to obtain payment. Such payment will be made in
immediately available funds to the Lender's office at c/o HealthPartners
Financial Corporation, 2001 L Street, N.W., Suite 402, Washington, D.C. 20036,
Attn: John K. Delaney, President, or at such other place as Lender may designate
in writing.
8. No failure to exercise and no delay in exercising, on the part of the
Lender, any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege preclude any other or further exercise thereof, or the exercise of any
other power or right. The rights and remedies herein provided are cumulative and
not exclusive of any rights or remedies provided by law.
9. Notice or demand to the parties hereto shall be sufficiently given if
in writing and personally delivered, or mailed by registered or certified first
class mail, postage prepaid, return receipt requested, or sent by commercial
courier against receipt, or by telecopier (with a confirming copy sent by
regular mail) to the party intended and at the address or addresses specified in
the preamble to this Guaranty. A copy any notice or demand sent to Lender shall
also be sent to Shulman, Rogers, Gandal, Pordy & Ecker, P.A., 11921 Rockville
Pike, Third Floor, Rockville, Maryland 20852, Attn: Steven M. Curwin, Esq. Any
party may designate a change of address by notice in writing to the other
parties, such notice to be effective ten (10) days after mailing or delivery as
herein provided.
10. The Guarantor hereby represents, warrants, and covenants to Lender
that:
(a) It is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, and
has the corporate power and authority to own its property, conduct its
business as now being conducted and to make and perform this Guaranty and
the transactions contemplated hereby, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction
where the nature and extent of the business conducted by it, or property
owned by it, and applicable law require such qualification, except where
the failure so to qualify would not have a material adverse effect on the
business, operations or financial position of Guarantor.
(b) The extension, delivery and performance of this Guaranty have
been duly authorized by all necessary corporate action and will not
violate any provision of law or any order of any court or governmental
agency or the certificate of incorporation or other incorporating
documents or bylaws of Guarantor, or conflict with, or result in a breach
of, or constitute (with or without notice or lapse of time or both) a
default under, or result in the creation of any security interest, lien,
charge or encumbrance upon any property or assets of Guarantor, pursuant
to any agreement, indenture or other instrument to which it is a party or
by which it may be bound.
(c) Except as disclosed to Lender in writing prior to the execution
hereof, no action, suit, investigation or proceeding is pending or known
to be threatened against or affecting Guarantor which, if adversely
determined, would have a material adverse effect upon its financial
condition or operations.
(d) It is not in default under any provision of its certificate of
incorporation or other incorporating documents, by-laws or stock
provisions or any amendment of any thereof or of any indenture relating to
borrowed money or agreement to which it is a party or by which it is bound
or of any other indenture or of any order, regulation, ruling or
requirement of a court or public body or authority by which it is bound
which default would have a material adverse effect on the business,
operations or financial position of Guarantor.
(e) No license, consent or approval of, or filing with, any
governmental body or other regulatory authority is required for the making
and performance of this Guaranty or any instrument or transaction
contemplated herein. Guarantor holds all certificates and authorizations
of all governmental agencies and authorities required by law to enable it
to engage in the business currently transacted by it, except such
certificates and authorizations as to which the failure to do so hold
would not, in the aggregate, have a material adverse effect on it.
11. No provision of this Guaranty shall be waived, amended or supplemented
except by a written instrument executed by the Lender.
12. The obligations of the Guarantor under this Guaranty shall continue in
full force and effect and shall remain in operation until all of the Obligations
shall have been paid in full or otherwise fully satisfied, and continue to be
effective or be reinstated, as the case may be, if at anytime payment or other
satisfaction of any of the Obligations is rescinded or must otherwise be
restored or returned upon the bankruptcy, insolvency, or reorganization of
Borrower, or otherwise, as though such payment had not been made or other
satisfaction occurred. No invalidity, irregularity or unenforceability by reason
of applicable bankruptcy laws or any other similar law, or any law or order of
any government or agency thereof purporting to reduce, amend or otherwise
affect, the Obligations, shall impair, affect, be a defense to or claim against
the obligations of the Guarantor under the Guaranty.
13. In addition to its guarantee of Borrower's payment of the Obligations
and Borrower's performance of all covenants, obligations and agreements
contained in the Loan Documents, the Guarantor shall pay all costs and expenses
(including reasonable attorney's fees) paid or incurred by the Lender in
connection with the enforcement of this Guaranty.
14. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR RELATING
THERETO.
15. The Guarantor hereby agrees to execute any and all further documents,
agreements, and instruments, and take all further actions, which the Lender
shall reasonably request in order to effectuate the effect or further preserve,
evidence, perfect or protect the rights purported to be created in favor of
Lender hereunder.
16. The Guarantor hereby assumes responsibility for keeping itself
informed of the financial condition of the Borrower, and any and all endorsers
and/or other guarantors of any instrument or document evidencing all or any part
of the Obligations and of all other circumstances bearing upon the risk of
nonpayment of the Obligations or any part thereof that diligent inquiry would
reveal, and the Guarantor hereby agrees that the Lender shall have no duty to
advise the Guarantor of information known to the Lender regarding such condition
or any such circumstances. In the event the Lender, in its sole discretion,
undertakes at any time or from time to time to provide any such information to
the Guarantor, the Lender shall be under no obligation (i) to undertake any
investigation not a part of its regular business routine, (ii) to disclose any
information which, pursuant to accepted or reasonable commercial finance
practices, the Lender wishes to maintain confidential, or (iii) to make any
other or future disclosures of such information or any other information to the
undersigned.
17. This Guaranty may be executed in one or more counterpart copies, each
of which shall be an original and all of which together shall constitute one and
the same instrument, and it is not necessary that all parties' signatures appear
on each counterpart.
18. If any term, covenant or condition of this Guaranty, 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 Guaranty 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 Guaranty so as to
effect the original intent of the parties as closely as possible in an
acceptable manner.
19. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAWS. IF ANY ACTION ARISING OUT OF THIS GUARANTY IS
COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE
STATE OF MARYLAND, THE GUARANTOR HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND.
ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED
MAIL, POSTAGE PREPAID, TO THE GUARANTOR AT THE ADDRESS SET FORTH IN THE PREAMBLE
TO THIS GUARANTY.
20. THE GUARANTOR HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY
JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL
BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND
VOLUNTARILY, BY THE GUARANTOR, AND THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL
WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS
GUARANTY TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE GUARANTOR'S WAIVER
OF THE RIGHT TO JURY TRIAL. FURTHER, THE GUARANTOR HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, TO GUARANTOR THAT LENDER WILL NOT SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed
as of the date first written above.
ATTEST: PHC, INC., a Massachusetts
corporation
(SEAL)
Name:
Title:
52\HEALTHPA\PHC.12B
<PAGE>
EXHIBIT 10.81
STOCK PLEDGE AND SECURITY AGREEMENT
Agreement made and entered into as of the 7th day of November, 1995, by and
between PHC, INC., a Massachusetts corporation with its principal place of
business at 200 Lake Street, Peabody, Massachusetts 01960 ("Pledgor") and LINC
ANTHEM CORPORATION, a Delaware corporation, with its principal place of business
at 303 East Wacker Drive, Chicago, Illinois 60601 ('Pledgee').
WITNESSETH:
Whereas, Pledgor desires to induce Pledgee to enter into a leasing and/or
financing arrangement (hereinafter referred to as the "Financing Agreement")
with PHC OF NEVADA, INC. , a Massachusetts corporation (hereinafter referred to
as the 'Company' or, hereafter referred to both as 'Pledgor' and as 'Company' if
such parties are one and the same); and
Whereas, Pledgor, in order to induce Pledgee to enter into such Financing
Arrangement, and to secure the payment and performance of all of Company's
obligations under the Financing Arrangement, has agreed to pledge and grant a
lien and security interest in all of the securities listed and described in
Section I hereof and Exhibit 'A' hereto.
NOW, THEREFORE, in consideration of the foregoing, the covenants and conditions
herein contained and the mutual agreements of the parties hereto, Pledgor and
Pledgee hereby agree as follows:
1. COLLATERAL. To secure the payment and performance of all Company's
obligations and liabilities under the Financing Arrangement and all other
obligations and liabilities of the Company and/or the Pledgor to the Pledgee
absolute or contingent, due or to become due, direct or indirect, and whether
now existing or hereafter and howsoever arising, Pledgor hereby pledges and
assigns to Pledgee and grants unto Pledgee a security interest in:
1.1 The securities described in Exhibit 'A' attached hereto, with stock
powers attached thereto , all duly endorsed in blank herewith delivered to
Pledgee;
1.2 Any and all other securities deposited with Pledgee from time to time
in accordance with the provisions of Section 3 hereof;
1.3 Any and all other or additional securities to which Pledgor (without
additional consideration) now is, or hereafter may be, entitled by virtue of his
ownership of any of the foregoing securities as the result of any corporate
reorganization, merger or consolidation, stock split, stock dividend or
otherwise; and
1.4 Any and all dividends, distributions and other amounts to which
Pledgee is entitled pursuant to the provisions of Section 4 hereof;
- 1 -
<PAGE>
Subsections 1.1I through 1.4 above are hereinafter collectively called the
"Collateral".
2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to
Pledgee
that:
2.1 The execution, delivery and performance by Pledgor of this Stock
Pledge and Security Agreement will not violate any provision of law, any order
of any court or other agency of government, or any indenture agreement or other
instrument to which Pledgor is a party or by which Pledgor or any of Pledgor's
property is bound or be in conflict with, result in a breach of or constitute
(with due notice or lapse of time, or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of his property or
assets, except as contemplated by the provisions of this Stock Pledge and
Security Agreement;
2.2 This Stock Pledge and Security agreement constitutes a legal, valid
and binding obligation of Pledgor in accordance with its terms; and
2.3 As to such of the Collateral deposited with Pledgee on the date
hereof, (i) Pledgor is the legal and beneficial owner thereof;, (ii) the same is
validly issued, fully paid and nonassessable and is registered in Pledgor's
name; (iii) the stock transfer foams attached to the certificates representing
such Collateral have duly executed and delivered by Pledgor to Pledgee; and (iv)
none of such Collateral is subject to any security interest, pledge, lien or
other encumbrance, or adverse claim of any kind whatsoever, except for the
interest therein granted to Pledgee hereby.
3. VALUE of Collateral. It is the intent of Pledgor and Pledgee that the
Collateral shall have, at all times, a value of not less than the then
outstanding unpaid balance due under that certain Secured Promissory Note issued
by PHC OF NEVADA, INC. in favor of Pledgee in the original principal amount of
$750,000. Pledgor agrees to maintain such value by pledging from time to time
pursuant to this Stock Pledge and Agreement and, upon the request of Pledgee,
additional cash or securities satisfactory to Pledgee.
4. STOCK SPLITS, STOCK DIVIDENDS, ETC.
4.1 In the event that Pledgor, by virtue of Pledgor's ownership of the
Collateral now is, or hereafter becomes, entitled (without additional
consideration) to other or additional securities as the result of any corporate
reorganization, merger or consolidation, stock split, stock dividend, or
otherwise, Pledgor shall:
4.1.1 Cause the Issuer thereof to deliver to Pledgee the certificates
evidencing Pledgor's ownership thereof and hereby authorizes and empowers
Pledgee to demand the same from such insurer, and agrees if such certificates
are delivered to
- 2 -
<PAGE>
Pledgor, to take possession thereof in trust for Pledgee and
forthwith deliver the same to Pledgee;
4.1.2 Deliver to Pledgee a stock transfer form with respect to such
securities, executed in blank by Pledgor and on which shall be endorsed the
guarantee by a banking association acceptable to Pledgee, that the signature on
such form is genuine;
4.1.3 Deliver to Pledgee a certificate, executed by Pledgor and dated the
date of such pledge, as to the truth and correctness on such date of the
warranties set forth in Subsection 2.3 hereof; and
4.1.4 Deliver to Pledgee such other certificates, forms and other
instruments as Pledgee may request in
connection with such pledge.
4.2 Pledgor agrees that such securities shall constitute a portion of the
Collateral and be subject to this Stock Pledge and Security Agreement in the
same manner and to the same extent as the securities pledged
hereby to Pledgee on the date hereof.
5. VOTING POWER, DIVIDENDS, SUBSTITUTIONS. Unless and until an Event of
Default hereunder, shall have occurred Pledgor shall be entitled to:
5.1 Exercise all voting powers pertaining to the securities included in
the, Collateral for any purpose not inconsistent with, or in violation of, the
provisions of this Stock Pledge and Security Agreement, in all corporate matters
(unless Pledgee consents thereto) except those which, in Pledgee's sole
discretion , may affect the value of the assets owned by the Company or the
value of the Collateral including, but not limited to, those related to any
merger or consolidation of the Company with any other firm or corporation,
reorganization or liquidation of the Company, or mortgage, hypothecation, sale
or any other disposition whatsoever by the Company of any of its assets;
5.2 Collect and receive all cash dividends with respect to such securities
paid out of the retained earnings or the current net profits of the issuer
thereof.
Pledgee shall be entitled to collect and receive all other dividends and
distributions on such securities (whether in stock, cash or other property)
received in exchange or substitution for or upon conversion of, such securities
and all amounts payable or distributable upon the liquidation, whether voluntary
or involuntary, of any issuer thereof. Cash received by Pledgee pursuant to the
provisions of this Section 5 may be commingled by Pledgee with its other funds,
and shall be non-interest bearing. Pledgor agrees that if it receives any of
such dividends, distributions, securities and other amounts to which Pledgee is
entitled, it shall take possession thereof in trust for Pledgee and forthwith
deliver the same to Pledgee, and agrees that the same shall constitute a portion
of the Collateral and be subject to this Stock Pledge and Security Agreement in
the same
- 3 -
<PAGE>
manner and to the same extent as the securities pledged to Pledgee on the date
hereof.
6. DEFAULT AND REMEDIES.
6.1 The occurrence of any of the following shall constitute an Event of
Default
hereunder:
6. 1.1 Any representation or warranty made by Pledgor to Pledgee hereunder,
or in any certificate delivered to Pledgee pursuant hereto, or under any other
agreement between and Pledgee, shall prove to have been false or misleading in
any material respect as of the date on which the same was made; or
6.1.2 Pledgor shall fail to duly observe or perform any other covenant or
agreement made by Pledgor hereunder or under any other agreement made by Pledgor
and Pledgee; or
6.1.3 An Event of Default under the Financing Arrangement shall occur and
be continuing; or
6.1.4 Bankruptcy, reorganization, receivership, insolvency or other similar
proceedings shall be instituted by or against Pledgor or all or any part of his
property under the Federal Bankruptcy Act or other law of the United States or
of any state or other competent jurisdiction and, if against Pledgor, he shall
consent thereto or shall fail to cause the same to be discharged within thirty
(30) days.
6.2 If an Event of Default shall occur and be continuing, Pledgee may, at
its option:
6.2.1 Upon giving notice to Pledgor thereof, cause the securities
included in the Collateral to be
registered in its name or in the name of its nominee;
6.2.2 Upon giving notice to Pledgor thereof, exercise all voting
powers pertaining to such securities and otherwise act with respect
thereto as though Pledgee were the outright owner thereof (Pledgor
hereby irrevocably constituting and appointing Pledgee its proxy and
attorney-in-fact with full power of substitution so to do);
6.2.3 Receive all dividends and all other distributions of any
kind whatsoever on all or any of such
securities;
6.2.4 Exercise any and all rights of collection, conversion or exchange,
and any and all other rights, privileges, options or powers of Pledgor
pertaining or relating to such securities (Pledgor hereby irrevocably
constituting and appointing Pledgee its proxy and attorney-in-fact with full
power of substitution so to do);
- 4 -
<PAGE>
6.2.5 Sell, assign and deliver the whole, or from time to time, any
part of such securities at any broker's board or at any private sale or at
public auction, with or without demand for performance, advertisement or
notice of the time or place of sale or adjournment thereof or otherwise,
and free from any right of redemption (all of which hereby are expressly
waived) for cash, for credit or for other property , for immediate or
future delivery, and for such price or prices and on such terms as Pledgee
in its uncontrolled discretion may determine; and
6.2.6 Exercise any other remedy specifically granted under this
Stock Pledge and Security Agreement or now or hereafter existing in
equity, at law, by virtue of statute or otherwise.
6.3 For the purposes of this Section 6, an agreement to sell all or any part of
such securities shall be treated as a sale thereof and Pledgee shall be free to
carry out such sale pursuant to such agreement, and Pledgor shall not be
entitled to the return of any of the same subject thereto, notwithstanding that
after Pledgee shall have entered into such an agreement, all Events of Default
hereunder may have been remedied or all obligations under the Financing
Arrangement may have been paid and performed in full.
6.4 At any sale made pursuant to Subsection 6.2, Pledgee may bid for and
purchase, free from any right or equity of redemption on the part of Pledgor
(the same being hereby waived and released), any part of or all securities
included in the Collateral that are offered for sale and may make payment on
account thereof by using any claim then due and payable to Pledgee by Pledgor as
a credit against the purchase price, and Pledgee may, upon compliance with the
terms of sale, hold, retain and dispose of such securities without further
accountability therefor.
6.5 Pledgee shall apply the proceeds of any sale of the whole or any part of
such securities and any part of such securities and any other monies at the time
held by Pledgee under the provisions of this Stock and Security Agreement, after
deducting all costs and expenses of collection, sale and delivery (including,
without limitation, reasonable attorney's fees and other legal expenses)
incurred by Pledgee in connection with such sale, towards the payment of the
Company's obligations, accrued and executory, under the Financing Arrangement
and any other obligations of the Company and/or Pledgor to Pledgee. Pledgee
shall remit any surplus to Pledgor.
- 5 -
<PAGE>
6.6 Pledgee shall not have any duty to exercise any of the rights, privileges,
options or powers or to sell or otherwise realize upon any of such securities,
as hereinbefore authorized, and Pledgee shall not be responsible for any failure
to do so or delay in so doing.
6.7 Any sale of, or the grant of options to purchase, or any other realization
upon, all or any portion of such securities, under Subsection 6.2 shall operate
to divest all right, title, interest, claim and demand, EITHER at law or in
equity, of Pledgor in and to such securities so sold, optioned or realized upon,
or any part thereof, from, through and under Pledgor.
6.8 Pledgor recognizes that Pledgee may be unable to effect a public sale of all
or a part of the Collateral by reason of certain prohibitions contained in the
Securities Act of 1933 as amended (the 'Act), or that it may be able to do so
only after delay which might adversely affect the value that might be realized
upon the sale of the Collateral. Accordingly, Pledgor agrees that Pledgee may,
without the necessity of attempting to cause any registration of the Collateral
to be effected under the Act, sell the Collateral or any part thereof in one or
more private sales to a restricted group of purchasers who may be required to
agree, among other things, that they are acquiring the Collateral for their own
account for investment and not with a view to the, distribution or resale
thereof. Pledgor agrees that any such private sale may be at prices or on terms
less favorable to the owner of the Collateral than would be the case if they
were sold at public sale, and that any such private sale shall be deemed to have
been made in a commercially reasonable manner.
6.9 Pledgor agrees that without affecting the right of private sale as
aforesaid, it will, upon request of Pledgee, if in the opinion of Pledgee's
counsel registration of the Collateral or any part thereof is required under the
Act, use its best efforts to complete and cause to become effective a
registration of the Collateral under the Act, and to take all other actions
necessary, in Pledgee's opinion, to enable Pledgee to sell, within ninety (90)
days of the commencement of such best efforts, the Collateral pursuant to an
effective registration statement under the Act. Such best efforts shall be
commenced promptly after request by the Pledgee which may be given at any time
on or after the occurrence of an Event of Default hereunder or under the
Financing Arrangement and while the same is continuing. All expenses of such
registration, including, without limitation, registration and filing fees, blue
sky fees, printing expenses, fees and disbursements of counsel for Pledgor and
Pledgee, fees and expenses of auditors of Pledgor and Pledgee, and all
underwriter, broker or dealer discounts, and all transfer taxes properly
attributable to the Collateral, shall be borne by Pledgor who agrees to do all
acts and things which are usual and customary in connection with registered
offerings of securities, including entering into indemnification agreements with
Pledgee and any underwriters. The managing underwriter of any public offering
for which any said registration statement is filed shall have the right to
impose such conditions on the sale of the Collateral as it shall reasonably
- 6 -
<PAGE>
deem necessary to protect the underwritten offering, provided such conditions
are similarly and proportionately imposed on other shares which may be included
in said registration as the result of the exercise of piggyback rights by the
holders of such other shares.
7. PLEDGEE'S OBLIGATIONS, CUSTODIAL AGREEMENT.
7.1 Pledgee shall have no duty to protect, preserve or enforce rights
under any security
included in the Collateral other than a duty of reasonable custodial care,
of any such security in its possession.
7.2 Pledgor understands and agrees that Pledgee may deposit such
securities with a custodian and hereby agrees to pay reasonable fees of any such
custodian in connection with its acting as custodian.
8. TERMINATION OF STOCK PLEDGE AND SECURITY AGREEMENT . Upon termination of the
Financing Arrangement and the payment in full of all of the obligations secured
hereby, Pledgee shall cause to be transferred to Pledgor all of the stock
pledged by Pledgor herein and any rights received by Pledgee pursuant hereto
(less any portion of same sold, transferred or disposed of pursuant to, and
under the circumstances specified in, Section 6 hereof), and this Stock Pledge
and Security Agreement shall thereupon be terminated.
9. Miscellaneous.
9.1 Pledgor further unconditionally agrees that if Company is in Default
under the Financing Arrangement,
Pledgee may exercise its rights and remedies hereunder prior to,
concurrently with, or subsequent to, the exercise by Pledgee of its rights and
remedies against the Company under the Financing Arrangement, or otherwise, or
against any guarantor of the Company's obligations under same. The obligations
of Pledgor under this Stock
Pledge and Security Agreement shall be absolute and unconditional, and
shall remain in full force and effect
without regard to, and shall not be released or discharged or in any way
affected by:
9. 1. 1 The failure of Pledgee to give any notices to which Pledgor is or
may be entitled, all of which are hereby waived by Pledgor;
9.1.2 Any amendment or modification of or supplement to the Financing
Arrangement;
- 7 -
<PAGE>
9.1.3 Any exercise or non-exercise of any right, remedy or privilege
under or in respect of this Stock Pledge and Security Agreement, the Financing
Arrangement or any other agreements, instruments or documents, or the granting
of any postponements or extensions for time of payment or other indulgences to
the Company or any other person, or the settlement or adjustment of any claim or
the release or d discharge or substitution of any person primarily or
secondarily liable with respect to the Financing Arrangement;
9.1.4 The institution of any bankruptcy, insolvency, reorganization, debt
arrangement, readjustment, composition, receivership or liquidation proceedings
by or against the Company; or
9.1.5 Any assumption by any third party of the obligations of the Company
under the Financing Arrangement, or any assignment by Pledgee referred to in
Subsection 9.2.
