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, 1997
[ ] 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 offices) (Zip Code)
Issuer's telephone number: (978) 536-2777 (New area code)
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
No X
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.
The issuer's revenues for the fiscal year ended June 30, 1997 were $27,234,372.
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 15, 1997, was $13,351,977.
(See definition of affiliate in Rule 12b-2 of Exchange Act).
At September 15, 1997, 4,470,866 shares of the issuer's Class A Common
Stock, 730,331 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 behavioral health care including alcohol and drug dependency
and related disorders, psychiatric care and long term care. The Company operates
3 substance abuse facilities, 6 psychiatric facilities and 1 long-term care
facility. Through the Company's facilities, it provides specialized treatment
services to substance abuse patients who typically have poor recovery prognoses
and who are prone to relapse; psychiatric care to children, adolescents and
adults, on an inpatient and outpatient basis; and traditional geriatric care and
specialized subacute services. In addition, the Company provides psychiatric
services under contract to approximately 35 long-term care facilities. The
Company's national customers include organizations within the transportation,
gaming and railroad industries such as CSX, American Airlines, MGM, General
Electric and International Brotherhood of Electrical Works.
The Company's substance abuse 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 Company operates substance abuse facilities in Salt Lake City,
Utah, West Greenwich, Rhode Island and Salem, Virginia.
Harbor Oaks Hospital, the Company's psychiatric hospital, provides
psychiatric care to adults, adolescents and children and draws patients from the
local population. This facility is also used as a mental health resource to
complement its substance abuse facilities. Harmony Healthcare and Total Concept,
EAP ("Total Concept") provide outpatient psychiatric treatment for adults,
adolescents and children with a concentration of individuals in the gaming
industry. BSC-NY, Inc. ("BSC") provides management and administrative services
to Perlow Physicians, PC which provides psychiatric services under contract to
over 35 psychotherapy and psychological practices in the greater New York City
metropolitan area. Additionally, BSC is affiliated with a number of outpatient
providers and has a contract to provide employee assistance services to the
employees of Suffolk County, New York. North Point - Pioneer, Inc. ("NPP")
provides outpatient psychiatric treatment for adults, adolescents and children
in the Metropolitan Detroit area. Pioneer Counseling of Virginia, Inc. ("PCV")
is a physicians' practice specializing in the treatment of behavioral disorders
in adults, adolescents and children in the Roanoke Valley, Virginia area.
The Company's "safety-sensitive" industry focused strategy results in
customized outcome oriented programs that the Company believes produce overall
cost savings to the patients and/or the client organization. The Company has
been able to leverage its industry knowledge to gain additional clients within
each of its targeted industries. The Company believes that 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 psychiatric treatment programs provide care at the lowest level of
intensity appropriate for the patient in an integrated delivery system including
inpatient and outpatient treatment. The integrated nature of these programs,
generally involves the same caregivers for different treatment modalities,
provides for efficient care delivery and the avoidance of repeat procedures and
diagnostic and therapeutic errors. The Company plans to expand its operations
through the acquisition or establishment of additional substance abuse and
psychiatric treatment facilities.
Franvale, the Company's long-term care facility, provides traditional
geriatric care services as well as specialized subacute services 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.
Since long term care is not a part of the Company's core business, Pioneer
continuously looks for the best strategic alternative for Franvale but no
specific plans have been formulated at this time.
The Company was organized as a Delaware corporation in 1976 under the name
American International Health Services, Inc. and changed its name to "PHC,
Inc.," on November 24, 1992. The Company operates as a holding company, doing
business under the trade name Pioneer Healthcare, with the exception of the
services provided directly by the Company under the name Pioneer Development
Support Services. The Company's executive offices are located at 200 Lake
Street, Suite 102, Peabody, Massachusetts, 01960 and its telephone number is
(978) 536-2777.
PSYCHIATRIC SERVICES INDUSTRY
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 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
included 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 on site and off site 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.
Company Operations
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 including high-risk,
relapse-prone chronic alcoholics, drug addicts, minority groups and dual
diagnosis patients (those suffering from both substance abuse and psychiatric
disorders). The Company 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.
<PAGE>
Each of the Company's facilities operates a case management program for
each patient including 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 care or services 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.
In general, the Company does not 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", 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. 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 located in
Salt Lake City, Utah, and is the oldest free-standing chemical dependency
hospital in Utah. Highland Ridge is accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), licensed by the Utah
Department of Health and is recognized nationally for its excellence in treating
substance abuse disorders.
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.
Highland Ridge was the first private for-profit hospital to address
specifically the special needs of chemically dependent women in Salt Lake
County. 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.
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 periodically conducts or participates in research projects.
For example, Highland Ridge was the site of a recent research project being
conducted by the University of Utah Medical School. The research explored the
relationship between individual motivation and treatment outcomes. This research
was regulated and reviewed by the Human Subjects Review Board of the University
of Utah and was subject to federal standards that delineate the nature and scope
of research involving human subjects. Highland Ridge benefited 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.
SPECIALIZED TREATMENT 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. Five major transportation companies
subscribed to these services as of June 30, 1997. 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.
See "Description of Properties" - Highland Ridge.
MOUNT REGIS
Mount Regis is a 25-bed, free-standing alcohol and drug treatment center
located in Salem, Virginia, near Roanoke. The center, which was acquired in
1987, is the oldest 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. In
addition, Mount Regis operates Changes, a free standing outpatient clinic. 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.
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.
. See "Description of Properties"- Mount Regis.
See "Description of Properties"- Changes.
<PAGE>
GOOD HOPE CENTER
Good Hope is a 49-bed substance abuse treatment facility located in West
Greenwich, Rhode Island. In addition to the West Greenwich facility, Good Hope
has a satellite location providing outpatient programs in North Smithfield,
Rhode Island. Good Hope provides both adult and adolescent programs on an
inpatient, outpatient and day treatment basis. The satellite site operates both
outpatient and day treatment substance abuse programs.
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 staff of managed care and HMO
organizations. 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's substance abuse treatment program for adolescents also fills 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.
Good Hope continues to operate at a loss because of a decline in length of
stay and lower reimbursements from third party payors. However, the Company's
management team is focused on reducing expenses, increasing revenue and
enhancing programming and has recently established new contracts which should
help to stabilize the patient census.
See "Description of Properties" - Good Hope Center
DESCRIPTION OF PROPERTIES
Facility Location Square Feet Annual Rent Lease Term
____________ ___________ _________
Highland Ridge Salt Lake City, Utah 16,072 $252,000 9/30/98
Mount Regis Center Salem, Virginia 14,000 N/A N/A (1)
Changes Salem, Virginia 1,750 $ 18,000 N/A
Good Hope Center West Greenwich, RI 25,000 $231,000 N/A (2)
Good Hope Center North Smithfield, RI 2,180 $ 20,400 10/31/98
(1) The building is owned by the Company.
(2) The Company has an irrevocable option to purchase the property for
$1,150,000 on March 1, 1998 or $1,100,000 on March 1, 1999 or any
subsequent March 1 through the end of the lease.
GENERAL PSYCHIATRIC FACILITIES
Company Operations
The Company believes that its proven ability to provide high quality,
cost-effective care in the treatment of substance abuse will enable it to grow
in the related behavioral health field of psychiatric treatment. The Company's
primary competitive advantage is its ability to provide an integrated delivery
system of inpatient and outpatient care. As a result of integration, the Company
is better able to manage and track patients more effectively.
The Company's inpatient psychiatry services are offered at Harbor Oaks. The
Company currently operates five outpatient psychiatric facilities.
The Company's philosophy at these facilities is to provide the most
appropriate and efficacious care with the least restrictive modality of care.
Case management is handled by an attending physician and a case manager with
continuing oversight of the patient as the patient receives care in different
locations or programs. The integrated delivery system allows for better patient
tracking and follow-up, and fewer repeat procedures and therapeutic or
diagnostic errors. Each new patient receives a thorough diagnostic write-up and
a full history is taken. In addition, new patients also receive a full physical
examination after which an individualized treatment program is designed which
may include inpatient and/or outpatient treatment at one or more of the
company's facilities.
Patients are referred from managed health care organizations, state
agencies, individual physicians and by patients themselves. The patient
population at these facilities ranges from children as young as 5 years of age
to senior citizens. The psychiatric facilities treat a larger percentage of
female patients than the substance abuse facilities.
HARBOR OAKS
Harbor Oaks Hospital is a 64 bed psychiatric hospital located in New
Baltimore, Michigan, approximately 20 miles northeast of Detroit, which was
acquired by the Company in September 1994. Harbor Oaks Hospital is licensed by
the Michigan Department of Commerce and is accredited by JCAHO. Harbor Oaks
provides inpatient psychiatric care, partial hospitalization and outpatient
treatment to children, adolescents and adults. Harbor Oaks Hospital has serviced
clients from Macomb, Oakland and St. Clair Counties and has now expanded its
coverage area to include Wayne, Sanilac and Livingston Counties.
Harbor Oaks Hospital works in conjunction with New Life Treatment Centers,
Inc. ("New Life") to offer counseling programs with a traditional Christian
philosophy on an inpatient and partial hospitalization basis. This program has
attracted patients from across the state and throughout the midwest and
northeast United States. The contract with New Life had an initial term of two
years commencing on July 25, 1995 is currently being renegotiated with all
operations continuing as amended until a new contract is finalized. Harbor Oaks
pays New Life a monthly fee equal to 50% of net receipts from the program, not
including receipts from Medicare, Medicaid, CHAMPUS and other federally funded
programs. In the original agreement Harbor Oaks was required to pay New Life a
minimum of $52,500 per month and a fixed fee of $7,500 per month for each
patient whose treatment is covered by a federally funded program. In an
amendment to this contract in November 1996 the minimum payment requirement was
decreased from $52,500 to $35,000 per month.
The Company utilizes the Harbor Oaks facility as a mental health resource
to complement its nationally focused substance abuse treatment programs. Harbor
Oaks Hospital has a specialty program that treats substance abuse patients who
have a coexisting psychiatric disorder. This program provides an integrated
holistic approach to the treatment of individuals who have both substance abuse
and psychiatric problems. The program is offered to both adults and adolescents.
On February 10, 1997, Harbor Oaks Hospital opened an 8-bed adjudicated
residential unit serving adolescents with a substance abuse problem and a
co-existing mental disorder who have been adjudicated to have committed criminal
acts and who have been referred or required to undergo psychiatric treatment by
a court or family service agency. The patients in the program range from 13 to
18 years of age. The program provides patients with educational and recreational
activities and adult life functioning skills as well as treatment. Typically, a
patient is admitted to the unit for 30 days to six months, with a case review at
six months to determine if additional treatment is required.
HARMONY HEALTHCARE
Harmony Healthcare, an outpatient clinic located in Las Vegas, Nevada,
provides psychiatric care to children, adolescents and adults in the local area.
Harmony Healthcare also operates employee assistance programs for railroads,
healthcare companies and several large casino companies including Boyd Gaming
Corporation, the MGM Grand, the Mirage and Treasure Island Resorts with a rapid
response program to provide immediate assistance 24 hours a day.
TOTAL CONCEPT EAP
Total Concept, an outpatient clinic located in Shawnee Mission, Kansas,
provides psychiatric and substance abuse treatment to children, adolescents and
adults and manages employee assistance programs for local businesses, gaming,
railroads and managed health care companies.
NORTH POINT-PIONEER, INC.
NPP operates five psychiatric clinics in Michigan under the name Pioneer
Counseling Centers. These clinics provide outpatient psychiatric and substance
abuse treatment to children, adolescents and adults. The clinics, which are
located near the Harbor Oaks facility, provide more efficient integration of
inpatient and outpatient services, a larger coverage area and the ability to
share personnel which results in cost savings.
PIONEER COUNSELING OF VIRGINIA, INC.
PCV, an outpatient clinic located in Salem, Virginia, provides psychiatric
services to adults, adolescents and children referred by a physicians' practice.
PCV is 80% owned by the Company. The medical directors, who are employees of the
Company, own the remaining 20%.
BSC-NY, INC.
BSC provides management and administrative services to psychotherapy and
psychological practices in the greater New York City metropolitan area. BSC is
affiliated with several hundred outpatient providers and, in addition, has
contracts to provide employee assistance services to the employees of Suffolk
County, New York and to employees of certain other companies.
DESCRIPTION OF PROPERTIES
Facility Location Square Feet Annual Rent Lease Term
___________ ___________ __________
Harbor Oaks New Baltimore,MI 32,000 N/A N/A(1)
Harmony Healthcare Las Vegas, NV 4,865 $102,165 5/31/00
Total Concept Shawnee Mission, KS 150 $4,800 9/30/98
North Point-Pioneer Farmington Hills, MI 4,992 $ 65,936 01/31/04
North Point-Pioneer Sterling Heights, MI 2,937 $ 59,969 08/31/01
North Point-Pioneer Birmingham, MI 3,135 $ 56,430 06/30/01
North Point-Pioneer Livonia, MI 2,960 $ 50,566 4/30/99
North Point-Pioneer Clinton Township, MI 3,355 $ 33,427 12/31/97
Pioneer Counseling VA Salem, VA 5,700 N/A N/A (1)
(1) The building is owned by the company.
OPERATING STATISTICS
The following table reflects selected financial and statistical information
for all psychiatric services.
Year Ended June 30,
1997 1996 1995
Inpatient
Net patient service revenues $13,557,703 $13,000,822 $9,871,623
Net revenues per patient day(1) $ 414 $ 385 $ 358
Average occupancy rate(2) 58.8% 63.4% 65.3%
Total number of licensed beds at 172 172 172
end of period
Source of Revenues:
Private(3) 91.6% 90.0% 89.8%
Government(4) 8.4% 10.0% 10.2%
Partial Hospitalization and
Outpatient
Net Revenues:
Individual $ 5,629,760 $ 3,021,486 $2,228,210
Contract $ 1,459,580 $ 503,365
Sources of revenues:
Private 98.4% 93.9% 94.6%
Government 1.6% 6.1% 5.4%
Other Psychiatric services
PDS2(5) $ 629,761 $ 233,164 $ 128,157
Practice Management(6) $ 650,852
(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 total number of
patient days in each period by the number of beds available in such period.
(3) Private pay percentage is the percentage of total patient revenue
derived from all payors other than Medicare and Medicaid.
(4) Government pay percentage is the percentage of total patient revenue
derived from the Medicare and Medicaid programs.
(5) PDS2, Pioneer Development and Support Services, provides clinical support,
referrals management and professional services for a number of the
Company's national contracts.
(6) Practice Management revenue is produced through BSC-NY.
<PAGE>
LONG-TERM CARE FACILITY
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, 1997,
Franvale operated at 84.1% of capacity
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.
The Company owns the two story building in which Franvale is located which
consists of approximately 44,000 square feet. The Company believes that these
premises are adequate for its current and anticipated needs.
On February 19, 1997, the Company's Franvale Nursing and Rehabilitation
Center ("Franvale") was cited for serious patient care and safety deficiencies
by the Massachusetts Department of Public Health as the result of a routine
survey. A civil penalty of $3,050 per day was imposed which was reduced to
$2,250 per day on March 12, 1997. After an appeal the fine was reduced to
$90,545 in total. At the time of the original citation, the Company was notified
by the Department of Public Health and by the federal agency, HCFA, that
Franvale would be terminated from the Medicare and Medicaid programs unless
Franvale was in substantial compliance with regulatory requirements by March 14,
1997. Franvale submitted a plan of correction to the Department of Public Health
and on March 12, 1997, as the result of a resurvey by the Department of Public
Health, a new statement of deficiencies was issued, which contained a
significant number of violations but recharacterized the level of seriousness of
the deficiencies to a lower degree of violation and which extended the
threatened date of termination to April 30, 1997.
As a result of the new statement of deficiencies, the Department of Public
Health had precluded the Company from admitting new patients to its Franvale
facility until at least April 30, 1997. However, on April 11, 1997, the Company
received authority to admit new patients on a case by case basis. Previous
patients were readmitted to the Franvale facility from a hospital only after a
case by case review by the Department of Public Health. The Company was
obligated to notify the attending physician of each resident of Franvale who was
found to have received substandard care of the deficiency notice and was
obligated also to notify the Massachusetts board which licenses the
administrator of Franvale.
On April 19, 1997 the Department of Public Health, Division of Health Care
Quality completed a follow-up survey of the Franvale Nursing Home. As a result
of this survey it was determined that all deficiencies cited from the April 17,
1997 visit had been corrected and the restrictions on Franvale's ability to
admit patients were lifted.
The Company replaced the management team at Franvale and expended
significant sums for staffing and programmatic improvements in order to bring
the facility into substantial compliance at the earliest possible date. The
Company engaged Oasis Management Company on November 1, 1996 through June 30,
1997 to provide management services to Franvale. The Company conducted an
intensive staff review which resulted in a total reorganization. The present
staff was provided with in-service training. The Company is continuing an
extensive program of review to ensure that Franvale remains in compliance.
As a result of the decrease in census resulting from the inability of
Franvale to admit new patients and the limitations on its ability to re-admit
patients, the monetary penalties which accrued, and the expenses that were
incurred by the Company in an attempt to cure the cited deficiencies, the
Company experienced a material adverse effect on its financial results in the
latter part of the fiscal year ended June 30, 1997, particularly in the fourth
quarter of 1997 and anticipates the possibility of continued adverse financial
impacts in future quarters. A new management team is in place and marketing
efforts have begun to show positive results. Pioneer continuously looks for the
best strategic alternative for Franvale although no specific plans have been
formulated at this time.
OPERATING STATISTICS
The following table reflects selected financial and statistical information
for Franvale:
Year ended June 30,
1997 1996 1995
Net patient service revenues $ 5,306,717 $ 5,043,922 $ 4,180,471
Net revenues per patient $ 135 $ 137 $ 135
day(1)......................
Average occupancy rate(2) 84.1% 87.1% 92.7%
Total number of licensed beds 128 128 91
at end of period............
Source of revenues:
Private(3)............. 12.5% 8% 8%
Government(4).......... 87.5% 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 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.
BUSINESS STRATEGY
The Company's objective is to become a leading national provider of
treatment services, specializing in substance abuse and psychiatric care.
The Company focuses its marketing efforts on "safety-sensitive" industries.
This focus results in customized outcome oriented programs that the Company
believes produce overall cost savings to the patients and/or client
organizations. The Company intends to leverage experience gained from providing
services to customers in certain industries which it believes will enhance its
selling efforts within these certain industries.
The Company also intends to pursue at-risk contracts and outpatient,
managed care fee-for-service contracts.
The Company intends to pursue strategic acquisitions that will provide the
Company with a greater geographic reach, while incorporating the Company's
integrated delivery system. The Company may also engage in strategic
acquisitions which will enable it to expand the service offerings it currently
provides.
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MARKETING AND CUSTOMERS
The Company markets its substance abuse, inpatient and outpatient
psychiatric health services, both locally and nationally, primarily to safety
sensitive industries, including transportation, oil and gas exploration, heavy
machinery and equipment manufacturing and healthcare services. Additionally, the
Company markets its services in the gaming industry.
The Company employs 10 individuals dedicated to marketing among the
Company's facilities. Each facility performs marketing activities in its local
region. The National Marketing Director of the Company, coordinates the majority
of the Company's national marketing efforts. In addition, employees at certain
facilities perform national marketing activities independent of the National
Marketing Director. The Company, with the support of its owned integrated
outpatient systems and management services, plans to pursue more at-risk
contracts and outpatient, managed health care fee-for-service contracts. In
addition to providing excellent services and treatment outcomes, the Company
will continue to negotiate pricing policies to attract patients for long-term
intensive treatment which meet length of stay and clinical requirements
established by insurers, managed health care organizations and the Company's
internal professional standards.
The Company's inpatient services are complemented by an integrated system
of comprehensive outpatient mental health clinics and physician practices owned
or managed by the Company. These clinics and medical practices are strategically
located in Nevada, Virginia, Kansas City, Michigan, Utah and New York and enable
the Company to offer a broad range of wholly integrated, comprehensive, mental
health services for corporations and managed care organizations on an at-risk or
exclusive fee-for-service basis. Additionally, the Company operates Pioneer
Development and Support Services (PDS2) located in the Highland Ridge facility
in Salt Lake City, Utah. PDS2 provides clinical support, referrals, management
and professional services for a number of the Company's national contracts. It
gives the Company the capacity to provide a complete range of fully integrated
mental health services.
The Company has been successful in securing a number of national accounts
with a variety of corporations including: Boyd Gaming, Canadian Rail, Conrail,
CSX, the IUE, MCC, MGM, The Mirage, Station Casinos, Union Pacific Railroad,
Union Pacific Railroad Hospital Association, VBH, and others.
The Company's marketing efforts for its long-term care facility will
continue to emphasize the specialized, transitional subacute care services
provided by Franvale. 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 psychiatric facilities and programs compete primarily within
the respective geographic area serviced by them. The Company competes with
private doctors, hospital-based clinics, hospital-based outpatient services and
other comparable facilities. The main reasons that the Company competes well are
its integrated delivery system and dual diagnosis programming. Integrated
delivery provides for more efficient follow-up procedures and reductions in
length of stay. Dual diagnosis programming provides a niche service for clients
with a primary mental health and a secondary substance abuse diagnosis. The dual
diagnosis service was developed in response to demand from insurers, employees
and treatment facilities.
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 only facilities of the Company that receive Medicare
reimbursement are Franvale and Harbor Oaks. At Franvale 21.2% of revenues are
derived from Medicare programs and at Harbor Oaks 11.1% of revenues are derived
from Medicare programs. 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.
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 only facilities of the Company that receive reimbursement
under any state Medicaid program are Franvale and Harbor Oaks. 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 is a participant in the Medicaid program administered by the
State of Michigan. Reimbursement is received 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. For 1996 and 1995, Massachusetts Medicaid
continued to reimburse skilled nursing facilities on an acuity based prospective
system. The 1996 and 1995 rates are based on costs reported and acuity data for
1993 and are adjusted by inflation factors. Under the rate formula established
for 1997, Massachusetts nursing facilities received an average increase in their
Medicaid rates of approximately 2.4%.
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. At
this time the Company cannot predict the impact of future year rate changes on
its operations.
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.
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, 1997, the Company had 523 employees, of which 10 were
dedicated to Marketing , 152 (31 part time) to finance and administration and
361 (166 part time) to patient care. Of the Company's 523 employees, 389 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 agreement provides that ARMFCO
will administer payroll, 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, Total Concept,
NPP, BSC and PCV 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 $6,000,000 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 similar 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. PCV's two
doctors are currently covered by their own malpractice policies.
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 fourteenth 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 1,750 square feet of office space leased
from Pioneer Counseling of Virginia, Inc. in Salem, 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 $492,996 at fiscal year ended
June 30, 1997.
GOOD HOPE
The Company leases the West Greenwich facility which consists of three
buildings, containing a total of approximately 25,000 square feet 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
satellite office is leased from Park Square Medical for $1,700 per month. This
lease expires October 31, 1998. 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. The Harbor Oaks Hospital property is subject to an
outstanding mortgage in favor of Healthcare Financial Partners with an
outstanding balance of $1,100,000 at fiscal year ended June 30, 1997.
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HARMONY HEALTHCARE
The Harmony premises consists of approximately 4,865 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 $8,514.00 per month plus common
area charges of 3.48% of project expenses. The Company believes that these
premises are adequate for its current needs.
TOTAL CONCEPT
Total Concept subleases approximately 150 square feet of space for $400 per
month from The Menniger Clinic in Shawnee, Kansas. The property is under a one
year lease. The Company believes that these premises are adequate for its
current and anticipated needs.
NORTH POINT-PIONEER
There are five separate locations in Michigan from which North
Point-Pioneer operates. The Farmington Hills office consists of 4,922 square
feet of space which is under lease through January 31, 2004 and requires current
lease payments of $5,408 per month. The Sterling Heights office consists of
2,937 square feet of space which is under lease through August 31, 2001 and
requires current lease payments of $5,018 per month. The Birmingham office
consists of 3,135 square feet of space which is under lease through June 30,
2001 and requires current lease payments of $4,702 per month. The Livonia office
consists of 2,960 square feet of space which is under lease through April 30,
1999 and requires current lease payments of $4,193 per month. The Clinton
Township office consists of 3,355 square feet of space which is under lease
through December 31, 1997 and requires current lease payments of $5,571 per
month.
PIONEER COUNSELING OF VIRGINIA
The Company owns the Pioneer Counseling of Virginia building which consists
of 7,500 square feet of office space located in Salem, Virginia. Pioneer
currently leases 1,750 square feet to Mount Regis-Changes and 1,500 square feet
to Blankenship Opticians, an unrelated party. The Pioneer Counseling of Virginia
property is subject to an outstanding mortgage in favor of Dillon & Dillon
Associates with an outstanding balance of $538,605 at fiscal year ended June 30,
1997.
FRANVALE
The Company owns the real property and improvements for Franvale. The
operations are located in a two-story building comprising 44,000 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 Franvale property is subject to an outstanding mortgage
in favor of Charles River Mortgage Company and guaranteed by the US Department
of Housing and Urban Development with an outstanding balance of $6,757,422 at
fiscal year ended June 30, 1997.
ITEM 3. LEGAL PROCEEDINGS.
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 grounds 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.
Although the Company regards Pioneer Health Care, Inc.'s counterclaims as being
without merit, an adverse decision could result in money damages against the
Company and required discontinuance by the Company of the PIONEER HEALTHCARE
mark could result in costs to the Company which could 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.
This cancellation proceeding has been suspended pending the outcome of the
litigation described above.
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, 1997.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and officers of the Company as of June 30, 1997 are as
follows:
NAME AGE POSITION
Bruce A. Shear 42 President, Chief Executive Officer
and Director
Robert H. Boswell 48 Executive Vice President
Paula C. Wurts 48 Controller, Assistant Clerk and Assistant
Treasurer
Gerald M. Perlow, M.D. (1)(2) 59 Director and Clerk
Donald E. Robar (1)(2) 60 Director and Treasurer
Howard W. Phillips 67 Director
William F. Grieco 44 Director
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
All of the directors hold office until the annual meeting of stockholders
next following their election, or until their successors are elected and
qualified. 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 from September 1993 until
February 1996. 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 MBA from
Suffolk University in 1980 and a BS 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.
Mr. Boswell is a Board Member of the National Foundation for Responsible Gaming
and the Chair for the National Center for Responsible Gaming.
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 BS in Accounting from Northeastern University in 1989 and
passed the examination for Certified Public Accountants. She received an MBA in
Accounting from Western New England College in 1996.
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. From October 1996 to March
1997, Dr. Perlow served as President and Director of Perlow Physicians, P.C.
which has a management contract with BSC. Dr. Perlow received compensation of
$8,333 for the period. Dr. Perlow received a BA from Harvard College in 1959 and
an MD 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. He served as Clerk of the Company
from 1992 to 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 MA from Boston
College in 1968 and a BA from the University of Massachusetts in 1960.
HOWARD W. PHILLIPS has served as a Director of the Company since August
1996 and has been employed by the Company as a public relations specialist since
August 1995. From 1982 until October 1995, Mr. Phillips was the Director of
Corporate Finance for D. H. Blair Investment Corp. From 1969 until 1981, Mr.
Phillips was associated with Oppenheimer & Co. where he was a partner and
Director of Corporate Finance. Mr. Phillips currently is a member of the Board
of Directors of Food Court Entertainment Network, Inc., an operator of shopping
mall television networks, and Telechips Corp., a manufacturer of visual phones.
WILLIAM F. GRIECO has served as a Director of the Company since February
18, 1997. Since November of 1995, he has served as Senior Vice President and
General Counsel for Fresenius Medical Care North America. From 1989 until
November of 1995, Mr. Grieco was a partner at Choate, Hall & Stewart, the
Company's principal outside legal counsel. Mr. Grieco is a member of the Board
of Directors of Fresenius National Medical Care Holdings, Inc. Mr. Grieco
received a BS from Boston College in 1975, an MS in Health Policy and Management
in 1978 and a JD from Boston College Law School in 1981.
<PAGE>
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.
1996 HIGH LOW
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..... 9 5/8 6 1/2
Second Quarter ... 7 1/8 4 5/8
Third Quarter .... 5 5/8 1 3/4
Fourth Quarter.... 4 3/8 2 1/8
1998
First Quarter..... 3 9/16 2 1/4
through September
15, 1997
On September 15, 1997, the last reported sale price of the Class A Common
Stock was $3.00. On September 15, 1997 there were 109 holders of record of the
Company's Class A Common Stock, 321 holders of record of the Company's Class B
Common Stock and 322 holders of the Company's Class C Common Stock. Since the
Company failed to meet earnings targets as stipulated in its March 1994
prospectus, the Company's Class C Common Stock was canceled and retired on
September 28, 1997.
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 is a discussion and analysis of the financial condition and
results of operations of the Company for the years ended June 30, 1997 and 1996.
It should be read in conjunction with the consolidated financial statements and
notes thereto appearing elsewhere herein. During the fiscal year several
operations were acquired which make comparability of period results difficult.
The Company is a provider of health care services through several chemical
dependency centers, an acute psychiatric hospital, several outpatient
psychiatric centers and a long-term care facility (collectively called
"treatment facilities"). 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, 1997 the Company
has completely eliminated these operations with the sale of the last parcel real
estate.
RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996
The Company experienced a loss for fiscal year ended June 30, 1997
primarily as a result of an increase in the Provision for Doubtful Accounts and
the increased expenses incurred and decline in census related to the Franvale
State Survey in February which placed the facility in Jeopardy Status which
precluded admissions for a period of time. Census levels at Franvale did not
increase as soon as anticipated after the state resurveyed and lifted the ban on
admissions. Occupancy at Franvale for the fiscal year ended June 30, 1997 was at
84.1% as compared to 87.1% for the fiscal year ended June 30, 1996. A new
management team is in place at Franvale and marketing efforts have begun to show
positive results including some increase in census. Pioneer continuously looks
for strategic alternatives for Franvale which is not a part of the Company's
core business but has not formed any definitive plans at this time.
The environment the Company operates in today makes collection of
receivables, particularly older receivables, more difficult than in previous
years. Accordingly, the Company has recorded an increase in its accounts
receivable reserve and has adopted a more stringent reserve policy going forward
as well as instituting a more aggressive collection policy. The Provision for
Doubtful Accounts increased from $1,894,087 in fiscal 1996 as compared to
$3,397,693 in fiscal 1997. A substantial portion of the increase in the reserve
was recorded in the fourth fiscal quarter. The company is currently reviewing
these adjustments to determine if some of the adjustments should have been made
in prior fiscal quarters.
Total patient care revenue from all facilities increased 25% to $27,234,372
for the year ended June 30, 1997 from $21,802,758 for the year ended June 30,
1996. Net patient care revenue from psychiatric services increased 30.8% to
$21,927,655 for the fiscal year ended June 30, 1997 compared to $16,758,836 for
the year ended June 30, 1996. Net patient revenue at the Company's long-term
care facility increased to $5,306,717 for fiscal 1997 (5.2%) from $5,043,922 in
fiscal 1996 which is attributable to an increase in patient census. Although the
gross number of patients increased the percentage of occupancy decreased due to
the increase in available beds.
Total patient care expenses for all facilities increased 20.3% to
$14,436,784 for the year ended June 30, 1997 from $12,004,383 for the year ended
June 30, 1996. Patient care expenses for psychiatric services were $10,346,111
for the fiscal year ended June 30, 1997 compared to $7,974,811 for fiscal year
ended June 30, 1996 a 29.7% increase. Patient care expenses at the Company's
long-term care facility increased to $4,090,673 for fiscal 1997 from $4,029,572
in fiscal 1996 (approximately 1.5%).
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter of 1997, the Company issued Convertible
Debentures due December 31, 1998 in the aggregate face amount of $3,125,000 to
Infinity Investors Ltd. and Seacrest Capital Limited resulting in $2,500,000 of
proceeds to the Company. In the third quarter of 1997, in connection with the
issuance of the Convertible Debentures, the Company issued warrants for 150,000
shares to Infinity Investors Ltd. and Seacrest Capital Limited at an exercise
price of $2.00 per share. As of September 15, 1997 all of the Convertible
Debentures have been converted to Class A Common Stock. A total of 1,331,696
shares of Class A Common Stock were issued for this conversion and in payment of
related interest.
During the fourth fiscal quarter of 1997, the Company issued 1,000 shares
of Convertible Preferred Stock for a total of $1,000,000 to ProFutures Special
Equities Fund, L.P. resulting in proceeds to the Company of approximately
$873,705. The June 30, 1997 financial statements reflect the conversion of half
of the Convertible Preferred Stock into 229,964 shares of Class A Common Stock.
As of September 15, 1997 the remaining Convertible Preferred Stock was converted
to 246,305 shares of Class A Common Stock.
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 17.2% to $11,255,000 at June 30, 1997 from approximately
$9,606,000 at June 30, 1996. The increase in accounts receivable is net of the
sale of certain receivables to LINC Finance Corporation VIII (LINC). This
increase in receivables is primarily due to increase in revenues from new
acquisitions. The Company continues to closely monitor its accounts receivable
balances and implement procedures and policies, including more aggressive
collection techniques, to manage this receivables growth and keep it consistent
with growth in revenues.
In December of 1996, PHC of Utah, Inc. and Healthcare Financial
Partners-Funding II, L.P. ("HCFP") entered into a revolving credit agreement,
pursuant to which HCFP will provide funding of up to $1,000,000 to PHC of Utah,
Inc. In February of 1997, PHC of Michigan, Inc. and HCFP entered into a
revolving credit agreement, pursuant to which HCFP will provide funding up to
$1,500,000 to PHC of Michigan, Inc. Both of these revolving credit agreements
are secured by the assets of the subsidiary.
The Company currently has a mortgage of $1,100,000 secured by the Harbor
Oaks facility.
At June 30, 1997 the Company had approximately $905,700 in cash and cash
equivalents, working capital of approximately $4,763,000 and a working capital
ratio of approximately 1.6 to 1. Management believes that the Company has
adequate resources to fund operations for the foreseeable future. However, the
Company is constantly seeking less expensive alternative financing to insure
that it will have the necessary capital to fund expansion of its existing
business and to pursue acquisition opportunities as they arise.
The Company has made significant progress toward the accomplishment of its
acquisition and expansion strategy during the fiscal year by completing the
acquisition of its out patient psychiatric operations in Michigan (North
Point-Pioneer, Inc.) and its first psychiatric practice ownership in Salem,
Virginia. These acquisitions are key components in the culmination of the
Company's vision to provide a fully integrated delivery system in psychiatric
care.
Through merger the Company acquired a psychiatric management operation in
New York (BSC-NY, Inc.) which manages psychotherapy and psychological practices
in New York. Also in connection with the merger another entity was formed,
Perlow Physicians, P.C. ("Perlow"), to acquire the assets of the medical
practices now serviced by BSC. The Company advanced Perlow the funds to acquire
those assets and at June 30, 1997 Perlow owed the Company $3,063,177 which
includes, in addition to acquisition costs, management fees of approximately
$511,000 and interest on the advances of approximately $176,000. It is expected
that the obligations will be paid over the next several years and, accordingly,
most of these amounts have been classified as long term.
Subsequent to year end the Company issued 172,414 Shares of Unregistered
Class A Common Stock to ProFutures Special Equities Fund, L.P. resulting in
proceeds to the company of approximately $445,000.
Also subsequent to year end the Company completed the acquisition of
Counseling Associates, an outpatient clinic in Blacksburg, Virginia, for 26, 024
shares of Class A Common Stock and $50,000 in cash. This clinics operations will
be included in Pioneer Counseling of Virginia, Inc. which is an 80% owned
subsi
diary.
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' F-5
Equity.......................................
Consolidated Statements of Cash Flows........ F-6
Notes to Financial Statements................ F-7
<PAGE>
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
In fiscal year 1997, both Mr. Grieco and Mr. Phillips failed to timely file
Form 3 upon joining the Company's Board of Directors. In addition, Dr. Robar,
Mr. Boswell, Ms. Wurts and Mr. Phillips each filed a Form 4 relating solely to
the grant of options outside of the prescribed time limits. These grants,
however, could have been reported on Form 5, in which case they would not have
been due until August 14, 1997. Additionally, for fiscal year 1997, Dr. Robar
failed to timely file a From 4 relating to the sale of the Company's Class A
Common Stock and Mr. Boswell and Ms. Wurts each failed to timely file a Form 4
relating to the purchase of the Company's Class A Common Stock.
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 1997
fiscal year which exceeded $100,000. The following table sets forth the
compensation paid or accrued by the Company for services rendered to these
executives in fiscal year 1997, 1996 and 1995:
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
(a) (b) (c) (d) (e) (g) (i)
Name and Other Securities All Other
Principal Year Salary Bonus Annual Underlying Compensation
Position Compensation Options/SARs
($) ($) ($) (#) ($)
______________________________________________________________________________
Bruce A. Shear..... 1997 $294,167 -- $12,633(1) -- --
President and 1996 $294,063 -- $10,818(2) -- --
Chief Executive 1995 $237,500 -- $ 8,412(3) -- --
Officer
Robert H. Boswell.. 1997 $ 92,750 -- $ 6,000(4) 5,000 $ 6,821
Executive Vice 1996 $ 80,667 $1,000 $23,750(5) 5,000 $11,250
President 1995 $ 69,750 -- $ 6,000(4) 15,000 $28,050
(1) This amount represents (i) $2,687 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii)
$6,769 in premiums paid by the Company with respect to life insurance for
the benefit of Mr. Shear, and (iii) $3,177 personal use of Company car held
by Mr. Shear.
(2) 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 for the personal use of a
Company car held by Mr. Shear.
(3) This amount represents (i) $2,450 contributed by the Company to the
Company's Executive Employee Benefit Plan on behalf of Mr. Shear, (ii)
$1,195 in premiums paid by the Company for club memberships used by Mr.
Shear for personal activities and (iii) $4,767 in premiums paid by the
Company with respect to life insurance for the benefit of Mr. Shear.
(4) This amount represents (i) an automobile allowance
(5) This amount represents (i) $3,750 automobile allowance, and (ii) $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"). In fiscal year 1997, Howard Phillips, a member of the board of
directors of the Company served on a board of directors of another entity. Mr.
Phillips is a member of the Board of Directors of Food Court Entertainment
Network, Inc., an operator of shopping mall television networks, and Telechips
Corp., a manufacturer of visual phones. No other executive officers or directors
of the Company served on a board of directors of any other entity.
<PAGE>
COMPENSATION COMMITTEE
The Compensation Committee consists of Mr. Donald Robar and Dr. Gerald
Perlow. The compensation Committee met once during fiscal 1997. Mr. Shear did
not participate in discussions concerning, or vote to approve, his salary.
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.
As of June 30, 1997, the Company had issued options to purchase a total of
207,000 shares of Class A Common Stock under the 1993 Stock Plan at a price per
share ranging from $3.50 to $7.00 per share. On February 18, 1997, the Board of
Directors repriced all outstanding options, other than options granted to
members of the Board of Directors, at $3.50 per share. On August 1, 1997 the
Company issued an additional 75,000 options at an exercise price of $2.63.
Generally, options are exercisable upon grant for 25% of the shares covered with
an additional 25% becoming exercisable on each of the first three anniversaries
of the date of grant.
During the fiscal year ended June 30, 1997 13,375 shares of Class A Common
Stock were issued through the exercise of options by employees and 100 shares
were issued to a former employee.
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, 1997 and will end on January 31, 1998. There are thirty
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 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 options were issued under the
Director Plan at an exercise price of $6.63 per share. On February 18, 1997, a
total of 6,000 options were issued under the Director Plan at an exercise price
of $3.50. As of September 15, 1997, 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 bear interest at 6% per year, are
payable quarterly in arrears, and became due March 31, 1997. To secure the
payment obligation under the non-recourse notes, shares paid for with these
notes have been pledged to the Company. See "Certain Transactions." The notes
reached maturity on March 31, 1997. Two employees were in default. Mark Cowell
forfeited 6,925 shares and Joan Chamberlain forfeited 1,731 shares which are
currently held as treasury
stock.
On September 30, 1996 the company issued 15,000 shares of the Company's
Class A Common Stock as part of the acquisition of North Point. The Company also
issued 150,000 shares of the Company's Class A Common Stock as part of the
acquisition of BSC. The Company also issued 64,500 shares of the Company's Class
A Common Stock as part of the acquisition of Pioneer Counseling of Virginia.
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 15, 1997 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:
<PAGE>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial of
Owner Class
(12)
Class A Common Stock Gerald M. Perlow 16,000(1) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Donald E. Robar 9,250(2) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Bruce A. Shear 17,500(3) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Robert H. Boswell 31,824(4) *
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
Howard W. Phillips 37,968(5) *
P. O. Box 2047
East Hampton, NY
11937
William F. Grieco 59,780(6)(7) 1.3%
115 Marlborough Street
Boston, MA 02116
J. Owen Todd 59,280(7) 1.3%
c/o Todd and Weld
1 Boston Place
Boston, MA 02108
All Directors and 188,247(8) 4.1%
Officers as a Group
(7 persons)
Class B Common Stock (9) Bruce A. Shear 671,259(10) 91.9%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
All Directors and 671,259 91.9%
Officers as a Group
(7 persons)
Class C Common Stock(13) Bruce A. Shear 156,502(11) 78.3%
c/o PHC, Inc.
200 Lake Street
Peabody, MA 01960
J. Owen Todd 13,173(7) 6.5%
c/o Todd and Weld
1 Boston Place
Boston, MA 02108
William F. Grieco 13,173(7) 6.5%
115 Marlborough Street
Boston, MA 02116
All Directors and 169,675 84.93%
Officers as a Group
(7 persons)
* Less than 1%.
(1) Includes 6,000 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $3.50 to $6.63 per share.
(2) Includes 7,750 shares issuable pursuant to currently exercisable stock
options or stock options which will become exercisable within sixty days,
having an exercise price range of $3.50 to $6.63 per share.
(3) Includes 12,500 shares of Class A Common Stock issuable pursuant to
currently exercisable stock options, having an exercise price of $2.63 per
share. Excludes an aggregate of 59,280 shares of Class A Common Stock owned
by the Shear Family Trust and the NMI Trust, of which Bruce A. Shear is a
remainder beneficiary.
(4) Includes an aggregate of 30,250 shares of Class A Common Stock issuable
pursuant to currently exercisable stock options at an exercise price range
of $2.63 to $3.50 per share.
(5) Includes 37,468 shares issuable upon the exercise of a currently
exercisable Unit Purchase Option for 18,734 Units, at a price per unit of
$5.60, of which each unit consists of one share of Class A Common Stock and
one warrant to purchase an additional share of Class A Common Stock at a
price per share of $7.50 and 500 shares issuable pursuant to currently
exercisable stock options having an exercise price of $3.50 per share.
(6) Includes 500 shares of Class A Common Stock issuable pursuant to currently
exercisable stock options, having an exercise price of $3.50 per share
(7) 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, to the best of the
Company's knowledge, Gertrude Shear currently owns less than 1% of the
Company's outstanding Class B Common Stock and 4.97% of the Company's
outstanding Class C Common Stock.
(8) Includes an aggregate of 71,500 shares issuable pursuant to currently
exercisable stock options. Of those options, 2,750 have an exercise price
of $6.63 per share, 51,250 have an exercise price of $3.50 per share and
17,500 have an exercise price of $2.63. Also includes 37,468 shares
issuable upon the exercise of the Unit Purchase Option as described in
(5).
(9) 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.
(10) 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.
(11) 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.
(12) 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 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.
(13) Since the Company failed to meet earnings targets as stipulated in its
March 1994 Prospectus, the Company's Class C Common Stock was canceled and
retired as of September 28, 1997. Based on the number of shares listed
under the column headed "Amount and Nature of Beneficial Ownership," the
following persons or groups held the following percentages of voting rights
for all shares of common stock combined as of September 15, 1997:
Bruce A. Shear .........................41.39%
J. Owen Todd..............................0.7%
William F. Grieco.........................0.7%
All Directors and Officers as a Group
(7 persons)........................ 42.2%
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, 1997, the Company owed an aggregate of $75,296 to related parties. During
the year ended June 30, 1997, the Company paid an aggregate of $114,771 in
principal and accured interest under various Notes to related parties.
As of June 30, 1997, the Company owed Bruce A. Shear $55,296 on a
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.
<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.
Exhibits Index
Exhibit No. Description
++1.1 Form of Underwriting Agreement.
+3.1 Restated Articles of Organization of the Registrant, as amended.
3.1.1 Articles of Amendment filed with the Commonwealth of
Massachusetts on January 28, 1997.
****3.2 By-laws of the Registrant, as amended.
3.3 Certificate of Vote of Directors establishing a Series of a
Class of stock dated June 3, 1997.
+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 Form of warrant issued to Barrow Street Research, Inc. and Peter
G. Mintz.
#4.6 Form of warrant issued to Robert A. Naify, Marshall Naify, Sarah
M. Hassanein and Whitney Gettinger.
#4.7 Form of Subscription Agreement prior to the Purchase of Units
Consisting of Shares of Class A Common Stock and Warrants to
Purchase Class A Common Stock.
###4.7.1 Regulation D Securities Subscription Agreement among PHC, Inc.,
Infinity Investors Ltd. and Seacrest Capital Limited dated
October 1996.
4.8 Form of Warrant Agreement by and among the Company, American
Transfer & Trust Company and AmeriCorp Securities, Inc. executed
in connection with the Private Placement.
###4.8.1 7% Convertible Debenture issued to Infinity Investors Ltd. in
the principal amount of $1,975.000.
4.9 Form of Certificates representing the New Warrants (form of
certificate representing New Warrants included in Exhibit 4.8).
###4.9.1 7% Convertible Debenture to Seacrest Capital Limited in the
principal amount of $1,250.000.
###4.10 Book Entry Transfer Agent Agreement among PHC, Inc.,
Infinity Investors Ltd., Seacrest Capital Limited and American
Stock Transfer & Trust Company dated October 7, 1996.
###4.11 Registration Rights Agreement among PHC, Inc., Infinity Investors
and Seacrest Capital Limited dated October 7, 1996.
4.12 Form of Subscription Agreement for the Purchase of Units
Consisting of Shares of Class A Common Stock and Warrants to
Purchase Class A Common Stock.
4.13 Form of Warrant Agreement by and among the Company, American
Stock Transfer & Trust Company and AmeriCorp Securities, Inc,
executed in connection with the Private Placement.
4.14 Form of Certificates representing the New Warrants (form of
certificate representing New Warrants included in Exhibit 4.8).
4.15 Form of Warrant Agreement issued to Alpine Capital Partners, Inc.
to purchase 25,000 Class A Common shares dated October 7, 1996.
4.16 Stock Exchange Agreement by and between PHC, Inc. and Psychiatric
& Counseling Associates of Roanoke, Inc.
@ 4.17 Form of Warrant Agreement issued to Barrow Street Research, Inc.
to purchase 3,000 Class A Common shares dated February 18,
1997.
@ 4.18 Form of Consultant Warrant Agreement by and between PHC, Inc.,
and C.C.R.I. Corporation dated March 3, 1997 to purchase 160,000
shares Class A Common Stock.
@ 4.19 Amendment Agreement by and between PHC, Inc., Infinity Investors
Ltd., and Seacrest Capital Limited as parties to Regulation D
Securities Subscription Agreement dated October 7, 1996.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
@ 4.20 Loan and Security Agreement by and between PHC of Michigan, Inc.
and HCFP Funding, Inc. dated March 11, 1997 in the amount of
$300.000.
@ 4.21 Subscription Agreement by and between PHC, Inc. and ProFutures
Special Equities Fund, L.P. for 1,000 shares of Series A
Convertible Preferred Stock.
@ 4.22 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, L.P. for 50,000 shares of Class A Common Stock.
4.23 Warrant Agreement by and between Brean Murray & Company and PHC.,
Inc. date 07/31/97 (See 10.125).