9.2 Should Pledgee at any time assign any of its rights under the Financing
Arrangement, Pledgee may assign its rights under this Stock Pledge and Security
Agreement, and may deliver the Collateral or any portion thereof to the assignee
who shall thereupon, to the extent provided in the instrument of assignment,
have all of the rights of Pledgee hereunder with respect to the Collateral and
Pledgee shall, thereafter, be fully discharged from any responsibility with
respect to the Collateral so delivered to such assignee. No such assignment,
however, shall relieve such assignee of those duties and obligations of Pledgee
specified hereunder.
9.3 Each and every right, remedy and power granted to Pledgee hereunder shall be
cumulative and in addition to any other right remedy or power herein
specifically granted or now or hereafter existing in equity, at law, by virtue
of statute or otherwise and may be exercised by Pledgee, from time to time
concurrently or independently and as often and in such order as Pledgee may deem
expedient. Any failure or delay on the part of Pledgee in exercising any such
right, remedy or power, or abandonment or discontinuance of steps to enforce the
same, shall not operate as a waiver thereof or affect Pledgee's right thereafter
to exercise the same, and any single or partial exercise of any such right,
remedy or power shall not preclude any other or further exercise thereof or the
exercise of any other right, remedy or power.
9.4 Any modification or waiver of any provision of this Stock Pledge and
Security Agreement, or any consent to any departure by Pledgee therefrom, shall
not be effective in any event unless the same is in writing and signed by
Pledgee, and then such modification, waiver or consent shall be effective only
in the specific instance and for the specific purpose given. Any notice to or
demand on Pledgor in any event not specifically required of Pledgee hereunder
not shall not entitle Pledgor to any other or further notice or demand in the
same, similar or other circumstances unless specifically required hereunder.
<PAGE>
9.5 Pledgor agrees that at any time, and from time to time, after the execution
and delivery of this Stock Pledge and Security Agreement, Pledgor will upon the
request of Pledgee, execute and deliver such further documents and do such
further acts and things as Pledgee may reasonably request in order to fully
effect the purpose of this Stock Pledge and Security Agreement and to subject to
the security interest created hereby any property intended by the provisions
hereof to be covered hereby.
9.6 Any notice, request, demand, consent, approval or other communication
provided or permitted hereunder shall be in writing and be given by personal
delivery or sent by United States first-class mail, postage prepaid, addressed
to the party for
whom it is intended, at its address as follows:
To Pledgor: PHC, INC.
200 Lake Street,
Peabody, Massachusetts 01960
Attention: Bruce A. Shear
To Pledgee: LINC ANTHEM CORPORATION
303 East Wacker Drive, 10th Floor
Chicago, Illinois 60601
Attn: Treasurer
provided, however, that either party may change its address for purposes of
receipt of any such communication by giving ten (10) days' written notice of
such chance to the other party in the manner above provided.
9.7 This Stock Pledge and Security Agreement shall be deemed to have been made
under, and shall be governed by, the laws of the State of Illinois in all
respects, including matters of construction , validity and performance.
9.8 If any provision of this Stock Pledge and Security Agreement is prohibited
by, or is unlawful or unenforceable under, any applicable law of any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof; provided, however, that any such prohibition in any jurisdiction shall
not invalidate such provision in any other jurisdiction; and, provided further
that where the provisions of any such applicable law may be waived, they hereby
are waived by Pledgor to the full extent permitted by law to the end that this
Stock Pledge and Security Agreement shall be deemed to be valid and binding in
accordance with its terms.
9.9 This Stock Pledge and Security Agreement shall inure to the benefit of the
successors and assigns of Pledgee and shall be binding upon the heirs,
executors, administrators, legal representatives, successors and assigns of
Pledgor.
- 9 -
<PAGE>
INTENTIONALLY LEFT BLANK.
- 10 -
<PAGE>
IN WITNESS WHEREOF, PLEDGOR AND PLEDGEE HAVE CAUSED THIS AGREEMENT TO BE
EXECUTED AS OF THE DATE FIRST ABOVE WRITTEN.
WITNESS OR ATTEST: PHC, INC.
(PLEDGOR)
BY:
TITLE:
(PRINT NAME)
LINC ANTHEM CORPORATION
(PLEDGEE)
BY:
TITLE:
<PAGE>
EXHIBIT "A"
CAPITALIZATION AND STOCKHOLDERS OF: PHC OF NEVADA, INC.
AUTHORIZED: 200,000 SHARES
PAR VALUE: $.01
ISSUED AND OUTSTANDING: 100 SHARES
SHARES HELD BY PLEDGOR: 100 SHARES
STOCK CERTIFICATE NUMBER(S): #1
PLEDGOR'S INITIALS PLEDGEE'S INITIALS
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, PHC, INC., the undersigned hereby sells, assigns and
transfers unto LINC ANTHEM CORPORATION 100 Shares of the common stock of PHC OF
NEVADA, INC. (the "Company") represented on the books of the Company by
Certificate No. 1 herewith and do hereby irrevocably constitute and appoint
attorney to transfer the the said stock on the books of the within named Company
with full power of substitution in the premises.
Date: Nov. 7, 1995 PHC, INC.
By:
Name: BRUCE A. SHEAR
Title: PRESIDENT
A TTESTED IN PRESENCE OF
<PAGE>
Exhibit 10.82
TABLE OF CONTENTS
SECTION 1. SALE OF THE BUSINESS ASSETS...............................2
SECTION 2. PURCHASE PRICE, ALLOCATION OF PURCHASE PRICE AND ADDITIONAL PAYMENTS
3
SECTION 3. CLOSING....................................................3
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER...................3
4.1 CORPORATE EXISTENCE..............................................3
4.2 CORPORATE AUTHORITY..............................................4
4.3 FINANCIAL STATEMENTS.............................................4
4.4 NO VIOLATION OF AGREEMENT........................................4
4.5 REGULATORY COMPLIANCE............................................4
4.6 NON-COMPETITION AND AMENDMENT OF ARTICLES........................4
4.7 LEASES...........................................................4
4.8 INDEBTEDNESS ....................................................5
4.9 CONTRACTS AND COMMITMENTS........................................5
4.10 TAX RETURNS AND PAYMENTS.........................................5
4.11 LITIGATION AND OTHER PROCEEDINGS.................................5
4.12 BROKER...........................................................6
4.13 INSURANCE........................................................6
4.14 NOTICES..........................................................6
4.15 EMPLOYEES........................................................7
4.16 EMPLOYMENT LAWS..................................................7
4.17 COST REPORTS.....................................................7
4.18 BANKRUPTCY, ETC..................................................7
4.19 INFORMATION NOT MISLEADING.......................................8
4.20 AUDITS...........................................................8
4.22 TRADE NAME.......................................................8
4.23 PROPERTY.........................................................8
4.24 PATIENT PAYMENTS.................................................8
4.25 SELLER'S RESPONSIBILITIES........................................8
4.26 CONSULTANTS......................................................9
SECTION 5. COVENANTS OF SELLER........................................9
5.1 CONDITION OF PERSONAL PROPERTY...................................9
5.2 ACCESS AND PREPARATION OF LICENSE APPLICATION....................9
5.3 ORDINARY COURSE OF BUSINESS......................................9
5.4 COMPENSATION.....................................................9
5.5 INSURANCE........................................................9
5.6 REVIEW OF STAFF.................................................10
5.7 RIGHT OF INSPECTION.............................................10
5.8 DISCHARGE OF OBLIGATIONS........................................10
5.9 PUBLICITY.......................................................10
5.10 POST-CLOSING OPERATION OF CLINIC AND USE OF BUSINESS ASSETS.....10
SECTION 6. REPRESENTATION AND WARRANTIES OF PURCHASER................10
6.1 ORGANIZATION OF PURCHASER.......................................11
6.2 CORPORATE ACTION BY PURCHASER...................................11
6.3 OPINION OF COUNSEL FOR PURCHASER................................11
SECTION 7. CONDITIONS TO CLOSING.....................................11
7.1 REPRESENTATION, WARRANTIES AND COVENANTS........................12
7.2 LEASE FOR REAL PROPERTY.........................................12
7.3 THIRD PARTY PAYORS..............................................12
7.4 LICENSES AND APPROVALS..........................................12
7.5 SALE OF BUSINESS ASSETS.........................................12
7.6 INSURANCE.......................................................12
7.7 NO MATERIAL CHANGE..............................................13
7.8 NON-COMPETITION.................................................13
7. 9 PAYROLL.........................................................13
7.10 CONSENTS........................................................13
7.11 FINANCIAL DUE DILIGENCE.........................................13
7.12 CORPORATE AUTHORITY.............................................13
7.13 OPINION OF COUNSEL FOR SELLER...................................13
7.14 CERTIFICATE OF RELEASE..........................................14
7.15 EMPLOYMENT AGREEMENT............................................15
SECTION 8. NO ASSUMPTION OF LIABILITIES..............................15
SECTION 9. INDEMNIFICATION...........................................15
9.1 INDEMNIFICATION OF PURCHASER....................................15
9.2 INDEMNIFICATION OF SELLER.......................................15
SECTION 10. RIGHTS OF TERMINATION AND REMEDIES FOR DEFAULT...........16
10.1 DEFAULT BY SELLER...............................................16
10.2 PURCHASER'S RIGHT TO TERMINATE..................................16
10.3 SELLER'S RIGHT TO TERMINATE.....................................16
10.4 DEFAULT BY PURCHASER............................................17
SECTION 11. MISCELLANEOUS............................................17
11.1 SURVIVAL........................................................17
11.2 DISCLAIMER OF INTENT TO BECOME PARTNERS.........................17
11.3 ADDITIONAL DOCUMENTS............................................17
11.4 NOTICES.........................................................18
11.5 NON-ASSIGNMENT..................................................18
11.6 SOLE AGREEMENT..................................................18
11.7 SUCCESSORS......................................................19
11.8 CAPTIONS........................................................19
11.9 SEVERABILITY....................................................19
11.10 COUNTERPARTS....................................................19
11.11 NO WAIVER.......................................................19
11.12 ATTORNEY'S FEES AND COSTS.......................................19
11.13 APPLICABLE LAW, JURISDICTION AND VENUE..........................19
<PAGE>
ASSET PURCHASE AGREEMENT
This Agreement is made as of this 28 day of October, 1995, by and among Norton
A. Roitman, M.D. ("Dr. Roitman"), an individual residing in the State of Nevada;
Clinical Services of Nevada, Inc., a Nevada corporation; and Harmony Healthcare
Systems, Inc., a Nevada corporation (collectively, "Seller") located at 2340
Paseo Del Prado, Las Vegas, NV 89102; and PHC, Inc., doing business as Pioneer
Healthcare ("Pioneer") and PHC of Nevada, Inc. a wholly-owned subsidiary of
Pioneer (collectively "Purchaser"), both of which are Massachusetts business
corporations with headquarters at 200 Lake Street, Peabody, Massachusetts.
Seller and Purchaser may hereinafter be referred to as the "Parties".
This Agreement is made with reference to the following facts:
A. Seller owns a business which consists of the operation of an outpatient
mental health services facility located at 2340 Paseo Del Prado, Las
Vegas, NV 89102, known as Harmony Counseling (the "Clinic"). This business
and all of the assets of Seller owned by Seller and used in the operation
of the Clinic shall hereinafter be referred to as "the Business Assets";
B. Seller wishes to sell the Business Assets and Purchaser wishes to buy
the Business Assets subject to the conditions herein set forth;
C. Upon consummation of the transactions contemplated by this Agreement,
Purchaser intends to utilize the Business Assets in the provision of
outpatient mental health services in Clark County, State of Nevada.
D. Purchaser wishes to employ Dr. Roitman as Chief Medical Officer of the
Clinic, PHC of Nevada, Inc. and as Chief Medical Officer of Pioneer and Dr.
Roitman wishes to be so employed;
E. Purchaser wishes to enter into a lease for the premises presently
occupied by the Clinic at 2340 Paseo Del Prado, Las Vegas, Nevada (the
"Property") or to enter into a lease for alternative premises acceptable
to Purchaser and suitable for operation of the Clinic ("Alternative
Premises");
NOW, THEREFORE for and in consideration of the recitals and the mutual covenants
herein contained, Seller and Purchaser agree as set forth below:
SECTION 1. SALE OF THE BUSINESS ASSETSSECTION 1. SALE OF THE BUSINESS ASSETS. On
the terms and conditions set forth herein, Seller shall sell to Purchaser and
Purchaser shall purchase from Seller the Business Assets including, but not
limited to, the following:
1.1 All machinery, equipment, furniture, furnishings, vehicles,
computers, telephones, supplies, and all tangible assets (excluding cash
or cash equivalents and leased assets), used in connection with the
operation of the Clinic, wherever located, as more particularly described
in Exhibit A attached hereto, and
1.2 All of Seller's right, title and interest in, to, or under the
contracts, agreements, leases, licenses (excluding Dr. Roitman's medical
licenses), permits, approvals, purchase orders and commitments, and any
other intangible assets used in connection with the operation of the
Clinic, through the Closing Date (as hereinafter defined), which will be
acquired by Purchaser as specifically enumerated and more fully described
in Exhibit B.
1.3 All leasehold improvements to the Property which are owned by
Seller, as more fully described in Exhibit C, if Purchaser enters into a
Lease for the Property.
1.4 All Accounts Receivable of Seller as they exist on the Closing
Date, as more fully described in Exhibit D, subject to the terms of
Section 2 (a) (iv).
1.5 All Seller's books, records, files and correspondence, display
and promotional material relating to or utilized in connection with the
operation of the Clinic, wherever located, through the Closing Date,
together with all of the goodwill throughout the world attached to the
Clinic, and any other intangibles, including trademarks, corporate names,
trade names, all customer lists, consent to the rights to use the
telephone numbers and listings pertaining to same, the entire inventory of
office, housekeeping, recreation and maintenance supplies, if any. This
does not include patient records. However, Purchaser shall be solely
responsible for the proper safekeeping, storage and retrieval of all
patient records after the Closing.
1.6 Except as expressly provided herein to the contrary, all other
assets, tangible or intangible, wherever located owned by Seller and held
or used in connection with the ownership, operation and management of the
Clinic, whether or not included in or reflected on the books of Seller or
its financial statements.
1.7 All rights and claims of Seller relating to the Business Assets.
<PAGE>
SECTION 2. PURCHASE PRICE, AND ALLOCATION OF PURCHASE PRICE AND ADDITIONAL
Payments.
(a) The purchase price payable by Purchaser to Seller for the
Business Assets shall be cash in the sum of Five Hundred and Seventy Five
Thousand ($575,000.00) Dollars plus stock as described below
(collectively, the "Purchase Price"), which shall be paid as follows:
(i) Purchaser has deposited in the Client Trust Account of
Seller's attorney the sum of Ten Thousand Dollars ($10,000.00) (the
"Deposit"), payable to Seller at the Closing (or in other circumstances
described in this Agreement);
(ii) Five Hundred and Sixty Five Thousand ($565,000.00) Dollars in cash
payable at the Closing;
(iii) 75,000 shares of PHC, Inc. Class A Common Stock, subject to
the restrictions of Rule 144 of the Securities Act of 1933, at the
Closing. (A description of these securities and applicable restrictions
have been provided to Seller's counsel).
(iv) Additional payments upon the collection of certain
receivables will be paid to Dr. Roitman in accordance with Exhibit E..
(b) Allocation of Purchase Price. It is agreed that the purchase price
shall be allocated as shown on schedule 2 (b).
SECTION 3. CLOSING. Consummation of this Agreement (the "Closing") shall be held
at such place as the Parties may mutually agree upon or through the use of
escrow agents, as the parties may agree. The Closing shall take place on or
before October 31, 1995 (the "Closing Date"). The Closing is subject to other
provisions of this Agreement. Disposition of Purchaser's Deposit is discussed in
Section 10. The Parties may agree in writing to extend the Closing Date without
the forfeiture of the Deposit.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER.
As a material inducement to Purchaser to enter into and consummate this
Agreement, Seller warrants and represents that:
4.1 CORPORATE EXISTENCE. Clinical Services of Nevada, Inc. and Harmony
Healthcare Systems, Inc., are each corporations duly organized and existing in
good standing under the laws of the State of Nevada. Together they have the
corporate power to own the Business Assets and to operate the Clinic as now
conducted.
<PAGE>
EXHIBIT A
FURNITURE
2 Person Sofa 2
7' Sofa 1
Blue Group Chair 6
Red Group Chair 25
Green Group Chair 3
Beige Group Chair 4
Coffee Table-Oak & Glass 3
Coffee Table-Oak Octagon
Coffee Table-Cherry w/Drawer 1
Bookcase - Oak 4 shelves 2
Bookcase - Oak 5 Shelves 2
Bookcase - Oak 6 Shelves 2
Bookcase - Metal 4' 1
Credenza - Oak 1
Desk - Oak 6' w/return 1
Desk - Oak 5' 2 Drawer 1
Desk - Oak 5' 4 Drawer 3
U Shape Work Station w/Raised Counter 1
Small Desk w/Shelf 1
Exc. Desk Chair w/rollers 1
Exc.Desk Chair w/Rollers-Blue 1
Exc.Desk Chair w/rollers - Green 1
Exc.Desk Chair w/rollers - Grey 1
Exc.Desk Chair w/rollers - Red 1
Sec. Chair w/rollers- Beige 1
Sec. Chair w/rollers - Blue 1
Antique Table 23" X 24" 1
Chest 1
Telephone Stand 1
Protective Floor Mats 6
Rug- - 5' X 8' 1
Fi le Cabinet - 2 Drawer Beige 5
File Cabinet - 5 Drawer Legal Beige 2
File Cabinet - 2 Drawer Lateral Beige 1
Storage Cabinet - 6' 2 Door Beige Metal 1
Chair Stand - 5' X 1' X 4' 1
AUDIO/VISUAL
Symphanic TV/VCR 20" 1
Audio/Visual Cart w/Rollers 1
Audio/Visual 910 w/Cart 1
Marpac sound screen 1
Sound Screen 1
Easel, Metal Adjustable 1
Chalkboard 3' X 4' 1
Chalkboard 4' X 4' 2
Chalkboard 4' X 5' 2
Chalkboard 5' X 6' 1
Radio/Tape Player 1
<PAGE>
4.2 CORPORATE AUTHORITY. Seller is the sole owner of the Business
Assets, and has the full power and authority to enter into and to perform
this Agreement. All corporate proceedings necessary to duly authorize the
execution and delivery of this Agreement and all related documents
(collectively, "the Documents") by the officer or officers executing the
same on behalf of Clinical Services of Nevada, Inc. and Harmony Healthcare
Systems, Inc. have been taken. The Documents are legal and binding
obligations of Seller, enforceable in accordance with their terms and
conditions applicable to Seller.
4.3 FINANCIAL STATEMENTS. Seller has delivered to Purchaser Income
Statements and Balance Sheets for the Business for the calendar years
ending December 31, 1992 through 1994 and monthly from January 1, 1995
through August 31, 1995 (the "Financial Statements"). The Financial
Statements have been prepared on a consistent basis and fairly represent
the financial condition of Seller at the stated dates and the results of
operations of the Seller for such periods. If the Closing Date is
extended, financial statements will be provided for the most recent
month's end.
4.4 NO VIOLATION OF AGREEMENT. The execution and delivery of this
Agreement and/or the consummation of the transactions contemplated herein
will not violate or result in a breach of any condition of the Articles of
Incorporation or the Bylaws, or violate or result in a breach of any
condition of any agreement, lease, contract, judgment, decree, statute,
rule or regulation applicable to Seller, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon the
Business Assets.
4.5 REGULATORY COMPLIANCE. To the best knowledge of Seller, the
Business Assets are, have been and will be at the Closing Date, in
compliance with all applicable federal, state and local laws, ordinances,
codes, regulations and requirements.
4.6 NON-COMPETITION AND AMENDMENT OF ARTICLES. Seller shall execute a
Non-Competition Agreement in favor of Purchaser in the form attached hereto as
Exhibit P. Clinical Services of Nevada, Inc. and Harmony Healthcare Systems,
Inc. shall file amended Articles of Incorporation with the Office of the
Secretary of State of Nevada concurrent with the Closing to effect name changes
for each of the corporations. Purchaser shall have the right to approve these
new names; such approval shall not be unreasonably withheld.
4.7 LEASES. Except for the Property and as otherwise listed on
Exhibit F, Seller owns all assets which are necessary to operate the
Clinic. Seller does not lease any personal property, equipment or fixtures
used in the conduct of the Clinic, except as shown in the schedule
attached hereto as Exhibit F. Seller is not in default under any of those
leases, and the same are fully assignable to Purchaser, except as
otherwise indicated in Exhibit F.
4.8 INDEBTEDNESS. To the best of Seller's knowledge, Seller has no
indebtedness, contingent or otherwise, which is not set forth in Exhibit
G, and in Section 4.11.
4.9 CONTRACTS AND COMMITMENTS.
(a) Seller has no purchase commitments extending beyond the Closing
Date which are in excess of the normal, ordinary, and usual requirements
of the operation of the Clinic or at any excessive price;
(b) Seller has no collective bargaining or employment agreements, nor
any agreements that contain any severance or termination pay liabilities
or obligations, other than listed on Exhibit H.
(c) Seller has no bonus, deferred compensation, profit sharing, or
retirement arrangement, whether legally binding or not, nor does it
presently pay any pension, deferred compensation, or retirement allowance
to anyone other than those listed in Exhibit H;
(d) Seller has no employees except as shown in Seller's most recent
payroll record attached hereto as Exhibit I to whom it pays compensation,
and
(e) Seller does not pay any compensation, vacation, sick day
allowances or other benefit programs to any of its employees which is not
disclosed in Exhibit I.
4.10 TAX RETURNS AND PAYMENTS. All federal, state and local tax
reports and returns required to have been filed by Seller have been filed.
Seller has paid or withheld all federal, state and local taxes which were
due and payable or required by law to have been withheld, respectively, to
the date hereof, except those which are being contested in good faith by
an appropriate proceeding. There are no unpaid assessments of federal or
state income taxes or other federal, state or local taxes against Seller.
To the best of Seller's knowledge, Seller has made adequate provisions for
all taxes, assessments, fees, penalties, interest, and all other
governmental charges which were, or may become, payable with respect to it
at any time as a result of events occurring on or before the Closing Date,
which will in any way affect the licensure or operation of the Clinic or
ownership of the Business Assets by Purchaser.
4.11 LITIGATION AND OTHER PROCEEDINGS. Except as otherwise described
herein, to the best of Seller's knowledge there is no litigation,
arbitration, or other legal proceeding or administrative proceeding
pending or threatened against the Clinic, the Business Assets or Seller's
leasehold interest in the Property, or the Property which might affect the
operation of the Clinic or the Business Assets, or its authorization to
operate as an outpatient mental health clinic or employee assistance
program under the applicable provisions of Nevada or federal law.
Purchaser hereby acknowledges that a former employee of Seller filed an
age-discrimination claim against Seller with the EEOC, which investigated
the claim and took no action against Seller. That employee may file a
wrongful termination action against Seller, which Seller would have to
defend at its expense. Seller believes there is no merit to any such
action. Purchaser further acknowledges that there is one pending workers'
compensation claim which shall be the responsibility of Seller to the
extent not paid by SIIS. Seller is not in default in any respect of any
order or any decree or rule of any court or governmental authority which
may have jurisdiction over Seller, the Property or the Business Assets.
Seller possesses all permits and licenses necessary for the operation of
the Clinic, and otherwise operates the Clinic in material compliance with
all applicable laws, regulations, and ordinances.
4.12 BROKER. No broker, finder or agent has been engaged by Seller or
Purchaser in regard to the sale of the Business Assets, and each Party
hereby indemnifies the other and holds the other free and harmless from
and against any and all claim or liability for any such fee as well as any
related, reasonable attorneys' fees and costs of litigation.
4.13 Insurance. Seller has continuously maintained insurance for
professional liability for Dr. Roitman and several additional clinicians,
and has monitored professional liability insurance coverage for other
clinical staff employees, and for general liability for the Clinic and for
its interest in the Property, since 1990.
4.14 NOTICES. Seller is not aware of and has not received any
communications from any insurance companies, governmental agencies or from
any other parties of
(1) any conditions, defects or inadequacies with respect to the
Property or the Business Assets (including health hazards, state or local
notices relating to health care licensing, certificate of need status, or
dangers, nuisance or waste, which, if not corrected, would result in
termination of insurance coverage or increase its cost)
(2) any violations of building codes and/or zoning ordinances or
other governmental laws, regulations or orders with respect to the
Property or the Business Assets, pending or threatened condemnation
proceedings with respect to the Property, or any other modification of the
zoning classification, or of any building or environmental code
requirements applicable to the Property or any part thereof.
Seller shall immediately notify Purchaser of any violations or
conditions of which Seller receives notice prior to Closing (whether
written or oral).
4.15 EMPLOYEES. Exhibit I lists all employees of Seller or of any
affiliate of Seller currently employed in the operation and/or maintenance
of the Business Assets. Exhibit J sets forth as of the date of this
Agreement a complete list and description of all fringe benefits,
including hospitalization insurance, accident and health insurance,
disability insurance, death insurance, vacation policies, meals and
lodging policies and parking policies along with true, correct and
complete copies of all contracts and disclosures related thereto. Exhibit
J also sets forth as of the date of this Agreement a complete list and
description of all pension, retirement, incentive or other similar
arrangements or properties to which Seller is bound along with complete
copies of such documents, arrangements or plans.
4.16 EMPLOYMENT LAWS. To the best of Seller's knowledge, Seller has
complied in all material respects with all applicable state and federal
laws and regulations respecting employment and employment practices, terms
and conditions of employment, wages and hours and other laws and
regulations related to employment of employees and agents of the Seller
and the usage of the Business Assets. There are no arrearages in the
payment of wages, withholding or social security taxes, unemployment
insurance premiums or other similar obligations other than in the ordinary
course of business. There are no contractual impediments to termination of
service of any of Seller's employees, except that certain notice
requirements may apply, as disclosed on Exhibit H.
4.17 COST REPORTS. All rate setting forms or cost reports which
Seller has been required to file as of the Closing Date with any state or
federal authority or other third party payor have been timely filed and
accurately reflect the patient census and costs of the operation of the
Clinic.
4.18 BANKRUPTCY, ETC. No bankruptcy, insolvency, petition for
dissolution, rearrangement or similar action involving the Business
Assets, whether voluntary or involuntary, is pending or threatened, and
Seller has not:
(a) filed a petition for dissolution;
(b) filed a voluntary petition in bankruptcy;
(c) been adjudicated as bankrupt or insolvent or filed a petition or
action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any Federal
bankruptcy act or any other laws;
(d) sought or acquiesced in the appointment of any trustee, receiver or
liquidator of all or any substantial part of the Business Assets, or any portion
thereof; or
(e) made an assignment for the benefit of creditors or admitted in
writing its inability to pay its debts generally as the same become due.
Seller is not anticipating or contemplating any of the actions set
forth in (a) through (e) of this subsection prior to the Closing Date.
4.19 INFORMATION NOT MISLEADING67. All the information concerning
Seller, the Business Assets and the Property and all reports, contracts,
or other items obtained by Purchaser from Seller or Seller's
representatives pursuant to this Agreement are true, complete and correct
in all material respects and fairly present the information set forth in a
manner that is not misleading and Seller has not omitted any material
information required to be included in order to make the information
furnished by Seller not misleading.
4.20 AUDITS. There have been no Medicaid, Medicare or private
insurance audits within the 36 months preceding the date of this Agreement
and Seller has not been informed of any recoupment claims.
4.22 TRADE NAME. Seller represents, warrants, and covenants that
Seller has taken the necessary legal and administrative actions to obtain
(and, to its best knowledge Seller has obtained and now possesses) the
exclusive right in Clark County, State of Nevada, to use the trade names
Harmony Counseling, Harmony Healthcare Systems, and Clinical Services of
Nevada, and Seller has not granted and will not grant to any other person,
firm, or corporation, except Purchaser, the right to use those trade
names. Purchaser acknowledges that it will have to meet various fictitious
business name filing requirements after Closing to use the trade names.
4.23 PROPERTY. Seller leases the Property on a month to month basis with
the exception of Bldg. D Plazas Office Park, Suite 207,208, Las Vegas, NV 89102,
as previously disclosed to Purchaser.
4.24 PATIENT PAYMENTS. There are no advances or pre-payments made by
clients for services to be rendered after the Closing Date by Seller.
4.25 SELLER'S RESPONSIBILITIES. Except as otherwise provided in this
Agreement Seller shall remain responsible for all pre-Closing liabilities,
including but not limited to, the payment of compensation of the employees
of the Clinic including any and all accrued benefits and the amounts
payable for same, for the period prior to the Closing Date. The accounts
receivable shall remain the property of Seller for the period prior to the
Closing Date. Any accounts receivable collected by Seller after the
Closing Date will be the property of Purchaser subject to the provisions
of Section 2 (a) (iv).
4.26 CONSULTANTS. There are no consultants (including therapists,
counselors, attorneys and accountants) of Seller currently employed in the
operation and/or maintenance of the Business Assets, other than as shown
on Exhibit K attached hereto. Exhibit K contains an accurate list of the
most recent payments to each of the consultants.
SECTION 5. COVENANTS OF SELLER.
5.1 CONDITION OF PERSONAL PROPERTY
. Seller represents and warrants that, subject to ordinary wear and
tear, all equipment, appliances and machinery of the Clinic shall be in
good working order and repair at the Closing Date.
5.2 ACCESS AND PREPARATION OF LICENSE APPLICATION. Seller agrees to
use its best efforts to assist Purchaser in making application for all
necessary licenses and permits required for the operation of the Clinic by
Purchaser as a treatment program for outpatient mental health services.
Seller will provide whatever access, materials, expertise and information
reasonably requested and available to Seller in connection with any
licensing or permitting authority review. Seller will cooperate with any
efforts of Purchaser to obtain contracts with or certification by any
third party payor or insurer. Until Purchaser has obtained all necessary
licenses, contracts and certifications, Seller will allow Purchaser to
operate under Seller's license and certifications to the extent allowable
by law for six (6) months after the Closing Date. In addition, Purchaser
shall be entitled to use Dr. Roitman's Nevada medical license in its
operation of the Clinic as delineated in Exhibit P attached hereto. Seller
makes no representation or warranty whatsoever as to Purchaser's right or
ability to operate as stated and/or to obtain contracts with or
certification by any third-party payor or insurer.
5.3 ORDINARY COURSE OF BUSINESS. From the date hereof to the Closing
Date, Seller shall conduct its operation of the Clinic only in the
ordinary course thereof, will take all necessary action to preserve the
goodwill and operation of the Clinic, and will make no material change in
the operation of the Clinic nor enter into any material contract creating
an obligation binding on Purchaser after the Closing in excess of $500.00
or incur any material liability without the written consent of Purchaser,
which consent shall not be unreasonably withheld.
5.4 COMPENSATION. From the date hereof through the Closing Date,
except with prior written consent of Purchaser, Seller will not increase
any salary or other form of compensation payable, or to become payable, to
any of its employees or make any other severance or retirement arrangement
with any such employees.
5.5 INSURANCE. From the date hereof through the Closing Date, Seller
shall maintain insurance on the Clinic at the same levels as was
maintained on the date hereof.
5.6 REVIEW OF STAFF. Seller shall allow Purchaser an opportunity to
review the credentials and employment histories of all current staff of
the Clinic upon execution of this Agreement. This review shall be limited
to the written materials now within the possession and control of Seller
and shall not disrupt the normal business operations of the Clinic. With
prior consent of Seller, not to be unreasonably withheld, Purchaser may
conduct interviews with all current staff of the Clinic.
5.7 RIGHT OF INSPECTION. Prior to Closing, Purchaser and its
officers, employees, attorneys and agents shall be entitled during normal
business hours, to inspect the properties, books, documents and records
relating to the Business Assets, and to make copies of the same, and
Seller agrees to furnish such information within Seller's possession and
control relating to Seller and the Business Assets as Purchaser reasonably
may request and to permit Purchaser and such persons to consult with the
officers, employees, attorneys and agents of Seller for the purpose of
determining the accuracy of the covenants, representations and warranties
made herein. Seller shall cooperate with Purchaser as necessary and
reasonable to insure a smooth transition of ownership of the Clinic.
5.8 DISCHARGE OF OBLIGATIONS. On or before the Closing Date, Seller
shall discharge and obtain releases with respect to all outstanding
security interests in the Business Assets and any liens and mortgages on
the tangible personal property of the Clinic, except that Purchaser will
assume the liability for leased assets used in the operation of the Clinic
as listed on Exhibit B and Seller shall have no obligation to obtain
releases of the lessors' interests in such assets.
5.9 PUBLICITY. All press releases, filings and other publicity
concerning the transactions contemplated hereby will be jointly
coordinated and will be subject to review and approval by both Seller and
Purchaser, such approval not to be unreasonably withheld or delayed. In
addition, both parties have executed a Confidentiality Agreement, which is
attached as Exhibit L.
5.10 POST-CLOSING OPERATION OF CLINIC AND USE OF BUSINESS ASSETS.
Purchaser hereby acknowledges that Seller has not made and does not make
any warranty or representation whatsoever as to Purchaser's success in
Purchaser's operation of the Clinic and/or Purchaser's use of the Business
Assets after the Closing Date, and Purchaser is not relying on any such
alleged warranty or representation by Seller (or any of them) in executing
the Document or in consummating this purchase transaction.
SECTION 6. REPRESENTATION AND WARRANTIES OF PURCHASER. As a material inducement
to Seller to enter into and consummate this Agreement, Purchaser warrants and
represents that:
6.1 ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized and existing and in good standing under the laws of the
Commonwealth of Massachusetts.
6.2 CORPORATE ACTION BY PURCHASER. Purchaser has full power and
authority to enter into and perform its obligations under this Agreement
and the Documents, and all corporate proceedings necessary to duly
authorize the execution and delivery of the Documents by the officer or
officers executing the same on Purchaser's behalf have been taken and
these Documents are the legal and binding obligations of Purchaser,
enforceable in accordance with their terms and conditions applicable to
Purchaser.
6.3 OPINION OF COUNSEL FOR PURCHASER. Five days prior to the Closing
Date, Purchaser shall provide to Seller an opinion from counsel to
Purchaser, satisfactory to Seller's counsel, to the effect that;
(a) Purchaser has the full corporate power and authority to execute
and deliver the Documents to be executed by Purchaser.
(b) That the transaction is in compliance with Massachusetts
corporate and securities laws and federal securities laws.
(c) The execution, delivery and performance of Purchaser's
obligations under the Documents have been duly authorized by all requisite
corporate actions of Purchaser and the Documents have been (or will be, at
Closing) duly executed and delivered by Purchaser.
(d) The Documents are legal, valid and binding obligations of
Purchaser and are enforceable against Purchaser in accordance with their
respective terms, except as limited by general equity principles (whether
considered in a proceeding at law or at equity) and by bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally.
(e) To the best knowledge of counsel after due inquiry, the execution
and delivery by Purchaser of the Documents and the consummation by
Purchaser of the transactions contemplated hereby will not be or result in
a violation of any statute or regulation of any governmental authority or
of any decree, order, or judgment and will not be or result in a violation
or constitute a default or ground for revocation under any contract,
agreement, indenture, license or instrument known to such counsel to which
Purchaser is a party or by which Purchaser is bound.
SECTION 7. CONDITIONS TO CLOSING. Purchaser shall not be obligated to purchase
the Business Assets nor is it bound by any of the terms of this Agreement until
all of the following conditions are met, any one or all of which may be waived
by Purchaser.
7.1 REPRESENTATION, WARRANTIES AND COVENANTS. The representations and
warranties of Seller contained in this Agreement shall be true in all
material respects at and through the Closing as though such
representations and warranties were made on that date and Seller shall
have performed all covenants and agreements on its part required to be
performed on or before the Closing Date which are specifically authorized
or contemplated by this Agreement. The provisions of this Section 7.1
shall apply also as a condition precedent to Seller's obligation to
consummate this transaction by substituting the term "Purchaser" for
"Seller" in the foregoing sentence.
7.2 LEASE FOR REAL PROPERTY. Purchaser shall have executed a valid,
legally enforceable lease for the Property or for Alternative Premises,
upon terms acceptable to Purchaser (the "Lease Agreement"). Said Lease
Agreement shall provide occupancy rights to Purchaser effective as of the
Closing Date on terms acceptable to Purchaser, including, but not limited
to, Purchaser's use of the premises as an outpatient mental health Clinic
and related offices. Purchaser shall not unreasonably reject the Lease
Agreement or delay in locating alternative suitable space. If an
acceptable Lease Agreement is not obtained, or alternative suitable space
is not located by October 10, 1995, then either party may exercise its
rights under Section 10.2 or Section 10.3, as the case may be. Purchaser
shall be obligated to use timely and good faith efforts to obtain timely
an effective Lease Agreement.
7.3 THIRD PARTY PAYORS. Purchaser shall have satisfied itself
independently of Seller's documentation that there will be adequate
insurance and third party payor reimbursement available for patients who
will be treated for mental health services by the Clinic as intended to be
operated by Purchaser.
7.4 LICENSES AND APPROVALS. Purchaser shall have obtained all
necessary licenses, permits and approvals to occupy the Property or
Alternative Premises and have made application for all necessary licenses,
permits and approvals to operate said premises as an outpatient mental
health clinic .
7.5 SALE OF BUSINESS ASSETS. Seller shall deliver to Purchaser at
Closing the Bill of Sale in the form attached hereto as Exhibit M, an
Assignment of Intangible Rights in the form attached hereto as Exhibit N,
and an Assignment and Assumption Agreement in the form attached hereto as
Exhibit O, and any other forms of documentation reasonably requested by
Purchaser and appropriate to this transaction.
7.6 INSURANCE. Purchaser shall have obtained general and professional
liability insurance coverage in amounts Purchaser deems necessary to
operate the Clinic as an outpatient mental health Clinic. If Seller does
not continue coverage under Dr. Roitman's current medical malpractice
policy Seller shall provide evidence to Purchaser that it has purchased
the requisite "tail" insurance policy to cover Dr. Roitman for any
outstanding or latent claims which may arise as a result of its operation
of the Clinic prior to the Closing Date.
7.7 NO MATERIAL CHANGE. The business or financial condition of the
Clinic and or any of the Business Assets shall not have been, or shall not
be threatened to be, adversely affected in any way as a result of fire,
explosion, earthquake, disaster, accident, labor trouble or dispute, any
action by the United States or any other governmental authority, civil
disturbances, uprising, activity of armed forces, or Act of God or public
enemy which has not been disclosed or provided for in this Agreement.
7.8 NON-COMPETITION. Seller shall have executed a Non-Competition
Agreement in substantially the same form as Exhibit P attached hereto.
7. 9 PAYROLL. At the Closing, Purchaser shall be provided by Seller
with a copy of the most recent payroll register for the Clinic with
evidence that all employees of Seller have been compensated as provided in
this Agreement up to the Closing Date.
7.10 CONSENTS. At the Closing, Seller will furnish to Purchaser a
written consent to Purchaser's assumption and use of any and all
tradenames, trademarks, goodwill and other Business Assets referred to in
Section 1 in a form provided by Purchaser and approved by Seller.
7.11 FINANCIAL DUE DILIGENCE. Purchaser shall have been allowed by
Seller to conduct financial due diligence with respect to Seller's
detailed business records for the thirty-six month period prior to the
execution date of this Agreement.
7.12 CORPORATE AUTHORITY. Seller shall have complied fully with the
laws of the State of Nevada applicable to Seller and relevant to the
transactions contemplated herein. Seller shall provide to Purchaser a copy
of the necessary corporate procedures to duly approve the execution,
delivery and performance of the Documents by Seller. The provisions of
this Section 7.12 shall apply also as a condition precedent to Seller's
obligation to consummate this transaction by interchanging the words
"Seller" and "Purchaser" in the preceding sentences.
7.13 OPINION OF COUNSEL FOR SELLER. Purchaser shall have received
from counsel to Seller, at least five (5) days prior to the Closing Date,
a written opinion letter (which shall be limited to the laws of Nevada),
satisfactory to Purchaser and Purchaser's counsel, addressed to Purchaser
in form and substance to the effect that:
(a) Seller has the full corporate power and authority to execute and
deliver the Documents to be executed by Seller.
(b) The execution, delivery and performance of Seller's obligations
under the Documents have been duly authorized by all requisite corporate
actions of Seller and the Documents, have been (or will be, at Closing)
duly executed and delivered by Seller.
(c) The Documents are legal, valid and binding obligations of Seller
and are enforceable against Seller in accordance with their respective
terms, except as limited by general equity principles (whether considered
in a proceeding at law or at equity) and by bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditors' rights generally.
(d) To the best knowledge of counsel after due inquiry, the execution
and delivery by Seller of the Documents and the consummation by Seller of
the transactions contemplated hereby will not be or result in a violation
of any statute or regulation of any governmental authority or of any
decree, order, or judgment and will not be or result in a violation or
constitute a default or ground for revocation under any contract,
agreement, indenture, license or instrument known to such counsel to which
Seller is a party or by which Seller is bound.
(e) The shareholders of Seller have approved the transfer of the
Business Assets by Seller to Purchaser pursuant to this Agreement.
(f) To the knowledge of counsel after due inquiry, Seller is not a
party to any pending litigation or any proceeding before any court or
government department or agency which might affect the subject
transaction, and such counsel does not know of any such threatened
litigation or proceeding against Seller, except as disclosed in Section
4.11.
7.14 CERTIFICATE OF RELEASE. As soon as available after Closing
Seller shall provide a Certificate of Release from the Nevada Employment
Development Department stating that as of the Closing Date, no
contributions, interest, or penalties are due to the Employment
Development Department from the Seller. In all events Seller shall be and
remains liable for all such contributions, interest or penalties if due.
In the event the foregoing conditions precedent cannot be satisfied
in accordance with their stated terms or, if sooner, prior to the Closing
Date, and such unsatisfied conditions are not waived by the party entitled
to the benefit of same, this Agreement shall be null and void, and the
Deposit shall be subject to disposition under Section 10. Purchaser shall
use its best efforts in good faith to bring about the fulfillment of all
conditions within its control set forth in this Section 7. Without waiving
any rights with respect to representations, warranties and covenants made
by Seller in this Agreement, Purchaser agrees that by proceeding with the
Closing, all conditions precedent to the obligations of Purchaser have
been met to Purchaser's satisfaction.
7.15 EMPLOYMENT AGREEMENT. Purchaser shall enter into an employment
agreement with Dr. Roitman as Chief Medical Officer of the Clinic and Chief
Medical Officer of PHC of Nevada. This is a separate agreement and is attached
hereto as Exhibit Q, (the "Employment Agreement"). Seller's obligations to
consummate this transaction are dependent on execution of the Employment
Agreement by Purchaser and Dr. Roitman.
SECTION 8. NO ASSUMPTION OF LIABILITIES. Except as specifically provided to the
contrary in this Agreement, Purchaser shall not assume any liabilities of any
kind or nature of Seller or any liabilities of any kind or nature arising out of
the business conducted with respect to the Business Assets through the Closing
Date. Seller shall not assume any liabilities of any kind or nature of Purchaser
(including without limitation, liability of Purchaser arising from or related to
the transactions contemplated by this Agreement) or any liability of any kind or
nature arising out of the business conducted with respect to the Business Assets
after the Closing Date.
SECTION 9. INDEMNIFICATION.
9.1 INDEMNIFICATION OF PURCHASER. Seller hereby indemnifies and holds
Purchaser, its directors, officers, employees and agents harmless from:
(i) Except as specifically provided to the contrary in this
Agreement, any and all liabilities and obligations or claims against
Seller, and from all liabilities and obligations or claims arising out of
the operation of the Clinic through the Closing Date, including, but not
limited to, any and all liabilities, obligations, claims, fines, penalties
or similar charges levied upon the Clinic due to the non-compliance of
Seller prior to the Closing Date with any applicable federal, state and
local laws, ordinances, codes, regulations and requirements;
(ii) Any actual damage, loss, cost or expense arising out of the
breach of warranty, misrepresentation, or nonfulfillment of any agreement
on the part of the Seller under this Agreement;
(iii) With respect to all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses connected with the foregoing
including without limitation reasonable attorney's fees and expenses.
9.2 INDEMNIFICATION OF SELLER. Purchaser shall indemnify and hold
Seller, its directors, officers, employees and agents harmless from:
(i) Any and all liabilities, obligations or claims, arising out of
the conduct of the business after the Closing Date by the Purchaser,
including, but not limited to, any and all liabilities, obligations,
claims, fines, penalties or similar charges levied upon the Clinic
or the new subsidiary of Purchaser which will operate the Clinic
after Closing, PHC of Nevada, Inc., due to the non-compliance of
Purchaser with any applicable federal, state and local laws,
ordinances, codes, regulations and requirements;
(ii) Any actual damage, loss, cost or expense arising out of the
breach of any warranty, misrepresentation, or nonfulfillment of any
agreement on the part of Purchaser under this Agreement; and
(iii) With respect to all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses connected with the foregoing,
including without limitation reasonable attorney's fees and expenses.
The foregoing shall not be applicable to any actions or inactions
on the part of Dr. Roitman arising from Dr. Roitman's relationship to
Purchaser after the Closing.
SECTION 10. RIGHTS OF TERMINATION AND REMEDIES FOR DEFAULT67.