4.24 Subscription Agreement by and between PHC, Inc. and ProFutures
Special Equities Fund, L.P. to purchase PHC, Inc. Units dated
09/19/97.
4.25 Warrant Agreement by and between PHC, Inc. and ProFutures Special
Equities Fund, L.P.for up to 86,207 shares of Class A Common Stock
dated 09/19/97.
xxx5.1 Opinion of Choate, Hall & Stewart.
x****10.1 1993 Stock Purchase and Option Plan of PHC, Inc., as amended and
subject to approval of the Company's shareholders.
x+10.2 Form of Stock Option Agreement of PHC, Inc.
x+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. Bromm and Changes, a division of
Mount Regis, dated April 1, 1995.
+10.10 Lease Agreement between PHC, Inc. and Quality Care Centers of
Massachusetts, Inc., dated June 30, 1988, as amended on October
25, 1989.
+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.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
+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 , 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
Anna 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 Douglas 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.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
+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 Director Agreement between Mukesh P. Patel and Mount
Regis Center, dated September 1, 1991.
+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.
+10.55 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.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
**10.59 Settlement Agreement and Mutual General Release, by and between
PHC of California, Inc. and 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 1995 Employee Stock Purchase Plan, subject to approval of the
Company's shareholders.
****10.75 1995 Non-Employee Director Stock Option Plan, subject to approval
of the Company's shareholders.
****10.76 Note Note of PHC of Nevada, Inc., in favor of LINC
Anthem Corporation, dated November 7, 1995; Security
Agreement of PHC, Inc., PHC of Rhode Island, Inc., and PHC
of Virginia, Inc., in favor of LINC Anthem Corporation, dated
November 7, 1995; Loan and Security Agreement of PHC of Nevada,
Inc., in favor of LINC Anthem Corporation, dated November
7, 1995; Guaranty of PHC, Inc., in favor of LINC Anthem
Corporation, dated November 7, 1995; Stock Pledge and Security
Agreement of PHC, Inc., in favor of LINC Anthem Corporation,
dated November 7, 1995.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
****10.77 Secured Promissory Note in the amount of $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.
++10.84 Security Agreement by and between PHC, Inc., PHC of Rhode
Island, Inc., PHC of Virginia, Inc., PHC of Nevada, Inc. and
LINC Anthem Corporation dated July 25, 1996.
+++++10.85 Custodial Agreement by and between LINC Anthem Corporation and
PHC, Inc. and Choate, Hall and Stewart dated July 25, 1996.
++++10.86 Loan and Security Agreement by and between Northpoint-Pioneer
Inc. and LINC Anthem Corporation dated July 25, 1996.
++++10.87 Corporate Guaranty by PHC, Inc., PHC of Rhode Island, Inc.,
PHC of Virginia, Inc., PHC of Nevada, Inc. and LINC Anthem
Corporation dated July 25, 1996 for North Point-Pioneer, Inc.
++++10.88 Stock Pledge and Security Agreement by and between PHC, Inc.
and LINC Anthem Corporation.
++++10.89 Secured Promissory Note of North Point-Pioneer, Inc. in favor
of LINC Anthem Corporation dated July 25, 1996 in the amount
of $500,000.
++++10.90 Lease Agreement by and between PHC, Inc. and 94-19 Associates
dated October 31, 1996 for BSC-NY, Inc.
++++10.91 Note by and between PHC Inc. and Yakov Burstein in the amount
of $180,000.
++++10.92 Note by and between PHC, Inc. and Irwin Mansdorf in the amount
of $570,000.
++++10.93 Employment Agreement by and between BSC-NY, Inc. and Yakov
Burstein dated November 1, 1996.
++++10.94 Consulting Agreement by and between BSC-NY, Inc. and Irwin
Mansdorf dated November 1, 1996.
++++10.95 Agreement and Plan of Merger by and among PHC, Inc., BSC-NY,
Inc., Behavioral Stress Centers, Inc., Irwin Mansdorf, and
Yakov Burstein dated October 31, 1996.
++++10.96 Assignment and Assumption Agreement dated October 31, 1996
by and between Clinical Associates and Perlow Physicians, P.C.
++++10.97 Bill of Sale by and between Clinical Diagnostics and Perlow
Physicians, P.C.
++++10.98 Employment Agreement by and between Perlow Physicians, P.C. and
Yakov Burstein dated November 1, 1996.
++++10.99 Agreement for Purchase and Sale of Assets by and between
Clinical Associates and Clinical Diagnostics and PHC, Inc.,
BSC-NY, Inc., Perlow Physicians, P.C., Irwin Mansdorf, and
Yakov Burstein dated October 31, 1996.
++++10.100 Consulting Agreement by and between Perlow Physicians, P.C.
and Irwin Mansdorf dated November 1, 1996.
++++10.101 Option Agreement by and between Pioneer Healthcare and Gerald
M. Perlow M.D., dated November 15, 1996.
xx****10.102 Asset Purchase Agreement by and among Norton A. Roitman, M.D.,
Clinical Services of Nevada, Inc., Harmony Healthcare
Services, Inc. and the Company dated October 28, 1995.
10.103 Secured Bridge Note in the principal amount of $400,000 by and
between PHC of Michigan, Inc. and HealthCare Financial Partners,
Inc. dated January 13, 1996.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
10.104 Guaranty by PHC. Inc. for Secured Bridge Note in principal
amount of $400,000 by and between PHC Michigan and HealthCare
Financial Partners, Inc. dated January 17, 1997.
*****10.105 First Amendment to Lease Agreement and Option Agreement by and
between NMI Realty, Inc. and PHC of Rhode Island, Inc. dated
December 20, 1996.
10.106 Mortgage by and between PHC of Michigan, Inc. and HCFP Funding
Inc. dated January 13, 1997 in the amount of $2,000,000.
10.107 Employment Agreement for Dr. Himanshu Patel; Employment
Agreement for Dr. Mukesh Patel; and Fringe Benefit Exhibit for
both of the Patels' Employment Agreements.
10.108 Plan of Merger by and between Pioneer Counseling of Virginia,
Inc. and Psychiatric & Counseling Associates of Roanoke, Inc.
10.109 Sales Agreement by and between Dillon & Dillon Associates and
Pioneer Counseling of Virginia Inc. for building and land
located at 400 East Burwell St., Salem Virginia in the amount
of $600,000.
10.110 Loan and Security Agreement by and between PHC of Michigan, Inc.
and HCFP Funding Inc., in the amount of $1,500,000.
++++10.111 Revolving Credit Agreement by and between HCFP and PHC of
Michigan, Inc. in the amount of $1,500.000.
+++++10.112 Unconditional Guaranty of Payment and Performance by and between
PHC, Inc. in favor of HCFP.
+++++10.113 Amendment number 1 to Loan and Security Agreement dated May 21,
1996 by and between PHC, of Utah, Inc. and HCFP Funding providing
collateral for the PHC of Michigan, Inc. Loan and Security
Agreement.
@ 10.114 Employment Agreement by and between Perlow Physicians P.C. and
Nissan Shliselberg, M.D dated March, 1997.
@ 10.115 Option and Indemnity Agreement by and between PHC, Inc. and
Nissan Shliselberg, M.D dated February, 1997.
@ 10.116 Secured Term Note by and between PHC of Michigan, Inc. and
Healthcare Financial Partners - Funding II, L.P. in the amount of
$1,100.000 dated March, 1997.
@ 10.117 Mortgage between PHC of Michigan, Inc. and Healthcare Financial
Partners - Funding II, L.P. in the amount of $1,100.000.00
dated March, 1997 for Secured Term Note.
@ 10.118 Mortgage between PHC of Michigan, Inc. and HCPF Funding in the
amount of $1,500.000.00 dated March, 1997 for Revolving Credit
Note.
@ 10.119 Submission of Lease between PHC, Inc. and Conestoga Corporation
dated 11/09/95 for space at 200 Lake Street, Suite 101b, Peabody,
MA 01960.
@ 10.120 Agreement by and between PHC of Michigan, Inc. and New Life
Treatment Centers, Inc. dated July 1, 1996 to provide treatment
and care.
@ 10.121 Lease Line of Credit Agreement by and between PHC, Inc. and LINC
Capital Partners dated March 18, 1997 in the amount of $200,000.
10.122 Agreement between Family Independence Agency and Harbor Oaks
Hospital effective January 1, 1997.
10.123 Master Contract by and between Family Independence Agency and
Harbor Oaks Hospital effective January 1, 1997.
10.124 Deed, Deed of Trust and Deed Trust Note in the amount of $540,000
by and between Dillon and Dillon Associates and Pioneer
Counseling of Virginia, Inc. (Related to Exhibit 10.109).
10.125 Financial Advisory Agreement, Indemnification Agreement and Form
of Warrant by and between Brean Murray & Company and PHC, Inc.
dated 06/10/97.
10.126 Employmen Agreemen by and between Harbor Oaks Hospital and
Sudhir Lingnurkar and Pioneer Counseling Center and Sudhir
Lingnurkar dated August 1, 1997.
10.127 Asset Purchasing Agreement, Restrictive Covenants Agreement and
Lease with Option to Purchase by and between Pioneer Counseling of
Virginia, Inc. and Dianne Jones-Freeman dated August _____, 1997.
10128 Employment Agreement by and between Pioneer Counseling of Virginia
and Dianne Jones-Freeman dated August _____, 1997.
##16.1 Letter on Change in Independent Public Accountants.
****21.1 List of Subsidiaries.
23.1 Consent of Independent Auditors.
23.2 Exhibit intentionally omitted.
<PAGE>
Exhibit Index (Con't)
Exhibit No. Description
23.3 Consent of Choate, Hall & Stewart (included in Exhibit 5.1).
99.1 Cautionary Statement for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995.
+ Filed as an exhibit to the Company's Registration Statement on
Form SB-2 dated March 2, 1994 (Commission file number 33-71418).
++ 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.
+++ 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 May 15, 1995.
++++ 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 December 5, 1996.
+++++ 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 25, 1997.
* Filed as an exhibit to the amendment to the Company's Current
Report on Form 8-K, filed with the Securities and
Exchange Commission (Commission file number 0-23524) on August
15, 1994.
** Filed as an exhibit to the Company's annual report on Form
10-KSB, filed with the Securities and Exchange Commission
(Commission file number 0-23524) on September 28, 1994.
*** Filed as an exhibit to the Company's annual report on Form
10-KSB, filed with the Securities and Exchange (Commission
Coommission file number 0-23524) on October 2, 1995.
**** Filed as an exhibit to the Company's Post-Effective Amendment
No. 2 on Form S-3 to Registration Statement on Form SB-2
under the Securities Act of 1933 dated November 13, 1995
(Commission file number 33-71418).
***** Filed as an exhibit to the Company's Post-Effective Amendment No.
2 on Form S-3 to Registration Statement on Form SB-2 under the
Securities Act of 1933 dated November 13, 1995 (Commission file
number 33-71418).
# Filed as an exhibit to the Company's Registration Statement on
Form 3 dated March 12, 1996 (Commission file number 33-714418).
## Filed as an exhibit to the Company's report on Form 10-KSB, filed
with the Securities and Exchange Commission on September 28,
1994.
## Filed as an exhibit to the Company's Current Report on Form 8-K,
filed with the Securities and Exchange Commission
(Commission file number 0-23524) on November 5, 1996.
x Management contract or compensatory plan or arrangement.
xx Shown as Exhibit 10.76 in Registration Statement on Form S-3
dated March 12, 1996.
xxx Filed as an Amendment to SB-2, filed May 1997.
@ Filed as an exhibit to the Company's Registration Statement on
Form SB-2 dated April 15, 1997 (Commission file number 333-71418).
<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 14, 1997 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 14, 1997
Bruce A. Shear Executive Officer and
Director
(principal executive
officer)
/s/ PAULA C. WURTS Controller and Assistant October 14, 1997
Paula C. Wurts Treasurer
(principal financial and
accounting officer)
/s/ GERALD M. PERLOW Director October 14, 1997
Gerald M. Perlow
/s/ DONALD E. ROBAR Director October 14, 1997
Donald E. Robar
/s/ HOWARD PHILLIPS Director October 14, 1997
Howard Phillips
/s/ WILLIAM F. GRIECO Director October 14, 1997
William F. Grieco
<PAGE>
PHC, INC. AND SUBSIDIARIES
Contents
Consolidated Financial Statements
Independent auditors' report F-2
Balance sheets as of June 30, 1997 and 1996 F-3
Statements of operations for the years ended
June 30, 1997 and 1996 F-4
Statements of changes in stockholders' equity for the
years ended June 30, 1997 and 1996 F-5
Statements of cash flows for the years ended June 30, F-6
1997 and 1996
Notes to financial statements F-7
F-1
<PAGE>
Richard A. Eisner & Company, LLP
Accountants and Consultants
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
PHC, Inc.
Peabody, Massachusetts
We have audited the accompanying consolidated balance sheets of PHC, Inc. and
subsidiaries as of June 30, 1997 and 1996, 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the years then ended in
conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
September 19, 1997
F2
University Place, 124 Mt. Auburn Street, Suite 200, Harvard Square,
Cambridge, MA 02138 Telephone (617) 576-5790, Fax (617) 497-5490
New York, NY Melville, NY
Cambridge, MA Florham Park, NJ
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
1997 1996
ASSETS (Notes C and D)
Current assets:
Cash and cash equivalents
<TABLE>
<CAPTION>
<S> <C> <C>
$ 905,692 $ 293,515
Accounts receivable, net of allowance for bad debts of .............................
$2,982,138 at June 30, 1997 and
$1,492,983 at June 30, 1996 (Notes A, C and M) ..................................... 10,650,368 8,866,065
Prepaid expenses ................................................................... 375,382 259,893
Other receivables and advances ..................................................... 260,212 66,513
Deferred income tax asset (Note F) ................................................. 515,300 515,300
Other receivables, related party (Note L)
80,000
______ _________
Total current assets .............................................................. 12,786,954 10,001,286
Accounts receivable, noncurrent ....................................................... 605,000 740,000
Loans receivable ...................................................................... 134,284 113,805
Property and equipment, net (Notes A and B) ........................................... 8,408,211 7,884,063
Deferred income tax asset (Note F) .................................................... 154,700 154,700
Deferred financing costs, net of amortization ......................................... 751,325 772,823
Goodwill, net of accumulated amortization (Note A) .................................... 1,644,252 841,413
Restricted deposits and funded reserves ............................................... 170,874
Other assets (Note A) ................................................................. 222,032 252,445
Net assets of operations held for sale (Note J) ....................................... 56,682
Other receivables, noncurrent, related party (Note L) ................................. ___________
2,983,177
$27,860,809 $20,817,217
LIABILITIES
Current liabilities:
Accounts payable ................................................................... $ 4,171,334 $ 3,127,052
Notes payable - related parties (Note E) ........................................... 51,600 56,600
Current maturities of long-term debt (Note C) ...................................... 580,275 403,894
Revolving credit note and secured term note ........................................ 1,789,971
Current portion of obligations under capital leases (Note D) ....................... 139,948 88,052
Accrued payroll, payroll taxes and benefits ........................................ 703,842 715,515
Accrued expenses and other liabilities
587,024 738,784
Total current liabilities
8,023,994 5,129,897
Long-term debt and accounts payable (Note C) .......................................... 9,759,601 7,754,262
Obligations under capital leases (Note D) ............................................. 1,594,562 1,468,475
Notes payable - related parties (Note E) .............................................. 23,696 47,394
Convertible debentures ($3,125,000 less discount $390,625) ............................ ____________
(Note C) .............................................................................. 2,734,375
Total noncurrent liabilities .................................................... 14,112,234 9,270,131
Total liabilities ............................................................... 22,136,228 14,400,028
Commitments and contingent liabilities (Notes A, G, H, K, L
and M)
STOCKHOLDERS' EQUITY (Notes H and K)
Preferred stock, $.01 par value; 1,000,000 shares authorized,
500 shares issued and outstanding in 1997 (liquidation ................................ 5
preference $504,333)
Class A common stock, $.01 par value; 20,000,000 shares
authorized, 2,877,836 and 2,293,568 shares issued and ................................. 28,778 22,936
outstanding in 1997 and 1996, respectively
Class B common stock, $.01 par value; 2,000,000 shares
authorized, 730,360 and 812,237
issued and outstanding in 1997 and 1996, respectively ................................. 7,304 8,122
convertible into one share of Class A common stock
Class C common stock, $.01 par value; 200,000 shares
authorized, 199,816 shares issued and outstanding in 1997 and ......................... 1,998 1,998
1996
Additional paid-in capital ............................................................ 10,398,630 8,078,383
Notes receivable related to purchase of 31,000 shares of Class ........................ (63,928)
A common stock
Treasury stock, 8,656 shares at cost .................................................. (37,818)
Accumulated deficit
(4,674,316) (1,630,322)
___________ ___________
Total stockholders' equity
5,724,581 6,417,189
$27,860,809 $20,817,217
</TABLE>
See notes to financial statements
F-3
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
June 30,
1997 1996
Revenues:
Patient care, net (Note A) $26,007,333 $21,569,594
Management fees (Note L) 597,278
Other 629,761 233,164
___________ ___________
Total revenue
27,234,372 21,802,758
Operating expenses:
Patient care expenses 14,436,784 12,004,383
Cost of management contracts 324,440 146,407
Provision for doubtful accounts 3,397,693 1,894,087
Administrative expenses 10,341,973 7,800,715
Total operating expenses 28,500,890 21,845,592
__________ __________
Loss from operations (1,266,518) (42,834)
__________ __________
Other income (expense):
Interest income 201,286 14,486
Other income, net 490,327 211,292
Start-up costs (Note A) (128,313)
Interest expense (2,094,301) (863,484)
Gain from operations held f 26,853 11,947
Total other expense (1,375,835) (754,072)
Loss before income taxes (benefit) (2,642,353) (796,906)
Income taxes (benefit) (Note F) 197,311 (211,591)
Net Loss $(2,839,664) $(585,315)
Net loss per share (Note A) $(.87) $(.22)
Weighted average number of shares outstanding 3,270,175 2,709,504
See notes to financial
statements
F-4
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated statements of Changes In Stockholders' Equity
<TABLE>
<CAPTION>
Class A Class B Class C
Common Stock Common Stock Common Stock Preferred Stock
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1,504,662 $15.047 898,795 $8.988 199.966 $2,000
1995
Payment of notes
receivable
Conversion of shares 86,554 866 (86,558) (866) (150) (2)
Exercise of options 22,500 225
Issuance of stock
for obligations in 6,600 66
lieu of cash
Exercise of bridge
loan warrants 33,509 335
Sale of stock in
connection with 493,750 4,937
private placement
Costs related to
private placement
Exercise of IPO 21,493 215
warrants
Issuance of shares
with acquisitions 87,000 870
Exercise of private
placement warrants 37,500 375
Amount paid for
options, not yet
issued
Compensatory stock
options
Net loss, year ended ________ ________ _______ _______ _______ _______ ________ ______
June 30, 1996
Balance - June 30, 2,293,568 22,936 812,237 8,122 199,816 1,998
1996
Costs related to
private placements
Issuance of shares
with acquisitions 229,500 2,295
Exercise of options 13,475 135
Payment of notes
receivable
Conversion of shares 81,877 818 (81,877) (818)
Issuance of employee
stock purchase plan 9,452 94
shares
Issuance of shares 20,000
in connection with
consulting agreement 200
Issuance of warrants
with convertible
debentures
Cancellation of
notes receivable
Payment of notes
receivable
Issuance of 1,000 $10
preferred stock
Adjustment related
to beneficial
conversion
Conversion of 229,964 2,300 (500) (5)
preferred stock
Dividend on
preferred stock
Net loss, year ended ________ ________ _______ _______ _______ _______ ________ ______
June 30, 1997
Balance - June 30,
1997 2,877,836 $28,778 730,360 $7,304 199,816 $1,998 500 $ 5
</TABLE>
See notes to financial statements
<PAGE>
PHC, INC. AND SUBSIDIARIES (con't)
Consolidated statements of Changes In Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Notes Accumulated
Paid-in Receivable Treasury Shares Deficit Total
Capital, for Stock
Common Stock
Shares Amount
Balance - June 30, $5,554,874 $(75,362) $(1,045,007)$4,460,540
1995
Payment of notes 11,434 11,434
receivable
Conversion of shares 2 -0-
Exercise of options 113,575 113,800
Issuance of stock
for obligations in 36,184 36,250
lieu of cash
Exercise of bridge
loan warrants 153,617 153,952
Sale of stock in
connection with 1,970,063 1,975,000
private placement
Costs related to
private placement (422,395) (442,395)
Exercise of IPO 137,785 138,000
warrants
Issuance of shares
with acquisitions 392,678 393,548
Exercise of private
placement warrants 149,625 150,000
Amount paid for
options, not yet 9,375 9,375
issued
Compensatory stock 3,000 3,000
options
Net loss, year ended ________ ________
June 30, 1996 (585,315) (585,315)
Balance - June 30, 8,078,383 (63,928) (1,630,322) 6,417,189
1996
Costs related to
private placements (141,295) (141,295)
Issuance of shares
with acquisitions 838,524 840,819
Exercise of options 59,709 59,844
Payment of notes 662 662
receivable
Conversion of shares -0-
Issuance of employee
stock purchase plan 30,530 30,624
shares
Issuance of shares
in connection with
consulting agreement 79,800 80,00
Issuance of warrants
with convertible 125,000 125,000
debentures
Cancellation of
notes receivable 37,818 8,656 $(37,818) -0-
Payment of notes 25,448 25,448
receivable
Issuance of 999,990 1,000,000
preferred stock
Adjustment related
to beneficial
conversion
feature of 330,284 (200,000) 130,284
convertible stock
and convertible
debentures
Conversion of (2,295) -0-
preferred stock
Dividend on (4,330) (4,330)
preferred stock
Net loss, year ended
June 30, 1997 ____________ ____________ _______ _________(2,839,664) (2,839,664)
Balance - June 30, $10,398,630 -0- 8,656 $37,818) $(4,674,316)$5,724,581
1997
</TABLE>
See notes to financial statements F-5
<PAGE>
PHC, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,839,664 $ (585,315)
Adjustments to reconcile net loss to net cash used
in operating activities:
Deferred tax benefit (418,137)
Depreciation and amortization 679,248 554,025
Beneficial conversion feature of convertible debt 130,284
Compensatory stock options and stock and warrants issued for
obligations 205,000 39,250
Changes in:
Accounts receivable (1,649,303)
(2,985,052)
Prepaid expenses and other current assets (309,188)
(69,978)
Other assets 113,419 (107,711)
Net assets of operations held for sale 56,682 106,886
Accounts payable 1,044,282 1,414,089
Accrued expenses and other liabilities (167,763) 295,475
Net cash used in operating activities (2,737,003) (1,756,468)
Acquisition of property and equipment and intangibles (895,914) (1,557,419)
Loan receivable (3,063,177) (17,462)
Net cash used in investing activities (3,959,091) (1,574,881)
Cash flows from financing activities:
Revolving debt, net 1,789,981
Proceeds from borrowings 2,749,505 2,043,748
Payments on debt (696,886) (402,828)
Deferred financing costs 21,498 (711,960)
Issuance of capital stock 944,173 2,109,166
Convertible debt 2,500,000
Net cash provided by financing activities 7,308,271 3,038,126
Net increase (decrease) in cash and cash equivalents 612,177 (293,223)
Beginning balance of cash and cash equivalents 293,515 586,738
Ending balance of cash and cash equivalents $ 905,692 $ 293,515
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,933,133 $ 779,898
Income taxes $ 86,414 $ 187,120
Supplemental disclosures of noncash investing and financing activities:
Stock issued for acquisitions of equipment and services $ 840,819 $ 393,548
Note payable due for litigation $ 225,000
settlement
Capital leases $ 284,048 $ 94,699
Conversion of preferred stock $ 500,000
Beneficial conversion feature of preferred stock $ 200,000
See notes to financial statements F-6
</TABLE>
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, Kansas and Michigan. PHC, Inc. also manages a psychiatric practice
in New York, operates an outpatient facility through a physicians practice,
and operates behavioral health centers through its newest acquisitions. 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 and outpatient
psychiatric care. PHC of Nevada, Inc. ("PHN") and PHC of Kansas, Inc.
("PHK") provide psychiatric treatment on an outpatient basis. North
Point-Pioneer, Inc. ("NPP") operates six outpatient behavioral health centers
under the name of Pioneer Counseling Centers. Behavioral Stress Centers,
Inc. ("BSC") provides management and administrative services to psychotherapy
and psychological practices (see Note L). Pioneer Counseling of Virginia,
Inc. ("PCV'), an 80% owned subsidiary provides outpatient services through a
physicians practice (see Note L). 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). The consolidated financial statements include PHC
and its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.
For the year ended June 30, 1996, the Company incurred start-up 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".
During the year ended June 30, 1997, the Company recorded an increase in its
accounts receivable reserve, a substantial portion of the increase was
recorded in the fourth fiscal quarter. The Company is currently reviewing
these adjustments to determine if some of these adjustments should have been
made in prior fiscal quarters.
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 revenue 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.
Medicaid reimbursements are currently based on established rates depending on
the level of care provided and are adjusted prospectively 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 calendar year
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.
F-7
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE A - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenues and accounts receivable: (continued)
The Company has $1,787,000 receivables, from Medicaid and Medicare, at June
30, 1997, which constitutes a concentration of credit risk should Medicaid
and Medicare defer or be unable to make reimbursement payments as due.
Charity care amounted to approximately $725,000 and $865,000 at June 30, 1997
and 1996, respectively and is classified as patient care revenue and an equal
amount of cost is charged to patient care expenses in the statements of
operations.
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
Useful Life
Assets
Buildings 20 through 39 years
Furniture and equipment 3 through 10 years
Motor vehicles 5 years
Leasehold improvements Term of lease
Other assets:
Other assets represent deposits, deferred expenses and covenants not to
compete. Covenants not to compete are amortized over the life of the
underlying agreement using the straight line method.
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 straightline basis over their estimated
useful lives, generally twenty years.
Loss per share:
Net 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.
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.
F-8
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE A-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTIN POLICIES (CONTINUED)
Cash equivalents:
Cash equivalents are short-term highly liquid investments with original
maturities of less than three months.
Fair value of financial instruments:
The carrying amounts of cash, trade receivables, other current assets,
accounts payable, notes payable and accrued expenses approximate fair value.
Impairment of long-lived assets:
During the year ended June 30, 1997 the Company wrote-off the carrying
value of the goodwill for one of its subsidiaries in the amount of approximately
$50,000.
Stock-based compensation:
The Company accounts for its employee stock-based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes a fair-value-based
method of accounting for stock-based compensation plans. The Company adopted the
disclosure only alternative in fiscal year 1997 which requires disclosure of the
pro forma effects on loss and loss per share as if SFAS No. 123 had been
adopted, as well as certain other information.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment is comprised as follows:
June 30,
1997 1996
Land $ 302,359 $ 251,759
Buildings 7,854,419 7,338,838
Furniture and equipment 1,760,359 1,404,716
Motor vehicles 50,889 50,889
Leasehold improvements 385,543 301,067
10,353,569 9,347,269
Less accumulated depreciation
and amortization 1,945,358 1,463,206
$8,408,211 $7,884,063
NOTE C - LONG-TERM DEBT
At June 30, 1996, the Company had 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 June 30, 1997 and June
30, 1996 unamortized deferred financing costs related to the construction note
payable totalled $690,750 and $711,960, respectively, and are being amortized
over the life of the note. Interest costs capitalized in conjunction with the
construction approximated $65,250.
F-9
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, l997 and 1996
NOTE C - LONG-TERM DEBT (CONTINUED)
<TABLE>
<S> <C> <C>
Long-term debt is summarized as follows:
June, 30,
1997 1996
Note payable with interest at 9% requiring monthly payments of $1,150 $44,816 $58,154
through May 2001
Note payable due in monthly installments of $2,000 including imputed
interest at 8% through April 1, 1999 40,574 60,163
9% mortgage note due in monthly installments of $4,850 through
July 1, 2012, when the remaining principal balance is payable 492,996 505,485
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 547,092 735,213
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 6,757,422 6,301,986
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% 152,353
Note payable due in monthly installments of $26,131 including interest
at 11.5% through June 2000 when the remaining principal balance is
payable, collateralized by all assets of NPP (see Note L) 818,371
Note payable due in monthly installments of $5,558 including interest at
9.25% through May 2012 when the remaining principal balance is
payable, collateralized by the real estate 538,605
Term mortgage note payable with interest only payments through
March 1998 principal due in monthly installments of $9,167 beginning
April 1998 through February 2001, a balloon payment of approximately
$780,000 plus interest is due March 2001, interest at prime plus 5%
(13.5% at June 30, 1997) collateralized by all assets of PHM 1,100,000
10,339,876 8,158,156
Less current maturities 580,275 403,894
Noncurrent maturities $9,759,601 $7,754,262
</TABLE>
F-10
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE C - LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows as of June 30, 1997:
Year Ending
June 30, Amount
1998 $580,275
1999 692,681
2000 583,450
2001 1,388,742
2002 48,624
Thereafter 7,046,104
$10.339.876
In 1997, the Company issued 7% convertible debentures due December 31, 1998
in the aggregate principal amount of $3,125,000. The number of shares of Class A
common stock into which the debentures may be converted is determined by
dividing the principal amount to be converted by the conversion price. The
conversion price is equal to 94% of the average closing bid price of the Class A
common stock as reported by NASDAQ for the five trading days immediately
preceding the date of conversion. The beneficial conversion feature, valued at
$130,284, was recorded as additional interest. In addition, on March 31, 1997
the Company issued warrants to the debenture holders as compensation for
amending the debenture agreement to allow for a later filing of the Registration
Statement which was originally required to be filed in December 1996. The
warrants provide for the purchase of 150,000 shares of Class A common stock at
$2.00 per share and expire in 2003. The warrants were valued at $125,000.
Subsequent to June 30, 1997, all of the convertible debentures were converted
into 1,331,696 shares of Class A common stock.
The Company has entered into a revolving credit note and a secured note
with maximum advances of $1,500,000 and $1,000,000, respectively. Advances are
made based on a percentage of accounts receivable and principal is payable upon
receipt of proceeds of the accounts receivable. Interest is payable monthly at
prime plus 2.25% (10.75% at June 30, 1997). These agreements expire on February
1999 and July 1998, respectively, automatically renewable for one-year periods
thereafter unless terminated by either party. Upon expiration, all remaining
principal and interest is due. The notes are collateralized by substantially all
of the assets of the Company's subsidiaries.
NOTE D - CAPITAL LEASE OBLIGATION
At June 30, 1997, the Company is obligated under various capital leases for
equipment and real estate providing for monthly payments of approximately
$31,000 for fiscal 1998 and terms expiring from December 1997 through February
2014. The carrying value of assets under capital leases is as follows:
June 30,
1997 1996
Building $1,477,800 $1,477,800
Equipment and improvements 485,004 214,754
Less accumulated depreciation and (501,732) (400,768)
amortization
$1,461,07 $1,291,786
F-11
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE D - CAPITAL LEASE OBLIGATION (CONTINUED)
Future minimum lease payments under the terms of the capital lease
agreements are as follows at June 30, 1997:
Year Ending
<TABLE>
<S> <C> <C> <C>
Real
June 30, Equipment Property Total
1998 $140,307 $ 231,000 $371,307
1999 117,083 239,000 356,083
2000 95,121 259,248 354,369
2001 70,828 272,208 343,036
2002 13,557 295,188 308,745
Thereafter 4,641,341 4,641,348
Total future minimum lease 436,896 5,937,992 6,374,888
payments
Less amount representing 83,804 4,556,574 4,640,378
interest
Present value of future
minimum
lease payments 353,092 1,381,418 1,734,510
Less current portion 102,632 37,316 139,948
Long-term obligations under $250,460 $1,344,102 $1,594,562
capital lease
</TABLE>
The Company has an irrevocable option to purchase the real property noted
above for $1,150,000 on March 1, 1998 or $1,100,000 on March 1, 1999 or any
subsequent March 1 through the end of the lease.
NOTE E - NOTES PAYABLE - RELATED PARTIES
Related party debt is summarized as follows:
June 30,
1997 1996
Note payable, President and principal stockholder,
interest at 8%,
due in installments through 1998 $55,296 $ 78,996
Notes payable, other related parties, interest at 20,000 24,998
12% and payable on demand
75,296 103,994
Less current maturities 51,600 56,600
$23,696 47,394
Maturities of related party debt are as follows at June 30, 1997:
Year Ending
June 30, Amount
1998 $51,600
1999 23,696
$75,296
Related party interest on notes receivable related to the purchase of Class
A common stock approximated $1,699 and $4,295 for the years ended June 30, 1997
and 1996, respectively.
F-12
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE F - INCOME TAXES
The Company has the following deferred tax assets included in the
accompanying balance sheets:
<TABLE>
<S> <C> <C>
June 30,
1997 1996
Temporary differences attributable to:
Allowance for doubtful accounts $1,007,000$ 510,000
Depreciation 147,000 154,700
Other 3,000 5,300
Operating loss carryforward 340,000
Total deferred tax asset 1,497,000 670,000
Less:
Valuation allowance (827,000)
Current portion (515,300) (515,300)
Long-term portion $154,700 $154,700
</TABLE>
The Company had no deferred tax liabilities at June 30, 1997 and 1996.
Income tax expense (benefit) is as follows:
<TABLE>
<S> <C> <C>
YearEnded
June 30,
1997 1996
Deferred income taxes benefit $(418,137)
Current income taxes $197,311 206,546
$197,311 $(211,591)
</TABLE>
Reconciliations of the statutory U.S. Federal income taxes based on a rate
of 34% to actual income taxes is as follows:
<TABLE>
<S> <C> <C>
Year Ended
June 30,
1997 1996
Income tax benefit at statutory rate $(898,400) $(271,000)
State income taxes 197,311 80,850
Increase in valuation allowance 827,000
Increase due to nondeductible items, primarily
penalties and travel and entertainment expenses 12,000 12,100
Other 59,400 (33,541)
$ 197,311 $(211.591)
</TABLE>
The Company has a net operating loss carryforward amounting to
approximately $994,000 which expires at various dates through 2012.
Subsequent to June 30, 1997, the Company may be subject to Internal Revenue
Code provisions which limit the loss carryforward available for use in any given
year.
F-13
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES
Operating leases:
The Company leases office and treatment facilities and furniture and
equipment under operating leases expiring on various dates through January 2003.
Rent expense for the years ended June 30, 1997 and 1996 was approximately
$752,000 and $450,000, respectively. Minimum future rental payments under
noncancelable operating leases, having remaining terms in excess of one year as
of June 30, 1997 are as follows:
Year Ending
June 30, Amount
1998 $ 688,105
1999 441,833
2000 297,780
2001 202,876
2002 93,450
Thereafter 136,864
$1,860,908
Litigation:
The Company is involved in litigation related to the use of its trademark
name, PIONEER HEALTHCARE, in an action pending before a federal court. If the
Company were required to discontinue using the PIONEER HEALTHCARE mark, the
costs and/or monetary damages related to the litigation involved could have an
adverse effect on the Company's financial performance.
NOTE H - STOCK PLANS
[1] 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 upon exercise of options.
The employee stock purchase plan 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. A maximum of 1 00,000
shares may be issued 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. Through June 30,
1997, options for 1 1,500 shares were granted under this plan. A maximum of
30,000 shares may be issued under this plan. Each outside director shall be
granted an option to purchase 2,000 shares of Class A
F-14
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30,1997 and 1996
NOTE H - STOCK PLANS (CONTINUED)
[1] Stock plans: (continued)
common stock at fair market value, vesting 25% immediately and 25% on each
of the first three anniversaries of the grant.
In February 1997, all 95,375 shares underlying the then outstanding
employee stock options were repriced to the current market price, using the
existing exercise
durations.
Under the above plans 179,198 shares are available for future grant or
purchase.
The Company had the following activity in its stock option plans for fiscal
1997 and 1996:
Number Weighted-Average
of Exercise Price
Shares Per Share
Option plans:
Balance - June 30, 1995 92,000 $5.10
Granted 46,500 $6.20
Cancelled (1,250) $5.00
Exercised (22,500) $5.06
Balance - June 30, 1996 114,750 $5.56
Granted 125,500 $4.56
Repriced options:
Original (95,375) $5.99
Repriced 95,375 $3.50
Cancelled (21,400) $6.05
Exercised (13,475) $5.16
Balance - June 30, 1997 205,375 $4.27
Options for 89,250 shares are exercisable as of June 30, 1997 at exercise
prices ranging from $2.87 to $6.63 and a weighted-average exercise price of
approximately $3.71 per share, with a weighted-average remaining contractual
life of approximately three years.
The exercise prices of options outstanding at June 30, 1997 range from
$2.87 to $6.63 per share and have a weighted-average exercise price of
approximately $3.07 per share, with a weighted-average remaining contractual
life of approximately four years.
(2) Stock-based compensation:
The Company has adopted the disclosure-only provisions of SFAS No. 123, but
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its plans. There was no compensation expense recognized in
1997 or 1996. If the Company had elected to recognize compensation cost for the
plans based on the fair value at the grant date for awards granted, consistent
with the method prescribed by SFAS No. 123, net loss per share would have been
changed to the pro forma amounts indicated below:
Year Ended
June 30,
1997 1996
Net loss As $(585,315)
reported $(2,839,664)
Pro forma (2,893,272) (610,497)
Net loss per As $(0.87) $(0.22)
share reported
Pro forma (0.88) (0.23)
F-15
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE H - STOCK PLANS (CONTINUED)
[2] Stock-based compensation: (continued)
The fair value of the Company's stock options used to compute pro forma net
loss and net loss per share disclosures is the estimated present value at grant
date using the Black-Scholes option-pricing model with the following
weighted-average assumptions for 1997 and 1996: dividend yield of 0%; expected
volatility of 30%; a risk-free interest rate of between 5% and 7%; and an
expected holding period of five years.
The per share weighed-average grant-date fair value of options granted
during the years ended June 30, 1997 and 1996 was $3.44 and $2.07, respectively.
NOTE I - SEGMENT INFORMATION
The Company's continuing operations are classified into two primary
business segments: substance abuse/psychiatric services and long-term care.
Year Ended
June 30,
1997 1996
Revenue:
Substance abuse/psychiatric
services $20,700,616 $16,525,672
Long-term care 5,306,717 5,043,922
Other 629,761 233,164
Management fees 597,278
$27,234,372 $21,802,758
Income (loss) from operations:
Substance abuse/psychiatric
services $283,782 $818,188
Long-term care (1,447,468) (826,463)
Other 324,440 146,407
General corporate (427,272) (180,966)
Interest and other income expense,
net (1,375,835) (754,072)
Loss before income taxes $(2,642,353) $ 796,906)
Depreciation and amortization:
Substance abuse/psychiatric
services $449,641 349,437
Long-term care 210,130 176,450
General corporate 19,477 28,138
$679,248 $ 554,025
Capital expenditures:
Substance abuse/psychiatric
services $729,661 $ 233,466
Long-term care 213,489 982,978
General corporate 63,150 16,583
$1,006,300 $ 1,233,027
Identifiable assets:
Substance abuse/psychiatric
services $18,352,342 $10,877,197
Long-term care 7,437,633 8,619,133
General corporate 2,070,834 1,264,205
Net assets of operations held for sale 56,682
$27,860,809 $20,817,217
F-16
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE J - OPERATIONS HELD FOR SALE
The Company has systematically phased out its day care center operations
(STL). At June 30, 1996, the Company had net assets relating to its day care
centers amounting to approximately $57,000, which primarily represented the
depreciated cost of one remaining real estate parcel. The parcel was sold in
October 1996 at a gain of approximately $38,000.
NOTE K - CERTAIN CAPITAL TRANSACTIONS
In addition to the outstanding options under the Company's stock plans
(Note H), the Company has the following options and warrants outstanding at June
30, 1997:
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
Warrant for services 25,000 shares $6.88 per share October 2001
Warrant for services 3,000 shares $3.50 per share February 2002
Consultant warrant (see below) 160,000 shares $2.62 per share March 2002
Convertible debenture warrants
(Note C) 150,000 shares $2.00 per share March 2002
Preferred stock warrant 50,000 shares $2.75 per share June 2000
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.
In June 1997, the Company received $1,000,000 in exchange for the issuance
of Series A convertible preferred stock and warrants to purchase 50,000 shares
of Class A common stock. The warrants are exercisable at $2.75 per share and
expire in 2000. The warrants were valued at $30,000. The number of shares of
Class A common stock into which the preferred stock may be converted is equal to
80% of the closing bid price of the Class A common stock as reported by NASDAQ
for the five trading days immediately preceding the conversion. The beneficial
conversion feature, due to the 80% discount above, valued at $200,000 was
recorded as additional dividends. In June 1997, 500 shares of preferred stock
were converted into 229,640 shares of Class A common stock. Subsequent to
year-end the 500 remaining shares of preferred stock were converted into 246,305
shares of Class A common stock. The issuance of these securities will result in
the issuance of some additional Class A common shares under existing dilution
agreements with other stockholders.
Cumulative preferred dividends are at the rate of $60 per share per year,
payable quarterly. Dividends are payable in cash or in shares of preferred stock
at $1,000 per share. At June 30, 1997, accrued dividends amounted to $4,330.
Certain Consultant Warrants may be canceled if certain stock prices, as
defined in the agreement, are not achieved by March 3, 1998.
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. 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 become issuable under the antidilution provisions of
certain outstanding securities of the Company.
F-17
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE K - CERTAIN CAPITAL TRANSACTIONS (CONTINUED)
Subsequent to June 30, 1997, the Class C common stock was canceled and
retired because of restrictions on the release of the stock, due to earnings
targets which were not achieved.
Subsequent to June 30, 1997, the Company issued a warrant for the purchase
of 150,000 shares of common stock in exchange for services. The exercise price
of the warrant is $2.50 per share and the warrant expires May 2002.
NOTE L - ACQUISITIONS
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.
In September 1996, the Company purchased the assets of seven outpatient
behavioral health centers located in Michigan ("NPP"). The centers were
purchased for $532,559 and 15,000 shares of Class A common stock of PHC, Inc.
valued at $5.04 per share. The Company borrowed $900,000 (see Note C) to finance
the purchase and to provide working capital for the centers. The purchase price
was allocated as follows:
Office equipment $ 18,000
Covenants note-to-compete 20,000
Goodwill 597,746
Deposits 15,072
Liabilities assumed (42,659)
$608,159
F-18
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE L - ACQUISITIONS (CONTINUED)
Concurrent with the asset purchase agreement, NPP entered into an
employment agreement with a former owner which requires an annual salary of
$150,000 and an annual bonus. The agreement is effective for four years and is
automatically extended for successive one year terms unless terminated. The
salary and bonus are subject to adjustment based on collected billings.
NPP also entered into a management agreement whereby $1,500 per month would
be paid for five years to the former owners.
Subsequent to year-end, under the employment agreement, the Company issued
15,000 unregistered shares of Class A common stock.
On November 1, 1996, BSC-NY, Inc. ("BSC"), merged with Behavioral Stress
Centers, Inc., a provider of management and administrative services to
psychotherapy and psychological practices in the greater New York City
Metropolitan Area. In connection with the merger, the Company issued 150,000
shares of PHC, Inc. Class A common stock to the former owners of Behavioral
Stress Centers, Inc. Also, in connection with the merger, another entity was
formed, Perlow Physicians, P.C. ("Perlow"), to acquire the assets of the medical
practices theretofore serviced by BSC. The Company advanced Perlow the funds to
acquire those assets and at June 30, 1997 Perlow owed the Company $3,063,177
which includes in addition to acquisition costs, management fees of
approximately $51 1,000 and interest on the advances of approximately $176,000.
It is expected that the obligations will be paid over the next several years and
accordingly, most of these amounts have been classified as noncurrent. The
Company has no ownership interest in Perlow.
The purchase price of BSC was allocated as follows:
Goodwill $63,600
Equipment and other assets 20,000
$83,600
The merger agreement requires additional purchase price to be paid by BSC
to the former owners of Behavioral Stress Centers, Inc. for the three years
following the merger date. The additional purchase price is based on the income
of BSC before taxes and is to be paid in PHC stock, at market value up to
$200,000 and the balance, if any, in cash.
BSC also entered into a management agreement with Perlow. The agreement
requires Perlow to pay 25% of its practice expenses to BSC on a monthly basis
over a five-year period with an automatic renewal for an additional five-year
period.
On November 1, 1996, BSC entered into a lease agreement for its facilities.
The lease payments are due in equal monthly installments over a three year
period with an option to extend annually for three additional years. The lease
is to be paid by Perlow in accordance with the management agreement.
On January 17, 1997, with an effective date of January 1, 1997, the Company
entered into a Stock Exchange Agreement with a Virginia corporation owned by two
individuals to whom the Company has an outstanding note payable. The corporation
consists of private practices of psychiatry. The Stock Exchange Agreement
provided that in exchange for $50,000 in cash and 64,500 shares of restricted
Class A common stock, the Company received an 80% ownership interest in the
Virginia corporation. The Company also paid $80,444 in legal fees in connection
with the Agreement. Concurrent with the Stock Exchange Agreement the two owners
of the Virginia corporation each executed Employment Agreements with the
Virginia corporation to provide professional
F-19
<PAGE>
PHC, INC. AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
NOTE L - ACQUISITIONS (CONTINUED)
services and each was granted an option to purchase 15,000 shares of Class
A common stock at an exercise price of $4.87 per share. The options expire on
April 1, 2002. Each agreement requires an annual salary of $200,000 and expires
in five years. Further, a Plan and Agreement of Merger was executed whereby the
Virginia corporation was merged into PCV.
On January 17, 1997 PCV entered into a purchase and sale agreement with an
unrelated general partnership, to purchase real estate with buildings and
improvements utilized by the Virginia Corporation for approximately $600,000 of
which $540,000 was paid through the issuance of a note (Note C).
In accordance with the above agreements the purchase price was allocated as
follows:
Land $ 50,600
Building 540,000
Covenant not-to-compete 50,000
Goodwill 285,038
$925,638
In accordance with the agreement the two owners will be paid a finders fee
for all subsequently acquired medical practices within a 200 mile radius of PCV
and those medical practices identified by the owners wherever the location. The
finders fee is payable in Class A common stock and in cash.
Information is not available to present pro forma financial information
relating to the 1997 acquisitions. The Company has so advised the Securities and
Exchange Commission and has received a no action letter with respect to this
matter. Had the acquisitions made during the fiscal years ended June 30, 1996,
been made as of July 1, 1995, the pro forma effect on the Company's results of
operations is immaterial.
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 11.5% and 11.3% at
June 30, 1997 and 1996, respectively. The amount of receivables subject to
recourse at June 30, 1997 totaled approximately $577,000 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
$3,000,000 and $3,500,000 for the years ended June 30, 1997 and 1996,
respectively. The purchase fees related to the agreement amount to approximately
$127,000 and $73,720 for the years ended June 30, 1997 and 1996, respectively,
and are included in interest expense in the accompanying consolidated statement
of operations. The agreement expires December 31, 1997.
NOTE N - SUBSEQUENT FINANCING
In September 1997, the Company received $500,000 in exchange for the
issuance of 170,414 shares of unregistered Class A common stock.
Also, subsequent to June 30, 1997, the Company purchased the assets of an
outpatient clinic in Virginia for 26,024 shares of Class A common stock and
$50,000 in cash. The clinic's operations will be included in PCV.