10.1 DEFAULT BY SELLER. In the event that all of the conditions
precedent set forth in Section 7 of this Agreement have been satisfied or
waived by Purchaser on or prior to the Closing Date and Purchaser is
ready, willing and able to proceed with the Closing, but Seller is unable,
unwilling or refuses to consummate the Closing in accordance with the
terms and conditions of this Agreement, or in the event that Seller is
otherwise in breach of this Agreement, then the Deposit shall be returned
to Purchaser. Purchaser shall also have the right to pursue all other
remedies available at law or equity.
10.2 PURCHASER'S RIGHT TO TERMINATE. If any one or more conditions
set forth in Section 7 has not been fulfilled or satisfied through no
fault of Purchaser or waived in writing by Purchaser on or prior to the
Closing Date, then Purchaser, at its option, may terminate this Agreement,
effective upon the receipt by Seller of written notice of such
termination. In the event of any such termination of this Agreement, all
of Seller's and Purchaser's obligations hereunder shall terminate without
further loss, cost, damage, claim, right or remedy in favor of any Party,
and none of the Parties hereto shall have any further liability or
responsibility to the other without the need to exchange releases to
confirm same. In addition Purchaser shall be entitled to a refund of the
Deposit, unless Section, 10.3 applies.
10.3 SELLER'S RIGHT TO TERMINATE. In the event that Purchaser is
unable to close by November 15, 1995, through no fault of Seller, Seller
shall be entitled to terminate the transaction and retain the Deposit.
However, if the condition set forth in Section 7.2 is not satisfied and
Purchaser has made good faith and timely efforts to obtain a Lease
Agreement, and that is the cause of Purchaser's inability to close by
November 15, 1995, then Seller or Purchaser may terminate this transaction
and upon such termination Purchaser shall be entitled to the refund of its
Deposit. In the event of a termination of this transaction under this
Section 10.3, all of Seller's and Purchaser's obligations hereunder shall
terminate without further loss, cost, damage, claim, right or remedy in
favor of any Party, and none of the Parties hereto shall have any further
liability or responsibility to the other without the need to exchange
releases to confirm same.
10.4 DEFAULT BY PURCHASER. In the event that all of the conditions
precedent to Seller's performance have been satisfied or waived by the
Closing Date, and Seller is ready, willing and able to proceed with the
Closing and Purchaser fails to complete the transactions contemplated in
this Agreement, which failure is due exclusively to the unwillingness,
inability or refusal of Purchaser to fulfill its obligations at such
Closing, other than pursuant to Purchaser's right to terminate under any
provision of Section 10.2 or 10.3, or in the event that Purchaser is
otherwise in material breach of this Agreement then Seller may terminate
this Agreement and retain the Deposit thereon. Seller shall also have the
right to pursue all other remedies available at law or equity.
SECTION 11. MISCELLANEOUS.
11.1 SURVIVAL. Except as otherwise specified in this Agreement, all
representations, warranties and covenants of Seller and Purchaser
contained herein shall survive the Closing.
11.2 DISCLAIMER OF INTENT TO BECOME PARTNERS. The parties hereto, by
executing this Agreement, do not intend to become partners.
11.3 ADDITIONAL DOCUMENTS. Purchaser and Seller will, at any time
before, at or after the Closing Date, sign, execute and deliver, or cause
others to do so, all such documents and instruments to do, or cause to be
done, all such other acts and things as may be reasonable and necessary to
carry out the provisions and/or intent of this Agreement.
<PAGE>
11.4 NOTICES. Any notice, request or other communication to be given
by any party hereunder shall be in writing and shall be sent by registered
or certified mail, postage prepaid, addressed as follows:
(a) If to Seller, to:
Norton A. Roitman, M.D.
2340 Paseo Del Prado, Suite D-301
Las Vegas, NV 89102
With a copy to:
Mim Penney, Esquire
Penney and Penney
3770 Howard Hughes Parkway
Suite 275
Las Vegas, NV 89109
or to such other person or place as Seller shall notify Purchaser in
writing; and (b) If to Purchaser, to:
Bruce A. Shear, President
Pioneer Healthcare
200 Lake Street, Suite 102
Peabody, MA 01960
With a copy to:
William F. Grieco, Esquire
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
or to such other person or place as Purchaser shall notify Seller in writing.
11.5 NON-ASSIGNMENT. Except as otherwise provided herein, the rights
under this Agreement may not be assigned, nor obligations delegated, by
either Party hereto without the prior written consent of the other, except
that without such consent Purchaser may assign its rights herein to any
corporation, partnership or other entity wholly-owned by Purchaser. In
such case, Purchaser's assignee shall be substituted for Purchaser in all
respects as if such assignee were the original Purchaser hereunder;
however, PHC, Inc., shall in all events be and remain liable for the
performance of the Purchaser's duties under this Agreement.
11.6 SOLE AGREEMENT. This Agreement may be amended or modified in any
respect whatsoever only by instrument in writing signed by the Parties
hereto. This Agreement constitutes the entire agreement between the
Parties hereto with respect to the subject matter hereof, and supersedes
all prior oral or written agreements between them.
11.7 SUCCESSORS. All the terms of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the successors and
assigns of the parties hereto, subject to the provisions of Section 11.5
hereof.
11.8 CAPTIONS. The captions of this Agreement are for convenience of
reference only and shall not define or limit any of the terms or
provisions hereof.
11.9 SEVERABILITY. If any one or more of the provisions of this
Agreement is determined by a court of competent jurisdiction to be
invalid, unlawful or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions of this Agreement shall not
in any way be affected or impaired thereby, unless the absence of such
invalid, unlawful or unenforceable provision will frustrate the purpose of
this Agreement.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
11.11 NO WAIVER. Except as provided herein, the failure to exercise
and/or the delay in exercising, on the part of either Party, any of its
rights, powers or privileges hereunder shall not operate as a waiver
thereof; any single or partial exercise of any right, power or privilege
hereunder by either Party shall not preclude the exercise of any other
right, power or privilege. The rights provided are cumulative and are not
exclusive of any rights provided by law.
11.12 ATTORNEY'S FEES AND COSTS. In connection with any litigation
with respect to this Agreement, the prevailing party to the greatest
quantifiable extent shall be entitled to recover its expenses, including
reasonable attorneys' fees and costs, in connection with such litigation,
including appellate proceedings and post-judgment proceedings.
11.3 APPLICABLE LAW, JURISDICTION AND VENUE. The laws of the State of
Nevada shall apply to the construction and enforcement of this Agreement.
Jurisdiction over any such disputes shall reside in the Courts of the State of
Nevada. Venue shall lie in Las Vegas, Clark County, Nevada.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date set opposite their names. However, for reference purposes, this
Agreement shall be dated as of the date first written above.
"Seller":
Harmony Healthcare Systems, Inc.
By: Date: 10/28/95
Norton A. Roitman, M.D., President
Witness: ROBERT H. BOSWELL
Clinical Services of Nevada, Inc.
By: Date: 10/28/95
Norton A. Roitman, M.D., President
Witness: ROBERT H. BOSWELL
By: Date: 10/28/95
Norton A. Roitman, M.D., Individually
Witness: ROBERT H. BOSWELL
"Purchaser":
PHC, Inc., d/b/a Pioneer Healthcare, Inc.
By: Date: 10/28/95
Bruce A. Shear, President
Witness: ROBERT H. BOSWELL
PHC of Nevada, Inc.
By:___________________________
Bruce A. Shear, President
Witness: ROBERT H. BOSWELL Date: 10/28/95
<PAGE>
LIST OF EXHIBITS
Exhibit A: Inventory of Tangible Assets - REQUEST FROM HARMONY
Exhibit B: Assumed Contracts, Agreements & Leases - CREATE @ PHC
Exhibit C: Leasehold Improvements - REQUEST FROM HARMONY
Exhibit D: Schedule of Accounts Receivable for Clinical Services of Nevada,
Inc. - REQUEST FROM HARMONY
Exhibit E: Certain Receivables - CREATE @ PHC Sent for review
Exhibit F: Schedule of Leased Equipment - attached for Harmony Review
Exhibit G: Schedule of Seller's Indebtedness - attached for Harmony Review
Exhibit H: Schedule of Employment Agreements - attached for Harmony Review
Exhibit I: Payroll Record - REQUEST MOST RECENT, UPDATE @ CLOSING
Exhibit J: Employee Benefit Plans - attached for Harmony Review
Exhibit K: Schedule of Consultants - attached for Harmony Review
Exhibit L: Confidentiality Agreement - BEING REVISED @ PHC
Exhibit M: Bill of Sale - attached for Harmony Review
Exhibit N: Assignment of Intangible Rights - attached for Harmony Review
Exhibit O: Assignment & Assumption Agreement - attached for Harmony Review
Exhibit P: Non-Compete Agreement - CREATE @ PHC Sent for review
Exhibit Q: Employment Agreement - CREATE @ PHC Sent for review
<PAGE>
EXHIBIT B
ASSUMED CONTRACTS, AGREEMENTS & LEASES
The following is a list of contracts, agreements and leases between Seller
and Third Parties with respect to the Clinic or the ownership, operation,
management or administration of the Clinic.
A. THIRD PARTY PAYORS
*1. ALADDIN HOTEL & CASINO, effective 10/1/92, consecutive 1 year terms with
automatic renewal, 30 day notice to quit, assignable with consent of other party
only, fee schedule modified on 2/27/95. (CLINICAL SERVICES OF NEVADA)
*2. SHOWBOAT HOTEL & CASINO, effective 9/1/92, consecutive 1 year terms with
automatic renewal, 30 day notice to quit, assignable with consent of other party
only, fee schedule modified on 6/15/95. (CLINICAL SERVICES OF NEVADA)
B. EDUCATIONAL AGREEMENT(S)
*1. UNIVERSITY OF NEVADA LAS VEGAS, social work intern program, term is
7/1/95 to
6/30/96, no compensation to Roitman or Clinical Services, not assignable without
consent of university - SANDE WILL SEND FINAL, EXECUTED CONTRACT. (CLINICAL
SERVICES OF NEVADA)
B. SERVICE AGREEMENTS
1. COMPUTER SYSTEMS FOR PHYSICIANS INC., Computer services, no contract,
software support $175/mo, hardware support $347.74/mo, total = $522.74/mo.
(NORTON A. ROITMAN, M.D.)
2. NEVADA COPY SYSTEMS, Copy machine repair, dated 3/15/95, term is 12 mos,
$184.18/mo, automatic renewal for 12 mo periods, 30 day notice to quit. (HARMONY
HEALTH CARE)
*3. ANSWER AMERICA, Telephone answering service, $135.00/mo, dated 9/28/94,
assignable with consent of company only.(HARMONY COUNSELING CENTER/HARMONY
HEALTHCARE)
C. OFFICE SPACE & ADMINISTRATIVE SERVICE AGREEMENTS
1. DR. PETERSON & DR. EARNEST - Rent office space & admin services, Bldg D,
Suite 301, 2340 Paseo del Prado, Las Vegas, NV, $520.00/mo, start 6/1/94, ends
5/31/96. (HARMONY HEALTHCARE SYSTEMS, INC.)
2. DR. WETZEL - Rent office space & admin services, Bldg D, Suite 307, 2340
Paseo del Prado, Las Vegas, NV, $300.00/mo, start 11/1/91, successive six month
terms. (HARMONY HEALTHCARE SYSTEMS, INC.)
*BAS: If you want to assume these contracts/agreements, we need to obtain
consent. How should we go about doing this?
<PAGE>
D. LEASE CONTRACTS
1. PLAZAS OFFICE PARK, BLDG D, SUITE 301, 302, 305 - dated 4/9/91, original term
was 18 mos, NOW MONTH TO MONTH, 30 day notice to quit, current rent is
$2,768.70/mo for 2,961 sq feet. Assignable with landlords consent only. (NORTON
A. ROITMAN, M.D.)
2. PLAZAS OFFICE PARK, BLDG D, SUITE 207, 208 - dated 3/11/94, term is 36 mos
through 3/11/97, current rent is $3,002.95/mo for 2,071 sq feet (increases to
$3,210.05 on 4/1/96). Assignable with landlords consent only, Dr. Roitman
personal guarantor. (HARMONY HEALTHCARE SYSTEMS, INC.)
3. PLAZAS OFFICE PARK, BLDG D, SUITE 307, 308 - dated 8/10/89, term was 36 mos,
NOW MONTH TO MONTH, current rent is $2,116.95/mo for 1,283 sq feet. Assignable
with landlords consent only. (NORTON A. ROITMAN, M.D.)
4. PLAZAS OFFICE PARK, BLDG D, SUITE 206 - dated 6/12/90, term was 60 mos,
ENDED 6/12/95 no indication converted to month to month, rent was $4,128.56 for
2,520 sq feet. Assignable with landlords consent only. (CHILD GUIDANCE AND
FAMILY TREATMENT CENTER, A NEVADA CORPORATION)
5. PITNEY BOWES, Postage Meter/Scale/Stand - dated 6/11/92, orig term was 48
mos, ENDED 6/11/94, no indication converted to month to month, payment of
$116.00/quarter. (HARMONY HEALTHCARE SYSTEMS)
*6. ALCO CAPITAL RESOURCE, INC., 2 Sharp Copiers, dated 3/15/94, term is 36
months - through 3/15/97, $633.00/mo, not assignable. (HARMONY HEALTH CARE
SYSTEMS) **INDICATES NON-ASSIGNABLE. DO WE WANT TO TRY TO GET INTO THIS CONTRACT
OR NEGOTIATE OUR OWN?
7. FIRST SECURITY LEASING CO., Amtel Phone System dated 11/25/92, term is
36 mos - through 11/25/95, $575.11/mo, assignable. (HARMONY HEALTHCARE SYSTEMS,
INC.) **CONTRACT TERM WILL EXPIRE IN JUST OVER 1 MONTH
<PAGE>
EXHIBIT E
CERTAIN RECEIVABLES
1. MGM - $26,600.00 for services provided for the period August 15, 1995
through September 15, 1995.
2. CENTER FOR CHILDREN - $14,000.00 for services provided through September,
1995.
3. "EXECUTIVE D" - $12,000.00.
<PAGE>
EXHIBIT F
SCHEDULE OF LEASED EQUIPMENT
1. PITNEY BOWES, Postage Meter/Scale/Stand - dated 6/11/92, orig term was 48
mos, ENDED 6/11/94, no indication converted to month to month, payment of
$116.00/quarter. (HARMONY HEALTHCARE SYSTEMS)
2. ALCO CAPITAL RESOURCE, INC., 2 Sharp Copiers, dated 3/15/94, term is 36
months - through 3/15/97, $633.00/mo, not assignable. (HARMONY HEALTH CARE
SYSTEMS)
3. FIRST SECURITY LEASING CO., Amtel Phone System dated 11/25/92, term is
36 mos - through 11/25/95, $575.11/mo, assignable. (HARMONY HEALTHCARE SYSTEMS,
INC.)
<PAGE>
EXHIBIT G
SCHEDULE OF SELLER'S INDEBTEDNESS
1. AMERICAN BANK OF COMMERCE, Loan Agreement - Principal $17,400.00, dated
6/21/94, due 12/21/95, unsecured, assignable with consent of lender only.
Guarantors are Norton A. Roitman, M.D. & Anita G. Roitman. (HARMONY HEALTHCARE
SYSTEMS, INC.)
<PAGE>
EXHIBIT H
SCHEDULE OF EMPLOYMENT AGREEMENTS
EMPLOYMENT AGREEMENTS (37): (CLINICAL SERVICES OF NEVADA, INC.) (a)
indicates indefinite term, 2 weeks notice to terminate, assignable/binding upon
successors (b) indicates 1 year term with automatic renewal, 15 day notice to
terminate, 2 weeks vacation/5 sick days, assignable/binding upon successors
Armes - 4/1/95 (a) Bremmer - 9/8/94 (a) Carillo - 9/12/94 (a)
Cross - 11/26/93 (a) Earnest - 2/1/95 (b) Start 1/31/95
Duffy - 5/20/94 (b) Start 8/1/94, 3 WEEKS VACATION, 1 week for
education, 60 day notice to terminate*(8) CERTAIN
EMPLOYMENT BENEFITS PROVIDED BY EMPLOYER
Erickson - 1/26/94 (b) Start 1/26/95
Flagg - 8/1/94 (b)
Fontillas - 6/1/94 (a)
Grasso - 11/15/93 (a)
Harder - 8/1/95 (b)
Harris, Judy - 9/20/93 (a)
Harris, Ray - 6/27/94 (b)
Hebert - 4/1/95 (a)
Hess - 2/1/95 (a)
Kelly - 7/1/93 (b) 2 week notice to terminate
Kerr - 2/1/95 (a)
Kinsora - 10/18/94 (a)
Krendel - 7/7/94 (a)
Ladenburger - 6/27/94(b)
LeBaron - 2/1/92 (a)
Lisoskie - 6/19/95 (b) 30 day notice to terminate Longbrake -
10/17/91 (b) Start 6/25/91 Lowey - 5/2/94 (a) Maksoud - 6/6/94
(b) No Vac/Sick provisions McFarlane - 11/23/94 (a)
McNight-DeWeese - 8/8/95 (a) Osgood - 7/10/95 (b) Ostrom -
6/1/95 (a) Peterson - 10/18/95 (a) Phelps - 5/11/95 (a)
Pickering - 7/1/93 (b) 4 week notice to terminate Ratelle -
5/24/95 (a) Ruiz - 9/12/94 (a) Schneider - 5/18/95 (a)
Stockman - 3/25/92 (b) Tucker - 3/19/95 (b)
<PAGE>
INDEPENDENT CONTRACTOR AGREEMENTS (15): perpetual, 30 day notice to quit,
changes in writing signed by both parties (CLINICAL SERVICES OF NEVADA, INC.)
Antoine (Place) - 11/1/94 Barrera - 4/1/94 Boudreau - 3/1/94
Boys' Town of Nevada - 6/20/95 Cathey (Johnson) - 2/9/95
Colosimo - 12/1/94
Center for Independent Living (Kalnoski) - 2/17/95
Clover - 5/1/95
Family & Child Treatment Center (Shope) - 2/95
Marcks - 3/15/94 Oates (Bell-Hozack) - 2/20/95 Peterson -
9/22/94 Schwied (Stevens) - 2/15/95 Simpson (Solomon) - 2/2/94
*15 day notice to quit
Wetzel - 5/1/94
<PAGE>
EXHIBIT J
EMPLOYEE BENEFIT PLANS
1. Health Insurance:
2. Dental Insurance:
3. Disability Insurance:
4. Life Insurance:
5. Paid Vacation Time:
Two (2) weeks paid vacation per year unless otherwise indicated in the
individual employee's employment agreement.
6. Paid Sick Time:
Five (5) days paid sick time per year, cumulative over the course of
employment.
7. Paid Holidays
<PAGE>
EXHIBIT K
SCHEDULE OF INDEPENDENT CONTRACTORS
INDEPENDENT CONTRACTOR AGREEMENTS (15): perpetual, 30 day notice to quit,
changes
in writing signed by both parties (CLINICAL SERVICES OF NEVADA, INC.)
Antoine (Place) - 11/1/94 Barrera - 4/1/94 Boudreau - 3/1/94
Boys' Town of Nevada - 6/20/95 Cathey (Johnson) - 2/9/95
Colosimo - 12/1/94
Center for Independent Living (Kalnoski) - 2/17/95
Clover - 5/1/95
Family & Child Treatment Center (Shope) - 2/95
Marcks - 3/15/94 Oates (Bell-Hozack) - 2/20/95 Peterson -
9/22/94 Schwied (Stevens) - 2/15/95 Simpson (Solomon) - 2/2/94
*15 day notice to quit
Wetzel - 5/1/94
<PAGE>
EXHIBIT P
NON-COMPETE AGREEMENT
Harmony Healthcare Systems, Inc. and Clinical Services of Nevada, Inc.
shall not compete directly or indirectly, with PHC of Nevada, Inc. for a period
of five (5) years after November 1, 1995, within the geographical area having
its center at the present location of Harmony Healthcare Systems, Inc. at 2340
Paseo del Prado, Las Vegas, Nevada 89012 and having its radius twenty-five (25)
miles. Competition shall include any activities associated with the marketing of
services, or provision of treatment, for Employee Assistance Programs or mental
health outpatient clinical services.
Harmony Healthcare Systems, Inc.
By Date
Norton A. Roitman, President
Witness
Clinical Services of Nevada, Inc.
By Date
Norton A. Roitman, President
Witness
<PAGE>
Exhibit 10.83
ASSET PURCHASE AGREEMENT
This Agreement is made as of this 16th day of March, 1996, by and between Total
Concept Employee Assistance Program, Inc., a Kansas corporation (the "Seller")
located at 7451 Switzer, Suite 101, Shawnee Mission, KS 66203; and PHC, Inc.,
doing business as Pioneer Healthcare (the "Purchaser"), a Massachusetts business
corporation with headquarters at 200 Lake Street, Suite 102, Peabody,
Massachusetts 01960. Seller and Purchaser may hereinafter be referred to as the
"Parties".
WHEREAS, Seller owns a business which operates employee assistance programs
located at 7451 Switzer, Suite 101, Shawnee Mission, KS 66203, known as Total
Concept EAP (the "Business"). This business and all of the assets of Seller used
in the operation of the Business shall hereinafter be referred to as the
"Business Assets";
WHEREAS, Seller wishes to sell the Business Assets and Purchaser wishes to buy
the Business Assets subject to the conditions herein set forth;
WHEREAS, Purchaser wishes to employ Ronald J. Dreier ("Mr. Dreier"), sole
shareholder, sole director and President of Seller, as Director of the Business
and Mr. Dreier wishes to be so employed; and
WHEREAS, Purchaser wishes to enter into a lease for the premises presently
occupied by the Business at 7451 Switzer, Suite 101, Shawnee Mission, Kansas
(the "Property") or to enter into a lease for alternative premises acceptable to
Purchaser and suitable for operation of the Business ("Alternative Premises");
NOW, THEREFORE for and in consideration of the mutual covenants herein
contained, Seller and Purchaser agree to the following:
SECTION 1. SALE OF THE BUSINESS ASSETS. On the terms and conditions set forth
herein, Seller shall sell to Purchaser and Purchaser shall purchase from Seller
the Business Assets including, but not limited to, the following:
1.1 All machinery, equipment, furniture, furnishings, vehicles,
computers, telephones, supplies, and all tangible assets used in
connection with the operation of the Business, wherever located, more
particularly described in EXHIBIT A attached hereto;
1.2 All of Seller's right, title and interest in, to, or under the
contracts, agreements, leases, licenses, permits, approvals, purchase
orders and commitments, and any other intangible assets used in connection
with the operation of the Business, through the Closing Date (as
hereinafter defined), which will be assumed by Purchaser as specifically
enumerated and more fully described in EXHIBIT B attached hereto;
1.3 All leasehold improvements owned or made to the Property by
Seller should Purchaser enter into a Lease for the Property;
1.4 All Seller's books, records, files and correspondence, display
and promotional material relating to or utilized in connection with the
operation of the Business, wherever located, through the Closing Date,
together with all of the goodwill throughout the world attached to the
Business, and any other intangibles, including trademarks, corporate
names, trade names, all customer lists, consent to the rights to use the
telephone numbers and listings pertaining to same, the entire inventory of
office, housekeeping, recreation and maintenance supplies, if any;
1.5 Except as expressly provided herein to the contrary, all other
assets, tangible or intangible, wherever located, held or used in
connection with the ownership, operation and management of the Business,
whether or not included in or reflected on the books of Seller or its
financial statements; and
1.6 All rights and claims of Seller relating to the Business Assets.
<PAGE>
SECTION 2. PURCHASE PRICE AND ALLOCATION OF PURCHASE PRICE.
(a) The purchase price payable by Purchaser to Seller for the
Business Assets shall be 12,000 shares of PHC, Inc. Class A Common Stock,
subject to the restrictions of Rule 144 of the Securities Act of 1933, at
the Closing (the "Purchase Price").
(b) Allocation of Purchase Price. It is agreed that the purchase price
shall be allocated as follows:
(i) for tangible personal property;
(ii for non-competition agreement;
(iii) the balance for customer contracts, goodwill and
other intangibles.
SECTION 3. CLOSING. Consummation of this Agreement (the "Closing") shall be held
at such place as the parties may mutually agree upon or through the use of
escrow agents, as the parties may agree. The Closing shall take place on March
16, 1996, (the "Closing Date"). The Parties may agree in writing to extend the
Closing Date without prejudice to either party.
<PAGE>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER.
As an inducement to Purchaser to enter into and consummate this Agreement,
Seller warrants and represents that:
4.1 CORPORATE EXISTENCE. Seller is a corporation duly organized and
existing in good standing under the laws of the State of Kansas. Seller has the
corporate power to own the Business Assets and to operate the Business as now
conducted.
4.2 CORPORATE AUTHORITY. Seller is the sole owner of the Business
Assets, and has the full power and authority to enter into and to perform
this Agreement. All corporate proceedings necessary to duly authorize the
execution and delivery of this Agreement by the officer, or officers,
executing the same on Seller's behalf, have been taken and this Agreement
is the legal and binding obligation of Seller, enforceable in accordance
with its terms and conditions applicable to Seller.
4.3 FINANCIAL STATEMENTS. Seller has delivered to Purchaser relevant
tax returns, income statements and balance sheets for the Business for the
calendar years ending 1993 through 1995 and monthly from January 1995
through January 1996 (the "Financial Statements"). The Financial
Statements have been prepared on a consistent basis and fairly represent
the financial condition of Seller at the relevant dates and the results of
operations and the changes in financial position of the Seller for such
periods. Ten days prior to Closing Seller shall deliver to Purchaser an
income statement and balance sheet for the period ending January 31, 1996.
If the Closing Date is extended, financial statements will be provided for
the most recent month's end.
4.4 NO VIOLATION OF AGREEMENT. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated
herein will violate or result in a breach of any condition of the Articles
of Incorporation or the Bylaws of Seller, or violate or result in a breach
of any condition of any agreement, lease, contract, judgment, decree,
statute, rule or regulation applicable to Seller, or result in the
creation or imposition of any security interest, lien, charge or
encumbrance upon the Business Assets, except as provided herein.
4.5 REGULATORY COMPLIANCE. The Business and the Business Assets are,
and will be at the Closing Date, in compliance with all applicable
federal, state and local laws, ordinances, codes, regulations and
requirements.
4.6 NON-COMPETITION AND DISSOLUTION. Seller shall not compete with
Purchaser in the business of providing employee assistance services to
individuals within a seventy-five (75) mile radius of Kansas City,
Missouri, for a period of four (4) years after the Closing date. Seller
shall seek to dissolve under the laws of Kansas as soon as possible after
Purchaser has acquired all regulatory approvals and licenses such that
Purchaser is able to operate the Business under authority of its own
license.
4.7 LEASES. Seller owns all assets necessary to operate the Business.
Seller does not lease any personal property, equipment or fixtures used in
the conduct of the Business.
4.8 INDEBTEDNESS. Seller has no indebtedness, contingent or otherwise.
4.9 CONTRACTS AND COMMITMENTS.
(a) Seller has no purchase commitments extending beyond the Closing
Date which are in excess of the normal, ordinary, and usual requirements
of the operation of the Business or at any excessive price;
(b) Seller has no collective bargaining or employment agreements, nor any
agreements that contain any severance or termination pay liabilities or
obligations;
(c) Seller has no bonus, deferred compensation, profit sharing, or
retirement arrangement, whether legally binding or not, nor does it
presently pay any pension, deferred compensation, or retirement allowance
to anyone;
(d) Seller has no employees except as shown in Seller's most recent
payroll record attached hereto as EXHIBIT C to whom it pays compensation;
and
(e) Seller does not pay any compensation, vacation, sick day
allowances or other benefit programs to any of its employees which is not
disclosed in EXHIBIT C.
4.10 TAX RETURNS AND PAYMENTS. All federal, state and local tax
reports and returns required to have been filed by Seller have been filed.
Seller has paid or withheld all federal, state and local taxes which were
due and payable or required by law to have been withheld, respectively, to
the date hereof, except those which are being contested in good faith by
an appropriate proceeding. There are no unpaid assessments of federal or
state income taxes or other federal, state or local taxes pending against
Seller. Seller has made adequate provisions for all taxes, assessments,
fees, penalties, interest, and all other governmental charges which were,
or may become, payable with respect to it at any time as a result of
events occurring on or before the Closing Date, which will in any way
affect the licensure or operation of the Business or ownership of the
Business Assets by Purchaser.
4.11 LITIGATION AND OTHER PROCEEDINGS. Except as otherwise described
herein, there is no litigation, arbitration, or other legal proceeding or
administrative proceeding pending or threatened against the Business, the
Business Assets or the Property, which might affect the operation of the
Business or the Business Assets, or its authorization to operate employee
assistance programs under the applicable provisions of Kansas or federal
law, and Seller is not in default in any respect of any order or any
decree or rule of any court or governmental authority which may have
jurisdiction over Seller, the Property or the Business Assets. Seller
possesses all permits and licenses necessary for the operation of the
Business, and otherwise operates the Business in material compliance with
all applicable laws, regulations, and ordinances.
4.12 BROKER. No broker, finder or agent has been engaged by Seller or
Purchaser in regard to the sale of the Business Assets and Seller and
Purchaser hereby agree to indemnify each other and hold each other free
and harmless from and against any and all liability, loss, costs, damage,
and expense including without limitation, reasonable attorneys' fees and
costs of litigation any party shall ever suffer or incur because of any
claim by any broker, or any agent thereof, whether or not meritorious, for
any fee, commission, or other compensation with respect to this Agreement
or to the sale of the Business Assets.
4.13 Insurance. Seller has continuously maintained insurance for
professional liability and for general liability for the Business and the
Property, since June 1,1991.
4.14 NOTICES. Seller is not aware of and has not received any
communications from any insurance companies, governmental agencies or from
any other parties of any conditions, defects or inadequacies with respect
to the Property or the Business Assets, (including health hazards, state
or local notices relating to health care licensing, certificate of need
status, or dangers, nuisance or waste, which, if not corrected, would
result in termination of insurance coverage or increase its cost) or from
governmental agencies or any other parties with respect to any violations
of building codes and/or zoning ordinances or other governmental laws,
regulations or orders with respect to the Property or the Business Assets,
pending or threatened condemnation proceedings with respect to the
Property, or any other modification of the zoning classification, or of
any building or environmental code requirements applicable to the Property
or any part thereof. Seller shall immediately notify Purchaser of any
violations or conditions of which Seller receives notice (whether written
or oral).
4.15 EMPLOYEES. There are no employees of Seller or of any affiliate
of Seller currently employed in the operation and/or maintenance of the
Business Assets, other than as shown on EXHIBIT C attached hereto. EXHIBIT
D attached hereto sets forth as of the date of this Agreement a complete
list and description of all fringe benefits, including hospitalization
insurance, accident and health insurance, disability insurance death
insurance, vacation policies, meals and lodging policies and parking
policies along with true, correct and complete copies of all contracts and
disclosures related thereto. As of the date of this Agreement, there are
no pension, retirement, incentive or other similar arrangements or plans
to which Seller is bound.
4.16 EMPLOYMENT LAWS. Seller has complied in all material respects
with all applicable state and federal laws and regulations respecting
employment and employment practices, terms and conditions of employment,
wages and hours and other laws and regulations related to employment of
employees of the Seller, the Business Assets or of agents of Seller, and
there are no arrears in the payment of wages, withholding or social
security taxes, unemployment insurance premiums or other similar
obligations other than in the ordinary course of business and no
impediment to termination of service of any such employees.
4.17 COST REPORTS. All rate setting forms or cost reports which
Seller has been required to file as of the Closing Date with any state or
federal authority or other third party payor, have been timely filed and
accurately reflect the costs of the operation of the Business.
4.18 BANKRUPTCY, ETC. No bankruptcy, insolvency, petition for
dissolution, rearrangement or similar action involving the Business or the
Business Assets, whether voluntary or involuntary, is pending or
threatened, and Seller has not:
(a) filed a consent for dissolution except that Purchaser
acknowledges Seller's intention to file a consent for dissolution
following the Closing;
(b) filed a voluntary petition in bankruptcy;
(c) been adjudicated as bankrupt or insolvent or filed a petition or
action seeking any reorganization, arrangement, recapitalization,
readjustment, liquidation, dissolution or similar relief under any Federal
bankruptcy act or any other laws;
(d) sought or acquiesced in the appointment of any trustee, receiver
or liquidator of all or any substantial part of its properties, the
Business Assets, personal property or any portion thereof; or
(e) made an assignment for the benefit of creditors or admitted in
writing its inability to pay its debts generally as the same become due.
Seller is not anticipating or contemplating any of the actions set
forth in (a) through (e) of this subsection.
4.19 INFORMATION NOT MISLEADING. All the information concerning
Seller, the Business Assets and the Property and all reports, contracts,
or other items obtained by Purchaser pursuant to this Agreement are true,
complete and correct in all respects and fairly present the information
set forth in a manner that is not misleading and Seller has not omitted
any information required to be included in order to make the information
furnished not misleading.
4.20 AUDITS. There have been no Medicaid, Medicare or private
insurance audits within the 36 months preceding the date of this Agreement
and Seller has not been informed of any recoupment claims.
4.21 TRADE NAME. Seller represents, warrants, and covenants that
Seller has the exclusive right in perpetuity to use the trade name Total
Concept EAP and any other names used now or in the past in association
with the Business, and Seller has not granted and will not grant to any
other person, firm, or corporation the right to use that trade name.
4.22 PROPERTY. Seller leases the Property under the terms of a lease
agreement, as previously disclosed to Purchaser.
4.23 PATIENT PAYMENTS. There are no advances or pre-payments made by
clients for services not rendered, or to be rendered, prior to the Closing Date.
4.24 SELLER'S RESPONSIBILITIES. Seller shall remain responsible for
all liabilities, including but not limited to, the payment of compensation
of the employees of the Business including any and all accrued benefits
and the amounts payable, for the period prior to the Closing Date. The
accounts receivable for the period prior to the Closing Date shall remain
the assets of Seller. After the Closing Date, any monies collected by
Purchaser for the period prior to the Closing Date will be forwarded to
Seller upon receipt.
4.25 CONSULTANTS. There are no consultants of Seller currently
employed in the operation and/or maintenance of the Business Assets.
SECTION 5. COVENANTS OF SELLER.
5.1 CONDITION OF PERSONAL PROPERTY. Seller represents and warrants
that, subject to ordinary wear and tear, all equipment appliances and
machinery shall be in good working order and repair through the Closing
Date.
5.2 ACCESS AND PREPARATION OF LICENSE APPLICATION. Seller agrees to
use best efforts to assist Purchaser in making application for all
necessary licenses and permits required for the operation of the Business
by Purchaser. Seller will provide whatever access, materials, expertise
and information reasonably requested in connection with any licensing or
permitting authority review. Seller will likewise cooperate with any
efforts of Purchaser to obtain contracts with or certification by any
third party payor or insurer. Until this transition is complete, and
Seller has obtained all necessary licenses, contracts and certifications,
Seller will allow Purchaser to operate under Seller's license and
certifications to the extent allowable by law.
5.3 ORDINARY COURSE OF BUSINESS. From the date hereof to the Closing
Date, Seller shall conduct its operation of the Business only in the
ordinary course thereof, will take all necessary action to preserve the
goodwill and operation of such Business, and will make no material change
in the operation of such Business nor enter into any material contract
creating an obligation extending after the Closing in excess of $500.00 or
incur any material liability without the written consent of Purchaser,
which consent shall not be unreasonably withheld.
5.4 COMPENSATION. From the date hereof through the Closing Date,
except without prior written consent of Purchaser, Seller will not
increase any salary or other form of compensation payable, or to become
payable, to any of its employees or make any other severance or retirement
arrangement with any such employees.
5.5 INSURANCE. From the date hereof through the Closing Date, Seller
shall maintain insurance on the Business at the same levels as is
maintained on the date hereof.
5.6 REVIEW OF STAFF. Seller shall allow Purchaser an opportunity to
review the credentials and employment histories of all current staff of
the Business upon execution of this Agreement.
5.7 RIGHT OF INSPECTION. Prior to the Closing, Purchaser and its
officers, employees, attorneys and agents shall be entitled during normal
business hours, to inspect the properties, books, documents and records
relating to the Business Assets, and to make copies of the same, and
Seller agrees to furnish such information relating to Seller and the
Business Assets as Purchaser reasonably may request and to permit
Purchaser and such persons to consult with the officers, employees,
attorneys and agents of Seller for the purpose of determining the accuracy
of the covenants, representations and warranties made herein. Seller shall
cooperate with Purchaser as necessary and reasonable to insure a smooth
transition of ownership of the Business.
5.8 DISCHARGE OF OBLIGATIONS. On or before the Closing Date, Seller
shall discharge and obtain releases with respect to all outstanding
security interests in the Business Assets and any liens and mortgages on
the Business.
5.9 PUBLICITY. All press releases, filings and other publicity
concerning the transactions contemplated hereby will be jointly
coordinated and will be subject to review and approval by both Seller and
Purchaser, such approval not to be unreasonably withheld or delayed. In
addition, Seller has executed a Confidentiality Agreement, which is
attached hereto as EXHIBIT E.
SECTION 6. REPRESENTATION AND WARRANTIES OF PURCHASER.
6.1 ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized, existing and in good standing under the laws of The
Commonwealth of Massachusetts.
6.2 CORPORATE ACTION BY PURCHASER. Purchaser has full power and
authority to enter into and perform this Agreement, all corporate
proceedings necessary to duly authorize the execution and delivery of the
Agreement by the officer or officers executing the same on Purchaser's
behalf have been taken and this Agreement is the legal and binding
obligation of Purchaser, enforceable in accordance with its terms and
conditions applicable to Purchaser.
SECTION 7. CONDITIONS TO CLOSING. Purchaser shall not be obligated to purchase
the Business Assets nor is it bound by any of the terms of this Agreement until
all of the following conditions are met, any one or all of which may be waived
by Purchaser.
7.1 REPRESENTATION, WARRANTIES AND COVENANTS. The representations and
warranties of Seller contained in this Agreement shall be true in all
material respects at and through the Closing as though such
representations and warranties were made on that date and Seller shall
have performed all covenants and agreements on its part required to be
performed on or before the Closing Date which are specifically authorized
or contemplated by this Agreement.
7.2 LEASE FOR REAL PROPERTY. Purchaser shall have executed a valid,
legally enforceable lease for the Property or for Alternative Premises,
upon terms acceptable to Purchaser (the "Lease Agreement"). Said Lease
shall provide occupancy rights to Purchaser effective coincident with the
Closing Date on terms acceptable to Purchaser, including, but not limited
to, Purchaser's use of the premises to operate employee assistance
programs. Purchaser shall not unreasonably reject the Lease Agreement or
delay in locating alternative suitable space. If an acceptable Lease
Agreement is not obtained, or alternative suitable space is not located,
then Purchaser may exercise its rights under Section 10.3.
7.3 THIRD PARTY PAYORS. Purchaser shall have satisfied itself that
there will be adequate insurance and third party payor reimbursement
available for patients who will be treated for employee assistance
services by the Business as intended to be operated by Purchaser.
7.4 LICENSES AND APPROVALS. Purchaser shall have obtained all
necessary licenses, permits and approvals to occupy the Property or
Alternative Premises and have made application for all necessary licenses,
permits and approvals to operate said premises as an employee assistance
program .
7.5 SALE OF BUSINESS ASSETS. Seller shall sell, convey and transfer
to Purchaser the Business Assets by delivering to Purchaser the Bill of
Sale in the form attached hereto as EXHIBIT F, an Assignment of Intangible
Rights in the form attached hereto as EXHIBIT G, and an Assignment and
Assumption Agreement in the form attached hereto as EXHIBIT H, and any
other forms of documentation requested by Purchaser.
7.6 INSURANCE. Purchaser shall have obtained general and professional
liability insurance coverage in amounts Purchaser deems necessary to
operate the Business as an employee assistance program. Seller shall have
provided evidence to Purchaser that it has purchased the requisite "tail"
insurance policy to cover Seller for any outstanding or latent claims
which may arise as a result of its operation of the Business prior to the
Closing Date. Purchaser shall reimburse Seller the cost of obtaining the
requisite "tail" insurance policy.
7.7 NO MATERIAL CHANGE. The business or financial condition of the
Business and or any of the Business Assets shall not have been, or shall
not be threatened to be, adversely affected in any way as a result of
fire, explosion, earthquake, disaster, accident, labor trouble or dispute,
any action by the United States or any other governmental authority, civil
disturbances, uprising, activity of armed forces, or Act of God or public
enemy which has not been disclosed or provided for in this Agreement.
7.8 NON-COMPETITION. Seller shall have executed a Non-Competition
Agreement in substantially the same form and substance as EXHIBIT I
attached hereto.
7. 9 PAYROLL. At the Closing, Purchaser shall have received from
Seller a copy of the most recent payroll register for the Business with
evidence that all employees of Seller have been compensated up to the
Closing Date.
7.10 CONSENTS. At the Closing, Seller will furnish to Purchaser
written consents from third parties to Purchaser's assumption and use of
any and all tradenames, trademarks, goodwill and other Business Assets
referred to in Section 1.
7.11 FINANCIAL DUE DILIGENCE. Purchaser shall have had an opportunity
to conduct financial due diligence with respect to Seller's detailed
business records for the thirty six month period prior to the execution
date of this Agreement.
7.12 CORPORATE AUTHORITY. Seller shall have complied fully with the
laws of the State of Kansas relevant to the transactions contemplated
herein. Seller shall provide to Purchaser a copy of the necessary
corporate resolutions to duly approve the execution, delivery and
performance of this Agreement by Seller.
7.13 OPINION OF COUNSEL FOR SELLER. Purchaser shall have received
from counsel to Seller, ten (10) days prior to the Closing Date, a written
opinion letter (which shall be limited to the laws of Kansas) addressed to
Purchaser in form and substance to the effect that:
(a) Seller has the full corporate power and authority to execute and
deliver this Agreement and such other documents contemplated hereby.
(b) The execution, delivery and performance of this Agreement and
such other documents contemplated hereby have been duly authorized by all
requisite corporate actions of Seller and this Agreement and such other
documents contemplated hereby, have been duly executed and delivered by
Seller.
(c) This Agreement and such other documents as contemplated hereby
are legal, valid and binding obligations of Seller and are enforceable
against them in accordance with their respective terms, except as limited
by general equity principles (whether considered in a proceeding at law or
at equity) and by bankruptcy, insolvency, reorganization, moratorium and
other laws affecting the enforcement of creditors' rights generally.
(d) To the knowledge of counsel after due inquiry, the execution and
delivery by Seller of this Agreement and the consummation by Seller of the
transactions contemplated hereby will not be or result in a violation of
any statute or regulation of any governmental authority or of any decree,
order, or judgment and will not be or result in a violation or constitute
a default or ground for revocation under any contract, agreement,
indenture, license or instrument known to such counsel to which Seller is
a party or by which Seller is bound.
(e) The shareholders of Seller have approved the transfer of the
Business Assets by Seller to Purchaser pursuant to this Agreement.
(f) To the knowledge of counsel after due inquiry, Seller is not a
party to any pending litigation or any proceeding before any court or
government department or agency which might affect the subject
transaction, and such counsel does not know of any such threatened
litigation or proceeding against Seller.
7.14 CERTIFICATE OF RELEASE. Purchaser shall have received a
Certificate of Release from the Kansas Department of Human Resources
stating that, as of a date not more than five (5) days before the Closing
Date, no contributions, interest, or penalties are due to the Department
of Human Resources from the Seller.
In the event the foregoing conditions precedent cannot be satisfied
prior to the Closing Date and are not waived by Purchaser, this Agreement
shall be null and void. Purchaser shall use its best efforts in good faith
to bring about the fulfillment of all conditions within its control set
forth in this Section7. Without waiving any rights with respect to
representation, warranties and covenants made by Seller in this agreement,
Purchaser agrees that by proceeding with the Closing, all conditions
precedent to the obligations of Purchaser have been met to Purchaser's
satisfaction.
7.15 EMPLOYMENT AGREEMENT. Purchaser shall enter into an employment
agreement with Mr. Dreier as Director of the Business. This is a separate
agreement and is attached hereto as EXHIBIT J (the "Employment Agreement").
SECTION 8. NO ASSUMPTION OF LIABILITIES. Purchaser shall assume no liabilities
of any kind or nature of Seller or any liabilities of any kind or nature arising
out of the business conducted with respect to the Business Assets through the
Closing Date. Seller shall assume no liabilities of any kind or nature of
Purchaser or any liability of any kind or nature arising out of the business
conducted with respect to the Business Assets after the Closing Date, with the
exception of any obligations assumed by Mr. Dreier as a consequence of his
activities under the Employment Agreement.
<PAGE>
SECTION 9. INDEMNIFICATION.
9.1 INDEMNIFICATION OF PURCHASER. Seller hereby indemnifies and holds
Purchaser, its directors, officers, employees and agents harmless from:
(i) Any and all liabilities and obligations or claims against
Seller, and from all liabilities and obligations or claims arising out of
the operation of the Business through the Closing Date, or claims arising
out of the winding up or dissolution of Seller, if any, including, but not
limited to, any and all liabilities, obligations, claims, fines, penalties
or similar charges levied upon the Business due to the non-compliance of
Seller with any applicable federal, state and local laws, ordinances,
codes, regulations and requirements;
(ii) Any damage or deficiency due to breach of warranty,
misrepresentation, or nonfulfillment of any agreement on the part of the
Seller under this Agreement;
(iii) With respect to all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses connected with the foregoing
including without limitation reasonable attorney's fees and expenses. For
purposes of satisfying any claim under this indemnification provision,
Purchaser shall have all remedies available under this indemnification
provision.