F-20
<PAGE>
EXHIBIT 21.1
NAME OF SUBSIDIARY DOING BUSINESS AS (NAME) STATE OF
INCORPORATION
PHC, Inc. Pioneer Healthcare Massachusetts
PDS2
PHC of Utah, Inc. Highland Ridge Hospital Massachusetts
PHC of Virginia, Inc. Mount Regis Center Massachusetts
Changes
PHC of Rhode Island, Inc. Good Hope Center Massachusetts
PHC of Michigan, Inc. Harbor Oaks Hospital Massachusetts
PHC of Nevada, Inc. Harmony Healthcare Massachusetts
Harmony Behavioral Nevada
Healthcare
Northpoint-Pioneer, Inc. Pioneer Counseling Center Massachusetts
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
Pioneer Counseling of Counseling Associates of Massachusetts
Virginia, Inc. Virginia, Inc Massachusetts
Counseling Associates of
Virginia
BSC-NY, Inc. Behavioral Stress Center New York
STL, Inc. Massachusetts
Professional Health New York
Associates, Inc.
<PAGE>
Exhibit 4.23 APPENDIX B
FORM OF WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1
150,000 Shares
FOR VALUE RECEIVED, PHC, Inc. (the "Company"), hereby certifies that Brean
Murray & Co., Inc., or a permitted assign thereof, is entitled to purchase
from the Company, at any time or from time to time commencing June 1, 1997,
and prior to 5:00 P.M., New York City time, on May 31, 2002, one hundred
fifty thousand (150,000) fully paid and nonassessable shares of the common
stock, of the Company for an aggregate purchase price of $375,000 (computed
on the basis of US $2.50 per share). Upon issuance, 40,000 shares shall be
fully vested and the balance shall be 10,000 per month on the 1st of each
month for the next 11 months beginning with the month of July 1997 provided
that agreement between Brean Murray and the Company dated June 1, 1997
remains in full force and effect and has not been terminated by either party
as of an application vesting date. (Hereinafter, (i) said common stock,
together with any other equity securities which may be issued by the Company
with respect thereto or in substitution therefore, is referred to as the
"Common Stock," (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to as the
"Warrant Shares," (iii) the aggregate purchase price payable hereunder for
the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the
price payable hereunder for each of the Warrant Shares is referred to as the
"Per Share Warrant Price," (v) this Warrant, all identical warrants issued on
the date hereof and all warrants hereafter issued in exchange or substitution
for this Warrant or such other warrants are referred to as the "Warrants" and
(vi) the holder of this Warrant is referred to as the "Holder" and the holder
of this Warrant and all other Warrants are referred to as the "Holders").
The Aggregate Warrant Price is not subject to adjustment. The Per Share
Warrant Price is subject to adjustment as hereinafter provided; in the event
of any such adjustment, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
I. Exercise of Warrant.
A. Cashless Exercise
This Warrant may be exercised, in whole at any time or in part from
time to time, commencing June 1, 1997, and prior to 5:00 P.M., New York
City time, on May 31, 2002, by the Holder by the surrender of this
Warrant (with the subscription form at the end hereof duly executed) at
the address set forth in Subsection 9(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part
thereof if this Warrant is exercised in part. Payment for Warrant
Shares shall be made by certified or official bank check payable to the
order of the Company or the Warrant may be exercised by surrender of
the Warrant without payment of any other consideration, commission or
remuneration, by execution of the cashless exercise subscription form
(at the end hereof, duly executed. The number of shares to be issued
in exchange for the Warrant will be computed by subtracting the Warrant
Exercise Price from the closing bid price of the common stock on the
date of receipt of the cashless exercise subscription form, multiplying
that amount by the number of shares represented by the Warrant, and
dividing by the closing bid price as of the same date.
<PAGE>
If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant Covering the Warrant Shares which
have not been exercised and setting forth the proportionate part of the
Aggregate Warrant Price applicable to such Warrant Shares. Upon such
surrender of this Warrant, the Company will (a) issue a certificate or
certificates in the name of the Holder for the largest number of whole
shares of the Common Stock to which the Holder shall be entitled and,
if this Warrant is exercised in whole, in lieu of any fractional share
of the Common Stock to which the Holder shall be entitled, pay to the
Holder cash in an amount equal to the fair value of such fractional
share (determined in such reasonable manner as the Board of Directors
of the Company shall determine), and (b) deliver the other securities
and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of this Warrant.
II Reservation of Warrant Shares; Listing.
The Company agrees that, prior to the expiration of this Warrant, the
Company will at all times (a) have authorized and in reserve, and will
keep available, solely for issuance or delivery upon the exercise of
this Warrant, the shares of the Common Stock and other securities and
properties as from time to time shall be receivable upon the exercise
of this Warrant, free and clear of all restrictions on sale or transfer
and free and clear of all pre-emptive rights.
III. Protection Against Dilution.
A. If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to the holders of
shares of Common Stock evidences of its indebtedness, any other
securities of the Company or any cash, property or other assets
(excluding a subdivision, combination or reclassification, or
dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(b), and also excluding cash dividends
or cash distributions paid out of net profits legally available
therefor if the full amount thereof, together with the value of
other dividends and distributions made substantially concurrently
therewith or pursuant to a plan which includes payment thereof,
is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "Special
Dividend"), the Per Share Warrant Price shall be adjusted by
multiplying the Per Share Warrant Price then in effect by a
fraction, the numerator of which shall be the then current market
price of the Common Stock (defined as the average for the thirty
consecutive business days immediately prior to the record date of
the daily closing price of the Common Stock as reported by the
NASDAQ system less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness,
securities or property, or other assets issued or distributed in
such Special Dividend applicable to one share of Common Stock and
the denominator of which shall be such then current market price
per share of Common Stock. An adjustment made pursuant to this
Subsection 3(A) shall become effective immediately after the
record date of any such Special Dividend.
B. In case the Company shall hereafter (i) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater
number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by
reclassification of its Common Stock any shares of capital stock
of the Company, the Per Share Warrant Price shall be adjusted so
that the Holder of any Warrant upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other
capital stock of the Company which he would have owned
immediately prior thereto. An adjustment made pursuant to this
Subsection 3(B) shall become effective immediately after the
record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case
of a subdivision, combination or reclassification. If, as a
result of an adjustment made pursuant to this Subsection 3(B),
the Holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes of
capital stock or shares of Common Stock and other capital stock
of the Company, the Board of Directors (whose determination shall
be conclusive and shall be described in a written notice to the
Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price
between or among shares of such classes or capital stock or
shares of Common Stock and other capital stock.
C. Except as provided in Subsection 3(A) and 3(D), in case the
Company shall hereafter issue or sell any rights, options,
warrants or securities convertible into Common Stock entitling
the holders thereof to purchase Common Stock or to convert such
securities into Common Stock at a price per share (determined by
dividing (i) the total amount, if any, received or receivable by
the Company in consideration of the issuance or sale of such
rights, options, warrants or convertible securities plus the
total consideration, if any, payable to the Company upon exercise
or conversion thereof (the "Total Consideration") by (ii) the
number of additional shares of common stock issuable upon
exercise or conversion of such securities) less than the then
current Per Share Warrant Price in effect on the date of such
issuance or sale, the Per Share Warrant Price shall be adjusted
as of the date of such issuance or sale so that the same shall
equal the price determined by dividing (i) the sum of (a) the
number of shares of Common Stock outstanding on the date of such
issuance or sale multiplied by the Per Share Warrant Price plus
(b) the Total Consideration by (ii) the number of shares of
Common Stock outstanding on the date of such issuance or sale
plus the maximum number of additional shares of Common Stock
issuable upon exercise or conversion of such securities. The
provision of this section shall not apply to the issuance of any
shares of Common Stock on the exercise conversion or exchange of
any rights, options, warrants or convertible securities
outstanding on the date hereof or any such shares issued to
employees, directors, or consultants, pursuant to the Company's
Non-Employee Director Plan, Omnibus Stock Plan or Employee Stock
Purchase Plan based upon the number of options or shares
currently authorized under such plan increased by 50%.
D. In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other
than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to
another entity of the property of the Company as an entirety or
substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third
corporation (including any exchange effected in connection with a
merger of a third corporation into the Company), the Holder of
this Warrant shall have the right thereafter to convert such
Warrant into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to
receive immediately after such reorganization, reclassification,
consolidation, merger, statutory exchange, sale or conveyance had
this Warrant been converted immediately prior to the effective
date of such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and in any such
case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with
respect to the rights and interests thereafter of the Holder of
this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock
or other securities or be, in relation to any shares of stock or
other securities or property thereafter deliverable on the
conversion of this Warrant. The above provisions of this
Subsection 3(D) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers,
statutory exchanges, sales or conveyances. The issuer of any
shares of stock or other securities or property thereafter
deliverable on the conversion of this Warrant shall be
responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale
or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holders of the Warrants not less than 30
days prior to such event. A sale of all or substantially all of
the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger
for the foregoing purposes.
E. No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at
least $0.05 per share of Common Stock; provided, however, that any
adjustments which by reason of this Subsection 3(e) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; provided further, however,
that adjustments shall be required and made in accordance with the
provisions of this Section 3 (other than this Subsection 3(e) not
later than such time as may be required in order to preserve the
tax-free nature of a distribution to the Holder of this Warrant or
Common Stock issuable upon exercise hereof. All calculations
under this Section 3 shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this
Section 3 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Per Share Warrant Price,
in addition to those required by this Section 3, as it in its
discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or distribution of rights to
purchase stock or securities convertible or exchangeable for stock
hereafter made by the Company to its shareholders shall not be
taxable.
F. Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall
promptly obtain, at its expense, a certificate of a firm of
independent public accountants of recognized standing selected by
the Board of Directors (who may be the regular auditors of the
Company) setting forth the Per Share Warrant Price and the number
of Warrant Shares after such adjustment or the effect of such
modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same
and cause copies of such certificate to be mailed to the Holders
of the Warrants.
G. If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock,
other than a cash distribution out of earned surplus, the Company
shall mail notice thereof to the Holders of the Warrants not less
than 15 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other
distribution.
IV. Fully Paid Stock, Taxes.
The Company agrees that the shares of the Common Stock represented by
each and every certificate for Warrant Shares delivered on the exercise
of this Warrant shall, at the time of such delivery, be validly issued
and outstanding, fully paid and nonassessable, and not subject to
pre-emptive rights, and the Company will take all such actions as may
be necessary to assure that the par value or stated value, if any, per
share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees
that it will pay, when due and payable, any and all Federal and state
stamp, original issue or similar taxes which may be payable in respect
of the issue of any Warrant Share or certificate therefor.
V. Registration Under Securities Act of 1933.
A. The Company agrees that if, at any time and from time to time
during the period commencing on June 1, 1997 and ending on May
31, 2002, the Board of Directors of the Company shall authorize
the filing of a registration statement or a post-effective
amendment to a registration statement (any such registration
statement being hereinafter called a "Subsequent Registration
Statement") under the Act other than a registration statement on
Form S-8 or other form which does not include substantially the
same information as would be required in a form for the general
registration of securities) in connection with the proposed offer
of any of its securities by it or any of its shareholders, the
Company will (i) promptly notify the Holder and each of the
Holders, if any, of other Warrants and/or Warrant Shares that
such Subsequent Registration Statement will be filed and that the
Warrant Shares which are then held, and/or which may be acquired
upon the exercise of the Warrants, by the Holder and such
Holders, will, at the Holder's and such Holders' request, be
included in such Subsequent Registration Statement, (ii) include
in the securities covered by such Subsequent Registration
Statement all Warrant Shares which it has been so requested to
include, (iii) use its best efforts to cause such Subsequent
Registration Statement to become effective as soon as practicable
and (iv) take all other action necessary under any Federal or
stat law or regulation of any governmental authority to permit
all Warrant Shares which it has been so requested to include in
such Subsequent Registration Statement or to be sold or otherwise
disposed of, and will maintain such compliance with each such
Federal and state law and regulation of any governmental
authority for the period necessary for the Holder and such
Holders to effect the proposed sale or other disposition.
B. Whenever the Company is required pursuant to the provisions of
this Section 5 to include Warrant Shares in a registration
statement or a post-effective amendment to a registration
statement, the Company shall (i) furnish each Holder of any such
Warrant Shares and each underwriter of such Warrant Shares with
such copies of the prospectus, including the preliminary
prospectus, conforming to the Act, (and such other documents as
each such Holder or each such underwriter may reasonably request)
in order to facilitate the sale or distribution of the Warrant
Shares, (ii) use its best efforts to register or qualify such
Warrant Shares under the blue sky laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such
Warrant Shares and each underwriter of Warrant Shares being sold
by such Holders shall reasonably request and (iii) take such
other actions as may be reasonably necessary or advisable to
enable such Holders and such underwriters to consummate the sale
or distribution in such jurisdiction or jurisdictions in which
such Holders shall have reasonably requested that the Warrant
Shares be sold.
C. The Company shall pay all expenses incurred in connection with
any registration or other action pursuant to the provisions of
this Section 5, other than underwriting discounts and applicable
transfer taxes relating to the Warrant Shares.
<PAGE>
D. The Company will indemnify the Holders of Warrant Shares which
are included in each Subsequent Registration Statement
substantially to the same extent as the Company has indemnified
the underwriters (the "Underwriters") of its public offering of
Common Stock pursuant to the Underwriting Agreement and such
Holders will indemnify the Company (and the underwriters, if
applicable) with respect to information furnished by them in
writing to the Company for inclusion therein substantially to the
same extent as the Underwriters have indemnified the Company.
VI. Limited Transferability.
This Warrant may not be sold, transferred, assigned or hypothecated by
the Holder until the first anniversary hereof except (a) to any
successor firm or corporation of Brean Murray & Co., Inc., (b) to any
of the officers, managing directors, any associates of Brean Murray &
Co., Inc., to a finder that has been recognized by both parties or of
any such successor firm or (c) in the case of an individual, pursuant
to such individual's last will and testament or the laws of descent and
distribution, and is so transferable only upon the books of the Company
which it shall cause to be maintained for the purpose. The Company may
treat the registered Holder of this Warrant as he or it appears on the
Company's books at any time as the Holder for all purposes. The
Company shall permit any Holder of a Warrant or his duly authorized
attorney, upon written request during ordinary business hours, to
inspect and copy or make extracts from its books showing the registered
holders of Warrants. All warrants issued upon the transfer or
assignment of this Warrant will be dated the same date as this Warrant,
and all rights of the Holder thereof shall be identical to those of the
Holder.
VII. Loss, etc., of Warrant.
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the
Company shall execute and deliver to the Holder a new Warrant of like
date, tenor and denomination.
VIII. Warrant Holder Not Shareholders.
Except as otherwise provided herein, this Warrant does not confer upon
the Holder any right to vote or to consent to or receive notice as a
shareholder of the Company, as such, in respect of any matters
whatsoever, or any other fights or liabilities as a shareholder, prior
to the exercise hereof.
IX. Communication.
No notice or other communication under this Warrant shall be effective
unless, but any notice or other communication shall be effective and
shall be deemed to have been given if, the same is in writing and is
mailed by first-class mail, postage prepaid, addressed to:
A. the Company at 200 Lake Street, Suite 102, Peabody, Massachusetts
01960
B. the Holder at 570 Lexington Avenue, New York, New York 10022, or
such other address as the Holder has designated in writing to the
Company.
<PAGE>
X. Headings.
The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
XI. Applicable Law.
This Warrant shall be governed by and construed in accordance with the
law of the Commonwealth of Massachusetts without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
Chief Executive Officer and its corporate seal to be hereunto affixed by its
Secretary this 31st day of July, 1997.
PHC,INC.
By:___________________
Bruce Shear
Chief Executive Officer
ATTEST:
_____________________
Assistant Clerk
[Corporate Seal]
<PAGE>
SUBSCRIPTION
The undersigned, _________________ pursuant to the provisions of the
foregoing Warrant, hereby agrees to subscribe for and purchase -----------
shares of the Common Stock of PHC, Inc. Common stock covered by said
Warrant, and makes payment therefor in full at the price per share provided
by said Warrant.
Dated: ___________________________ Signature: ________________________
Address: _________________________
________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers unto
______________ the foregoing Warrant and all rights evidenced thereby, and does
irrevocably constitute and appoint attorney, to transfer said Warrant on the
books of PHC, Inc.
Dated: ___________________________ Signature: ________________________
Address: _________________________
_________________________
FOR VALU RECEIVED ________________________ hereby assigns and transfers unto
______________ the right to purchase shares of the Common Stock of Pioneer
Healthcare, Inc. by the foregoing Warrant, and a proportionate part of said
Warrant and the rights evidenced hereby, and does irrevocably constitute and
appoint attorney, to transfer that part of said Warrant on the books of PHC,
Inc.
Dated: ___________________________ Signature: ________________________
Address: _________________________
_________________________
<PAGE>
CASHLESS EXERCISE SUBSCRIPTION
The undersigned, ___________________________, pursuant to the provisions of
the foregoing Warrant, hereby agrees to subscribe to that number of shares of
Common Stock of PHC, Inc. as are issuable in accordance with the formula set
forth in paragraph l(b) of the Warrant, and makes payment therefore in full
by surrender and delivery of this Warrant.
Dated: _______________________ Signature: ___________________________
Address: _____________________________
<PAGE>
Exhibit 4.24
SUBSCRIPTION AGREEMENT
PHC, INC.
THE SECURITIES WHICH ARE THE SUBJECT TO THIS SUBSCRIPTION AGREEMENT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE ON
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF PHC,
INC.'S INTENDED COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF THE
SECURITIES ACT OF 1933, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND
SIMILAR EXEMPTIONS UNDER STATE LAW. THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY ANY REGULATORY AUTHORITY. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The undersigned purchaser, (hereafter the "Purchaser") hereby offers to
purchase Units of PHC, Inc. (the "Company"), a publicly held corporation
formed under the laws of the Commonwealth of Massachusetts. This offer to
purchase may, for any reason whatsoever, be revoked by the Purchaser or
rejected by the Company prior to acceptance of this offer by the Company.
Section 1.1 Purchase and Sale of Units. Upon the following terms and
conditions, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, the number of Units indicated
herein. Each Unit shall consist of four (4) shares (the "Shares") of the
Company's Class A Common Stock, $.01 par value per share ("Common Stock"),
and warrants for the purchase of two (2) Shares of such Common Stock
(referred to herein as a "Warrant" or collectively as "Warrants").
Section 1.2 Purchase Price. The purchase price for the Units (the
"Purchase Price") shall be four (4) multiplied by the lesser of: (a) $2.90;
or (b) the average of the closing bid prices of the Common Stock as reported
by NASDAQ during the fifteen (15) consecutive trading days preceding the
Closing Date (but not including such date).
Section 1.3 The Closing
(a) The closing of the purchase and sale of the Units (the
"Closing"), shall take place at the offices of Choate, Hall & Stewart at
10:00 a.m. local Boston, Massachusetts time, on the later of the following:
(i) the date on which the last to be fulfilled or waived of the conditions
set forth in Section 4.1 and 4.2 hereof and applicable to the Closing shall
be fulfilled or waived in accordance herewith, or (ii) such other time and
place and/or on such other dale as the Purchaser and the Company may agree.
The date on which the Closing occurs is referred to herein as the "Closing
Date".
(b) On the Closing Date, the Company shall deliver to the Purchaser
certificates representing the Shares registered in the name of the Purchaser
and the Warrant Agreement representing the Warrants, and the Purchaser shall
deliver to the Company the Purchase Price for all the Units by cashier's
check or wire transfer in immediately available funds to such account as
shall be designated in writing by the Company. In addition, each party shall
deliver all documents, instruments and writings required to be delivered by
such party pursuant to this Agreement at or prior to the Closing.
<PAGE>
Section 1.4 Covenant to Register.
(a) For purposes of this Section, the following definitions shall
apply:
(i) The terms "register," "registered," and "registration"
refer to a registration under the Securities Act of 1933, as amended (the
"Act"), effected by preparing and filing a registration statement or similar
document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the Shares of the
Company's Class A Common Stock comprising the Units and issuable upon
conversion of the Warrants and the Remedy Warrants, if any, or upon any other
stock issued in payment of dividends, or otherwise issuable pursuant to this
Agreement and any securities of the Company or securities of any successor
corporation issued as, or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of the
Units.
(iii) The term "holder of Registrable Securities" means the
Purchaser and any permitted assignee of registration rights pursuant to
Section 1.4(h).
(b) (i) The Company shall as soon as possible file a registration
statement on Form SB-2 covering all the Registrable Securities, and shall use
its best efforts to cause such registration statement to become effective on
or before ninety (90) days after the Closing Date (the "Initial
Registration"). In the event such registration is not so declared effective
or does not include all Registrable Securities, a holder of Registrable
Securities shall have the right to require by notice in writing that the
Company register all or any part of the Registrable Securities held by such
holder (a "Demand Registration") and the Company shall thereupon effect such
registration in accordance herewith (which may include adding such shares to
an existing shelf registration). The parties agree that if the holder of
Registrable Securities demands registration of less than all of the
Registrable Securities, the Company, at its option, may nevertheless file a
registration statement covering all of the Registrable Securities. If such
registration statement is declared effective with respect to all Registrable
Securities and the Company is in compliance with it obligations under
Subsection (d) of this Section 1.4, the demand registration rights granted
pursuant to the Subsection (b)(i) shall cease. If such registration
statement is not declared effective with respect to all Registrable
Securities or if the Company is not in compliance with such obligation, the
demand registration rights described herein shall remain in effect.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (b)(i) above: (A) if all of the Restorable
Securities held by the holder of Registrable Securities which are demanded to
be covered by the Demand Registration are, at the time of such demand,
included in an effective registration statement and the Company is in
compliance with its obligations under Subsection (d) of this Section 1.4; (B)
if all of the Registrable Securities may be sold under Rule 144(k) of the Act
and the Company's transfer agent has accepted an instruction from the Company
to such effect; or (C) at any time after two (2) years from the Closing Date.
(iii) Subject to Subsection (iv)(B) hereof, the Company may
suspend the effectiveness of any such registration effected pursuant to this
Subsection (b) in the event and for such period of time as, such a suspension
is required by the rules and regulations of the Securities and Exchange
Commission ("SEC"). The Company will use its best efforts to cause such
suspension to terminate at the earliest possible date.
2
<PAGE>
(iv) (A) If the registration covering all Registrable
Securities is not effective by the ninety first (91st) day after the Closing
date (the "Effective Date"), other than by reason of the failure of any
holder of Registrable Securities to provide the Company with information
pursuant to Section 1.4(e) hereof, the Company shall deliver to Purchaser as
liquidated damages warrants for the purchase of 3,000 Shares of Common Stock
for each thirty (30) day period thereafter (the number of Shares to be
pro-rated daily) (the "Remedy Warrants"), until the earlier of (A) the date
that the Common Stock is registered pursuant to an effective registration
statement or (B) one (1) year after the Closing Date. The Remedy Warrants
shall have the same terms including, without limitation, exercise price and
expiration, as the Warrants comprising the Units.
(B) If, following such effectiveness, either the
effectiveness of the Registration Statement is suspended or a current
prospectus meeting the requirements of Section 10 of the Act is not available
for delivery by the Purchaser (either referred to herein as a "suspension"),
the Company shall deliver to Purchaser as liquidated damages Remedy Warrants
until the earlier (i) the suspension is terminated, or (ii) the date on which
the Company is no longer required to effect a demand registration pursuant to
Section 1.4(b) (ii) thereof.
(C) Any Remedy Warrants deliverable pursuant to the
foregoing provisions of this subsection (iv) shall be delivered on or before
the fifth (5th) day following the end of the calendar month in which such
payment obligation arose.
(D) This subsection is in addition to the provisions of
Section 7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the
Purchaser) any of its stock or other securities under the Act in connection
with a public offering of such securities (other than a registration on Form
S-4, Form S-8 or other limited purpose form) and all Registrable Securities
have not theretofore been included in a registration statement under
Subsection (b) of this Section 1.4 which remains effective, the Company
shall, at such time, promptly give all holders of Registrable Securities
written notice of such registration Upon the written request of any holder of
Registrable Securities given within twenty (20) days after receipt of such
notice by the holder of Registrable Securities, the Company shall use its
best efforts to cause to be registered under the Act all Registrable
Securities that such holder of Registrable Securities requests to be
registered. However, the Company shall have no obligation under this
Subsection (c) if (i) the Registrable Securities may be sold without
registration under Rule 144(k) and the Company's transfer agent has accepted
an instruction from the Company to such effect, (ii) the Registration
Statement is filed more than two (2) years after the Closing Date, or (iii)
to the extent that, with respect to any underwritten offering initiated by
the Company later than one calendar year following the Closing, the managing
underwriter of such offering reasonably notifies such holder(s) in writing of
its determination that the Registrable Securities or a portion thereof shall
be excluded therefrom.
(d) Whenever required under this Section 1.4 to effect the
registration of any Registrable Securities including, without limitation, the
Initial Registration, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement or
amendment thereto with respect to such Registrable Securities and use its
best efforts to cause such registration to become effective as provided in
Section 1.4(b)(i), and keep such registration statement effective for so long
as any holder of Registrable Securities desires to dispose of the securities
covered by such registration statement; provided, however, that in no event
shall the Company be required to keep the Registration Statement effective
for a period greater than two (2) years from the Closing Date;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement and notify the holders of
the filing and effectiveness of such Registration Statement and any
amendments or supplements;
3
<PAGE>
(iii) Furnish to each holder of Registrable Securities such
numbers of copies of a current prospectus, including a preliminary
prospectus, conforming with the requirements of the Act, copies of the
registration statement any amendment or supplement to any thereof and any
documents incorporated by reference therein and such other documents, all
free of charge, as such holder of Registrable Securities may reasonably
require in order to facilitate the disposition of Registrable Securities
owned by such holder of registrable Securities;
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue
Sky" laws of such jurisdictions as shall be reasonably requested by the
holder of Registrable Securities;
(v) Notify each holder of Registrable Securities immediately of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing, and use its best efforts to promptly
update and/or correct such prospectus;
(vi) Furnish, at the request of any holder of Registrable
Securities in connection with any underwritten public offering, (A) an
opinion of counsel of the Company, dated the effective date of the
registration statement, in form and substance reasonably satisfactory to the
holder and its counsel and covering, without limitation, such matters as the
due authorization and issuance of the securities being registered and certain
matters pertaining to disclosure under and compliance with securities laws by
the Company in connection with the registration thereof and/or (B) a
"comfort" letter or letters of the Company's independent public accountants
provided at the Company's expense in form and substance reasonably
satisfactory to the holder and its counsel;
(vii) Use its best efforts to list the Registrable Securities
covered by such registration statement with any national market or securities
exchange on which such securities are then listed;
(viii) Make available for inspection by the holder of
Registrable Securities, upon request, all SEC Documents (as defined below)
filed subsequent to the Closing and require the Company's officers, directors
and employees to supply all information reasonably requested by any holder of
Registrable Securities in connection with such registration statement; and
(ix) Furnish to each holder of Registrable Securities prompt
notice of the commencement of any stop-order proceedings under the Act,
together with copies of all documents in connection therewith, and use its
best efforts to obtain withdrawal of any such stop order as soon as possible.
(e) Upon request of the Company, each holder of Registrable Securities
will furnish to the Company in connection with any registration under this
Section such information regarding itself, the Registrable Securities and
other securities of the Company held by it, and the intended method of
disposition of such securities as shall be reasonably required to effect the
registration of the Registrable Securities held by such holder of Registrable
Securities. The intended method of disposition (Plan of Distribution) of
such securities as so provided by Purchaser shall be included without
alteration in the Registration Statement covering the Registrable Securities
and shall not be changed without the prior written consent of the Purchaser.
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(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of Subsections (b) or (c) hereof and
each of its officers, directors, employees, agents, partners or controlling
persons (within the meaning of the Act) (each, an "indemnified party") from
and against, and shall reimburse such indemnified party with respect to, any
and all claims, suits, demands, causes of action, losses, damages,
liabilities, costs or expenses ("Liabilities") to which such indemnified
party may become subject under the Act or otherwise, arising from or relating
to (A) any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading; provided, however, that the Company shall not be
liable in any such case to the extent that any such Liability arises out of
or is based upon an untrue statement or omission so made in strict conformity
with information furnished by such indemnified party in writing specifically
for use in a registration statement.
(ii) in the event of any registration under the Act of
Registrable Securities pursuant to Subsections (b) or (c), each holder of
such Registrable Securities hereby severally agrees to indemnity, defend and
hold harmless the Company, and its officers, directors, employees, agents,
partners, or controlling persons (within the meaning of the Act) (each, an
"indemnified party") from and against, and shall reimburse such indemnified
party with respect to, any and all Liabilities to which such indemnified
party may become subject under the Act or otherwise, arising from or relating
to (A) any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances in which they
were made, not misleading; provided, that such holders will be liable in any
such case to the extent and only to the extent, that any such Liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, prospectus or amendment or supplement thereto in reliance upon and
in conformity with written information furnished by such holder specifically
for use in the preparation thereof.
(iii) Promptly after receipt by any indemnified party of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against another party (the "indemnifying
party") hereunder, notify such party in writing thereof, but the omission so
to notify such party shall not relieve such party from any Liability which it
may have to the indemnified party other than under this Section and shall
only relieve it from any Liability which it may have to the indemnified party
under this section if and to the extent an indemnifying party is materially
prejudiced by such omission. In case any such action shall be brought
against any indemnified party and such indemnified party shall notify an
indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to the
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to the indemnified party
under this section for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected;
provided, however, that if the defendants in any such action include both
parties and the indemnified party shall have reasonably concluded that there
may be reasonable defenses available to them which are different from or
additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the reasonable
expenses and fees of one such separate counsel and other reasonable expenses
related to such participation to be reimbursed by the indemnifying party as
incurred.
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(g) (i) With respect to the inclusion of Registrable Securities in
a registration statement pursuant to Subsections (b) or (c), all fees, costs
and expenses of and incidental to such registration, inclusion and public
offering shall be borne by the Company; provided, however, that any
securityholders participating in such registration shall bear their pro-rata
share of the underwriting discounts and commissions, if any, incurred by them
in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne by
the Company as provided in this Subsection (g) shall include, without
limitations all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, and all legal
fees and disbursements and other expenses of complying with state securities
or Blue Sky laws of any jurisdiction or jurisdictions in which securities to
be offered are to be registered and qualified. Subject to appropriate
agreements as to confidentiality, the Company shall make available to the
holders of Registrable Securities and their counsel its documents and
personnel for due diligence purposes. Except as otherwise provided herein,
fees and disbursements of counsel and accountants for the selling security
holders shall be borne by the respective selling security holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by
Purchaser to a transferee or assignee. Within a reasonable time after such
transfer, the Purchaser shall notify the Company of the name and address of
such transferee or assignee, and the securities with respect to which such
registration rights are being assigned. Such assignment shall be effective
only if, immediately following such transfer, the further disposition of such
securities by the transferee or assignee is restricted under the Act. Any
transferee asserting registration rights hereunder shall be bound by the
applicable provisions of this Agreement.
(i) The Company shall not agree to allow the holders of any securities
of the Company to include any of their securities in any registration
statement filed by the Company pursuant to Subsection (b) unless such
inclusion will not reduce the amount of the Registrable Securities included
therein.
Section 1.5 Company Standoff. Except in a business combination, or
under existing employee stock incentive or purchase plans, the Company shall
not for its own account effect any public sale or distribution of any
securities similar to the Registrable Securities or any securities
exercisable for or convertible or changeable into the Registrable Securities
during the thirty (30) days prior to, and during the thirty (30) days
immediately following, the effective date of any registration statement filed
or amended pursuant to Section 1.4(b); provided, however, that the Company
may effect such public sale or distribution during the thirty (30) days
immediately following the effective date of such registration statement if
such sale or distribution of securities is at a price equal to or greater
than 125% of the last trade price of the Company's Common Stock on the day of
Closing.
Section 2.1 Representations and Warranties of the Purchaser. The
Purchaser makes the following representations and warranties to the Company.
(a) Accredited Investor. The Purchaser is an "accredited investor",
as such term is defined in Rule 501(a) of Regulation D, promulgated under the
Act.
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(b) Speculative Investment. The Purchaser is aware that an investment
in the Units is @y speculative and subject to substantial risks. The
Purchaser is capable of bearing the high degree of economic risk and the
burden of this venture, including, but not limited to, the possibility of
complete loss of the Purchaser's investment in the Units and underlying
Common Stock which make liquidation of this investment impossible for the
indefinite future.
(c) Disposition. The Purchaser understands that neither the Units nor
the underlying Common Stock have been registered under the Act. The Units
are being acquired by reason of a specific exemption under the Act as well as
under certain state statutes for transactions by an issuer not involving any
public offering and that any disposition of the Units may, under certain
circumstances, be inconsistent with this exemption and may make the Purchaser
an "underwriter" within the meaning of the Act. The Purchaser acknowledges
that the Units purchased must be held and may not be sold, transferred, or
otherwise disposed of for value unless they are subsequently registered under
the Act , sold pursuant to Rule 144 of the Act, or an exemption from
registration under the Act is available.
(d) Privately Offered. The offer to acquire the Units was directly
communicated to the Purchaser in such manner that the Purchaser was able to
ask questions of and receive answers concerning the terms and conditions of
this transaction. At no time was the Purchaser presented with or solicited
by or through any leaflet, public promotional meeting, television
advertisement, or any other form of general advertising.
(e) Purchase for Investment. The Units are being acquired solely for
the Purchaser's own account, for investment, and are not being purchased with
view to the resale, distribution, subdivision or fractionalization thereof
without a valid registration with applicable Governmental authorities.
Section 2.2 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualifications. The Company is a corporation
duly incorporated and existing in good standing under the laws of the
Commonwealth of Massachusetts and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The
Company does not have any subsidiaries except as listed in Exhibit A hereto.
The Company and each such subsidiary, if any, is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualifications necessary other than those in which the failure so to qualify
would not have a Material Adverse Effect. "Material Adverse Effect", for
purposes of this Subscription Agreement (as it may be amended from time to
time, the "Agreement"), means any adverse effect on the business, operations,
properties, prospects or financial condition of the entity with respect to
which term is used and which is material to such entity and other entities
controlled by such entity taken as a whole.
(b) Authorization Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue the Units and Registrable Securities in accordance with the terms
hereof, (ii) the execution and delivery of this Agreement by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, (iv) this Agreement constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally the enforcement of creditor's rights and remedies
or by other equitable principles of general application) and (v) prior to the
Closing Date, any necessary Certificate of Amendment to the Company's Charter
authorizing Company to issue all of the Units and Registrable Securities will
have been filed with the Massachusetts Secretary of State and will be in full
force and effect, enforceable against the Company in accordance with the
terms of such amended Charter.
7
(c) Authorized Capital: Rights or Commitments to Stock: The
authorized capital stock of the Company consists of 20,000,000 shares of
Class A Common Stock, 2,000,000 shares of Class B Common Stock, 200,000
shares of Class C Common Stock and 1,000,000 shares of Series A Preferred
Stock; there are 4,470,866 shares of Class A Common Stock issued and
4,462,210 shares of such Class A Common Stock outstanding; there are no
shares of such Preferred Stock issued and outstanding; and, upon issuance of
the Units in accordance with the terms hereof, there will be approximately
4,643,282 shares of such Common Stock and no shares of such Preferred Stock
issued.
All of the outstanding shares of the Company's Common Stock have been
validly issued and are fully paid and non-assessable. Except as set forth in
Exhibit A hereto or as described in the SEC Documents, no shares of Common
Stock are entitled to preemptive rights or registration rights and there are
no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase
or acquire, any shares, or securities or rights convertible into shares, of
capital stock of the Company. The Company has furnished or made available to
the Purchaser true and correct copies of the Company's Articles of
Organization as in effect on the date hereof (the "Charter"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
(d) Issuance of Units. The issuance of the Units has been duly
authorized and, when paid for and issued in accordance with the terms hereof,
the Units shall be validly issued, fully paid and non-assessable. The Common
Stock issuable upon conversion of the Warrants will be duly authorized and
reserved for issuance and, upon conversion, will be validly issued, fully
paid and non-assessable and the holders shall be entitled to all rights and
preferences accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Charter or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or
result in a violation of any federal, state, local or foreign law, rule,
regulation, order, judgment or decree (including Federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or assets of the Company or any of its subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect); provided
that, for purposes of such representation as to Federal, state, local or
foreign law, rule or regulation, no representation is made herein with
respect to any of the same applicable solely to the Purchaser and not to the
Company. The business of the Company is not being conducted in violation of
any law, ordinance or regulations of any governmental entity, except for
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under Federal, state or
local law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing (other than any filing of a
vote establishing a class or series of stock with the Massachusetts Secretary
of State) or registration with, any court or governmental agency in order for
it to execute, deliver or perform any of its obligations under this Agreement
or issue and sell the Units in accordance with the terms hereof (other than
any SEC, NASD or state securities filings which may be required to be made by
the Company subsequent to the Closing, and any registration statement which
may be filed pursuant hereto); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the
Purchaser herein.
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(f) SEC Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, except as set forth in
Exhibit A, the Company has filed on a timely basis all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d), in addition to one or more
registration statements and amendments thereto heretofore filed by the
Company with the SEC under the Act (all of the foregoing including filings
incorporated by reference therein being referred to herein as the "SEC
Documents"). The Company directly or through its agent has delivered to the
Purchaser true and complete copies of the SEC Documents. The Company has not
provided to the Purchaser any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement.
Except as set forth in Exhibit A, as of their respective dates the SEC
Documents complied in all material respects with the requirements of the Act
or the Exchange Act as the case may be and the rules and regulations of the
SEC promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as set forth in Exhibit A, the financial statements
of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations
with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto or (ii) in the
case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in
all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(g) No Material Adverse Change. Since the date through which the most
recent quarterly report of the Company on Form 10-Q has been prepared and
filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to the Company or
any of its subsidiaries.
(h) No Undisclosed Liabilities. The Company and its subsidiaries have
no material liabilities or obligations not disclosed in the SEC Documents,
other than those incurred in the ordinary course of the Company's or any of
its subsidiaries' respective businesses since the date of the most recently
filed SEC Documents which, individually or in the aggregate, do not or would
not have a Material Adverse Effect on the Company or any of its subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or circumstance
has occurred or exists with respect to the Company or any of its subsidiaries
or their respective businesses, properties, prospects, operations or
financial condition which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
0) No General Solicitation. Neither the Company, nor any of its
affiliates, or, to the best of its knowledge, any person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in connection
with the offer or sale of the Units.
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(k) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers
to buy any security, under circumstances that would require registration of
the Units under the Act.
Section 3.1 Securities Compliance. The Company shall notify the SEC and
NASD, in accordance with their requirements, of the transactions contemplated
by this Agreement, and shall take all other necessary action and proceedings
as may be required and permitted by applicable law, rule and regulation, for
the legal and valid issuance of the Units, and the Common Stock issuable upon
conversion thereof, to the Purchaser.
Section 3.2 Registration and Listing. Until at least two (2) years
after all Registrable Securities have been registered, the Company will cause
its Common Stock to continue to be registered under Sections 12(b) or 12(g)
of the Exchange Act, will comply in all respects with its reporting and
filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and
will not take any action or file any document (whether or not permitted by
the Act or the Exchange Act or the rules theretunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Acts, except as permitted herein. Until at least two
(2) years after all Registrable Securities have been registered, the Company
will take all action within its power to continue the listing or trading of
its Common Stock on the NASDAQ Small Cap Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the NASD and NASDAQ. The covenants set forth in this
Section 3.2 shall not be deemed to prohibit a merger, sale of all assets or
other corporate reorganization if the entity surviving or succeeding to the
Company is bound by this Agreement with respect to its securities issued in
exchange for or in replacement of the Units or Common Stock or the
consideration received for or in replacement of the Units or Common Stock is
cash.
Section 3.3 Right of First Refusal and Most-Favored-Nation Clause. If
at any time before the end of the thirty (30) day period following the
effective date of a registration statement filed pursuant to Section 1.4
hereof the Company proposes to issue Common Stock or securities convertible
into or exercisable for Common Stock or other convertible securities,
pursuant to an offering exempt from registration under the Act, the Company
shall provide to Purchaser reasonable advance notice of all the terms of such
proposed issuance. The Purchaser shall have the right to purchase or refuse
to purchase all or any part of such securities proposed to be issued in such
offering, and shall have at least seventy two (72) hours after receipt of
such notice to review the terms of the proposed issuance.
If the Company issues Common Stock or securities convertible into or
exercisable for Common Stock or other convertible securities at any time
during the one hundred eighty day following the Closing Date at an effective
price per share of Common Stock which is lower than the conversion price of
the Units at that time, then the Company shall issue to each holder an
additional number of shares of Common Stock necessary to match the lower
issue price. This Section shall not be applicable to issuances of Common
Stock, or options granted at market price, pursuant to any
shareholder-approved option plan covering not more than 10% of the Company's
outstanding stock.
Section 3.4 Sale Restrictions. Purchaser agrees not to sell more than
ten thousand (10,000) Shares of Common Stock of the Company on any trading
day without the prior written consent of the Company.
Section 4.1 Conditions Precedent to the Obligation of the Company to
Sell the Units. The obligation hereunder of the Company to issue and/or sell
the Units to the Purchaser is subject to the satisfaction, at or before the
Closing, of each of the conditions set forth below. These conditions may be
waived by the Company at any time in its sole discretion.
10
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(a) Accuracy of the Purchaser's Representations and Warranties.
The representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as though made at that time (except for representations and warranties that
speak as of a particular date).
(b) Performance by the Purchaser. The Purchaser shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the actions contemplated by this
Agreement.
(d) Legal action. No legal action, suit or proceeding shall be
pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Purchaser to
Purchase the Units. The obligation hereunder of the Purchaser to acquire and
pay for the Units is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions may be waived by
the Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Presentations and Warranties. The
representations and warranties of the Company shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties that
speak as of a particular date).
(b) Performance by the Company. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied
by the Company at or prior to the Closing.
(c) NASDAQ. From the date hereof to the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC or the NASDAQ
Small Cap Market (except for any suspension of trading of limited duration
agreed to between the Company and the NASDAQ Small Cap Market solely to
permit dissemination of material information regarding the Company), and
trading in securities generally as reported by NASDAQ shall not have been
suspended or limited or minimum prices shall not have been established on
securities whose trades are reported by NASDAQ.
(d) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(e) Opinion of Counsel, Etc. The Purchaser shall have received before
or at the Closing an opinion of counsel to the Company (covering, without
limitation, such of the matters set forth in Section 2.2(a) through (e)), as
are in form and substance reasonably satisfactory to the Purchaser and its
counsel, and such other certificates and documents as the Purchaser or its
counsel shall reasonably require incident to the Closing.
Section 5.1 Legend on Stock. Each certificate representing the Shares
of Common shall be stamped or otherwise imprinted with a legend substantially
in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
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The Company agrees to immediately (within five (5) business days after
receipt of certificates) reissue certificates representing the Shares of
Common Stock without the legend set forth above at such time as (a) the
holder thereof is permitted to dispose of such Shares pursuant to Rule 144(k)
under the Act, (b) the securities are sold to a purchaser or purchasers who
(in the opinion of counsel to such holders, in form and substance reasonably
satisfactory to the Company and its counsel) are able to dispose of such
securities publicly without registration under the Act, or (iii) such
securities are registered under the Act.
Section 6.1 Termination bv Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
the Company and the Purchaser.
Section 6.2 Other Termination This Agreement may be terminated by
action of the Board of Directors or other governing body of the Purchaser or
the Company at any time if the Closing shall not have been consummated by the
fifth (5th) business day following the date of this Agreement, provided that
the party seeking to terminate the Agreement is not in breach of the AgreemenL
Section 6.3 Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing
shall not have occurred by the seventh (7th) business day following the date
of this Agreement, provided, however, that any such termination shall not
terminate the liability of any party which is then in breach of the Agreement.
Section 7.1 Fees and Expenses. Except as otherwise set forth in
Section 1.4 hereof each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay
all stamp and other taxes and duties levied in connection with the issuance
of the Units and Common Stock pursuant hereto.
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
(a) The Company and the Purchaser acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) The Company and the Purchaser each (i) hereby irrevocably submits
to the jurisdiction of the United States District Court and other courts of
the United States sitting in Texas for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or
that the venue of the suit, action or proceeding is improper. The Company
and the Purchaser each consents to process being served in any such suit,
action or proceeding by mailing a copy thereof to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve process in
any other manner permitted by law.
Section 7.3 Entire Agreement: Amendment. This Agreement contains the
entire understanding of the parties with respect to the matters covered
hereby and, except as specifically set forth herein, neither the Company nor
the Purchaser makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
12
<PAGE>
Section 7.4 Notices Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery
(if delivered other than on a business day during normal business hours where
such notice is to be received) or (b) on the second (2nd) business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
to the Company: Bruce A. Shear, President and Chief Executive Officer
PHC, Inc.
200 Lake Street -- Suite 102
Peabody, Massachusetts 01960
to the Purchaser: At the address set forth at the foot of this Agreement or
as specified in writing by Purchaser.
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days' written notice of such changed address to the
other party hereto.
Section 7.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission
of either party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
Section 7.6 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the present
state of incorporation of the Company without regard to such state's
principles of conflict of laws.
Section 7.8 Survival. The representations and warranties of the
Company and the Purchaser contained in herein and the agreements and
covenants set forth in Sections 1.1 through 1.5, 3.1 through 3.4 and 7.1
through 7.16 shall survive the Closing for a period of one year.
Section 7.9 Publicity. The Company agrees that it will not disclose,
and will not include in any public announcement, the name of the Purchaser
without its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
Section 7.10 NASDAQ. The term "NASDAQ" or "NASDAQ Small Cap Market"
herein refers to the principal market on which the Common Stock of the
Company is traded. If the Common Stock is listed on a securities exchange,
or if another market becomes the principal market on which the Common Stock
is traded or through which price quotations for the Common Stock are
reported, the term "NASDAQ" or "NASDAQ Small Cap Market" shall be deemed to
refer to such exchange or other principal market.
Section 7.11 Acceptance. Execution and delivery of this Agreement
shall constitute an offer to purchase the Units, which offer, unless
previously revoked by the Purchaser, may be accepted or rejected by the
Company, in its sole discretion for any cause or for no cause and without
liability to the Purchaser. The Company shall indicate acceptance of this
Agreement by signing as indicated on the signature page hereof.
13
<PAGE>
Section 7.12 Binding Agreement. Upon acceptance of this Agreement by
the Company, the Purchaser agrees that he may not cancel, terminate or revoke
any agreement of the Purchaser made hereunder, and that this Agreement shall
survive the death or disability of the Purchaser and shall be binding upon
heirs, successors, assigns, executors, administrators, guardians,
conservators or personal representatives of the Purchaser.
Section 7.13 Incorporation by Reference. All Information set forth on
the signature page is incorporated as integral terms of this Agreement.
Section 7.14 Counterparts. This Agreement may be signed in multiple
counterparts, which counterparts shall constitute one and the same original
signature.
Section 7.15 Severability. If any portion of this Agreement shall
be held illegal, unenforceable, void or voidable by any court, each of the
remaining terms hereof shall nevertheless remain in full force and effect as
a separate contract.
Section 7.16 Successors and Assigns This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
THIS SPACE HAS BEEN LEFT BLANK INTENTIONALLY.
THE SIGNATURE PAGE FOLLOWS.
14
<PAGE>
IN WITNESS WHEREOF, the Purchaser has executed this Agreement on the date
set forth below.
For the purchase price per Unit of $11.60, the Purchaser tenders herewith the
full purchase price of:
Five Hundred Dollars ($500,000)
The exact name(s) (Including correct, legible spelling) and the information
under which title will be taken is as follows: (Please print or type):
ProFutures Special Equities, Fund, L.P.
1310 Highway 620 South - Suite 200, Austin, Texas 78734
Social Security or IRS Employer Identification Number(s): 74-2786952
Signature of Purchaser:
Name of Purchaser:
ProFutures Special Equities, Fund, L.P.