9.2 INDEMNIFICATION OF SELLER. Purchaser shall indemnify and hold
Seller, its directors, officers, employees and agents harmless from:
(i) Any and all liabilities, claims actual damage, loss, cost or
expense arising out of the conduct of the business after the Closing Date
by the Purchaser, if any; including, but not limited to, any and all
liabilities, obligations, claims, fines, penalties or similar charges
levied upon the Business due to the non-compliance of Buyer with any
applicable federal, state and local laws, ordinances, codes, regulations
and requirements;
(ii) Any actual damage, loss, cost or expense arising out of the
breach of any warranty, misrepresentation, or nonfulfillment of any
agreement on the part of Purchaser under this Agreement; and
(iii) With respect to all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses connected with the foregoing,
including without limitation reasonable attorney's fees and expenses.
The foregoing shall not be applicable to any actions or omissions
on the part of Mr. Dreier in fulfilling his obligations under the
Employment Agreement.
<PAGE>
SECTION 10. RIGHTS OF TERMINATION AND REMEDIES FOR DEFAULT.
10.1 DEFAULT BY SELLER. In the event that all of the conditions
precedent set forth in Section 7 of this Agreement have been satisfied or
waived by Purchaser on or prior to the Closing Date and Purchaser is
ready, willing and able to proceed with the Closing, but Seller is unable,
unwilling or refuses to consummate the Closing in accordance with the
terms and conditions of this Agreement, or in the event that Seller is
otherwise in breach of this Agreement, Purchaser shall have the right to
pursue all other remedies available at law or equity.
10.2 PURCHASER'S RIGHT TO TERMINATE. If any one or more conditions
set forth in Section 7 has not been fulfilled or satisfied through no
fault of Purchaser and not waived in writing by Purchaser on or prior to
the Closing Date, then Purchaser, at its option, may terminate this
Agreement, effective upon the receipt by Seller of written notice of such
termination. In the event of any such termination of this Agreement, all
of Seller's and Purchaser's obligations hereunder shall terminate without
further loss, cost, damage, claim, right or remedy in favor of any Party,
and none of the Parties hereto shall have any further liability or
responsibility to the other without the need to exchange releases to
confirm same.
10.3 SELLER'S RIGHT TO TERMINATE. In the event that Purchaser is
unable to close by March 16, 1996, and the Parties have not mutually
agreed to an extension and this inability to close is not due to Seller's
default, then Seller shall be entitled to terminate the transaction;
provided, however, if nonsatisfaction of the condition set forth in
Section 7.2 is the sole cause of Purchaser's inability to close by March
16, 1996, Seller hereby agrees not to terminate the transaction. In the
event of a termination of this transaction under this Section 10.3, all of
Purchaser's obligations hereunder shall terminate without further loss,
cost, damage, claim, right or remedy in favor of any Party, and none of
the Parties hereto shall have any further liability or responsibility to
the other without the need to exchange releases to confirm same.
10.4 DEFAULT BY PURCHASER. In the event that Seller is ready, willing
and able to proceed with the Closing and Purchaser fails to complete the
transactions contemplated in this Agreement, which failure is due
exclusively to the unwillingness, inability or refusal of Purchaser to
fulfill its obligations at such Closing, other than pursuant to
Purchaser's right to terminate under any provision of Section 10.2 or
10.3, then Seller may terminate this Agreement. Seller shall also have the
right to pursue all other remedies available at law or equity.
SECTION 11. MISCELLANEOUS.
11.1 SURVIVAL. All representations, warranties and covenants of Seller and
Purchaser contained herein shall survive the Closing.
11.2 DISCLAIMER OF INTENT TO BECOME PARTNERS. The Parties , by the
executing of this Agreement, do not intend to become partners.
11.3 ADDITIONAL DOCUMENTS. Purchaser and Seller will, at any time
before, at or after the Closing Date, sign, execute and deliver, or cause
others to do so, all such documents and instruments to do, or cause to be
done, all such other acts and things as may be reasonable and necessary to
carry out the provisions of this Agreement.
11.4 NOTICES. Any notice, request or other communication to be given
by any party hereunder shall be in writing and shall be sent by registered
or certified mail, postage prepaid, addressed as follows:
(a) If to Seller, to:
Ron Dreier
7451 Switzer, Suite 101
Shawnee Mission, KS 66203
or to such other person or place as Seller shall furnish to Purchaser in
writing; or
(b) If to Purchaser, to:
Bruce A. Shear, President
Pioneer Healthcare
200 Lake Street, Suite 102
Peabody, MA 01960
With a copy to:
Willie J. Washington, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
or to such other person or place as Purchaser shall furnish to Seller in
writing.
11.5 NON-ASSIGNMENT. Except as otherwise provided herein, the rights
under this Agreement may not be assigned, nor obligations delegated, by
either party hereto without the prior written consent of the other, except
that without such consent Purchaser may assign its rights herein to any
corporation, partnership or other entity or individual affiliated with
Purchaser. In such case, Purchaser's assignee shall be substituted for
Purchaser in all respects as if such assignee were the original Purchaser
hereunder.
11.6 SOLE AGREEMENT. This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing signed by the
Parties. This Agreement constitutes the entire agreement between the
Parties with respect to the subject matter hereof, and supersedes all
prior negotiations, discussions, writing and agreements between them.
11.7 GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the law of The Commonwealth of Massachusetts.
11.8 SUCCESSORS. All the terms of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the successors and
assigns of the Parties, subject to the provisions of Section 11.5 hereof.
11.9 CAPTIONS. The captions of this Agreement are for convenience of
reference only and shall not define or limit any of the terms or
provisions hereof.
11.10 SEVERABILITY. Should any one or more of the provisions of this
agreement be determined to be invalid, unlawful or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions thereof shall not in any way be affected or impaired thereby,
unless the absence of such invalid, unlawful or unenforceable provision
will frustrate the purpose of this Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
shall together constitute but one and the same instrument.
11.12 NO WAIVER. Except as provided herein, no failure to exercise
and no delay in exercising, on the part of the Purchaser, any right, power
or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder
preclude any other right, power or privilege. The rights provided are
cumulative and not exclusive of any rights provided by law.
11.13 ATTORNEY'S FEES AND COSTS. Each party to this Agreement shall
pay its' own out-of-pocket charges and expenses (including without
limitation attorneys' fees) incurred in connection with the negotiation,
preparation and execution of this Agreement. In connection with any
litigation with respect to this Agreement, the prevailing party, whether
Purchaser or Seller, shall be entitled to recover all costs incurred,
including reasonable attorneys' fees for services rendered in connection
with such litigation, including appellate proceedings and post-judgment
proceedings.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
SELLER:
Total Concept Employee Assistance Program, Inc.
Date:
Ronald J. Dreier, President
PURCHASER:
PHC, Inc., d/b/a Pioneer Healthcare
Date:
Bruce A. Shear, President
<PAGE>
LIST OF EXHIBITS
Exhibit A: Inventory of Tangible Assets
Exhibit B: Assumed Contracts, Agreements & Leases
Exhibit C: Payroll Record
Exhibit D: Employee Benefit Plans
Exhibit E: Confidentiality Agreement
Exhibit F: Bill of Sale
Exhibit G: Assignment of Intangible Rights
Exhibit H: Assignment & Assumption Agreement
Exhibit I: Non-Compete Agreement
Exhibit J: Employment Agreement
<PAGE>
EXHIBIT B
ASSUMED CONTRACTS, AGREEMENTS & LEASES
The following is a list of contracts, agreements and leases between Seller
and Third Parties with respect to the Business or ownership, operation,
management or administration of the Business.
A. THIRD PARTY PAYORS
1. THE TRAVELERS MANAGED CARE SYSTEM AGREEMENT, effective 9/1/93, consecutive 1
year terms with automatic renewal, 60 day notice to quit, assignable with
consent of other party only.
2. PEOPLE RESOURCES, INC., effective 8/1/93, 30 day notice to quit,
assignable.
3. CORPHEALTH, INC., NO EXECUTED CONTRACT ON FILE, consecutive 1 year terms with
automatic renewal, 120 day notice to quit, assignable with consent of other
party only.
4. CMG HEALTH, INC., effective 9/30/93, amended 7/1/93 - NO EXECUTED
CONTRACT ON FILE
5. MANAGED HEALTH NETWORK, INC., effective 1/15/94, consecutive 1 year terms
with automatic renewal, 30 day notice to quit, assignable with consent of other
party only.
6. OZARK O'REILLY AUTOMOTIVE, NO EXECUTED CONTRACT ON FILE
7. NATIONAL COMPUTER SYSTEMS, NO EXECUTED CONTRACT ON FILE, effective 8/1/95,
consecutive 1 year terms with automatic renewal, 30 day notice to quit.
8. SCHOOL SERVICES & LEASING, INC. AND KINCAID & COACH, INC., effective
11/29/94, consecutive 1 year terms with automatic renewal, 60 day notice to
quit.
9. AMERICAN PSYCHMANAGEMENT, INC., NO EXECUTED CONTRACT ON FILE, consecutive 1
year terms with automatic renewal, 90 day notice to quit, assignable with
consent of other party only.
10. OMNI HEALTH SYSTEMS, INC., NO EXECUTED CONTRACT ON FILE, 60 day notice to
quit, NOT ASSIGNABLE.
11. PERSPECTIVES, LTD., effective 12/1/92, consecutive 1 year terms with
automatic renewal, 60 day notice to quit, NOT ASSIGNABLE.
12. CHESTNUT HEALTH SYSTEMS, effective 4/1/90, 60 day notice to quit.
13. LONGVIEW ASSOCIATES, INC., effective 4/17/95.
14. PERSONAL PERFORMANCE CONSULTANTS, NO EXECUTED CONTRACT ON FILE, 60 day
notice to quit, assignable.
<PAGE>
B. SERVICE AGREEMENTS
1. AIRTOUCH, Paging services & 4 pagers, dated 4/10/95, $25.00/mo, 1 year term
with automatic renewal unless term by written notice at least 30 days prior to
end of term ( BEFORE 3/10/96).
2. CELLULARONE, Car phone, dated 9/9/94, $47.45/mo, 1 year term with automatic
renewal, $200 fee to term at any time other than end of term.
C. LEASE CONTRACTS
1. KING'S COVE OFFICE PARK, SUITE 101 - dated 5/13/93, term 36 mos ends 5/31/96,
current rent is $1,735.00/mo for 1,850 sq feet. Assignable with landlords
consent only.
<PAGE>
EXHIBIT C
PAYROLL RECORD
Dreier, Ron
Maughan, Sue
Wash, Darlene
Potts, Leila
Dannar, Judy
<PAGE>
EXHIBIT D
EMPLOYEE BENEFIT PLANS
1. Health Insurance: None
2. Dental Insurance: None
3. Disability Insurance: None
4. Life Insurance: None
5. Paid Vacation Time:
Full Time Employed less than 6 mos - 1 week
Employed less than 1 year - 2 weeks
Employed less than 5 years - 3 weeks
Part Time Pro-rated based on hours worked
6. Paid Sick Time: Full Time - 9 days per year
Part Time - pro-rated based on hours worked
7. Paid Holidays (6): New Years Day
Memorial Day
Independence Day
Labor Day
Thanksgiving Day
Christmas Day
<PAGE>
CONFIDENTIALITY AGREEMENT
This Confidentiality Agreement is made and entered into as of this 11TH day
of January, 1996, by and among PHC, Inc. d/b/a Pioneer Healthcare, a
Massachusetts corporation (hereinafter referred to as "Pioneer"), Total Concept
EAP, Inc., a Kansas corporation and Ron Dreier, an individual residing in the
State of Kansas (hereinafter collectively referred to as the "Company"). The
Company and Pioneer are negotiating for the purchase by Pioneer of certain
assets of the Company, as well as the employment of Mr. Dreier by Pioneer after
the closing of the purchase (collectively, "the Transaction").
WHEREAS, in connection with the Transaction, the Company will furnish to
Pioneer certain information related to the Company, its assets, and its
operations including without limitation, information which is non-public,
proprietary or confidential in nature. Any such oral or written information
provided or disclosed by the Company or its agents or representatives to
Pioneer, together with any analyses, compilation, studies or other documents or
records which contain, reflect or are generated from such information are
hereafter defined as "Company Information".
WHEREAS, in connection with the Transaction, the Company has requested
that Pioneer disclose to the Company certain oral or written information related
to Pioneer, its assets, and its operations including, without limitation,
information which is non-public, proprietary or confidential in nature. Any such
oral or written information provided or disclosed by Pioneer or its agents or
representatives to the Company, together with any analyses, compilation, studies
or other documents or records which contain, reflect or are generated from such
information are hereafter defined as the "Pioneer Information."
WHEREAS, the Company has agreed to maintain the Pioneer Information as
confidential and to use the Pioneer Information for the sole and exclusive
purpose of evaluating the Transaction and the parties have made certain other
agreements as set forth below.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, on behalf of
themselves, their officers, directors, parents, subsidiaries, agents, successors
and assigns intending to be legally bound, do hereby agree as follows:
1. LIMITATIONS ON USE AND DISCLOSURE OF INFORMATION
Unless and until the Company and Pioneer shall have consummated a
Transaction pursuant to a definitive agreement, it is agreed that:
<PAGE>
All Company Information provided to Pioneer shall be used for the
sole and exclusive purpose of evaluating a possible Transaction
and for no other purpose whatsoever. Further, all Company
Information shall be kept confidential by Pioneer and shall not
be disclosed to any third party or person not a party to this
Agreement, except upon the advance written consent of the
Company. Notwithstanding the foregoing, Pioneer may disclose
Company Information to its officers, directors, employees and
agents, as well as to attorneys, accountants and consultants
retained by Pioneer. Pioneer may make disclosures of Company
Information to the Securities and Exchange Commission, the NASDAQ
Stock Exchange and with related press releases with the prior
written consent of the Company, such consent not to be
unreasonably withheld.
All information provided to the Company shall be used for the sole
and exclusive purpose of evaluating a possible Transaction and
for no other purpose whatsoever. Further, all Pioneer Information
shall be kept confidential by the Company and shall not be
disclosed to any third party or person not a party to this
Agreement, except upon the advance written consent of Pioneer,
which may be withheld in the sole discretion of Pioneer.
Notwithstanding Section 1 (b) of this Agreement, the Company may,
solely and exclusively for the purpose of investigating,
evaluating and formulating opinions related to the possibility of
a Transaction, provide access to Pioneer Information to its
officers, directors, employees and agents, as well as to
attorneys, accountants and consultants retained by the Company
for that purpose; PROVIDED, HOWEVER that (i) any person granted
access to Pioneer Information under this provision shall agree in
writing to the restrictions on use and disclosure of Pioneer
Information contained in this Agreement; (ii) such written
agreement shall be delivered to Pioneer at least ten (10) days in
advance of any disclosure; and (iii) Pioneer shall not have
provided a written objection to the Company concerning such
disclosure.
The Company agrees to keep all Pioneer Information confidential and
agrees to take all reasonably necessary precautions, including
the establishment of appropriate procedures and discipline, to
avoid all disclosure of Pioneer Information and knowledge derived
therefrom not expressly authorized by Pioneer or by this
Agreement and to safeguard the confidential nature of the Pioneer
Information provided.
<PAGE>
The Company agrees not to duplicate or make copies of any Pioneer
Information furnished to it pursuant to this Agreement except as
necessary for the proper evaluation, investigation, acquisition
and development of opinions related to the possibility of a
Transaction.
All Pioneer Information provided pursuant to the terms of this
Agreement, and all copies thereof, shall be returned to Pioneer
immediately upon the earlier of a request by Pioneer or a
decision by either party not to pursue a Transaction. At such
time, that portion of the information that may be found in
analyses, compilations, studies or other documents prepared by or
for the Company, will be destroyed by the Company which shall
certify in writing to Pioneer that such destruction has been
made.
The Company agrees not to use the Pioneer Information, in any way or
event, to the detriment of Pioneer. The Company further agrees
(i) to inform all of its employees, agents or representatives who
receive the information of the confidential nature of such
Pioneer Information and to direct all such representatives to
treat such Pioneer Information confidentially and to not use it
other than for the purposes described above; (ii) to be
responsible in any event for any breach of this Agreement by any
of its employees, agents or representatives; (iii) to make all
reasonable, necessary and appropriate efforts to safeguard the
Pioneer Information from disclosure to anyone other than is
permitted hereby.
2. NO REPRESENTATION OR WARRANTY BY PIONEER
The Company acknowledges and agrees that Pioneer does not make any
representation or warranty as to the accuracy or completeness of the Pioneer
Information other than the representations and warranties contained in that
certain Asset Purchase Agreement executed by the parties with respect to the
Transaction. Neither Pioneer nor any representative of Pioneer shall have any
liability to the Company or any of its representatives resulting from the use of
the Pioneer Information by the Company or its representatives.
3. CONFIDENTIALITY OF DISCUSSIONS
The Company agrees not to disclose to any person, other than those
employees and representatives of Pioneer who are designated in writing by
Pioneer to engage in Transaction negotiations, the fact that the Company has
been provided Pioneer Information or that discussions or negotiations are taking
place concerning a possible Transaction between the Company and Pioneer or the
status thereof.
<PAGE>
4. NON-RESTRICTED INFORMATION
The foregoing restrictions with respect to the Pioneer Information
shall not apply to any information which the Company demonstrates (i) is on the
date hereof or thereafter becomes generally available to the public other than
as a result of a disclosure, directly or indirectly, by the Company or its
representatives; (ii) was available to the Company on a non-confidential basis
prior to its disclosure to the Company by Pioneer or its representatives by a
source, which source was not itself bound by a confidentiality agreement with
Pioneer or its representatives and did not receive such information, directly or
indirectly, from a person or entity so bound; or (iii) has been already lawfully
developed or acquired independently by the Company other than through the breach
of any agreement with Pioneer.
5. RESTRICTIVE COVENANTS
For a period of one (1) year after the date of this Agreement, the
Company will neither directly or indirectly solicit for employment (other than
through advertisements to the public or the industry at large), or advise or
recommend to any other person or entity that they or it solicit for employment,
any employee of, or independent contractor to, Pioneer or any affiliates of
Pioneer.
6. SPECIFIC PERFORMANCE
The Company agrees that the Pioneer Information provided pursuant to
this Agreement is unique, proprietary and confidential, that failure to perform
its obligations in this Agreement will result in irreparable damage to Pioneer
for which money damages would not be an adequate remedy and that in addition to
any other remedies available to Pioneer, specific performance of the obligations
herein may be obtained by suit in equity.
7. GENERAL PROVISIONS
All prior negotiations between the parties relating to the exchange of
Pioneer Information are merged into this Agreement and there are no promises,
agreements, conditions, undertakings, warranties or representations, oral or
written, express or implied, between them other than as set forth herein. No
change or modification of this Agreement shall be valid unless the same is in
writing and signed by the parties thereto or their successors or assigns. No
waiver of any of the provisions of this Agreement shall be valid unless in
writing and signed by the party against whom it is sought to be enforced. This
Agreement shall be binding upon and inure to the benefit of the parties hereto,
their successors, permitted assigns, agents and representatives. This Agreement
shall be governed by and integrated in accordance with the laws of the
Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first written
above.
COMPANY:
Total Concept EAP, Inc.
Date:
Ron Dreier, President
Date:
Ron Dreier, Individually
PIONEER:
PHC, Inc., d/b/a Pioneer Healthcare
Date:
Bruce A. Shear, President
<PAGE>
BILL OF SALE
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
is hereby acknowledged, TOTAL CONCEPT EMPLOYEE ASSISTANCE PROGRAM, INC., a duly
organized and existing Kansas corporation, (hereinafter referred to as
"Seller"), does hereby sell, assign, transfer and convey to PHC OF KANSAS, INC.,
a duly organized and existing Massachusetts corporation (hereinafter referred to
as "Purchaser"), all right, title and interest in and to the business assets (as
defined below), free and clear of any lien as that term is defined in the Asset
Purchase Agreement as defined below, except as disclosed herein or in the Asset
Purchase Agreement (as hereinafter defined). The term "Business Assets" shall
mean all of the assets owned by Seller or in which Seller has any rights or
interests comprising and used by Seller in connection with or related to the
ownership, management or operation of employee assistance programs known as
Total Concept EAP (the "Business") located at 7451 Switzer, Suite 101, Shawnee
Mission, Kansas, as of the date hereof, tangible and intangible, wheresoever
situated and whether or not specifically referred to, and any and all of
Seller's right, title and interest therein and thereto as noted in that certain
Asset Purchase Agreement dated as of March , 1996 by and between Seller and PHC,
Inc., as amended (the "Asset Purchase Agreement"), including, without limiting
the generality of the foregoing, the following:
a) All machinery, equipment, furniture, furnishings, fixtures, vehicles,
computers, telephones, supplies, and all other tangible assets now or hereafter
owned by Seller prior to the Closing Date (as defined in the Asset Purchase
Agreement) and used in connection with the operation of the Business, wherever
located, as more particularly described, without limitation, in EXHIBIT A of the
Asset Purchase Agreement.
b) All of Seller's right, title and interest in, to or under the
contracts, agreements, leases, licenses, permits, approvals, purchase orders and
commitments, and any other intangible assets in which Seller now or hereafter
has any present or future right or interest prior to the Closing Date and used
in connection with the operation of the Business, which will be assumed by
Purchaser as specifically enumerated and more fully described in EXHIBIT B of
the Asset Purchase Agreement.
c) All leasehold improvements owned or made to the real property where
the Business is located (the "Property").
d) All other tangible and intangible assets owned by Seller and used in
connection with the ownership and operation of the Business, on the date hereof
or as of the Closing Date, including, without limitation, all books and records,
customer and supplier lists, provider agreements, patient lists, approvals,
permits, contracts, plans, surveys, policy manuals, accounts, records, Seller's
forms and office supplies, all advertising and promotional literature relating
to Seller's products, services or operations, all software and computer programs
and documentation, if any, used in conducting the business, including, without
limitation, flow charts, diagrams, descriptive texts and programs, computer
printouts, underlying tapes, computer data bases and similar items used in
Seller's business.
e) Any and all of Seller's trademarks and trademark applications, service
marks and service mark applications, trade names including, without limitation,
the name "Total Concept EAP" (and all derivatives thereof), copyrights and
copyright applications, and including the associated goodwill, the right to sue
for and recover such damages and such other relief as might be granted by a
court of competent jurisdiction for past infringement thereof, and, to the
extent transferable, any and all licenses or permits (including, without
limitation, any transferable licenses, permits, certificates, registrations or
authorizations from or with federal and state regulatory authorities and/or
Medicare and/or Medicaid) with respect to the business and/or operations of
Seller and the Business.
f) Any and all advances or pre-payments made by patients for services not
rendered prior to the Closing Date.
g) Except as expressly provided herein to the contrary, all other assets,
tangible or intangible, wherever located, held or used in connection with the
ownership, operation and management of the Business, whether or not included in
or reflected on the books of Seller or its financial statements.