By: ProFutures Fund Management, Inc., a General Partner
By: ________________________________ Dated: September 19, 1997
Name: Gary D. Halbert
Title: President
Accepted By:
PHC, Inc., a Massachusetts corporation
By: __________________________________________
Name: Bruce A. Shear
Title: President
15
<PAGE>
EXHIBIT A
to PHC, Inc. Subscription Agreement
Section 2.2(a): PHC, Inc. Subsidiaries:
PHC of Utah, Inc. New Baltimore, MI 48047
D/B/A Highland Ridge Hospital
4578 Highland Drive
Salt Lake City, UT 84117
PHC of Virginia, Inc. PHC of Rhode Island, Inc.
D/B/A Mount Regis Center D/B/A Good Hope Center
D/B/A Changes P.O. Box 1491
405 Kimball Avenue Coventry, RI 02816-0029
Salem, VA 24153
Quality Care Centers of Mass, Inc. Pioneer Counseling of Virginia, Inc.
D/B/A Franvale Nursing & Rehab Center (80% Owned)
20 Pond Street D/B/A Pioneer Counseling of Virginia
Braintree, MA 02184 D/B/A Counseling Associates of Virginia
400 East Burwell street
Salem, VA 24153
PHC of Nevada, Inc. PHC of Kansas, Inc.
D/B/A Harmony Healthcare D/B/A Total Concept EAP
2340 Paseo del Prado, Bldg. D 7451 Szwitzer, Suite 101
Las Vegas, NV 89102 Shawnee Mission, KS 66203
Northpoint - Pioneer, Inc. Professional Health Associates
D/B/A Pioneer Counseling Center 94-19 59 Avenue
31700 W. 13 Mile; Suite 201 Elmhurst, NY 11373
Farmington hills, MI 48334
BSC-NY, Inc.
D/B/A Behavioral Stress Center
94-19 59 Avenue
Elmhurst, NY 11373
Harmony Behavioral Health
2340 Paseo del Prado, Bldg. D
Las Vegas, NV 89102
PHC of Michigan, Inc.
D/B/A Harbor Oaks Hospital
35031 23 Mile Road
<PAGE>
EXHIBIT A (cont'd.)
Section 2.2(f):
The Company failed to file two years' of audited financial statements for
Behavioral Stress Centers, Inc. and Clinical Diagnostics and Clinical
Associates, as described in the December 18, 1996 letter from Choate, Hall &
Stewart to Mr. Robert Bayless of the Securities and Exchange Commission,
attached hereto as Exhibit 1.
<PAGE>
EXHIBIT 1
CHOATE, HALL &- STEWART
A PARTNERSHIP INCLUDING PROFESSIONAL 1934 Act
CORPORATIONS
EXCHANGE PLACE Form 8-K
53 STATE STREET Item 7
Roslyn G. Daum BOSTON, MASSACHUSETTS 02109-2891
(617) 248-5069 TELEPHONE (617) 248-5000
FACSIMILE (617) 248-4000
TELEX 49615800
December 18, 1996
Securities and Exchange Commission
450 Fifth Street
Judiciary Plaza
Washington, D.C. 20549
Attention: Mr. Robert Bayless
Associate Director
(Chief Accountant)
Division of Corporation Finance
Mail Stop 3-10
RE: PHC, Inc.
Commission File No. 0-23524
Dear Mr. Bayless:
I am writing on behalf of our client, PHC, Inc. (the "Company") and at
the suggestion of Mr. Wayne Carnall and Mr. William Carter of the staff of
the Securities and Exchange Commission (the "Commission"). The subject of
this letter was discussed between Mr. Carnall and Grant F. Waite, a member of
the firm of Richard A. Eisner & Company, LLC, the Company's independent
certified public accountants on December 3, 1996. I spoke with Mr. Carter
today.
I am writing to request that the Division of Corporation Finance agree
that it will not recommend any enforcement action against the Company based
solely on its failure to file certain audited financial information of an
acquired business as required by Item 7 of Form 8-K in the following
circumstances:
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.
Effective October 31, 1996, the Company acquired through a wholly-owned
subsidiary (the "Subsidiary"), Behavioral Stress centers, Inc., a New York
corporation which provided management and administrative services to
psychotherapy and psychological practices in the New York City metropolitan
area. The Subsidiary concurrently entered into a Management Agreement with a
newly formed professional corporation (the "Professional Corporation") which
acquired certain assets, including service contracts with 35 nursing homes in
the New York Metropolitan area, of Clinical Associates and Clinical
Diagnostics, entities owned by the owners of Behavior Stress Centers, Inc.
Behavioral Stress Centers, Inc., Clinical Diagnostics and Clinical Associates
are hereinafter referred to as the "Acquired Companies".
<PAGE>
Mr. Robert Bayless
December 18, 1996
Page 2
As merger consideration, the Company issued 150,000 shares of its
Class A Common Stock to the owners of Behavioral Stress Centers, Inc. In
addition, the Company is obligated to pay the Sellers 49% of the profits of
the Subsidiary over the next three years plus an additional amount equal to
four times 49% of the profits during the third year, payable partly in stock
and partly in cash and notes. The profits of the Subsidiary for this purpose
will include the fees from the Professional corporation. The purchase price
for the assets of Clinical Associates and Clinical Diagnostics was $750,000
which was paid by the Company pursuant to a promissory note.
The Acquired Companies utilized the cash basis method of accounting.
Their record keeping was rudimentary at best. For example, revenue was
recognized by the Acquired Companies upon the receipt of payment,
irrespective of when services were rendered. unfortunately, the Acquired
Companies did not retain, in all circumstances, the documentation required to
verify the date on which services were rendered, and some of the records that
were retained were destroyed in a basement flood. Accordingly, there is no
consistent and accurate record available that would allow the determination
of the period in which a service, resulting in a payment, was actually
rendered.
In addition, it appears chat the Acquired Companies did not invoice all
services rendered and in many cases did not create invoices in a timely
manner. Some of the records of invoices which were retained were also
destroyed in the flood described above, and the Acquired Companies did not
retain backup information in a secure, off-site location. As a result of
the poor record-keeping of the Acquired Companies, it is impossible to trace
invoices to determine whether payment has been received or whether the
services were billed.
Prior to the acquisition of the Acquired Companies and in light of the
inability of the Company to verify certain accounting records of the
Acquired Companies, the Company spent significant time and effort studying
the prudence of the acquisition and whether the transaction would be
economically beneficial to the Company and its shareholders. Among the due
diligence conducted by the Company was an attempt to substantiate cash
basis income by verifying actual cash deposits to various bank accounts
maintained by the Acquired Companies through analysis of corresponding
deposit slips and photocopies of checks provided by the Acquired
Companies. In its internal analysis of expected cash flow from the
Acquired Companies, the Company excluded any items that did not seem
representative of revenue derived from the rendering of service. The
Company reviewed the check ledgers of the Acquired Companies to analyze
their expenses, verifying that all checks were accounted for based on
their sequential numbering. In analyzing the economic impact on the
Company of the proposed acquisition, the Company assumed that all
non-payroll expenses were to be included in the expenses of the Acquired
Companies and made an independent estimate of payroll expenses based on the
Company's personnel costs.
The structure of the transaction was designed to limit the potential
exposure of the Company arising from the transaction. Much of the
consideration payable to the sellers is in the form of an earn-out based on
the profitability of the Subsidiary. The Agreement and Plan of Merger
contains representations of the Sellers relating to the average cash flow of
the Acquired Companies; if these representations prove untrue, in addition to
the Company's normal contractual indemnities and rights, there is a right of
set-off against the consideration payable to the sellers. The Management
Agreement entitles the Company, for the 90-day period following the Closing,
to set off against its $750,000 note to the sellers a pro raga reduction for
each nursing home which may terminate its contract with the Professional
Corporation.
<PAGE>
Mr. Robert Bayless
December 18, 1996
Page 3
In addition to the financial testing described above, the Company
conducted extensive due diligence which included inquiries concerning the
reputation of the sellers and the Acquired Companies, a review of all bank
accounts, a review of all material contracts, insurance matters, copies of
all licenses and registrations and a review of all tax returns of the
Acquired Companies for the tax years from 1992-1995. Based on its due
diligence review, the Company believes that the acquisition of the Acquired
Companies will be beneficial to the Company and its shareholders.
Pursuant to Item 310(c) of Form S-B (whether as in effect on the
closing of the acquisition or as subsequently amended) , it is estimated that
the Acquired Companies are of maximum significance to the Company. On
November 14, 1996, in its Report an Form 10-QSB (as amended by a filing of
Form 10-QSB-A-1 on December 5, 1996), the Company reported on the acquisition
of the Acquired -Companies. Such filing did not include any financial
information for the Acquired Companies. Pursuant to Item 7(a) (4) of Form
8-K. the Company is obligated to file two years' of audited financial
statements for the Acquired Companies within 60 days after the Report on Form
8-K is filed (in this case, not later than January 13. 1997). For the
reasons stated above, the Company's independent public accountants, Richard
A. Eisner & Company, LLP, have indicated to the Company that they will not be
able to conduct an audit of the Acquired Companies in accordance with
generally accepted accounting standards for the periods required. In
addition, the Company believes that it will be virtually impossible to
produce unaudited financial statements for the Acquired Companies on an
accrual basis in accordance with generally accepted accounting principles for
the period prior to the Closing. The Company intends to file a Form 8-K
shortly which will explain its inability to file the required audited
financial statements for the Acquired Companies.
We understand that the staff generally will not waive the requirement
for audited financial statements set forth in Item 7 of Form 8-K.
Accordingly, we are writing to request in the circumstances that the Division
of Corporation Finance agree not to recommend enforcement action against the
Company for its failure to file the audited financial statements of the
Acquired Companies as required by Item 7 of Form 8-K.
Please call me at the direct dial number set forth above should you have
any questions concerning this request. Thank you for your time and
consideration of this matter.
Very truly yours,
Roslyn G. Daum
William H. Carter, Esq. Mr. Wayne E. Carnall
Office of Chief Counsel Office of Chief
Accountant
Mail Stop 3-3 Mail Stop 3-13
1/312141
<PAGE>
EXHIBIT 10.122 Contract No: RFC-97-2002
License No: CA50149
Index Code: 96000
Prog Cost Acct (PCA): 72213
Agency Object Code: 6325
Commodity Code: 952-41
(Sealed) Federal ID#: 04-3232990
Mail Code 001
Method of Payment: Per Diem
AGREEMENT
between
FAMILY INDEPENDENCE AGENCY
and
HARBOR OAKS HOSPITAL
I. INTRODUCTION
This Agreement, effective the lst day of January, 1997, and ending the 30th
day of September, 1998, is by and between the Family Independence Agency
having a mailing address of 235 S. Grand, P.O. Box 30037, Lansing, Michigan
48909 (hereinafter referred to as the "Agency"), and Harbor Oaks Hospital, a
licensed, child caring organization having a mailing address of 200 Lake
Street, Suite 102, Peabo dy MA 01960 (hereinafter referred to as the
"Contractor").
The parties to this Agreement have entered into Master Contract #FC-127,
previously or concurrently with the execution of this Service Contract. The
terms of the Master Contract referred to above are incorporated into and made
a part of this Service Contract. If termination of the Master Contract
occurs, this Service Contract shall terminate.
This Agreement is for the purpose of specifying the rights and
responsibilities of the Agency and the Contractor in the joint provision of
foster care services to children and to assure that those services are
provided in a manner and to a degree which will serve the best interests of
each of those children.
WITNESSETH:
WHEREAS, the Agency has been designated to cooperate with the Federal
government and with all other departments or agencies of the State in any
plans established in cooperation with the Federal government, and is
authorized to contract with State or local units of government and private
agencies under the provisions of MCLA 400.14 through 400.122; and,
WHEREAS, the Agency has the authority to purchase services under Title IV B
and Title IV E of the Social Security Act and under provisions of MCL 400.14
through 400.122; and,
WHEREAS, the children of the State of Michigan have a right to permanence and
stability and shall not be left in temporary, non-permanent situations, any
longer than necessary, and,
WHEREAS, Bruce A. Shear has lawful authority to bind the Contractor to the
terms set forth in this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the above, and in consideration of the
promises and mutual covenants hereinafter contained, the parties hereto agree
as follows:
II. LOCATION OF FACILITIES
The Contractor shall provide services described herein in the facilities
located at:
35031 23 Mile Road
New Baltimore, MI 48047
III. CLIENT PROFILE
A. Eligible clients
Services provided by the Contractor under this Agreement are limited to those
children and families for whom the Agency can legally provide care and
services and for whom the Agency makes a State payment. Only PA 150 youth
referred by CIC are eligible.
County child-care funded children referred to the Agency for care and
supervision by probate court order but for whom the Agency may have no legal
responsibility to make a payment, are eligible clients.
CIC Placed Youth
1 . The Contractor agrees to participate with the Agency in the
provision of service to specified Agency, Act 150 wards who have
been referred through the Central Intake Committee (CIC) for care
and supervision and subsequently assigned to the Contractor's
facility.
2. The Contractor agrees to give admission priority to youth to be
served under the terms of this Agreement whenever such youth are
referred to the Contractor and a vacant bed exists in the
Contractors facility or is projected to exist within 2 weeks of the
Central Intake Committee (CIC) assignment date up to the number
specified in Section III., Part D. 3. This shall not limit the
number of placements to that number, and the Contractor may provide
additional beds for CIC referred youth.
3. The Contractor shall provide services described herein to youth
having the following characteristics:
a. Male wards committed to the Agency under the provisions of
P.A. 150.
b. Referred through the Central intake Committee (CIC) except
wards ordered into secure institution at the time of referral
by the local Juvenile Court judge.
-2-
<PAGE>
B. Method for Determination of Eligibility
The Agency shall determine the children and families' eligibility.
C. Geographic Area to be Served
1 The Contractor shall provide all services described herein the
following geographic area: Wayne, Oakland, Genesee and Macomb
Counties.
2. The Contractor may by arrangement with the Agency's placing local
office and the Agency's Bureau of Child and Family Services provide
services to Agency-referred children and families from other areas
of the State.
D. Number of Clients to be Served
1 On no day during this Agreement period, shall there be more than 8
children in placement for whom the Agency has the responsibility to
make a State payment.
2. The Agency does not guarantee any minimum number of referrals or
youth in care at any point in time.
3. Of the number of children in #1., there shall be no more than 8 of
these children who are designated as CIC placed youth.
E. Admission Criteria
The criteria for admission outlined in the behavior and diagnostic grid
shall be considered indicative of the Contractors capability to provide
services. It is understood by both parties that behaviors of one child or
some children in a program can affect the Contractors ability to serve
children who are referred subsequently. It is also understood by both
parties that combinations of behaviors may influence intake decision
making. The behavior and diagnoses which the Contractor shall accept are
as follows:
-3-
<PAGE>
MILD* MODERATE** SEVERE***
1. EATING DIFFICULTIES
a) Anorexia Nervosa yes n/a no
b) Bulimia yes n/a no
c) Pica no no no
d) Feeding or other Eating Problems no no no
2. SEXUAL CONCERNS
a) Sexually Active yes yes no
b) Masturbation yes yes no
c) Sexually Abused yes yes no
Homosexual Behavior to be evaluated on an individual basis
3. AGGRESSIVE BEHAVIOR
a) Assaultive with Adults yes based on an no
b) Assaultive with Peers yes individual no
c) Destructive of Property yes evaluation no
d) Sexually Assaultive Toward n/a n/a no
Adults
e) Sexually Assaultive Toward n/a n/a no
Peers
4. ADJUSTMENT DIFFICULTIES
a) Fire Setting n/a n/a yes
b) Substance Abuse yes yes yes
c) Substance Experimentation yes yes yes
d) Withdrawn yes yes yes
e) Stealing yes yes yes
f) Oppositional Behavior yes yes yes
g) School Truancy yes yes yes
h) Verbally Abusive yes yes yes
i) Runaway yes yes yes
5. SELF DESTRUCTIVE
a) Talks About Suicide yes yes yes
b) Has Attempted Suicide n/a n/a yes
c) Self-mutilation yes yes yes
6. FUNCTIONAL DISORDERS
a) Lacks Age-Appropriate yes yes no
Self-Care Skills
b) Encopresis yes yes no
c) Enuresis yes yes no
7. ATTENTION DEFICITS
a) Hyperactive yes yes yes
b) Attention Span Problems yes yes yes
8. AFFECTIVE DIFFICULTIES
a) Depression yes yes yes
-4-
<PAGE>
9. PHYSICAL AND EMOTIONAL/ CONTRACTOR CONTRACTOR'S DEGREE
INTELLECTUAL SPECIALIZES OF TREATMENT
DISABILITIES**** IN THIS AREA CAPABILITY IN THIS AREA
YES NO MILD* MODERATE** SEVERE***
a) Mentally Impaired yes yes yes no
_____
b) Emotionally Impaired yes yes yes no
_____
c) Hearing Impaired yes yes yes no
_____
d) Visually Impaired yes yes yes no
_____
e) Speech & Language
Impaired yes _____ yes yes yes
f) Specific Learning
Disability yes _____ yes yes no
g) Severely Multiple
Impaired _____ _____ _____ _____
x
h) Preprimary Impaired _____ _____ _____ _____
x
i) Physical or Otherwise
Health Impaired _____
x
j) Epileptic Seizures _____ yes _____ _____
x
k) Psychotic _____ yes yes yes
x
DEFINITIONS-
* MILD: This behavior has occurred only once or twice in the past 12
months with each episode lasting for a short period of time and was mild
in its expression.
** MODERATE: This behavior has occurred 3-5 times in the past 12 months
with each episode lasting for an extended period of time and was
moderate in its expression.
*** SEVERE: This behavior has occurred 6 or more times in the past 12
months with each episode lasting for an extended period of time and was
severe in its expression.
NOTE: The handicaps listed in a-i above are defined in the Michigan Special
Education Rules, August, 1982, R340.1703 - R340.1714. The levels mild and
moderate equate to educable and trainable respectively for a. Mentally
Impaired.
The conditions listed in a-k must be verified by a professional qualified to
diagnose the particular disability.
-5-
<PAGE>
F. Program Focus
Pioneer Residential Program serves adjudicated, adolescent males from the
ages of 12 to 18. We will serve adolescents whose function show evidence
of sufficient adaptive behaviors, and cognitive/intellectual capacity to
utilize modalities offered by the program. The capacity of this program
is limited to eight (8).
The services provided to residents are an educational program,
recreational activities and adult life functioning skills. The residents
will also be given: a medical status evaluation with treatment as
indicated; psychiatric evaluation by a Board Certified Child Adolescent
psychiatrist; psychological testing as needed; social work evaluation,
consultation and follow up; discharge planning; spiritual services; 24
hour direct care services; nutritional services; and immunizations as
needed. Outside resources will also provide the following services:
dental services, emergency medical services, optical services, and
vocational rehabilitation as needed.
The residential program will maintain and establish policies and
procedures pertaining to the following: for admission to the program each
resident will have an admission assessment completed in conjunction with
their care manager to determine appropriate placement. There will be
written policies describing the care given to the resident including
24-hour residential care, nursing care available as needed, and a
behavioral modification program. Upon discharge, there will be policies
describing discharge placement based on the individual resident's needs
in conjunction with their case manager/representative.
IV. Services to be Provided: Throughout the term of this Agreement the
Contractor shall maintain the capability to provide services as
specified in the treatment plan for each child and his/her family
accepted for care 24 hours a day, 365 days a year.
A. Basic Residential Care
The following maintenance elements are considered essential to the
physical and emotional well-being of children in out-of-home care and
shall be provided by the Contractor. If, in the opinion of the Agency,
these are not provided by the Contractor for each child covered by the
terms of this Agreement, the Agency may consider immediate termination
of this Agreement.
Food, shelter; ongoing clothing needs; personal incidentals such as
personal allowances and school supplies; routine health, medical and
dental care; routine transportation; supervision of the child; emotional
nurturing; and discipline which shall not be punitive but shall be
relevant to the growth and development of the child. Routine
transportation is defined as any travel, including family visitation,
required by the child or family for treatment purposes which occurs in the
-6-
<PAGE>
Contractor's geographic area to be served, Section III, C. tha may
not reasonably be provided by the parents or other funding source. Each
of these maintenance items shall be provided in a manner and degree to
which each child and family can experience a living environment that is
inviting, clean, well maintaine and meets each child's sustenance,
physical and emotional health needs.
B. Social Services
Defined as a comprehensive and coordinated set of activities concerned with
the investigation and resolution of the problems which necessitate the
child's out-of-home placement (except for emergency shelter services).
1 . Referral Acceptance
The Contractor shall accept and act on referrals from the Agency upon
receipt of the Agency's referral packet. Any contractor/agency forms or
narrative information required on a referral must be completed by
Contractor staff from information in the Agency's referral packet or
other sources. Agency staff shall not be required to complete
application or other Contractor forms for inclusion in the agency case
record or agency files or for any other purpose. The Agency's referral
packet shall include:
a. Copy of the commitment order or placement and care order from
the court, or appropriate documentation of authorization from
the local law enforcement agency.
b. Copy of the Initial Service Plan, Updated Service Plan(s),
progress report(s), and Termination Summary(ies) from prior
placement(s) if applicable as required by Child Welfare
Licensing (CWL) rules and Agency policy as specified in the
Agency's Services Manual (SM). If any of these documents are
incomplete at placement, the completed materials must be
forwarded to the Contractor within two weeks of placement.
C. Photocopy of the birth verification, or copy of the request for
verification. The Agency shall immediately forward a copy of
the birth verification upon receipt.
d. If available, copy of the Youth Health Record (FIA-1662,
FIA-1663, and FIA-1664) or other documentation of physical and
dental examination(s) within the past 12 months and history,
including immunization record.
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e. Photocopy of the active Medicaid (MA) card or the MA recipient
identification (ID) number, if the child is active for MA and the card is
not available. If MA must be opened for the child, the Agency shall provide
a copy of the MA recipient ID number as soon as available.
f. Photocopy of Social Security Card or the application (SS-5). The Agency
shall immediately forward a copy of Social Security card upon receipt.
g. Initial Placement Outline and Information Record (FIA-3307), if
required, or other documentation required by Agency policy as specified
in the SM or CWL rules.
h. Court study(ies)/report(s), if available.
i. Educational report(s), if available and applicable.
j. Copy(ies) of psychological/psychiatric report(s), if available.
In that psychological assessments are routinely required for intake
decision-making if an otherwise appropriate referral is made, and if there is
no current psychological assessment available, the Contractor shall arrange
and pay for an assessment as a part of the referral acceptance process and
established per diem rate.
k. Copy of the Protective Services 5-day Placement Packet and Transfer
Summary as specified in the Agency's SM, if applicable. Additional
Protective Services reports shall be forwarded when completed.
The Agency's local office shall be notified, within 5 working days of receipt
of appropriate referral materials, of the decision to set up the initial
interview, reject or accept the child, and if accepted, the admission date or
status on a waiting list. If an initial interview is held, the Agency's
local office shall be notified within 3 working days of rejection or
acceptance of the referral and if accepted the date of admission, or the
status on waiting list. If a child is rejected, the reasons for
non-acceptance shall be given to the Agency in writing within 5 working days.
The Contractor shall not refuse to consider providing services to a youth
solely based on the fact that the youth is handicapped, which is defined as
emotionally impaired, hearing impaired, mentally impaired, physically or
otherwise health impaired, learning disabled, speech or language impaired or
visually impaired.
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2. Intake Assessment
The Contractor shall not accept a child for placement prior to the signing of
an Individual Service Agreement (FIA-3600) by both the Contractor and the
Agency's local office. When a child is placed in an out-of-county, private,
child-caring institution and the Agency's placing local office requests
monitoring service from the Agency's local office where the child is placed,
the FIA-3600 shall clearly state which Agency local office is responsible for
ongoing monitoring of the child's care. The FIA-3600 shall state whether the
Contractor or the Agency's placing local office shall be responsible for
ongoing service to the child's family.
3. Case Plan
Within the initial 30 days of placement (the intake period), the Contractor
shall submit to the Agency's local office an Initial Service Plan (ISP) as
specified in the Agency's SM and prepare a plan for ongoing provision of
service and care. This plan shall include:
a. An assessment of current functioning of the child and family unit
which includes, but is not limited to, siblings.
b. An appraisal of resources available to the Contractor to resolve
problems identified.
c. A statement of the immediate and long-term treatment goals and the
methods relating to the specific behavior precipitating out-of-home
placement and which when met, shall enable the child to be placed in
a non-institutional setting.
d. A projected time limit for reaching treatment goals and anticipated
next placement.
4. Reporting
a. At the end of every 90 day period the Contractor shall complete an
Updated Service Plan Format containing a reassessment of the child,
the status of the attainment of goals and the establishment of new
goals as specified in the SM.
b. The Contractor shall prepare and submit to the Agency's local office
a narrative termination and release summary within 10 working days
of a child leaving care.
c. The Contractor shall complete and retain an Attendance Record
(FIA-667) provided by the Agency or a similar record of the
Contractor's design containing like data.
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d. The Contractor shall agree to continue services to each child for at
least 30 days following written notification to the Agency of the
Contractor's decision to terminate the child from placement. However,
in order to avoid termination of placement, to provide adequate care to
the child and to define those children who need specific, additional
resources, the Contractor shall not issue a 30-day notification until
contact has been made with the Agency's local office worker supervising
the placement and the Agency's Office of Children Service's contract
initiator or designee and a determination has been made on what
resources are needed to preserve the placement and meet the needs of the
child.
The Contractor, by accepting the child, has indicated an ability to meet the
child's service needs as described in the written referral material. This
includes the provision of sufficient structure and supervision to continue
service to children who exhibit dangerous and self-destructive behavior
identified before or at the time of admission.
The Contractor shall request the Agency to remove a child from the
Contractors program in less than 30 days only if the following conditions are
met:
1) The behaviors or their intensity which endanger the child or others
were not made known to the Contractor before or at time of
admission, and
2) The youth makes actual physical attacks upon other persons and
requires ongoing restraint to prevent harm to self or others, or
3) The youth makes an overt suicide attempt and hospitalization is
necessary, and
4) The actual behavior considered dangerous to self or others is
grossly deviant from what the Agency has specified as acceptable in
the Admission Criteria, Section III., E.
Non-physical disruption of, or non-cooperation in program is not
sufficient reason for the Contractor to request immediate removal of a
child.
5) When a child who must be terminated from the Contractors care is in
need of further residential treatment, the Contractor shall
cooperate with the Agency in the identification of specific
treatment needs and possible alternative placements.
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6) Any time the Agency's local office staff do not meet the
responsibilities outlined in this Agreement, the Contractor
shall notify the local office director responsible for case
management planning. If the dispute is not resolved, the
Contractor is to contact the local office director's chain of
command in the Agency. This includes those situations in which
the Agency's local office staff do not respond to the
Contractor's request for removal under IV.B.4.d. In no case
shall the Contractor discharge a child to a non-licensed,
non-supervised living arrangement.
7) The Contractor shall complete and submit to the Agency, medical,
dental and all other reports as specified in the FIA-3600. If
the youth remains in the Contractor's care beyond 10 months the
Contractor shall cooperate with the Agency in completing a new
FIA-3600.
8) The Contractor shall report any release, AWOL, serious injury or
illness requiring hospitalization of a child to the Agency's
local office and parent within 24 hours of the incident and
confirm the information, in writing, within five working days.
The death of a child shall be reported immediately to the parent
or next of kin and the Agency's local office. This shall be
confirmed in writing to the Agency's local office within five (5)
working days
CIC Referral Process
The Contractor shall participate in and cooperate fully with the CIC process.
The Contractor shall consider for admission to its facility youth
referred to the Contractor by the CIC Committee for assignment to its
facility within the network of service facilities.
The Contractor shall review referral information which conforms to
requirements of the Agency's SM. Referral information which does not
comply with these requirements shall be returned to the originator with
a request for specific information and the Contractor shall, in the
meantime, notify the CIC Committee of any delay resulting from
insufficient referral information.
Referral Review
Within 3 working days of receipt of appropriate referral information from the
Agency, the Contractor shall notify the CIC Committee and the Agency's local
office of its intention to conduct a pre-placement interview, in conformance
with the Contractor's admissions criteria as specified in Section Ill. E.,
of this Agreement.
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Acceptance for Placement
On the day of the pre-placement interview, when possible, but no later than 3
working days after the pre-placement interview the Contractor shall notify
the CIC Committee and the Agency's local office of acceptance or rejection
of the youth for placement.
Once the Contractor has notified the CIC Committee and the Agency's local
office of its decision to accept a referred youth for placement in its
facility, it will admit the youth within 10 working days if there is a
vacancy within the limits of Section III. D. 3.
The Contractor and the Agency's local office shall prepare and sign an
Individual Service Agreement FIA-3600 (or equivalent) prior to
placement.
The Contractor shall notify the CIC Committee of the date of placement.
The Contractor shall provide services to the youth and his family both
during placement and after release from the Contractor's facility
unless special circumstances exist which indicate a need for the
Agency's local office to provide a portion of such service. In such an
exception, the conditions of the exception and the responsibilities of
the Contractor as well as the Agency's local office are to be specified
on the FIA-3600 prior to placement in the Contractor's facility.
Reporting
At the end of every 90 day period the Contractor shall complete an Updated
Service Plan Format containing a reassessment of the child, the status of
the attainment of goals and the establishment of new goals as specified in
the Agency's SM.
The Contractor shall prepare and submit to the Agency's local office a
narrative termination and release summary within 10 working days of a
child leaving care.
The Contractor shall complete and retain an Attendance Record (FIA-667)
provided by the Agency or a similar record of the Contractors design
containing like data.
The Contractor shall maintain client case files in accordance with the
administrative rules for child caring institutions.
The Contractor shall provide services to a youth and his family until:
Release is approved by the Juvenile Court, or
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The CIC Committee and the Contractor mutually agree to a reassignment to
a Training School Center, or
Emergency reassignment back to the geographically aligned Training School
Center is made by the Contractor for any of the following reasons:
The youth shall receive services more appropriate to his treatment
needs if reassigned.
The youth's assaultive behavior poses a clear danger to himself,
other youth, or staff.
The youth will not remain in the Contractor's facility and his
behavior is a risk to the community.
The Contractor shall comply with RSD Operations policy governing emergency
reassignment.
Any time Agency staff do not meet the responsibilities outlined in Section V
the Contractor shall notify the Agency's local office director responsible
for case management planning. If the dispute is not resolved, the Contractor
is to contact the local office director's chain of command in the Agency.
The Contractor shall complete other reports as specified by the FIA-3600.
The Contractor shall notify the Agency worker of any release, AWOL,
hospitalization, death, arrest or any other unusual legal or medical incident
involving a child in placement.
Truancy Procedures
The Contractor shall comply with RSD Operations policy regarding the
procedures for reporting truancies and obtaining apprehension orders. In
addition, the Contractor shall take the following actions to prevent or
control truancy:
Provide training for staff regarding measures to avoid truancies.
Re-integrate truants back into the program with discussion of the
incident via staff/team meetings.
The Contractor shall record successful truancies of CIC youth on its Monthly
Case Event Report to the Institutional Data Center, documenting the time
(hour and date) of departure and return, and recording any arrest during the
course of the truancy or a petition filed as a result of alleged actions
during the truancy.
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5. Legal or Court Related
The Contractor shall cooperate with the Agency in matters relating to any
legal or court activities concerning the child. The Contractor shall provide
primary court testimony, recommendations, and reports to the court as
requested by the court or the Agency when providing primary case services to
a child and to the family specified on the FIA-3600. If court reports and
recommendations are requested, they shall be sent to the Agency for review
prior to the court hearing.
6. Discipline
The Contractor shall have a discipline policy that shall be directed toward
positive behavior development and which shall exclude and prohibit any form
of corporal punishment of any child in care. Discipline practices and
treatment plans shall conform to the Contractors discipline policy.
7. Individual or Group Therapy/Counseling
The Contractor shall provide direct counseling services for each child either
individually or in group sessions. This shall be provided at least weekly.
8. Intervention with Parents and Coordinating Activities to Assure the
Involvement of the Child's Family:
The Contractor shall, in accordance with each child's individual treatment
plan:
a. Include the family in the development of the case plan for the child
within the first 30 days or as otherwise specified by the FIA-3600.
If other siblings have been placed in family foster care with a
child placing agency, the FIA-3600's for all children shall specify
that, in general, family work shall be the responsibility of the
child placing agency, and the FIA-3600 for the youth in the
Contractor's care shall specify that home visits and post placement
planning shall be coordinated with the child placing agency. This
does not preclude the Contractor from family intervention necessary
for the child's treatment.
b Offer transportation assistance, and flexible hours to meet the
family's time schedule to facilitate the family's accomplishment of
the treatment goals.
c. Provide an identifiable area for family visits which offer privacy
and comfort.
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d. Include a specific plan as to attainment of family goals and needs,
delineation of roles of the Contractor, Agency worker(s), and family to
accomplish these goals.
9. Transitional Service With the Child After He/She Leaves Placement The
Contractor shall:
a. Submit a discharge services plan to the Agency worker, with an
assessment of the child/family situation within 14 days of the
child leaving residential care, as specified in the Agency's SM.
The following information shall be documented and may be
incorporated in an Updated Service Plan:
1) Reason for termination.
2) Location of child.
3) Summary of services provided during care.
4) Assessment of child's and the parent's needs which remain to be
met.
5) A statement that the termination has been explained to:
- The child in a manner consistent with his/her capacity to
understand.
- The parent(s), the foster parents, the referring agency, and
the person(s) assuming custody of the child.
6) Provision for follow-up services.
7) A summary explaining circumstances if an unplanned termination.
8) Medical information must be given to the parents at this time.
b. Assign according to each child's individual treatment plan a
social services worker to maintain contact with the child and
family for the first 60 days following placement if the child is
placed in a family setting unless such service is waived in
writing by the Agency's local office.
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c. Make at least one home visit per month to assist the child and
family in re-establishing family equilibrium unless otherwise
specified on the FIA-3600, unless such service is waived according
to IV., B., 2.
d. Submit a final report to the Agency worker, within 90 days of
placement discharge, which updates the case information through the
60 day transition period. The final report shall provide an update
to the discharge plan including family contacts, collateral
contacts, agency and family activities to achieve unmet goals and
objectives and an assessment of the child/family situation at the
end of the 60 day transition period.
10. Child Care
Defined as those activities necessary to meet the daily physical, social and
emotional needs of the child. The Contractor shall:
a. Provide a minimum of 2 on-duty direct child contact staff for
every 4 youth during non-school hours: 7:00 a.m. to 11:00 p.m.
(includes program coordinator).
b. Maintain a minimum of 1 on-duty direct child contact staff for
every 4 youth during sleeping hours: 11:00 p.m. to 7:00 a.m. Of
these staff 1 shall be awake during this period.
c. There shall be, within 10 minutes, on-call Contractor support
staff or contracted staff for emergency assistance at all times.
d. Have available an emergency plan for contacting police, fire, or
medical resource staff.
e. Provide a minimum of 50 hours new staff orientation to be given
within the first thirty days of employment. A minimum of 2 hours
per month staff development shall be provided to direct care staff.
11. Education - The Contractor shall:
a. Assure that every youth is provided an approved educational program
within five (5) days of admission, and/or job training or career
exploration program within the first 25 days of enrollment in
school.
b. Screen for possible educational handicaps; and, if a handicap is
suspected, refer to an Individual Education Planning Committee
(IEPC) within the first 30 days to assess, plan and place the youth
in the most appropriate education/vocational program.
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c. For youth with identified handicaps for whom termination or release
is planned, an exit review of the educational plan is to be
initiated at least 30 days prior to placement in the community and
forwarded to the Agency's local office.
d. Assure that staff shall be available to the school program in crisis
situations.
12. Non-Routine Health Care The Contractor shall assure that specific health
care is provided,
including:
a. Special diets provided as needed and regularly reassessed utilizing
appropriate specialized personnel.
b. Availability of rehabilitative, physical or dental procedures by
medical personnel.
c. Review of prescriptive non-routine health care by medical personnel.
d. Coordination with the Agency for securing of prosthetic or
mechanical equipment.
e. Utilization of enrolled Medicaid providers for health procedures
unless an exception is given by the Agency.
13. Wardrobe
The Contractor shall assure that the child has an adequate wardrobe,
which includes at least those items as defined by the Clothing
Inventory Checklist (FIA-3377) while in placement and upon leaving
placement. Problems with adequacy of wardrobe while in placement shall
be documented on the Updated Service Plan. When the child is absent
the Contractor shall have a process in place to keep the child's
wardrobe and possessions safe until claimed by the child or the
Agency. If the possessions are not claimed within 90 days, the
Contractor shall return the possessions to the Agency at the Agency's
discretion.
14. Recreation Activities
Defined as a planned, age appropriate, regular, and recurring set of
staff-supervised leisure time events designed to support the child's
treatment plan. The Contractor shall:
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a. Provide a minimum of 1 hour(s) per day per child of activities which
shall contain a variety of physical, intellectual, social and
cultural opportunities indoors and outdoors.
b. Assign a minimum of 1 staff for every 4 youth to directly
supervise the activities.
These recreational activities shall be supported by appropriate supplies
and equipment that are in serviceable condition or resources outside the
contracting agency.
C. Related Services .
The Contractor shall provide the following in accordance with the
treatment plan for an individual youth. The costs for these elements
are included in the reimbursement rate:
1 . Psychological Services
Defined as various professional activities or methods, provided by
a licensed psychologist or a limited licensed psychologist,
including therapy with children individually or in groups,
consultation with staff, administering and interpreting
psychological tests and work with parents.
a. The Contractor shall provide as needed, the recommended number
of hours of psychological services to an individual child on an
as needed basis.
b. The Contractor shall provide psychological therapy as follows:
As needed by a staff psychologist.
c. The Contractor shall provide psychological testing as follows:
as needed.
d. The Contractor shall provide psychological consultation to
staff as follows:
On an as needed basis.
2. Psychiatric Services
Defined as various professional activities or methods, performed by a
medical doctor certified by the Michigan Medical Board in psychiatry,
including individual or group therapy, diagnostic interviews with
children, and consultation or supervision of agency staff.
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a. The Contractor shall provide as needed, the recommended number
of hours of psychiatric services to an individual child, on an
as needed basis.
b. Contractor shall. provide psychiatric services to children as
follows:
Initial psychiatric evaluation and provide treatment as
needed. Additionally, the Contractor will provide
medication review for youth receiving psychotropic
medication.
c. The Contractor shall provide psychiatric consultation or
supervision of agency staff as follows: none.
3. School Support Services
Defined as individual educational assistance to children, provided
as a supplement to their on-going educational programs, to help them
participate in either basic or special education programs. The
Contractor shall provide:
a. Evidence for the child's need for tutorial service as indicated
by the IEPC.
b. Tutorial staff with appropriate educational credentials to
provide the special service.
c. A minimum of 1 hour per week of face-to-face tutor-child contact.
d. An educational assessment at regular time intervals to determine
the continued need for this service.
D. Staffing
The Contractor shall provide trained staff sufficient to adequately
fulfill the terms of this Agreement and shall demonstrate a good faith
effort to recruit and employ staff which reflect the racial, ethnic and
cultural composition of t he Contractor's client population.
E. Program Performance Objectives
During the contract period the Contractor shall maintain a performance
level at or above the standards listed below:
1. The percentage of youth released to a less structured setting*
shall be at least 60%. Fifty percent (50%) is minimally
acceptable.**
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2. The percentage of youth released to a less structured setting* who
continue to reside in a less structured placement three months after
discharge shall be at least 85%.**
3. No more than 16% of all youth placed with the Contractor shall be
discharged from the facility while on truancy status.**
4. The average length of stay for pre-adolescent youth (age 12 and younger
at intake) shall be 15 months or less. The average length of stay for
adolescent youth (age 13 and over at intake) shall be 10 months or
less.**
*A less structured setting is defined as a family placement and
includes: own home, relative home, legal guardian, foster family home,
foster family group home, adoption, independent living. This excludes
placements into shelter care and any facility licensed as a child care
institution.
**Youth who remained in the Contractor's facility less than one month
shall be excluded.
Data Verification
Within 30 days of receipt, the Contractor shall review and verify in
writing the accuracy of data provided by the Agency in measuring
achievement of the objectives as specified in Section V., B.
For CIC Placed Children
The Contractor's performance shall be evaluated by means of Agency
review of compliance with the General Provisions and Contractor
Responsibilities as outlined in Section I. and IV. of this Agreement.
The Contractor shall provide data for program evaluation using the
following Bureau of Child and Family Services Residential Services
Division's (RSD) Program Objective and RSD's actual performance as
comparison criteria.
a. At least 75% (minimum acceptable) - 85% (Program Objective) of the
youth placed under this agreement shall complete the program as
planned. (A Truancy Completion is not to be counted as a Planned
Completion).
b. Youth entering the program with educational skills at or above the
fifth grade level shall achieve an average gain in grade level
equivalent to 1.0 (minimum acceptable) - 1.5 (Program Objective)
grade levels per year.
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c. Youth entering the program with educational skills below the
fifth grade level shall achieve an average gain in grade level
equivalent to 1.0 (minimum acceptable) - 1.2 (Program
Objective) grade levels per year.
Note: The average gain in grade level is accessed through
pre- and post-administration of an educational achievement test
and an Index of Educational Achievement. The index is
determined by the following formula:
Average gain in grade level
Average length of stay (in days) divided by 365.
d. No more than 21% of youth receiving services from the
Contractor shall be formally re-arrested within three months of
release.
e. No more than 42% of youth receiving services from the
Contractor shall be formally re-arrested within 12 months after
release.
f. At least 62% of youth receiving services from the Contractor
shall be productive (in school, skill training or employed,
part or full-time) three months after release.
g. Definitions:
1) A Crisis Completion is a release for an escalation into a
more highly structured setting such as return to a training
school center, to a mental health hospital or to adult
prosecution.
2) A Truancy Completion is a release of a youth while on truancy
status who has been truant longer than 6 hours.
3) A Planned Completion is a release of youth which is not a
Truancy Completion or a Crisis Completion.
F. Availability of Outside Reviews and Audits
The Contractor shall make available to the Agency copies of any outside
reviews or audits relating to the contracted program. Audits must be
conducted in compliance with federal requirements and in accordance with
the Agency's "Accounting Manual for Foster Care Agencies".
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G. Corrective Action Requirements:
If a program review by the Agency reveals a lack of compliance with the
requirements of this Agreement, the Contractor shall:
1 Meet with the Agency to discuss the noncompliance,
2. Prepare a corrective plan of action within 30 days of that meeting and,
3. Achieve compliance within 60 days of receipt of the Agency's approval of
the corrective action plan (unless other time frames are agreed to, in
writing, by the Agency) or the Agency may terminate this Agreement,
subject to the terms of the Master Agreement.
H. Audited Requirements
1 The Contractor shall have an annual audit conducted by an
independent certified public accountant.
2. The Contractor shall submit to the Agency, no later than the
fifteenth day of the fifth month following the end of the
Contractors fiscal year, copies of:
a. Audited financial statements which shall disclose (with
explanation in Notes) any amounts due to the Agency as a
result of an overpayment, excessive initial payment or
Contractor financial non-compliance with the contract.
b. The management letter to the Contractor.
c. All information (including Functional Expense Statement)
required by the "Accounting Manual for Foster Care Agencies"
revised October, 1994.
Mail audit reports to:
Family Independence Agency
Financial and Internal Control Administration
235 S. Grand Avenue, Suite 1516
P.O. Box 30037
Lansing, Michigan 48909
3. However, if an OMB-AL 133 Audit is required because of other
Federal funding sources, the Contractor is required to provide the
A-133 report and all opinions and management letters to the Agency.
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Additional Provisions
The Contractor shall comply with the provisions of:
Act Number 114 of the Public Acts of 1984, as amended, and known as
the Interstate Compact on the placement of children;
Act Number 238 of the Public Acts of 1975, as amended, and known as
the
Child Protection Law;
Act Number 162 of the Public Acts of 1982, as amended, and known as
the
Nonprofit Corporation Act;
Act Number 204 of the Public Acts of 1994, as amended, and known as
the Children's Ombudsman Act;
Act Number 116 of the Public Acts of 1 973, as amended, and known as
the Child Care Organization Act;
Chapter X of Act Number 288 of the Public Acts of 1939, as amended,
and known as the Adoption Code;
Act Number 203 of the Public Acts of 1994, as amended, and known as
the Foster Care and Adoption Services Act.
V. AGENCY RESPONSIBILITIES
A. Referrals
1 . The Agency shall be responsible for determination of client
eligibility for funding.
2. The Agency shall provide to the Contractor referral material
which complies with IV., B., I., above.
3. The Agency shall not transfer legal responsibility for any
child to the Contractor except as provided herein.
B. Monitoring
1 . The Agency's Bureau of Child and Family Services shall be
responsible for program review and may review, analyze and
comment on all activities covered within the terms of this
Agreement. If program review by the Agency reveals lack of
compliance with the requirements of this Agreement, the
following procedure shall be implemented:
a. The Agency shall notify the Contractor, in writing, of the
problem.
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b. The Agency's Bureau of Child and Family Services shall meet
with the Contractor to discuss and examine stated problems.
c. The Agency's Bureau of Child and Family Services shall request
the Contractor to submit a corrective plan of action to the
Agency within 30 days of the meeting.
d. After the Contractor's plan of action has been reviewed and
approved by the Agency's Bureau of Child and Family Services
the Contractor's compliance shall be reviewed in 60 days,
unless other time frames are agreed upon in writing by the
Agency.
2. The Agency shall be responsible for data collection, analysis and
reporting for the Program Performance Objectives in Section IV., E.
The Agency shall furnish to the Contractor data for verification of
accuracy prior to analysis and reporting. The Agency shall allow the
Contractor 30 calendar days for review and verification in writing of
the accuracy of the data. Furthermore, no negative action specific to
these objectives shall be taken against the Contractor prior to the
development and the distribution of data which relates to these
performance objectives to all child care institution contractors
throughout the state.
C. Service Planning and Delivery
1 . The Agency shall cooperate with the Contractor in completing the
FIA-3600 and in developing a service plan for the child and
family. If the youth is to remain in the Contractors care beyond
10 months the Agency's local office shall initiate a new FIA-3600
at 10 months.
2. When direct Agency service is specified on the FIA-3600, the
Agency's local office shall provide such service and shall complete
an Updated Services Plan Format and forward it to the Contractor at
the end of each ninety-day period following the Initial Service
Plan.
3. When a child who must be terminated from the Contractor's care is in
need of further residential treatment, the Contractor shall
cooperate with the Agency in the identification of specific
treatment needs and possible alternative placements.
4. The Agency's local office with case planning responsibility for the
child shall review and approve or request modification of the
Contractor's 30 day Initial Service Plan Format and each Updated
Service Plan Format submitted by the Contractor as required by the
SM.
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5. The Agency's local office shall provide the Contractor a copy of the
Payment Authorization (FIA-626) at the time of placement for ail
State paid placements.
6. The Agency's local office shall assure that the child has a basic
wardrobe, as defined by the Clothing Inventory Checklist (FIA-3377)
upon entering the Contractor's care.
7. The Agency's local office, except in emergencies or when constrained
by a court order or parental demand, shall give at least 30 days
notification to the Contractor of any discharge decision made
without the Contractors concurrence.
8. In accordance with Section IV., B., 4., d., the Agency, through both
the local office supervising the placement and the contract
initiator or designee shall cooperate with the Contractor to provide
program support that shall enable a child to remain in placement.
The contract initiator or designee, within one working day of this
determination, shall initiate the Agency's process for approving
additional resource payments which may be determined to be needed by
the three parties. When the Contractor provides a written
notification of the decision to terminate in 30 days the Agency's
local office supervising the placement shall:
a. Acknowledge receipt of the notification within 5 working days.
b. Provide at least weekly contacts with the Contractor to advise of
progress in arranging another placement.
c. Move the child from the Contractor's care within 30 days.
9. Upon the Contractors request, and if the conditions specified in
Section IV., B., 4., d., 1) and 2), related to a child who is a
danger to self or others have been met, the Agency shall remove the
child within 24 hours.
10. The Agency shall visit the child in placement, as specified in the
SM.
D. Payments
1. Overpayments identified by the Contractor upon receipt of the
bi-weekly Payment to Agency list (BG-047), shall be refunded to the
Agency within 60 days. The Contractor shall notify the Agency
immediately of overpayment and upon documented reconciliation with
any underpayment return the net overpayment to the Agency.
2. The Contractor's per diem rate(s) for services provided under this
Agreement shall be $260.38 for the period January 1, 1997 through
December 31, 1997, SUBJECT TO THE TERMS OF THE MASTER
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AGREEMENT. The Administrative Rate for the period after December
31, 1997 and the length of time that rate shall remain in effect
shall be mutually agreed upon by the parties to this Agreement.
No reimbursement shall be made for any youth in care who exceed the
Contractor's maximum limit as stated in Section III, paragraph D., 1.
3. If an individual child or group of children require specialized
programming which is outside the Contractor's normal program
components, but which is within the Contractor's ability to provide,
a special payment for this programming may be negotiated between the
Contractor and the Agency through the Agency's Bureau of Child and
Family Services. When an individual child's needs require
specialized programming which cannot be provided within the
Contractor's service, payment by the Agency to a subcontractor shall
be reimbursed within the limits of Master Contract, Section VIII, A,
entitled "Subcontracts". This section does not apply to the
provision of services which may otherwise be specified in the
contract such as: psychological, psychiatric and school support
services.
4. The Agency shall make bi-weekly payments to the Contractor for care
and services provided to eligible clients under the terms of this
Agreement unless written notice is sent by the Agency notifying the
Contractor of the implementation date of a positive billing system.
Should positive billing be instituted within the effective dates of
this Agreement, the Agency shall, from the date of its
implementation, make payment to the Contractor approximately four
weeks after receipt by the Agency of the Contractor's bi-weekly
payment voucher.
5. For County Child Care funded children, the Agency is not statutorily
obligated to make payment to the Contractor. Payment for these
children is the statutory responsibility of the County. If payment
is not made, the Agency shall make reasonable efforts to assist the
Contractor to compel the County to pay. This Agreement shall be
amended to conform to final judicial interpretation of the law.
F. Legal or Court Related
The Agency shall involve the Contractor in matters relating to any legal
or court activities concerning the youth while in the Contractor's
care. If the Contractor is to be involved in the court proceedings, the
Agency shall provide the Contractor with written reports for court use
upon request, subject to confidentiality requirements imposed by statute.
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IN WITNESS WHEREOF, the Agency and the Contractor have caused this Agreement
to be executed by their respective officers duly authorized to do so.
Dated at Peabody, Massachusetts HARBOR OAKS HOSPITAL
(Contractor)
this 2nd day June, 1997 By: /s/ Bruce A. Shear
Bruce A. Shear, President
Witness: /s/ Stuart A. Kaufman
Stuart A. Kaufman, Dir. of Corp. SVC.
Dated at Lansing, Michigan FAMILY INDEPENDENCE AGENCY
this 25th day of June, 1997 By: /s/ Stephen Hilh
Director
Witness: /s/ Jeffrie L. Herts
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<PAGE>
Exhibit 4.25
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
Shares Issuable Upon Exercise: Up to 86,207 shares of the Class A Common
Stock, $.01 par value, of PHC, Inc.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT dated as of September 19, 1997 is entered into by
PHC, Inc.(the "Company") and ProFutures Special Equities Fund, L.P. (the
"Holder").
W I T N E S S E T H:
WHEREAS, the Board of Directors has of the Company has authorized the
issuance to the Holder of the warrant (the "Warrant") of the Company represented
by this Warrant Agreement, which Warrant entitles the Holder to purchase, upon
the terms and conditions hereinafter set forth, shares of the Company's Class A
common stock, $0.01 par value per share (the "Class A Common Stock").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
ARTICLE I
GRANT OF WARRANT
For value received, this Warrant Agreement entitles the Holder to subscribe
for and purchase up to 86,207 shares of Class A Common Stock, at a price per
share of $2.90 (the "Warrant Price"). As used herein, the term "Shares" shall
mean the Company's Class A Common Stock, or any stock into or for which such
Class A Common Stock shall have been or may hereafter be converted or exchanged
pursuant to the Articles of Organization of the Company as from time to time
amended as provided by law and in such articles (hereinafter the "Charter"), and
the term "Grant Date" shall mean September 19, 1997. The number of shares of
Class A Common Stock purchasable pursuant to the rights granted hereunder and
the purchase price for such shares of Class A Common Stock are subject to
adjustment pursuant to the provisions contained in this Warrant Agreement.
ARTICLE II
EXERCISE OF WARRANT; EXERCISE PRICE
Section 2.1 Term. Subject to the provisions of this Warrant Agreement, the
purchase right represented by this Warrant Agreement is exercisable, in whole or
in part, at any time and from time to time from and after the Grant Date and
prior to September 19, 2002 (the "Exercise Period").
<PAGE>
Section 2.2 Method of Exercise. The purchase right represented by this
Warrant Agreement may be exercised by the holder hereof, in whole or in part and
from time to time, by the surrender of this warrant (with the Form of Election
attached hereto as Exhibit A duly executed ) at the principal office of the
Company and by the payment to the Company by certified or bank check or by wire
transfer, of an amount equal to the Warrant Price multiplied by the number of
shares then being purchased (the "Exercise Price").
Section 2.3 Issuance of Shares of Common Stock. As soon as reasonably
practicable after the exercise of all or part of the purchase right represented
by this Warrant Agreement, the Company shall (provided that it has received the
Form of Election duly executed, accompanied by payment of the Exercise Price
pursuant to Section 2.2 hereof for each of the shares of Class A Common Stock to
be purchased) cause certificates for the number of shares of Class A Common
Stock to be issued in respect of this Warrant Agreement to be delivered to or
upon the order of the Holder, registered in such name as may be designated by
such holder; provided that if the Class A Common Stock is to be registered in
the name of any entity or person other than the Holder, the Company may require
evidence of compliance by the Holder with all applicable securities laws.
ARTICLE III
RESERVATION AND AVAILABILITY OF COMMON STOCK;
ADJUSTMENTS; REGISTRATION
Section 3.1 Reservation of Common Stock. The Company covenants and agrees
that it will cause to be kept available out of its authorized and unissued Class
A Common Stock, or its authorized and issued Class A Common Stock held in its
treasury, the number of shares of Class A Common Stock that will be sufficient
to permit the exercise in full of this Warrant Agreement.
Section 3.2 Common Stock to be Duly Authorized and Issued, Fully Paid and
Non-assessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Class A Common Stock
delivered upon exercise of this Warrant Agreement shall, at the time of delivery
of the certificates for such shares, be duly and validly authorized and issued
and fully paid and non-assessable shares.
Section 3.3 Common Stock Record Date. Each person or entity in whose name
any certificate for shares of Class A Common Stock is issued upon the exercise
of this Warrant Agreement shall for all purposes be deemed to have become the
holder of record of the shares of Class A Common Stock represented thereby on,
and such certificate shall be dated, if practicable, the date upon which the
Form of Election was duly executed and payment of the aggregate Exercise Price
was made pursuant to Section 2.2 hereof. Prior to the exercise of this Warrant
Agreement, the Holder shall not be entitled to any rights of a stockholder of
2
<PAGE>
the Company with respect to the shares of Class A Common Stock for which this
Warrant Agreement shall be exercisable, including, without limitation, the right
to vote, to receive dividends or other distributions or to exercise any
preemptive rights and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 3.4 Adjustment of Warrant Price and Number of Shares. The number
and kind of securities purchasable upon the exercise of the Warrant Agreement
and the Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
3.4 (a) Reclassification. In case of any reclassification, change or
conversion of the Company's Class A Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), the Company, shall execute a new
Warrant Agreement (in form and substance reasonably satisfactory to the Holder)
providing that the Holder of this Warrant Agreement shall have the right to
exercise such new Warrant Agreement and upon such exercise and payment of the
then applicable Warrant Price to receive, in lieu of each Share theretofore
issuable upon exercise of this Warrant Agreement, the kind and amount of shares
of stock, other securities, money and property receivable upon such
reclassification or change by a holder of one share of Class A Common Stock.
Such new Warrant Agreement shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
3.4. The provisions of this Section 3.4 (a) shall similarly apply to successive
reclassifications and changes.
3.4 (b) Subdivision or Combination of Shares. If the Company at any time
while this Warrant Agreement remains outstanding and unexpired shall subdivide
or combine its Class A Common Stock, the Warrant Price and the number of Shares
issuable upon exercise hereof shall be equitably adjusted.
3.4 (c) Stock Dividends. If the Company at any time while this Warrant
Agreement is outstanding and unexpired shall pay a dividend payable in shares of
Class A Common Stock (except any distribution specifically provided for in the
foregoing Sections 3.4 (a) and (b)), then the Warrant Price shall be adjusted,
from and after the date of determination of shareholders entitled to receive
such dividend or distribution, to that price determined by multiplying the
Warrant Price in effect immediately prior to such date of determination by a
fraction (a) the numerator of which shall be the total number of shares of Class
A Common Stock outstanding immediately prior to such dividend or distribution,
and (b) the denominator of which shall be the total number of shares of Class A
Common Stock outstanding immediately after such dividend or distribution and the
number of Shares subject to this Warrant Agreement shall be appropriately
adjusted.
3.5 Registration of Shares. The Company covenants and agrees that it will
use its best efforts to ensure that all shares of Class A Common Stock
deliverable upon exercise in full of the purchase right represented by this
Warrant Agreement are registered under the Securities Act of 1933, as amended
(the "Act") at the same time as Registrable Shares issuable on the conversion of
the Series A Convertible Preferred Stock issued to the Holder.
3
<PAGE>
3.6 No Impairment. The Company will not, by amendment of its Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant Agreement
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Warrant Agreement against
impairment.
3.7 Notices of Record Date. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, or for the
purpose of determining shareholders who are entitled to vote in connection with
any proposed merger or consolidation of the Company with or into any other
corporation, or any proposed sale, lease or conveyance of all or substantially
all of the assets of the Company, or any proposed liquidation, dissolution or
winding up of the Company, the Company shall mail to the holder of this Warrant
Agreement, at least fifteen (15) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or vote, and the amount and character of
such dividend, distribution or vote.
ARTICLE IV
HOLDER REPRESENTATIONS, WARRANTIES AND COVENANTS
The Holder represents and warrants to and covenants with the Company as
follows:
Section 4.1 Representations. It understands the risks of investing in the
Company and can afford a loss of its entire investment. It is acquiring the
Warrant for investment for its own account and not with the view to, or for
resale in connection with any distribution thereof. It understands that the
Warrant and the shares of Class A Common Stock issuable upon exercise thereof
have not been registered under the Act, or any state blue sky laws, by reason of
specified exemptions from the registration provisions of the Act and such laws.
It acknowledges that the Warrant and the shares of Common Stock issuable upon
exercise thereof must be held indefinitely unless they are subsequently
registered under the Act or an exemption from such registration is available. It
has been advised or is aware of the provisions of Rule 144 promulgated under the
Act, which permits the resale of shares purchased in a private placement subject
to the satisfaction of certain conditions and that such Rule may not be
available for resale of the shares issuable upon the exercise of the Warrant. It
has had an opportunity to (i) discuss the Company's business, management and
financial affairs with its management (ii) review the financial statements
relating to the Company's last two fiscal years and (iii) review the Company's
facilities.
4
<PAGE>
Section 4.2 Restrictions on Transferability. Neither the Warrant, nor the
shares of Class A Common Stock received upon exercise thereof, shall be
transferable, except upon the conditions specified in and in accordance with the
terms of this Article IV or until such time as an effective registration
statement covering the shares issuable upon the exercise of this Warrant has
been filed with the Securities and Exchange Commission (the "Commission").
Section 4.3 Restrictive Legend. Each certificate representing shares of the
Company's Class A Common Stock issuable upon exercise of the Warrant, or any
other securities issued in respect of the Class A Common Stock issued upon
exercise of the Warrant, upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall be stamped or otherwise imprinted
with a legend in substantially the following form (in addition to any legend
required under applicable state securities laws) unless and until such shares
have been registered under the Act.:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
Section 4.4 Restrictions on, and Notice of, Proposed Transfers. The Holder
agrees that prior to any proposed transfer of this Warrant or any of the shares
of Class A Common Stock issuable upon exercise of this Warrant (collectively,
the "Restricted Securities"), in the absence of an effective registration
statement filed with the Commission covering the shares of Class A Common Stock
issuable upon exercise of the Warrant, the Holder shall give written notice to
the Company of its intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and shall be accompanied by a written opinion of legal counsel who shall
be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Act or under any applicable state or other
securities laws.
ARTICLE V
MISCELLANEOUS
Section 5.1 Notices. Notices or demands relating to this Warrant Agreement
shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed as follows, or telecopied, or delivered by
nationally-recognized overnight or other courier:
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<PAGE>
If to the Holder: ProFutures Special Equities Fund, L.P.
1310 Highway 620 South
Suite 200
Austin, TX 77734
If to the Company: PHC, Inc.
200 Lake Street
Peabody, MA 01960
Attention: Bruce A. Shear
Fax (508) 536-2677
copy to: Roslyn G. Daum, Esq.
Choate, Hall & Stewart
Exchange Place
Boston, MA 02109
Fax: (617) 248-4000
Section 5.2 Successors. All the covenants and provisions of this Warrant
Agreement by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of their respective successors and assigns hereunder;
provided that this Warrant Agreement may be assigned by the Holder only with the
prior written consent of the Company, and without such consent any attempted
transfer shall be null and void.
Section 5.3 MASSACHUSETTS CONTRACT. THIS WARRANT AGREEMENT AND THE WARRANT,
AND ALL QUESTIONS RELATING TO THE INTERPRETATION, CONSTRUCTION AND
ENFORCEABILITY OF THIS WARRANT AGREEMENT AND THE WARRANT, SHALL BE GOVERNED IN
ALL RESPECTS BY THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
Section 5.4 Amendments and Waivers. Except as otherwise provided herein,
the provisions of this Warrant Agreement may not be amended, modified or
supplemented, other than by a written instrument executed by the Company and the
Holder.
Section 5.5 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Company the Holder shall be enforceable to the fullest extent permitted by law.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed and delivered, all as of the date and year first above
written.
PHC, INC.
By:
Name: Bruce A. Shear
Title: President
PROFUTURES SPECIAL EQUITIES
FUND, L.P.
By ProFutures Fund Management, Inc.,
a General Partner
By:
Name: Gary D. Halbert
Title: President
DS1.363748.1
7
<PAGE>
EXHIBIT A
Form of Election
To: PHC, Inc.
200 Lake Street
Peabody, MA 01960
Attention: Bruce A. Shear
1. The undersigned hereby elects to purchase shares of Class A Common Stock
PHC, Inc. pursuant to the terms of the attached Warrant Agreement, and tenders
herewith payment of the Exercise Price of such shares in full.
2. Please issue a certificate or certificates representing the shares
deliverable upon the exercise set forth in paragraph 1 in the name of the
undersigned or, subject to compliance with the restrictions on transfer set
forth in Article IV of the Warrant Agreement, in such other name or names as are
specified below:
(Name)
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares until and unless
such shares are registered under the Securities Act of 1933.
Signature
Date
0584401-0000
DS1.363748.1
8
<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 an 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 or 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 liicensure 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.
<PAGE>
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 an 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. As of Fiscal Year Ended June 30,
1997, this obligation has been paid in full.
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 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 affect 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 06/97 S-3.
<PAGE>
EXHIBIT 10.123 FC-127
(Sealed)
MASTER CONTRACT
AGREEMENT
This Agreement, effective the lst day of January, 1997, is by and between the
FAMILY INDEPENDENCE AGENCY, having a mailing address of 235 S. Grand Avenue,
P.O. Box 30037, Lansing, Michigan 48909, Lansing, Michigan 48926 (hereinafter
referred to as the "Agency'), and Harbor Oaks Hospital, having a mailing
address of 200 Lake Street, Suite 102, Peabody, MA 01960 (hereinafter
referred to as the "Contractor").
The purpose of this Agreement is to specify the rights and responsibilities
of the Agency and of the Contractor in the provision of services to clients
and to assure that those services are provided in a manner and to a degree
which will serve the best interests of each client. The Agency has the legal
authority to purchase services from private agencies.
WHEREAS, the Agency has been designated to cooperate with the Federal
government and with all other departments or agencies of the State in any
plans established in cooperation with the Federal government, and is
authorized to contract with State or local units of government and private
agencies under the provisions of MCLA 400.14 through 400.122; and,
WHEREAS, the Agency has the authority to purchase services under Title IV B
and Title IV E of the Social Security Act and under provisions of MCL 400.14
through 400.122; and,
WHEREAS, Bruce A. Shear has lawful authority to bind the Contractor to the
terms set forth in this Agreement.
In consideration of the promises and mutual covenants contained in this
Agreement, the Agency and the Contractor agree as follows:
<PAGE>
SECTION I. PURCHASE OF SERVICES AND PAYMENT
A. Incorporation of Service Contracts: The attached Service Contract(s) are
incorporated into this Agreement and are made part of this Agreement.
The Contractor agrees to provide the services described in the attached
Service Contract(s) and the Agency agrees to make the payments described
in those Service Contract(s).
B. Appropriation of Funds: The parties acknowledge that funding for the
services to be provided is dependent on annual appropriations from the
Michigan Legislature. Because the Contractor provides services to court
and state wards under Agency supervision, reduced appropriations impair
the Agency's ability to purchase the entire range of contracted
services. If appropriations are less than requested for the Agency,
reduced legislatively or by executive order, the parties shall develop a
written modification of this Agreement within thirty days and prior to
any reduction in payments to the Contractor. Concurrent with the
development of written modifications to this agreement, the Agency shall
formally request of the Agency of Management and Budget, a supplemental
appropriation sufficient to fund the projected shortfall. The modified
Agreement shall provide for reductions in services required to be
provided commensurate with the funds which are made available.
This amendment must permit the Contractor to remain in compliance with
licensing standards and statutory requirements, and may not threaten the
physical health or safety of youth served under this Agreement. Specific
funding and service reductions shall be defined in amendments to the
individual service contracts which are part of this Agreement.
If the Contractor and the Agency cannot reach agreement within the 30 day
period, the Agency or the Contractor may terminate this Agreement immediately
upon written notice to the other party, notwithstanding Section 11. C., of
this Agreement.
C. Fees and Other Sources of Funding: The Contractor shall not seek or
obtain funding through fees or charges to any client for services which
the Agency reimburses the Contractor under this Agreement.
If other governmental funding is obtained for the same services, the
Contractor shall immediately return to the Agency its portion of the
duplicate amount. However, the Contractor may seek gifts, grants and other
sources of funding in order to supplement services provided under this
Agreement.
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<PAGE>
D. Payment Reconciliation: When the Agency determines through audit or
reconciliation of days of care that an under or overpayment to the
Contractor has occurred, the Agency shall remit to the Contractor the
amount of underpayment within 30 days, or the Contractor shall remit to
the Agency the amount of overpayment within 30 days. If the Contractor
disagrees with the Agency's finding of over or under payment, the
Contractor may within 30 days of notification of the over or
underpayment, prepare a written justification for revision of the amount
and shall be afforded an opportunity for a conference with the Agency's
designee. The amount owed must be paid within 30 days of the
Contractor's written notification from the Agency of its decision on the
reconciliation. The Contractor shall make good faith efforts to notify
the Agency of overpayments.
E. Increased Cost of Service: In the event of a substantial change in the
cost of services (defined as 5% or more of the rate or total cost
established in a service contract) resulting from changes in law,
regulation or Agency policies, the parties shall, within 30 days,
negotiate a change in payments to the Contractor to cover the changed
cost of providing services.
SECTION II. TERMINATION, CANCELLATION, DISPUTE RESOLUTION
A. Licensure: If applicable law requires the licensing of Contractor's
facilities or services, this Agreement shall be in effect only so long
as the Contractors facilities and services covered by the Agreement are
licensed as required by 1973 P.A. 116, as amended and applicable
administrative rules for child caring institutions and child placing
agencies. If the Contractors license is revoked pursuant to the Child
Care Organizations Act, MCL 722.111 et seq. and the Administrative
Procedures Act, MCL 24.271 et seq., this Agreement shall be immediately
terminated by the Agency.
B. Cancellation of Contract by the Agency may be for (a) default of the
Contractor, or (b) lack of further need for the service. Default is
defined as the failure of the Contractor to fulfill the obligations of
the contract. In case of default by the Contractor, or lack of further
need for the service specified in the contact due to program changes,
changes in laws, rules or regulations, relocation of offices, or lack
of funding, the Agency may cancel the contract without further
liability to the Agency or its employees, by giving the Contractor
written notice of such cancellation sixty days prior to the date of
cancellation. The notice shall be by certified mail or personally
delivered, setting forth the particular reasons for the proposed
action and fixing a date, not less than thirty days from the date of
service, on which the Contractor shall be afforded the opportunity for
-3-
<PAGE>
a conference with the Director or his/her designee. The Agreement
shall not be terminated until the Agency director notifies the
Contractor in writing of his/her findings of fact and conclusions
following the conference. The Contractor may terminate this Agreement
upon sixty days written notice to the Agency at any time prior to the
completion of the Agreement period. In addition, the Agency may
immediately cancel the contract without further liability to the
Agency, or its employees if the Contractor, an officer of the
Contractor, or an owner is convicted of a criminal offense incident to
application for or performance of a State, public or private contract
or subcontract, or convicted of a criminal offense including but not
limited to any of the following: embezzlement, theft, forgery,
bribery, falsification or destruction of records, receiving stolen
property, attempting to influence a public employee to breach the
ethical conduct standards for State of Michigan employees; convicted
under state or federal antitrust statutes; or convicted of any other
criminal offense which in the sole discretion of the Agency, reflects
on the Contractor's business integrity.
C. Termination of Service Contracts: When any of the conditions for
termination listed in this section apply only to specific service
contracts and not to the Contractor's entire operation, then termination
shall be limited to the specific service contract(s) affected. Any
individual service contract which is incorporated into this Agreement by
Section I. A., may be terminated with no effect on the remainder of this
Agreement or other service contracts.
D. Closeout: When this Agreement is concluded or terminated, the Contractor
shall provide the Agency, within 90 days after conclusion or
termination, all required financial, performance and other reports. The
Agency shall make payments to the Contractor for allowable reimbursable
costs not covered by previous payments. The Contractor shall refund to
the Agency any payments or funds advanced to the Contractor in excess of
allowable reimbursable expenditures.
Payment shall be made by the responsible party within 150 days of the
conclusion or termination of the Agreement, except for additional payments
resulting from reconciliation of days of care or audit findings, in
accordance with Section I. D., of this Agreement.
E. Dispute Resolution: Except as otherwise provided in this Agreement, the
parties to this Agreement shall notify each other in writing of any claim
against the other party, for breach of any of the terms of this
Agreement. No suit may be commenced by either party for breach of this
Agreement prior to the expiration of 30 days from the date of such
notification. During this 30-day period, the Contractor and the Agency
shall meet at reasonable times and places as often as necessary for the
purpose of seeking a resolution of the dispute.
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<PAGE>
SECTION III. RECORDS, REPORTING AND MONITORING
A. Reports. The Agency shall establish, publish and make available to the
Contractor reasonable program and fiscal review reporting requirements,
procedures, and forms prior to the effective date of this Agreement.
Except to comply with federal or state laws, or promulgated
administrative rules or court orders, or to maximize federal funding or
other funding sources, those reporting requirements, procedures and
forms may not be changed during the term of this Agreement unless the
Contractor consents in writing and unless the Agency, if so requested,
provides technical assistance in the use of such forms, procedures and
reports. The Contractor's consent shall not be unreasonably withheld.
The requirement for written consent may be waived by voluntary
compliance by the Contractor.
B. Maintenance of Records: The Contractor shall retain all records relevant
to this Agreement for six years from the end of the contract year to
which records relate. The Contractor shall assure, as a condition of
any change of management, that new management shall maintain such
records for any unexpired portion of the six-year period.
C. Reporting Requirement Pertaining to Former State of Michigan Employees:
The Contractor shall report within two days after the end of each month,
the name(s) and social security number(s) of any former State of Michigan
employees who:
a. Retired under the provisions of Acts 2 and 3, PA 1984 (between June
2, 1984 and September 30, 1984); and
b. Performed services purchased by this Agency through this Agreement.
These reports shall be submitted by memo to:
Office of Contract Management
235 S. Grand Avenue
P.O. Box 30037
Lansing, Michigan 48909
and must include the Contractor's name, contract number, and the month
and year to which the report pertains.
D. Financial Accounting. The Contractor shall maintain financial records
in accordance with generally accepted accounting principles applied in
a consistent manner.
-5-
<PAGE>
E. Access to Programs. The Contractor shall permit the Agency or its duly
authorized agents reasonable access to facilities to conduct program
review. Such access shall not interfere with program operations, in
that they shall be preceded by 48 hours prior notice of visit unless the
Agency believes the health or welfare of children is in danger.
Otherwise, such visits shall be within normal working hours.
SECTION IV. INSURANCE, INDEMNIFICATION AND LITIGATION
A. Insurance Coverage. The Contractor shall provide and maintain public
liability insurance in such amounts as are reasonable and prudent to
insure against claims which may arise out of the Contractor's operations
under the terms of this Agreement and provide proof of such insurance
coverage to the Agency prior to the effective date of this Agreement.
Unemployment compensation coverage, and worker's compensation insurance
shall be maintained in accordance with applicable federal and state law
and regulations.
B. Liability. The Contractor shall indemnify, save and hold harmless the
Agency against any liability of any kind which the Agency may sustain,
incur or be required to pay arising out of this Agreement; provided,
however, that the provisions of the paragraph shall not apply to
liabilities or expenses caused by or resulting from the willful or
negligent acts or omissions of the Agency or any of its officers or
employees.
C. Notification Regarding Litigation. If either party becomes involved in
or is threatened with litigation related to the provision of services
under this Agreement, that party shall immediately notify the other, and
the other may enter the litigation to protect its interests.
SECTION V. COMPLIANCE WITH APPLICABLE LAWS
A. Compliance with Applicable Laws and Regulations. The Contractor shall
comply with all applicable federal, state and local laws and
regulations, as they may apply to the performance of this Agreement.
B. Compliance with Civil Rights Laws. The Contractor shall not
discriminate against any employee or applicant for employment with
respect to hire, tenure, terms, conditions, or privileges of employment,
or a matter directly or indirectly related to employment, because of
race, color, religion, national origin, age, sex, height, weight, or
marital status as provided under MCLA 37.2209. The Contractor shall also
comply with the Michigan Handicappers Civil Rights Act, MCLA 37.1101 et
seq. and Section 504 of the Federal Rehabilitation Act of 1973, P.L.
93-112, 87 Stat. 394. Further, the Contractor shall comply with the
Americans with Disabilities Act of 1990 (ADA), P.L. 101-336, 104 Stat.
328, which prohibits discrimination against individuals with
disabilities and provides enforcement standards.
-6-
<PAGE>
SECTION VI. CONFIDENTIALITY
A. Confidentiality. Records regarding children and facts compiled about
children and their parents and relatives are confidential. The use or
disclosure of identifying information concerning children and their
families obtained in connection with the performance of this Agreement
shall be restricted to purposes directly connected with the
administration of the programs implemented by this Agreement.
Furthermore, the Contractor may not publish or distribute any material
identifying any child receiving services under this Agreement without
prior written permission from the child (age 14 or older), his/her
parents or guardians, and the Agency.
SECTION VII. MISCELLANEOUS
A. Subcontracts. The Contractor shall not assign this Agreement or enter
into subcontracts for direct client services with additional parties
without obtaining prior written approval of the Agency which shall not
be unreasonably withheld. The Agency, as a condition of granting such
approval, shall require that such assignees or subcontractors shall be
subject to all conditions and provisions of this Agreement. The
Contractor shall be responsible for the performance of all assignees or
subcontractors.
B. Agreement Inclusiveness. This Agreement and the attached Service
Contract(s) contain all of the terms and conditions agreed to by the
parties. No other understanding, oral or otherwise, regarding this
Agreement shall be deemed to exist or to bind the parties.
C. Waiver, Modifications. No modification of the provisions of this
Agreement shall be binding upon the parties unless signed by both
parties, and in writing. The Contractor shall, upon request by the
Agency and within 15 days of receipt of a proposed amendment required due
to revision of Federal or State law or regulations, sign and return such
amendment. If the Contractor refuses to sign and return an amendment
which requires compliance with Federal or State law, or regulations, this
Agreement shall terminate upon such refusal.
D. Severability. Each paragraph of this Agreement shall be treated as
severable. If any paragraph is adjudged illegal, invalid or
unenforceable, this Agreement shall remain in full force and effect, as
though such paragraph had never been contained in this Agreement.
E. Notices. Any notice required under this Agreement shall be sent to the
parties and addresses identified on page 1 of this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the Agency and the Contractor have caused this Agreement
to be executed by their respective officers duly authorized to do so.
Dated at Peabody, Massachusetts HARBOR OAKS HOSPITAL
(Contractor)
this 2nd day of June, 1997 By: /s/ Bruce A.Shear
Bruce A. Shear, President
Witness: /s/ Stuart A. Kaufman,
Dir. of Corp. Svc.
Dated At Lansing Michigan FAMILY INDEPENDENCE AGENCY
this 25th day of June, 1997 By: /s/ Stephen Hilh
Director Designee
Witness: /s/ Jeffrie L. Herts
-8-
<PAGE>
Exhibit 10.124
DEED OF TRUST NOTE
$540,000.00
Roanoke, Virginia
April 30, 1997
FOR VALUE RECEIVED, the undersigned (jointly and severally if more than
one) promise(s) to pay to the order of DILLON AND DILLON ASSOCIATES, a
Virginia General Partnership, (or the parties as indicated below) at such
place as the holder hereof may designate, the principal sum of Five Hundred
Forty Thousand and 00/100 Dollars ($540,000.00), together with interest
thereon at the rate of Nine and one-quarter percent (9.25%) per annum from
the date hereof until paid.
Payments on the principal sum and the interest thereon shall be due and
payable in monthly installments of Five Thousand Five Hundred Fifty-seven and
64/100 Dollars ($5,557.64), each on the 1st day of each and every month
commencing June, 1997, and continuing until May 1, 2012, when the remaining
unpaid balance of this indebtedness and interest thereon shall be due and
payable. Each monthly installment paid hereunder shall be applied first to
interest then due on the unpaid principal and the remainder, if any, shall be
applied to the unpaid balance of this indebtedness
The makers have the privilege at any time of prepaying all or part of
the principal balance and interest due and unpaid without penalty or premium
of any kind.
The makers shall pay a late charge of Five percent (5.0%) of any
monthly installment not received within fifteen (I5) days after the
installment is due.
In the event the maker shall be in default hereof, holder will provide
notification of default and maker will have thirty (30) days from said
notification to cure said default. Maker shall not be entitled to more than
one (1) such notification in any twelve (12) month period.
It is expressly agreed that upon failure of the undersigned to perform
or comply with any of the terms and conditions hereof or any of the covenants
and conditions contained in the deed of trust securing this note, then and in
any or all of such events, the holder hereof shall have the right to declare
the entire unpaid balance of this indebtedness, together with all accrued
interest charges, expenses, advances, and reasonable attorneys fees in the
amount of 25% of the outstanding balance, immediately due and payable, and
failure to exercise such right shall not constitute a waiver of the right to
exercise the same upon any subsequent failure.
<PAGE>
We, the undersigned, and any guarantors or endorsers hereof, jointly
and severally, waive the benefit of our Homestead exemption as to this
obligation, notice of maturity, demand, presentment for payment, notice of
non-payment and protest, and hereby waive notice of and consent to any
extensions of this note; and further agree to pay all reasonable attorney's
fees and other related collection costs and expenses incurred by it, should
it become necessary to place this note in the hands of an attorney for
collection or to protect the interest of the holder hereof as provided in the
deed of trust securing this note.
NOTICE: THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS
THEREOF BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY
CONVEYED.
PIONEER COUNSELING OF VIRGINIA, INC.
a Massachusetts Corporation
By. Bruce A. Shear, President
COMMONWEALTH OF MASSACHUSETTS
County of Essex, to-wit
I, the undersigned, a Notary Public, in and for the jurisdiction
aforesaid in the Commonwealth of Virginia Massachusetts whose notarial
commission expires on the 30th day of April, 1997, certify that this is the
note described in a Deed of Trust this day executed by the maker(s) hereof
in my presence whereby property known as 400 East Burwell Street, Salem,
Virginia 24153, located in the City of Salem, Commonwealth of Virginia was
conveyed to Douglas D. Wilson and Charles F. Barnett, Jr., Trustees.
STUART A. KAUFMAN, NOTARY PUBLIC Stuart Kaufman
--------------
MY COMMISSION EXPIRES FEBRUARY 26, 2004 Notary Public
-2-
<PAGE>
I CERTIFY THAT THIS
IS A TRUE COPY
DEED OF TRUST
THIS DEED OF TRUST, made this 30th day of April 1997, by and between
PIONEER COUNSELING OF VIRGINIA, INC. , a Massachusetts Corporation,
hereinafter referred to as Grantor, and DOUGLAS D. WILSON, of the City of
Roanoke, Virginia, and CHARLES F. BARNETT, JR., of the County of Botetourt,
Virginia. Grantees, hereinafter referred to as Trustees, to secure DILLON
AND DILLON ASSOCIATES, a Virginia General Partnership, hereinafter referred
to as beneficiary.
WITNESSETH:
For and in consideration of $10.00 and other good and valuable
consideration, the receipt of which is hereby acknowledged by the Grantor,
the Grantor does hereby grant and convey unto the Trustees, with General
Warranty and English Covenants of title, the following described land,
situated in the City of Salem, Commonwealth of Virginia, together with all
improvements now or hereafter erected on the property and all easements,
rights and appurtenances thereto belonging:
BEGINNING at a point of intersection on the South line of
Burwell Street with the Easterly line of Strawberry Alley,
thence with the South side of Burwell Street, N. 77 degree
24' 00" E. 139.25 feet to a point; thence leaving Burwell
Street and with a new line through the property of the
Grantors, S. 13 degree 00' 00" E. 210.37 feet to a point on
the North side of an unnamed alley (16 feet wide); thence
with the North side of said alley, S 77 degree 24' 00" W.
139.25 feet to a point on the East side of Strawberry Alley
(16.5 feet wide); thence with the East side of Strawberry
Alley N. 13 degree 00' 00" W. 210.37 feet to the point of
Beginning, and containing 0.673 acre, as more particularly
shown on survey for Pioneer Counseling of Virginia, Inc., a
Massachusetts Corporation, dated April 7, 1997, prepared by
T. P. Parker &, Son, Engineers-Surveyors-Planners, a copy
of which plat is attached to deed dated April 8, 1997, said
deed being attached immediately hereto; and
BEING the same Property conveyed to Pioneer Counseling of
Virginia, Inc., by deed dated April 8, 1997, of record in
the Clerk's Office of the Circuit Court for the City of
Salem.
<PAGE>
IN TRUST, HOWEVER, to secure the beneficiary hereof the payment of a
certain indebtedness evidenced by a note, dated April 30, 1997, made payable
by Pioneer Counseling of Virginia, Inc., a Massachusetts Corporation, to
Dillon and Dillon Associates, a Virginia General Partnership in the principal
amount of Five Hundred Forty Thousand and 00/100 DOLLARS ($540,000.00)
together with interest thereon as therein provided; and further to secure all
other obligations contained in said note and all obligations contained herein.
THIS DEED OF TRUST shall be construed to impose and confer upon the
parties hereto all duties, rights, and obligations prescribed in Sections
55-59 through 55-60 of the Code of Virginia of 1950, as amended to date, in
like manner as if the same were expressly set forth herein, except so far as
may be herein otherwise provided; and the following provisions of said
sections are hereby incorporated in and made a part of this Deed of Trust in
their respective short forms, with the full meaning and intent as expressed
and set forth therein, namely:
(a) "Exemptions waived."
(b) "Subject to all upon default."
(c) "Renewal, extension or reinstatement permitted."
(d) "Right of anticipation reserved."
(e) "Advertisement required": Once a week for two successive
weeks in The Roanoke Times or some other newspaper published,
or having a general circulation, in the county or city in
which the above property lies.
(f) "Substitution of trustee permitted."
(g) "Any trustee may act."
(i) "Insurance required: $487.000.00 with loss payable clause to
Beneficiary."
(j) "Trustee's commission of 5 percent of gross proceeds of sale."
Any forbearance by the beneficiary hereof as to any rights or options
the beneficiary may have under the terms of this Deed of Trust, under the
aforementioned note, or under applicable law, shall not be construed as a
waiver of, or preclude the exercise of, the same or any other right or option.
3
<PAGE>
NOTICE - THE DEBT SECURED HEREBY IS SUBJECT TO CALL IN FULL OR THE TERMS
THEREOF BEING MODIFIED IN THE EVENT OF SALE OR CONVEYANCE OF THE PROPERTY
CONVEYED.
WITNESS the following signature:
PIONEER COUNSELING OF VIRGINIA, INC.,
a Massachusetts Corporation
BY Bruce A. Shear, President
COMMONWEALTH OF VIRGINIA MASSACHUSETTS
County of Essex, to-wit:
The foregoing instrument was acknowledged before me this 30th day of
April, 1997, by Bruce A. Shear, President of Pioneer Counseling of Virginia,
Inc., a Massachusetts Corporation, on behalf of the corporation.
My Commission expires: STUART A. KAUFMAN, NOTARY PUBLIC
MY COMMISSION EXPIRES FEBRUARY 26, 2004
________________________
Notary Public
4
<PAGE>
I CERTIFY THAT THIS IS A
TRUE COPY
THIS DEED, made and entered into this the 8th day of April, 1997, by
and between DILLON AND DILLON ASSOCIATES, a Virginia General Partnership
comprised of Ronald W. Dillon and Wayne E. Dillon, Grantor, PIONEER
COUNSELING OF VIRGINIA, INC., a Massachusetts Corporation, Grantee.
:WITNESSETH:
THAT, FOR AND IN CONSIDERATION of the sum of TEN DOLLARS ($10.00), cash
in hand, paid by the Grantee unto the Grantor, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the Grantor does
hereby bargain, sell, grant and convey with General Warranty and English
Covenants of Title unto Grantee, all that certain lot or parcel of land,
lying and being in the City of Salem, Commonwealth of Virginia, and more
particularly described as follows, to-wit:
BEGINNING at a point of intersection on the South line of
Burwell Street with the Easterly line of Strawberry Alley,
thence with the South side of Burwell Street, N. 77degree
24' 00" E. 139.25 feet to a point; thence leaving Burwell
Street and with a new line through the property of the
Grantors, S. 13 degree 00' 00" E. 210.37 feet to a point on
the North side of an unnamed alley (16 feet wide); thence
with the North side of said alley, S. 77degree 24' 00" W.
139.25 feet to a point on the East side of Strawberry Alley
(16.5 feet wide), thence with the East side of Strawberry
Alley N. 13degree 00' 00" W. 210.37 feet to the point of
Beginning, and containing 0.673 acre, as more particularly
shown on survey for Pioneer Counseling of Virginia, Inc., a
Massachusetts Corporation, dated April 7. 1997, prepared by
T. P. Parker & Son, Engineers-Surveyors-Planners, a copy of
which plat is attached hereto and made a part hereof; and
BEING the same property conveyed to Dillon and Dillon
Associates, a Partnership comprised of Ronald W. Dillon and
Wayne E. Dillon, by deed dated April 21, 1977, of record in
the aforesaid Clerk's Office in Deed Book 47, page 727.
This deed is made subject to all easements, reservations, restrictions,
and conditions of record affecting the hereinabove described property.
<PAGE>
WITNESS the following signatures:
DILLON AND DILLON ASSOCIATES,
a Virginia General Partnership
___________________________________
Ronald W. Dillon, Partner
____________________________________
Wayne E. Dillon, Partner
COMMONWEALTH OF VIRGINIA
CITY OF ROANOKE, to-wit:
The foregoing instrument was acknowledged before me this 29 day
of 1997, by Ronald W. Dillon, Partner of Dillon and Dillon Associates, a
Virginia General Partnership, on behalf of the partnership.
My commission expires: 03/31/98 Cynthia Stafford
Notary Public
COMMONWEALTH OF VIRGINIA
CITY OF ROANOKE, to-wit:
The foregoing instrument was acknowledged before me this 29 day
of April, 1997,.by Wayne E. Dillon, Partner of Dillon and Dillon Associates,
a Virginia General Partnership, on behalf of the partnership.
.
My commission expires: 03/31/98 Cynthia Stafford
Notary Public
<PAGE>
Exhibit 10.125
BREAN MURRAY
FINANCIAL ADVISORY AGREEMENT
June 1, 1997
PHC, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
Attention: Bruce Shear
Chief Executive Officer
Gentlemen:
This will confirm that Brean Murray & Co., Inc. ("Brean Murray") has been
retained as a financial advisor to PHC, Inc. (the "Company") to perform such
financial consulting services as the Company may reasonably request. The
term of this agreement (the "Agreement") shall extend through June 30, 1998,
provided, however, that either the Company or Brean Murray may terminate this
Agreement prior to such date and as of the end of any month upon no less that
30 days' prior written notice.
The Company agrees to reimburse Brean Murray for all reasonable out-of-pocket
expenses incurred in carrying out the terms of this Agreement, including
travel, telephone, facsimile, courier, computer time charges, attorneys' fees
and disbursements, and any sales, use or similar taxes. These out-of-pocket
expenses will be payable from time to time promptly upon invoicing by Brean
Murray therefor.
As further consideration to Brean Murray for entering into this Agreement,
the Company will issue (for a nominal consideration of $150.00) to Brean
Murray or its designees upon execution of this Agreement a warrant or
warrants to purchase 150,000 shares of the Company's common stock at $2.50
per share, the terms and conditions governing such issue of warrants to be
substantially in the form of Appendix B hereto annexed.
BREAN MURRAY & CO., INC. - 570 LEXINGTON AVENUE - NEW YORK, NEW YORK
10022-6822
TELEPHONE: (212) 702-6500 - FACSIMILE: (212) 702-6649 - INTERNET:
HTTP://WWW.BMUR.COM
MEMBER NEW YORK STOCK EXCHANGE, INC.
<PAGE>
Page 2
June 1, 1997
It is contemplated that from time to time the Company may request Brean
Murray to perform investment banking services (as distinguished from
financial consulting services) in connection with matters involving the
Company, such as the private placement of securities; mergers; acquisitions;
divestitures; valuations, or corporate reorganizations. Any fees which Brean
Murray shall become entitled to receive from the Company in connection with
the performance of any such investment banking services shall be set forth in
a separate agreement between the Company and Brean Murray and shall be in
addition to the compensation provided herein. Neither the Company nor Brean
Murray, however, will have any obligation to enter into any separate
agreement, the terms and conditions of which must be negotiated between Brean
Murray and the Company. Nothing contained in the Agreement shall preclude
the Company from engaging any other person to provide financial advisory or
investment banking services to the Company; provided however, that during the
term of this Agreement and for a period of six months thereafter, the Company
shall give Brean Murray the irrevocable right of first refusal to act as
placement agent or underwriter with respect to its securities in any private
or public sale, provided that Brean Murray offers such services on terms no
less favorable than the Company can obtain elsewhere. The Company shall give
Brean Murray five business days to notify them of their intention to match
the terms or such right of first refusal will expire.
In order to enable Brean Murray to render its services hereunder, the Company
agrees to provide Brean Murray, among other things, all reasonable
information requested or required by Brean Murray including, but not limited
to, information concerning historical and projected financial results and
possible and known litigious, environmental and other contingent
liabilities. The Company also agrees to make available to Brean Murray such
representatives of the Company, including, among others, directors, officers,
employees, outside counsel and independent certified public accountants, as
Brean Murray may reasonably request. The Company will promptly advise Brean
Murray of any material changes in its business or finances during the term of
this Agreement. The Company represents that all information made available
to Brean Murray by the Company will be complete and correct in all material
respects and will not contain any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances under which such
statements are made. In rendering its services hereunder, Brean Murray will
be using and relying primarily on such information without independent
verification thereof or independent appraisal of any of the Company's
assets. Brean Murray does not assume responsibility for the accuracy or
completeness of the information to which reference is made hereto.
The services herein provided are to be rendered solely to the Company. They
are not being rendered by Brean Murray as an agent or as a fiduciary of the
shareholders of the Company and Brean Murray shall not have any liability or
obligation with respect to its services hereunder to such shareholders or any
other person, firm or corporation.
The Company and Brean Murray hereby agrees to the terms and conditions of the
Indemnification Agreement attached hereto as Appendix A with the same force
and effect as if such terms and conditions were set forth at length herein.
<PAGE>
Page 3
June 1, 1997
Brean Murray intends to maintain its position as a market maker in the
Company's stock and will cover the Company from a research perspective;
provided however, that Brean Murray reserves the right in its sole discretion
to cease acting as a market maker or covering the Company from a research
perspective based upon market factors in general or the business or condition
of (financial or otherwise) or market factor affecting the Company.
This Agreement sets forth the entire understanding of the parties relating to
the subject matter hereof and supersedes and cancels any prior
communications, understandings and agreements between the parties. This
Agreement cannot be terminated or changed, nor can any of its provisions be
waived, except by written agreement signed by all parties hereto or except as
otherwise provided herein. This Agreement shall be binding upon and inure to
the benefit of any successors and assigns of the Company and Brean Murray.
This Agreement shall be governed by and construed to be in accordance with
the laws of the State of New York applicable to contracts made and to be
performed solely in such State by citizens thereof. Any dispute arising out
of this Agreement shall be adjudicated in the courts of the State of New York
or in the federal courts sitting in the Southern District of New York and the
Company hereby agrees that service of process upon it by registered or
certified mail at its address set forth above shall be deemed adequate and
lawful. The parties hereto shall deliver notices to each other by personal
delivery or by registered or certified mail (return receipt requested) at the
addresses set forth above.
Please confirm that the foregoing is in accordance with your understanding by
signing on behalf of the Company and returning an executed copy of this
Agreement, together with the warrant or warrants described herein, whereupon
this Agreement shall become binding between the Company and Brean Murray &
Co., Inc.
Very truly yours,
BREAN MURRAY & CO., INC.
By: _________________________________
Joan M. Finsilver
Managing Director
ACCEPTED AND AGREED TO:
PHC, INC.
By: ____________________________
Bruce A. Shear, President
Date: 07/31/97
<PAGE>
APPENDIX A
INDEMNIFICATION AGREEMENT
Appendix A to Letter Engagement Agreement (the "Agreement"), dated June 1,
1997 by and between PHC, Inc. (the "Company") and Brean Murray & Co., Inc.
("Brean Murray").