Notwithstanding anything to the contrary herein provided, the Business
Assets shall not include any cash, bank balances, money market accounts,
certificates of deposit, marketable securities or accounts, or accounts or loans
received by Seller.
<PAGE>
IN WITNESS WHEREOF, this Bill of Sale has been executed by Seller as of
the day of March, 1996.
Seller:
Total Concept Employee Assistance Program, Inc.
By:
Name: RONALD J. DREIER
Title: PRESIDENT
<PAGE>
ASSIGNMENT OF INTANGIBLE RIGHTS
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
is hereby acknowledged, TOTAL CONCEPT EMPLOYEE ASSISTANCE PROGRAM, INC., a duly
organized and existing Kansas corporation, (hereinafter referred to as
"Assignor"), do hereby sell, assign, transfer and convey to PHC OF KANSAS, INC.,
a Massachusetts corporation (hereinafter referred to as "Assignee"), its
successors and assigns forever, as of the date hereof, to the extent transfer
and assignment thereof is not prohibited, all of Assignor's right, title and
interest, in and to the contract rights and other intangible assets owned by
Assignor constituting "Business Assets" within the meaning ascribed thereto in
Section 1 of that certain Asset Purchase Agreement dated as of March , 1996 by
and between Assignor and PHC, Inc. (the "Asset Purchase Agreement", with all
capitalized terms used herein and not otherwise defined having the meanings
ascribed thereto in the Asset Purchase Agreement), and including, without
limiting the generality of the foregoing, the contract rights and other
intangible assets described in said Section 1, and meaning and intending to
convey all of the Business Assets not conveyed to Assignee pursuant to that
certain Bill of Sale from Assignor to Assignee dated as of the date hereof, free
and clear of any Lien, charge, encumbrance or claim of any third party, except
as disclosed in the Asset Purchase Agreement.
TO HAVE AND TO HOLD all of Assignor's right, title and interest in and to
such Business Assets hereby assigned, sold and transferred to Assignee.
ASSIGNEE HEREBY ACCEPTS the foregoing assignment and agrees to perform all
of Assignor's duties under such contracts. Assignee warrants that it is a valid
Massachusetts corporation authorized to transact business in the State of Kansas
and that it has the authority to execute and deliver this Assignment document.
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have caused these presents to be
executed as of this day of March, 1996.
Assignor:
Total Concept Employee Assistance Program, Inc.
By:
Name: RONALD J. DREIER
Title: PRESIDENT
Assignee:
PHC of Kansas, Inc.
By:
Name: BRUCE A. SHEAR
Title: PRESIDENT
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Agreement is entered into this day of March, 1996, by and between
TOTAL CONCEPT EMPLOYEE ASSISTANCE PROGRAM, INC., a duly organized and existing
Kansas corporation (hereinafter referred to as the "Assignor") and PHC OF
KANSAS, INC., a Massachusetts corporation (the "Assignee").
WITNESSETH
WHEREAS, the Assignor has this day sold and transferred to the Assignee
certain personal property used in connection with the operation of the Total
Concept EAP which is a provider of employee assistance programs (the
"Business"); and
WHEREAS, as a part of the sale and transfer of the Business, the Assignor
has agreed to transfer and assign to the extent transfer and assignment are
permissible, and the Assignee has agreed to receive and assume, to the extent
assumption is permissible, certain contracts, leases and other agreements
identified on EXHIBIT B to that certain Asset Purchase Agreement between the
Assignor and PHC, Inc. dated March , 1996 and updated as of the closing date,
all as listed on EXHIBIT 1 attached hereto.
NOW THEREFORE, in consideration of the mutual covenants herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
The Assignor hereby assigns and transfers to the Assignee all of
the Assignor's rights and interest with respect to the contracts, leases and
agreements on EXHIBIT 1 annexed hereto, to the extent such rights are
assignable.
The Assignee hereby assumes the Assignor's rights and obligations
arising from the conduct of the business conducted at the Business after the
date hereof with respect to the contracts, leases and agreements on EXHIBIT 1
annexed hereto, to the extent such obligations are assumable.
The Assignor warrants that (a) it has the authority to execute and
deliver this Assignment and Assumption Agreement, (b) it has not made any prior
assignment of its rights under the agreements and leases on EXHIBIT 1 attached
hereto, and (c) it will execute and deliver to the Assignee such additional
documents as the Assignee may reasonably request to secure its rights under this
Assignment and Assumption Agreement.
The Assignee warrants that it is a valid Massachusetts corporation
authorized to transact business in the State of Kansas and that it has the
authority to execute and deliver this Assignment and Assumption Agreement.
<PAGE>
ASSIGNOR:
TOTAL CONCEPT EMPLOYEE ASSISTANCE PROGRAM, INC.
By:
Name: RONALD J. DREIER
Title: PRESIDENT
ASSIGNEE:
PHC OF KANSAS, INC.
By:
Name: BRUCE A. SHEAR
Title: PRESIDENT
<PAGE>
EXHIBIT 1
ASSUMED CONTRACTS, AGREEMENTS & LEASES
The following is a list of contracts, agreements and leases between Seller
and Third Parties with respect to the Business or ownership, operation,
management or administration of the Business.
A. THIRD PARTY PAYORS
1. THE TRAVELERS MANAGED CARE SYSTEM AGREEMENT, effective 9/1/93, consecutive 1
year terms with automatic renewal, 60 day notice to quit, assignable with
consent of other party only.
2. PEOPLE RESOURCES, INC., effective 8/1/93, 30 day notice to quit,
assignable.
3. CORPHEALTH, INC., NO EXECUTED CONTRACT ON FILE, consecutive 1 year terms with
automatic renewal, 120 day notice to quit, assignable with consent of other
party only.
4. CMG HEALTH, INC., effective 9/30/93, amended 7/1/93 - NO EXECUTED
CONTRACT ON FILE
5. MANAGED HEALTH NETWORK, INC., effective 1/15/94, consecutive 1 year terms
with automatic renewal, 30 day notice to quit, assignable with consent of other
party only.
6. OZARK O'REILLY AUTOMOTIVE, NO EXECUTED CONTRACT ON FILE
7. NATIONAL COMPUTER SYSTEMS, NO EXECUTED CONTRACT ON FILE, effective 8/1/95,
consecutive 1 year terms with automatic renewal, 30 day notice to quit.
8. SCHOOL SERVICES & LEASING, INC. AND KINCAID & COACH, INC., effective
11/29/94, consecutive 1 year terms with automatic renewal, 60 day notice to
quit.
9. AMERICAN PSYCHMANAGEMENT, INC., NO EXECUTED CONTRACT ON FILE, consecutive 1
year terms with automatic renewal, 90 day notice to quit, assignable with
consent of other party only.
10. OMNI HEALTH SYSTEMS, INC., NO EXECUTED CONTRACT ON FILE, 60 day notice to
quit, NOT ASSIGNABLE.
11. PERSPECTIVES, LTD., effective 12/1/92, consecutive 1 year terms with
automatic renewal, 60 day notice to quit, NOT ASSIGNABLE.
12. CHESTNUT HEALTH SYSTEMS, effective 4/1/90, 60 day notice to quit.
13. LONGVIEW ASSOCIATES, INC., effective 4/17/95.
14. PERSONAL PERFORMANCE CONSULTANTS, NO EXECUTED CONTRACT ON FILE, 60 day
notice to quit, assignable.
<PAGE>
B. SERVICE AGREEMENTS
1. AIRTOUCH, Paging services & 4 pagers, dated 4/10/95, $25.00/mo, 1 year term
with automatic renewal unless term by written notice at least 30 days prior to
end of term ( BEFORE 3/10/96).
2. CELLULARONE, Car phone, dated 9/9/94, $47.45/mo, 1 year term with automatic
renewal, $200 fee to term at any time other than end of term.
C. LEASE CONTRACTS
1. KING'S COVE OFFICE PARK, SUITE 101 - dated 5/13/93, term 36 mos ends 5/31/96,
current rent is $1,735.00/mo for 1,850 sq feet. Assignable with landlords
consent only.
<PAGE>
NON-COMPETE AGREEMENT
Ronald J. Dreier shall not compete directly or indirectly, with PHC of
Kansas, Inc. for a period of four (4) years from March 16, 1996, within a
seventy-five (75) mile radius of Kansas City, Missouri. Competition shall
include any activities associated with the marketing of services, or provision
of treatment, relating to the operation of employee assistance programs.
Date:
Ronald J. Dreier
Witness
<PAGE>
Exhibit J
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of day of March,
1996, by and between PHC of Kansas, Inc., a
Massachusetts corporation (hereinafter referred to as the "Employer") and Ronald
J. Dreier, an individual residing in the State of Kansas (hereinafter referred
to as the "Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ the Employee, and the Employee desires
to be employed, on the terms and conditions provided herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. DUTIES AND OBLIGATIONS OF THE EMPLOYEE.
1.1. DUTIES. During the term of this Agreement, the Employee shall
perform such duties as may be assigned to the Employee by Employer from time to
time including, but not limited to, those duties described below. The Employee
shall, as part of his duties, provide clinical and administrative services at
Total Concept EAP (the "Business") or at such other locations as may be
designated from time to time by Employer, at times to be set by Employer. The
Employee shall perform such duties under the supervision and direction of the
President of the Employer.
1. 2 FULL TIME AND BEST EFFORTS. During the term of this Agreement,
the Employee shall be employed full time by Employer and shall use best efforts
in the performance of his duties under this Agreement. The Employee acknowledges
that the obligations incumbent upon him under this Agreement constitute the
primary claim upon his or her professional time, effort, energy and skill and
agrees to undertake only such additional professional obligations as will in no
way compromise his ability to carry out his or her obligations under this
Agreement in a complete and timely manner. The Employee further agrees not to
undertake any such additional professional obligations without obtaining the
prior written consent of the President of the Employer.
1.3 STANDARDS. The Employee shall provide services under this
Agreement in accordance with quality assurance standards of Employer and in
compliance with all applicable statutes, regulations, rules and directives of
federal, state and other governmental and regulatory bodies having jurisdiction
over the Business; the Bylaws, rules and regulations of the Employer; applicable
standards of the Joint Commission on Accreditation of Healthcare Organizations;
and currently accepted and approved methods and practices applicable to the
provision of employee assistance services.
1.4 RECORDS AND REPORTS. The Employee shall maintain records in a
timely and legible fashion as required by applicable laws and in keeping with
generally accepted standards of record keeping and documentation and shall
maintain and furnish Employer with such records, reports and documentation
evidencing the performance of his duties hereunder as may be requested by
Employer or required by applicable law.
2. OBLIGATIONS OF EMPLOYER.
2.1 COMPENSATION. Employer shall pay the Employee for services
rendered pursuant to this Agreement during the initial term an annual salary of
$ 60,000, less amounts required to be withheld by law, payable in arrears in
equal monthly installments plus $300.00 per month as a car allowance. If this
Agreement is renewed pursuant to Section 3.1 hereof, the compensation paid to
the Employee for each such renewal term shall be as mutually agreed to by the
parties.
In addition, Mr. Dreier will be eligible for an annual bonus, payable ten (10)
days following September 30 of each year according to the following plan: for
the twelve month period of operation after the Closing, Mr. Dreier shall receive
10 % of the Profit of the Business (Profit is to be defined as all income less
all direct expenses of the Business prior to taxes. For purposes of calculating
the profits of the Business on which Mr. Dreier's profit share is based, the
following items are not to be treated as "direct expenses" and are, therefore,
not deducted from income in determining Profit: (i) Corporate management fees
paid to PHC, Inc.
or any affiliate.
2.2 FRINGE BENEFITS. Employer shall, from time to time, adopt a
fringe benefit plan (the "Benefit Plan") for its executive employees. Employer
hereby agrees to provide the Employee with benefits consistent with the Benefit
Plan as in effect during his employment. Any such Benefit Plan may be modified
prospectively at any time and will remain in effect until such time as a
subsequent Benefit Plan is adopted by Employer. The current Benefit Plan is
described in Exhibit A, which is attached hereto and incorporated herein by
reference.
2.3 FACILITIES AND SERVICES. Employer will provide or arrange for
the provision of office space, secretarial assistance, clinical assistance,
supplies and equipment suitable to the performance of the Employee's duties
under this Agreement.
3. TERM AND TERMINATION.
3.1 TERM. This Agreement shall commence on March 16, 1996 and shall
have an initial term of two years. Unless terminated in accordance with the
provisions of this Section 3, this Agreement shall be automatically renewed for
successive one year terms upon expiration of the initial term.
3.2 VOLUNTARY TERMINATION. Either party may terminate this Agreement
by giving at least 90 days prior written notice to the other party, which notice
shall specify the effective date for such termination.
3.3 TERMINATION FOR CAUSE. Either party shall have the right to
terminate this Agreement for cause by giving at least 30 days prior written
notice to the other party, which notice shall state the cause and specify the
effective date of such termination.
a. EMPLOYER. For Employer, cause shall include without limitation (i) a
material breach by the Employee of any of his or her obligations hereunder; or
(ii) other good cause relating to the performance of the Employees duties.
b. THE EMPLOYEE. For the Employee, cause shall include without limitation a
material breach by Employer of any of its obligations hereunder.
4. NOTICES.
Any notices permitted or required to be given hereunder shall be
deemed properly given when sent by registered or certified mail, postage
pre-paid, return receipt requested, as follows:
If to Employer, to: Bruce A. Shear
PHC of Kansas, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
(508) 536-2777
If to the Employee, to: Ronald J. Dreier
7451 Switzer, Suite 101
Shawnee Mission, KS 66203
(913) 384-6488
or such other person or address as any party may designate by notice duly given.
5. ASSIGNMENT.
Assignment by the Employee of any rights or obligations under this
Agreement is expressly prohibited.
<PAGE>
6. SEVERABILITY.
Should any provision of this Agreement or application thereof be
held invalid or unenforceable, the remainder of this Agreement shall not be
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law unless to do so would defeat the purpose of this Agreement.
7. WAIVER.
The failure by a party at any time to require performance of any
provision of this Agreement shall not constitute a waiver of such provision and
shall not affect the right of such party to require performance at a later time.
8. CONFIDENTIALITY.
The parties agree to hold confidential the terms contained herein
except to the extent that such terms need to be disclosed to effectuate the
terms of this Agreement to close business advisors (such as accountants and
attorneys) with whom it is essential to do so. Any such disclosures shall be
subject to the same confidentiality requirement.
9. AMENDMENT.
This Agreement represents the entire agreement and understanding
between the parties with respect to the subject matter hereof and may not be
amended except by the written agreement of the parties.
10. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance
with the laws of The Commonwealth of Massachusetts.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereunto set their hands to this
Agreement as of the day and year first written above.
EMPLOYER:
PHC of Kansas, Inc.
By:
Bruce A. Shear, President
EMPLOYEE:
Ronald J. Dreier
<PAGE>
EXHIBIT A
EXECUTIVE BENEFIT PLAN
HEALTH AND DENTAL INSURANCE
As provided by HRC - ARMCO, through American Medical Security. Plan and cost not
yet established, however, the plan will either be 80/20 indemnity plan or a PPO
with 70/30 out-of-network costs.
LIFE INSURANCE
Annual salary up to $50,000 if subscribe to health insurance; otherwise
supplemental available at employee's cost.
SECTION 125 CAFETERIA PLAN
NON-CONTRIBUTORY 401(K) PLAN
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
EXHIBIT 10.74
PHC, INC.
1995 EMPLOYEE STOCK PURCHASE PLAN
Effective as of October 18, 1995
1. PURPOSE. The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide employees (including leased employees) of PHC, Inc., a Massachusetts
corporation (the "Company"), and its subsidiaries, who wish to become
stockholders of the Company, an opportunity to purchase Class A Common Stock of
the Company (the "Shares"). The Plan is intended to qualify as an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
2. ELIGIBLE EMPLOYEES. Subject to provisions of Sections 7, 8 and 9 below,
any individual who
is in the full-time employment (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors of the Company (the "Board") as
eligible to participate in the Plan, is eligible to participate in any Offering
of Shares (as defined in Section 3 below) made by the Company hereunder.
Full-time employment shall include all employees whose customary employment is:
(a) in excess of 20 hours per week; and (b) more than five months in the
relevant calendar year.
3. OFFERING DATES. From time to time the Company, by action of the Board,
will grant rights to purchase Shares to employees eligible to participate in the
Plan pursuant to one or more offerings (each of which is an "Offering") on a
date or series of dates (each of which is an "Offering Date") designated for
this purpose by the Board.
4. PRICES. The price per Share for each grant of rights hereunder shall be
the lesser of:
(a) eighty-five percent (85%) of the fair market value of a Share on the
Offering Date on which such right was granted; or (b) eighty-five percent (85%)
of the fair market value of a Share on the date such right is exercised.
At its discretion, the Board of Directors may determine a higher price for
a grant of rights.
For purposes of this Plan, the term "fair market value" on any date means
(i) the average (on that date) of the high and low prices of the Company's Class
A Common Stock on the principal national securities exchange on which the Class
A Common Stock is traded, if the Class A COMMON Stock is then traded -on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Class A Common Stock on the NASDAQ National Market, if the Class A
Common Stock is not then traded on a national securities exchange; or (iii) the
average of the closing bid and asked prices- last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Class A
Common Stock is not reported on the NASDAQ National Market. If the Company's
Class A Common Stock is not publicly traded at the time a right is granted under
this Plan, "fair market value" shall mean the fair market value of the Class A
Common Stock as determined by the Administrator (as defined below) after taking
into consideration all factors which it deems appropriate, including, without
limitations recent sale and offer prices of the Class A Common Stock in private
transactions negotiated at arms' length.
5. EXERCISE OF RIGHTS AND METHOD OF PAYMENT.
(a) Rights granted under the Plan will be exercisable periodically on
specified dates as determined by the
Board.
(b) The method of payment for Shares purchased upon exercise of rights
granted hereunder shall be through regular payroll deductions or by lump sum
cash payment or both, as determined by the Board. No interest shall be paid upon
payroll deductions unless specifically provided for by the Board.
C-1
<PAGE>
(c) Any payments received by the Company from a participating employee and not
utilized for the purchase of Shares upon exercise of a right granted hereunder
shall be promptly returned to such employee by that Company after termination of
the right to which the payment relates.
6. TERM OF RIGHTS. Rights granted on any Offering Date shall be exercisable upon
the expiration of such period ("Offering Period") as shall be determined by the
Board when it authorizes the Offering, provided that such Offering Period shall
in no event be longer than twenty-seven (27) months.
7. SHARES SUBJECT TO THE PLAN. No more than 100,000 Shares may be sold pursuant
to rights granted under the lan; PROVIDED, HOWEVER, that appropriate adjustment
shall be made to such number, to the number of Shares covered by outstanding
rights granted hereunder, to the exercise price of the rights and to the maximum
number of Shares which an employee may purchase (pursuant to Section 8 below) to
give effect to any mergers, consolidations, reorganizations, recapitalizations,
stock splits, stock dividends or other relevant changes in the capitalization of
the Company occurring after the effective date of the Plan, provided that no
fractional Shares shall be subject to a right and each right shall be adjusted
downward to the nearest full Share. Any agreement of merger or consolidation
will include provisions for protection of the then existing rights of
participating employees under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Company may be made
subject to rights under the Plan. If for any reason any right under the Plan
terminates in whole or in part, Shares subject to such terminated right may
again be subjected to a right under the Plan.
8. LIMITATIONS ON GRANTS.
(a) No employee shall be granted a right hereunder if such employee, immediately
after the right is granted, would own stock or rights to purchase stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company, or of any subsidiary, computed in
accordance with Sections 423(b)(3) and 424(d) of the Code.
(b) No employee shall be granted a right which permits his rights to purchase
shares of capital stock of the Company under all employee stock purchase plans
of the Company and its subsidiaries to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) (or such other maximum as may be
prescribed from time to time by the Code) of fair market value of such Shares
(determined at the time such right is granted) for each calendar year in which
such right is outstanding at any time in accordance with the provisions of
Section 423(b)(8) of the Code.
(c) The number of Shares for which rights granted in any Offering can be
exercised shall be either (i) the same for each employee participating in such
Offering or (ii) shall bear a uniform relation to the total compensation or
basic or regular rate of compensation for each employee participating in such
Offering. No right granted to any participating employee under a single Offering
shah cover more shares than may be purchased at an exercise price equal to 10%
of the compensation payable to the employee during the Offering not taking into
consideration any changes in the employee's rate of compensation after the date
the employee elects to participate in the Offering, or such other percentage as
determined by the Board from time to time. This provision shall be construed to
meet the requirements set forth in Section 423(b)(5) of the Code.
9. LIMIT ON PARTICIPATION. Participation in an Offering shall be limited to
eligible employees who elect to participate in such Offering in the manner, and
within the time limitation, established by the Board when it authorizes the
Offering.
10. CANCELLATION OF ELECTION TO PARTICIPATE. An employee who has elected to
participate in an Offering may, unless the employee has waived this cancellation
right at the time of such election in a manner established b-,7 the Board.
cancel such election as to all (but not part) of the rights granted under such
Offering by giving written notice of such cancellation to the Company before the
expiration of the Offering Period. Any amounts paid by the employee for the
Shares or withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee. without interest, upon
such cancellation.
C-2
<PAGE>
11. TERMINATION OF EMPLOYMENT. Upon termination of employment for any reason,
including the death of the employee, before the date on which any rights granted
under the Plan are exercisable, all such rights shall immediately terminate and
amounts paid by the employee for the Shares or withheld for the purchase of
Shares from the employee's compensation through payroll deductions shall be paid
to the employee ,)r to the employee's estate, without interest.
12. EMPLOYEE'S RIGHTS AS STOCKHOLDER. No participating employee shall have any
rights as a stockholder in the Shares covered by a a right granted hereunder
until such right has been exercised, full payment has been made for the
corresponding Shares and the certificate for such Shares is actually issued.
13. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not assignable or
transferable by a participating employee and are exercisable only by the
employee.
14. LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN. The Plan is intended to
provide shares of Class A Common Stock for investment and not for resale. The
Company does not, however, intend to restrict or influence any employee in the
conduct of such employee's own affairs. An employee may, therefore, sell stock
purchased under the Plan at any time the employee chooses, subject to compliance
with any applicable Federal or state securities laws; PROVIDED, HOWEVER, that
because of certain Federal tax requirements, each employee agrees by entering
the Plan, promptly to cive the Company notice of any such stock disposed of
within two years after the date of grant of the applicable right or one year
after transfer of the Shares to such employee showing the number of such Shares
disposed of. THE EMPLOYEE ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE
PRICE OF THE STOCK.
15. AMENDMENTS TO OR DISCONTINUANCE OF THE PLAN. The Board may at any time
terminate or amend the Plan without notice and without further action on the
part of stockholders of the Company, provided:
(a) that no such termination or amendment shall adversely affect the then
existing rights of any participating employee; and (b) that any such amendment
which: (i) increases the number of Shares subject to the Plan (subject to the
provisions of Section 7); (ii) changes the class of persons eligible to
participate under the Plan; or (iii) materially increases the benefits accruing
to participants under the Plan shall be subject to approval of the stockholders
of the Company.
16. EFFECTIVE DATE AND APPROVALS. The Plan was adopted by the Board on October
18, 1995 to become effective as of said date. The Company's obligation to offer,
sell and deliver its Shares under the Plan is subject to the approval of its
stockholders not later than October 18, 1996, and of any governmental authority
required in connection with the authorized issuance or sale of such Shares and
is further subject to the Company receiving the opinion of its counsel that all
applicable securities laws have been complied with.
17. TERM OF PLAN. No rights shall be granted under the Plan after October
18, 2005.
18. ADMINISTRATION OF THE PLAN. The Board or any committee or persons to whom it
delegates its authority (the "Administrator") shall administer, interpret and
apply all provisions of the Plan. The Administrator may waive such provisions of
the Plan as it deems necessary to meet special circumstances not anticipated or
covered expressly by the Plan. Nothing contained in this Section shall be deemed
to authorize the Administrator to alter or administer the provisions of the Plan
in a manner inconsistent with the provisions of Section 423 of the Code. No
member of the Administrator shall be liable for any action or determination made
in good faith with respect to the Plan or any right granted under it.
Date approved by the Board
of Directors of the Company: October 18, 1995
Date approved by the
Stockholders of the Company: December 15, 1995
C-3
<PAGE>
EXHIBIT 4.75
PHC, INC.
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. This 1995 Non-Employee Director Stock Option Plan (hereinafter, the
"Plan") is intended to promote the interests of PHC, Inc., a Massachusetts
corporation (the "Company"), by providing an inducement to obtain and retain the
services of qualified persons who are not employees of the Company to serve as
members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Class A Common Stock, $.0l
par value, of the Company (the "Class A Common Stock") for which options may be
granted under the Plan shall not exceed 30,000 shares, subject to adjustment in
accordance with Section 10 of the Plan. Shares subject to the Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under the Plan are surrendered
before exercise or lapse without exercise, in whole or in part, the shares
reserved therefor shall continue to be available under the Plan.
3. Administration. The Plan shall be administered by the Board or by a
committee appointed by the Board (the "Co@ttee"). In the event the Board fails
to appoint or refrains from appointing a Committee, the Board shall have all
power and authority to administer the Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The Committee shall,
subject to the provisions of the Plan, have the power to construe the Plan, to
determine all questions hereunder, and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
4. Granting of Options.
During the term of the Plan and subject to the availability of shares under
the Plan:
(A) INITIAL GRANTS. Each director who is, at the time of the initial
approval by the Board of this Plan, serving as a director of the Company and
who is not a current or former employee of the Company shall, contingent on
shareholder approval of this Plan, receive at the time of the first meeting
of the Board following approval by the Board of this Plan an option to
purchase the number of shares of Class A Common Stock which is equal to 500
multiplied by the number of full years such director has served on the Board
at that time.
(B) SUBSEQUENT GRANTS. At the time of each annual meeting of the Board,
beginning with the first such meeting following the meeting at which the
initial grants are made pursuant to subsection 4(a) hereof, during the term
of this Plan, there shall be granted to each director who is not a current
or former employee of the Company an option to purchase 2,000 shares of
Class A Common Stock.
Except for the specific options referred to above, no other options shall be
granted under the Plan.
5. Option Price. The purchase price of the stock covered by an option granted
pursuant to the Plan shall be 100% of the fair market value of such shares on
the day the option is granted. The option price will be subject to adjustment in
accordance with the provisions of Section 10 of the Plan. For purposes of the
Plan, if, at the time an option is granted under the Plan, the Company's Class A
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Class A Common Stock on
the principal national securities exchange on which the Class A Common Stock is
traded, if the Class A Common Stock is then traded on a national securities
exchange; (ii) the last reported sale price (on that date) of the Class A Common
Stock on the NASDAQ National Market, if the Class A Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the
D-1
<PAGE>
Class A Common Stock is not reported on the NASDAQ National Market or on a
national securities exchange. If, at the time an option is granted under the
Plan, the Company's Class A Common Stock is not publicly traded, "fair market
value" shall be as determined (i) by the mutual agreement of the optionee and
the Company, or (ii) if such parties are unable to reach such agreement within
30 days after the grant of such option, by a reputable appraiser selected by the
Company (the "Appraiser"). The Appraiser shall determine the fair market value
without giving any consideration, premium or discount to the fact that the
optionee may own more or less than a majority of the outstanding stock of the
Company. The Appraiser shall determine the fair market value not LATER than 60
days after the grant of such option. The cost of the appraisal as determined by
the Appraiser shall be home by the Company.
6. PERIOD OF OPTION. Unless sooner terminated in accordance with the
provisions of Section 8 of the Plan, an option granted hereunder shall expire on
the date which is ten (10) years after the date of grant of the option.
7.VESTING OF SHARES AND NON-TRANSFERABFLITY OF OPTIONS.
(A)VESTING. Options granted under the Plan shall not be exercisable until
they become vested. Options granted under the PI= shall vest in the optionee and
thus become exercisable by the optionee as follows: 25% immediately and 25% on
each of the first, second and third anniversary of the date of grant.
(B)LEGEND ON CERTIFICATES. The certificates representing such shares shall
carry such appropriate legend and such written instructions shall be given to
the Company's transfer agent as may be deemed necessary or advisable by counsel
to the Company in order to comply with the requirements of the Securities Act of
1933 or any state securities laws.
(C)NON-TRANSFERABILITY. Any option granted pursuant to the Plan shall not be
assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable during the optionee's lifetime only by him
or her.
8. TERMINATION OF OPTION RIGHTS.
(a) In the event an optionee ceases to be a member of the Board for any reason
other than death or permanent disability, any then unexercised portion of
options granted to such optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
optionee within 180 days of the date the optionee ceased to be a member of the
Board, and all options shall terminate after the 180-day period has expired.
(b)In the event that an optionee ceases to be a member of the Board by reason
of his or her death or permanent disability, any option granted to such optionee
shall be immediately and automatically accelerated and become fully vested and
all unexercised options shall be exercisable by the optionee (or by the
optionee's personal representative, heir or legatee, in the event of death)
until the earlier of the scheduled expiration date of the option or 180 days
after the death or disability of the optionee.
9. EXERCISE OF OPTION. Subject to the terms and conditions of the Plan and the
option agreements, an option granted hereunder shall, to the extent then
exercisable, be exercisable in whole or in part by giving written notice to the
Company at its principal office address, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares. Payment may be (a) in United States dollars in cash or by
check. (b) in whole or in part in shares of Class A Common Stock of the Company
already owned by the person or persons exercising the option or shares subject
to the option being exercised (subject to such restrictions and guidelines as
the Board may adopt from time to time), valued at fair market value determined
in accordance with the provisions of Section 5 or (C) consistent with applicable
law, through the delivery of an assignment to the Company of a sufficient amount
of the proceeds from the sale of the Class A Common Stock acquired upon exercise
of the option and an authorization to the broker or selling agent to pay
D-2
<PAGE>
that amount to the Company, which sale shall be at the participant's direction
at the time of exercise. There shall be no such exercise at any one time as to
fewer than one hundred (100) shares or all of the remaining shares then
purchasable by the person or persons exercising the option, if fewer than one
hundred (100) shares. The Company's transfer agent shall, on behalf of the
Company, prepare a certificate or certificates representing such shares acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares on the books of the Company and shall cause the fully executed
certificates(s) representing such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full. The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise o the option.
10. Adjustments Upon Changes in Capitalization and Other Matters. Upon the
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(A) STOCK DIVIDENDS. In the event the Company shall issue any of its
shares as a stock dividend upon or with respect to the shares of stock of the
class which shall at the time be subject to option hereunder, each optionee upon
exercising an Option shall be entitled to receive (for the purchase price paid
upon such exercise) the shares as to which he is exercising his Option and, in
addition thereto (at no additional cost), such number of shares of the class or
classes in which such stock dividend or dividends were declared or paid, and
such amount of cash in lieu of fractional shares, as he would have received if
he had been the holder of the shares as to which he is exercising his Option at
all times between the date of grant of such Option and the date of its exercise.
(B) MERGER; CONSOLIDATION; LIQUIDATION; SALE OF ASSETS. In the event
the Company is merged into or consolidated with another corporation under
circumstances where the Company is not the surviving corporation or if the
Company is liquidated or sells or otherwise disposes of all or substantially all
of its assets to another corporation while unexercised options remain
outstanding under the Plan, after the effective date of such merger,
consolidation or sale, as the case may be, each holder of an outstanding option
shall be entitled, upon exercise of such option, to receive in lieu of shares of
Class A Common Stock, shares of such stock or other securities as the holders of
shares of Class A Common Stock received pursuant to the terms of the merger,
consolidation or sale.
(C) ISSUANCE OF SECURITIES. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(D) NO FRACTIONAL SHARES. No fractional shares shall actually be
issued under the PlaiL Any fractional shares which, but for this subsection (d),
would have been issued to an optionee pursuant to an Option, shall be deemed to
have been issued and immediately sold to the Company for their fair market
value, and the optionee shall receive from the Company cash in lieu of such
fiuctional shares.
(E) ADJUSTMENTS. Upon the happening of any of the foregoing events,
the class and aggregate number of shares set forth in Section 2 of the Plan that
are subject to options which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect such events. The
Board shall determine the specific adjustments to be made under this Section 10
and its determination shall be conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions of
Sections 4 and 9 of the Plan, the Company shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(i) The shares with respect to which the option has been exercised
are at the time of the issue of such shares effectively registered under
applicable Federal and state securities laws as now in force or hereafter
amended; or
D-3
<PAGE>
(ii) Counsel for the Company shall have given an opinion that such
shares are exempt from registration under Federal and state securities laws as
now in force or hereafter amended; and the Company has complied with all
applicable laws and regulations with respect thereto, including without
limitation all regulations required by any stock exchange upon which the
Company's outstanding Class A Common Stock is then listed.
12. Representation of Optionee. If requested by the Company, the optionee shall
deliver to the Company written representations and warranties upon exercise of
the option that are necessary to show compliance with Federal and state
securities laws, including representations and warranties to the effect that a
purchase of shares under the option is made for investment and not with a view
to their distribution (as that term is used in the Securities Act of 1933).
13. Option Agreement Each option granted under the provisions of the Plan shall
be evidenced by an option agreement, which agreement shall be duly executed and
delivered on behalf of the Company and by the optionee to whom such option is
granted. The option agreement shall contain such terms, provisions and
conditions not inconsistent with the Plan as may be Determined by the officer
executing it.
14. Term and Amendment of Plan. The Plan was adopted by the Board effective as
of October 18, 1995, subject to approval by the stockholders of the Company.
Options may not be granted under the Plan after October 18, 2005, and the Plan
shall terminate when all options granted or to be granted hereunder are no
longer outstanding. Subject to the provisions of Section 4 above, options may be
granted under the Plan prior to the date of stockholder approval of the Plan. If
the approval of stockholders is not obtained by October 18, 1996, any grants of
options under the Plan made prior to that date will be rescinded. The Board may
at any time terminate the Plan or make such modification or amendment thereof as
it deems advisable; PROVIDED, HOWEVER, that the Board may not, without approval
by the stockholders, (a) increase the maximum number of shares for which options
may be granted under the Plan (except by adjustment pursuant to Section 10), (b)
materially modify the requirements as to eligibility to participate in the Plan,
(c) materially increase benefits accruing to option holders under the Plan or
(d) amend the Plan in any manner which would cause Rule 16b-3 to become
inapplicable to the Plan; and PROVIDED FURTHER that the provisions of the Plan
specified in Rule 16b-3(c)(2)(ii)(A) (or any successor or amended provision
thereof) under the Securities Exchange Act of 1934 (including without
limitation, provisions as to eligibility, amount, price and timing of awards)
may not be amended more than once every six months, other than to comport with
changes in the Internal Revenue Code. Termination or any modification or
amendment of the Plan shall not, without consent of a participant, affect his or
her rights under an option previously granted to him or her.
15. Compliance with Regulations. It is the Company's intent that the Plan comply
in all respects with Rule ]6b-3 under the Securities Exchange Act of 1934 (or
any successor or amended version thereof) and any applicable Securities and
Exchange Commission interpretations thereof. If any provision of the Plan is
deemed not to be in compliance with Rule 16b-3, the provision shall be null and
void.
16. Governing Law. The validity and construction of the Plan and the
instruments evidencing options shall be governed by the laws of The Commonwealth
of Massachusetts, without giving effect to the principles of conflicts of law
thereof.
D-4
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENT FOR PURPOSES
OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
PHC, Inc. (the "Company) desires to take advantage of the new "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
is including this Exhibit 99.1 in its Form 10-KSB in order to do so.
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
consolidated results for the Company's current quarter and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company.
During its last fiscal year and in certain other fiscal years of its
operation, the Company has generated losses and there can be no assurance that
future losses will not occur.
The Company has experienced a significant increase in accounts receivable
in recent years and there can be no assurance that this trend will not continue,
and that if it does, that it will not have a material adverse effect on the
Company's cash flow and financial performance.
The Company historically experiences and expects to continue to experience
a decline in revenue in its fiscal quarters ending December 31 due to a
seasonality decline in revenue from the Company's substance abuse facilities
during such period.
Payment for the Company's substance abuse treatment is provided by private
insurance carriers and managed care organizations; payment for long-term and
subacute care is provided by private insurance carriers, managed care
organizations and the Medicare and Medicaid programs; payment for psychiatric
services is provided by private insurance carriers, managed care organizations
and the Medicare and Medicaid programs. In general, revenues derived from the
Medicare and Medicaid programs in connection with the long-term and subacute
care services provided by the Company have been less profitable to the Company
than revenues derived from private insurers and managed care organizations in
connection with the substance abuse treatment provided by the Company and
changes in the sources of the Company's revenues could significantly alter the
Company's profitability. Additionally, the Company experiences greater delays in
the collection of amounts reimbursable by the Medicare and Medicaid programs
than in the collection of amounts reimbursable by private insurers and managed
care organizations. Accordingly, a change in the Company's service mix from
substance abuse to long-term care could have a materially adverse effect on the
Company as would an increase in the percentage of the Company's patients who are
insured by Medicare or Medicaid.
Cost containment pressures from private insurers in the Medicare and
Medicaid programs may begin to restrict the amount that the Company can charge
for its services.
There can be no assurance that the Company's existing facilities will
continue to meet, or that proposed facilities will meet, the requirements for
reimbursement by third party or government payors.
The Company has substantial receivables from Medicare and Medicaid which
constitute a concentration of credit risk should these agencies defer or be
unable to make reimbursement payments as due.
The Company often experiences significant delays in the collection of
amounts reimbursable by third-party payors. Although the Company believes it
maintains an adequate allowance for doubtful accounts, if the amount of
receivables which eventually becomes uncollectible exceeds such allowance, the
Company could be materially adversely affected.
If a growing number of managed care organizations and insurance companies
adopt policies which limit the length of stay for substance abuse treatment, the
Company's business would be materially adversely affected.
There can be no assurance that occupancy rates at the Company's facilities
will continue at present levels. Similarly, there can be no assurance that the
patient census will not decrease in the future.
There can be no assurance that the Company will be successful in
identifying appropriate acquisition opportunities, or if it does, that the
Company will be successful in acquiring such facilities or that such acquired
facilities will be profitable. The failure of the Company to implement its
acquisition strategy could have a materially adverse effect on the Company's
financial performance. Moreover, the inherent risks of expansion could also have
a material adverse effect on the Company's business.
Additionally, the Company's acquisition program will be directed by the
President and Chief Executive Officer of the Company and the Company does not
intend to seek stockholder approval for any such acquisitions unless required by
applicable law or regulations. Accordingly, investors will be substantially
dependent upon the business judgment of management in making such acquisitions.
Furthermore, the Company's acquisition strategy is highly dependent on access to
capital, of which there can be no assurance.
The Company and the healthcare industry in general are subject to
extensive federal, state and local regulation with respect to licensure and
conduct of operations. There can be no assurance that the Company will be able
to obtain new licenses to affect its acquisition strategy or maintain its
existing licenses and reimbursement program participation approvals.
It is not possible to accurately predict the content or impact of future
legislation and regulations affecting the healthcare industry. In addition, both
the Medicare and Medicaid programs are subject to statutory and regulatory
changes and there can be no assurances that payments under those programs to the
Company will, in the future, remain at a level comparable to the present level
or be sufficient to cover the cost allocable to such patients.
Bruce A. Shear the President and Chief Executive Officer of the Company
together with his affiliates is able to control all matters requiring approval
of the stockholders, including the election of a majority of the directors, as a
result of his ownership of the Company's stock.
There can be no assurance that the Company will be successful in hiring or
retaining the personnel it requires for continued growth, or that the Company
will be able to continue to attract and retain highly qualified personnel,
particularly skilled healthcare personnel.
The healthcare business is highly competitive and subject to excess
capacity.
The Company has entered into relationships with large employers,
healthcare institutions, labor unions and other key clients to provide treatment
for chemical dependency and substance abuse as well as other services and the
loss of any of these key clients would require the Company to expend
considerable effort to replace patient referrals and would result in revenue
losses to the Company and attendant loss in income.
Existing environmental contamination at certain of the Company's
facilities and potential future environmental contamination at facilities
acquired by the Company could have a materially adverse effect on the Company's
operations.
On October 31, 1994, the Company was served with a summons for a Civil
Action in the Superior Court Department of the Trial Court of the Commonwealth
of Massachusetts by NovaCare, Inc. ("NovaCare"), an entity which contracted with
the Company in 1992 to provide rehabilitation therapy and related administrative
services to the Company's long-term care facility (the "Action"). The complaint
alleged that the Company owed NovaCare contractual damages in the amount of
approximately $587,000, plus interest, attorney fees, costs of collection, and
double or triple damages pursuant to a Massachusetts statute prohibiting unfair
and deceptive trade practices. The Company filed a counterclaim alleging that
NovaCare breached the contract in question and that the Company may be owed
damages in excess of the amount sought by NovaCare.
On February 13, 1996, the Company settled the Action by agreeing to pay
NovaCare an amount less than its claim. The Company is not paying NovaCare
accrued interest, attorney's fees, costs of collection, or multiple damages. A
portion of the settlement amount has already been paid The balance of the
settlement amount is payable over twelve (12) months with interest on the unpaid
balance at 9.5%. In the event that the Company defaults on its obligation to pay
the settlement amount, it has agreed to entry of judgment against it in the
amount of $457,637.46 (the "Judgment"). The Judgment represents the full unpaid
balance of NovaCare's claim against the Company, including interest, attorney's
fees, and costs of collection. Any amounts paid by the Company to NovaCare after
February 9, 1996 shall be deducted from the Judgment. Until the settlement
amount is paid, NovaCare will continue to hold a mortgage on a day care property
owned by the Company in Saugus, Massachusetts.
Interruption by fire, earthquakes or other catastrophic events, power
failures, work stoppages, regulatory actions or other causes to any of the
Company's operations could have a materially adverse impact on the Company.
The Company's Class C Common Stock will automatically be converted into
Class B Common Stock if the Company achieves certain earnings targets. If such a
conversion occurs, the Company will concurrently record a charge to its earnings
equal to the product obtained by multiplying the number of shares converted by
the then fair market value of the converted shares which may have a subsequent
adverse effect on the market price for the Company's securities.
The Company has and in the future may enter into transactions in which it
acquires businesses or obtains financing for a consideration that includes the
issuance of stock, warrants, options or convertible debt at a price less than
the value at which the Company's stock may then be trading in the public markets
or which are convertible into or exercisable for Common Stock at a conversion
rate or exercise price less than such value. Such transactions may result in
significant dilution to the existing holders of the Company's stock.
The Company has authorized 1,000,000 shares of Preferred Stock the terms
of which may be fixed and which may be issued by the Company's Board of
Directors without stockholder approval. The issuance of the Preferred Stock
could have the effect of making it more difficult for a third party to acquire
the Company and may result in the issuance of stock that dilutes the existing
stockholders and has liquidation, redemption, dividend and other preferences
superior to the Company's outstanding Class A Common Stock.
NOTE:
THIS DOES NOT DISCUSS PREFERRED STOCK, REDEMPTION OF WARRANTS, THE EFFECTS
OF DE-LISTING FROM NASDAQ, PENNY STOCK RULES OR THIN FLOAT. THOSE SUBJECTS ARE,
HOWEVER, INCLUDED IN THE RISK-FACTOR SECTION OF THE 11/95 S-3.
<PAGE>
EHXIBIT 21.1
STATE OF
NAME OF SUBSIDIARY DOING BUSINESS AS NAME INCORPORATION
PHC, Inc. Pioneer Healthcare Massachusetts
PDSS
PHC of Utah, Inc. Highland Ridge Hospital Massachusetts
PHC of Virginia, Inc. Mount Regis Center Massachusetts
Mount Regis Center-Changes
Clinic
PHC of Rhode Island, Inc. Good Hope Center Massachusetts
PHC of Michigan, Inc. Harbor Oaks Hospital Massachusetts
Pioneer Healthcare of Michigan
PHC of Nevada, Inc. Harmony Counseling Massachusetts
North Point-Pioneer, Inc. Pioneer Health Centers Massachusetts
Pioneer Healthcare of Michigan
PHC of Kansas, Inc. Total Concept EAP Massachusetts
Quality Care Centers of Franvale Nursing and Massachusetts
Massachusetts, Inc. Rehabilitation Center
PHC of California, Inc. Marin Grove Massachusetts
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of income filed as
part of the report on Form 10K-SB and is qualified in its entirety by reference
to such report on Form 10K-SB.
</LEGEND>
<CIK> 0000915127
<NAME> PHC, Inc.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-1-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.000
<CASH> 293,515
<SECURITIES> 0
<RECEIVABLES> 10,213,153
<ALLOWANCES> 1,492,983
<INVENTORY> 0
<CURRENT-ASSETS> 10,001,286
<PP&E> 9,347,269
<DEPRECIATION> 1,463,206
<TOTAL-ASSETS> 20,817,217
<CURRENT-LIABILITIES> 5,129,897
<BONDS> 0
0
0
<COMMON> 33,056
<OTHER-SE> 6,384,133
<TOTAL-LIABILITY-AND-EQUITY> 20,817,217
<SALES> 0
<TOTAL-REVENUES> 21,802,758
<CGS> 0
<TOTAL-COSTS> 21,845,592
<OTHER-EXPENSES> 991,797
<LOSS-PROVISION> 1,894,087
<INTEREST-EXPENSE> 863,484
<INCOME-PRETAX> (796,906)
<INCOME-TAX> 206,546
<INCOME-CONTINUING> (585,315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (585,315)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