The Company agrees to indemnify and hold Brean Murray and its affiliates,
control persons, directors, officers, employees and agents (each an
"Indemnified Person") harmless from and against all losses, claims, damages,
liabilities, costs or expenses, including those resulting from any threatened
or pending investigation, action, proceeding or dispute whether or not Brean
Murray or any such other Indemnified Person is a party to such investigation,
action, proceeding or dispute, arising out of Brean Murray's entering into or
performing services under this Agreement, or arising out of any matter
referred to in this Agreement. This indemnity shall also include Brean
Murray's and/or any such other Indemnified Person's reasonable attorneys' and
accountants' fees and out-of-pocket expenses incurred in, and the cost of
Brean Murray's personnel whose time is spent in connection with, such
investigations, actions, proceedings or disputes which fees, expenses and
costs shall be periodically reimbursed to Brean Murray and/or to any such
other Indemnified person by the Company as they are incurred; provided,
however, that the indemnity herein set forth shall not apply where a court of
competent jurisdiction has made a final determination that Brean Murray acted
in a grossly negligent manner or engaged in willful misconduct in the
performance of its services hereunder which gave rise to the loss, claim,
damage, liability, cost or expense sought to be recovered hereunder (but
pending any such final determination the indemnification and reimbursement
provisions hereinabove set forth shall apply and the Company shall perform
its obligations hereunder to reimburse Brean Murray and/or each such other
Indemnified Person periodically for its, his or their fees, expenses and
costs as they are incurred). Brean Murray agrees promptly to reimburse the
Company for any such amounts advanced as to which it is determined Brean
Murray was not entitled to indemnification in accordance with the foregoing
provision. The Company also agrees that neither Brean Murray nor any
Indemnified Person shall have any liability (whether direct or indirect, in
contract or tort or otherwise) to the Company for or in connection with any
act or omission to act by Brean Murray as a result of its engagement under
this Agreement except for any such liability for losses, claims, damages,
liabilities or expenses incurred by the Company that is found in a final
determination by a court of competent jurisdiction to have resulted from
Brean Murray's gross negligence or willful misconduct.
<PAGE>
Page 2
Indemnification Agreement
June 1, 1997
If for any reason, the foregoing indemnification is unavailable to Brean
Murray or any such other Indemnified Person or insufficient to hold it
harmless, then the Company shall contribute to the amount paid or payable by
Brean Murray or any such other Indemnified Person as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect
not only the relative benefits received by the Company and its shareholders
on the one hand and Brean Murray or any such other Indemnified Person on the
other hand, but also the relative fault of the Company and Brean Murray or
any such other Indemnified Person, as well as any relevant equitable
considerations; provided that in no event will the aggregate contribution by
Brean Murray and any such other Indemnified Person hereunder exceed the
amount of fees actually received by Brean Murray pursuant to this Agreement.
The reimbursement, indemnity and contribution obligations of the Company
hereinabove set forth shall be in addition to any liability which the Company
may otherwise have and these obligations and the other provisions hereinabove
set forth shall be binding upon and inure to the benefit of any successors,
assigns, heirs and personal representatives of the Company, Brean Murray and
any other Indemnified Person.
The terms and conditions hereinabove set forth in this Appendix A shall
survive the termination and expiration of this Agreement and shall continue
indefinitely thereafter.
PHC, INC.
By: _______________________
Bruce A. Shear, President
BREAN MURRAY & CO., INC.
By: ________________________
Joan M. Finsilver, Managing Director
<PAGE>
Exhibit 10.126
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into this 1st day of August, 1997,
and is effective July 1, 1997 ("Effective Date"), by and between PHC of
Michigan, Inc., a Massachusetts corporation, doing business as Harbor Oaks
Hospital (hereinafter the "Hospital") and Sudhir Lingnurkar, M.D.
(hereinafter "Psychiatrist").
WITNESSETH
WHEREAS, Hospital operates a licensed psychiatric hospital at 35031 23 Mile
Road in the City of New Baltimore, Michigan; and
WHEREAS, Hospital under its current ownership, needs and desires to position
itself for future growth in today's evolving medical marketplace, e.g., as it
relates to inpatient full and partial hospitalization programs, outpatient
programs, efficiencies in delivery of services, and affiliations, including
teaching affiliations; and
WHEREAS, Hospital desires to employ a psychiatrist with extensive experience
in the field of behavioral health services, to serve as Program Development
and Projects Coordinator, and
WHEREAS, Psychiatrist is experienced in the field of behavioral health
services, as well as in the administration and management of hospital-based
behavioral health programs, and wishes to accept such employment by Hospital,
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
EMPLOYMENT AND PROVISION OF SERVICE
1.1 Employment. Hospital hereby employs Psychiatrist as its Program
Development and Projects Coordinator, or such other reasonably related
position as it may designate, to perform such duties as are reasonably
required by such position (including, without limitation, those
summarized on the job description attached hereto as Exhibit A and made
part of this Agreement) and such other duties as may be assigned from
time to time by Hospital.
1.2 Services to be Provided. Psychiatrist will devote at least ten (10)
hours per week to rendering administrative services on-site at Hospital,
by telephone, or at such other locations selected by Hospital's
President and Chief Executive Officer, or his administrative designee,
in his capacity as Program Development and Projects Coordinator,
according to a schedule agreed upon by Psychiatrist and Hospital's
President and Chief Executive Officer, or his administrative designee.
Psychiatrist shall be available for telephone consultation and emergency
on-site assistance during all other hours. In addition to his
responsibilities as Program Development and Projects Coordinator,
Psychiatrist shall fulfill his obligations as a member of Hospital's
Medical Staff, including attendance at Medical Staff and committee
meetings.
1.3 Representations/Covenants. Psychiatrist represents and covenants the
following:
(a) Psychiatrist has and will during the term hereof maintain a valid
and unrestricted license to practice medicine in the State of
Michigan, and that there is not presently pending nor threatened
against Psychiatrist any action, claim or proceeding the outcome of
which could result in revocation or suspension of Psychiatrist's
license to practice medicine in Michigan;
(b) Psychiatrist has and will during the term hereof maintain full and
unrestricted Medical Staff privileges at Hospital;
(c) Psychiatrist shall abide at all times by the bylaws and rules and
regulations of Hospital and of the Medical Staff,
(d) Psychiatrist is qualified to provide the leadership required for an
intensive treatment program; and
(e) Psychiatrist's performance hereunder shall not conflict with any
other agreements to which Psychiatrist was or is a party; and
(f) Psychiatrist meets the training and experience requirements for
examination by the American Board of Psychiatry and Neurology or
the American Osteopathic Board of Neurology and Psychiatry.
1.4 Practice Standards. Psychiatrist agrees that his practice shall at all
times be consistent with the policies and procedures of Hospital and of
a quality commensurate with the applicable standards of practice.
Psychiatrist shall comply with and execute a copy of Hospital's Code of
Conduct, and shall conform to any compliance plans adopted by
Hospital. Psychiatrist shall comply with all applicable laws and
regulations in performing his duties hereunder.
1.5 Reporting Relationship. Psychiatrist shall report to Hospital's
President and Chief Executive Officer or his administrative designee.
ARTICLE II
SUPPORT SERVICES
2.1 Equipment Supplies and Facilities. Hospital shall provide the
equipment, supplies, facilities and personnel which Hospital and
Psychiatrist mutually agree to be necessary to perform the services
contemplated herein. Psychiatrist agrees promptly to bring to
Hospital's attention, in writing, any deficiencies known or believed by
Psychiatrist to exist in the equipment, supplies or facilities provided
by Hospital. Any and all equipment, supplies and facilities furnished
to Psychiatrist by Hospital pursuant to this Agreement shall be and
remain the property of Hospital.
ARTICLE III
COMPENSATION, BILLING, EXPENSES
3.1 Salary. Hospital shall pay Psychiatrist, as a salary for services
rendered pursuant to this Agreement, the amount of Seventy Five
Thousand Dollars ($75,000.00) per year, payable in equal semi-monthly
installments. Psychiatrist's salary and performance will be reviewed
by Hospital's President and Chief Executive Officer on a yearly basis.
3.2 Employment Taxes. Hospital shall withhold, on behalf of Psychiatrist,
appropriate employment taxes.
3.3 Patient Referrals. Hospital and Psychiatrist agree that the benefits
to Psychiatrist hereunder do not require, are not payment for, and are
not in any way contingent upon, the referral, admission, or any other
arrangement for the provision of any item or service offered by
Hospital of any patients of Psychiatrist to any facility or health care
operation controlled, managed, or operated by Hospital.
3.4 No Entitlement to Benefits. As a part-time employee, the Psychiatrist
will not automatically be eligible to participate in any benefit
program offered by the Hospital to its full-time employees, except as
delineated in the Hospital's Employee Handbook. Psychiatrist shall be
responsible for all personal and professional expenses relative to
professional society membership fees, dues and expenses of attending
educational meetings or seminars, except as otherwise may be
specifically agreed upon by Hospital in its sole discretion.
3.5 Vacation, Professional Meetings and Coverage. Psychiatrist shall
schedule vacation times and professional meetings at times convenient
for Hospital and shall comply with the Hospital's policies in regard to
maintenance of Psychiatrist coverage.
3.6 Fees for Professional and Hospital Services. The position contemplated
by this Agreement is an administrative position only. Therefore,
Psychiatrist shall have the exclusive right to bill his private
practice patients, their medical insurers, governmental agencies and
other third parties or individuals responsible for such charges for all
professional services rendered by Psychiatrist at Hospital or in
Psychiatrist's private office practice. Further, Hospital shall have
the exclusive right to bill patients or responsible third parties for
the use of its Facilities, equipment and supplies, and for the services
of other employees of Hospital.
3.7 Expenses. Hospital shall reimburse Psychiatrist for all reasonable and
necessary business expenses incurred by him in the performance of his
duties hereunder, in accordance with its policies and procedures, as
they may be amended from time to time.
ARTICLE IV
TERM AND TERMINATION
4.1 Term. This Agreement shall become effective on the Effective Date, and
thereafter remain in full force and effect for a period of one (1) year
unless earlier terminated as provided herein.
4.2 Termination With Cause.
(a) By Hospital. Hospital may terminate this Agreement immediately
upon written notice to Psychiatrist, which notice shall describe
the reason for such termination, for any of the following
reasons, each of which shall be deemed to be "cause":
(i) The death or disability of Psychiatrist. The term
"disability" as used herein shall mean Psychiatrist's
inability to perform the essential duties of this
Agreement, with or without accommodation, that continues
for a period of ninety (90) consecutive days;
(ii) Psychiatrist is convicted in a court of competent
jurisdiction of any felony offense or any misdemeanor
offense involving moral turpitude;
(iii) Dishonesty or disloyalty by the Psychiatrist in the
performance of his duties hereunder,
(iv) Insubordination by Psychiatrist;
(v) Conduct by Psychiatrist which jeopardizes Hospital's right
or ability to operate its programs and business;
(vi) Failure or inability of Psychiatrist to perform his duties
in a manner which is reasonably acceptable to Hospital;
(vii) Gross neglect of duty;
(viii) In the event that any of the representations and
covenants set forth in Section 1.3 ceases to be true. If
Psychiatrist's license to practice medicine in the State of
Michigan is suspended, revoked or canceled, the point in
which "the representation and covenant ceases to be true"
shall be the respective date of such suspension, revocation
or cancellation of Psychiatrist's license; or
(ix) Psychiatrist's material breach of any provision of this
Agreement.
(b) By Psychiatrist. Psychiatrist may terminate this Agreement immediately
upon written notice to Hospital, which notice shall describe the reason
for such termination, for any of the following reasons, each of which
shall be deemed to be "cause":
(i) The death or disability of Psychiatrist. The term
"disability" as used herein shall mean Psychiatrist's
inability to perform the essential duties of this
Agreement, with or without accommodation, that continues
for a period of ninety (90) consecutive days; or
(ii) Hospital breaches a material provision of this Agreement.
4.3 Termination Without Cause. This Agreement may be terminated by either
party without cause upon thirty (30) days prior written notice. In the
event of such notice, Hospital, at its election, may relieve
Psychiatrist of his duties and responsibilities at any time thereafter,
prior to Psychiatrist's last day of employment (as so designated on the
notice), and provide him with pay during the remainder of the notice
period.
4.4 Legislative, Regulatory or Administrative Change. In the event there
shall be a change in state or federal law, regulations, or general
instructions (or in the Application thereof), the adoption of new
legislation, or a change in any third-party reimbursement system any of
which is reasonably likely to materially and adversely affect the
manner in which Psychiatrist may perform or is compensated for his
services under this Agreement, or which shall make this Agreement
unlawful the parties shall immediately use their best efforts to enter
into a new agreement or basis for compensation for the services
furnished pursuant to this Agreement that complies with the law,
regulation, or policy. If the parties are unable to reach a new
agreement within a reasonable time, then either party may terminatee this
Agreement by thirty (30) days notice to the other on any future dat
specified in that notice.
4.5 Effects of Termination. Upon termination of this Agreement, as herein
above provided, neither party shall have any obligation under this
Agreement, except (i) obligations accruing before the date of
termination, and (ii) obligations, promises or covenants in this
Agreement that are expressly made to extend beyond the term of this
Agreement.
4.6 Renewal. Hospital and Psychiatrist may renew this Agreement after the
term of the Agreement has expired.
ARTICLE V
GENERAL PROVISIONS
5.1 Professional Activities. Consistent with Psychiatrist's obligations
under this Agreement, Psychiatrist may maintain a private practice.
Psychiatrist may provide professional services to entities other than
Hospital with the approval of Hospital. Psychiatrist shall provide
Hospital, on an annual basis, a declaration of possible conflicts of
interest and file the same with Hospital's President and Chief
Executive Officer, or his administrative designee, upon the renewal or
extension of this Agreement.
5.2 Hospital Insurance Coverage. Hospital will maintain coverage on behalf
of Psychiatrist for liability that he may incur in carrying out his
administrative duties under this Agreement. Since the rendering of
patient care services is beyond the scope of Psychiatrist's duties as
described in this Agreement, such coverage does not extend to claims
arising out of professional services Psychiatrist renders or fails to
render, including professional services Psychiatrist provides to
patients at Hospital or elsewhere for which Psychiatrist may generate a
bill in accordance with Section 3.6 of this Agreement. Psychiatrist
agrees to maintain insurance coverage for patient care services, as are
required of the Medical Staff of Hospital. Psychiatrist shall notify
Hospital within one (1) business day after he becomes aware of any
malpractice action against him or any investigation, action or
proceeding, the outcome of which could result in revocation or
suspension of his license to practice medicine.
5.3 Access to Records. Psychiatrist agrees that until the expiration of
four (4) years after the furnishing of the services provided under this
Agreement, Psychiatrist will make available to the Secretary, U.S.
Department of Health and Human Services, and the U.S. Comptroller
General, and their representatives, this Agreement and all books,
documents, and records necessary to certify the nature and extent of
those services. If Psychiatrist carries out the duties of this
Agreement through a subcontract worth $10,000 or more over a twelve-
month period with a related organization, the subcontract will also
contain an access clause to permit access by the Secretary, Comptroller
General, and their representatives, to the related organization's books
and records.
5.4 Ownership. The ownership and right of control of all reports, records,
and supporting .documents prepared in connection with the operation of
Hospital shall vest exclusively in Hospital; provided, however, that
Psychiatrist shall have the right of access to the reports, records,
and supporting documentation that shall be provided by state law and
Hospital's policies.
5.5 Confidentiality. Psychiatrist agrees to keep the provisions of this
Agreement confidential subject to the terms of this Section 5.5. Except
for disclosure to legal counsel, accountants, or financial advisors,
Psychiatrist shall not disclose during or after any term of this
Agreement the terms of this Agreement to any person who is not a party
or signatory to this Agreement, unless disclosure is required by law or
otherwise authorized by this Agreement or in writing by both parties.
To protect the confidentiality of patient information and records,
Psychiatrist shall comply with all regulatory, statutory, and ethical
requirements of confidentiality and Psychiatrist-patient privilege.
This provision shall survive termination of this Agreement.
5.6 Allocation of Time. Psychiatrist agrees to execute whatever documents
are reasonably requested by Hospital for submission to third party
payors with regard to the allocation of Psychiatrist's time under this
Agreement. Psychiatrist agrees to record the amount of time and
the number of days he spends working on each service listed on Exhibit
A and shall maintain time records in a form containing such information
as Hospital requests. Psychiatrist agrees to render a bi-weekly report
to Hospital that documents the Psychiatrist's efforts and activities
with respect to services provided under this Agreement. Psychiatrist
shall also render any other written reports as required by Hospital
pursuant to any compliance plan adopted by the Hospital. These records
shall be maintained by Psychiatrist at Hospital and shall, upon
Hospital's request, be made available for inspection.
5.7 Indemnity. Psychiatrist shall exonerate, indemnify and hold Hospital
harmless from and against all loss, damage, injury, claim demand, or
expense, including reasonable attorney's fees, based upon, arising out
of, or in any way related to any negligent act, misfeasance or
nonfeasance of Psychiatrist in connection with his provision of
professional services to patients of Psychiatrist. The above
obligations shall survive the termination of this Agreement.
5.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and
supersedes any and all other agreements, either oral or in writing,
between the parties with respect to this subject matter.
5.9 Assignment. This Agreement shall not be assigned or assignable by
either party hereto without the prior written consent of the other
party, not to be unreasonably withheld.
<PAGE>
5.10 Notices. Any and all notices provided for herein shall be given in
writing by registered or certified mail, return receipt requested,
directed to the address shown below, unless notice of a change of
address is furnished.
If to Hospital: If to Psychiatrist:
Harbor Oaks Hospital
35031 23 Mile Road Sudhir Lingnurkar, M.D.
New Baltimore, MI 48047
________________________________
Attn: Administrator
________________________________
With a copy to:
Bruce A. Shear, President
PHC of Michigan, Inc.
200 Lake Street; Suite 102
Peabody, MA 01960
5.11 Governing Law. This Agreement shall be interpreted and construed in
accordance with the laws of the State of Michigan.
<PAGE>
5.12 Waiver. A waiver by either party of a breach or failure to perform
under this Agreement shall not constitute a waiver of any subsequent
breach or failure.
5.13 Severability. Should any provision of this Agreement be held invalid,
unenforceable, or unconstitutional by any governmental body or court of
competent jurisdiction, such holdings shall not dismiss the validity or
enforceability of any other provision hereof.
5.14 Headings. The headings in this Agreement are for convenience only and
shall not affect in any way the meaning or interpretation of this
Agreement.
5.15 No Third Party Rights. This Agreement is intended solely for the benefit
of the parties hereto, and shall not be deemed to create any rights in
any other person or entity, including patients.
5.16 Dispute Resolution. The parties agree to use good faith negotiation to
resolve any dispute that arises under this Agreement. If the parties
are not able to resolve the dispute by negotiation, either party may
submit the dispute to a mediator, mutually agreeable to the parties, to
resolve the dispute. Mediation shall be conducted in New Baltimore,
Michigan in accordance with the rules of the National Health Lawyers
Association ("NHLA") Alternative Dispute Resolution Services. If the
parties are unable to reach an agreement through mediation, the parties
shall submit the underlying dispute to arbitration which shall be
conducted in New Baltimore, Michigan in accordance with the Rules of
Procedure of the NHLA Alternative Dispute Resolution Service. In the
event of binding arbitration, judgment on the award or decision
rendered by the arbitrator may be entered in any court having
jurisdiction.
IN WITNESS WHEREOF, Hospital has caused this Agreement to be executed by its
duly authorized officer and Psychiatrist has executed this Agreement as of
the day and year first above written.
WITNESS "PSYCHIATRIST"
______________________________ ____________________________
Sudhir Lingnurkar, M.D.
WITNESS "HOSPITAL"
Teresa A. Bates _______________________________
By: Bruce A. Shear
Its: President
<PAGE>
EXHIBIT A
POSITION DESCRIPTION FOR PROGRAM DEVELOPMENT AND PROJECTS
COORDINATOR
Summary of Basic Employment Functions:
Actively coordinates and manages the Hospital's inpatient (full and partial)
hospitalization program, the Hospital's outpatient programs, and such
initiatives designed to enhance the efficiencies in delivery of patient care
services, the quality of care rendered, and the reputation of the Hospital in
the medical community, Hospital Administration, Hospital Medical Staff and
Hospital Professional Staff. The Program Development and Projects
Coordinator serves as a resource person for issues concerning program
development and projects within the field of behavioral health medicine.
Responsibilities:
Advise Harbor Oaks Hospital regarding program development and develop
initiatives to enhance the efficiencies in delivery of patient care services,
the quality of care rendered, and the reputation of the Hospital. The
majority of the Program Development and Project Coordinator's work will occur
off-site, or by telephone, or at such other site as selected by the President
and Chief Executive Officer of the Hospital, or his administrative designee,
including, but not limited to, at Corporate Offices in Peabody, MA, or at any
of Hospital's affiliated sites throughout the USA. Some travel for this
position may be necessary.
Actively review current patient care programs and efficiencies of service in
light of (1) patient mix, (2) payor source and (3) the current standards of
practice in the field of behavioral health.
Draft and advise on policies and procedure, provide medical and professional
staff continuing education concerning program development/enhancement and
practice efficiencies within the practice of behavioral health.
Serve as Harbor Oaks Hospital's primary liaison on issues program development
and projects with the health care community.
Regularly chair/attend the management meetings to discuss issues related to
program development and projects.
Regularly attend Professional/Medical Staff Meetings.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into this 1st day of August, 1997, and
is effective July 1, 1997 ("Effective Date"), by and between North Point -
Pioneer, Inc., a Massachusetts corporation, doing business as Pioneer
Counseling Center (hereinafter "PCC") and Sudhir Lingnurkar, M.D.
(hereinafter "Psychiatrist").
WITNESSETH
WHEREAS, PCC operates licensed outpatient behavioral health clinics in the
greater metropolitan Detroit area; and
WHEREAS, PCC, under its current ownership, needs and desires to position
itself for future growth in today's evolving medical marketplace, e.g., as it
relates to outpatient programs, efficiencies in delivery of services, and
affiliations, including teaching affiliations, patient mix and payor mix; and
WHEREAS, PCC desires to employ a psychiatrist with extensive experience in
the administration and management of the practice of clinic-based behavioral
health services, to serve as Corporate Assistant Medical Director, and
WHEREAS, Psychiatrist is experienced in the administration and management of
the practice of clinic-based behavioral health services and wishes to accept
such employment by PCC;
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
ARTICLE I
EMPLOYMENT AND PROVISION OF SERVICE
1.1 Employment. PCC hereby employs Psychiatrist as its Corporate Assistant
Medical Director, or such other reasonably related position as it may
designate, to perform such duties as are reasonably required by such
position (including, without limitations those summarized on the job
description attached hereto as Exhibit A and made part of this
Agreement) and such other duties as may be assigned from time to time
by PCC.
1.2 Services to be Provided. Psychiatrist will devote at least ten (10)
hours per week to rendering administrative services on-site at PCC, by
telephone, or at such other locations selected by PCC's President and
Chief Executive Officer, or his administrative designee, in his
capacity as Corporate Assistant Medical Director, according to a
schedule agreed upon by Psychiatrist and PCC's President and Chief
Executive Officer, or his administrative designee. Psychiatrist shall
be available for telephone consultation and emergency on-site
assistance during all other hours. In addition to his responsibilities
as Corporate Assistant Medical Director, Psychiatrist shall fulfill his
obligations as a member of PCC's Medical Staff, including attendance at
Medical Staff and committee meetings.
<PAGE>
1.3 Representations/Covenants. Psychiatrist represents and covenants the
following:
(a) Psychiatrist has and will during the term hereof maintain a valid
and unrestricted license to practice medicine in the State of
Michigan, and that there is not presently pending nor threatened
against Psychiatrist any action, claim or proceeding the outcome of
which could result in revocation or suspension of Psychiatrist's
license to practice medicine in Michigan;
(b) Psychiatrist has and will during the term hereof maintain full and
unrestricted Medical Staff privileges at PCC;
(c) Psychiatrist shall abide at all times by the bylaws and rules and
regulations of PCC and of the Medical Staff,
(d) Psychiatrist is qualified to provide the leadership required for an
intensive treatment program; and
(e) Psychiatrist's performance hereunder shall not conflict with any
other agreements to which Psychiatrist was or is a party; and
(f) Psychiatrist meets the training and experience requirements for
examination by the American Board of Psychiatry and Neurology or
the American Osteopathic Board of Neurology and Psychiatry.
1.4 Practice Standards. Psychiatrist agrees that his practice shall at all
times be consistent with the policies and procedures of PCC and of a
quality commensurate with the applicable standards of practice.
Psychiatrist shall comply with and execute a copy of PCC's Code of
Conduct, and shall conform to any compliance plans adopted by PCC.
Psychiatrist shall comply with all applicable laws and regulations in
performing his duties hereunder.
1.5 Reporting Relationship. Psychiatrist shall report to PCC's President
and Chief Executive Officer or his administrative designee.
ARTICLE II
SUPPORT SERVICES
2.1 Equipment Supplies and Facilities. PCC shall provide the equipment,
supplies, facilities and personnel which PCC and Psychiatrist mutually
agree to be necessary to perform the services contemplated herein.
Psychiatrist agrees promptly to bring to PCC's attention, in writing,
any deficiencies known or believed by Psychiatrist to exist in the
equipment, supplies or facilities provided by PCC. Any and all
equipment, supplies and facilities furnished to Psychiatrist by PCC
pursuant to this Agreement shall be and remain the property of PCC.
<PAGE>
ARTICLE III
COMPENSATION, BILLING, EXPENSES
3.1 Salary. PCC shall pay Psychiatrist, as a salary for services rendered
pursuant to this Agreement, the amount of Seventy Five Thousand Dollars
($75,000.00) per year, payable in equal semi-monthly installments.
Psychiatrist's salary and performance will be reviewed by PCC's
President and Chief Executive Officer on a yearly basis.
3.2 Employment Taxes. PCC shall withhold, on behalf of Psychiatrist,
appropriate employment taxes.
3.3 Patient Referrals. PCC and Psychiatrist agree that the benefits to
Psychiatrist hereunder do not require, are not payment for, and are not
in any way contingent upon, the referral, admission, or any other
arrangement for the provision of any item or service offered by PCC, of
any patients of Psychiatrist to any facility or health care operation
controlled, managed, or operated by PCC.
3.4 No Entitlement to Benefits. As a part-time employee, the Psychiatrist
will not automatically be eligible to participate in any benefit
program offered by the PCC to its full-time employees, except as
delineated in PCC's Employee Handbook. Psychiatrist shall be
responsible for all personal and professional expenses relative to
professional society membership fees, dues and expenses of attending
educational meetings or seminars, except as otherwise may be
specifically agreed upon by PCC in its sole discretion.
3.5 Vacation, Professional Meetings and Coverage. Psychiatrist shall
schedule vacation times and professional meetings at times convenient
for PCC and shall comply with PCC's policies in regard to maintenance
of Psychiatrist coverage.
3.6 Fees for Professional and PCC Services. The position contemplated by
this Agreement is an administrative position only. Therefore,
Psychiatrist shall have the exclusive right to bill his private
practice patients, their medical insurers, governmental agencies and
other third parties or individuals responsible for such charges for all
professional services rendered by Psychiatrist at PCC or in
Psychiatrist's private office practice. Further, PCC shall have the
exclusive right to bill patients or responsible third parties for the
use of its facilities, equipment and supplies, and for the services of
other employees of PCC.
3.7 Expenses. PCC shall reimburse Psychiatrist for all reasonable and
necessary business expenses incurred by him in the performance of his
duties hereunder, in accordance with its policies and procedures, as
they may be amended from time to time.
<PAGE>
ARTICLE IV
TERM AND TERMINATION
4.1 Term. This Agreement shall become effective on the Effective Date, and
thereafter remain in full force and effect for a period of one (1) year
unless earlier terminated as provided herein.
4.2 Termination With Cause.
(a) By PCC. PCC may terminate this Agreement immediately upon
written notice to Psychiatrist, which notice shall describe the reason
for such termination, for any of the following reasons, each of which
shall be deemed to be "cause":
(i) The death or disability of Psychiatrist. The term
"disability" as used herein shall mean Psychiatrist's
inability to perform the essential duties of this
Agreement, with or without accommodation, that continues
for a period of ninety (90) consecutive days;
(ii) Psychiatrist is convicted in a court of competent
jurisdiction of any felony offense or any misdemeanor
offense involving moral turpitude;
(iii) Dishonesty or disloyalty by the Psychiatrist in the
performance of his duties hereunder;
(iv) Insubordination by Psychiatrist;
(v) Conduct by Psychiatrist which jeopardizes PCC's right or
ability to operate its programs and business;
(vi) Failure or inability of Psychiatrist to perform his duties
in a manner which is reasonably acceptable to PCC,
(vii) Gross neglect of duty;
(viii) In the event that any of the representations and
covenants set forth in Section 1.3 ceases to be true. If
Psychiatrist's license to practice medicine in the State of
Michigan is suspended, revoked or canceled, the point in
which "the representation and covenant ceases to be true"
shall be the respective date of such suspension, revocation
or cancellation of Psychiatrist's license; or
(ix) Psychiatrist's material breach of any provision of this
Agreement.
<PAGE>
(b) By Psychiatrist. Psychiatrist may terminate this Agreement
immediately upon written notice to PCC, which notice shall
describe the reason for such termination, for any of the
following reasons, each of which shall be deemed to be "cause":
(i) The death or disability of Psychiatrist. The term
"disability" as used herein shall mean Psychiatrist's
inability to perform the essential duties of this
Agreement, with or without accommodation, that continues
for a period of ninety (90) consecutive days; or
(ii) PCC breaches a material provision of this Agreement.
4.3 Termination Without Cause. This Agreement may be terminated by either
party without cause upon thirty (30) days prior written notice. In the
event of such notice, PCC, at its election, may relieve Psychiatrist of
his duties and responsibilities at any time thereafter, prior to
Psychiatrist's last day of employment (as so designated on the notice),
and provide him with pay during the remainder of the notice period.
4.4 Legislative, Regulatory or Administrative Change. In the event there
shall be a change in state or federal law, regulations, or general
instructions (or in the application thereof), the adoption of new
legislation, or a change in any third-party reimbursement system, any
of which is reasonably likely to materially and adversely affect the
manner in which Psychiatrist may perform or is compensated for his
services under this Agreement, or which shall make this Agreement
unlawful, the parties shall immediately use their best efforts to enter
into a new agreement or basis for compensation for the services
furnished pursuant to this Agreement that complies with the law,
regulation, or policy. If the parties are unable to reach a new
agreement within a reasonable time, then either party may terminate
this Agreement by thirty (30) days notice to the other on any future
date specified in that notice.
4.5 Effects of Termination. Upon termination of this Agreement, as herein
above provided, neither party shall have any obligation under this
Agreement, except (i) obligations accruing before the date of
termination, and (ii) obligations, promises, or covenants in this
Agreement that are expressly made to extend beyond the term of this
Agreement.
4.6 Renewal. PCC and Psychiatrist may renew this Agreement after the term
of the Agreement has expired.
ARTICLE V
GENERAL PROVISIONS
5.1 Professional Activities. Consistent with Psychiatrist's obligations
under this Agreement, Psychiatrist may maintain a private practice.
Psychiatrist may provide professional services to entities other than
PCC with the approval of PCC. Psychiatrist shall provide PCC, on an
annual basis, a declaration of possible conflicts of interest and file
the same with PCC's President and Chief Executive Officer, or his
administrative designee, upon the renewal or extension of this
Agreement.
5.2 PCC Insurance Coverage. PCC will maintain coverage on behalf of
Psychiatrist for liability that he may incur in carrying out his
administrative duties under this Agreement. Since the rendering of
patient care services is beyond the scope of Psychiatrist's duties as
described in this Agreement, such coverage does not extend to claims
arising out of professional services Psychiatrist renders or fails to
render, including professional services Psychiatrist provides to
patients at PCC or elsewhere for which Psychiatrist may generate a bill
in accordance with Section 3.6 of this Agreement. Psychiatrist agrees
to maintain insurance coverage for patient care services, as are
required of the Medical Staff of PCC. Psychiatrist shall notify PCC
within one (1) business day after he becomes aware of any malpractice
action against him or any investigation, action or proceeding, the
outcome of which could result in revocation or suspension of his
license to practice medicine.
5.3 Access to Records. Psychiatrist agrees that until the expiration of
four (4) years after the furnishing of the services provided under this
Agreement, Psychiatrist will make available to the Secretary, U.S.
Department of Health and Human Services, and the U.S. Comptroller
General and their representatives, this Agreement and all books,
documents, and records necessary to certify the nature and extent of
those services. If Psychiatrist carries out the duties of this
Agreement through a subcontract worth $10,000 or more over a
twelve-month period with a related organization, the subcontract will
also contain an access clause to permit access by the Secretary,
Comptroller General and their representatives, to the related
organization's books and records.
5.4 Ownership. The ownership and right of control of all reports, records,
and supporting documents prepared in connection with the operation of
PCC shall vest exclusively in PCC; provided, however, that Psychiatrist
shall have the right of access to the reports, records, and supporting
documentation that shall be provided by state law and PCC's policies.
5.5 Confidentiality. Psychiatrist agrees to keep the provisions of this
Agreement confidential subject to the terms of this Section 5.5. Except
for disclosure to legal counsel accountants, or financial advisors,
Psychiatrist shall not disclose during or after any term of this
Agreement the terms of this Agreement to any person who is not a party
or signatory to this Agreement, unless disclosure is required by law or
otherwise authorized by this Agreement or in writing by both parties.
To protect the confidentiality of patient information and records,
Psychiatrist shall comply with all regulatory, statutory, and ethical
requirements of confidentiality and Psychiatrist-patient privilege.
This provision shall survive termination of this Agreement.
5.6 Allocation of Time. Psychiatrist agrees to execute whatever documents
are reasonably requested by PCC for submission to third party payors
with regard to the allocation of Psychiatrist's time under this
Agreement. Psychiatrist agrees to record the amount of time and the
number of days he spends working on each service listed on Exhibit A
and shall maintain time records in a form containing such information
as PCC requests. Psychiatrist agrees to render a bi-weekly report to
PCC that documents the Psychiatrist's efforts and activities with
respect to services provided under this Agreement. Psychiatrist shall
also render any other written reports as required by PCC pursuant to
any compliance plan adopted by the PCC. These records shall be
maintained by Psychiatrist at PCC and shall, upon PCC's request, be
made available for inspection.
5.7 Indemnity. Psychiatrist shall exonerate, indemnify and hold PCC
harmless from and against all loss, damage, injury, claim, demand, or
expense, including reasonable attorney's fees, based upon, arising out
of, or in any way related to any negligent act, misfeasance or
nonfeasance of Psychiatrist in connection with his provision of
professional services to patients of Psychiatrist. The above
obligations shall survive the termination of this Agreement.
5.8 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof, and
supersedes any and all other agreements, either oral or in writing,
between the parties with respect to this subject matter.
5.9 Assignment. This Agreement shall not be assigned or assignable by
either party hereto without the prior written consent of the other
party, not to be unreasonably withheld.
<PAGE>
5.10 Notices. Any and all notices provided for herein shall be given in
writing by registered or certified mail, return receipt requested,
directed to the address shown below, unless notice of a change of
address is furnished.
If to PCC: If to Psychiatrist:
Pioneer Counseling Center
28511 Orchard Lake Road Sudhir Lingnurkar, M.D.
Farmington Hills, MI 48334
__________________________
Attn: Chief Operating Officer __________________________
With a copy to:
Bruce A. Shear, President
PHC of Michigan, Inc.
200 Lake Street; Suite 102
Peabody, MA 0 1960
5.11 Governing Law. This Agreement shaft be interpreted and construed in
accordance with the laws of the State of Michigan.
5.12 Waiver. A waiver by either party of a breach or failure to perform
under this Agreement shall not constitute a waiver of any subsequent
breach or failure.
<PAGE>
5.13 Severability. Should any provision of this Agreement be held invalid,
unenforceable, or unconstitutional by any governmental body or court of
competent jurisdiction, such holdings shall not dismiss the validity or
enforceability of any other provision hereof.
5.14 Readings. The headings in this Agreement are for convenience only and
shall not affect in any way the meaning or interpretation of this
Agreement.
5.15 No Third Party Rights. This Agreement is intended solely for the
benefit of the parties hereto, and shall not be deemed to create any
rights in any other person or entity, including patients.
5.16 Dispute Resolution. The parties agree to use good faith negotiation to
resolve any dispute that arises under this Agreement. If the parties
are not able to resolve the dispute by negotiation, either party may
submit the dispute to a mediator, mutually agreeable to the parties, to
resolve the dispute. Mediation shall be conducted in Farmington Hills,
Michigan in accordance with the rules of the National Health Lawyers
Association ("NHLA") Alternative Dispute Resolution Services. If the
parties are unable to reach an agreement through mediation, the parties
shall submit the underlying dispute to arbitration which shall be
conducted in Farmington Hills, Michigan in accordance with the Rules of
Procedure of the NHLA Alternative Dispute Resolution Service. In the
event of binding arbitration, judgment on the award or decision
rendered by the arbitrator may be entered in any court having
jurisdiction.
IN WITNESS WHEREOF, PCC has caused this Agreement to be executed by its duly
authorized officer and Psychiatrist has executed this Agreement as of the day
and year first above written.
WITNESS "PSYCHIATRIST"
___________________________________ ____________________________
Sudhir Lingnurkar, M.D.
WITNESS "PCC"
Teresa R. Bates _____________________________
By: Bruce A. Shear
Its: President
<PAGE>
EXHIBIT A
POSITION DESCRIPTION FOR CORPORATE ASSISTANT MEDICAL DIRECTOR
Summary of Basic Employment Functions:
Actively coordinate and manage PCC's outpatient programs and services and
develop initiatives designed to enhance the efficiencies in the delivery of
patient care services, the quality of care rendered, and the reputation of
PCC in the medical community, in conjunction with PCC Administration, PCC
Medical Staff and PCC Professional Staff. The Corporate Assistant Medical
Director serves as a resource person for issues concerning corporate-wide
DELIVERY of patient care services, management issues, corporate philosophies
and focus, program development and projects within the field of behavioral
health medicine.
Responsibility:
Review and advise PCC regarding outpatient programs and services and develop
initiatives to enhance the efficiencies in the delivery of patient care
services, the quality of care rendered, and the reputation of PCC in the
medical community. The majority of the Corporate Assistant Medical
Director's work will occur on-site at one, or more, of the PCC clinics,
currently owned or hereafter commenced or acquired, or by telephone, or at
such other site as selected by the President and Chief Executive Officer of
PCC, or his administrative designee, including, but not limited to, at the
corporate offices in Peabody, MA or at any of PCC's affiliated sites
throughout the USA. Some travel for this position may be necessary.
Actively review current patient care programs and efficiencies of services in
light of (1) patient mix, (2.) payor source and (3) the current standards of
practice in the field of behavioral health.
Draft and advise on policies and procedure, provide medical and professional
staff continuing education concerning program development/enhancement and
practice efficiencies within the practice of behavioral health.
Serve as PCC's primary/ liaison on issues concerning outpatient programs and
services and undertake such projects designed to enhance the efficiencies in
the delivery of patient care services, the quality of care rendered and the
reputation of PCC in the medical community.
Regularly chair/attend the management meetings to discuss issues related to
outpatient programs and services and undertake such projects designed to
enhance the efficiencies in the delivery of patient care services, the
quality of care rendered and the reputation of PCC in the medical community.
Regularly attend Professional/Medical Staff Meetings.
<PAGE>
the delivery of patient care services, the quality of care rendered and the
reputation of PCC in the medical community.
Regularly chair/attend the management meetings to discuss issues related to
outpatient programs and services and undertake such projects designed to
enhance the efficiencies in the delivery of patient care services, the
quality of care rendered and the reputation of PCC in the medical community.
Regularly attend Professional/Medical Staff Meetings.
<PAGE>
Exhibit 10.127
Asset Purchase Agreement
as between
COUNSELING ASSOCIATES OF
SOUTHWEST VIRGINIA, INC.
(Seller)
and
PIONEER COUNSELING
OF VIRGINIA INC.
(Purchaser)
<PAGE>
Table of Contents
1. Assets to be Conveyed..................................... 2
1.1. Tangible Personal Property.......................... 2
1.2. Leases & ContractRights............................. 2
1.3. Patient Lists....................................... 2
1.4. Telephone Numbers................................... 3
1.5. Books, Records & Promotional Materials.............. 3
1.6. General Intangibles................................. 3
1.7. Goodwill & Claims................................... 3
2. Excluded Assets........................................... 3
3. Purchase Price and Allocation of Purchase Price........... 3
3.1. Purchase Price...................................... 3
3.1.1. Cash Payment................................. 3
3.1.2. PHC, Inc. Class A Common Stock............... 4
3.1.3. Additional Consideration..................... 4
3.1.3.1 FuturePayments....................... 4
3.1.3.2.1 PaymentDate........................ 4
3.1.3.1.2 Pre-tax Profit Defined............. 4
3.1.3.2 Tail Coverage............................... 4
3.2. Prorations.......................................... 4
3.3. Allocation of Purchas Price......................... 5
4. Closing................................................... 5
5. Representations and Warranties o Seller................... 5
5.1. Organization & Standing............................. 5
5.2. Authority........................................... 5
5.3. Financial Statements................................ 5
5.4. No Violation of Agreement........................... 6
5.5. Regulatory Compliance............................... 6
5.6. Restrictive Covenant................................ 6
5.7. Leases and Contracts for Personal Property.......... 6
5.8. Indebtedness........................................ 6
5.9. Contracts and Commitments........................... 6
5.9.1. Purchase Commitments......................... 6
5.9.2. Collective Bargaining/EmploymentAgreements... 6
5.9.3. Compensation Arrangements.................... 7
5.9.4. Employees.................................... 7
5.9.5. Benefits..................................... 7
5.9.6. Independent Contractors...................... 7
ii
<PAGE>
5.10. Tax Returns and Payments....................... 7
5.11. Litigation and Other Proceedings............... 7
5.12. Broker......................................... 8
5.13. Insurance...................................... 8
5.14. Notices........................................ 8
5.15. Employees...................................... 8
5.16. Employment Laws................................ 9
5.17. CostReports.................................... 9
5.18. Third Party Billing............................ 9
5.19. Bankruptcy & Insolvency........................ 9
5.20. Information Not Misleading..................... 10
5.21. Audits......................................... 10
5.22. Trade Name..................................... 10
5.23. Leaseholds..................................... 10
5.24. Patient Payments & Third Party Payor Contracts. 10
5.25. Seller Responsibilities........................ 10
5.26. Consultants.................................... 11
6. Covenants of Seller........................................ 11
6.1. Condition of Personal Property.................. 11
6.2. Access and Preparation of License Application... 11
6.3. Ordinary Course of Business..................... 11
6.4. Compensation.................................... 11
6.5. Insurance....................................... 11
6.6. Review of Staff................................. 12
6.7. Right o Inspection.............................. 12
6.8 Publicity....................................... 12
6.9. Termination Notices, Liabilities................ 12
7. Representation and Warranties of Purchaser................. 12
7.1. Organization of Purchaser.......................... 13
7.2. Corporate Action by Purchaser...................... 13
8. Purchaser's Due Diligence & Conditions Precedent to
Closing................................................ 13
8.1. Representation, Warranties and Covenants........... 13
8.2. Leases for Real Property........................... 13
8.3. Third Party Payors................................. 13
8.4. Licenses and Approvals............................. 13
8.5. Sale of Assets..................................... 14
8.6. Insurance.......................................... 14
8.7. No Materia Change.................................. 14
8.8. RestrictiveCovenant................................ 14
8.9. Payroll............................................ 14
iii
<PAGE>
8.10. Consents.......................................... 14
8.11. Financial Due Diligence........................... 14
8.12. Corporate Authority............................... 14
8.13. Opinion of Counsel for Seller..................... 14
8.14. Certificate of Release............................ 15
8.15. Employment Agreements............................. 16
8.16. Title to Assets................................... 16
8.17. List of Creditors................................. 16
8.18. Notice to Creditors, Indemnity.................... 16
8.19. Compliance with Bulk Sales Law.................... 16
8.20. Payment of Creditors.............................. 16
8.21. Failure of Conditions Precedent................... 17
9. No Assumption of Liabilities............................... 17
10.Indemnification............................................ 17
10.1. Indemnification of Purchaser by Seller............ 17
10.2. Indemnification of Seller by Purchaser............ 17
11. Rights of Termination and Remedies for Default............ 18
11.1. Default by Seller................................. 18
11.2. Purchaser's Right to Terminate.................... 18
11.3. Seller's Right to Terminate....................... 18
12. Miscellaneous............................................. 19
12.1.Survival........................................... 19
12.2. Disclaimer of Intent to become Partners........... 19
12.3. Additional Documents.............................. 19
12.4. Notices........................................... 19
12.5. Non-Assignment.................................... 20
12.6. Sole Agreement.................................... 20
12.7. Governing Law..................................... 20
12.8. Successors........................................ 20
12.9. Captions.......................................... 20
12.10.Severability...................................... 20
12.11.Counterparts...................................... 20
12.12.No Waiver......................................... 21
12.13.Attorney's Fees an Costs.......................... 21
12.14.Confidentiality................................... 21
iv
<PAGE>
SCHEDULE 1.1 TANGIBLE PERSONAL PROPERTY............................ 23
SCHEDULE 1.2 LEASES and CONTRACT RIGHTS............................ 24
SCHEDULE 2 EXCLUDED ASSETS...................................... 25
SCHEDULE 5.6 RESTRICTIVE COVENANT.................................. 26
SCHEDULE 5.8 INDEBTEDNESS.......................................... 27
SCHEDULE 5.9.4 PAYROLL RECORD........................................ 28
SCHEDULE 5.9.5 EMPLOYEE FRINGE BENEFITS SCHEDULE..................... 29
SCHEDULE 5.9.6 INDEPENDENT CONTRACTOR AGREEMENTS.................... 30
SCHEDULE 5.15 EMPLOYEES............................................. 31
SCHEDULE 8.2 REAL PROPERTY LEASE................................... 32
SCHEDULE 8.5.1 BILL OF SALE.......................................... 33
SCHEDULE 8.5.2 ASSIGNMENT OF INTANGIBLE RIGHTS....................... 34
SCHEDULE 8.5.3 ASSIGNMENT and ASSUMPTION AGREEMENT................... 35
SCHEDULE 8.15 JONES-FREEMAN EMPLOYMENT AGREEMENT.................... 36
v
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (hereinafter the "Agreement") is made and
entered into as of this 1st day of October, 1997, by and between Counseling
Associates of Southwest Virginia, Inc., a Virginia corporation (hereinafter
"Seller") with its registered office located at 2807 S. Main Street, Unit 110,
Blacksburg, Virginia, 24060, and Pioneer Counseling of Virginia, Inc., a
Massachusetts corporation (hereinafter "Purchaser") with its registered office
located at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960.
WHEREAS, Seller owns and operates a behavioral health care clinic
located in Blacksburg, Virginia (hereinafter the "Business"); and,
WHEREAS, Purchaser, a subsidiary of PHC, Inc., who is an owner and
operator of health care facilities in several states, including Virginia, and
who provides health care and management services for inpatient and outpatient
mental health services for its facilities and for facilities owned by others;
and,
WHEREAS, Seller is the owner of and wishes to sell substantially all of
the assets utilized in the operation of the Business, and the Purchaser is
desirous of purchasing such assets upon the terms and conditions contained in
this Agreement; and,
WHEREAS, Purchaser desires to employ and/or cause Dianne Jones-Freeman
(hereafter "Jones-Freeman") to be employed as the Chief Operating Officer of
the behavioral health clinic to be operated by Purchaser in the Salem, VA
area, and Jones-Freeman desires to be so employed, and
WHEREAS, Purchaser desires to enter into a lease agreement for the
premises currently occupied by the Seller, said premises being owned by
Jones-Freeman and James Garrison, equally, for the purposes of establishing a
behavioral health clinic in Blacksburg, Virginia; and
WHEREAS, the Seller and Purchaser desire to memorialize their various
understandings and agreements in connection with the foregoing matters
pursuant to this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, and for other good and valuable consideration, the
sufficiency and receipt of which is hereby severally acknowledged, the Seller
and Purchaser agree as follows:
1
<PAGE>
1. Assets to be Conveyed. On the terms and conditions set forth herein,
Seller shall sell, assign, convey, transfer and deliver to Purchaser by
instruments of transfer in a form reasonably satisfactory to Purchaser and
its counsel, all right, title and interest in and to all of the assets of the
Business (whether personal, mixed, tangible and intangible, absolute or
contingent) owned by Seller or in which the Seller has any right, title or
interest, wheresoever situated, whether or not the same are carried and/or
reflected on the books and records of Seller, free and clear of all
mortgages, liens, charges, claims, pledges, security interests or other
encumbrances, unless specifically identified as an excluded asset in
Paragraph 2, below, including the following (hereinafter collectively the
"Assets"):
1.1 Tangible Personal Property. All office equipment, goods,
furniture, furnishings, trade fixtures, tools, machinery, materials,
supplies, signs, vehicles, computers, telephones and telephone systems, all
third party billing manuals and related materials, all patient files and
records, all marketing materials, leasehold improvements and all tangible
personal property owned by Seller and used in the operation of the Business
including, but not limited to, those items listed in Schedule 1.1 attached
hereto and incorporated herein by this reference, together with any
replacements thereof or additions thereto made between the date hereof and
the date of closing, less any retirements of the assets listed made in the
ordinary and usual course of business in connection with the acquisition of
similar property or assets;
1.2. Leases & Contract Rights. All of the Seller's rights under all
of the various leases, licenses, permits, approvals, purchase orders and
commitments, contracts, prepaid expenses, patient deposits or co-payments,
agreements and all similar items of the Seller as well as all agreements or
instruments that pertain to the Business, the Assets (as hereafter defined),
including, but not limited to, all purchase orders, sales and purchase
contracts, machinery and equipment leases, other leases, subleases, permits,
certificates of occupancy and any and all other agreements with independent
contractors, suppliers, vendors, distributors, dealers, patients and other
parties, including, but not limited to, the contract rights listed and
identified on Schedule 1.2 attached hereto and incorporated herein by this
reference. Notwithstanding the foregoing, Seller and Purchaser agree that
Purchaser shall not be required to assume any leases or contracts whatsoever,
if Purchaser, in its sole, uncontrolled and absolute discretion, determines
that such leases and/or contracts are not necessary or desirable to it and
which are identified by Purchaser prior to closing; excepting any that
Purchaser was not provided notice of by its inclusion on said Schedule 1.2;
1.3. Patient Lists. All of Seller's patient lists, mailing
lists, lists of referral sources, claim submissions and collections lists,
and all such patient files and other records as shall be necessary to the
operation of the Business or which Purchaser shall reasonably require;
2
<PAGE>
1.4. Telephone Numbers. All of Seller's rights in and to all of
the current telephone numbers utilized by Seller in connection with the
Business;
1.5. Books, Records & Promotional Materials. All of Seller's books,
records, files and correspondence, display and promotional materials,
brochures, mailers, circulars and all other documents and promotional
materials used in connection with the operation of the Business;
1.6. General Intangibles. All of Seller's marketing know-how
and trade secrets of the Seller related to the Business, if any, including,
but not limited to, all of Seller's confidential information, operation data,
routines, developments, enhancements, price lists, patient and employee
documentation (including, but not limited to, all purchasing records,
property records, employment records, environmental compliance records,
purchasing and billing records, insurance and claim records, personnel and
payroll records and accounting records), supplier lists, manuals, files,
operating instructions and any similar items related to the Assets and/or the
Business;
1.7. Goodwill & Claims. All of Seller's goodwill throughout the
world, including, without limitation, the right to use the name "Counseling
Associates" and any and all derivations thereof and all of the Seller's
right, title and interest in and to all patents, trademarks, trademark
applications and trade names, logos, service marks and any registrations or
derivations thereof and any other tangible or intangible property, rights or
claims relating to the Business and/or the Assets, currently owned, held,
leased, relied upon, licensed or asserted by the Seller, including but not
limited to, all rights, claims and choses in action of the Seller against
third parties related to the Business and/or Assets arising out of
transactions or events occurring prior to the date of closing and all rights
in, to and under all warranties and representations related to the Assets
which were acquired by the Seller from the manufacturers, previous owners or
holders of the Assets.
2. Excluded Assets. It is understood and agreed that the assets being
sold to Purchaser do not include cash and those other items identified on
Schedule 2 attached hereto.
3. Purchase Price and Allocation of Purchase Price
3.1. Purchase Price. The purchase price payable by Purchaser to
Seller for the Assets shall be:
3.1.1. Cash Payment. Payment to Seller, at closing, in the amount
of Fifty Thousand ($50,000.00) Dollars.
3
<PAGE>
3.1.2. PHC. Inc. Class A Common Stock. Payment, at closing, in
the form of PHC, Inc. Class A Common Stock, with a fair market value of
Seventy Five Thousand ($75,000.00) Dollars, based upon an average of the
NASDAQ closing bid and ask price per share, for the five trading days
proceeding the Closing date, (hereinafter the "Stock"), subject to the
restrictions of Rule 144 of the Securities Act of 1933, which Stock shall be
evidenced by appropriate certificates issued in the name of the Seller and
delivered at the closing.
3.1.3. Additional Consideration.
3.1.3.1. Future Payment. Payment to Seller in an amount equal
to ten (10%) percent of the pre-tax profit of the Business, as defined above,
for the three (3) years following the effective date of this Agreement.
3.1.3.1.1. Payment Date. Payment of any amount due under
this paragraph shall be made no sooner than one hundred twenty (120) days
after the anniversary of the effective date of this Agreement. For example,
payment for the first year is due no earlier than December 29, 1998; second
year, December 29, 1999; and, third year, December 29, 2000.
3.1.3.1.2. Pre-tax Profit Defined. The phrase "pre-tax
profit" as used in this provision shall be defined as the total of collected
revenue less total expenses, other than applicable state and federal income
taxes, for an applicable twelve (12) month period.
3.1.3.2. Tail Coverage Purchaser agrees to purchase, on
behalf of Seller, professional liability "tail" insurance coverage, for
Seller's Business, with policy limits of $1,000,000.00 per claim /
$3,000,000.00 aggregate.
3.2 Prorations. Expenses, including but not limited to, such items as
rent and other occupancy expenses, power and utility charges, personal
property taxes upon a due-date basis, based on the most recent assessment
available, insurance premiums if policies are assigned to Purchaser, and
prepaid and deferred items shall be prorated between Seller and Purchaser as
of the date of closing, the prorations to be made and paid, insofar as
feasible, on the date of closing. If the net result of the prorations is to
increase the amount payable by Purchaser, the increase shall be paid to
Seller at closing. All arrearages, if any, shall be paid from Seller's cash
proceeds at closing or deducted from the Purchase Price payable by Purchaser
hereunder.
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3.3. Allocation of Purchase Price It is agreed that the purchase price
shall be allocated as follows:
(a) The sum of ____________ and 00/100 ($___________.00)
Dollars for Assets identified in Subsections 1.1, 1.2, 1.3,
1.4 and 1.5, inclusive, described above;
(b) The sum of _________________ and 00/100 ($___________.00)
Dollars for the General Intangibles, Goodwill and Claims
identified in Subsections 1.6 and 1.7, inclusive, above; and
(c) The sum of Fifty Thousand and 00/100 ($50,000.00) Dollars
for the Restrictive Covenant Agreement to be executed by
the Seller(s) at the closing of this transaction pursuant
to Section 5.6 below.
4. Closing. The consummation of this Agreement (hereinafter 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 September 1, 1997 (hereinafter the "Closing
Date"). The Parties may agree in writing to extend the Closing Date without
prejudice to either party. The closing of this transaction may occur through
the use and exchange of facsimile signatures on the relevant documents.
5. Representations and Warranties of Seller. As an inducement to Purchaser
to enter into and consummate this Agreement, Seller warrants and represents
that:
5.1. Organization & Standing. Seller is now, and on the date of
Closing will be a corporation duly organized and existing in good standing
under the laws of the Commonwealth of Virginia. Seller represents that it
has the requisite power, authority, licensure and certification to own the
Assets and to operate the Business as now conducted.
5.2. Authority. Seller is the sole owner of the 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 executing the same on Seller's
behalf, have been duly taken in accordance with all applicable laws and this
Agreement is the legal and binding obligation of Seller, enforceable in
accordance with its terms and conditions against the Seller.
5.3. Financial Statements. Seller has delivered to Purchaser
relevant tax returns, income statements and balance sheets for the Business
for the fiscal years ending 1995 through 1997 and monthly from January, 1997,
through August, 1997, (hereinafter the "Financial Statements"). The
Financial Statements have been prepared on a consistent basis in accordance
with generally accepted accounting principals and practices consistently
applied 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. Three (3) days prior to Closing
Seller shall deliver to Purchaser an income statement and balance sheet for
the period ending July 31, 1997. If the Closing Date is extended, financial
statements will be provided for the period of August 1, 1997, to the end of
the calendar month immediately preceding the Closing.
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5.4. 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, Bylaws, or any amendments, renewals or
modifications thereof, 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 Assets, except as provided
herein, if any.
5.5. Regulatory Compliance. The Business and the Assets are, and will
be at the Closing Date, in compliance with all applicable federal, state and
local laws, ordinances, codes, regulations and requirements.
5.6. Restrictive Covenant. Seller, it's owners, managers and
shareholders shall each execute Restrictive Covenants in the form and
substance collectively attached hereto as Schedule 5.6, and incorporated
herein by this reference and agrees to be bound thereby.
5.7. Leases and Contracts for Personal Property. Seller owns
all assets necessary to operate the Business. Seller does not lease any
personal property, equipment or used in the conduct of the Business which are
not identified on Schedule 1.2 attached hereto.
5.8. Indebtedness. Seller has no indebtedness, either contingent or
otherwise, other than as identified on Schedule 5.8 attached hereto and
incorporated herein by this reference.
5.9. Contracts and Commitments.
5.9.1. Purchase Commitments. 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;
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5.9.2. Collective Bargaining/Employment Agreements. Seller
has no collective bargaining or employment agreements, nor any agreements
that contain any severance or termination pay liabilities or obligations;
5.9.3. Compensation Arrangements. 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;
5.9.4. Employees. Seller has no employees except as
identified in Seller's most recent payroll record attached hereto as Schedule
5.9.4 and incorporated herein by this reference to whom it pays compensation
or renumeration in any other form or nature;
5.9.5. Benefits, Seller does not pay any compensation,
vacation, sick day allowances or other benefit programs to any of its
employees which is not disclosed in Schedule 5.9.5 attached hereto; and
5.9.6. Independent Contractors. Seller has disclosed the
identity of all independent contractors and all pertinent information
relating to their respective engagements or retention on Schedule 5.9.6
attached hereto and incorporated herein by this reference and has heretofore
fully disclosed to Purchaser all written agreements between Seller and such
independent contractors.
5.10. Tax Returns and Payments. All federal, state and
local tax payments, reports and returns required to have been paid or filed
by Seller have been so paid or 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, including, but not limited to, personal property taxes,
pending or assessed 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
Assets by Purchaser.
5.11. 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 or the Assets, which might affect the operation of the Business or
the Assets, or its authorization to operate behavioral health programs under
the applicable provisions of Virginia 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 or the
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.
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5.12. Broker. No broker, finder or agent has been engaged
by Seller or Purchaser in regard to the sale of the Assets and Seller and
Purchaser hereby agree to indemnify each other, defend 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 Assets.
5.13. Insurance. Seller has continuously maintained
insurance for professional liability, general liability, casualties and
hazards relative to the Business and the Assets, since _________, 19_____.
5.14. Notices. Seller is not aware of and has not received
any communications from any insurance companies, third party payors,
governmental agencies or from any other parties of any conditions, defects or
inadequacies with respect to the leaseholds utilized by the Business or the
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 leaseholds or
the Assets, pending or threatened condemnation proceedings with respect to
any of the leaseholds utilized by the Business, or any other modification of
the zoning classification, or of any building or environmental code
requirements applicable to such leaseholds or any part thereof. Seller shall
immediately notify Purchaser of any violations or conditions of which Seller
receives notice (whether written or oral).
5.15. 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 Schedule 5.15
attached hereto. Schedule 5.15 attached hereto also 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.
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5.16. Employment Laws. Seller has complied in all material
respects with all applicable state, federal and local 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 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.
5.17. 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.
5.18. Third Party Billing. All billings submitted to
third party payors, including but not limited to Medicare and Medicaid, have
been within payment guidelines, for services actually provided, and not false
or fraudulent in any fashion.
5.19. Bankruptcy & Insolvency, No bankruptcy, insolvency,
petition for dissolution, rearrangement, surrender, assignment for the
benefit of creditors, private or public sale, auction or similar action
involving the Business or the Assets, whether voluntary or involuntary, is
pending or threatened, and Seller has not:
(a) filed a voluntary petition in bankruptcy;
(b) been adjudicated as bankrupt or insolvent and is not the
subject of any petition or action seeking any reorganization,
arrangement, recapitalization, readjustment, liquidation,
dissolution or similar relief under any Federal bankruptcy act
or any other laws;
(c) 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
(d) made an assignment for the benefit of creditors, surrendered
or abandoned any of the Assets, agreed to sell or auction any
of the Assets for the benefit of creditors or admitted in
writing its inability to pay its debts generally as the same
become due.
(e) Seller is not anticipating or contemplating any of the
actions set forth in (a) through (d) of this subsection.
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5.20 Information Not Misleading. All the information
concerning Seller, the Assets 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.
5.21. Audits. There have been no Medicare, Medicaid, or
private insurance audits within the thirty-six (36) month period preceding
the date of this Agreement and Seller has not been informed of any recoupment
claims.
5.22. Trade Name. Seller represents, warrants, and
covenants that Seller has the exclusive right to use the trade name
"Counseling Associates" 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 such trade names.
5.23. Leaseholds. Seller leases the following improved
commercial premises under the terms of certain lease agreements, and Seller
has heretofore delivered true and accurate copies of all such lease
agreements and any amendments, renewals, extensions, riders and/or
modifications thereof to Purchaser:
(a) Counseling Associates of Southwest Virginia, Inc.
2807 S. Main St., Unit 110
Blacksburg, VA 24060
5.24. Patient Payments & Third Party Payor Contracts.
There are no advances or pre-payments made by clients for services not
rendered, or to be rendered, prior to the Closing Date, other than those
accounted for to Purchaser, and transferred to Purchaser as an item listed in
Schedule 1.2. There are no third party payor managed care agreements existing
between Seller and any third party payor, other than those specifically
approved by Purchaser, which obligate Seller to provide professional services
beyond the Closing Date.
5.25. 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.
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5.26. Consultants. There are no consultants of Seller
currently employed in the operation and/or maintenance of the Business or the
Assets.
6. Covenants of Seller,
6.1. Condition of Personal Property. Seller represents and warrants
that, subject to ordinary wear and tear, all Tangible Personal Property as
identified in Subsection 1.1 above shall be in good working order, condition
and repair through the Closing Date.
6.2. 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, including, but not limited to, Medicare,
Medicaid and other third party payors. 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.
6.3. 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 Five Hundred and
00/100 ($500.00) Dollars or incur any material liability without the written
consent of Purchaser, which consent shall not be unreasonably withheld.
6.4. Compensation. From the date hereof through the Closing Date,
except upon the 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 independent contractors or make any other severance
or retirement arrangement with any such employees or independent contractors.
6.5. 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
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6.6. Review of Staff. Seller shall allow Purchaser an
opportunity to review the credentials and employment histories of all current
staff, inclusive of all employees and independent contractors of the Business
upon execution of this Agreement. Seller further agrees to provide
Purchaser, prior to the time of closing of this transaction, copies of
credentials and licenses for all employees and/or contractors providing
patient care services at the Clinic.
6.7. 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 leasehold identified in Subsection 5.23 above,
the books, documents and records relating to the Assets, and to make copies
of the same, and Seller agrees to furnish such information relating to Seller
and the 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, and cause its employees and independent contractors
to cooperate with Purchaser, as necessary and reasonable to insure a smooth
transition of ownership of the Business.
6.8. 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.
6.9. Termination Notices, Liabilities. Seller shall deliver
appropriate notices of termination to all Seller's personnel on the Closing
Date, to be immediately effective. Seller shall be responsible for all
unpaid wages, fringe benefits (including any unpaid or unfunded liabilities
under any employee benefit plan as that term is defined under Section 3(3) of
ERISA), income tax withholdings, social security taxes, unpaid sick pay and
vacation pay, unemployment taxes and other such expenses and/or liabilities
with respect to all such personnel accruing or arising or otherwise
attributable to the period prior to closing. Seller further represents and
warrants to Purchaser that no liability under Title IV of ERISA has been
incurred by Seller since the effective date of ERISA which has not been fully
satisfied and paid in full. Moreover, the Seller has not engaged in any
transaction which could be subject to liability under Section 4069 of ERISA.
In addition, Seller shall serve all necessary notices and/or reports to the
Virginia employment authorities and/or as otherwise required by state or
federal law prior to closing and provide Purchaser with the required
disclosure form(s) on or before the Closing Date. In no event shall
Purchaser be responsible, as a successor employer or otherwise, for any of
such liabilities, all of which shall be discharged by Seller.
7. Representation and Warranties of Purchaser.
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7.1. Organization of Purchaser. Purchaser is a corporation duly
organized, existing and in good standing under the laws of the Commonwealth
of Massachusetts.
7.2. 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.
8. Purchaser's Due Diligence & Conditions Precedent to Closing. Purchaser
shall not be obligated to purchase the 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 in writing:
8.1. Representation Warranties and Covenants. The representations and
warranties of Seller contained in this Agreement shall be true and accurate
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.
8.2. Leases for Real Property. Purchaser shall have executed a
valid, legally enforceable lease for the leasehold identified in Subsection
5.23, above upon terms acceptable to Purchaser. Such Lease Agreement shall
provide occupancy rights to Purchaser effective coincident with the Closing
Date on terms and conditions acceptable to Purchaser. If Purchaser leases
the leasehold from Seller, or it's owner, manager or shareholder, then a copy
of said lease shall be attached hereto as Schedule 8.2.
8.3. 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 behavioral health services by
the Business as intended to be operated by Purchaser.
8.4. Licenses and Approvals. Purchaser shall have obtained all
necessary licenses, permits and approvals to occupy the leasehold identified
in Subsection 5.23 above or suitable alternative premises and has made
application for all necessary licenses, permits and approvals to operate said
premises for the provision of behavioral health services.
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8.5. Sale of Assets. Seller shall sell, convey and transfer to
Purchaser the Assets by delivering to Purchaser the Bill of Sale in the form
attached hereto as Schedule 8.5.1, an Assignment of Intangible Rights in the
form attached hereto as Schedule 8.5.2, and an Assignment and Assumption
Agreement in the form attached hereto as Schedule 8.5.3, and any other forms
of documentation requested by Purchaser.
8.6. Insurance. Purchaser shall have obtained general and
professional liability insurance coverage in amounts Purchaser deems
necessary to operate the Business.
8.7. No Material Change. The business affairs and financial
condition of the Business and/or any of the 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.
8.8. Restrictive Covenant. Seller, including its owners,
managers and shareholders, shall have each executed a Restrictive Covenant in
the form and substance collectively attached hereto as Schedule 5.6 and
incorporated herein by this reference.
8.9. Payroll. Purchaser shall have received from Seller a copy
of the most recent payroll register for the Business with evidence that all
employees and independent contractors of Seller have been compensated up to
the Closing Date.
8.10. 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.
8.11. 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 (36) month period prior to the
execution date of this Agreement.
8.12. Corporate Authority. Seller shall have complied fully with
the laws of the Commonwealth of Virginia 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.
8.13. 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 Virginia)
addressed to Purchaser in form and substance to the effect that:
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(a) Seller has the full 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 and 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.
8.14. Certificate of Release, Purchaser shall have received a Tax
Clearance Certificate from the Commonwealth of Virginia 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 Commonwealth of Virginia from the
Seller.
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8.15. Employment Agreements, Purchaser shall enter into an
employment agreement with Jones-Freeman in the form and substance attached
hereto as Schedule 8.15, and incorporated herein by this reference
(hereinafter the "Employment Agreement").
8.16. Title to Assets, Seller shall order, and provide to
Purchaser, a Uniform Commercial Code Search Report relative to the Assets and
Business from the Commonwealth of Virginia and conduct any additional
examinations and investigations which are deemed necessary or desirable with
respect to the condition of title in and to the Assets and Business.
8.17. List of Creditors. Seller, not less than thirty (30) days
prior to closing, will furnish to Purchaser, in accordance with the
requirements of Article Six of the Uniform Commercial Code, a list of its
existing creditors, signed and sworn by Seller, and containing the names and
business addresses of all existing creditors of Seller, with the amounts due
to each creditor, and also the names of all persons who are known to Seller
to assert claims against Seller even though such claims are disputed. Seller
and Purchaser will prepare schedules of property to be transferred,
sufficient to identify such property, in accordance with the Bulk Sales and
other requirements of the Uniform Commercial Code.
8.18. Notice to Creditors, Indemnity. Seller acknowledges that,
in accordance with the provisions of the Uniform Commercial Code, Purchaser
intends to deliver or send appropriate notices to all persons shown on the
list of creditors furnished by Seller and to other persons, if any, who are
known to Purchaser to hold or assert claims against Seller. Seller will
cooperate with Purchaser in all matters relating to such notice and will
furnish any additional information that may be required by Purchaser to
satisfy the statutory provisions in this regard. Such additional information
shall include, but not be limited to, the names and business addresses of
persons who become creditors of Seller before the Closing Date as well as
persons who assert claims against Seller even though disputed.
8.19. Compliance with Bulk Sales Law. Seller shall comply with
all applicable requirements of the Uniform Commercial Code and Virginia law
relative to the sale of the Assets and Seller hereby agrees to indemnify,
defend and hold Purchaser harmless from any and all damages which may result
from the actions and/or omissions of Seller in connection with the sale and
transfer of the Assets.
8.20. Payment of Creditors. Except as otherwise provided herein,
Seller shall pay in full all of its creditors as of the Closing Date to the
extent their claims are undisputed, or to effectuate a plan of payment,
giving priority to tax authorities, and shall provide Purchaser with
certificates of tax liability or tax clearance certificates from the
Commonwealth of Virginia as soon as possible. If such certificates reflect a
tax liability on the part of Seller to the Commonwealth of Virginia,
Purchaser shall be entitled to pay such amounts as may be shown as owing on
the certificates of tax liability from the cash proceeds due at closing or
deduct same from the purchase price.
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8.21. Failure of Conditions Precedent. In the event the foregoing
conditions precedent, contained in Sections 8.1 through 8.20, inclusive,
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 Section 8. 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.
9. 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 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
by Purchaser after the Closing Date.
10. Indemnification.
10.1. Indemnification of Purchaser by Seller. Seller hereby
indemnifies and holds Purchaser, its directors, officers, employees and
agents harmless from: (a) 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, dissolution, or conduct of other business 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; (b)
any damage or deficiency due to breach of warranty, misrepresentation, or
nonfulfillment of any agreement on the part of the Seller under this
Agreement; (c) 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 and applicable law.
10.2. Indemnification of Seller by Purchaser. Purchaser shall
indemnify and hold Seller, its directors, officers, employees and agents
harmless from (a) 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 Purchaser with any applicable
federal, state and local laws, ordinances, codes, regulations and
requirements; (b) 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, (c) 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.
17
<PAGE>
11. Rights of Termination and Remedies for Default.
11.1. Default by Seller. In the event that all of the conditions
precedent set forth in Section 8 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.
11.2. Purchaser's Right to Terminate. If any one or more
conditions set forth in Section 8 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 Purchasers 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, except that
Seller shall be responsible for all costs and fees incurred by Purchaser on
account of this transaction.
11.3. Seller's Right to Terminate. In the event that Purchaser is
unable to close by _______________, 1997, 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 non-satisfaction of the condition set forth in Section
8.2 is the sole cause of Purchaser's inability to close by _______________,
1997, Seller hereby agrees not to terminate the transaction. In the event of
a termination of this transaction under this Section 11.3, 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.
11.4. 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 11.2, then Seller may
terminate this Agreement. Seller shall also have the right to pursue all
other remedies available at law or equity.
18
<PAGE>
12. Miscellaneous.
12.1. Survival. All representations, warranties and covenants of
Seller and Purchaser contained herein shall survive the Closing.
12.2. Disclaimer of Intent to become Partners. The Parties, by
the execution of this Agreement, do not intend to become partners or joint
venturers.
12.3. 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.
12.4 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, or overnight delivery, postage prepaid,
addressed as follows:
(a) If to Seller, to: Dianne Jones-Freeman
_____________________________
_____________________________
With a copy to: Bruce Stockburger, Esq.
Gentry, Locke, Rakes & Moore
10 Franklin Rd. S.E. Ste. 800
Roanoke, VA. 24038-0013
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 Counseling of Virginia, Inc.
200 Lake Street, Suite 102
Peabody, MA 01960
19
<PAGE>
With a copy to: Philip Cwagenberg, Esq.
Ishbia & Gagleard, P.C.
251 Merrill Street, 2nd Floor
Birmingham, Michigan 48009
or to such other person or place as Purchaser shall furnish to
Seller in writing.
12.5. 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, which
shall not be unreasonably withheld, 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.
12.6. Sole Agreement. This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing signed by both the
Purchaser and the Seller. This Agreement, including its schedules and those
documents specifically incorporated by reference, 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.
12.7. Governing Law. This Agreement shall be governed and
construed in accordance with the law of the Commonwealth of Virginia.
12.8. Successors. All the terms of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the Seller and
Purchaser and their respective successors and assigns, subject to the
provisions of Section 12.5 hereof.
12.9. 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.
12.10. 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.
12.11. 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.
20
<PAGE>
12.12. 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 in this
Agreement shall be cumulative and not exclusive of any rights provided by law.
12.13. 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.
12.14. Confidentiality. Seller and Purchaser, and their
respective principals, partners, directors, shareholders and officers agree
that they will maintain in confidence: (1) the terms of this Agreement; (2)
the identity of the parties hereto and their respective partners, principals,
shareholders, officers and directors; (3) the pendency of the transaction;
and (4) all confidential information obtained relative to this transaction;
and such persons and entities shall not disclose the same prior to the
Closing Date, to any person or entity, other than their respective legal
counsel, accountants and other agents and representatives, to Seller's
landlords as necessary to obtain their consent to the assignment of leases to
Purchaser, and to appropriate regulatory commissions, as may be necessary to
permit the consummation of this transaction. In addition, Seller and its
principals agree that they will not disclose, at any time after the Closing
Date, the identity of the principals of Purchaser without the prior written
consent of Purchaser and its principals. This confidentiality provision
shall be binding upon and inure to the benefit of the parties hereto and
their respective principals and shall survive the closing of this
transaction. For purposes of this Agreement, confidential information shall
be defined as proprietary information, or information from which the
circumstances, in good faith and conscience, should be treated as
confidential, which includes, but is not limited to, information regarding
trade secrets, price lists, patient lists, assets, liabilities or other
information regarding the business of Seller or Purchaser which may be
acquired in connection with, incident to or as a result of the performance of
the terms and conditions contained in this Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
WITNESSES "PURCHASER"
___________________________________ Pioneer Counseling of Virginia, Inc.,
a Massachusetts corporation
By: ______________________________
__________________________________ Bruce A. Shear
Its: President
"SELLER"
__________________________________ Counseling Associates of Southwest
Virginia, Inc.,
a Virginia corporation
By: _____________________________
__________________________________ Diane Jones-Freeman
Its: President
and
__________________________________ By: _____________________________
James Garrison
__________________________________ Its: Vice President
F:\DATA\PIONEER\CASV\APA.5
22
<PAGE>
RESTRICTIVE COVENANTS AGREEMENT
THIS RESTRICTIVE COVENANT AGREEMENT (hereafter referred to as the
"Agreement"), made and entered into as of the _________ day of
___________________, 1997, by and among Pioneer Counseling of Virginia, Inc.,
a Massachusetts corporation (hereinafter "Purchaser") with its registered
office located at 200 Lake Street, Suite 102, Peabody, Massachusetts 01960,
and Counseling Associates of Southwest Virginia, Inc., a Virginia corporation
(hereinafter "Seller") with its registered office located at 2807 S. Main
Street, Unit 110, Blacksburg, Virginia, 24060.
WITNESSETH:
WHEREAS, on ___________, 1997, Seller and Purchaser entered into an
Asset Purchase Agreement (hereafter the "APA"), wherein Seller agreed to
sell, and Purchaser agreed to Purchase, substantially all of the assets of
Seller's behavioral health clinic in Blacksburg, Virginia; and,
WHEREAS, in addition to the APA described above, Dianne Jones-Freeman, a
principal of Seller, is to be employed by Purchaser under the terms of an
Employment Agreement (hereafter the "EA") between the parties executed
contemporaneously with the APA and this Agreement; and
WHEREAS,, in light of the purposes and particulars of the APA and the
EA, Purchaser has required from Seller that it provide this Agreement as part
of the consideration for the complete transaction between the parties; and,
WHEREAS, Purchaser has represented to Seller that without the promises
and representations contained in this Agreement that it would not agree to
enter into either the APA or the EA;
WHEREAS, the parties hereto acknowledge and agree that the consideration
recited in the APA, the receipt and adequacy of which is confessed and
acknowledged, shall be, and is, sufficient consideration to support this
agreement, and all other contemporaneous agreements, between the parties;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained in the APA and EA and as hereinafter contained, the parties hereto
do hereby agree as follows:
1. Covenant Not To Compete. Seller agrees that for a period of five (5)
years from date of execution of this Agreement, that it shall not, for
itself or as a representative, employee, agent, partner, stockholder,
independent contractor, joint venturer or otherwise:
<PAGE>
a. Engage, directly or indirectly, in the same or similar behavioral
health business as Purchaser or any of its affiliated companies, at
any location within the state of Virginia (referred to as the
"Prohibited Area"); and,
b. Provide professional behavioral health services of any kind to any
patients of the Seller (either active patients existing at the time
of the closing of the underlying transaction, or inactive patients
who had received any treatment within the eighteen (18) month period
preceding closing of the underlying transaction); and,
c. Solicit, directly or indirectly, any patients of the Seller (either
active patients existing at the time of the closing of the
underlying transaction, or inactive patient who had received any
treatment within the eighteen (18) month period preceding closing of
the underlying transaction) for services similar to or of the same
nature as that provided by Purchaser or any facility or clinic owned
and/or operated by Purchaser, or any affiliated organization; and,
d. Solicit, counsel, or induce any employee, or contractor, of
Purchaser, or any facility and/or clinic owned and/or operated by
Purchaser, or any affiliated organization, to terminate their
relationship and/or position with Purchaser, or any facility or
clinic owned and/or operated by Purchaser, or any affiliated
organization; and,
e. Request, counsel or otherwise advise any patients of Purchaser, or
any facility or clinic owned and/or operated by Purchaser, or any
affiliated organization, to curtail withdraw or cancel any of their
business with the Purchaser, or any facility and/or clinic owned
and/or operated by Purchaser, or any affiliated organization.
For purposes of this Agreement, patients shall be defined as
individuals for whom Purchaser, or any facility and/or clinic
owned and/or operated by Purchaser, or any affiliated
organization, has, in the past, presently or at the time of
termination of this Agreement, provided professional services in
the ordinary course of its business.
Any notice provided for by this Agreement shall be in writing and
may be given by personal delivery, or by mailing it by certified
mail, return receipt requested, or by overnight delivery, to
Purchaser or to Seller at the respective addresses set forth in
the APA, or such other address as Purchaser or Seller shall
specify by written notice to the other parties delivered in
accordance with this Section
2
<PAGE>
2. Non-Solicitation of Referral Sources. Seller further agrees that for a
period of five (5) years from date of execution of this Agreement it
will not, directly or indirectly, whether as an officer, director,
shareholder, partner, proprietor, associate, manager, employee,
representative or consultant, become or be interested in or associated
with, within the Prohibited Area (except on behalf of the Purchaser,
its successors or assigns, except as provided herein), or in any
capacity, solicit, directly or indirectly, any business in the
Prohibited Area from any person, corporation, firm, partnership,
referral source or other entity whatsoever which conducted business,
was employed, served as an independent contractor, or was otherwise
similarly engaged, with Seller prior to the date hereof; and,
3. Non-Disclosure of Confidential Information. Seller further agrees that
for a period of five (5) years from date of execution of this
Agreement, it shall not, directly or indirectly, whether as an officer,
director, shareholder, partner, proprietor, associate, manager,
employee, representative or consultant, become or be interested in or
associated with, advise or disclose to any person, corporation, firm,
partnership or other entity whatsoever (except Purchaser), or any
officer, director, stockholder, partner, associate, employee, agent or
representative of any such partnership, firm or corporation, any
information, including without Imitation, information concerning
Purchaser's past or present customers or patients, prospective
customers or patients, staff, contemplated acquisitions, trade secrets,
discoveries, ideas, methods, market investigation, surveys, research,
know-how or any other non-public information relating to the business
and objectives of Purchaser unless the same has become public by means
other than that prohibited hereunder and then only to the extent it has
become public.
4 Non-Recruitment. Seller further that for a period of five (5) years
from date of execution of this Agreement that it will not, directly or
indirectly, whether as an officer, director, shareholder, partner,
proprietor, associate, manager, employee, representative or consultant,
become or be interested in or associated with, induce or attempt to
influence any employee, agent, servant, referral source, contractor, or
independent contractor of Purchaser, or an affiliate, or any former
employee, agent, servant, referral source, contractor or independent
contractor of any of Seller to terminate his or her employment or
contracted relationship with Purchaser, or the affiliate, or to accept
employment, or otherwise become contractually engaged, with another
entity in the mental health industry.
3
<PAGE>
The term "former employee, agent, servant, referral source,
contractor or independent contractor" is defined as any
person who has provided services to, or for, Seller within
the eighteen (18) months preceding the date of this
Agreement, who is not engaged or employed by Purchaser, or
an affiliate, to provide those services, within six (6)
months from the date of execution of this Agreement.
5. Specific Enforcement. The parties hereto agree that a violation of the
covenants contained in this Agreement shall cause irreparable injury to
Purchaser, its affiliates, successors and assigns, for which monetary
damage cannot be readily calculated, and that, accordingly, Purchaser
and its affiliates, successors and assigns shall be entitled, in
addition to any other rights and remedies they may have at law or in
equity, to an injunction enjoining and restraining Seller from doing or
continuing to do any such act or other violation or threatened
violation of this Agreement.
6. Consideration. The parties hereto acknowledge and agree that the
consideration recited in the APA and EA, executed contemporaneously
with this Agreement, is sufficient and adequate consideration for this
Agreement. Part and parcel of the agreement between the parties, the
parties acknowledge and agree that without this Agreement Purchaser
would not consummate this transaction.
7. Benefit. This Agreement shall be binding upon and inure to the benefit
of the parties hereto, and their respective heirs, administrators,
executors and successors. This Agreement is personal to each of the
parties hereto and neither party may assign or delegate it's rights and
obligations hereunder without first having obtained the written consent
of the other party, said consent not to be unreasonably withheld.
8. Notices. Any notice, request or other communication to be given by any
party hereunder shall be in writing and shall be sent by overnight
delivery, or by certified mail, return receipt requested, addressed as
provided in the APA.
9. Governing Law. This Agreement shall be governed and construed in
accordance with the law of the Commonwealth of Virginia.
10. 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. 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
4
<PAGE>
12. 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.
13. Authority. By affixing their signatures hereto, the undersigned warrant
and represent that they are authorized, in law and in fact, to enter
into this agreement, and do so, knowingly and voluntarily.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
WITNESSES "Purchaser"
________________________________ Pioneer Counseling of Virginia, Inc.
a Massachusetts corporation
By: ______________________________
________________________________ Bruce A. Shear
Its: President
"Seller"
Counseling Associates of Southwestern
Virginia, Inc.,
a Virginia corporation
By: _________________________
________________________________ Diane Jones-Freeman
Its: President
F.\DATA\PIONEER\RESTRICT.4
5
<PAGE>
LEASE WITH OPTION TO PURCHASE
THIS LEASE AGREEMENT is made as of August ________1997, by and between
DIANNE JONES-FREEMAN and JAMES E. GARRISON, JR. (hereinafter collectively the
"Lessor"), and PIONEER COUNSELING OF VIRGINIA, INC., a Massachusetts
corporation registered to conduct business in the Commonwealth of Virginia
(hereinafter the "Lessee").
1. Leased Premises. In consideration of the rents and
covenants herein set forth, Lessor hereby leases to Lessee and Lessee hereby
leases from Lessor, for the term and upon the terms and conditions
hereinafter set forth, the property known as Unit 110, South Main Commons,
2807 South Main Street, Blacksburg, Virginia, located in Montgomery County,
Virginia, (hereinafter the "Leased Premises"), including all common areas
associated therewith, all parking associated therewith, and all ingress and
egress associated therewith, as demonstrated on the site diagram attached
hereto as Exhibit l.
2. Term. The initial term of this Lease shall be for a period of
five (5) years, commencing on, September 1, 1997, and terminating at midnight
on August 31, 2002.
3. Renewal This Lease shall automatically renew under the
terms and conditions of this Agreement for successive one (1) year periods
immediately subsequent to the original term of the Lease. This automatic
renewal is subject to the right of the Lessee to terminate the Lease by
providing written notice to the Lessor in accordance with the terms of this
Agreement no less than ninety (90) days prior to the expiration of the then
current lease term. Lessor has the same right to terminate this Lease, upon
ninety (90) days written notice prior to the expiration of the then current
lease term, commencing the eighth (8th) year, and beyond, of this Lease.
<PAGE>
4. Rental.
(a) Base Rent. Lessee covenants and agrees to pay Lessor, as
rental for the Leased Premises, base annual rent of Sixty-Six Thousand Seven
Hundred and 00/100 Dollars ($66,700.00), which shall be payable in monthly
installments of Five Thousand Five Hundred Fifty Eight and 33/100 Dollars
($5,558.33) without deduction, offset, notice or demand in advance on the
first day of each calendar month during the initial or any renewal term of
this Agreement. Payments shall be made by check payable to the Lessor or
their assigns and delivered to the Lessor's address then in effect for
receipt of notices hereunder.
(b) Additional Rent. As additional rent, Lessee shall pay all
utility charges, related to the Leased Premises as required by this Agreement.
5. Use of Leased Premises. The Lessee shall use and occupy the
Leased Premises, subject to the terms and conditions hereof, for the
operation of its mental health counseling practice and for any other uses as
may be customary and incidental thereto and for any legally permitted purpose
6. Maintenance and Repairs. The Lessee, at its sole expense, shall
make all minor and/or maintenance repairs to improvements, if any, comprising
a portion of the Leased Premises, including, but not limited to, minor and/or
maintenance repairs and replacements to any interior finishes, routine
maintenance of heating and air conditioning systems, and plumbing and
electrical fixtures, necessary to keep the Leased Premises in good order and
repair. Lessee will, at the expiration of the term of this Lease or any
renewal hereof, deliver up the Leased Premises in as good order and condition
as received, reasonable wear and tear and damage by fire or other casualty of
the kind insured against in standard policies of fire insurance with extended
coverage excepted.
2
<PAGE>
Lessor shall maintain the roof, walls, floor and other structural
elements of any buildings constituting a portion of the Leased Premises.
Additionally, Lessor shall be responsible for repairs to and replacement of
the plumbing, electrical, heating and air conditioning systems.
In the absence of any act, omission or commission by the Lessor, or any
agent, servant or employee of the Lessor, and as otherwise imposed by
operation of law, Lessor shall not be liable for any damages ( whether caused
by the use of the Leased Premises, water, electricity, heating equipment, or
by theft or otherwise) to personal property that the Lessee or assigns or any
other person may sustain on or about the Leased Premises.
7. Hazard Insurance. The Lessee shall insure at its own expense its
personal property, improvements, inventory and contents against loss or
damage by fire or other hazards.
8. Condemnation.
(a) Total. If the Leased Premises are wholly condemned by any
public authority under the power of eminent domain, or any voluntary transfer
by Lessor to any condemning authority under threat of condemnation, the
Lessee's leasehold interest in the Leased Premises shall be deemed to
terminate as of the date on which title to the Leased Premises vests in the
condemning authority. Lessee shall at that time pay to the Lessor all
accrued but unpaid rent, prorated through such date of termination.
3
<PAGE>
Further, in the event of a total taking of the premises, Lessee shall
be entitled to immediate payment, from Lessor, of any and all rental sums
paid by Lessee, to Lessor, that were to be applied to the option purchase
price of the building, under terms of Paragraph ____ of this Lease. Further,
in the event of a total taking, Lessee retains the right to seek compensation
from the taking authority for the value of its interest in the Leased
Premises, and such other recoveries that it may be entitled to under law,
such as, moving expenses, business interruption expenses, value of leasehold,
etc.
(b) Partial. If a portion of the Leased Premises shall be
partially condemned by public authorities under the power of eminent domain,
or voluntary transfer to any condemning authority under threat of
condemnation, and if as a direct result of such occurrence a portion of the
Leased Premises shall be rendered partially untenantable, the base rent shall
thereafter be reduced to reflect any resulting decrease in the usable square
footage of the Leased Premises.
Notwithstanding the foregoing, if a partial condemnation of the Leased
Premises occurs which renders the Leased Premises untenantable then Lessee in
it's sole and absolute discretion may immediately terminate this Lease,
paying to Lessor any and all sums outstanding, and receiving from Lessor any
and all rental sums paid by Lessee, to Lessor, that were to be applied to the
option purchase price of the building, under terms of Paragraph _______, of
this Lease.
4
<PAGE>
Further, in the event of a partial taking of the premises, Lessee
retains the right to seek compensation from the taking authority for the
value of its interest in the Leased Premises, and such other recoveries that
it may be entitled to under law, such as, moving expenses, business
interruption expenses, value of leasehold, etc.
(c) No Entitlement to Compensation. Except as otherwise
provided for herein, the compensation awarded or paid upon such total or
partial taking of the Leased Premises shall belong to and be the sole
property of the Lessor except that Lessee shall have a lien against the
proceeds of the condemnation and/or against the real property, which may
foreclose upon in an action in equity or in law, equal to all rental sums
paid by Lessee, to Lessor, that were to be applied to the option purchase
price of the building, under terms of Paragraph ____, of this Lease.
Further, the Lessee shall be entitled to participate in the condemnation
proceedings and shall be entitled to compensation for the taking or impairing
of its unamortized portion of leasehold improvements made by to the Leased
Premises, and shall be entitled to recover any and all sums paid by the
condemning authority for moving expenses, business interruption, revenues
loss, etc.
9. Environmental Matters - Lessee's Obligations Except as
otherwise provided in and subject to the terms of paragraph 11 hereof, Lessee
agrees as follows:
(a) Legal Requirements. During the term of this Lease,
Lessee shall, at Lessee's sole cost and expense, comply with and observe all
state and federal environmental laws, and any and all rules and regulations
relating thereto ("Environmental Laws") pertaining to the Leased Premises or
Lessee's use and occupancy of the Leased Premises. Lessee shall promptly
deliver to Lessor copies of all notices which Lessee receives from
governmental authorities alleging any violation of Environmental Laws or
requesting compliance with any Environmental Laws. For purposes of the
foregoing, Lessee shall be deemed the "owner" of any fixtures or equipment
owned by lessee and located on the Leased Premises, by Lessee, and shall be
deemed the "Operator" of the Leased Premises and of all fixtures and
equipment located thereon, whether or not owned by Lessee. To the extent
such Environmental Laws require that any insurance be maintained, bonds
posted or periodic information be provided to any governmental agency.
Lessee shall provide the same.
5
<PAGE>
(b) Lessor's Right to Correct Environmental laws Violations..
If Lessee fails to comply with any applicable Environmental Laws, or if
Lessor reasonably believes a violation of the Environmental Laws is
threatened, Lessor shall have the right (but not the obligation) to act in
place of Lessee and to take such action as it may deem necessary or desirable
to ensure compliance or to mitigate, abate or correct the violation or
threatened violation. No less than fourteen (14) days prior to any action by
Lessor, Lessor will give written notice to Lessee of the proposed action, and
permit Lessee to ensure compliance or to mitigate, abate or correct the
violation or threatened violation, before Lessor takes any action. All costs
of any kind whatsoever incurred by Lessor in connection therewith, including
consultant's and attorneys' fees, shall be payable on demand, shall bear
interest at the rate of twelve percent (12%) per annum until paid, and shall
constitute additional rent.
(c) Indemnification. For any and all claims that arise out of
acts, omission and commissions that pre-date Lessee's tenancy of the real
property, Lessor shall indemnify, defend and hold Lessee harmless from and
against any and all claims, losses, damages, liabilities, costs and expenses,
including attorneys' fees, arising from Lessor's failure to comply with its
obligations under paragraph 9, or the failure of Lessor's agents, servants,
employees, predecessors in interest, and/or assignors. The foregoing
provision shall survive the expiration or earlier termination of this Lease.
6
<PAGE>
For any and all claims that arise out of the acts, omission and
commissions of , subsequent to the effective date of this Lease, Lessee shall
indemnify, defend and hold Lessor harmless from and against any and all
claims, losses, damages, liabilities, costs and expenses, including
attorneys' fees, a-rising from Lessee's failure to comply with its
obligations under paragraph 9. The foregoing provision shall survive the
expiration or earlier termination of this Lease.
10. Indemnity to Lessor and Liability Insurance. Lessee will
indemnify and save harmless the Lessor from and against any and all loss,
liability, damage and expense of any and all loss, liability, damage and
expense of any kind or nature whatsoever incurred to or expended by Lessor
caused by, relating to or arising out of Lessee's negligent or unlawful use
of, or activities in, upon or around, the Leased Premises.
For so long as this Lease remains in effect, Lessee will keep in
force at its own expense comprehensive general liability insurance with an
insurer reasonably satisfactory to Lessor in the amount of $500,000.00 for
injury (fatal or nonfatal) to or death of any one person and $1,000,000.00
for injury to or death of more than one person in any one occurrence and
$500,000.00 fo damage to or destruction of property in or upon the Leased
7
<PAGE>
Premises. The Lessor shall be a named additional insured under the policy or
policies evidencing the foregoing insurance coverage, and each such policy (if
available) shall require at least thirty (30) days' prior written notice to the
Lessor before lapse or discontinuance of coverage (whether due to nonpayment,
nonrenewable or passage of time) for any reason or before any modification or
other change in the terms of coverage. Promptly upon the request of the Lessor
at any time and from time to time, the Lessee shall provide Lessor with copies
of each such policy as well as a certificate of insurance evidencing such
coverage, or provide Lessor with adequate information to permit Lessor to obtain
its own copies.
11. Indemnity to Lessee and Liability Insurance. Lessor will
indemnify and save harmless the from and against any and all loss, liability,
damage and expense of any kind or nature whatsoever incurred to or expended
by Lessee caused by, relating to or arising out of Lessor's negligent or
unlawful use of, or activities in, upon or around, the Leased Premises.
For so long as this Lease remains in effect, Lessor will keep in force
at its own expense comprehensive general liability insurance with an insurer
reasonably satisfactory to Lessee in the amount of $500,000.00 for injury
(fatal or nonfatal) to or death of any one person and $1,000,000.00 for
injury to or death of more than one person in any one occurrence and
$500,000.00 for damage to or destruction of property in or upon the Leased
Premises. The Lessee shall be a named additional insured under the policy or
policies evidencing the foregoing coverage, and each such policy (if
available) shall require at least thirty (30) days' prior written notice to
the Lessee before lapse or discontinuance of coverage (whether due to
nonpayment, nonrenewable or passage of time) for any reason or before any
modification or other change in the terms of coverage. Promptly upon the
request of the Lessee at any time and from time to time, the Lessor shall
provide Lessee with copies of each such policy as well as a certificate of
insurance evidencing such coverage, or provide Lessee with adequate
information to permit Lessee to obtain its own copies.
8
<PAGE>
12. Assignment and Subletting. The Lessee shall not have
the right to assign this Lease or sublet, or permit any other person to
occupy, the Leased Premised, or any part thereof, except upon obtaining the
prior written consent of the Lessor, which consent shall not be unreasonably
withheld, conditioned or delayed, other than to an affiliated (parent, child
or sibling) organization, or its agents, servants and/or employees. No such
assignment or subletting shall relieve the Lessee of its obligations
hereunder. Lessee shall pay all of Lessor's reasonable costs and expenses
(including, but not limited to, attorneys' fees) incurred or expended in
connection with any such sublease or assignment which shall not exceed Five
Hundred ($500.00) Dollars.
13. Default, All items of indebtedness, sums, or damages which may
become owing by Lessee to Lessor under the terms of this Agreement, shall be
considered items of rent, and the Lessor shall have the liens and remedies
for the collection of rent as are provided herein and by law or in equity for
the collection of rent.
Upon the breach of any covenant, term, condition or provision herein
contained, or any covenant, term, condition or provision contained in any
other Agreement between Lessee and Lessor, or the repudiation of this Lease
by the Lessee, or the failure of the to move into the Leased Premises at the
beginning of the term, or the abandonment or vacation of the Leased Premises
by the Lessee, or the adjudication of Lessee as bankrupt, or the insolvency
9
<PAGE>
of Lessee, or the failure or inability of Lessee to pay its debts as the same
become due, or the appointment of a receiver or trustee of the Lessee's
property, or upon the business conducted on the Leased Premises being
substantially terminated at any time, or upon the failure of performance of any
of the covenants and conditions contained in this Lease, or upon the failure to
pay any amount considered "rent" under the terms and conditions of this Lease,
an "Event of Default" shall be deemed to have occurred. If an Event of Default
is not cured by Lessee within thirty (30) days after Lessor gives written notice
to Lessee of such Event of Default, then Lessor shall have the right to, at its
option, immediately terminate this Lease and assume possession and control of
the Leased Premises, in the procedure established, and as provided for by the
laws of the Commonwealth of Virginia, in which event Lessee shall quit and
surrender the Leased Premises to the Lessor; provided that neither terminating
this Lease under this clause or recovering possession of the Leased Premises
shall deprive the Lessor of any other action or remedy against the Lessee for
possession, for rent, or for damages; nor deprive Lessee of its claim to all
rental sums paid by Lessee, to Lessor, that were to be applied to the option
purchase price of the building, under terms of Paragraph ___, of this Lease.
Lessor acknowledges that Lessee may assert a lien against the real property for
any and all sums due and owing to it, which represents all rental sums paid by
Lessee, to Lessor, that were to be applied to the option purchase price of the
building, under terms of Paragraph _____, of this Lease.
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<PAGE>
All of Lessor's and Lessee's rights and remedies shall be cumulative
and shall not preclude the Lessor and Lessee from exercising at any time and
from time to time all other rights and remedies provided by law or in equity.
Lessor further acknowledges and agrees that should the certificate of
occupancy for the real property be withdrawn, or that the building is
non-tenantable due to the acts, omissions or commission of the Lessor, or its
agents, servants and/or employees, then in it's sole and absolute discretion
may immediately terminate this Lease, paying to Lessor any and all sums
outstanding, and receiving from Lessor and all rental sums paid by Lessee, to
Lessor, that were to be applied to the option purchase price of the building,
under terms of Paragraph ____, of this Lease.
In the alternative, Lessee may continue with this lease, however, all
obligations for rent are waived during the period of time that no certificate
of occupancy exists and/or the build in non-tenantable.
14. Waiver of Subrogation. Notwithstanding any other
provisions of this Agreement, but subject to the consent of Lessor's and
Lessee's insurance carriers, it is understood and agreed that in the event of
any loss or damage to the Leased Premises by fire or any other perils
customarily under extended coverage portions of fire or other insurance
policies, regardless of the cause thereof, and whether or not the same be
caused by the carelessness or negligence of the Lessor or Lessee, their
servants, employees, agents, visitors, or licenses, neither the Lessee nor
Lessor nor their insurance carriers shall have any right of subrogation
against the Lessee or Lessor, their servants, employees, agents, visitors or
licenses for any such damage or loss sustained. Lessor and Lessee agree to
apply to their respective insurance carriers for a policy rider consenting to
the foregoing waiver of subrogation provisions.
11
<PAGE>
15. Improvements and Alterations, Any improvements or changes to the
Leased Premises, other than maintenance and repairs which are the obligation
of the Lessor, shall be made at the expense of the Lessee. Before making any
alterations or improvements, the written consent of the Lessor shall be first
obtained, which shall provide, in good faith, whether Lessor would require
Lessee to remove the improvements at the termination of the Lease, which
consent shall not be unreasonably withheld, conditioned or delayed. All such
improvements or alterations to the Leased Premises which become fixtures,
including, without Imitation, all electric wiring, electric fixtures,
plumbing, and heating and air conditioning systems, shall be deemed to be
part of the realty and shall become the property of the Lessor at the
termination of this Lease and shall not be removed at the expiration or
earlier termination of this Lease, unless so requested by Lessor at the time
that Lessor approves such improvements in which event Lessee agrees to so do
and to repair promptly any damage caused by such removal. No improvements or
changes shall be made without obtaining all necessary building permits.
16. Removal Upon Termination. Lessee shall at the end of the initial
term of this Lease or any renewal, extension, or sooner termination thereof
as permitted by this Agreement, remove from the Leased Premises rubbish or
any refuse matter and leave the Leased Premises broom clean. Provided Lessee
is not in default thereunder, Lessee shall have the right to remove any of
its trade fixtures from the Leased Premises, provided that it repairs any and
all damage caused by such removal. All goods and property on the Leased
Premises left after Lessee's removal shall be liable to distress and may be
distrained and sold for any rent in arrears, in accordance with Virginia law,
cost or repairs to the Leased Premises or fixtures thereof made necessary by
misuse or neglect on the part of the Lessee.
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<PAGE>
17. Covenant and Agreement of Lessor. Lessor covenants and agrees
that Lessee, upon paying the rental herein reserved and upon the
performance of the covenants, conditions and agreements herein provided to
be observed and performed by Lessee, shall peaceably and quietly hold and
enjoy the Leased Premises for and during the term hereof and every
extension or renewal thereof, without interference from any person or
entity claiming any right, title or interest in said real property, by,
through or under the Lessor.
Lessor further covenants and agrees that the real property that is the
subject of this Lease, meets and/or exceeds all applicable construction and
safety codes and ordinances; that the real property complies with all current
zoning ordinances for its location, or that variances have been applied for
and obtained; that adequate designated parking is provided with the real
property to permit its use as a medical or professional office building,- and
that at the time of the effective date of this Lease that a current
certificate of occupancy exists, permitting immediate occupancy of the
Premises as of the effective date of this Lease.
18. Expenses and Attorney's Fees. Upon the successful enforcement of
any amount claimed due and owing hereunder, the Lessor and Lessee agree to
pay all reasonable expenses and cost incurred or expended by the other party
by reason of any breach by Lessor or Lessee of their respective obligations
hereunder (including but not limited to, reasonable attorney's fees), in the
event such non-breaching party employs the service of any attorney to enforce
the performance of the covenants hereof by such breaching party.
13
<PAGE>
19. Subordination. Lessee hereby covenants and agrees that its
leasehold interest under the terms of this Agreement shall be subordinate to
any deed of trust, mortgage and other security interest granted by Lessor
against the Leased Premises provided that Lessee's use and enjoyment of the
Leased Premises is not disturbed. This subordination shall be
self-operative; however, Lessee agrees to execute any reasonable
documentation consistent with the Lease as required by Lessor to evidence any
such subordination. However, Lessor acknowledges and agrees that the option
to purchase the real property that is part of Lease shall not be subordinated
to any after-created interest in the property, and that this Lease may be
properly recorded as evidence of the Lessee's interest in the property.
20. Miscellaneous Covenants of Lessor and Lessee. Lessor and Lessee
each covenant that (a) it will comply with all Federal, State and/or
municipal laws, ordinances, and regulations relating to its ownership of the
real property and the business conducted in the Leased Premises and to its
use of the Leased Premises, (b) it will not use, or permit to be used, the
Leased Premises for any illegal or immoral purpose, (c) it will allow the
Lessor to show the Leased Premises both during and after Lessee's normal
business hours to prospective tenants or purchasers, provide Lessor access to
the Leased Premises after normal business hours for said purpose and to place
signs on the Leased Premises advertising its availability for sale or lease,
all only upon the event that Lessee gives Lessor written notice of the intent
to terminate the Lease and not exercise its option to Purchase. [too vague]
14
<PAGE>
21. Notices. If either party desires to give notice to the other
in connection with and according to the terms of this Lease, such notice
shall be given by: (a) registered or certified mail, return receipt requested
(and it shall be deemed received three (3) days after being deposited in an
United States mail with Postage prepaid); or, (b) by a recognized overnight
carrier with return receipt, and it shall be deemed received the following
business day, and such notices shall be addressed as follows:
To the Lessor: Dianne Jones-Freeman
1521 Jefferson Forest Lane
Blacksburg, VA 24060
To the Lessee: Bruce A. Shear, President
PHC, Inc.
200 Lake Street, Suite 200
Peabody, MA 01960
Nothing contained herein shall be construed as prohibiting the parties
respectively from changing the place at which notice is to be given, but no
such change shall be effective unless and until it shall have been
accomplished by written notice given in the manner set forth in this
section.
22. Keys. Lessee will surrender any and all keys to the Leased
Premises at the termination of this Lease or pay the cost of replacing all
locks for the Leased Premises.
15
<PAGE>
23. Miscellaneous.
(a) This Lease Agreement may be executed by the Lessor and the
Lessee in any number of counterparts (each of which shall be deemed to be
an original, and all of which shall be deemed to represent one and the same
agreement), and merges all prior or contemporaneous understandings and
agreements between the parties hereto with respect to the Leased Premises.
(b) The failure of either party to insist, in any one or more
instances, upon strict performance of any of the covenants of this Agreement,
or to exercise any option herein contained, shall not be construed as a
waiver or a relinquishment for the future of such covenant or option, but the
same shall continue and remain in full force and effect. The receipt by the
Lessor of rent with knowledge of the breach of any covenant hereof shall be
deemed a waiver of such breach, but no other waiver by the parties of any
provision hereof shall be deemed to have been made unless expressed in
writing and signed by the parties so charged with the waiver.
(c) This Lease and the covenants and conditions herein
contained shall bind and inure to the benefit of the Lessor and the Lessee
and their respective heirs, successors and their permitted assigns.
(d) This Lease shall be construed in accordance with, and the
respective rights, obligations and remedies of the parties shall be governed
in all respects by, the laws of the Commonwealth of Virginia.
(e) The headings and subheadings of the provisions herein are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
16
<PAGE>
.(f) Both Lessor and Lessee represent and warrant that there are
no claims for brokerage commissions or finders' fees in connection with the
execution of this Agreement.
(g) No amendment to this Lease may be made, unless in writing,
and signed by both parties.
24. Option to Purchase Property. Lessor hereby grants to Lessee an
option to purchase the Leased Premises which shall not be severable from
the remaining terms and conditions of this Lease and shall not survive the
expiration or earlier termination of this Lease. The legal description of
the property is as follows:
The terms and conditions of the option hereby granted are as follows:
(a) Exercise of Options; The Lessee may exercise the
option to purchase the Property at any time from and after execution of this
Lease by delivering written notice to the Lessor at any time thereafter,
provided, however, that the Lessee is not then in default hereunder.
(b) Purchase Price; The purchase price for the Property shall
be the sum of Four Hundred Forty Five Thousand ($445,000.00) Dollars payable
check, in cash, certified funds or by wire transfer.
17
<PAGE>
(c) Credit Against Purchase Price; Lessor acknowledges and
agrees that Lessee, upon exercise of it's option, shall be entitled to a
credit against the purchase price equal to One Thousand Five Hundred Thirty
Three and 33/100 Dollars ($1,533.33) per month for each month that rent has
been paid under the terms of this Lease. For those months that there has
been any pro-ration of the rent, then Lessee shall be entitled to a
corresponding credit against the option purchase price.
(d) Closing & Documentation; At closing, the Lessor shall
convey to Lessee fee simple absolute title to the Leased Premises by Warranty
Deed, free and clear of all liens and encumbrances created and/or suffered by
the Lessor, subject only to such easements and restrictions as were of record
on the date hereof, laws, ordinances and zoning regulations, and the rights
of any tenants or occupants of the Leased Premises, if any. As evidence of
title, the Lessor shall, at its sole cost and expense, provide to Lessee a
commitment for and an Owner's Policy of Title Insurance without standard
exceptions, in an amount not less than the purchase price, issued by a title
insurer licensed to conduct business in the Commonwealth of Virginia. At the
closing, the Lessor shall execute and deliver the following documents to the
Lessee: (a) Warranty Deed for the Property, (b) a Bill of Sale (without
warranty of title) conveying all of the Lessee's right, title and interest in
and to the Improvements and any improvements upon the Property as may
hereafter be made pursuant to this Lease; (c) the title insurance commitment
and premium for the issuance of the Owner's Policy of Title Insurance; (d) a
Certified Resolution of Authority to engage in the subject transaction (if
necessary); (e) a Closing Statement reflecting the transaction; and (f) any
other documentation which the title insurer or Lessee's lender may reasonably
request. At the closing, the Lessee shall: (a) pay the purchase price for
the Property to the Lessor; (b) execute and deliver to the Lessor: (i) a
Certified Resolution of Authority to engage in the subject transaction (if
necessary); (ii) a Closing Statement reflecting the transaction; and (iii)
any other documentation which the title insurer or Lessee's lender may
reasonably request.
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<PAGE>
(e) Payment Obligations; Lessor shall pay all applicable real
estate transfer taxes as well as the title insurance premium. The lessee
shall pay all recording fees and its other closing costs.
(f) Possession; Lessee shall have possession of the Property
at the closing.
(g) Discharge of Liens; The Lessor shall, at or prior to
closing, discharge all mortgages, liens or encumbrances upon the Property to
the extent that same were not created or suffered by the Lessee.
25. Right of First Refusal. In the event that the Lessor shall elect
to sell the Property which is the subject of the Lease prior to the
expiration of the term of the Lease or any extension thereof, the Lessor
hereby grants to the Lessee a right of first refusal to purchase the Property
upon the same terms and conditions, if more favorable than the option terms,
or at the option terms if they are more favorable to the Lessee. In the
event that the Lessor has elected to sell the Property and has received a
bona fide offer to purchase the same ("Offer"), the Lessor shall deliver a
copy of such offer to the Lessee and the Lessee shall have a period of thirty
(30) days following its receipt thereof within which to, pursuant to a
written notice delivered to the Lessor, either: (a) waive its right of first
refusal and option; (b) agree to purchase the Property upon the same terms
and conditions set forth in the Offer; or (c) exercise it's option to
purchase contained in this lease.
19
<PAGE>
If the Lessee waives its right of first refusal and option and the
Lessor accepts the third party offer to purchase the real property, then
Lessor may terminate this Lease on ninety (90) day written notice to the
Lessee. In the event of termination of the lease under this paragraph, then
Lessor shall pay to Lessee all sums previously paid by Lessee that would have
applied to the purchase price, had the Lessee exercised its option to
purchase the real property.
WITNESS the following signatures and seals.
LESSOR:
_________________________________
Dianne Jones-Freeman
_________________________________
James E. Garrison, Jr.
LESSEE:
PIONEER COUNSELING OF VIRGINIA INC.
_________________________________
By:
Its: President
20
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit
City OF Roanoke )
This day personally appeared before me Dianne Jones-Freeman and made oath
that the foregoing Lease is true and correct to the best of her knowledge,
information and belief.
Subscribed and sworn before this 29th day of August 1997.
_______________________________
Notary Public
My commission expires: May 31, 2001
COMMONWEALTH OF VIRGINIA )
) to-wit
City OF Roanoke )
This day personally appeared before me James E. Garrison, Jr. and made
oath that the foregoing Lease is true and correct to the best of his
knowledge, information and belief.
Subscribed and sworn before this 29th day of August 1997.
_______________________________
Notary Public
My commission expires: May 31, 2001
21
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit
__________ OF ______________ )
This day personally appeared before me ______________________ on behalf
of Pioneer Counseling of Virginia, Inc. and made oath that the foregoing
Lease is true and correct to the best of his/her knowledge, information and
belief.
Subscribed and sworn before this _______ day of ______________, 1997.
_______________________________
Notary Public
My commission expires: _____________________
F-.\DATA\PIONEER\CASV\LEASE\AGT.4
22
<PAGE>
Exhibit 10.128
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this ________
day of ________, 1997, with an effective date of ________, 1997, by and
between PIONEER COUNSELING OF VIRGINIA INC., a Massachusetts corporation
(hereinafter referred to as "Employer"), and DIANNE JONES-FREEMAN, a
behavioral health professional, licensed to practice in the Commonwealth of
Virginia (hereinafter referred to as "Employee").
WITNESSETH;
WHEREAS, Employer is a Massachusetts corporation which renders
professional psychiatric counseling services through employees who are duly
licensed to practice in the Commonwealth of Virginia, including, but not
limited to the operation of an outpatient clinic in Salem, Virginia (the
'Clinic"); and,
WHEREAS Employee is a behavioral health professional, licensed to
practice in the Commonwealth of Virginia, is experienced in the operation and
management of behavioral health clinics, and desires to be employed by
Employer so that she may devote her best efforts on a concentrated and
continuous basis to the rendering of behavioral health services to patients
and to the management and operation of the Clinic on behalf of Employer; and
WHEREAS, Employer desires to employ Employee, and Employee desires to
be employed by Employer, 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 Employment
A. Engagement and Acceptance. Employer hereby employs, engages, and
hires Employee, and Employee hereby accepts and agrees to such
hiring, engagement, and employment, to render professional
behavioral health services exclusively for the benefit of
Employer to patients of Employer and to provide administrative
services at the Clinic, or at other facilities located within 50
miles of the Clinic's Blacksburg location and its' Salem location
designated by Employer. Employee agrees to perform All duties and
services in accordance with all policies and procedures
established by Employer (both existing and future), all federal,
state and local laws and ordinances (both existing and future),
and all applicable rules of professional conduct (both existing
and future).
B. Duties. During the term of this Agreement, Employee shall
perform as the Chief Operating Officer of the Clinic and as a
behavioral health professional as provided herein.
1. Clinical and Administrative Duties. Employee shall as part of
her duties, provide clinical and administrative services at
the Offices of Employer, including, but not limited to service
as the Chief Operating Officer of the Clinic, in accord with
the rules and regulations of the clinic and the corporation
(both existing and future), or at such other locations as may
be designated from time to time by Employer, at reasonable
times to be set by Employer, exclusively.
a. Duties Varied. The duties of Employee will be varied and
may range from direct patient care, including treatment of
patients at the clinic, or at a site designated by
Employer, to providing administrative, marketing services,
and other duties as assigned.
b. Coverage. Employee's duties shall include the provision of
administrative on call coverage at all times. Employee
shall perform such duties under the supervision and
direction of the Vice President of Operations, or other
person as designated by the Employer.
c. Conditions. The performance of such duties may require
travel and may also require Employee to be directly
involved in the development of marketing and business
development strategies in conjunction with certain
administrative employees of the Employer, PHC, Inc. it's
corporate parent, and/or other affiliated companies.
Except with regard to duties assigned by PHC, Employee
shall perform all such administrative duties under the
supervision and direction of the Vice President of
Operations, or other person as designated by the Employer.
All professional decisions relative to patient care shall
be made by Employee and shall be in accordance with
appropriate standards of professional and corporate
practice.
d. Clinical Practice. Employee shall have the opportunity to
provide treatment of patients at the Clinic's Blacksburg
location one (1) day per week, or its equivalent number of
hours in reasonable blocks.
C. Licensure. Employee shall as of the date of this Agreement, be
licensed to render professional behavioral health services, as a
licensed professional counselor, in the Commonwealth of Virginia
and shall be certified by the ________________ and shall,
throughout the term of this Agreement, maintain her license and
privileges to render professional behavioral health services in
the Commonwealth of Virginia, as a licensed professional
counselor.
2
<PAGE>
D. Equipment and Material. Employer shall supply to Employee all
equipment and materials which Employer customarily provides to
similarly situated employees for performance of her duties
hereunder and which are customary in the clinical and
administrative practice of professional behavioral health
services. All equipment and materials provided Employee shall
remain the sole property of the Employer, and, upon termination
of the relationship between Employer and Employee are to be
immediately returned to Employer without any further demand being
necessary.
E. Exclusive Employment. Employee, during the term of this
agreement will not, without the express prior written consent of
Employer, accept employment or practice as a behavioral health
professional, for the benefit of anyone other than Employer, at a
health care facility or in a health care setting other than at
the offices of Employer, or at such other locations as may be
designated from time to time by Employer.
F. Practice Standards. During the term of this agreement Employee
shall use her best efforts in the performance of her duties under
this Agreement in accordance with the rules and regulations of
Employer and of the professional staff of the clinic and the
applicable standards for the behavioral health profession, and
all such service shall be performed in compliance with All
corporate policies, federal, state and local laws, ordinances and
regulations.
G. Good Standing. Employee Shall at All times during the term of
this Agreement:
1. Be a member in good standing on the professional staff of the
Clinic with appropriate privileges in
___________________________________.
2. Be, and remain, a participating provider in the Medicare and
Medicaid programs (Titles XVIII and XIX of the Social Security
Act, respectively) if applicable, and with any managed care
program with which Employer and/or the Clinic is now or
hereafter becomes affiliated.
3. Maintain her licensure in good standing with the regulatory
agencies of the government of the Commonwealth of Virginia.
H. Staff Privileges. This Agreement is not and should not be
construed as any form of guarantee or assurance that Employee
will receive necessary professional staff membership or
privileges at the Clinic for purposes of discharging her
responsibilities hereunder, and the application, appointment,
reappointment and granting of such privileges shall be governed
solely by the Professional Staff Bylaws of the Clinic then in
effect. Employee represents and warrants, that she possesses the
professional skills and training necessary to perform the
services which she is to perform hereunder.
I. Applicable Rules and Regulations. Employee shall provide
services under this Agreement in accordance with all quality
standards established, from time to time by the Employer and by
the Clinic for its professional staff and in compliance with all
applicable statutes, regulations, rules, and directives of
federal, state and other governmental and regulatory bodies
having jurisdiction over the Employer and/or the Clinic; the
Bylaws, rules and regulations of the Clinic and its professional
staff, applicable standards of the Joint Commission on
Accreditation of Healthcare Organizations; the rules, regulations
and requirements of third party payors; and current accepted and
approved methods and practices applicable to the practice of
professional counseling.
3
<PAGE>
J. Loss of Privileges or Licensure.
1. Should Employee's license to practice as a licensed
professional counselor in the Commonwealth of Virginia, be
suspended, revoked or canceled, then, effective as of the date
of the suspension, revocation or cancellation of such license,
Employer may terminate this Agreement, effective immediately.
Employer's failure to act immediately upon the suspension,
revocation or cancellation of such license does not constitute
a waiver of any of the rights established under this paragraph.
a. Employee warrants and represents that her license to
practice psychology in Virginia is currently in good
standing, and that there is not presently pending against
her any action, claim or proceeding, or any threatened
action, claim or proceeding, the outcome of which could
result in the revocation, suspension or restriction on her
license, or her ability to practice psychology.
2. Should Employee's professional staff privileges on the
professional staff of the Clinic be restricted or made subject
to supervision in accordance with the applicable professional
staff bylaws, rules and regulations or comparable rules,
regulations, or policies applicable to the practice of
professional counseling, then Employee may continue to render
services hereunder only in accordance with such restriction or
supervision as approved by Employer. If Employer determines,
in its sole discretion, that imposition of such restriction
or supervision of Employee's privileges unreasonably
interferes with the performance of Employee's duties under
this Agreement, Employer may terminate this Agreement,
effective immediately. Employees failure to act immediately
upon the suspension, revocation or cancellation of such
license does not constitute a waiver of any of the rights
established under this paragraph.
K. Peer Review. Employee Shall participate in such department
meetings, quality management and other peer review activities as
required by Employer and/or the Clinic.
L. Maintenance of Skills. Throughout the term of this agreement,
Employee agrees to maintain her professional skills as evidenced
by participation in appropriate continuing professional education
activities and will maintain good standing in professional
associations.
M. Professional Liability Insurance. Employee is to provide
professional liability insurance coverage, with minimum policy
limits of $1,000,000 per occurrence, $3,000,000 in the aggregate,
for the professional services being rendered under the terms of
this Agreement. Employee shall cause Employer to be endorsed on
said policy as an additional named insured. Employee agrees to
provide to Employer proof of the existence of said insurance
coverage upon the request of the Employer.
In the event that the professional liability insurance maintained
by Employee is a "claims made" policy, Employee shall continue
such policy in effect, or obtain comparable "tail coverage" to
complement/supplement the claims made policy, to be maintained for
a period of three (3) years following the termination of this
Agreement, regardless of the circumstances giving rise to such
termination. Employee agrees to have Employer endorsed as an
additional insured under the terms of said insurance policy, and
to provide to Employer proof of the existence of the insurance
coverage upon the request of Employer. Employee acknowledges that
Employer is under no obligation to provide professional liability
coverage for Employee.
4
<PAGE>
2. Billings and Collections.
A. Assignment of Right to Bill and Collect. Employer shall, in
the name of and on behalf of Employee, bill patients, insurance
companies and other third-party payers and collect the
professional fees for professional services rendered by
Employee under the terms of this Agreement. Employee hereby
appoints Employer for the term of this Agreement to be her true
and lawful attorney-in-fact for the following purposes.
1. To bill patients, insurance companies and other third-party
payers in Employee's name and on her behalf; and,
2 To collect accounts receivable resulting from such billing in
Employee's name and on her behalf; and,
3. To receive on behalf of Employee payments from insurance
companies, prepayments from health care plans, reimbursements
from Medicare and Medicaid, and all other third-party
payments from insurance companies; and,
4. To take possession of and endorse in the name of Employee any
notes, checks, money orders, insurance payments, and other
instruments received in payment of accounts receivable; and,
5. To initiate the institution of legal proceedings in the name
of Employee to collect any accounts and monies owed to
Employee, to enforce the rights of Employee as creditor under
any contract or m connection with the rendering of any
service; and,
6. To contest adjustments and denials by governmental agencies
(or their fiscal intermediaries) and other third-party payors.
All monies shall be accounted for by Employer as being directly
attributable to Employee. Employee may perform the functions or
exercise the rights set forth in this section only with the consent of
Employer. Employee shall execute a Power of Attorney in form and
substance acceptable to the parties hereto in connection with the
rights and powers granted to Employer pursuant to Section 2, Employee
shall cooperate with and at the request of Employer shall provide
reasonable assistance to Employer with the functions set forth herein.
In the performance of the services described in this Section 2,
Employer shall use reasonable efforts to collect such professional fees
and shall comply with all managed care contracts and all applicable
laws, rules and regulations.
B. Records and Reports. Employee shall complete medical records in
a timely and legible fashion as required by applicable laws,
corporate policies and procedures, and in keeping with generally
accepted standards of record keeping and documentation, and as
required by third party payors to permit billing for and
collection of revenues for professional services rendered, and
shall maintain and furnish Employer with such records, reports
and documentation evidencing the performance of Employee's duties
hereunder as may be requested by Employer in accordance with
applicable law. Employee acknowledges that All medical records,
reports and documentation created hereunder are the sole and
exclusive property of the Employer, and may not be removed from
Employees premises without the express prior approval of the Vice
President of Operations, or such other person designated by the
Employer.
5
<PAGE>
3 Obligations of Employer.
A. Overall Function. Employer shall provide or arrange for such
services and amenities as are necessary or appropriate for the
efficient professional practice and the administrative
responsibilities of Employee pursuant to this Agreement.
Employer shall comply, and shall use its best efforts to cause
its employees to comply, with all corporate policies, applicable
federal, state and local laws, rules and regulations in its
provision or services hereunder.
B. General Administrative Services.
1. Employer shall provide management and administration of
nonprofessional services relating to the professional
practice of Employee.
2. Employer shall supply to Employee the ordinary, necessary,
and appropriate services for the efficient operation of
Employee's clinical practice, including without limitation,
necessary clerical, accounting, purchasing, payroll, legal,
bookkeeping and computer services, information management,
printing, postage and duplication and medical services, as
provided by Employer to other similarly situated employees.
3. Employer shall maintain all files and records relating to
the professional practice of Employee, including but not
limited to, accounting, billing, collection, and financial
records and patient files and medical records. The
management of all files and records shall comply with all
applicable federal, state and local statutes and
regulations, and all patient files and medical records
shall be located so that they are readily accessible for
patient care, consistent with ordinary records management
practices. Employee shall supervise the preparation of, and
direct the contents of, patient medical records, all of
which shall remain confidential in accordance with
applicable laws and regulations. All original patient
records shall be and remain the property of Employer,
subject to applicable Virginia law.
4. Employer shall take such legal and appropriate actions in
the name of and on behalf of Employee as are required to
collect professional fees and pay in a timely manner all
expenses associated with Employee's medical practice, which
are the responsibility of Employer, pursuant to this
Agreement, except as otherwise agreed in writing between
Employer and Employee.
5. Employer shall distribute to Employee compensation and
other amounts due to her pursuant to this Agreement upon
such terms and at such times as are provided in Section 4
hereof.
6. Employer shall not refer a patient for Designated Health
Services, as defined in 42 U.S.C. (sub-section) 1395
"Stark") to, or provide Designated Health Services to, a
patient upon a referral from an entity or person with which
the physician or an immediate family member has a financial
relationship other than as permitted by exceptions set
forth in Stark.
6
<PAGE>
It is not a purpose of this Agreement to induce or
encourage the referral of patients, and there is no
requirement under this Agreement, or under any other
agreement between the Employer and Employee, that the
Employee refer any patient to the Employer or to any other
entity for the delivery of health care services. The
compensation paid to the Employee under this Agreement is
made for professional services to be rendered, and no
payment to be made under this Agreement will be in return
for the referral of patients or in return for purchasing,
leasing, ordering or arranging for any good facility, item
or service from the Employer or any other entity.
C. Professional Practice of Employee. Employee acknowledges that a
purpose of this Agreement is to relieve Employee, to the maximum
extent possible, of the accounting, purchasing, non-professional
personnel, and other aspects associated with her clinical
practice. Employer shall have no authority directly or
indirectly, to perform or supervise and shall not perform or
supervise any professional function performed by Employee.
Employer may, however, advise Employee as to the relationship
between her performance of her professional functions and the
overall a and business functions of her practice, to the extent
permitted by applicable law.
D. Facilities/Premises. Employer shall make available to Employee
within the Clinic, an office in which to provide those services
contemplated by this Agreement. Provided, that in the event that
Employer's rights to use any such premises shall terminate,
Employer shall use its best efforts to provide other suitable
premises to be used by Employee. Employer shall maintain the
premises and make all necessary repairs thereto. Employee shall
use and occupy the premises provided to her by Employer
exclusively for the provision of those services contemplated by
this Agreement.
E. Personal Property. Employer shall provide Employee with the use
of equipment, furniture, fixtures, furnishing and other personal
property acquired by Employer for the use of Employee pursuant to
the terms hereof (the "Personal Property").
F. Inventory and Supplies. Employer shall order and purchase
inventory and supplies, and such other ordinary, necessary or
appropriate materials which are necessary to the practice of
Employee, in accord with what Employer provides to other
similarly situated employees.
G. Advertising and Public Relations. As Employer deems appropriate
in its sole and absolute discretion, with the consultation and
prior consent of Employee, Employer may implement (and where
requested) any appropriate local public relations or advertising
program on behalf of Employee with appropriate emphasis on public
awareness of the availability of Employee's services. Employer
may also design and implement national or other non-local public
relations or advertising programs on behalf of Employee, as
Employer with Employee's consultation and consent, deems
appropriate. The parties hereto agree that all public relations
and advertising programs shall be conducted in compliance with
applicable standards of professional ethics, laws, regulations
and Employer's corporate policies.
7
<PAGE>
H. Personnel. Employer, as Employer deems appropriate in its sole
and absolute discretion, shall provide professional support and
administrative, clerical, secretarial bookkeeping and collection
personnel as reasonably necessary for the efficient conduct of
Employee's practice. Such personnel shall be employees of
Employer, and Employer shall determine and cause to be paid the
salaries and benefits of all such personnel. If Employee is
dissatisfied with the services of any such personnel who provide
services primarily for Employee, Employee shall consult with the
appropriate administrator of Employer, and Employer shall in good
faith determine whether the performance of that employee could be
brought to acceptable levels through counsel and assistance, or
whether such employee should be re-assigned or terminated.
Employer shall maintain established working relationships
whenever possible and Employer shall make every effort consistent
with sound business practices to honor the specific requests of
Employee with regard to the assignment of Employer's employees.
I. Quality Assurance. Employer shall assist Employee as required in
fulfilling her professional obligation to patients to maintain a
high quality of professional services. Employer recognizes and
respects the professional capabilities of Employee and
acknowledges that nothing in this Agreement is intended to
interfere with the exercise of Employee's independent
professional judgment.
4 Compensation.
A. Annual Remuneration
1. Base Salary. For services rendered during the term of this
Agreement and any renewals thereof, unless otherwise agreed
to by the parties, Employee shall be paid an annual salary
which shall be payable in semi-monthly installments during
each calendar month, in accord with Employer's standard
payroll practice, a base salary in the amount of Sixty
Thousand ($60,000.00) Dollars.
2. Collections Sharing. In addition to the Base Salary
described above, in accordance with it's payroll policy,
Employer shall pay to Employee the following-
a. One Hundred (100%) Percent of the amounts collected
by Employer, from patients, insurers and other third
party payors, of the first Ten Thousand ($10,000.00)
Dollars in net collections, from clinical
professional services rendered personally by
Employee, under the terms and condition of this
Agreement.
b. Fifty (50%) Percent of the amounts collected by
Employer, from patients, insurers and other third
party payors, of all amounts in excess of the first
Ten Thousand ($10,000.00) Dollars in net collections,
from clinical professional services rendered
personally by Employee under the terms and condition
of this Agreement.
c. Employer's obligation to any and all sums described
in these Subsections 2(a) through (b), inclusive,
requires that Employer actually receive the funds to
be shared with Employee.
8
<PAGE>
(1) Should Employer be required to reimburse or pay
back any or all of the collections that are
subject of this Collections Sharing provision,
and, in exercise of good business judgment
Employer makes that reimbursement or repayment,
then Employee agrees to immediately return to
Employer Employee's portion of any and all of
the collections reimbursed or paid back by
Employer. Employee further agrees that in the
event that it does not make immediate
reimbursement to Employer, that, without any
prior notice, the requirement for which is
specifically waived, Employer may offset any
and all amounts that must be reimbursed to
Employer against any and all sums that may, at
that time, be due and owing from Employer to
Employee, including, but not limited to Base
Salary or Collections Sharing.
B Fringe Benefits. Employer shall provide Employee with those
benefit which are customarily provided by Employer to its
employees. For calculation of reimbursable mileage expenses,
Employer recognizes that Employee's office is agreed to be the
Blacksburg, VA facility.
5. Term and Termination.
A. Term. This Agreement shall commence on the date set forth
hereinabove and shall be and remain in effect for an
initial term of one (1) year. Thereafter this Agreement
shall automatically renew for successive one (1) year terms
upon the same terms and conditions hereof unless written
notice of intent not to renew is given by either party in
accordance with the provisions of this Agreement.
B. Voluntary Termination. Either party may terminate this
Agreement or any renewals thereof, by giving at least
thirty (30) days prior written notice to the other party,
which notice shall specify the effective date for such
termination.
C. Termination for Cause. Either party shall have the right
to terminate this Agreement for cause by giving at least
fifteen (15) days prior written notice to the other party,
unless otherwise provided for herein, which notice shall
state the cause and specify the effective date of such
termination.
1. Employer. For Employer, "cause" shall include
without limitation (i) a material breach by Employee
of any of her obligations hereunder or (ii) other
good cause determined after a good faith
investigation relating solely to patient care or
Employee's ability to render, the existence of which
shall be a matter for the final judgment of Employer.
9
<PAGE>
a. Immediate Termination by Employer. Employer
may terminate this Agreement for cause, such
termination to be effective immediately upon
provision of notice thereof to Employee, if:
(1) Employee's license to practice
psychology in the Commonwealth of
Virginia is revoked, suspended,
terminated or restricted; or,
(2) if Employee's credentials at the Clinic
are revoked, suspended, terminated or
restricted.
(3) in good faith Employer determines that
Employee has been involved in improper
business activities, which affect the
operation, maintenance, revenues and/or
profitability of the Clinic, including,
but not limited to:
(a) Gross misconduct with respect to
clinical and/or administrative
responsibilities;
(b) Fraud
(c) A failure to perform her duties in
all respects not remedied within 30
days of the receipt of written
notice from the Employer.
(4) Death of the Employee
(5) Permanent Disability of the Employee
(a) The Employee shall be deemed to be
"permanently disabled" when by
reason of a physical or mental
illness, infirmity, condition,
disability or incapacity she shall
have failed to perform, or is unable
to perform, her customary duties and
activities, on behalf of the
Employer, for a period of three (3)
consecutive months, or for any six
(6) months within a twelve (12)
month period.
Any failure to immediately terminate Employee under
the terms of this provision of the Agreement shall
not be considered to be a waiver of any of Employer's
rights to immediately terminate Employee, as provided
for in this Agreement.
10
<PAGE>
2. Employee. For Employee "cause" Shall include without
limitation a material breach by Employer of any of its
obligations hereunder. However, as Employer's obligations
to Employee are economic in nature, Employee shall provide
Employer written notice of any claimed material breach of
Employer's obligations to Employee, and Employee shall
provide Employer an opportunity to cure said claimed
material breach within fifteen (15) days of Employer's
receipt of the notice. Should Employer be unable, or
unwilling, to cure said claimed material breach within the
cure period provided, then Employee may terminate this
Agreement for Cause upon fifteen (15) day written notice to
the Employer.
6 Non-Compete. During the term of this Agreement and for a period of
three (3) years after the termination of this Agreement Employee shall
not, for herself or as a representative, agent, partner, stockholder,
independent contractor, joint venture or otherwise:
A. Engage, directly or indirectly, in the same or similar business
as Employer or any of its affiliated companies, which relates to
providing professional behavioral health services through
employees who are duly licensed to practice in the Commonwealth
of Virginia within a fifty (50) mile radius of any of the offices
of Employer or the Clinic, or any other facility acquired or
started by Employer or an affiliate, or known by Employee to be
contemplated by Employer, during the term of this Agreement or
any renewals thereof;
1. It is specifically acknowledged and agreed that subsequent
to the termination of this Agreement Employee may establish
and operate a local practice as a licensed professional
counselor, individually, or in conjunction or association
with no more than two (2) additional mental health
professionals, without violation of the Non-Compete
provisions of this Agreement.
B. Solicit, directly or indirectly, any patients receiving treatment
from employees of Employer during the term of this Agreement who
are considered to be active patients of Employer at the time, for
services similar to or of the same nature as those provided by
Employer, or any facility acquired or started by Employer, or an
affiliate, during the term of this Agreement;
C. Solicit or induce any employee of Employer, Clinic or affiliate
to terminate his or her position with the Employer, Clinic or
affiliate; or
D. Request, counsel or otherwise advise any patient of Employer
and/or the Clinic to curtail, cancel or withdraw from treatment
with the Employer and/or the Clinic, or any facility acquired or
started by Employer, or an affiliate.
E. Solicit, directly or indirectly, correspond with, or contact, any
referral source, individual, or entity with which Employer
currently does business, or with which the Employee knows, or can
be reasonably expected to know, that the Employer is
contemplating doing business with.
For purposes of this Agreement, "patients" shall be defined as
individuals for whom Employer and/or the Clinic, or any facility acquired or
started by Employer, or any affiliates presently existing or which may exist
upon the termination of this Agreement provided professional services in the
ordinary course of its business. In addition, the term "affiliate" shall be
defined as any entity possessing a controlling interest in Employer, any
entity owned by Employer or any other entities in which Employer's parent
corporation may have a controlling interest.
11
<PAGE>
7 Miscellaneous Provisions.
A. Notices. Any notice 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,
and/or overnight delivery, as follows:
If to Employer, to: Bruce Shear
President
Pioneer Counseling of Virginia, Inc.
200 Lake Street, Suite 102
Peabody, MA 0 1960
With a copy to: Philip Cwagenberg, Esq.
Ishbia & Gagleard, P.C.
251 Merrill, Second Floor
Birmingham, MI 48009
If to Employee: Dianne Jones-Freeman
2807 South Main Street
Blacksburg, VA 24060
With a copy to: Bruce Stockburger, Esq.
Gentry Locke Rakes & Moore
10 Franklin Road, SE, Suite
800 P.O. Box 40013
Roanoke, VA 24038-0013
or such other person or address as either party may designate by notice duly
given.
B. Compliance with Applicable Law. It is the parties intention to
comply in all respects with provisions of applicable laws, rules
and regulations governing the health services industry.
Accordingly, Employee agrees that she shall not, and she shall
not permit any and all health care providers supervised by her to
refer patients of Employee to Employer for the furnishing of
Designated Health Services, except as may be permitted by
applicable exemptions or safe harbors or as otherwise permitted
under Stark. In such cases of prohibited referrals, Employee and
Employer shall cooperate to cause any prescription for a
Designated Health Service to bear a legend stating such
prescription shall not be filled by Employer and Employee shall,
and shall cause any and all health care providers supervised by
her to, instruct the patient not to have such prescription filled
by Employer or any wholly owned subsidiary of Employer.
12
<PAGE>
C. Indemnification.
1. Employer shall indemnify and hold harmless Employee to the
maximum extent permitted by Virginia law during and after
termination of Employees employment hereunder against all
judgments, settlement payments, costs, and expense
(including reasonable attorney's fees) and other reasonable
expenses incurred by Employee in connection with the defense
of any action, suit or proceeding arising from events during
or subsequent to the term of Employee's employment to which
Employee has been made a party because of the performance of
Employee's duties under this Agreement.
2. Employee shall indemnify and hold harmless Employer to the
maximum extent permitted by Virginia law during and after
termination of Employee's employment hereunder against all
judgments, settlement payments, costs and expenses
(including reasonable attorney fees) and other reasonable
expenses incurred by Employer in connection with the defense
of any action, suit or proceeding arising from events prior
to the term of Employee's employment to which Employer has
been made a party because of the performance of Employer's
duties under this Agreement, or because of Employer's
relationship with, or status with Employee.
The foregoing notwithstanding, nothing contained in this
Subsections C(l) and (2) shall impair any party's rights to
indemnification under any collateral or pre-existing
agreement among them.
D. Assignment. Assignment by either party of any rights or
obligations under this Agreement is expressly prohibited without
the prior written consent, not to be unreasonably withheld, of
the party whose rights and obligations are to be assigned, except
that Employer may assign its rights and responsibilities under
this Agreement to it's corporate parent, or any affiliated
entity, owned or operated by it's corporate parent, or which the
parent has a controlling interest.
E. 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.
F. 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.
G. Confidentiality. It is the intention of Employer and Employee
that the confidential information of Employer, as hereinafter
defined, shall remain the sole and exclusive property of
Employer. Employee agrees that during the term of this Agreement
and upon the termination of this Agreement for any reason, she
shall keep in strict confidence all such confidential
information. Employee agrees that she shall not, directly or
indirectly, use, publish, communicate, divulge or disclose to any
person of business entity any confidential information or assist
any third parties in doing so, without the prior written consent
of Employer.
13
<PAGE>
For purposes of this Agreement, "confidential information" shall
be defined as the Employer's proprietary information or
information which, from the circumstances, in good faith and
conscience, should be treated as confidential, which includes,
but is not limited to, information regarding Employer's trade
secrets, prices, costs, charges, patient lists, or other
information regarding the Employer's business affairs which
Employee may acquire in connection with, incident to, or as a
result of the performance of her duties under this Agreement.
Confidential information shall not include information which (i)
becomes generally available to the public other than as a result
of disclosure by Employee; and/or, (ii) was legally available to
Employee on a non-confidential basis prior to its disclosure by
Employer; and/or, (iii) becomes legally available to Employee on
a non-confidential basis from a source other than Employer,
provided that such source is not bound by a confidentiality or
similar agreement.
In the event that Employee shall become legally compelled to
disclose all or part of the confidential information of Employer,
Employee agrees to promptly notify Employer, in writing, of such
situation so that Employer may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of
this Agreement. In such instance, Employee agrees that she shall
only reveal that portion of the confidential information which
she is legally required to reveal and obtain reasonable assurance
that the confidential information will be treated by the
recipient thereof as confidential.
Employee agrees, upon demand by Employer, to promptly return all
confidential information which has been furnished to her and an
copies thereof. Employee further agrees that she shall, upon
request from Employer, destroy all material, notes and other work
product related in any way to the confidential information.
H. Amendment. This Agreement, along with the Asset Purchase
Agreement of ________ 1997, its exhibits and documents
incorporated therein by reference represent 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, executed with the same formalities as
this Agreement.
I. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
J. 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
K. 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.
14
<PAGE>
L. Post-Employment Responsibilities. Upon Employee's termination of
employment with Employer, and notwithstanding anything contained
in this Agreement to the contrary, the parties agree as follows
relative to the post-employment responsibilities of the parties.
1. Upon termination of this Agreement for any reason, Employee
shall promptly surrender to Employer all assets, belonging to
Employer, together with All goods, monies, receipts, keys,
documents, credit cards and other written documents owned by
or pertaining to Employer, presently existing or which may
exist upon the termination of this Agreement.
2. Employee Shall be entitled to remove all of her personal
belongings, effects and property which may be located at the
offices of Employer or at the Clinic or which are in the
possession of Employer and/or the Clinic, presently existing
or which may exist upon the termination of this Agreement.
3. Consistent with Paragraph l(M), infra. in the event that the
professional liability insurance maintained by Employee
during the term of employment was a "claims made" policy,
Employee shall continue such policy in effect, or obtain
comparable "tail coverage" to complement/supplement the
claims made policy, to be maintained for a period of three
(3) years following the termination of this Agreement,
regardless of the stances giving rise to such termination.
Employee agrees to have Employer endorsed as an additional
insured under the terms of said insurance policy, and to
provide to Employer proof of the existence of the coverage
upon the request of Employer.
[signatures on following page]
15
<PAGE>
IN WITNESS WHEREOF, the parties hereunto set their hands to this
Agreement as of the day and year first written above.
"Employer"
Pioneer Counseling of Virginia, Inc.,
_________________________________ a Massachusetts corporation
By: ____________________________
Bruce A. Shear
__________________________________ Its: President
"Employee"
____________________________
__________________________________ Dianne Jones- Freeman
__________________________________
F:\DATA\PIONEZR\CASV\EMPL.OY4.AGT
16
<PAGE>
<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 10KSB and is qualified in its entirety by
reference to such report on Form 10-KSB.
</LEGEND>
<CIK> 0000915127
<NAME> PHC, Inc
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 905,692
<SECURITIES> 0
<RECEIVABLES> 17,220,683
<ALLOWANCES> 2,982,138
<INVENTORY> 0
<CURRENT-ASSETS> 12,786,954
<PP&E> 10,353,569
<DEPRECIATION> 1,945,358
<TOTAL-ASSETS> 27,860,809
<CURRENT-LIABILITIES> 8,023,994
<BONDS> 0
0
5
<COMMON> 38,080
<OTHER-SE> 5,686,496
<TOTAL-LIABILITY-AND-EQUITY> 27,860,809
<SALES> 0
<TOTAL-REVENUES> 27,234,372
<CGS> 0
<TOTAL-COSTS> 28,500,890
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